Annual Report • Apr 11, 2018
Annual Report
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Registered Office: Lugar do Espido, Via Norte, Maia Registered at the Commercial Registry of Maia Registry and Tax Identification Number 506 035 034 Share Capital: EUR 253,319,797.26 Publicly Traded Company
2017
5 April 2018
Appendix required by Article 447 of Portuguese Company Law
Qualified Shareholdings
Statement issued according to and for the purposes of paragraph c) of Article 245 of CMVM Code
Information required by Article 14 of CMVM Regulation 5/2008
Statutory External Auditor Report on separate and consolidated information
Statutory Audit Board Report
Sonae Indústria, SGPS, SA
Publicly Listed Company Share Capital € 253 319 797.26 Maia Commercial Registry and Tax Number 506 035 034
5 April 2018
| KEY INDICATORS 3 | ||
|---|---|---|
| CHAIRMAN'S MESSAGE 4 | ||
| 1. | ABOUT SONAE INDÚSTRIA 5 | |
| 1.1. | BUSINESS 5 | |
| 1.2. | HISTORY 8 | |
| 1.3. | PRODUCTS 8 | |
| 1.4. | STRATEGY 11 | |
| 1.5. | IMPROVING OUR WORK (IOW) INITIATIVE 12 | |
| 1.6. | 2017 KEY CORPORATE EVENTS 14 | |
| 2. | SECTOR REVIEW 15 | |
| 3. | BUSINESS REVIEW 18 | |
| 3.1. | TURNOVER & RECURRENT EBITDA 18 | |
| 3.2. | CONSOLIDATED FINANCIAL PERFORMANCE 19 | |
| 3.2.1 CONSOLIDATED INCOME STATEMENT 19 | ||
| 3.2.2 CAPEX 20 | ||
| 3.2.3 CONSOLIDATED STATEMENT OF FINANCIAL POSITION 21 | ||
| 3.3. | INDIVIDUAL RESULTS OF SONAE INDÚSTRIA, SGPS, S.A. 22 | |
| 3.4. | PROPOSED ALLOCATION OF RESULTS 22 | |
| 3.5. | PROPORTIONAL INDICATORS (UNAUDITED PRO FORMA) 22 | |
| 3.6. | OUTLOOK FOR 2018 24 | |
| 3.7. | INFORMATION ON SHAREHOLDINGS AND SHARE PERFORMANCE 24 | |
| 3.8. | TRANSACTIONS WITH OWN SHARES 26 | |
| 3.9. | DIVIDEND POLICY 26 | |
| 3.10. | SUBSEQUENT EVENTS 26 | |
| 4. | RISK MANAGEMENT 27 | |
| 4.1. | CREDIT RISK MANAGEMENT POLICY 27 | |
| 4.2. | MARKET RISKS 27 | |
| 4.3. | LEGAL RISKS 29 | |
| 4.4. | OPERATIONAL RISKS 29 | |
| 5. | CORPORATE RESPONSIBILITY (UNAUDITED) 30 | |
| 5.1. | SOCIAL REPORT 30 | |
| 5.2. | ENVIRONMENTAL REPORT 36 | |
| 6. | CLOSING REMARKS AND ACKNOWLEDGEMENTS 40 | |
| APPENDICES TO THE MANAGEMENT REPORT AND QUALIFIED SHAREHOLDINGS 41 | ||
| APPENDIX REGARDING ARTICLE 447 OF THE COMPANIES LAW 41 | ||
| QUALIFIED SHAREHOLDINGS 42 | ||
| STATEMENT ISSUED UNDER THE TERMS AND FOR THE PURPOSE OF SUB-PARAGRAPH C) OF NR. 1 OF | ||
| ARTICLE 245 OF THE PORTUGUESE SECURITIES CODE 43 | ||
| GLOSSARY 44 |
Turnover by Market - 2017
Turnover
Million euros
Recurrent EBITDA and
% Turnover
Million euros
Working Capital
Million euros
Million euros
This has been another year of positive performance from our main businesses but sadly, also one in which we experienced two significant events that left sorrow in our hearts and minds; the passing away of Belmiro de Azevedo, my father and the leader and founder of Sonae Indústria; and the unfortunate tragedy in our two plants in Portugal due to the forest fires.
During 2017, Sonae Indústria consolidated and embraced its new dual corporate purpose: management of the strategic partnership at Sonae Arauco and management of its fully owned businesses, North America and Laminates & Components.
Benefiting from an overall stronger economic background and resulting improved demand conditions, results were positive in both our main businesses and enabled Sonae Indústria to deliver a positive Net Result for the second consecutive year, improving on its 2016 consolidated performance. Considering our 50% share of Sonae Arauco's results, Proportional Recurrent EBITDA reached circa 89 million Euros with a 14.0% margin. Proportional Net Debt stood at 301 million Euros, with a proportional leverage ratio of 3.4x.
I would also like to highlight the improvement in Sonae Indústria's capital structure, during 2017, supported by both a reduction of Net Debt and a reinforcement of Shareholders' Funds driven by the improved net results.
Our North American business delivered another solid performance in 2017, despite lower production volumes and higher input costs particularly chemical costs. Our EIR VIVA collection, launched in the second half of 2016, has proved very successful in the market during 2017 and is another demonstration of our strong positioning in decorative solutions for our customers. We continued to invest in our plant in North America, in 2017, in order to guarantee its long term sustainability and will continue to pursue opportunities to grow our business in this region namely by further enhancing our product offering to meet our customers' requirements.
The performance of our Laminates and Components business was affected, during the second half of 2017, by lower sales volumes in our core Laminates business particularly from the Nordic region. Actions have been put in place since then to recover those volumes and improve the profitability of the Laminates business. As for the Components business, the new edging line was fully operational in 4Q17 and, as reported, will allow us to significantly improve our industrial competitiveness and customer offering.
At Sonae Arauco we delivered a sound set of results and made progress in improving the sustainability of our business, namely through the reinforcement of our customer focus and service quality, and on upgrading our industrial assets.
During 2017, Sonae Arauco strengthened its market positioning with a higher focus on product differentiation and customer value. Two new MFC finishes, Fusion and Stucco, were launched in our Innovus decorative product collection. We have also carried out the rebranding of Sonae Arauco combining all previous corporate brands into a single company identity to reflect its mission, vision, strategy and desired market positioning.
The execution of Sonae Arauco's multi-year industrial investment plan also progressed, in 2017, and will proceed in 2018. The plan is focused on providing better products to our customers, capturing market opportunities namely in the higher value added segments, and on improving the competitiveness of our industrial assets.
Now turning to the sad and unfortunate events of last year.
The year was marked by the passing away of Belmiro de Azevedo, Sonae Indústria's leader for 50 years. He had a unique entrepreneurial spirit and vision and leadership style that made him stand out in the wood based panels business, building on a strong management and human resource model, on innovation and on a strong set of deeply imbedded values. We will miss him dearly and will do our best to honour his legacy.
The forest fires in October 2017 severely affected our plants in Mangualde and Oliveira do Hospital and the personal lives of some of our employees. In this respect, and as a result of the strong commitment from our teams and of the support from our stakeholders, in April both sites will be operational again, with improved industrial assets and production processes. Once again I would like to thank our employees at Oliveira do Hospital and Mangualde for their courage and dedication to the company under the extreme circumstances experienced during the fires.
Lastly, I want to express my appreciation to our employees, management teams and Statutory Boards for their contribution over the past year towards making Sonae Indústria a more sustainable and profitable company for all its stakeholders.
Paulo Azevedo Chairman Sonae Indústria
On 31 May 2016, a strategic partnership between Sonae Indústria SGPS and Inversiones Arauco Internacional, Limitada (Arauco) was completed through "Sonae Arauco", a 50/50 joint-venture involving the European and South African wood based panels and related operations of Sonae Indústria, namely the production facilities of wood based panels, chemicals and paper impregnation. This partnership aimsto build a stronger company in the European and South African markets and reinforce Sonae Indústria long term growth commitment in the wood based panels industry.
2017 was the first complete year of the strategic partnership Sonae Arauco.
In addition to the 50% shareholding in Sonae Arauco, Sonae Indústria holds full ownership of the wood based panels business in North America and of the Laminates & Components business, together with some real estate assets in Europe.
Sonae Indústria currently operates a total of 17 plants located in five countries on three continents, of which four plants1 are fully owned businesses and the remaining 13 are part of the Sonae Arauco partnership, totalling 3,264 employees at the end of 2017. Considering only the fully owned businesses (i.e. without Sonae Arauco contribution) turnover reached 231 million euros in 2017.
Wood-based panels are valuable alternatives to solid wood with some clear advantages, namely in terms of efficiency in the use of raw materials. Another particular advantage is their dimensional flexibility, which (in
1 Including Horn laminates plant and real estate whose economic interest belongs to Sonae Indústria (according to the agreement between Sonae Indústria and Arauco) despite the fact that this asset is held by GHP GmbH, currently a subsidiary of Sonae Arauco.
contrast to solid wood) allows for the production of tailor-made sizes, which can be adapted to the clients requirements. Hence, today wood-based panels are replacing solid wood in an increasing number of applications.
Compared to other construction materials such as steel and concrete, wood has significantly lower adverse environmental impacts when used as a building material. Wood-based panels thus have a positive effect on global warming through improved energy efficiency, which enables homeowners to significantly reduce energy spent. Additionally, when used for construction purposes, wood-based panels function as carbon stores, thereby helping to mitigate CO2 emissions. At the end of their useful life, wood-based panels can be recycled and transformed into new products, in this way re-entering a continuous recycling process. The demand for wood and wood-based panels in the construction industry is therefore expected to steadily increase over time.
In times where extreme climate events like floods and droughts signal that climate change is much more than a theoretical scientific discussion, societies in general – and businesses in particular – are increasingly looking for ways on how to fight these new climate scenarios and realities.
Wood-based products have an important role to play in this reality. Sonae Indústria believes using more wood is a strong contribution to fight climate change, as it reduces CO2 sources and assures CO2 sinks and the storage of carbon. The reduction of CO2 sources results from the fact that wood is a material that stores energy and that it can replace other materials, in several applications, that require more energy – and emissions – in their production. Wood use can also increase CO2 sinks and storage of carbon, as the forest itself is a unique player in carbon sequestration from the atmosphere: as forests grow, they absorb more CO2 while forest products keep the carbon stored during their service life. Using wood products encourages further forest growth, and an effective market for wood products provides a financial incentive to invest in active forest management. Additionally, when wood products are reused or recycled, carbon storage is extended during another service life, avoiding CO2 emissions into the atmosphere.
Sonae Indústria won the Euronext Lisbon Award in the category "Listed Company – Best Performance". The Euronext Lisbon Awards distinguishes issuers, financial intermediaries, other institutions and individuals that played an important role in the portuguese capital market.
This award was received in February 2018 in relation to the share price performance during 2017. For a detailed description of the share performance please refer to the Information on Shareholdings and Share Performance.
SONAE ARAUCO and BASF received the AVK INNOVATION AWARD in Germany, in the "Innovative products/composites or applications" category, with a product both companies developed together: 3D mouldable wood fibre composites.
The award-winning product is a distinctive product which will give the furniture industry a stable composite that can be hot-formed.
The companies worked together to develop 3D mouldable wood fibre composites, which will allow new design options to be created. The 3D
mouldable wood fibre composites are an innovative, wood-based product, which has the interesting characteristic of being post-mouldable. It originated in BASF's new acForm binder technology.
SONAE ARAUCO received the 2017 INNOVATION IN CONSTRUCTION AWARD in Portugal, with the Innovus Stucco and Fusion finishes elected the best in the Materials and Products category.
This award is a recognition of the continuous development of new products, combining innovation with functionality, quality and the design of the actual product, always with the aim of offering a wider range of solutions to the different segments.
The Innovation in Construction awards began in 2014 with the aim of publicising best practices and commitment from companies in the development of new materials, equipment and products.
The DecoChrom Project is a 48 month project that has been initiated in January 2018. This project elevates printed graphics products to the age of interactivity, and empowers the creative industries with the tools and
innovative advanced material sets to design and build aesthetically pleasing practical human interfaces to smart consumer goods and environments. The DecoChrom consortium, of which Sonae - Indústria de Revestimentos, S.A. is a member, develops
printed electrochromics (EC) as the mass producible, print industry compatible, ultralow power interactive graphics solution for ambient intelligence. This project brings together a strong interdisciplinary consortium of 15 industry and research balanced partners, with state-of-the-art backgrounds in design, chemistry, printing, coatings and laminates, electronics system integration, and complete electrochromic solutions. This project was funded by the European Union's Horizon 2020 research and innovation programme.
More information at www.decochrom.com
The FlexComp Project started in November 2017 as a 24 month project and arises from an identified need in the transport and furnishing markets to replace metal- and polymer-based
materials with others having more favourable weight, resilience and sustainability related characteristics. The use of composite materials is an attractive alternative as they promote not only the reduction of fuel consumption, but also of pollutant gas emissions, with the added benefit of higher recyclability. Accordingly, Sonae - Indústria de Revestimentos, S.A. plans to meet the identified needs by providing a postformable compact to the automotive, railway and aerospace industries with minor changes to its manufacturing process. Moreover, FlexComp aims at developing postformable compact products with the ability of adopting more complex geometries with the application of temperature and pressure in moulding processes. This project addresses the societal challenge "Intelligent, Ecological and Integrated Transport" proposed in the Europe 2020 Strategy in a two-pronged approach: weight reduction with direct impact in the reduction of pollutant gas emissions, and recyclability through the possibility of reutilizing the same material in a more sustainable way.
SONAE was founded in 1959 at the site of its present location in Maia. Its first activity was the production of high pressure decorative laminates.
SONAE's expansion and diversification began in 1971 when it took control of Novopan, a particleboard company, located in Rebordosa, near Oporto. At the same time, the first melamine surfacing production line was installed and the components production for the furniture and interior decoration industries also started.
Throughout the 1990s and until 2007, Sonae Indústria made acquisitions and invested significantly in Greenfield projects in Brazil, Canada, South Africa, Portugal, Spain, and the United Kingdom. It is also important to highlight the spin-off, in 2005, from Sonae SGPS, S.A., which had been the shareholder until then.
Between 2008 and 2015, following the global economic and financial crisis, Sonae Indústria went through a restructuring process which led to a significant reduction in installed capacity through assets sales and plant closures, which culminated in the current perimeter, with industrial operations in Portugal, Spain, Germany, Canada and South Africa.
In May 2016, a strategic partnership between Sonae Indústria SGPS and Inversiones Arauco Internacional, Limitada (Arauco) was completed through a 50/50 joint-venture, "Sonae Arauco", involving the European and South African wood based panels, chemicals and paper impregnation activities of Sonae Indústria.
2017 was the first complete year of the strategic partnership with Arauco in Sonae Arauco.
Also in 2017, Tafisa Canada celebrated its 25th anniversary. 25 years of success, that turned Tafisa Canada into a world leader in fashion-forward interiors and operational excellence thanks to its devoted employees, business partners and prime clients in North America. To highlight the 25th anniversary, Tafisa Canada organized a tour visit of the industrial unit in Lac-Mégantic for its employees and their relatives. This initiative was well received and the employees were proud to show their families their day-to-day work place.
Sonae Indústria "raw and technical products" are comprised of:
More than 50% of the "raw board" production is then transformed into value added products such as melamine faced board, accoustic panels and others. These are used in a great variety of applications, such as home and office furniture, kitchen and bath cabinets shelving, doors, wall paneling, packaging and interior decoration.
A STRONGER RANGE OF DECORATIVE PRODUCTS IN NORTH AMERICA: VIVATM THE TRUE TOUCH OF
WOODTM
In 2016, following the investment in a new melamine surfacing line with Embossed in-register (EIR) capabilities, Tafisa Canada created two series of melamine faced products: the PreludeTM series and the SommetTM series which included the new VivaTM texture Embossed In-register with 10 innovative designs.
In 2017, Tafisa Canada introduced five new colours in the Isola texture from its PreludeTM Series. With the look and feel of a painted or lacquered finish, Tafisa stayed abreast of the market's needs. In addition to the introduction of two new VIVATM colours, Tafisa Canada also strengthened its market position as a design leader with its VIVATM collection, now with 12 exquisite colours.
The collection launch in autumn 2017 was extremely well received by our customers and surpassed every previous collection launch. This is only the beginning of innovative Embossed in-register (EIR) products to be brought to the market.
More information at www.tafisa.ca.
INNOVUS® Decorative Products is the European brand for decorative products available in the same decors and finishes as decorative surfaced boards (Particleboard and MDF) and laminates and compacts. INNOVUS® Global Collection, with over 220 decorative choices, offers unlimited solutions and inspiration for all creative and productive needs.
The INNOVUS® collection also includes a comprehensive range of special products, such as:
INNOVUS® Coloured MDF, a product that combines the strength and technical properties of the Medium Density Fibreboard with the visual appeal of a versatile range of colours. INNOVUS® Coloured MDF can also be combined with the trendy INNOVUS® melamine decors, which results in a unique and truly distinctive decorative solution.
INNOVUS® ESSENCE, a product range using double-sided embossed in register (EIR®) technology to obtain decorative panels with the look and feel of real wood in a melamine surfaced panel. INNOVUS® ESSENCE, with its two structures – Rustic and Authentic – and nine wood shades was developed with a variety of applications in mind such as doors, living room furniture and wall panelling, in applications that really value the natural effect of wood.
INNOVUS® MAGNETIC, a range of laminates that can be used for sticking magnets or to write on with markers or chalk. This functional and decorative solution is ideal for partitions and wall coverings for shops, offices, schools and nurseries and even at home.
During 2017, Sonae Arauco launched two new Innovus finishes: Stucco and Fusion. With these new finishes Innovus will diversify its product range and reflect the most recent market trends. The products with Stucco and Fusion finishes are designed to be used in a wide range of spaces, such as bedrooms, living rooms, kitchens, bathrooms, restaurants or hotels, as well as in finishes or doors.
The Stucco finish is inspired by industrial environments, urban lofts and materials of a natural origin. It feels like cement with a touch of ceramics on a structured surface, which is comfortable and tactile and has a balanced level of gloss. The Stucco finish can be used to recreate environments reminiscent of rocky landscapes. This finish is available in five new decors and it is environmentally sustainable because it recreates cement without actually using it. Stucco is also available in another four Innovus range decors.
In turn, the Fusion finish has a warm, natural texture, reminiscent of hand carved wood. This finish was developed to be used on all kinds of materials, making it possible to design warm, cosy atmospheres. In addition to seven new decors, Fusion is also available in ten other decors already well-known in the market.
More information at www.sonaearauco.com.
By the time the joint-venture was completed, a new company was born and the creation of a new brand and corporate image was set as a goal in 2017. The challenge was to create a new brand that would bring together the strengths and the uniqueness of each shareholder while maintaining a strong industrial soul.
Hence, Sonae Indústria and Arauco joined forces to create a stronger history to tell the world. Sonae Arauco was born to be a strong wood-based brand. A single name to represent the commercial and corporate identity for the future that lies ahead, unifying and uniting. Sonae Arauco was born with the ambition to be the company of choice of its employees, partners and clients and to create innovative wood-based products to improve people's lives.
Sonae Arauco brand was created to communicate a new distinctive company identity. The company logo was built with unique letters designed in each name, exemplifying the adaptability, flexibility and capacity to evolve as an important part of the company's DNA.
The tagline "taking wood further", besides illustrating Sonae Arauco's passion for wood, is also a powerful communication tool which transcends itself. Together, we take anything further.
More information at www.sonaearauco.com.
The way in which Sonae Indústria views itself as a company, acts and interacts with others and with the surroundings represents a corporate culture that promotes continuous improvement – always challenging ourselves to perform better – and is sustained by the company's Mission, Vision and Values.
To be recognised as a sustainable world leader in the wood-based panels industry, consistently providing our customers with the best value products, upholding the highest standards of service and promoting responsible business and environmental practices.
Our aim is to deliver the full potential of wood-based panels for the benefit of our customers, shareholders, employees, and society.
We base our operations on sound corporate governance, continuously improving the efficiency of our operations, actively promoting innovation and providing a motivated, safe and fair working environment.
Sonae Indústria's values represent the foundation stone on which we build our business and they serve to guide our behaviour. Our value system is focused on four main principles: Ambitious, Innovative, Authentic and Responsible, which can then be sub-divided in the values and capabilities illustrated in the picture below.
The IoW (Improving our Work) initiative is a pillar of Sonae's culture and way of working. It is a powerful philosophy and methodology in search of productivity and quality, everyday, everywhere, by everyone, creating sustainable value for Sonae's stakeholders.
Based on the improvement cycle, the IoW model is structured around 4 pillars:
The IoW model aims to develop change capability in the organization, by fostering changes in behaviours and improvements in business processes, ensuring operational excellence in order to improve our overall performance.
Sonae Indústria embraced the IoW programme in an enthusiastic way, as the company believes this is the way to "Improve our Company".
Four years after the implementation of its Continuous Improvement System (IoW Program), Sonae Indústria continues its journey with IoW.
The "Daily IoW" pillar is still our main focus, enabling all the teams to potentiate the use of IoW tools according to their specific needs and with focus on extracting value and delivering results. Internal and external customers satisfaction is the main driver. Natural teams are implementing Daily IoW routines, such as standardised meetings, 5S tools, and working on standardization of processes and continuous improvement of teams.
During 2017, we have also organized and started the IoW-Project implementation, to better manage the longer term and more disruptive initiatives.
At Sonae Arauco, we have also reinforced the involvement of our Top-Management with the IoW-Leaders training programme, and extended IoW-Support activities such as training, coaching and assessment. We clearly believe that the effort placed in the training of our employees, ensuring a common language and increasing their skills is a key success factor.
2017 was a year to consolidate what was already implemented and to improve the implementation process based on the lessons learned during the past years. As a next step we want to ensure that the improvements achieved are sustained, shared and considered as part of our way to work.
| 21 March 2017 | FY16 consolidated results announced |
|---|---|
| 9 May 2017 | Announcement on resolutions taken by the Shareholder's Annual General Meeting |
| 9 May 2017 | 1Q17 consolidated results announced |
| 22 May 2017 | Announcement of commercial registry of share capital reduction |
| 13 July 2017 | Announcement of reverse stock split |
| 28 July 2017 | Announcement of commercial registry of articles of association amendment |
| 7 September 2017 | 1H17 consolidated results announced |
| 12 October 2017 | Announcement of the sale of shareholding by a 50% owned company |
| 16 October 2017 | Announcement of fires that impact industrial units of a 50% owned company |
| 27 October 2017 | Update on wildfires impact on Sonae Arauco industrial units |
| 16 November 2017 | 9M17 consolidated results announced |
The economic recovery in the European Union continued with an expected positive growth rate of 2.3%2 , in 2017, with private consumption as the main growth driver. The improved performance of the labour market combined with an accommodative monetary policy targeting easier credit conditions (short-term interest rates for the euro area continue to be negative) contributed to the growth of private consumption. The levels of investment also increased, supported by the accommodative monetary policy and higher levels of business confidence. From a trade perspective, Euro area presented again a surplus in the current account balance.
As regards the US economy, 2017 was another year of economic expansion. The increased levels of business and consumer confidence and the positive performance of the labour market (low unemployment rates and sustained and relevant job creation) contributed to higher levels of investment and private consumption which were important growth drivers.
Brief analysis by region:
2017 represented the fourth year of growth in the Iberian Peninsula with positive GDP3 growth rates, circa 3.1% growth is expected in Spain and 2.6% in Portugal. Despite the still high unemployment rates in both countries, these have been continuously decreasing and the labour market continues to improve. From a trade perspective, Portugal and Spain registered a surplus in the current account balance, in line with the last five years. Notwithstanding the higher
inflation rates, the private consumption expenditure followed the more optimistic prospects and continued to grow, sustaining the economic expansion in this region. The residential construction sector, which is fairly correlated with the economic environment, kept the positive trend of 2016, as indicated by the building permits y.o.y. increases in both countries (20%4 in Portugal and a more substantial growth in Spain, increasing by circa 26%5 ).
Germany is expected to grow by 2.5%, in 2017, (up by circa 0.7 p.p. vs. 2016), supported by higher consumption and investment levels and the persistent surplus in the current account balance. The improved performance of labour market and easier credit conditions contributed to higher private consumption and investment levels. However, the euro appreciation and wages increase may affect competitiveness. The positive macroeconomic environment has been playing a crucial part in the residential construction sector steady recovery, which evidenced an exceptional y.o.y. increase in the number of building permits in 2016 (up by circa 21%6 ) that was slightly reversed by the y.o.y decrease of 5%7 in 2017.
December 2016). 7 Source: German Federal Statistics Office, March 2018 ("Permits for new construction, dwelling", cumulative 12 months evolution until December 2017).
2 Source: International Monetary Fund, World Economic Outlook Database, January 2018
3 GDP: Gross Domestic Product.
4 Source: Instituto Nacional de Estatística, March 2018 ("Nova habitação residencial", cumulative 12 months evolution until December 2017).
5 Source: Ministerio de Fomento, February 2018 (Total "New Housing", cumulative 12 months evolution until December 2017). 6 Source: German Federal Statistics Office, March 2018 ("Permits for new construction, dwelling", cumulative 12 months evolution until
The combination of all these factors led to a weak growth in a context of macroeconomic uncertainties, resulting in positive backdrop for the residential construction sector, as evidenced by the slight y.o.y. increase of circa 2%11 in the number of residential building permits.
Despite good overall economic conditions in Canada and in the US, the consumption of particleboard in North America did not increase in 2017. Estimates published by the Composite Panel Association (CPA) indicate that total North America particleboard shipments were flat, in 2017, when compared to 2016.
Main investments by key industry players in North America announced since 2015:
• Egger: investments in South Carolina of EUR 260 million related with the first phase of a long term investment plan. The first phase includes particleboard and melamine faced particleboard and production should start in 2020.
11 Source: Statistics South Africa, March 2018 ("Building plans for residential buildings (number)", cumulative 12 months evolution until December 2017).
8 Source: Canada Mortgage and Housing Corporation, March 2018 ("Building permits (units)", cumulative 12 months evolution until December 2017).
9 Source: United States Census Bureau, January 2018 ("Housing units started", cumulative 12 months evolution until December 2017).
10 Source: OECD Statistics, Economic Outlook No 102 dataset- November 2017
In 2017, in the EPF12 member countries, particleboard apparent consumption is expected to grow by 1.2%13 , amounting to 29.513 million m³. Overall, particleboard is expected to grow steadily on the back of global construction and furniture uptake (with positive input from demographics and urbanization).
MDF consumption in Europe as a whole is expected to slightly increase by 1.2%13 in 2017, up to 11.213 million m3 . Germany remains as the largest European consumer of MDF panels, in 2017, with a consumption of approximately 3.413 million m3 , followed by Poland and the United Kingdom. No country is forecasted to experience a decline in MDF consumption during 2017.
In relation to OSB, further to several years of contraction and a marked improvement in 2016, consumption in Europe is expected to have increased sharply in 2017.
The overall European particleboard production capacity kept the positive trend registered since 2014, leading to an expected increase of 5.9%, in 2017. However, these production levels remain below the output peak of 37.8 million m3 registered in 2007.
MDF production capacity in Europe is expected to grow 0.9%, in 2017.
European OSB production capacity is forecasted to increase by 5.2% in 2017. Investments in OSB capacity are expected to continue in 2018, mostly in Eastern European countries.
Considering specifically the European markets where Sonae Indústria has an industrial presence through Sonae Arauco, particleboard capacity in the Iberian Peninsula is estimated to be circa 3.7 million m3 , in 2017, with an increase of circa 0.2 million m3 expected, in 2018. It is also worth mentioning the increasing market pressure due to exports from Poland, where Egger is investing in a new particleboard plant with an annual capacity of 0.65 million m3 (which should start production at the end of 2018) and Forte has invested in a new particleboard line with an annual capacity of circa 0.5 million m³ that started production in February 2018.
The market for Laminates has grown moderately during the last few years in Europe. ICDLI15 expects European HPL market to grow 2%, both in 2017 and 2018. Market structure in Europe is characterized by being fragmented, without dominant positions. In the next years, consolidation is expected along with a continuous focus from manufacturers on product differentiation and innovation to maintain market position.
15 International Committee of the Decorative Laminates Industry
12 European Panel Federation (EPF)
13 Source: EPF: European Panel Federation, Annual Report 2016/2017
14 Sources: Sonae Arauco internal estimates and competitors public information
The Consolidated Income Statement considers all the companies included in the consolidation perimeter of Sonae Arauco classified as Discontinued Operations until May 2016 and accounted by the Equity Method as of 1 June 2016.
*Quarterly information unaudited.
Consolidated Turnover reached circa 231.0 million euros in 2017, a reduction of circa 9.9 million euros (-4.1%) vs. 2016. The reduction in consolidated turnover was primarily driven by lower sales volumes in our North American business, which more than offset the increase in average selling prices in the Canadian market, but also by lower sales to the Nordic markets by our Laminates & Components business in the second half of the year.
Variable costs per cubic meter increased, when compared with the previous year, by circa 2.8%, mainly driven by the higher input costs of chemicals. In the fourth quarter, variable costs per cubic meter decreased when compared with 4Q16, noting that the latter was affected by high maintenance costs.
Recurrent EBITDA in 2017 reached 38.1 million euros, marginally below 2016 (circa -0.3 million euros or -0.7%), driven by a lower contribution from the North American business, affected by the higher chemical costs and lower sales volumes. However, the 2017 Recurrent EBITDA margin reached 16.5%, up by circa 0.6 p.p. vs. 2016.
Consolidated EBITDA in 2017 reached 39.3 million euros, circa 1.1 million euros higher than last year, benefiting from positive non recurrent items in 2017. Consolidated EBITDA, in 4Q17, stood at circa 8.7 million euros, an increase of circa 2.3 million euros vs. 4Q16, due to the already mentioned increase in Recurrent EBITDA combined with positive non recurrent items this year.
| Million euros | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2016 | 2017 | 2017 / | 4Q16 | 3Q17 | 4Q17 | 4Q17 / | 4Q17 / | |
| 2016 | Unaudited | Unaudited | Unaudited | 4Q16 | 3Q17 | |||
| Turnover | 240.9 | 231.0 | (4.1%) | 58.2 | 57.0 | 52.2 | (10.4%) | (8.4%) |
| Other operational income | 5.8 | 7.1 | 22.6% | 1.2 | 1.1 | 3.2 | - | - |
| EBITDA | 38.3 | 39.3 | 2.8% | 6.4 | 10.0 | 8.7 | 35.5% | (13.0%) |
| Non recurrent items | (0.1) | 1.2 | - | (0.1) | (0.1) | 1.4 | - | - |
| Recurrent EBITDA | 38.4 | 38.1 | (0.7%) | 6.5 | 10.1 | 7.3 | 11.3% | (27.8%) |
| Recurrent EBITDA Margin % | 15.9% | 16.5% | 0.6 pp | 11.2% | 17.7% | 14.0% | 2.7 pp | -3.7 pp |
| Depreciation and amortisation | (12.1) | (12.6) | (4.1%) | (3.2) | (3.1) | (3.3) | (3.0%) | (6.3%) |
| Provisions and impairment Losses | (3.6) | (3.8) | (6.0%) | (4.0) | 0.0 | (3.8) | 4.4% | - |
| Operational profit (EBIT) | 22.6 | 23.0 | 1.5% | (0.7) | 6.9 | 1.6 | - | (76.1%) |
| Net financial charges | (16.5) | (11.6) | 29.7% | (3.2) | (2.6) | (2.9) | 9.2% | (12.7%) |
| o.w. Net interest charges | (13.1) | (8.2) | 37.7% | (2.5) | (2.0) | (2.0) | 18.8% | (3.2%) |
| o.w. Net exchange differences | (0.1) | (0.7) | - | 0.1 | 0.2 | (0.1) | - | - |
| o.w. Net financial discounts | (1.8) | (1.7) | 2.0% | (0.5) | (0.4) | (0.4) | 8.6% | (0.2%) |
| Gains and losses in Joint-Ventures - Net Results | 5.5 | 12.8 | 132.5% | (0.7) | 4.4 | (0.8) | (13.4%) | - |
| Gains and losses in Joint-Ventures - Other | 0.0 | (2.5) | - | 0.0 | 0.0 | (2.5) | - | - |
| Profit before taxes (EBT) | 11.6 | 21.7 | 86.6% | (4.7) | 8.7 | (4.6) | 2.0% | - |
| Taxes | (8.6) | (6.5) | 24.6% | (1.7) | (1.9) | (1.1) | 38.1% | 42.2% |
| o.w. Current tax | (8.9) | (7.1) | 20.2% | (1.4) | (2.2) | (1.0) | 28.8% | 52.7% |
| o.w. Deferred tax | 0.3 | 0.7 | 88.7% | (0.3) | 0.3 | (0.1) | 80.7% | (121.0%) |
| Profit/(loss) from continued operations | 3.1 | 15.3 | - | (6.4) | 6.9 | (5.6) | (11.8%) | - |
| Profit/(loss) from discontinued operations | 7.9 | 0.0 | (100.0%) | 38.7 | 0.0 | 0.0 | (100.0%) | - |
| Consolidated net profit/(loss) for the period | 11.0 | 15.3 | 38.7% | 32.3 | 6.9 | (5.6) | (117.5%) | - |
Total fixed costs in 2017 represented circa 16.5% of turnover, a reduction of 0.4 p.p. when compared to 2016, despite the reduction in turnover, benefiting from one-off adjustments to accruals, which were negative in 4Q16 and positive in 1Q17.
Total headcount of Sonae Indústria, at the end of December 2017, was 486 FTE's excluding Sonae Arauco, which compares with 485 FTE's at the end of December 2016.
Depreciation and amortization charges in 2017 were circa 12.6 million euros, which represents an increase of 4.1% when compared to 2016, mainly explained by the higher depreciation charges in our North American operation, which in 2017 take into account for the full period the investment in the new melamine surfacing line completed in 2Q16.
Provisions and impairment losses in 2017 represent a charge of circa 3.8 million euros, 0.2 million higher than in 2016. Provisions and Impairment Losses of circa 3.8 million euros were booked in 4Q17, which include the recognition of circa 3.3 million euros (net) provisions mainly related to the legacy of claims under competition law in Germany.
Net financial charges in 2017 were 11.6 million euros, circa 4.9 million euros lower than 2016. This is essentially explained by a decrease of circa 5.0 million euros in Net Interest Charges resulting from the reduction of net debt and the cost of debt and also by the fact that 2016 figures included the recognition of previously deferred upfront financing costs of 1.9 million Euros.
Gains and losses in Joint-Ventures – Net Results refers to 50% of the net results of Sonae Arauco in the period (equity method accounting). This amounted to 12.8 million euros, in 2017, and compares with 5.5 million euros registered in 2016, which only considered the last seven months of that year (the period after the completion of Sonae Arauco partnership).
Gains and losses in Joint-Ventures – Other amounted to circa -2.5 million euros in 2017. It should be noted that, pursuant to the agreement with Arauco, some Sonae Arauco's expenses and contingent liabilities are the responsibility of Sonae Indústria and, accordingly, Sonae Indústria compensates Sonae Arauco for these expenses via cash contributions to Sonae Arauco for the full amounts paid or incurred. Since 50% of these expenses are already reflected in Sonae Indústria's income statement through the net results of Sonae Arauco, the remaining
50% are reflected through Gains and Losses in Joint-Ventures – Other. In 2016, there were no amounts booked under this item.
Current tax charges were 7.1 million euros in 2017, a decrease of circa 1.8 million euros when compared to 2016, mainly driven by lower tax charges in Canada.
Net results for 2017 were positive of circa 15.3 million euros, an improvement of circa 4.3 million euros when compared to the 11.0 million euros registered in 2016. It should be noted that 2016 results from discontinued operations included circa 2.1 million positive one off accounting effects related with the closing of the Sonae Arauco partnership as then reported. The improvement in net results, when compared to 2016, is explained mostly by the lower Net Financial Charges previously referred to and also to the lower taxes.
Additions to Gross Tangible Fixed Assets reached 11.3 million euros, in 2017, circa 3.1 million euros higher when compared to 2016, on a like for like basis considering the current scope of companies. The figure for 2017 includes the investments made in our North American plant and also the investment in the new edging and drilling high capacity production line for our Components plant in Portugal which will allow to improve its product and service offer, adapting it to market requirements and high quality standards.
As from June 2016, the Consolidated Statement of Financial Position represents the position of Sonae Indústria under the current perimeter with the 50% shareholding in Sonae Arauco equity accounted.
| CONSOLIDATED STATEMENT OF FINANCIAL POSITION Million euros |
|||
|---|---|---|---|
| 2016 | 9M17 | 2017 | |
| Unaudited | |||
| Non current assets | 352.8 | 352.4 | 360.2 |
| Tangible assets | 148.1 | 142.5 | 146.2 |
| Investments in joint ventures | 195.9 | 201.3 | 205.6 |
| Deferred tax asset | 1.4 | 1.4 | 1.5 |
| Other non current assets | 7.4 | 7.2 | 6.9 |
| Current assets | 44.7 | 45.7 | 40.9 |
| Inventories | 18.1 | 17.2 | 17.0 |
| Trade debtors | 15.2 | 19.0 | 13.6 |
| Cash and cash equivalents | 4.8 | 2.8 | 4.1 |
| Other current assets | 6.6 | 6.7 | 6.2 |
| Non-current assets classified as available for sale | 1.5 | 1.5 | 0.0 |
| Total assets | 399.0 | 399.7 | 401.0 |
| Shareholders' Funds | 110.3 | 125.9 | 126.1 |
| Equity Holders | 110.3 | 125.9 | 126.1 |
| Non-controlling interests | 0.0 | 0.0 | 0.0 |
| Liabilities | 288.7 | 273.8 | 274.9 |
| Interest bearing debt | 218.3 | 212.8 | 212.7 |
| Non current | 216.0 | 204.0 | 198.5 |
| Current | 2.3 | 8.7 | 14.2 |
| Trade creditors | 23.1 | 22.0 | 19.6 |
| Other liabilities | 47.3 | 39.0 | 42.5 |
| Total Shareholders'Funds and liabilities | 399.0 | 399.7 | 401.0 |
| Net debt | 213.5 | 209.9 | 208.7 |
| Working Capital | 10.3 | 14.2 | 11.0 |
Investments in Joint-Ventures (50% shareholding in Sonae Arauco) reached 205.6 million euros, which is circa 9.7 million euros higher than the book value of this investment at the end of 2016. The main increases, in 2017, are 12.8 million euros of our share of Sonae Arauco's results less circa 5.7 million euros of dividends paid plus 50% of the amount of cash contributions made by Sonae Indústria to Sonae Arauco (referred to under Gains and losses in Joint-Ventures – Other).
Consolidated Working Capital reached circa 11.0 million euros, a decrease of 3.2 million Euros when compared to September 2017, explained by the reduction in trade debtors and inventories, which more than offset the decrease in trade creditors.
Net Debt stood at circa 208.7 million euros at the end of December 2017, representing a decrease of circa 1.3 million euros vs. September 2017 and a decrease of circa 4.9 million euros when compared to the end of 2016.
Total Shareholders' Funds, at the end of December 2017, totalled 126.1 million euros, which represents an increase of circa 15.8 million euros when compared to 2016, mostly explained by the positive net results in the year.
In 2017, Sonae Indústria, SGPS, SA, as the holding company of the Group, generated on its individual accounts a positive Net Result of 36,149,789.54 euros.
An amount of 108,258.00 euros is already considered in the net result for the variable remuneration of the managing director that receives its remuneration directly in Sonae Indústria, SGPS, SA, as a distribution of profit, pursuant to number 2 of article 32 of the Articles of Association, as proposed by the Shareholders Remuneration Committee, which is responsible for the implementation of the remuneration policy as approved at the Shareholders General Meeting held on 9 May 2017.
That Net Result was mostly driven by results related with investments in subsidiaries and joint ventures of 46.8 million euros, which comprised mainly the reversal of impairment on the value of the investment in Sonae Arauco of circa 32.1 million euros, dividends from Megantic BV of circa +15.6 million euros and dividends from Sonae Arauco of circa +5.7 million euros net of circa -4.9 million euros of the cash contributions from Sonae Indústria to Sonae Arauco.
In accordance with applicable legal and statutory terms, the Board of Directors proposes to the Shareholders' General Meeting that the positive results of 36,149,789.54 euros in Sonae Indústria, SGPS, SA 2017 individual accounts are allocated as follows:
| Amounts in Euro | 2017 |
|---|---|
| Legal Reserves | 1,807,489.48 |
| Free Reserves | 34,342,300.06 |
Due to the fact that in the audited accounts, one of Sonae Indústria's main assets (its 50% shareholding in Sonae Arauco) is accounted by the equity method since 1 June 2016, in order to provide a more comprehensive view of Sonae Indústria's underlying business, financial results, financial leverage and valuation analyses, unaudited pro forma Proportional Indicators are also presented.
These Proportional Indicators consider the full contribution of our wholly owned businesses and the proportional consolidation of the 50% contribution from Sonae Arauco. Proportional Indicators are pro forma because they consider the changes in the consolidation perimeter that occurred in 2016 reported to 1 January 2015 and the proportional consolidation of Sonae Arauco companies since then and not since 31 May 2016 when the partnership was setup.
Proportional Indicators are not audited. In respect of Proportional Indicators, Sonae Indústria external auditors have carried out an analysis of the consistency of the assumptions and of the figures considered by Sonae Indústria in the calculation of those Proportional Indicators.
| FINANCIAL INDICATORS (unaudited and pro forma ) | 2016 | 2017 |
|---|---|---|
| Proportional Turnover | 639 | 630 |
| Proportional Rec. EBITDA | 90 | 89 |
| Proportional Rec. EBITDA margin | 14.1% | 14.0% |
| LEVERAGE | ||
| Proportional Net Debt | 312 | 301 |
| Proportional Leverage (Net Debt / LTM Rec. EBITDA) | 3.5 x | 3.4 x |
| LOAN TO VALUE | ||
| Net Debt of Sonae Indústria | 214 | 209 |
| Asset Value2 | 500 | 496 |
| LTV (Net Debt of Sonae Indústria / Asset Value) | 43% | 42% |
2 Calculated as described in the Glossary of Terms. This compares with a Consensus 'Asset Value' of EUR 522M based on the average of the sum of the parts valuation (as at year-end 2018) of Sonae Indústria assets carried out by two independent equity research houses.
In 2017, Net Debt to Recurrent EBITDA (proportional) stood at 3.4x, which represents an improvement of circa 0.1x vs. 2016, driven by lower Net Debt. Loan to Value also improved when compared to 2016, decreasing to 42% at the end of 2017.
Proportional Turnover in 2017 reached 630 million euros, down by circa 1.4% when compared to 2016, on a comparable basis. The top line evolution is explained by the already mentioned lower sales in our fully owned businesses as Sonae Arauco turnover increased marginally when compared to 2016, despite the negative effect on turnover due to the forest fires that caused the stoppage of Mangualde and Oliveira do Hospital plants since mid October (as insurance compensation proceeds are not booked under turnover).
The average unitary variable costs (per m3 ) increased y.o.y. in Canada and in all regions where Sonae Arauco operates, a reflection of higher chemical input prices.
Total headcount for Sonae Indústria, at the end of December 2017, was 3,264 FTEs including 100% of Sonae Arauco operations.
During 2018, we expect the general macroeconomic environment in Europe and in North America to remain robust, supporting demand for our products. On the supply side, we should see some new capacity coming on stream in both Eastern Europe and North America.
In North America, we will continue to pursue opportunities to grow our business, namely by further enhancing our product offering, improving quality and service levels and strengthening our decorative solutions with the planned launch of new melamine colours and finishings during 2018.
In our Laminates business, we will focus on increasing sales volumes and improving profitability levels. We will also seek to enhance the partnership with Sonae Arauco for the provision of matching laminates for its decorative offering and will look for opportunities to sell laminates into North American market. As for the Components business, we will leverage on the new edging and drilling line to improve significantly our industrial competitiveness and customer offering and increase sales volumes.
At Sonae Arauco, we expect to continue to increase the levels of operating profitability, thanks to a combination of an expected continued healthy demand for our products in Europe with the benefits of our recent investments in capacity debottlenecking and productivity enhancement. In South Africa, the macroeconomic situation is expected to remain challenging which, as in 2017, should continue to impact the profitability levels in the region. After the completion of the on-going recovery plans, we expect to be able to fully restart production at our Portuguese plants during the first half of 2018.
Focus will continue on the monetization of real estate and equipment related with our inactive sites and efforts to further reduce the running costs of these sites will also continue.
With the continuous support from our key stakeholders, we expect to be able to reinforce the company's long term growth commitment and its competitive position in the wood based panels industry.
Sonae Indústria, SGPS, SA is a company listed in the NYSE Euronext Lisbon, with a majority shareholder – EFANOR – that currently controls approximately 68.6% of the share capital.
In May 2017, Sonae Indústria reduced its share capital from 812,107,574.17 euros to 253,319,797.26 euros, to cover losses evidenced in the company's accounts in the amount of 558,787,776.91 euros, without change of the existent number of shares, pursuant to a resolution taken by the Shareholders' Annual General Meeting held on 9 May 2017.
Thereby, the share capital of Sonae Indústria is currently 253,319,797.26 Euros.
At the Annual Shareholders' General Meeting held on 9 May 2017, shareholders approved: (i) the donation of 167 shares representative of Sonae Indústria's share capital and their cancellation, without share capital reduction and (ii) to proceed, under the terms set forth in Article 23-E of the Securities Code, with a reverse stock split of the remaining 11,350,757,250 shares representing the share capital of Sonae Indústria, by applying a regrouping quotient of 250, corresponding to each 250 shares 1 new share, with a rounding by default to the nearest whole number. The shares with ISIN code PTS3P0AM0017, were traded up to 28 July 2017, inclusive, and the trading of the shares with the new ISIN code PTS3P0AM0025 began on 31 July 2017, the effective date of the reverse stock split. After the reverse stock split, the share capital of Sonae Indústria is represented by 45,403,029 ordinary, registered and nominative shares, without nominal value.
| ISIN Code Bloomberg Code |
PTS3P0AM0025 SONI |
(Until 28/07/2017: ISIN Code PTS3P0AM0017) | |||
|---|---|---|---|---|---|
| Reuters Code | SONI.LS | ||||
| 2014 | 2015 | 2016 | 2017 | ||
| Share Capital | 812,107,574.17 | 812,107,574.17 | 812,107,574.17 | 253,319,797.26 | |
| Total number of shares | 11,350,757,417 | 11,350,757,417 | 11,350,757,417 | 45,403,029 | |
| Net Results | -115,720,185 | -36,004,592 | 11,008,954 | 15,265,731 | |
| Net Results per share | -0.010 | -0.003 | 0.001 | 0.336 | |
| Dividends per share | 0.000 | 0.000 | 0.000 | 0.000 | |
| Prices | |||||
| Year High | 0.8660 | 0.0097 | 0.0079 | 3.6590 | |
| Year Low | 0.0059 | 0.0058 | 0.0043 | 1.4000 | |
| Year Average | 0.4552 | 0.0077 | 0.0054 | 2.2956 | |
| Share price as at 31-Dec | 0.0064 | 0.0080 | 0.0060 | 3.5010 | |
| Market Capitalization as at 31-Dec | 72,644,847 | 90,806,059 | 68,104,545 | 158,956,005 | |
| Average trading volumes per day (shares) | 4,390,031 | 8,037,786 | 8,455,716 | 57,761 |
Sonae Indústria's performance is quite dependent on the business cycles, which are correlated with the residential construction and furniture industries. As such, the share price evolution of Sonae Indústria has been historically impacted by business cycles.
During 2017, Sonae Indústria's share price registered a significant increase, contrasting with a less pronounced appreciation of the Portuguese Stock Market index (PSI 20). Accordingly, Sonae Indústria's share price increased by 133% from the end of 2016 until the end of 2017 (with the index PSI 20 increasing 15%).
The highest daily trading volume of Sonae Indústria shares was registered on 16 February (533,491 16 shares).
The minimum share price during 2017 was registered in two consecutive sessions: 1 and 2 February (1.400€ 16). On the other hand, the maximum share price was achieved on 22 December (3.659€).
Regarding liquidity, Sonae Indústria's share had, during 2017, an average turnover of 57,761 16 shares per day.
Due to Sonae Indústria's share price performance in 2017, the company received the award "Listed Company – Best Performance", at the Euronext Lisbon awards 2018.
Sonae Indústria, SGPS, S.A. did not hold any own shares as at 31 December 2017. Notwithstanding, it should be mentioned in this respect that, as announced by the company further to the approval obtained on 2017 Shareholders' Annual General Meeting and to carry out the reverse stock split process, Sonae Indústria, SGPS, S.A. accepted the donation of 167 shares representative of its share capital and proceeded with their cancellation, without share capital reduction. Moreover, in the scope of the reverse stock split process and using the possibility provided for in no. 5 of article 23-E of the Securities Code, Sonae Indústria SGPS, S.A. appointed Banco BPI, SA to purchase from the company's shareholders any excess shares resulting from the rounding process inherent in the reverse stock split.
The Board of Directors has set a target to distribute to its shareholders 50% of the company's yearly profits.
The actual dividend pay-out ratio is proposed by the Board of Directors each year, taking into consideration the sustainability of the company's capital structure and the available financing sources, as well as the current investment plans.
From the three raw boards presses that were stopped as a result of the forest fires which affected Sonae Arauco plants in Portugal in October 2017, Mangualde MDF line 1 and line 2 resumed production in January and March, respectively, while the Oliveira do Hospital PB line is expected to resume production in early April. The timeline for execution of the investment in the new MDF line at Mangualde has not been affected by the forest fires disruption and the new line is expected to be operational by the end of 3Q18.
16 Figures already adjusted for the Reverse Stock Split that occurred in July.
Sonae Indústria credit risk derives mainly from account receivables items associated with its operating activity.
The main objective of Sonae Indústria Credit Risk Management policy is to guarantee the effective collection of its operating receivables, according to the most commercially adequate reduced payment terms, while maintaining the level of debtors' impairments as low as possible.
In order to mitigate credit risk related with potential customers defaulting on payment of outstanding receivables, Group companies have:
To foster the sharing of experiences, the alignment of procedures and practices and to ensure the enforcement of sound controlling rules, Sonae Arauco promotes, on a yearly basis, the "Customer's Credit Risk Management Forum". During 2017 Sonae Arauco has also implemented a project to review and optimize the group's current practices.
In addition to its operating activities and the related trade debtor balances, Group companies have other financial assets, which are mainly associated with its cash management activities and with deposits in financial institutions. As a result of these bank movements and balances, credit risk arises from the potential counterparty default by the applicable financial institutions. This risk is, nevertheless, considered as low due to the limited duration and amounts typically involved in bank deposits and to the credit profile of the financial institutions used by Group companies.
Due to the significant proportion of floating rate debt and the consequent cash flows related to interest payments, the company is exposed to interest rate risk.
As a general rule, Sonae Indústria does not hedge its exposure to floating interest rates. This approach is based on the principle of the existence of a positive correlation between the interest rate levels and the "operating cash flow before net interest charges", which creates a natural hedge on the "operating cash flow after net interest charges" for Sonae Indústria.
As an exception to this general rule, Sonae Indústria may engage in certain interest rates derivatives, solely aimed at hedging existing risk exposures and only to the extent that the risks and valuation of such derivatives can be accurately assessed by the company. Sonae Indústria subsidiaries do not engage in interest rate derivatives for trading, speculative or profit making purposes.
As a geographically diversified Group, present in three different continents, Sonae Indústria is exposed to foreign exchange risk. Consolidated Statements of Financial Position and Profit and Loss are exposed to foreign exchange translation risk and Sonae Indústria subsidiaries are exposed to foreign exchange risk of both translation and transaction type.
As a Group rule, whenever possible and economically viable, subsidiaries aim to offset assets and liabilities denominated in the same foreign currency, thus mitigating exchange risks.
Also as a rule, in situations where relevant exchange risk arises from trade in a currency other than that of the subsidiary, exchange risk should be mitigated through the use of short term forward exchange rate agreements contracted by the subsidiary exposed to such risk. Sonae Indústria subsidiaries do not engage in forward exchange rate agreements for trading, speculative or profit making purposes.
As a policy, translation risk in connection with the conversion of the equity investments in foreign non-euro subsidiaries is not hedged, as these are considered long-term investments. Also, it is assumed that hedging transactions would not add value in the long term. Gains and losses related to the translation at different exchange rates of assets and liabilities of foreign non-euro subsidiaries are accounted as equity under the "Other Accumulated Comprehensive Income".
Liquidity risk management in Sonae Indústria aims to ensure that the company can obtain, on a timely basis, the financing required to properly carry on its business activities, implement its strategy and meet its payment obligations when due, under the most favourable terms and conditions.
For this purpose, liquidity management at the Group comprises:
Sonae Indústria and its affiliates and subsidiaries are subject and actively promote the respect for applicable laws in countries and regions where they operate. Changes in these legal environments can result in changes or restrictions to the present conditions of exploitation and can lead to increased costs.
Sonae Indústria, SGPS, S.A. is and intends to continue being recognised for the way it abides by the rules and values of competition based on merit, the force of free markets and unrestricted respect for the consumer. In order to achieve that goal, measures are in place to reinforce the promotion and dissemination of the existing compliance initiatives within the Group. Such measures include training for employees in order to ensure that all parts of our organisation, across all geographies, have a deeper and more complete awareness and a more rigorous respect for their legal obligations.
The production of wood-based panels is an industrial activity with a significant operational risk, which arises, namely from eventual fire and explosion accidents. Consequently, operational risk management is a key concern of the company and Sonae Indústria is active in the implementation of standards and best practices and in the selection of state of the art systems and solutions that are capable of reducing industrial risks.
For a detailed description of these risks and the initiatives undertaken to mitigate them, please refer to the Corporate Governance Report.
Note: information in this section includes full Sonae Arauco activity which means that aggregate data consider 100% of Sonae Arauco figures also in 2016 and 2017.
Number of Employees (excluding Trainees)
At Sonae Indústria, we believe that people are the key resource to drive change and secure a more profitable and sustainable business in the future. We care for the safety and well-being of our employees and we strive to support their personal and professional development so that they fulfil their own career aspirations. Each employee is an individual and it is this diversity that makes up the richness in Sonae Indústria's culture. We have expressed our commitment towards our people in the corporate values of Cooperation, Non-discrimination and Health and Safety.
At the end of 2017, Sonae Indústria employed 486 employees (excluding trainees) which compares with 485 employees at the end of 2016. Considering 100% of Sonae Arauco, the number of employees reaches 3,264 people in ten different countries, similar to the value registered at the end of 2016. The reduction in the number of employees between 2013 and 2015 was mostly explained by the restructuring that took place between 2008 and 2015, following the global economic and financial crisis. Since 2016, Sonae Indústria mantained a stable headcount structure.
Workforce by age group
19% 27% 33% 21% 18% 26% 31% 25% 0% 5% 10% 15% 20% 25% 30% 35% <= 34 years 35-44 years 45-54 years >=55 years 2016 2017
The most representative age group at Sonae Indústria (including 100% of Sonae Arauco) ranges between 45 and 54 years (corresponding to 31% of the total employees). It should also be noted that women represent circa 17% of the total workforce of the company, the same percentage as recorded in 2016.
Between 2013 and 2016, productivity increased strongly, particularly driven by the restructuring process that the company went through until 2015. In 2017, productivity was marginally lower (-0.7%) than in 2016.
Absenteeism rate (%)
Absenteeism had been increasing over the last years, mainly due to long-term leaves. Sonae Indústria has an ageing workforce with the consequent growing rate of prolonged absences due to natural diseases.
Due to these results in 2014 Sonae Indústria took the decision to set up a working group to address this subject, in order to reduce the absenteeism levels in a responsible way. The group has already identified some corrective measures which started to be implemented during 2016 with effects expected to take place in subsequent years. In 2017, the average absenteeism rate for Sonae Indústria decreased slightly to 6.6%.
Total training hours and training hours by employee
In 2015, the number of training hours per employee increased significantly, mainly as the result of the IoW (Improving our Work) implementation and the associated training initiatives, which involved a significant number of participants and training hours. These continuous improvement programmes, which in the past were supported by external entities, are since 2014 supported by internal training activities and best practices sharing in specific forums. As a large portion of Sonae Indústria's employees were, by the end of 2015, already trained in IoW, the number of training hours decreased in 2016 and 2017, registering an average of 21.9 hours per employee during this year.
With the objective of developing and improving the characteristics of our products and to build a Centre for Research, Development and Innovation, we have developed partnerships with five Portuguese universities; Faculdade de Engenharia da Universidade do Porto (FEUP), Escola Superior Tecnológica de Viseu (ESTV), Universidade de Aveiro (UA), Universidade Nova de Lisboa (UNL) and Instituto de Higiene e Medicina Tropical (IHMT), as well as with four research institutes - Associação Rede de Competência em Polímeros (ARCP), Pólo de Inovação em Engenharia de Polímeros (PIEP), Centro de Nanotecnologia e Materiais Técnicos, Funcionais e Inteligentes (CENTI) and TechMinho. These partnerships provide the basis for product and process innovation in the Group and encourage the proximity between our company and the academic community. At the moment, and within the defined competences framework, the main objectives of our research centre are as follows:
With the above mentioned objectives in mind, Sonae Indústria, through its affiliates, has a series of facilities and equipment in the campus of the University of Porto.
With this partnership, Sonae Indústria has privileged access to faculty, equipment and techniques, researchers' Know-how, development of new technologies and methodologies and a permanent access to high value technicians that could potentially be integrated in the company.
At Sonae Indústria, most of our people have a common inherent desire to improve the conditions of those in need in the local communities where we are present. In some specific situations, the employees are involved with social institutions or charities and the company encourages them to actively participate in these initiatives.
In the different countries where Sonae Indústria operates, the specific needs for help and contribution vary greatly depending on the communities' level of welfare, presence of social security systems as well as the culture and values of the local citizens. Therefore, the community-related activities are prioritized and managed at local level.
Sonae Arauco opened the doors of both its head office and manufacturing plants to high school and university students, allowing students to have a brief insight of the daily tasks performed at these locations, and to have a better understanding of its business.
During the month of December, the usual Christmas Campaign was held and, once again, employees showed their solidarity by donating food, which was collected and offered to local institutions.
Throughout the year, the manufacturing units offered various donations to schools, institutions and universities. Products were also distributed to institutions such as schools, local fire departments, social and cultural associations, Rotary clubs and sports associations.
Since July 2017, the Sonae Arauco´s industrial unit in Valladolid has been involved in a project of mentoring for the STEM talent development (Science, Technology, Engineering and Mathematics) and the promotion of
17 Volatile organic compound emissions.
scientific and technological vocations aimed specifically at women with the aim to inspire and empower the next generation of women leaders in science and technology.
In South Africa, Sonae Arauco engaged in several actions, not only through financial assistance, but also through active partnerships, promoting and participating in awareness campaigns. The main focuses were education (including bursaries and skills), education initiatives to teachers and the Worldwide Fund for Nature (WWF). In 2017 seven teachers were selected to attend the Annual International Creativity Educators Conference and 12 students from disadvantaged backgrounds have graduated and completed their 1-year apprenticeship program (Furntech) and are now able to open their own woodwork businesses or find employment in the wood manufacturing sector - a great achievement for all these students.
In 2017, Tafisa Canada and its employees continued to support the "Fondation du Centre de Santé et de Services Sociaux du Granit" (Health and Social Services Foundation) through voluntary donations. This partnership has helped to maintain and improve health care services provided to the entire population of Lac-Mégantic and surrounding communities, for the past 14 years. For every dollar donated by an employee, Tafisa Canada contributed an equal amount to the organization.
For a second year in a row, a group of employees participated in the Enbridge® Ride to Conquer Cancer®, which is an epic, two-day cycling event spanning over 200 kilometres. The money raised helps fund cancer research and care at the Segal Cancer Centre at the Jewish General Hospital and throughout Quebec.
Also for the second consecutive year, Tafisa's employees participated in a dragon boat charity race to raise funds for "La Maison La Cinquième Saison", a non-profit organization dedicated to the care of people who are in the final stages of their lives. The all-day, tournament-style festival consisted of boat races between teams from local businesses and community organizations. This amazing team-building experience is becoming a tradition to the community. Tafisa Canada proudly made a donation on behalf of its employees who won the race in their category.
Tafisa Canada and its employees remained dedicated to their roles as good corporate citizens. As leaders in the community, the company aimed to give back through monetary support and voluntary commitment. Resources were directed towards the support of longstanding community events such as the annual family bike tour, the snow kite competition, the winter Carnival and the world cup 10km swimming FINA competition. In July 2017, the town of Lac-Mégantic also hosted the first Canada Man/Woman Extreme Triathlon in North America, one of the toughest full distance triathlons in the world, comparable to similar ones in Norway, Scotland, Alaska and Switzerland. Several employees of Tafisa Canada participated in the shorter version of the extreme event and Tafisa Canada was amongst the sponsors of the race.
Finally, the company supported several youth sports, education programs and local food bank, as well as various activities and charitable causes involving employees and their families.
The chart below represents the Lost Workday Cases (LWC) rate18:
During 2017, Sonae Indústria's overall LWC rate deteriorated 16% (compared with 2016 rate) essentially due to two fatalities that occurred in two Sonae Arauco industrial sites.
Sonae Arauco has long committed itself and works hard to ensure the safety of its workers and operations. A healthy and safe workplace is always an absolute priority and we never compromise in this area. Health and Safety is deeply enrooted in daily routines with a proactive and preventive approach. Every day, each team analyzes its performance, debates on unsafe conditions and activities and shares lessons learned from other industrial sites of the Group. This methodology strives for a common responsibility on creating and maintaining, safe working conditions and workplaces.
Despite all the measures and commitment, we deeply regret the decease of two workers in workplace accidents occurred at two Sonae Arauco European sites in 2017. Both accidents involved industrial moving machines and safety procedures that had not been followed. After the first fatality, the company implemented an emergency program that, in less than 20 days, evaluated all 24 sites with same potential for accident. A team of 90 people identified almost 700 actions aimed at trying to ensure that such tragic events will not happen again. This plan was closely monitored, with weekly follow ups done at each site, aimed at tracking the evolution and increasing the awareness on the importance of the initiatives.
Looking at the LWC rate results for the other main businesses, a relevant improvement was achieved by Laminates and Components (with a reduction of circa 30%) with only a marginal deterioration in the Canadian operation figures.
LWC Rate = (Number of LWC x 200,000) / Number of hours worked calculated on a 200,000 employee-hour base (100 full-time employees working 50 weeks, 40 hours per week).
18 Lost Workday Cases: fatality, any occupational injury or illness that prevents the employee from reporting to work on any subsequent scheduled shift. A death as result of occupational injuriy and illnesses is a LWC regardless of the time between injury and decease as a consequence of the illness.
The Severity rate relates to the seriousness of the injuries based on the days lost. The already mentioned two fatalities registered in Sonae Arauco European sites significantly impacted this indicator, as evidenced by its very negative year-on-year evolution19 . As referred, inspections and comprehensive action plans were carried out in all Sonae Arauco sites to guarantee that the same conditions would never occur in any of the industrial sites.
On an individual analysis, compared with 2016, the other two business have achieved very good improvements - Laminates and Components with an improvement of 61% and Canada with an improvement of 96% on this indicator.
Wood is Sonae Indústria's primary raw material, considering the business in Canada and Sonae Arauco. As a major user of this natural, renewable and recyclable material, we believe that using recycled wood and wood byproducts in our production is part of our sustained contribution towards mitigating CO2 emissions and climate change.
The figures below consider the board businesses (aggregate figures of Canada and Sonae Arauco) and show the global evolution of the wood mix consumption and wood use efficiency figures, which illustrate our continuous efforts within this key operational area.
19 Severity rate = Number of workdays lost due to LWC*1,000 / Number of hours worked. A fatality is considered by adding 7,500 days in the numerator.
Specific wood consumption for Sonae Indústria's portfolio registered a marginal increase when compared to 2016. Despite the increase in the wood consumption per cubic meter produced, total wood consumption has reduced as there was a reduction on the output (partially explained by the downtime of Sonae Arauco PB and MDF sites following October forest fires).
Wood consumption by type
Similar to the last years, Sonae Indústria global wood supply mix for the board operations continues to reveal an increase of recycled material in detriment of by products and roundwood.
In 2017, incorporation of recycled material reached 25% (increase of 1 p.p. compared with 2016). This effect was mainly due to Sonae Arauco operations, in particular, at Oliveira do Hospital (Portugal), Linares (Spain) and Nettgau (Germany) that, in line with recent past, continued to invest on the steady development of the industrial process to enable growth of recycled material intake. Canada operation maintained the level of incorporation of recycled and by products within the same values of 2016.
Sonae Indústria's board production process requires water. Therefore, it is part of the company's environmental objectives to continuously make sustained efforts to re-use treated wastewater and to measure and reduce the levels of water consumption as much as possible.
Overall, the specific water consumption has slightly decreased during 2017, when compared with 2016, mainly due to the effect of the reduction of MDF production in the global production portfolio.
In relation to Sonae Arauco's operations, the fact of Portuguese sites affected by the forest fires were stopped from October onwards also contributed to the reduction of water consumption, in particular in Mangualde, that is a heavy water consumer.
The global indicator, on specific waste generation, also recorded a reduction of 7% when compared to 2016 performance.
Although this indicator had a reduction in 2017, it is merely indicative because, as a consequence of the extensive damages sustained by Sonae Arauco's Portuguese sites and the respective ongoing reconstruction, several tons of residues are being generated in the two sites. Due to insurance related reasons, by the end of 2017 no residues have been authorized to leave the sites. These quantities will be reflected on the next year exercise.
Waste by cubic meter produced
Quality, Environmental and Health & Safety management systems are an important part of Sonae Indústria's standardised way of operating.
The situation of management systems certifications for Sonae Indústria affiliates and subsidiaries, at the end of 2017, was the following:
| Quality | Environment | Energy | Forest products chain-of- custody |
Health & Safety |
||
|---|---|---|---|---|---|---|
| ISO 9001 | ISO 14001 | ISO 50001 |
PEFC | FSC | OHSAS 18001 |
|
| Maia * | ||||||
| $\bigodot$ | $\bigodot$ | $\bigodot$ | ||||
| Vilela ** | $\blacktriangledown$ | $\bigodot$ | $\bigodot$ | |||
| Horn | $\small \textcolor{blue}{\curvearrowright}$ | $\bigodot$ | Ø | $\odot$ | $\bigodot$ | $\bm{\odot}$ |
| Lac-Mégantic | $\bigotimes$ | $\bigodot$ | $\bigodot$ | $\bigodot$ | ||
| Mangualde | $\bigotimes$ | $\bigodot$ | Ø | $\odot$ | $\odot$ | $\bm{\odot}$ |
| Oliveira do Hospital | $\bigotimes$ | $\bigodot$ | ◙ | $\bigodot$ | $\bigodot$ | $\bigcirc$ |
| Sines*** | $\bigotimes$ | $\bigodot$ | $\bigcirc$ | $\bigodot$ | $\bigcirc$ | |
| Castelo de Paiva"" | $\bigotimes$ | $\bigodot$ | $\bigcirc$ | $\bigodot$ | $\bigodot$ | |
| Linares | $\bigotimes$ | $\bigodot$ | $\bigcirc$ | $\bigodot$ | $\bigodot$ | |
| Valladolid | $\blacktriangledown$ | $\bigodot$ | $\bigcirc$ | $\bigodot$ | $\bigodot$ | |
| Cuéllar* | $\bigotimes$ | $\bigodot$ | $\bigodot$ | $\bigodot$ | $\bigodot$ | |
| Meppen | $\bigotimes$ | $\bigodot$ | ◙ | $\bigodot$ | $\bigodot$ | $\bigodot$ |
| Eiweiler | $\bigotimes$ | $\bigodot$ | ◙ | $\bigodot$ | $\bigodot$ | $\bigcirc$ |
| Nettgau | $\bigotimes$ | $\bigodot$ | $\bullet$ | $\odot$ | $\bigodot$ | $\bigodot$ |
| Beeskow | $\bigotimes$ | $\bigodot$ | ◙ | $\bigodot$ | $\bigodot$ | $\bigcirc$ |
| Kaisersesch** | $\bigotimes$ | $\bigodot$ | ◙ | $\odot$ | $\bigodot$ | $\bigodot$ |
| Panbult | $\small \textcolor{blue}{\curvearrowright}$ | $\bigodot$ | $\bigodot$ | $\bm{\odot}$ | ||
| White River | $\bigotimes$ | $\bigodot$ | $\bigodot$ | $\bigodot$ |
* HPL plant.
** Components plant.
*** Resins plant & paper impregnation.
**** Wood venner plant.
***** Sawmill.
****** Paper impregnation plant.
With the exception of the Chairman, all Non-Executive Board Members of Sonae Indústria are members of Board Committees (for a full description of composition and main tasks of each Committee please refer to the Corporate Governance Report). In this context, these Board Members analyse matters that are within the competence of the respective Committee, providing guidance to the company about them and making proposals to the Board of Directors.
Non-Executive Board Members actively participate in meetings of the Board of Directors, intervening in the discussions and questioning the decisions taken. According to their respective professional experience, Non-Executive Board Members also participate in the analysis of industrial optimisation projects, of restructuring and expansion projects and in the development of relevant international networking with possible partners and authorities in current and potential geographical areas of investment.
The Board of Directors would like to thank the shareholders, customers, suppliers, financial institutions and other business associates of Sonae Indústria for their continuing involvement and for the confidence that they have once more shown in the organisation.
The Board of Directors would also like to express its sincere gratitude towards all employees for their efforts, commitment and dedication demonstrated throughout a particular challenging year.
5 April 2018,
The Board of Directors,
Paulo Azevedo
_________________________
_________________________
_________________________
_________________________
Carlos Moreira da Silva
________________________
________________________
_________________________
Albrecht Ehlers
José Romão de Sousa
Javier Vega
Christopher Lawrie
Louis Brassard
| Acquisitions | Sales | Position at 31.12.2017 |
Balance at 31.12.2017 |
||||
|---|---|---|---|---|---|---|---|
| Date | amount | € average value | amount | € average value | amount | ||
| Duarte Paulo Teixeira de Azevedo Efanor Investimentos, SGPS, SA (1) Migracom, SA (2) |
Minoritary Dominant |
||||||
| Acquisitions | Sales | Position at 31.12.2017 |
Balance at 31.12.2017 |
||||
| Date | amount (*) € average value | amount (*) | € average value | amount (**) | |||
| (1) Efanor Investimentos, SGPS, SA Sonae Indústria, SGPS, SA |
28.07.2017 | 108 | 0.009 | 19 370 549 | |||
| Pareuro, BV (3) | Dominant | ||||||
| (2) Migracom, SA Sonae Indústria, SGPS, SA |
26.07.2017 | 167 | shares donated to Sonae Indústria |
38 931 | |||
| Imparfim, Investimentos e Participações Financeiras, SA (4) |
28.07.2017 | 60 | 0.009 | Minoritary | |||
| (3) Pareuro, BV Sonae Indústria, SGPS, SA |
28.07.2017 | 248 | 0.009 | 11 730 752 | |||
| (4) Imparfin, Investimentos e Participações Financeiras, SA |
|||||||
| Sonae Indústria, SGPS, SA | 28.07.2017 | 248 | 0.009 | 120 396 |
(*) The number of shares indicated refers to shares prior to the reverse stock split operation carried out during 2017
(**) The number of shares indicated refers to shares after the reverse stock split operation carried out during 2017
Complying with Article 8, nr.1, paragraph b) of the CMVM Regulation nr. 05/2008
| Shareholder Efanor Investimentos, SGPS, SA (1) |
No. of shares | % Share Capital | % Voting rights |
|---|---|---|---|
| Directly | 19,370,549 | 42.6636% | 42.6636% |
| By Pareuro, BV ( controlled by Efanor Investimentos, SGPS, SA) | 11,730,752 | 25.8369% | 25.8369% |
| By Maria Margarida CarvalhaisTeixeira de Azevedo (Director of Efanor Investimentos, SGPS, SA) | 4 | 0.000009% | 0.000009% |
| By Migracom,SA (Company controlled by Efanor Investimentos, SGPS, SA´s Director, Duarte Paulo Treixeira de Azevedo) |
38,931 | 0.0857% | 0.0857% |
| By Linhacom, SA (Company controlled by Efanor Investimentos, SGPS, SA´s Director, Maria Cláudia | |||
| Teixeira de Azevedo) | 10,030 | 0.0221% | 0.0221% |
| Total allocation | 31,150,266 | 68.6083% | 68.6083% |
(1) Efanor Investimentos, SGPS, SA ceased, with effect from 29 November 2017, to have a controlling shareholder, according with the terms and for the purpose of articles 20º and 21º of the Portuguese Securities Code.
On 22 February 2016, TEAK Capital, SA informed Sonae Indústria having signed a services agreement with the company Pareuro, BV, through which it was granted, by way of consideration, a call option over 1,702,620,000* shares representative of 15% of the share capital and voting rights of Sonae Indústria, SGPS, S.A., exercisable on 30 April 2018. Thereafter, the referred to company informed Sonae Indústria that the call option will be performed by physical settlement and that 98.725% of its share capital is held by TEAK Capital, B.V., in which Carlos Moreira da Silva holds shares that grant him 40% of the voting rights and Fernanda Arrepia (married with him with separation of people and property) holds shares that grant her 45% of the voting rights.
* The number of shares indicated refers to the shares prior to the reverse stock split operation carried out during 2017 and corresponds to 6,810,480 of the current shares.
(Free translation from the original in Portuguese)
In terms of the order in sub-paragraph c), nr. 1, Article 245 of the Portuguese Securities Code, the Board members of Sonae Indústria, SGPS, S.A. hereby declare, to the best of our knowledge, that the:
Duarte Paulo Teixeira de Azevedo
_________________________________
_________________________________
__________________________________ Carlos António da Rocha Moreira da Silva
_________________________________
_________________________________
Albrecht Olof Lother Ehlers
José Joaquim Romão de Sousa
Javier Vega de Seoane Azpilicueta
_________________________________
_________________________________
George Christopher Lawrie
Louis Brassard
| Asset Value | Asset Value is calculated as follows: [6.5 x LTM Recurrent EBITDA of fully consolidated business (100%)] + [market value of inactive sites real estate properties owned 100% by Sonae Indústria] + [50% x (6.5 x LTM Recurrent EBITDA of Sonae Arauco – Sonae Arauco Net Debt)] |
||
|---|---|---|---|
| CAPEX | Investment in tangible fixed assets | ||
| EBITDA | Earnings Before Interests and Taxes + Depreciations and Amortizations + (Provisions and impairment losses - Impairment losses in trade receivables + Reversion of impairment losses in trade receivables) |
||
| FTEs Full Time Equivalent; the equivalent of one person working full time, according to the working schedule of each country where Sonae Indústria has operations |
|||
| Fixed Costs Overheads + Personnel costs (internal and external); management accounts concept |
|||
| Gross Debt | Bank loans + Debentures + Obligations under finance leases + Other loans + Loans from related parties |
||
| Headcount | Total number of internal FTEs, excluding trainees | ||
| Loan to Value Net Debt of Sonae Indústria / Asset value |
|||
| LTM | Last Twelve Months | ||
| Net Debt | Gross Debt - Cash and cash equivalents | ||
| Proportional: Turnover, Recurrent EBITDA (unaudited, pro forma) |
Proportional Turnover and Proportional Recurrent EBITDA consider, in what regards to Turnover and Recurrent EBITDA, the full contribution of the wholly owned businesses and the proportional consolidation of the 50% contribution from Sonae Arauco. |
||
| Proportional Leverage (unaudited, pro forma) |
Proportional Net Debt / Proportional LTM Recurrent EBITDA | ||
| Proportional Net Debt (unaudited, pro forma) |
Proportional Net Debt considers the full contribution of the Net Debt of the wholly owned businesses and the proportional consolidation of the 50% contribution from Sonae Arauco. |
||
| Recurrent EBITDA | EBITDA excluding non-recurrent operational income / costs | ||
| Recurrent EBITDA margin | Recurrent EBITDA / Turnover | ||
| Working Capital | Inventories + Trade Debtors – Trade Creditors |
| Acquisitions | Sales | Balance at 31.12.2017 |
||||
|---|---|---|---|---|---|---|
| Date | amount(*) | € average value | amount(*) | € average value | Amount (**) | |
| Efanor Investimentos, SGPS, SA (company that controls, directly and indirectly, Sonae Indústria, SGPS, SA and of which Paulo Azevedo is a director) |
||||||
| Sonae Indústria,SGPS, SA | 28-07-2017 | 108 | 0.009 | 19,370,549 | ||
| Pareuro BV (company dominated by Efanor Investimentos) Sonae Indústria,SGPS, SA |
11,730,752 | |||||
| 28-07-2017 | 248 | 0.009 | ||||
| Migracom, SGPS, SA (company dominated by Paulo Azevedo) Sonae Indústria,SGPS, SA |
38,931 | |||||
| shares donated to | ||||||
| 26-07-2017 28-07-2017 |
60 | 0.009 | 167 | Sonae Indústria | ||
| Linhacom, SGPS, SA (company dominated by Efanor Investimentos' director Claúdia Azevedo) |
||||||
| Sonae Indústria,SGPS, SA | 28-07-2017 | 100 | 0.009 | 10,030 | ||
| Imparfin, Investimentos e Participações Financeiras, SA (Paulo Azevedo and Cláudia Azevedo are directors of this company) Sonae Indústria,SGPS, SA |
120,396 | |||||
| 28-07-2017 | 248 | 0.009 |
(*) The number of shares indicated refers to shares prior to the reverse stock split process carried out during 2017 (**) The number of shares indicated refers to shares after the reverse stock split process carried out during 2017
Sonae Indústria, SGPS, SA
Publicly Listed Company Share Capital € 253 319 797.26 Maia Commercial Registry and Tax Number 506 035 034
5 April 2018
| PART I – MANDATORY INFORMATION ON SHAREHOLDER STRUCTURE, ORGANISATION AND CORPORATE GOVERNANCE 3 |
||
|---|---|---|
| A. | SHAREHOLDER STRUCTURE 3 | |
| I. | Capital Structure 3 | |
| II. | Shareholdings and Bonds Held 4 | |
| B. | GOVERNING BODIES AND COMMITTEES 6 | |
| I. | General Meeting 6 | |
| a) | Composition of the Board of the General Meeting 6 | |
| b) | Exercise of voting rights 6 | |
| II. | Management and Supervision 7 | |
| a) | Composition 7 | |
| b) | Functioning 11 | |
| c) | Committees within the Management or Supervisory Bodies and Managing Directors 14 | |
| III. | Supervision 17 | |
| a) | Composition 17 | |
| b) | Functioning 18 | |
| c) | Responsibilities and functions 19 | |
| IV. | Statutory External Auditor 21 | |
| V. | External Auditor 21 | |
| C. | INTERNAL ORGANISATION 22 | |
| I. | Articles of Association 22 | |
| II. | Reporting of irregularities 23 | |
| III. | Internal Control and Risk Management 25 | |
| IV. | Investor Relations 36 | |
| V. | Website 36 | |
| D. | REMUNERATIONS 38 | |
| I. | Competencies for approval of remunerations 38 | |
| II. | Remunerations Committee 38 | |
| III. | Remuneration structure 39 | |
| IV. | Disclosure of Remuneration 44 | |
| V. | Agreements with impact on Remuneration 45 | |
| VI. | Share plans or stock options plans 46 | |
| E. | TRANSACTIONS WITH RELATED PARTIES 46 | |
| I. | Control mechanisms and procedures 46 | |
| II. | Information concerning transactions 47 | |
| F. | DIVERSITY POLICY IN THE ADMINISTRATIVE AND SUPERVISORY BODIES 47 | |
| PART II – ASSESSMENT OF THE CORPORATE GOVERNANCE 49 | ||
| 1. | Identification of the corporate governance code adopted 49 | |
| 2. | Analysis of compliance with the Corporate Governance Code adopted 49 |
1. Capital structure (share capital, number of shares, capital distribution, etc.), including information regarding shares not admitted to trading on a regulated market, different categories of shares, rights and duties incurred and share capital percentage by category (Article 245-A, number 1, paragraph a))
Sonae Indústria's share capital amounts to 253,319,797.26 euros and is represented by 45,403,029 ordinary nominal shares without nominal value. All shares are admitted to trading on the Euronext Lisbon.
In May 2017, Sonae Indústria reduced its share capital from 812,107,574.17 euros to 253,319,797.26 euros to cover losses registered in the company's accounts totalling 558,787,776.91 euros, without change of the existing number of shares, pursuant to a resolution taken by the Shareholders' Annual General Meeting held on 9 May 2017.
Considering that the large number of shares representing Sonae Indústria's share capital has caused, in terms of liquidity, that any small change in the trading price , in percentage terms, resulted in significant variations, the shareholders at the Annual General Meeting approved a reverse stock split of the shares representative of its share capital, under the terms set forth in Article 23-E of the Securities Code.
The reverse stock split was carried out at the end of July 2017 by applying a regrouping quotient of 250, corresponding to each 250 shares 1 new share, with a rounding by default to the nearest whole number (previously have been extinct, without share capital reduction, 167 shares donated by the shareholder Migracom, SA). Sonae Indústria appointed Banco BPI, SA, to purchase from shareholders any excess shares resulting from the rounding process inherent to the reverse stock split, subject to payment of a consideration of 0.0079 euros.
Sonae Indústria´s share capital is distributed according to the illustration below (the qualified shareholding attributed to Efanor shown below is explained in item 7 of this report):
2. Restrictions to the transfer of shares, such as clauses of consent on sale of shares, or restriction on ownership of shares (Article 245-A, number 1, paragraph b))
There are no restrictions in place regarding the transfer or sale of the company's shares.
As at 31 December 2017, the company did not own any own shares.
To enable the reverse stock split of the shares representative of the company share capital, performed in 2017, the shareholder Migracom, SA donated its 167 shares, which were cancelled without a share capital reduction.
4. Relevant shareholders' agreements which come into force, are amended or cancelled in the event of change of control by means of a public offer, the resulting effects thereof, whose disclosure is not adverse to the company, except when the company is specifically obliged to disclose that information due to legal requirements (Article 245-A, number 1, paragraph j))
On 31 December 2017, the amount of debt in loans which grant to the respective creditors the option to consider the amount of debt due in the event of a change in shareholder ownership was circa 165 million euros (79% of the value of the consolidated net debt).
| 1 Million € |
No. Contracts | |
|---|---|---|
| Total | 165 | 5 |
1) Liabilities at their nominal value.
The shareholders agreement subscribed by Sonae Indústria and Inversiones Arauco International, Ltda, (Arauco) in relation to Sonae Arauco, SA, confers Arauco the right to exercise a call option over the full amount of Sonae Arauco shares owned by Sonae Indústria, in case of change of the current shareholder control of Sonae Indústria, as well as it confers a call option to Sonae Indústria in case of change of the current shareholder control of Arauco.
5. Regime applicable to the renewal or revocation of defensive measures, in particular those that foresee the limitation of the number of votes susceptible of being detained or exercised by only one shareholder, in an individual way or in cooperation with other shareholders
There are no statutory constraints regarding the number of votes that may be cast by a single shareholder.
6. Shareholders' agreements known to the company that may result in restrictions to the transfer of shares or voting rights (Article 245-A, number 1, paragraph g))
The company is unaware of the existence of a shareholders' agreement, which may restrict the transfer of its securities or voting rights.
| II. | SHAREHOLDINGS AND BONDS HELD | |
|---|---|---|
7. Identification of the individuals or companies that, directly or indirectly, hold a qualified shareholding (Article 245-A, number 1, paragraphs c) and d) and Article 16), indicating, in detail, the percentage of share capital and voting rights entitled, as well as the source and causes of such entitlement
| Shareholder | Number of shares | % Share Capital | % Voting Rights |
|---|---|---|---|
| Efanor Investimentos, SGPS, S.A (1) | |||
| Directly | 19,370,549 | 42.6636% | 42.6636% |
| By Pareuro, BV (controlled by Efanor Investimentos, SGPS, SA) | 11,730,752 | 25.8369% | 25.8369% |
| By Maria Margarida CarvalhaisTeixeira de Azevedo (Director of Efanor) | 4 | 0.000009% | 0.000009% |
| By Migracom, SA (company controlled by Efanor's Director, Paulo Azevedo) | 38,931 | 0.0857% | 0.0857% |
| By Linhacom, SA (company controlled by Efanor's Director, Cláudia Azevedo) | 10,030 | 0.0221% | 0.0221% |
| 31,150,266 | 68.6083% | 68.6083% | |
| On 22 February 2016, TEAK Capital, SA informed Sonae Indústria having signed a services agreement with the company Pareuro, BV, through which it was granted, by way of consideration, a call option over 1,702,620,000* shares representative of 15% of the share capital and voting rights of Sonae Indústria, SGPS, S.A., exercisable on 30 April 2018. Thereafter, the referred to company informed Sonae Indústria that the call option will be performed by physical settlement and that 98.725% of its share capital is held by, TEAK Capital, B.V.in which Carlos Moreira da Silva holds shares that grant him 40% of the voting rights and Fernanda Arrepia (married with him with separation of people and property) holds shares that grant her 45% of the voting rights. |
|||
| * The number of shares indicated refers to the shares prior to the reverse stock split operation carried out during 2017 and corresponds to 6,810,480 of the current shares | |||
| (1) Efanor Investimentos, SGPS, SA ceased, with effects from 29 November 2017, to have a controlling shareholder, according with the terms and for the effects of articles 20º and 21º of the Portuguese Securities Code. |
Sonae Indústria directors held the following company shares as of 31 December 2017:
9. Special powers of the managing bodies, namely in respect to resolutions concerning share capital increase (Article 245-A, number 1, paragraph i)), indicating the date these powers were attributed, the date these competencies expire, the maximum quantitative limit of the share capital increase, the amount issued in accordance with the attribution of powers and the means for accomplishment of the attributed powers
The Board of Directors of Sonae Indústria may decide to increase the company's share capital up to the amount of one thousand and two hundred million euros, one or more times, through cash injections under the terms established by the law. These powers were renewed at the General Meeting held on 4 April 2014 and may be exercised over a period of five years from that date, notwithstanding the General Meeting decision to renew these powers again.
The Board of Directors under the use of such powers has decided, in 2014, with the favourable opinion of the Statutory Audit Board, to proceed with a share capital increase in an amount up to 150 million euros, limited to the subscriptions collected, which were in the amount of 112,107,574.17 euros.
There are no significant commercial relationships between the owners of the qualified shareholdings and the company.
| I. GENERAL MEETING |
||
|---|---|---|
| a) | Composition of the Board of the General Meeting |
The Board of the Shareholders' General Meeting was elected at the Shareholders' Annual General Meeting of Sonae Indústria held on 31 March 2015, for the mandate 2015-2017 and is composed by:
b) Exercise of voting rights
12. Restrictions in terms of voting rights such as limitations to vote depending on the ownership of a number or percentage of shares, deadlines to exercise the voting right, or systems that highlight rights of asset contents (Article 245-A, number 1, paragraph f))
According to Sonae Indústria's Articles of Association, the Shareholders' General Meeting is composed only of shareholders with voting rights who provide evidence of their ownership, according to the terms established by the law.
Article 23º-C of the Securities Code sets out that, who is entitled to participate, discuss and vote in the Shareholders' General Meeting, are shareholders who, at the record date, which corresponds to 0 hours of the 5th trading day prior to the date of the meeting, hold at least one vote, according to the law and the company statutes.
According to Sonae Indústria's Articles of Association, shareholders may be represented at Shareholders' General Meetings under the terms established by the law and by the respective notice of the meeting.
Under the terms of Sonae Indústria's Articles of Association, Shareholders' General Meetings can meet at the first session, as long as shareholders representing over fifty percent of the company's share capital are present or represented.
The company's Articles of Association stipulate that, as the company is regarded as a listed and "publicly traded company", shareholders are allowed to vote by post in relation to all items in the agenda of the Shareholders' General Meeting, following the rules for the exercise of voting by post. The company's Articles of Association establish that postal votes can only be considered when sent to the company's headquarters by registered post with notice of receipt addressed to the Chairman of the Board of the Shareholders' General Meeting. These votes should be received at least three days before the date of the General Meeting and are subject to the normal rules regarding evidence of share ownership. Postal votes are considered negative votes in relation to any proposals presented after the date on which they were issued. A standard form for postal voting is available at Sonae Indústria's corporate website, www.sonaeindustria.com, and at the company's head office.
Sonae Indústria Articles of Association stipulate that postal voting may be exercised by electronic means if this medium is made available to shareholders and is included in the notice of the meeting. This possibility was made available to shareholders for the Shareholder's Annual General Meetings held in 2016 and 2017, and was used by one shareholder at the Shareholder's General Meeting in 2017.
The preliminary information for the General Meeting and the proposals submitted by the Board of Directors are made available at the time of disclosure of the notice of meeting.
The company has not adopted any mechanism that causes a time lag between the entitlement to receive dividends or the subscription of new securities and the right to vote of each share.
Each share corresponds to one vote, with no limitation.
14. Identification of the shareholders' resolutions that, under the terms of the company´s Articles of Association, can only be approved by qualified majority, apart from the legal ones, and description of those majorities
The decisions are taken by simple majority, except when the law stipulates otherwise.
| II. | MANAGEMENT AND SUPERVISION | |
|---|---|---|
| a) Composition |
Sonae Indústria's Articles of Association define a corporate governance model of the company composed by a Board of Directors, a Statutory Audit Board and a Statutory External Auditor.
The Board of Directors examines annually the advantages and possible disadvantages of adopting this model.
The Board of Directors believes that the model favours the interests of the company and its shareholders, being effective and having not faced any constraints to its operation.
Under the terms of the Articles of Association, the Board of Directors may consist of an even or odd number of members, with a minimum of five and a maximum of nine, elected by the Shareholders' General Meeting for three-year mandates.
Members of the Board of Directors are elected by the Shareholders' General Meeting. Groups of shareholders representing between 10% and 20% of the company's share capital may submit a stand-alone proposal to nominate a Director, in advance of the Shareholders' General Meeting. Such shareholder cannot support more than one list of Directors and each list must identify at least two eligible persons to fill each position on the Board. If lists are submitted by more than one group of shareholders, the voting will be based on all of these lists.
In the event of death, resignation or temporary or permanent inability of any of the Directors, the Board of Directors is responsible for his or her replacement. If the Director in question was nominated by minority shareholders, a new separate election must be held.
On 31 December 2017, Sonae Indústria's Board of Directors was constituted by seven Directors, with one vacant position. All its members were elected at the Annual General Meeting held on 31 March 2015 for the 2015-2017 mandate, with the exception of Louis Brassard that was co-opted by the Board of Directors at the meeting held on 8 June 2016.
Date of the Sonae Indústria's current Directors first appointment:
George Christopher Lawrie 12 April 2013.
Louis Brassard – initially appointed on 15 December 2005, ceased to hold the position of Director of the company on 28 April 2009, having been co-opted until the end of the current mandate (2015-2017), on 8 June 2016.
On 31 December 2017, the Board of Directors of Sonae Indústria comprised:
Of the seven (7) Directors, two (2) are Managing Directors and five (5) are non-executive members, as indicated in the previous paragraph.
Among the non-executive Directors, four (4) are independent, also as indicated in the previous paragraph.
Paulo Azevedo (Chairman of the Board of Directors): holds a degree in Chemical Engineering from the Lausanne Polytechnic School (Switzerland) and a post-graduation in Business Studies (MBA) from the Oporto Business School (ex-EGP). He was CEO of Optimus – Telecomunicações S.A. between 1998 and 2000; CEO of Sonaecom, SGPS, S.A., between 2000 and 2007; CEO of Sonae SGPS, S.A. between May 2007 and April 2015; Chairman of the Board of Directors and Co-CEO of Sonae SGPS, S.A. since April 2015. He holds a number of managerial and directorship roles in the Efanor/Sonae Group.
Javier Vega (Independent): holds a degree in Mining Engineering by the Escuela Técnica Superior de Ingenieros de Minas of Madrid and in Business Management from Glasgow Business School (UK). He was a member of the Board of Directors of several companies such as Robert Bosch, Red Eléctrica de España, SEAT and Grupo Ferrovial. Currently he holds other Board positions.
Albrecht Ehlers (Independent): lawyer; law degree from the University of Münster (Germany). From 1987 to 2000, he held various positions in the legal and human resources departments of Glunz AG, having been appointed in 1995 to join the Executive Board (Vorstand) of that company, with responsibilities in several areas including human resources and legal department. Between 2000 and 2004 he was senior vice-president of Hochtief AG (Germany) with particular responsibility in the areas of human resources and corporate services. From 2004 until 2009, he joined the Executive Board (Vorstand) of that company. Since 2010, he is Chancellor at the Technical University of Dortmund (Germany).
Carlos Moreira da Silva (Vice-Chairman of the Board of Directors and Independent): degree in Mechanical Engineering – University of Porto, MSc in Management Sci. and Operational Research (University of Warwick – UK) and PhD in Management Sciences (University of Warwick – UK). Auxiliary professor of Faculdade de Engenharia of U.P. between November 1982 and March 1987, director of EDP, Electricidade de Portugal, E.P. (between March 1987 and August 1988), he held several positions in companies of Sonae Group / Sonae Indústria Group between September 1988 and January 2000 and, thereafter, in 2003, occupied the position of CEO of Sonae Indústria, SGPS, SA until April 2005, as well as in other companies of Sonae Indústria Group. He was member of Advisory Board of 3i Spain (2005-2012), member of the Supervisory Board of Jerónimo Martins Dystrybucja, SA (from 2009 to 2012) and Chairman of the Board of Directors of La Seda de Barcelona (2010- 2014). Currently he is Chairman of BA Group and is member of the Board of Directors of Gascan, SA.
José Romão de Sousa (Independent): holds a BSc in Chemical and Industrial Engineering – IST, University of Lisbon (Portugal) and a PhD in Chemical Engineering – Imperial College, University of London (UK). He has large experience in the manufacturing industry, particularly in the chemicals (formaldehyde resins, adhesives and water-borne emulsion resins) and plastics industries (Vinyl and polyolefin extrusion and calendaring). He held several management functions in the ProHolding Group, being still today Non-Executive Chairman of several group companies and associated companies, including a new venture into biologic fungicides. He has experience in the financial sector, namely in private equity, portfolio management and brokerage. Currently, he is Chairman of the Board of Directors of Promotor SGPS, SA and Epoli-Espumas de Polietileno SA, among other companies.
Christopher Lawrie (Managing Director): BA (Honours) Degree in Business Studies and Finance at Greenwich University (UK). He has broad experience in investment banking, having worked with Schroders, BZW and Credit Suisse where he was Director of the Corporate Finance Division covering specifically Southern European Telecoms markets. In 2001, he joined Sonae/Efanor Group as CFO of Sonaecom and, later, he was appointed CEO of Sonae Retail Properties. In 2013, he was appointed CFO of Sonae Indústria, and is currently Managing Director and Chairman of the Management Committee.
Louis Brassard (Managing Director): degree in Industrial Engineering – Montreal Polytechnic School (Quebec, Canada). MBA in Finance and Marketing – University of Montreal. Since 1994 in Sonae Indústria's Group, where he held various positions and is currently COO of Tafisa Canada and member of the Management Committee.
Paulo Azevedo is a Director and shareholder of Efanor Investimentos SGPS, SA, to whom the control of the majority of the voting rights in Sonae Indústria is imputed.
21. Organisational charts with distribution of competencies of the various statutory bodies, committees and/or departments of the company, including information regarding delegation of competencies, particularly in what concerns the delegation of day-to-day company business
The responsibilities of the different governing bodies and committees of the company are distributed as follows:
The Board of Directors appointed two Managing Directors, whom were delegated the broadest managing powers of the company including all legal and statutory competences that are attributed to the Board of Directors, with exception of:
n) making any other financial investment which exceeds the accumulated amount of 10,000,000 euros in any financial year, unless in the ordinary course of business, namely in short term investments of available cash;
o) disposing of assets or other divestments, if such a transaction has a significant effect on the operating results of the company (defined as equal or greater than 2,000,000 euros) or affects the jobs of more than 100 employees;
The Board of Directors also appointed a Management Committee, composed by the Managing Directors and by the COO of Laminates & Components. The Management Committee's main objective is to support the Managing Directors in the functions that were delegated by the Board of Directors.
| b) | Functioning | |
|---|---|---|
The Board of Directors and the Management Committee are regulated by the functioning rules that can be read at the company website, www.sonaeindustria.com.
The Board of Directors convened 5 times in 2017, with the respective minutes of meetings recording all the deliberations made. The attendance of the Board of Directors members to those meetings was 100% (physically, by electronic means or by representation).
The company's Shareholder's Remuneration Committee liaises with the Board Nomination and Remuneration Committee to assess the performance of the Executive Directors.
The criteria to assess the performance of the Executive Directors are predefined, based on the performance indicators of the company, the working teams under their responsibility and their own individual performance. These criteria are further explained in the Remunerations section of this report.
The pre-determined criteria for evaluation of the Executive Directors are the following: objective criteria related to the degree of successful implementation of initiatives and actions that were agreed for implementation in the year in question; and subjective criteria related to the contribution in terms of experience and knowledge to the discussions by the Board of Directors, the quality of preparation of meetings and the contribution to discussions of the Board of Directors and Committees, as well as the commitment to the success of the company, among others.
The Managing Directors work full time on the management of Sonae Indústria and its subsidiaries.
The other members of the Board of Directors currently perform their roles as members of the Board of Directors and the supervisory bodies of other companies, as listed below.
Sonae Arauco, SA (Chairman of the Board of Directors)
Sonae Arauco, SA
Sonae Arauco Deutschland GmbH (Chairman of the Supervisory Board – "Aufsichtsrat")
Sonae Arauco, SA
| c) | Committees within the Management or Supervisory Bodies and Managing |
|---|---|
| Directors |
The Board of Directors appointed two Managing Directors, Christopher Lawrie and Louis Brassard. With the main objective of supporting the Managing Directors in the functions delegated by the Board of Directors, the Board of Directors appointed a Management Committee, composed of the two Managing Directors and the COO of Laminates & Components.
The Board of Directors also appointed two specialised committees, the Board Audit and Finance Committee and the Board Nomination and Remuneration Committee.
The rules that regulate the functioning of the Board of Directors and the rules that regulate the functioning of the Management Committe can be read on the company website, through the following links:
Board of Directors:
http://www.sonaeindustria.com/file\_bank/investor/Regul%20CA%20PT\_22062016.pdf http://www.sonaeindustria.com/file\_bank/investor/BoD%20Regulation%20ENG\_22062016.pdf
Management Committee:
http://www.sonaeindustria.com/file\_bank/investor/Regul%20Mancom%20PT\_22062016.pdf http://www.sonaeindustria.com/file\_bank/investor/ManCom%20Regulation%20ENG\_22062016.pdf
The Managing Directors of the company are Christopher Lawrie and Louis Brassard.
The Board of Directors appointed three committees with specialised expertise.
The Management Committee is composed by the two Managing Directors and by the COO of Laminates & Components:
The MANCOM is responsible for supporting the Managing Directors, within the respective delegation of powers, carrying out the following functions:
Prior to any decision on the following matters, the Managing Directors shall obtain the previous and non-binding opinion of the MANCOM in relation to:
The MANCOM shall provide, in a timely and appropriate manner, the information requested by members of any Statutory Governing Bodies of the company.
The Chairman of the MANCOM shall:
Over the course of 2017, the MANCOM met on twelve occasions and the respective minutes have been drafted.
The BAFC is composed of the following Non-Executive Directors:
The BAFC normally meets at least five times yearly and is responsible for:
Over the course of 2017, the BAFC held five meetings and the respective minutes have been drafted.
Responsibilities attributed to BAFC as a specialised committee of the Board of Directors are developed in terms of company management and do not override the functions of the Statutory Audit Board, as a supervisory body. The BAFC is a committee within the Board of Directors and according to the powers it was delegated, it is responsible for an in-depth analysis of the financial statements, analysis of internal and external audit works, risk management processes and the performance of the key financial ratios, among other areas. It also issues recommendations for final deliberation at the Board of Directors, thereby improving its operational functioning.
The BNRC is composed of the following Non-Executive Members:
This Committee meetings are normally held at least twice a year. The BNRC's main functions are to review and submit proposals and recommendations, on behalf of the Board of Directors, to the Shareholder's Remuneration Committee in relation to the remuneration and other compensations of Board members. Additionally, it analyses and approves proposals and recommendations, on behalf of the Board of Directors, in relation to the remuneration and other compensations for other senior executives of Sonae Indústria Group, depending on the activity performed by them.
The BNRC liaises with Sonae Indústria´s Shareholders' Remuneration Committee, since this is the only means through which to guarantee that the Shareholders' Remuneration Committee has the necessary knowledge on the performance of every Director throughout the year. This is particularly important in the case of the Executive Directors, given that the Shareholders' Remuneration Committee does not closely shadow the performance of every Director and therefore does not have the necessary knowledge that enables them to perform their functions in the best way. The BNRC may also be assisted by external entities provided absolute confidentiality is ensured in relation to the information obtained arising from that cooperation.
Over the course of 2017, the BNRC met on two occasions and the respective minutes have been drafted.
| III. | SUPERVISION |
|---|---|
| a) | Composition |
The company's supervisory body is the Statutory Audit Board, which is elected at the Shareholders' General Meeting.
The Statutory Audit Board may comprise an even or odd number of members, with a minimum of three and a maximum of five, and with one or two substitutes depending on the number of members being either three or more, respectively. The members are elected for three-year mandates.
The current Statutory Audit Board was elected at the 2015 Shareholders' Annual General Meeting for the 2015- 2017 mandate and has the following composition:
The current members of the Statutory Audit Board were elected for the first time on the following dates:
All members of the Statutory Audit Board comply with the rules of incompatibilities referred to in paragraph 1 of Article 414-A and the criteria of independence set out in paragraph 5 of Article 414, both of the Companies Law.
To ensure at all times the independence of its members, the Statutory Audit Board members, prior to being appointed, issued statements attesting that they: (i) did not incur in any of the incompatibilities set out in Article 414º-A of the Companies Code and they were not in any situation that affects their independence, in accordance with paragraph 5 of Article 414º of the same law and (ii) committed to immediately notify the company of anything that may lead to their loss of independence or to any incompatibility during their mandate.
The Statutory Audit Board Regulation also states that if, during the course of their term of office, any situation related to loss of independence or incompatibility regarding any member of the Statutory Audit Board arises, the respective member shall immediately inform the Chairman of the Board of Directors. Any situation of legal incompatibility shall lead to forfeiture of the term of office of the Statutory Audit Board member.
MANUEL HELENO SISMEIRO (Chairman of the Statutory Audit Board): degree in Finance, SCEF (Portugal), Accountant, ICL (Portugal). Currently he is a specialist consultant in the areas of internal audit and internal control and is Chairman of the Statutory Audit Board of OCP Portugal Produtos Farmacêuticos SA, Sonae Indústria, SGPS, SA and Sonae Capital, SGPS, SA. In the past, he was a partner at Coopers & Lybrand and Bernardes, Sismeiro & Associados and, between 1998 – 2008 at PricewaterwhouseCoopers - auditors and Statutory External Auditor and responsible for the audit and official review in various activity sectors. He was also responsible for managing the office of those companies in Porto and Director of the Audit Division in the period of 1998 – 2002 as well as member of the management board of PricewaterhouseCoopers.
OSCAR ALÇADA DA QUINTA (Statutory Audit Board Member): degree in Economics (University of Porto). He has held various rolesin both administrative and financial departments of different companies (1982-1986) and since 1986 has provided audit services in the Official Statutory Auditors Association. Through this activity in 1990 he was included in the List of Official External Auditors, a function which he works on exclusivity, initially on a standalone basis and subsequently as partner of Óscar Quinta, Canedo da Mota & Pires Fernandes, SROC.
ANTÓNIO AUGUSTO ALMEIDA TRABULO (Statutory Audit Board Member): degree in Economics – University of Porto, post graduation in Accounting and Corporate Finance – Universidade Aberta (Portugal), Diploma in Suficiência Investigadora in the field of Financial Economics and Accounting – University of Valladolid (Spain), Phd in Management and Business Administration – University of Valladolid (Spain), completed curricular part (in the final stages of completion Thesis), Statutory Auditor. Currently, he is a Statutory Auditor and Partner of Velosa, Silva, Marques e Trabulo, SROC.
PAULO MANUEL CARVALHO DA SILVA (Statutory Audit Board Substitute-Member): bachelor degree in Accounting and Administration – ISCAP, Bachelor Degree in Customs Expert – ISCAP, Degree in Administration and Customs – ISCAP, CEOG course of Universidade Católica. Since 1992, is member of the company Velosa, Silva, Marques and Trabulo, SROC.
All members of the Statutory Audit Board have adequate competencies to exercise their respective functions.
b) Functioning
The functioning rules of the Statutory Audit Board can be read at the company website, through the following links:
http://www.sonaeindustria.com/file\_bank/investor/Regulamento%20do%20Conselho%20Fiscal\_PT\_FINAL.pdf http://www.sonaeindustria.com/file\_bank/investor/Statutory%20Audit%20Board%20Regulation\_EN\_FINAL.pd f
In 2017, the Statutory Audit Board convened seven times. The minutes were drawn up recording the respective deliberations. All members attended 100% of the meetings.
The Statutory Audit Board members performed their roles together with other functions and roles listed below, as outlined in section 33.
Positions held by Statutory Audit Board members on 31 December 2017:
| c) | Responsibilities and functions | ||
|---|---|---|---|
| -- | ---- | -------------------------------- | -- |
If the company or any of its subsidiaries has the intention to hire the services of the External Auditor or any entities with which they have joint shareholdings or which are part of the same network, other than auditing services, the Statutory Audit Board must previously approve such hiring.
Thus, if Sonae Indústria or any Group subsidiary intends to hire services to the External Auditor or to any entity that is in a group relationship with it, the Statutory Audit Board must be previously informed, so that such hiring does not affect the independence of the External Auditor and does not, in the overall services provided, have a significant relevance when compared to the auditing services. The Statutory Audit Board must also ensure that
the necessary conditions are in place to perform such services with autonomy and independence in relation to the ongoing audit services.
The Statutory Audit Board's main responsibilities are as follows:
Besides those responsibilities, the Statutory Audit Board must issue prior opinion on any transaction with shareholders or entities with whom they are in any relationship, under Article 20 of the Securities Code (reference shareholders), in the terms set forth in section 91.
The Statutory Audit Board's Report, available on the company website together with the other accounting documents, details the supervisory activity carried out, with no constraints detected.
IV. STATUTORY EXTERNAL AUDITOR
The Statutory External Auditor is PricewaterhouseCoopers & Associados, SROC, Lda, represented by Hermínio António Paulos Afonso.
PricewaterhouseCoopers has been the statutory external auditor of the company since the Annual General Meeting of 2006, and is currently undertaking its fourth three-year mandate.
In 2017, PricewaterhouseCoopers provided other compliance and assurance services to Sonae Indústria subsidiaries.
V. EXTERNAL AUDITOR
The External Auditor of the company is PricewaterhouseCoopers & Associados, SROC, Lda, represented by Hermínio António Paulos Afonso, registered in the CMVM under nr. 9077.
PricewaterhouseCoopers has been the External Auditor of the company since 2006. Its current representative, Hermínio Afonso, has represented it since 20 September 2011.
Sonae Indústria had adopted the principle of not proceeding with the rotation of the External Auditor at the end of its third mandate, only if the Statutory Audit Board concluded that, if the External Auditor is kept in functions beyond the before mentioned period, that would not collide with its independence, and if the cost-benefit analysis of this replacement would be in favour of the renewal of the mandate.
In the proposal presented to the Shareholders' Annual General Meeting, in 2015, to appoint the Statutory External Auditor of the company, the Statutory Audit Board considered that the quality of the work performed and the accumulated experience in the sector of activity of Sonae Indústria, both of the statutory audit firm which election is proposed as well as of the entities belonging to the same network in the countries where Sonae Indústria holds, direct or indirectly, affiliated companies, that are included in its consolidated accounts and where such entities are External Auditors of Sonae indústria's affiliated companies constituted an asset that must be taken into account. Having contemplated those facts and the extent of the burden to be supported by Sonae
Indústria in an eventual replacement, it was recommended the permanence of such statutory audit firm in the exercise of her functions. The Shareholders' Annual General Meeting has approved the proposal presented.
Further to the publication of Law nr. 140/2015 of 7 September, Sonae Indústria shall, at least, comply with the provisions of that law, as well as it complies with the law regarding the Statutory External Auditor partner, always performing an assessment to guarantee that the independence of both is maintained.
The Statutory Audit Board monitors the performance and execution of the works conducted by the External Auditor throughout each period, meeting with him whenever it deems fit. Moreover, the Statutory Audit Board assesses, on a yearly basis, the global performance of the External Auditor, including an appraisal on his independence.
During 2017, services related to the implementation of a system to support the creation of the report of CbCr (Country-by-Country reporting) were provided to Efanor Investimentos (through its subsidiary Sonae Center Serviços II, S.A.). The total amount billed, in 2017, was 9,500 euros. The Statutory Audit Board approved this hiring.
Sonae Indústria and its subsidiaries that are in a controlling or in a group relationship paid PricewaterhouseCoopers the following amounts in 2017:
| By the company | |
|---|---|
| Auditing services (€) | 12,375 € / 12.4 % |
| By other group entities | |
| Auditing services (€) | 75,954€ / 76.08% |
Other services (€) 9,500 € / 9.52%
I. ARTICLES OF ASSOCIATION
The rules applicable to amendments made to the company's Articles of Association are established by law. It is the Shareholders' General Meeting's responsibility to decide on the amendment of the Articles of Association.
However, the Board of Directors can decide to change the registered office within the national territory, as well as deliberate on increases in the company's share capital through new cash injections up to one thousand and two hundred million euros, on one or more times.
Sonae Indústria has a Code of Conduct that includes a policy for the communication of irregularities, which is available at the website, www.sonaeindustria.com. Sonae Indústria's Code of Conduct and policy for communication of irregularities aims to create the climate and means for its employees and service providers to express their concerns about any behaviour or decision that they believe does not respect the company's ethics or Code of Conduct. With the extinction, in June 2016, of the Social Responsibility, Environment and Ethics Committee, its Ethics subcommittee was also extinguished. However, in 2017, it was concluded that the existence of an Ethics Committee composed by the Chairman of the Board Audit and Finance Committee and the head of the Group's legal department allows a more appropriate treatment of any reported denunciation. The Ethics Committee thus comprises Javier Vega and Júlia Moreira da Silva.
Any information on an alleged irregularity should be sent via e-mail or post to one of the following addresses:
By e-mail: [email protected]
By post: Sonae Indústria SGPS, S.A. Ethics Committee Lugar do Espido, Via Norte Apartado 1096 4470-177 Maia Codex Portugal
When requested, a meeting may be scheduled to clarify the possible situation with the Ethics Committee.
Each irregularity communication will be received by the Ethics Committee, which is responsible for initiating and supervising the investigation of all denounced situations. Once the inquiry is concluded and if the reported irregularity corresponds to wrongful conduct, the Ethics Committee shall notify the employee's hierarchical responsible or the service provider's employer so that corrective actions and / or disciplinary proceedings are applied.
As the company wishes to encourage good faith, reporting of any alleged irregularity while avoiding damage to the reputation of innocent persons initially indicated as allegedly suspect of wrongful misconduct, anonymous reports are not accepted. The investigation will be conducted in a confidential manner and the company ensures that there will be no discriminatory or retaliatory action against any employee or service provider who reports an alleged irregularity in good faith. If any employee or service provider believes that he or she has been subject to retaliation for reporting or participating in an investigation, he/she should immediately report such perceived retaliation to the Ethics Committee.
The company provides a form to report irregularities on its intranet.
The Ethics Committee informs the Statutory Audit Board of any reported denunciation.
The company maintains records of all complaints and situations that were investigated and the respective findings, which are available for consultation by the statutory bodies and the Ethics Committee.
The Code of Conduct of Sonae Indústria contains a set of standards based on our shared values that govern the activities of Sonae Indústria. It applies to everyone employed by the Group, including members of the statutory bodies of Group companies, managing directors, senior executives, employees and people whose status is equivalent to that of employees, such as temporary staff and service providers. The Code of Conduct sets out
guidance on those matters of business ethics to be complied with by all employees and service providers when carrying out their professional duties.
Sonae Indústria adheres to and actively promotes the highest ethical standards of professional conduct at all levels of the Group. Commitment to standards of conduct must emanate from the top. Therefore, Sonae Indústria's top managers are expected to set an example for the rest of the organisation through their actions, by actively leading the adoption and by monitoring the enforcement of these standards. As such, the senior managers must guarantee, in their area of responsibility, strict compliance with the law, permanently monitoring such compliance, and clearly explaining to their employees that the transgression of any law will have both legal and disciplinary consequences.
It is particularly important that a commitment to these standards of conduct is accepted by all employees and service providers at all Group companies, wherever they operate. Country operations are also required to adopt appropriate principles and actions to deal with specific ethical issues that may arise in their own countries.
The Code of Conduct of Sonae Indústria was defined in such a way that clearly explains the conduct to be followed with all stakeholders, as well as to connect it with the company's values. The Code of Conduct is structured in the following way:
The complete Code of Conduct can be found at the company website, www.sonaeindustria.com.
| III. | INTERNAL CONTROL AND RISK MANAGEMENT |
|---|---|
Internal Audit and Risk Management for Sonae Indústria are currently provided by the Internal Audit and Risk Management team of Sonae Arauco that reports its activities and findings to the Board Audit and Finance Committee and to the Statutory Audit Board.
In order to comply with best practice behaviour regarding anti trust regulations for North America business, the support of Sonae Arauco's team to Tafisa Canada was adjusted and some of the Internal Audit and Risk Management activities have been internalised by Tafisa Canada. The Operational Risk Management functions of Tafisa Canada have also been internalised by Tafisa Canada. For the same reason, Sonae Arauco and Tafisa Canada Information Technology (IT) systems have been segregated. It should also be noted that in respect of accounting and administrative functions, Tafisa Canada keeps its independence, as Canada was never included in the scope of the Shared Services Centre (which is now under the responsibility of Sonae Arauco).
Internal Control and Risk Management are important parts of Sonae Indústria's culture, and are integrated into the management processes and responsibilities of all Group employees, at all levels of the organization. This is supported by Group transversal functions, notably Risk Management, Internal Audit and Planning and Management Control, with specialised teams.
The mission of Risk Management is to support the companies in achieving their business objectives through a structured and systematic approach of identifying and managing risks and opportunities. It has also the objective to promote the consistency of principles, concepts, methodologies and tools to evaluate and manage the risks of all business units of the Group.
The mission of Internal Audit is to identify and evaluate, in a systematic and independent way, the correct functioning of the risk management and internal control systems, as well as the implementation effectiveness and efficiency of the controls and mitigation actions. It must also inform and alert the Board of Directors and the Statutory Audit Board of the more relevant observations and recommendations, identifying improvement opportunities.
The Planning and Management Control (PMC) department promotes and supports the integration of the risk management activities in the planning and management control processes of the companies. This department, supported by robust information systems, produces reports containing operational, financial and compliancerelated information. Through its Procedural Manual, it ensures and defines a set of rules and procedures relative to the planning processes, reporting, management accounts and investment approval process.
Ongoing monitoring activities of control are in place, namely approvals, authorisations, verifications, reconciliations, reviews of operating performance, security of assets and segregation of duties. Pertinent information is identified, captured and communicated within a form and time frame which enables employees to fulfil their responsibilities.
Sonae Indústria keeps a corporate team responsible for Planning and Management Control in parallel with Sonae Arauco team and each business unit has in its team a controller which ensure that procedures of the group are properly implemented.
As with Internal Audit & Risk Management, Accounting, Administration and Transaction Services are provided by Sonae Arauco centralised accounting back-office and Shared Service Centre (SSC) providing accounting and administration services for all Sonae Indústria affiliates with the exception of Tafisa Canada, thus helping to guarantee alignment of policies and strengthening of procedures and controls.
The reliability and integrity risks of the accounting and financial information are also evaluated and reported by the External Audit activity.
Sonae Indústria has a reasonable level of confidence in the internal control framework which is currently in place. Communication of the Vision, Values and Principles throughout the organization reinforces the importance in terms of ethical behaviour. The existence of the Code of Conduct, of the whistleblower tool (reporting of irregularities) and the Ethics Committee enhance the control culture of the organisation.
In 2017 Sonae Arauco has also approved a Code of Ethics (distributed to its employees in January 2018) with the objectives of reinforcing the awareness of Sonae Arauco's Vision, Values and Principles and encouraging the good conduct of its employees.
The Internal Audit and Risk Management team integrates and participates periodically in the meetings and activities of two "Sonae companies' committees" (groups composed of representatives from several Sonae companies): the Audit Committee and the Risk Management Consulting Group. The participation in these bodies contributes to the strengthening of processes and to the increased effectiveness of the internal audit and risk management activities of the companies that are represented.
It is the responsibility of the Board of Directors to create the necessary structures and services to ensure that the internal control and risk management system works properly. For this purpose, the Board of Directors, through the Board Audit and Finance Committee, monitors the activities of Internal Audit and Risk Management.
The Internal Audit and Risk Management reports to the Statutory Audit Board and the Board Audit and Finance Committee, whose Chairman is an Independent Director. These bodies can, at their discretion, request meetings to discuss and review internal audit and risk management matters and can also request information or clarifications whenever they wish.
The competences of the Statutory Audit Board include reviewing the effectiveness of the risk management system as well as that of the internal control and audit systems. The Statutory Audit Board has access to all the information whenever it deems necessary and can liaise with the head of the department, receiving the reports related to those activities.
The Statutory Audit Board is presented with the internal audit and risk management annual plan of activities, and may issue its opinion on it, in addition to the suitability of the resources allocated to the different activities.
The External Auditor reviews the effectiveness and operation of the internal control mechanisms according to work plan aligned with the Statutory Audit Board, to whom it also reports its findings.
Sonae Indústria culture is based on integrity and ethical values, as outlined in the company's Code of Conduct, which emanate from the top with the example then being set by management.
The different governing bodies were born from a management philosophy and operating style based on a strong organizational structure with adequate assignment of authority and responsibilities. Solid Human Resources policies and procedures and the existence of the Code of Conduct are enshrined in such structure.
Sonae Indústria faces a variety of external and internal risks that must be assessed and for this purpose the company has installed a culture of prevention and early detection. An Enterprise-Wide Risk Management Framework was developed and is updated periodically. Additionally, it is also each functional area of the Group the responsibility of controlling and monitoring of the risks inherent to each function.
Sonae Indústria's activity is reliant upon the macroeconomic environment and the profile of the markets in which it operates. Sonae Indústria's subsidiaries products are fundamentally commodities, having the nature of durable goods and are mainly intended for the construction and furniture sectors. The Group's operational activity is,
therefore, cyclical, being positively correlated with general economic cycles and, in particular, with the evolution of the sectors mentioned. Thus, Sonae Indústria's and its subsidiaries businesses can be negatively affected by periods of economic recession, in particular by a drop in household consumption levels which, in turn, are influenced, among other things, by wage policies and unemployment levels, as well as prevailing confidence and social protection levels. The availability of credit in the economy is also relevant for Sonae Indústria Group's business due to its potential impact on the property market. Sonae Indústria, through its subsidiaries, has a strong presence in international markets, having as most important markets the Eurozone, North America (namely Canada and the United States) and South Africa. These markets have different macroeconomic, political and social profiles and, as such, are reacting differently to the economic and financial crises and to the economic cycles. The relevant markets to Sonae Indústria's business are exposed to diversified macroeconomic risks outside of Group's control. Equally, possible political and/or social and/or religious tensions in any of the markets may have a material impact on Sonae Indústria Group's operations and financial situation that is impossible to estimate.
The activity developed by Sonae Indústria faces significant challenges in the worldwide sector of wood based panels industry, as it is subject to hard competition in all the markets in which it is present (namely in Iberian Peninsula, Germany, North America and South Africa), which could have adverse effects on the Group's financial situation and results to the extent that the increase of production capacity, the opening of new competing industrial units and/or the adoption of a more aggressive pricing policy by these competitors, could lead to a reduction in turnover and/or the need to review prices by Sonae Indústria's subsidiaries, with a knock-on effect on the profitability and sustainability of its operations. Sonae Indústria's diversified base of assets and the geographical exposure to various European markets, along with the North American and South African markets, and also other markets through exports, the increased focus on higher added value products as a way of differentiating and the effort to retain costs as part of the strategy already being implemented, could protect the competitive position of the Company and allow it to achieve its objectives of being recognised as a reference player in the wood-based panels sector.
Some of the businesses developed by Sonae Indústria may require additional investment, the conditions of which could depend on the financial framework, on its current indebtedness level and by the evolutions of its activity and that of its subsidiaries. Financing of the additional component may be obtained through its own and/or external capital. Sonae Indústria cannot guarantee that these funds, if necessary, will be obtained, or that they will be subject to the predicted conditions. If there is a need for external capital, the macroeconomic and financial framework could present constraints both at the available liquidity level and at the financing cost level, which may affect or preclude access to credit. Even under a recovery context, the speed and manner in which this takes place is subject to considerable uncertainty, meaning the financing of Sonae Indústria and/or of its subsidiaries possible future investments cannot be guaranteed.
Since the industrial activity in the sector is dependent on considerably large industrial units, Sonae Indústria's consolidated cost structure has a significant fixed component, i.e. not dependent on sales volume and upon which the Group can only act through restructuring or efficiency increase initiatives. An insufficient turnover or gross margin on sales to offset fixed costs could determine losses to be registered by Sonae Indústria and its subsidiaries.
On the other hand, the variable cost structure of Sonae Indústria's subsidiaries, notably in the case of raw materials, mainly wood, chemicals and air-dried paper, is exposed to external factors (that are outside the company´s control), with a positive or negative impact on the availability of such raw materials and their purchase price. In particular, the risk associated with access to wood, the raw material essential to the production process, in terms of suitable quantity, type, quality and price, may impact not only the subsidiaries ability to provide its customers with products according to agreed time frames and conditions, but could affect expected profitability when it comes to setting a sale price for its products. In an extreme scenario, the inability to buy wood in sufficient quantities could lead to a temporary interruption in production at the affected industrial unit, with knock-on effects on operational profitability. To mitigate this risk, Sonae Indústria's subsidiaries have
diversified their supply sources and the types of wood used, namely through recycling waste, and introducing different types of wood and alternative by-products.
The ability of Sonae Indústria to develop and offer higher added value products on competitive terms at global level is an increasingly crucial objective in the current context of the wood-based materials sector. This is dependent on technological developments, which may be difficult to predict and monitor. Failure by Sonae Indústria to monitor and anticipate technological advances, or to predict the receptiveness of new products, could affect its business and the results of its operations.
Sonae Indústria's activities are subject to certain operational risks, especially with respect to industrial production of its subsidiaries. There are multiple factors, not directly controllable by Sonae Indústria nor by its subsidiaries, which may interrupt production and have potentially negative effects on operations and, consequently, on the financial situation and results. The manufacture of wood-based panels is an industrial activity that entails high operational risk due to the possibility of accidents involving fire or explosions. As a result, the management of operational risk is a central concern of the Company, which takes an active stance in terms of implementing regulations and best practices, as well as selecting systems capable of reducing industrial risks. In addition, flawed policies for the management and control of operational risks could affect the Group's business and operational results.
The main financial risk that Sonae Indústria as a business is exposed to is the credit risk associated with its customer portfolio. The credit risk is related to receivables from customers, i.e. the risk that due to lack of liquidity a customer is late in paying or does not pay for the goods and services acquired. Sonae Indústria Group's credit risk control systems are, above all, related to receivables from customers, having as main purpose to guarantee the effective collection of the receivables from customers in accordance with the agreed conditions. Among other procedures implemented by Sonae Indústria to mitigate this risk, Sonae Indústria makes use of credit insurance, as a mandatory tool to mitigate this risk, in all regions where it is present and such insurance is available. In specific situations where we are not able to contract credit insurance to mitigate this risk, alternative and/or complementary solutions (such as bank guarantees, letters of credit and confirming, among others) are explored together with our clients in order to achieve the largest possible turnover volumes in an environment of minimum and controlled risk. If it is not possible to obtain sufficient risk coverage for a specific customer or operation, a detailed internal process has been developed with the objective of analysing every particular aspect of such business, so an informed and complete decision can be taken over a possible own risk-taking situation.
It should be noted that none of Sonae Indústria customers, including Sonae Arauco customers represents more than 7% of its aggregate turnover (considering 100% of Sonae Arauco turnover).
The existence of financial covenants in Sonae Indústria financing agreements also represents a financial risk. Sonae Indústria main financing agreement includes a maximum level of the "Net Debt to EBITDA" ratio of the subsidiary Tafisa Canada, calculated on the basis of its annual individual audited accounts, as well as a maximum level of Sonae Indústria's financial indebtedness (based on its individual accounts). In another financing agreement, Sonae Indústria commits to ensure a minimum level of "Shareholders Funds to Total Assets", calculated on its annual audited consolidated accounts. The non-compliance with these financial ratios may lead to an event of default in the respective financing agreements, which could lead to their termination, including the early repayment of the associated financial debt.
The economic risks that Sonae Indústria is exposed to include: interest rate risk, foreign exchange risk and liquidity risk.
Interest rate risk depends on the proportion of floating rate debt and the consequent cash flows related to interest payments. As a general rule, Sonae Indústria does not hedge its exposure to floating interest rates through financial derivatives. This approach is based on the principle of the existence of a positive correlation between the interest rate levels and the "operating cash flow before net interest charges" which creates a natural hedge on the "operating cash flow after net interest charges" for Sonae Indústria. As an exception to this general rule, Sonae Indústria Group may engage into interest rates derivatives, and is this case, the following
principles should be observed: (i) derivatives should not be used for trading, profit making, or speculative purposes; (ii) engage preferably in derivative transactions with Investment Grade financial institutions; (iii) match exact periods, settlement dates and base interest rate of the underlying exposures; and (iv) maximum financial charges (aggregate of the derivative and the underlying exposure) should be known and limited on the inception of the hedging period. The inefficiencies, whenever they exist, are booked under the financial results item of the consolidated income statement.
Foreign exchange risk exposure is due to the fact that Sonae Indústria is a geographically diversified group, present in three different continents, and as such subject to transactions and balances denominated in pound sterling, South African rand, Canadian dollar, American dollar, Swiss franc and Polish zloty. The Consolidated Statements of Financial Position and Income Statement are exposed to the risk of a change in the value of capital invested in subsidiaries outside the Eurozone. Sonae Indústria's subsidiaries are exposed to the risk associated with commercial transactions made in currencies other than their local currency.
Transaction risk arises when there is exchange risk related to a cash flow in other than a subsidiary local currency. The Group companies cash flows are largely denominated in the respective subsidiary local currency. This is valid independently of the nature of the cash flows, i.e.: operating or financial, and provides a degree of natural hedging, reducing the Group's transaction risk. Aligned with this reasoning, Sonae Indústria's subsidiaries only contract debt that is denominated in the respective local currency. Additionally, whenever there are relevant business flows in a currency different from the subsidiary local currency, a natural hedge strategy may be implemented, if feasible from a business perspective, seeking to offset purchases (payments) or sales (receivables) in that currency with sales (receivables) and purchases (payments) in the same currency for similar amounts. In situations where there is a relevant exchange risk as a result of operational activity involving currencies other than the local currency of each subsidiary which cannot be naturally hedged, the exchange risk must, as a general rule, be mitigated by the subsidiary exposed to the exchange rate risk contracting foreign exchange derivatives.
Currency conversion risk emerges from the fact that, when preparing the Group's consolidated accounts, the financial statements of the subsidiaries denominated in currencies other than that of the consolidated accounts (euro), must be converted into euros. As exchange rates vary between accounting periods and as the value of the subsidiaries' assets do not match their liabilities, volatility in the consolidated accounts arise as a result of conversion in different periods at different exchange rates.
Liquidity risk arises when a company does not have the cash or the financing required to properly carry on its business activities on time, implement its strategy and meet its payment obligations when due, while avoiding the need for having to obtain funding under unfavourable terms. Liquidity risk management at Sonae Indústria comprises mainly: consistent financial planning, diversification of financing sources, diversification of debt maturities, and arrangements to secure committed credit facilities with relationship banks. Also, with a view to mitigating liquidity risk, it is Sonae Indústria's target to exclude whenever possible on its loan agreements financial ratios based on profitability indicators such as Net Debt to EBITDA. This objective takes into account the cyclicality of the wood based panels business which translates into highly variable profitability levels with impact on such type of financial ratios at the different stages of the business cycle.
Regarding legal risks, the main risk of the Group's businesses relates to legislative changes that may occur at activity level (environmental law and labour, among others) that can encumber the activity to such an extent that its profitability may be affected.
The activities of Sonae Indústria and its subsidiaries and affiliated companies, as industrial activities, are subject to regulatory frameworks in a number of areas, including national regulations, European Union directives and international agreements, by which Sonae Indústria is bound and which may influence its management and strategic decisions. Indeed, Sonae Indústria, through its subsidiaries and affiliated companies, is subject not only to different legal frameworks but also to legislation in different areas, such as industrial and forestry, environmental, labour, health and safety, construction and housing, urban planning, among others. The noncompliance with such regulations could lead to operational restrictions, investment needs or even the revocation of licences, authorization or permits or in sanctions. Possible changes to regulations, legislation, or changes in interpretation on the part of competent authorities, the position of authorities or difficulties in complying with new laws and regulations could lead to increased adjustment costs, namely industrial and operational, or, in the
limit, constricting the respective operating income, which could have an adverse impact on Sonae Indústria and its subsidiaries activity and operating results. It should be highlighted the on-going regulatory changes of both REACH1 , regarding the reclassification of formaldehyde as dangerous substance, and of the European Industrial Emissions Directive2 in regarding definition of the best practices in the wood based panels sector. In what concerns the reclassification of formaldehyde – the substance used in the manufacturing process of ureaformaldehyde resins, which are the bonding agent of the vast majority of the products manufactured by Sonae Indústria – there is already a reclassification of this substance, as "category 1B carcinogen" (presumed to have carcinogenic potential for humans, classification largely based on animal evidence). This substance reclassification came into force from 1 January 2016 onwards. This reclassification may have consequences both in the definition of the emission standards of Sonae Indústria's industrial operations, and on the restrictive levels of concentration of formaldehyde in the workplace environments. These changes may lead to additional investment needs in Sonae Indústria's industrial units. Although a general ban on the utilization of formaldehyde may be a possible theoretical scenario, it is not considered a likely one, being more foreseeable that such regulatory changes result in restrictions as the ones previously described. As for the definition of the best possible practices in the wood based panels sector, Sonae Indústria considers that additional investment may be required to comply with such practices, in a period between two to three years, with the aim of incorporating some of those practices in the activities where they are not currently considered.
The management of risks is an important part of Sonae Indústria's culture and is mainly supported by Internal Audit and Risk Management activities.
Internal Audit is an independent and objective activity, which aims helping Sonae Indústria to achieve its goals by participating in the process of value creation. It uses a systematic and structured approach to evaluate and improve the effectiveness of risk management, internal control procedures and corporate governance.
Internal Audit operates in accordance with International Standards for the Professional Practice of Internal Auditing, established by the Institute of Internal Auditors, including its Code of Ethics.
Internal Audit reports to the Board Audit and Finance Committee (BAFC) and to the Statutory Audit Board.
The planning of the activity of Internal Audit is essentially developed based on a prior assessment of the systematic business risks of Sonae Indústria. An annual plan of Internal Audit activity is submitted to and discussed with the Board Audit and Finance Committee (BAFC) and to the Statutory Audit Board.
Descriptive reports of the activity of Internal Audit are prepared and sent to the Board Audit and Finance Committee (BAFC) and to the Statutory Audit Board of Sonae Industria, which includes the summary of significant internal control deficiencies and shortcomings in procedures and policies set by company.
The existing reporting system ensures regular feedback, a proper review of the activities and the possibility to adjust the plan of activities to emerging needs.
The Board Audit and Finance Committee (BAFC) and the Statutory Audit Board are responsible for overseeing the effectiveness of the internal audit function. Accordingly, Internal Audit has developed a quality assurance and quality promotion, which includes ongoing analysis and regular and periodic evaluations of the quality conducted internally and externally.
Risk Management is a key concern within the Sonae Indústria culture and is present in all management processes, forming part of the delegated responsibility of managers and employees at all levels within the Sonae Indústria Group.
Risk Management comprises the process of identifying potential risks, analysing their possible impact on the organisation's strategic goals and seeking ways to minimise the probability of their materialisation, in order to determine the best procedures to manage exposure to them.
1 Registration, Evaluation, Authorisation and Restriction of Chemicals; Regulation (CE) n. 1907/2006, of 18 December or Decree-law n. 293/2009, of 13 October.
2 Directive n. 2010/75/EU.
This department is focused in the promotion of a culture of risk awareness throughout the organization and in the coordination of risk management activities and respective reporting of results. It is also responsible for implementing the Enterprise Wide Risk Management (EWRM) methodology, detecting, assessing and prioritising the risks and their potential impact on the organisation's activities.
The company risk model, aggregates the business risks in three categories (Business Division Risks, Business Process Risks and Risk of Information for Decision Making) and quantifies the relevance (impact on EBITDA and operating efficiency) and the probability (frequency of the event or scenario occurring) of the critical risks for Sonae Indústria.
The management of financial risks, incorporated into the business process risks is carried out and monitored within the scope of the finance function.
The risk management also cooperates with the insurance management, whose goal is to bring about more efficient and effective management of the Group's different insurance policies, in order to mitigate insurance risks.
The general approach seeks to assure a suitable and balanced coverage of the operational risk by transferring it to the company's insurance partners. Sonae Indústria developed various insurance programs to tranfer the risk to the market, aiming to cover:
Sonae Indústria contracts global insurance policies as a back up to its risk management processes that better approach specific risks and topics and is committed to improve its assets protection and prevention levels in order to reinforce the partnership with the insurance market.
The production of wood-based panels is an industrial activity with a significant operational risk arising from fire and explosion. Consequently, the operational risk management is assigned to a specific department, active in the implementation of standards and the choice of systems that are capable of reducing industrial unit risks.
Internal Audit and Risk Management services, including Operational Risk Management, for all Sonae Indústria companies, except for Tafisa Canada that has internalised these functions, are provided by teams at Sonae Arauco.
Sonae Indústria kept the focus on the Continuous Improvement Programme supported by a specialised Continuous Improvement Team from Sonae Arauco, which promotes the implementation of continuous improvement best practices that lead to higher efficiency and productivity levels in the group, gradually implementing a cultural change in the company's employees. The objective is to involve all employees in developing a faster and more efficient way to work, not only in the industrial areas, but also in commercial and supporting activities of the company.
Similar to other Sonae Indústria's processes, our industrial procedures are constantly challenged in order to reach more efficient, sustainable and safer practices. The need to evaluate and mitigate the operational risks of the operations is a concern and we focus our activity in increasing the level of awareness on new risks and promote changes to better address the current risks.
In 2017, Operational Risk Management activities were, once again, directed to consolidate the defined planning and guidelines, with a clear focus to reach a risk controlled environment.
Given all identified risks associated with an industrial activity like ours, protection of core assets as well as loss prevention activities, are a constant concern and defined as priorities in 2017.
Operational Risk Management services for all Sonae Indústria subsidiaries are provided by Sonae Arauco teams except for Tafisa Canada, which internalised this function with dedicated and independent teams.
Corporate Operational Risk Standards are recognized as an important tool for a clear guidance and for standardization of the Hazards Management program. These principles were developed with reference to international standards such as NFPA3 and/or FM4 data sheets, bringing together the best protection engineering practices for the wood industry. These standards were validated in coordination with external experts and specialists from risk management and insurance market fields.
The Corporate Operational Risk Standards (CORS) are divided in three areas:
With the objective of complementing the above, specific standards that define the ideal protection per type of industrial equipment have been developed in cooperation with the Group Technology team. This reinforcement of the Hazards Management pillar reflects best practices and recommendations of the equipment suppliers. These standards expedite the investment approval process, as the industrial units already have the specifications necessary for the installation, thus promoting the standardization of the systems.
In the scope of the Continous Improvement pillar, the following two extremely important areas have been the focus in 2017: on one hand, improvements were made in several industrial units to develop protection against explosion risks (project defined with investments to be done during several years) and, on the other hand, the collaboration with a company specialised in the treatment and recovery of thermal oil. Thermal oil systems are critical assets to our business and a proper risk identification requires a degree of industrial and expert knowledge so that the system installation and operation becomes saffer.
3 National Fire Protection Association.
4 Factory Mutual.
As in previous years, the industrial units were evaluated by risk engineers from leading insurance companies responsible for the policies in each country. Depending on the country and on the insurance company the frequency of the risk evaluation can be annual or biannual.
The evaluation results are translated into recommendations wich are included in the Risk Plan of each industrial unit.
During 2017, there was no formal Internal Risk Inspection, mainly as a result of the organizational changes, but also due to the fact that is in course the development of a software for the Internal Risk Inspection.
Nevertheless, there were internal visits which focus on the assessment and audit of compliance of Corporate Operational Risk Standards in some specific sites.
In addition to the recommendations issued by the external risk engineers, each industrial unit also has measures to be implemented in order to comply with the Corporate Operational Risk Standards, the corporate guidelines or the recommendations resulting from the internal risk inspections. The main objectives encompass:
For Sonae Indústria, the implemented internal control environment that also covers the process of preparation and disclosure of financial information is a transversal set of procedures implemented by the Group's executive governing bodies, supported in principles of coherence, consistency, transparency, accountability, honesty, integrity, reliability and relevance, aiming to verify the reliability and the accuracy of the financial information, the compliance with accounting rules and regulations, without letting to promote the operational effectiveness. The internal control system monitors the application of management best practises and procedures, the compliance with the management established policies and aims to provide reasonable assurance in the preparation of the company's financial statements, in accordance with the adopted accounting standards, and to ensure the quality of the financial reporting.
In this global internal control system, the Group's first point of control is associated with the organization, procedures and tasks related with process of decision-making and execution, which translate, in a systematic, controlled and validated way, in the authorizations of the operations by management.
It is then tried to ensure that those management transactions turn into procedures and movements related with accounting and financial records which, consequently, are elaborated in a way to allow a reasonable level of certainty that such transactions are executed in accordance with a general or specific management authorization, that transactions are registered in order to enable the adequate preparation of the financial statements in accordance with the generally accepted accounting standards and to keep an adequate accounting record of the company financial situation. The accounting evidence of the company financial situation is compared, in frequent time intervals, with existing assets and liabilities and appropriate measures are taken whenever relevant material differences are registered.
The reliability, independence, integrity and the opportunity of the financial information are guaranteed not only by the clear separation between who executes the operations, prepares the information and its internal users (and naturally external users), but also by the realization of several control activities throughout the process of preparation, validation and disclosure of financial information.
The internal control system for the accounting and preparation and disclosure of financial information includes the following key controls:
The Group financial statements are prepared under the supervision of the Management Committee. The documents that constitute the Annual Report and Accounts are sent for review and approval by Sonae Indústria Board of Directors, after being previously verified with the Statutory External Auditor. Once approved, the documents are sent to the Statutory External Auditor, who issues the accounts legal certification and audit report, both object of a detailed analysis and deliberation by the Statutory Audit Board;
The process of preparing separate and consolidated financial information and the Management Report is supervised by the Statutory Audit Board and by the Board Audit and Finance Committee of the Board of Directors. These bodies meet quarterly to review the individual and consolidated financial statements. The Statutory External Auditor presents the main conclusions of the work carried out regarding the annual financial information, directly to the Statutory Audit Board and to the Board Audit and Finance Committee. Promptly and when something material happens with relevant impact in the accounts, the Statutory External Auditor meets with the Statutory Audit Board to discuss and validate the implications of those situations in the results' announcements;
Among the risks that may materially affect the financial and accounting report preparation, the following are worth highlighting:
local or consolidated level, analysed by the several internal departments and, if need be, the External Auditor and/or experts are requested to confirm it.
| IV. | INVESTOR RELATIONS |
|---|---|
Sonae Indústria has its own Investor Relations Department, which is responsible for managing the relationship between the Company and shareholders, investors, analysts and market authorities, including CMVM (the Portuguese Securities Market Commission).
Each quarter, the Investor Relations Department is responsible for coordinating the preparation of an earnings announcement to be issued to the market and provides statements whenever necessary to disclose or clarify any relevant fact or event that could affect the share price. The Investor Relations Department is available at all times to respond to any general questions posed by the market. The Company is available to meet investors, either at road shows or in one-on-one meetings upon request, or by participating in conferences.
Sonae Indústria's Investor Relations Department comprises one staff member. Its manager is João Mangericão. The Department may be contacted, by e-mail: [email protected] or by telephone: +351 220 106 359.
Sonae Indústria's legal representative for Relations with Capital Markets is its Managing Director Christopher Lawrie, who can be contacted via the Investor Relations Department or, alternatively, directly by e-mail: [email protected].
The company keeps a record of the requests made to the Investor Relations Department and how each request was dealt with. In 2017, the Department received contacts and requests for clarification from 27 individuals and entities, of which 6 were non-resident. In overall terms, the average response time to the information requests from investors was less than 48 hours. No information requests from earlier years are pending.
The company's website is www.sonaeindustria.com.
Information on the company's firm, the quality of publicly traded company, headquarters and other elements mentioned in Article 171 of the Companies Code is available at:
http://www.sonaeindustria.com/page.php?ctx=2,0,155 (Portuguese version) http://www.sonaeindustria.com/page.php?ctx=1,0,155 (English version)
The company's Articles of Association are available at:
http://www.sonaeindustria.com/page.php?ctx=2,0,31 (Portuguese version) http://www.sonaeindustria.com/page.php?ctx=1,0,31 (English version)
The functioning regulations of the Board of Directors, Management Committee and the Statutory Audit Board are available at:
http://www.sonaeindustria.com/page.php?ctx=2,0,29 (Portuguese version) http://www.sonaeindustria.com/page.php?ctx=1,0,29 (English version)
62. Place where information regarding the identification of the members of the governing bodies, the representative for the Relations with the Capital Markets, the Investor Relations Department or its equivalent, respective roles and contact details is available
The identity of the members of the company's governing bodies is available at:
http://www.sonaeindustria.com/page.php?ctx=2,0,29 (Portuguese version) http://www.sonaeindustria.com/page.php?ctx=1,0,29 (English version)
Information about the representative for the Relations with the Capital Markets is available at:
http://www.sonaeindustria.com/page.php?ctx=2,0,30 (Portuguese version) http://www.sonaeindustria.com/page.php?ctx=1,0,30 (English version)
Information about the Investor Relations Department is available at:
http://www.sonaeindustria.com/page.php?ctx=2,0,55 (Portuguese version) http://www.sonaeindustria.com/page.php?ctx=1,0,55 (English version)
63. Place for disclosure of the company financial statements, which must be available for at least five years, as well as the half-year calendar of corporate events, released at the beginning of each semester, which must include dates of Shareholders' General Meetings and dates of release of annual, half-year and, if applicable, quarterly results
The company's accounting documents are available at:
http://www.sonaeindustria.com/page.php?ctx=2,0,42 (Portuguese version) http://www.sonaeindustria.com/page.php?ctx=1,0,42 (English version)
http://web3.cmvm.pt/sdi/emitentes/emit\_contas.cfm?num\_ent=%25%23D%3FT%21%3D%3C%20%0A (Portuguese version)
http://web3.cmvm.pt/english/sdi/emitentes/emit\_contas.cfm?num\_ent=%25%23D%3FT%21%3D%3C%20%0A (English version)
The half-year schedule of company events is available at:
http://www.sonaeindustria.com/page.php?ctx=2,0,53 (Portuguese version) http://www.sonaeindustria.com/page.php?ctx=1,0,53 (English version)
The notifications convening the General Meetings and all the preparatory and subsequent meeting information are available at:
http://www.sonaeindustria.com/page.php?ctx=2,0,99 (Portuguese version) http://www.sonaeindustria.com/page.php?ctx=1,0,99 (English version)
http://web3.cmvm.pt/sdi/emitentes/emit\_convocatorias.cfm?num\_ent=%25%23D%3FT%21%3D%3C%20%0A (Portuguese version)
http://web3.cmvm.pt/english/sdi/emitentes/emit\_convocatorias.cfm?num\_ent=%25%23D%3FT%21%3D%3C% 20%0A (English version)
The record of the deliberations made in the General Meetings, capital represented and the results of the votes are available at:
http://www.sonaeindustria.com/page.php?ctx=2,0,99 (Portuguese version) http://www.sonaeindustria.com/page.php?ctx=1,0,99 (English version)
I. COMPETENCIES FOR APPROVAL OF REMUNERATIONS
66. Details of the powers for establishing the remuneration of the governing bodies, Executive Committee members and of the company persons discharging managerial responsibilities
As defined in the Articles of Association of the company, the Shareholders' General Meeting is responsible for establishing the remuneration of the members of the governing bodies or for electing a committee for this purpose. As for the members of the Board of Directors, the Shareholder's Remuneration Committee liaises with the Board Nomination and Remuneration Committee. This is the only way the Shareholder's Remuneration Committee gets the necessary knowledge about the performance of each Director, and especially the Executive Directors, throughout the year.
| II. | REMUNERATIONS COMMITTEE |
|---|---|
Sonae Indústria's Shareholders' Remuneration Committee is appointed at the Shareholders' General Meeting for a three-year term and was elected at the Shareholders' General Meeting held on 31 March 2015 for the mandate 2015-2017. Currently, this committee is composed by Efanor Investimentos - SGPS, SA, represented by Duarte Paulo Teixeira de Azevedo, by Imparfin, Investimentos e Participações Financeiras, SA, represented by José Fernando Oliveira de Almeida Côrte-Real and by Professor José Manuel Neves Adelino.
Professor José Manuel Neves Adelino is an independent member of the Shareholder's Remuneration Committee.
The participation of Paulo Azevedo at the Shareholders' Remuneration Committee, who is also Chairman of the Board of Directors, corresponds to the representation of shareholder interests in the Shareholders' Remuneration Committee, as he intervenes in that capacity. Paulo Azevedo does not participate in the discussion nor is present in the moment of the meeting in which his own remuneration is discussed therefore ensuring the necessary impartiality and transparency.
No company was hired to assist the Shareholders' Remuneration Committee nor the Board Nomination and Remuneration Committee. For the benchmark salary level of Board of Directors members, these Committees use
multi-company studies prepared by international consultants present in Portugal which are available in the market.
The representative of Imparfin, José Côrte Real, works in Human Resources area of Efanor Group; his extensive knowledge and vast experience in Human Resources, namely in what concernsremuneration policies, contribute very positively to the work of the Shareholders' Remuneration Committee.
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At the Shareholders' General Meeting held in 2017, the Shareholder's Remuneration Committee presented a declaration concerning the remuneration and compensation policy of the governing bodies and the persons discharging managerial responsibilities.
The remuneration and compensation policy to be applied to the statutory governing bodies of Sonae Indústria and other senior management complies with the European guidelines, the Portuguese law and the recommendations of the Portuguese Securities Market Commission (CMVM) and is based on the understanding that initiative, competence and commitment are the essential foundations for good performance and that the latter should be aligned with the medium and long term interests of the company, in order to achieve sustainability.
In determining the remuneration policy, comparisons are made with market studies available in Portugal and other European markets, including those prepared by the specialised consultant Hay Group. Comparisons are also made with remuneration practices of comparable companies listed in the stock market.
The fixed remuneration of Directors is determined according to their level of responsibility, is subject to annual review and is placed in the median position in comparable circumstances.
Besides the fixed remuneration, the Executive Directors participate on an incentives plan, with a variable component, which is divided in three elements, one of short term, other of medium term and other of long term. The total remuneration is placed in respect to the fixed remuneration in the median, and in the ninth deciles in respect to the variable component, being the total remuneration placed in the third quartile in comparable circumstances.
The fixed remuneration and the incentives plan are approved by the Shareholders' Remuneration Committee in coordination with the Board Nomination and Remuneration Committee.
The incentives plan awarded to Executive Directors is subject to maximum percentage limits and is determined by pre-established and measurable performance criteria - performance indicators - agreed with each Executive Director for each financial year.
This incentives plan is established based on a set of performance indicators at business level, mainly of economic and financial nature, also designated "Key Performance Indicators of Business Activity" (or Business KPIs), and also at individual level, "Personal Key Performance Indicators" (or Personal KPIs). The content of the performance indicators and their specific weight in determining actual remuneration awarded, ensure the alignment of Executive Directors with the strategic objectives defined for the organisation and the compliance with the laws that apply to the company's activities.
The award of the incentives plan is based on an individual performance assessment, which is made by the Shareholders' Remuneration Committee, in coordination with the Board Nomination and Remuneration Committee. This assessment takes place after the results of the company are known.
Thus, for each financial year, an evaluation is made of business activity and of the individual performance and contributions to the collective success, which, obviously, impacts the awards of the fixed and variable components of the remuneration package of each Executive Director.
In applying the Remuneration and Compensation Policy consideration is given to roles and responsibilities performed in affiliated companies.
The company's Remuneration and Compensation Policy incorporates the principle of not contemplating any compensation to members of the Board of Director, or to members of other statutory governing bodies, related with the termination of a mandate, whether such termination occurs at the end of the respective mandate, or there is an early termination for any reason or on any basis, without prejudice of the company's obligation to comply with the applicable law.
The Remuneration and Compensation Policy does not include any additional benefits system, particularly retirement benefits, in favour of the members of the governing bodies or other senior management, without prejudice of the Shareholders' Remuneration Committee having the option to proceed with the payment of part of the amounts due through the attribution of retirement saving plans.
To ensure the effectiveness and transparency of the objectives of the Remuneration and Compensation Policy, the Executive Directors have not, and will not, enter into agreements with the company or third parties that have the effect of mitigating the risk inherent in the variability of their remuneration awarded by the company.
The definition of the Remuneration and Compensation Policy of members of the company's statutory bodies, the main objective is to seize talent with high performance level, which represent a relevant and material contribution to the sustainability of the company's businesses. With that in mind, remuneration parameters of statutory bodies are set and periodically reviewed in accordance with remuneration practices of comparable national and international companies, aligning, in individual and aggregate terms, the maximum target amounts to be paid to members of the statutory bodies, with market practices, differentiating on an individual and positive manner the members of statutory bodies according to, amongst others, the respective profile and curriculum, the nature and job description and the responsibilities of the relevant statutory body and of the member itself, and the direct correlation degree between individual performance and businesses performance.
To determine the global market reference values, it is considered the average of values applicable to top management in Europe. The companies considered as peers for remuneration purposes are those included in the group of companies which are listed in Euronext Lisbon, being the maximum potential amounts to be paid to members of the statutory bodies the following, according to market references:
| Board of Directors | Components | Market Positioning |
Circumstances when the amounts are due |
|
|---|---|---|---|---|
| Executive Directors | Fixed | Base Remuneration | Median | N/A |
| Variable | Short Term Variable Component |
Ninth Deciles | Compliance with objective and subjective KPIs |
|
| Medium Term Variable Component |
Compliance with objective KPIs |
|||
| Long Term Variable Component |
Compliance with objective KPIs |
|||
| Non-Executive Directors | Fixed | Remuneration | Median | N/A |
| Statutory Audit Board | Fixed | Remuneration | Median | N/A |
| Statutory External Auditor |
Fixed | Remuneration | Median | N/A |
The company will not assume any contractual responsibilities which are based on and have as effect the enforceability of any payments regarding dismissal or termination of functions of directors, notwithstanding the legal responsibility regime applicable to the dismissal of directors without due cause.
For the company's statutory governing bodies, the approved policy establishes the following:
The Remuneration and Compensation Policy for the Executive Directors (EDs) includes, in the way it is structured, control mechanisms, taking into account the connection to personal and collective performance, to prevent behaviours that involve excessive risk-taking. This objective is also reinforced by the fact that each Key Performance Indicator is limited to a maximum value.
The remuneration of EDs normally includes two components: (i) a fixed component, which includes a Base Remuneration paid with reference to one year period (remuneration is paid in 12 months) and an annual responsibility allowance, (ii) a variable component which comprises three elements: (ii.1) a first element of Short Term, awarded in the first half of the year following the year to which it relates (the "Performance Year"), subject to the accomplishment of the objectives fixed for the Performance Year, paid immediately after its award, (ii.2) a second element of Medium Term, awarded in the first half of the year to which it relates, subject to the accomplishment of the objectives and paid after a three years deferral period, and (ii.3) a third element of Long Term, awarded in the first half of the year following the year to which it relates, subject to the accomplishment of the objectives fixed in each of the following five years and paid five years after its award.
(i) The fixed component of the remuneration (FR) of the EDs is based on the personal competences and level of responsibility of the function exercised by each ED and is reviewed annually. Each ED is attributed a classification named internally as Management Level ("Grupo Funcional"). EDs are classified under one of the following Management Levels: "Group Leader", "Group Senior Executive" and "Senior Executive". The Management Levels are structured according to Hay's international model for the classification of corporate functions, thereby facilitating market comparisons as well as helping to promote internal equity.
(ii) The variable component of the remuneration (VR) is designed to motivate and reward the EDs to achieve predetermined objectives and reinforce the alignment of the EDs with the shareholders' interests and increasing their awareness of the importance of their performance in a sustainable manner on the overall success of the organisation. These objectives should be based on indicators of company performance, of the working teams under their responsibility and of their own personal performance. This variable component will be awarded after the annual accounts are closed and after their performance evaluation has been completed.
The target value of the Short Term Variable Bonus equals, the maximum, to 1/3 of the target value of the total variable component.
The amount of the variable bonus of EDs without a specific geographic responsibility is based on the company consolidated KPI's, resulting 60% from the Operational Cash Flow, 20% from Fixed Costs and 20% of the other performance indicators to be annually defined by the Shareholders' Remuneration Committee. Thereafter, a multiplication factor will be applied. This multiplication factor results from the individual performance assessment and can range between 0 and 150% according with the individual performance classification attributed to the relevant ED.
Regarding EDs with geographic responsibility, the calculation is similar to the previously described, but the combined result of the company's Operational Cash Flow and consolidated Fixed Costs has a weight of 25%, of which 20% for the Operational Cash Flow and 5% for Fixed Costs, the weight of the relevant geography represents the 55%, of which 40% is allocated to the Operational Cash Flow and 15% to Fixed Costs, and the remaining 20% depend on the other performance indicators, namely related to the performance of the working teams under the responsibility of the ED, to be annually defined by the Shareholders' Remuneration Committee. The multiplication factor resultant from the individual performance assessment is applied in the same way.
The Medium Term Variable Bonus (MTVB) of the EDs is limited to a maximum of one third of the target value of the total variable component, and is intended to strengthen the alignment of the EDs with the strategic objectives of the company and the interests of the shareholders. The payment of the amount
awarded is deferred for three years and adjusted proportionally in the year it relates to and in the following two years, in the portion of one third in each year. The indicator to be used is the increase of the theoretical value of the shareholders' funds (calculated using a multiple of Recurrent EBITDA).
The Long Term Variable Bonus (LTVB) is designed to increase the awareness of the importance of performance in a sustainable manner on the overall success of the organisation. The amount of this bonus in euros is equal to the Short Term Variable Bonus awarded, will be deferred for a five years period and will only be due if the company registers consolidated profits in all years during the deferred period and if such profits are, in each year, in an amount equal or higher than 20% of the consolidated shareholders' funds registered in the beginning of the year they respect to.
Considering all the elements of short, medium and long term of the variable component, the target values set in advance range between 50% and 70% of the total annual remuneration (fixed remuneration and variable component target value).
In respect to the calculation of the results and in respect to the Short-term Variable Bonus and to the Medium Term Variable Bonus, the total amount receivable is limited to the minimum 0% and the maximum of 200% of the total target value set in advance for those variable components.
The payments may be made by any of the forms of termination of an obligation as set forth in the law and in the company's Articles of Association, at the Shareholders' Remuneration Committee criteria, who may, namely, at its free criteria, fix the receipt of any of the parts of the variable component through the sale of shares of Sonae Indústria, SGPS, S.A. at a discount. This discount corresponds to a contribution to the acquisition of shares that will be supported by the persons to whom variable component remuneration was awarded, which shall correspond to a percentage of the trading price of the shares, at the date of the share transmission, up to a maximum percentage of 5% of such value.
The right of receipt of the deferred parts of the variable component remuneration expires if the contractual link between the member and the company ceases before its vesting date.
However, this right will remain valid in case of permanent incapacity or death of the member, in which case the payment is made to the member himself or to his/her legal sucessor on the vesting date.
In case of retirement of the member, the awarded right can be exercised in the respective vesting date.
The remuneration of the Non-Executive Members of the Board of Directors (NEDs) is based on market comparables and is structured as follows: (1) a fixed remuneration (of which approximately 15% depends on attendance at Board of Directors and Board Committees meetings); (2) an annual responsibility allowance. Fixed remuneration may be increased by up to 5% for those NEDs serving as Chairman at any Board Committee. There is no variable remuneration attributed as a bonus.
The remuneration of the members of the company's Statutory Audit Board is based exclusively on a fixed component, which includes an annual responsibility allowance. The levels of remuneration are determined by taking into consideration the company's situation and by benchmarking against the market.
The company's Statutory External Auditor is remunerated in accordance with normal fee levels for similar services, benchmarked against the market, under the supervision of the Statutory Audit Board and the Board Audit and Finance Committee.
The remuneration of the members of the Board of the Shareholders' General Meeting correspond to a fixed amount, based on the company's situation and benchmarked against the market.
Under the terms of paragraph 25 of n. 1 of Article 3 of EU Regulation 596/2014, dated 16 April, , in addition to the members of the statutory governing bodies mentioned above, Persons Discharging Managerial Responsibilities also include senior executives who have regular access to privileged information directly or indirectly related to that entity and power to take managerial decisions affecting the future developments and business prospects of the company.
The remuneration policy applicable to other individuals who, under the terms of the law, are considered to be Persons Discharging Managerial Responsibilities, shall be equivalent to the one adopted for other managers with the same level of function and responsibility, without awarding of any other additional benefits in addition to those which result from the respective Management Level.
The Executive Directors of Sonae Indústria's subsidiary companies are also eligible to be awarded the variable component, as well as, and in accordance with the remuneration policy approved by the Board of Directors, the employees who, through that policy, are entitled to the incentives plan are also eligible for the award of the referred to component.
With regard to the Non-Executive Directors, the attribution of only a fixed remuneration, as explained in the previous point, allows the interests of these Directors to be matched to the long-term interests of the company.
As for the Executive Directors, the attribution of remuneration comprising a fixed component and a variable component, the latter calculated in line with a series of specifically weighted performance indicators, ensures that the Executive Directors' interests are aligned with the long-term interests of the company and discourages risk taking. The result of the performance assessment of each of the executive directors serves as a multiplier factor of the other defined KPIs (for a more detailed explanation of how the different KPIs work, see the previous point).
As mentioned in the two previous points, the remuneration of the Executive Directors comprises a variable component, whereby the performance assessment impacts on this part of the remuneration (for more detailed explanation of the impact of the performance assessment on the variable remuneration component see point 69).
The Medium-Term Variable Bonus is deferred for a three-year period and the Long-term Variable Bonus is deferred for a five-year period.
The remuneration policy approved at the Annual General Meeting, in 2017, does not contemplate the remuneration in the form of shares. To ensure the effectiveness and transparency of the Remuneration and Compensation Policy, the Executive Directors have not entered and should not enter into agreements with the
company or with third parties with the objective of mitigating the risk inherent to the variability of the remuneration that is fixed by the company.
The company does not attribute options.
The parameters and explanation of the annual bonus system are outlined in point 69 of the remuneration policy.
The company has not implemented any supplementary pension or early retirement regime.
| IV. | DISCLOSURE OF REMUNERATION | |
|---|---|---|
| -- | ----- | ---------------------------- |
| 2017 | Total Fixed Annual Remuneration |
Total Short Term Variable Bonus |
Total Medium Term Variable Bonus |
Variable Bonus | Total Long Term | Total | ||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2016 | 2017 | 2016 (a) | 2017 (b) | 2016 (c) | 2017 (d) | 2016 (e) | 2017(f) | 2016 | 2017 | |
| Paulo Azevedo | 51,800 | 51,800 | 51,800 | 51,800 | ||||||
| Javier Vega | 29,940 | 29,140 | 29,940 | 29,140 | ||||||
| Albrecht Ehlers (g) | 41,400 | 40,600 | 41,400 | 40,600 | ||||||
| Carlos Moreira da Silva | 35,400 | 35,700 | 35,400 | 35,700 | ||||||
| José Romão de Sousa | 30,600 | 28,700 | 30,600 | 28,700 | ||||||
| Christopher Lawrie | 223,220 | 223,220 | 110,633 (1) | 110,374 (3) | 108,258 | 108,258 | 110,633 | 110,374 | 552,744 | 552,226 |
| Louis Brassard (h) | 108,315 | 187,949 | 117,032 (2) | 95,810 (4) | 71,686 | 71,763 | 117,032 | 95,810 | 414,065 | 451,332 |
| Total of Board of Directors | 520,675 | 597,109 | 227,665 | 206,184 | 179,944 | 180,021 | 227,665 | 206,184 | 1,155,949 | 1,189,498 |
(a) Relative to 2016, amount approved and paid in 2017.
(d) The initial amount related to 2017 is deferred for three years and adjusted proportionally in the year to which it relates and in the two subsequent years, in the proportion of one third in each year. The indicator to be used is the increase of the theoretical value of the shareholders' funds (calculated using a multiple of Recurrent EBITDA).
(e) Relative to 2016, amount equal to the Short Term Variable Bonus allocated is deferred for five years and will only be due if the company registers consolidated profits in all the years of the deferred period and if, in each year, those profits are equal or higher than 20% of the consolidated shareholders' funds registered in the beginning of the year to which they relate.
(f) Relative to 2017, amount equal to the Short Term Variable Bonus allocated is deferred for five years and will only be due if the company registers consolidated profits in all the years of the deferred period and if, in each year, those profits are equal or higher than 20% of the consolidated shareholders' funds registered in the beginning of the year to which they relate.
(g) Out of the amount paid in 2016, 29.100 euros were paid by Sonae Indústria and 12,300 euros by Sonae Arauco Deutcshland GmBh.
Out of the amount earned in 2017, 28.300 euros were paid by Sonae Indústria and 12,300 euros by Sonae Arauco Deutcshland GmBh.
(h) Relative to 7 months in 2016. Values in euros correspondent to the values in Canadian dollars.
(1) Fixed from the target value of 108,258 euros.
(2) Fixed from the target value of 92,167 euros.
(3) Fixed from the target value of 108,258 euros.
(b) Relative to 2017, estimated value considering actual KPI achievement but pending approval by the Shareholder's Remuneration Committee.
(c) The initial amount related to 2016 is deferred for three years and adjusted proportionally in the year to which it relates and in the two subsequent years, in the proportion of one third in each year. The indicator to be used is the increase of the theoretical value of the shareholders' funds (calculated using a multiple of Recurrent EBITDA).
The amounts paid by other companies in the Group are shown on the table in point 77.
The bonuses paid to the Executive Directors are outlined on the table in point 77.
80. Indemnities paid or due to former Executive Directors resulting from the termination of their responsibilities during the financial year
No indemnity was paid to the former Executive Directors upon termination of their functions during the year.
In 2017, the members of the Statutory Audit Board earned the following remuneration:
| Statutory Audit Board member | Remuneration/Euros |
|---|---|
| Manuel Heleno Sismeiro (Chairman) | 9,900 |
| António Trabulo | 7,900 |
| Óscar Quinta | 7,900 |
| TOTAL | 25,700 |
In 2017, the Chairman of the Board of the Shareholders' General Meeting earned the total remuneration of 5,000 euros.
V. AGREEMENTS WITH IMPACT ON REMUNERATION
The Remuneration and Compensation Policy approved by the Shareholders' General Meeting maintains its principle of not awarding compensation to the Directors upon termination of their mandate, notwithstanding mandatory compliance by the company with the legal stipulations in force concerning this matter.
84. Reference to the existence and description, indicating the amounts involved, of agreements between the company and members of the management bodies and other officers ('dirigentes'), in accordance to the terms of Article 248-B, number 3, of the Securities Code, which foresee compensation in case of resignation, ungrounded dismissal or termination of the work contract subsequent to a change in the company control (Article 245-A, number 1, paragraph l))
No agreements were signed between the company and the Directors that stipulated indemnity in the event of resignation, dismissal without justification or termination of the employment relationship following a change in the control of the company.
VI. SHARE PLANS OR STOCK OPTIONS PLANS
The current remuneration policy approved at the Annual Shareholders' General Meeting does not contemplate any variable remuneration in the form of share attribution.
There is no remuneration plan in the form of share attribution.
The company does not have plans to attribute share purchase options.
88. Internal control tools to be used in a potential participation in the share capital by company employees, so that the voting rights are not directly exercised by them (Article 245-A, number 1, paragraph e))
No control mechanisms are in place regarding an employee participation system in the company's share capital.
| CONTROL MECHANISMS AND PROCEDURES |
|---|
The mechanisms implemented by the company for the purpose of controlling transactions with related parties are thorough, transparent and in strict compliance with the market competition rules. Such transactions are subject to specific administrative procedures that are regulated by rules, namely rules governing transfer prices or the voluntary adoption of internal verification and control systems.
Monthly, all transactions and operational balances with related parties are identified and verified by a proper team of the Shared Services Centre that renders services to the company and validated with administrative teams of related entities when it refers to external operations.
The less recurrent transactions are subject to an ad-hoc and detailed analysis by the company's appropriate departments or by the services providers (always with the participation of the Tax area in order to ensure compliance with the existing transfer prices policies) to support the possible transaction values. In the case of an asset transfer/alienation, these are also subject to an external and independent assessment.
Sonae Indústria did not carry out any transactions with members of the Board of Directors nor with the Statutory Audit Board members.
All transactions with related companies represent normal operational activity and were made under "open market" conditions and at prices that comply with transfer pricing regulations.
Any transaction above 10 million euros with shareholders or entities with whom they are in any relationship, under Article 20 of the Securities Code (reference shareholders) should be subject to prior opinion of the Statutory Audit Board. The request for an opinion must be accompanied by all the elements required to allow a comparative analysis with the market and how potential conflicts of interest will be managed.
Transactions that have been contracted with reference shareholders shall be a result of a competitive process and when lower than 10 million euros will be exempt from the prior opinion of the Statutory Audit Board but need to be reported to the Statutory Audit Board under the procedures mentioned below.
The Chairman of the Management Committee of Sonae Indústria is responsible for reporting to the Statutory Audit Board:
II. INFORMATION CONCERNING TRANSACTIONS
The information relative to related parties' transactions may be found in Note nr. 36 of the Notes to the Consolidated Financial Statements.
Sonae Indústria recognizes that diversity in the composition of its administrative and supervisory bodies, especially in respect of the Board of Directors, boosts creativity and supports informed decision making based on different perspectives.
Sonae Indústria aims to combine in its administrative and supervisory bodies a diverse set of competencies, knowledge, experiences and relevant perspectives, together with a knowledge of its business and a high integrity, so that the members of those government bodies effectively fulfill their responsibilities.
Therefore, the members of these governing bodies shall have the required academic qualifications for the exercise of their respective functions. In particular, we will strive to have members of the Board of Directors, that have combined competencies in different professions and industries in order to ensure informed decision making.
As an international Group, it is expected that the Board of Directors comprises persons of different nationalities and, consequently, different cultures, usually persons who are born native in one of the countries in which Sonae Indústria is present. This way, it is possible to bring to the Board of Directors the cultural and social perspective of such countries.
In relation to the members of the Statutory Audit Board, it is always expected that they have the qualifications required by law, such as knowledge of auditing and / or accounting as they are considered to be the most relevant for the exercise of their respective duties.
Age is not considered a determining factor for the choice of the members of these government bodies.
Sonae Indústria recognizes and supports the regime of balanced distribution of men and women in management and supervisory bodies of listed companies, published on 1 August 2017. Consequently, at the next Shareholders' General Meeting to be held in 2018, the proposal to be presented shall at least comply with the established in that law, in respect to the proportion of persons of each gender in the administrative and supervisory bodies.
Sonae Indústria, SGPS, SA adopted the Corporate Governance Code published by CMVM (the Portuguese Securities Market Commission) in 2013, which is posted at www.cmvm.pt.
The decision to select the Corporate Governance Code of the CMVM is justified by the fact that it guarantees a suitable degree of shareholder protection and corporate governance transparency, and is also the Governance Code that the investors are most familiar with.
Sonae Indústria complied with all recommendations of the Corporate Governance Code aforementioned during the 2017 exercise. Besides fulfilling the legal requirements and recommendations of the referred Code, Sonae Indústria, being aware of the importance of good corporate governance for business and for its shareholders, constantly seeks to adopt best practices in all areas in which operates, and as such prepared its own Code of Conduct, which can be found on the company's website www.sonaeindustria.com.
| RECOMMENDATION | Degree of compliance |
Corporate Governance report |
|---|---|---|
| I. VOTING AND CORPORATE CONTROL |
||
| I.1 Companies should encourage their shareholders to attend and vote at General Meeting sand shall not set an excessively large number of shares required for the entitlement of one vote, and implement the means necessary to exercise the right to vote by mail and electronically. |
Compliant | 12 and 13 |
| I.2 Companies shall not adopt mechanisms that hinder the passing of resolutions by shareholders, including fixing a quorum for resolutions greater than that provided for by law. |
Compliant | 14 |
| I.3 Companies shall not establish mechanisms intended to cause mismatching between the right to receive dividends or the subscription of new securities and the voting right of each common share, unless duly justified in terms of long-term interests of shareholders. |
Compliant | 12 |
| I.4 The company's Articles of Association that provide for the restriction of the number of votes that may be held or exercised by a single shareholder, either individually or in concert with other shareholders, shall also foresee for a resolution by the General Assembly (five years interval), on whether that statutory provision is to be amended or prevails - without super quorum requirements as to the one legally in force - and that in said |
Compliant | 13 |
| RECOMMENDATION | Degree of compliance |
Corporate Governance report |
|---|---|---|
| resolution, all votes issued be counted, without applying said restriction. I.5 Measures that require payments or assumption of fees by the company in the event of change of control or change in the composition of the Board and that which appear likely to impair the free transfer of shares and the free assessment by shareholders of the performance of Board members, shall not be adopted. |
Compliant | 4 |
| II. SUPERVISION, MANAGEMENT AND AUDITING |
||
| II.1 Supervision and Management | ||
| II.1.1. Within the limits established by law, and except for the small size of the company, the Board of Directors shall delegate the daily management of the company and said delegated powers shall be identified in the Annual Report on Corporate Governance. |
Compliant | 21, 27 and 28 |
| II.1.2. The Board of Directors shall ensure that the company acts in accordance with its objectives, and shall not delegate its own responsibilities as regards the following: i) definition of the strategy and general policies of the company; ii) definition of the business structure of the Group; iii) decisions considered strategic due to the amount, risk and particular characteristics involved. |
Compliant | 21 |
| II.1.3 The General and Supervisory Board, in addition to its supervisory duties, shall take full responsibility at corporate governance level, whereby through the statutory provision or by equivalent means, shall enshrine the requirement for this body to decide on the strategy and major policies of the company, the definition of the corporate structure of the Group and the decisions that shall be considered strategic due to the amount or risk involved. This body shall also assess compliance with the strategic plan and the implementation of key policies of the company. |
Not applicable | |
| II.1.4. Except for small-sized companies, the Board of Directors and the General and Supervisory Board, depending on the model adopted, shall create the necessary committees in order to: |
||
| a) Ensure a competent and independent assessment of the performance of the Executive Directors and its own overall performance, as well as of other committees; |
||
| b) Reflect on the system structure and governance practices adopted, verify its efficiency and propose to the competent bodies, measures to be implemented with a view to their improvement. |
Compliant | 15 and 27 to 29 |
| II.1.5. The Board of Directors or the General Supervisory Board, depending on the applicable model, should set goals in terms of risk-taking and create systems for their control to ensure that the risks effectively incurred are consistent with those goals. |
Compliant | 50 to 52 |
| RECOMMENDATION | Degree of compliance |
Corporate Governance report |
|---|---|---|
| II.1.6 The Board of Directors shall include a number of non-executive members ensuring effective monitoring, supervision and assessment of the activity of the remaining members of the Board. |
Compliant | 17 and 18 |
| II.1.7. Non-Executive Directors shall include an appropriate number of independent members, taking into account the adopted governance model, the size of the company, its shareholder structure and the respective free float .The independence of the members of the General and Supervisory Board and members of the Audit Committee shall be assessed as per the law in force. The other members of the Board of Directors are considered independent if the member is not associated with any group with specific interests in the company nor is under any circumstance likely to affect an exempt analysis or decision, particularly due to: |
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| a. Having been an employee at the company or at a company holding a controlling or group relationship, in the past three years; |
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| b. Having, in the past three years, provided services or established a commercial relationship with the company or company with which it is in a controlling or group relationship, either directly or as a partner, board member, manager or director of a legal person; |
Compliant | 18 |
| c. Being paid by the company or by a company with which it is in a controlling or group relationship other than the remuneration arising from the exercise of the role of a board member; |
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| d. Living with a partner or a spouse, relative or any first degree next of kin up to and including the third degree of collateral affinity of board members or individuals who are, directly or indirectly, holders of qualifying holdings; |
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| e. Being a qualifying shareholder or a representative of a qualifying shareholder. |
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| II.1.8. When Board members that carry out executive duties are requested by other Board members shall provide the information requested in a timely and appropriate manner to the request. |
Compliant | 29 |
| II.1.9. The Chairman of the Executive Board or of the Executive Committee shall submit, as applicable, to the Chairman of the Board of the Directors, the Chairman of the Statutory Audit Board, the Chairman of the Audit Committee, the Chairman of the General and Supervisory Board and the Chairman of the Financial Matters Committee, the convening notices and minutes of the respective meetings. |
Not applicable | |
| II.1.10 If the Chairman of the Board of Directors has an executive role, said body shall appoint, from amongst its members, an independent member to ensure the coordination of the work of |
Not applicable |
| RECOMMENDATION | Degree of compliance |
Corporate Governance report |
|---|---|---|
| other non-executive members and the conditions so that body can make independent and informed decisions or to ensure the existence of an equivalent mechanism for such coordination. |
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| II.2. Auditing | ||
| II.2.1 Depending on the applicable model, the Chairman of Statutory Audit Board, the Chairman of the Audit Committee or the Chairman of the Financial Matters Committee shall be independent in accordance with the applicable legal standard and shall have the necessary skills to carry out the respective duties. |
Compliant | 32 and 33 |
| II.2.2 The auditing body shall be the main interface between the External Auditor and the first recipient of the relevant reports, and is responsible, inter alia, for proposing the respective remuneration and ensuring that proper conditions for the provision of services are provided within the company. |
Compliant | 45 |
| II.2.3 The auditing body shall assess the External Auditor on an annual basis and propose to the competent body its dismissal or termination of the contract as to the provision of their services when there is a valid basis for said dismissal. |
Compliant | 45 |
| II.2.4. The auditing body shall assess the functioning of the internal control systems and risk management and propose adjustments as may be deemed necessary. |
Compliant | 51 |
| II.2.5. The Audit Committee, the General and Supervisory Board and the Statutory Audit Board decide on the work plans and resources concerning the internal audit services and services that ensure compliance with the rules applicable to the company (compliance services), and should be recipients of reports made by these services at least in what concerns matters related to accounting, identification or resolution of conflicts of interest and detection of potential improprieties |
Compliant | 51 |
| II.3 Remuneration Setting | ||
| II.3.1 All members of the Remuneration Committee or alike shall be independent from the executive board members and shall include at least one member with knowledge and experience in matters of remuneration policy. |
Compliant | 67 and 68 |
| II.3.2 Any natural or legal person that provides or has provided services in the past three years to any structure under the Board of Directors, to the Board of Directors itself, or who has a current relationship with the company or a company consultant shall not be hired to assist the Remuneration Committee in the performance of its duties. This recommendation also applies to any natural or legal person that is related by employment contract or provision of services with the above. |
Compliant | 67 |
| II.3.3 A statement on the remuneration policy of the management and supervisory bodies referred to in Article 2 of Law nr. 28/2009 dated 19 June, shall also include the following: |
Compliant | 69 |
| RECOMMENDATION | Degree of compliance |
Corporate Governance report |
|---|---|---|
| a) Identification and details of the criteria for determining the remuneration paid to the members of the governing bodies; |
||
| b) Information regarding the maximum potential, in individual terms, and the maximum potential, in aggregate form, to be paid to the members of corporate bodies, and identify the circumstances whereby these maximum amounts may be payable; |
||
| c) Information regarding the enforceability or unenforceability of payments for the dismissal or termination of appointment of board members. |
||
| II.3.4 The Approval of plans for the allotment of shares and/or options to acquire shares based on share price variation to board members shall be submitted to the General Meeting. The proposal shall contain all the necessary information in order to correctly assess said plan. |
Not applicable | |
| II.3.5 Approval of any retirement benefit scheme established for members of corporate bodies shall be submitted to the General Meeting. The proposal shall contain all the necessary information in order to correctly assess said system. |
Not applicable | |
| III. REMUNERATIONS |
||
| III.1 The remuneration of the executive board members shall be based on actual performance and shall discourage taking on excessive risk. |
Compliant | 69 |
| III.2 The remuneration of non-executive board members and the remuneration of the members of the auditing body shall not include any component dependent on the company performance or of its value. |
Compliant | 69 |
| III.3 The variable component of the remuneration shall be reasonable overall in relation to the fixed component of the remuneration and maximum limits shall be set for all components. |
Compliant | 69 |
| III.4 A significant part of the variable remuneration shall be deferred for a period not less than three years and its payment shall depend on the continued positive performance of the company during said period. |
Compliant | 69 and 72 |
| III.5 Members of the Board of Directors shall not enter into contracts with the company or with third parties which intend to mitigate the risk inherent to the remuneration variability set by the company. |
Compliant | 69 |
| III.6 The Executive Directors shall keep the company's shares that were allotted by virtue of variable remuneration schemes, up to twice the value of total annual remuneration, except for those shares |
Compliant | 69 |
that must be sold for the payment of taxes on the gains of said
shares, until the end of their mandate.
| RECOMMENDATION | Degree of compliance |
Corporate Governance report |
|---|---|---|
| III.7 When the variable remuneration includes stock options, the beginning of the exercise period shall be deferred for a period of not less than three years. |
Not applicable | |
| III.8 When the dismissal of a board member is not due to serious breach of duties nor to the unfitness for the normal exercise of the functions but, yet, is due to an inadequate performance, the company shall be endowed with the adequate and necessary legal instruments so that any damages or compensation beyond that which is legally due, is unenforceable. |
Compliant | 83 |
| IV. AUDIT | ||
| IV.1 The External Auditor, within the scope of its duties, shall verify the implementation of remuneration policies and systems of the corporate bodies, as well as the efficiency and effectiveness of the internal control mechanisms and report any shortcomings to the company's Supervisory Board. |
Compliant | 51 |
| IV.2 The company or any entity with which it maintains a controlling relationship shall not engage the External Auditor or any entity with which it finds itself in a group relationship or that incorporates the same network, for services other than audit services. If there are reasons for hiring such services - which must be approved by the auditing body and must be explained in the Annual Corporate Governance Report - said services should not exceed 30% of the total value of services rendered to the company. |
Compliant | 46 and 47 |
| IV.3 Companies shall support the rotation of auditors after two or three terms whether these are four or three year mandates, respectively. The continuance beyond this period must be based on a specific opinion of the Supervisory Board that explicitly considers the conditions of auditor independence and the benefits and costs of replacement. |
Compliant | 44 |
| V. CONFLICTS OF INTEREST AND RELATED PARTY TRANSACTIONS |
||
| V.1 The company's business with holders of qualifying holdings or entities with which they are in any type of relationship pursuant to Article 20 of the Portuguese Securities Code shall be conducted during normal market conditions. |
Compliant | 90 |
| V.2 The supervisory body or the auditing body shall establish procedures and criteria that are required to define the relevant level of significance of business with holders of qualifying holdings - or entities with which they are in any of the relationships described in Article 20/1 of the Portuguese Securities Code - thus significant relevant business is dependent upon prior opinion of that body. |
Compliant | 91 |
| VI. INFORMATION |
| RECOMMENDATION | Degree of compliance |
Corporate Governance report |
|---|---|---|
| VI.1 Companies shall provide, via their websites, in both Portuguese and English languages, access to information on their progress as regards the economic, financial and governance state of play. |
Compliant | 59 to 65 |
| VI.2 Companies shall ensure the existence of an investor support and market liaison office which responds to requests from investors in a timely manner and which keeps record of the submitted requests and their processing. |
Compliant | 56 and 58 |
Separate Statement of Financial Position Separate Income Statement Separate Statement of Comprehensive Income Separate Statement of Changes in Shareholders' Funds Separate Statement of Cash Flows Notes to the Financial Statements
SEPARATE STATEMENTS OF FINANCIAL POSITION AT 31 DECEMBER 2017 AND 2016
(Amounts expressed in EUR)
| ASSETS | Notes | 31.12.17 | 31.12.16 | |
|---|---|---|---|---|
| NON CURRENT ASSETS: | ||||
| Tangible fixed assets | 3 | 65 | 265 | |
| Investment in subsidiaries and joint ventures | 5 | 448.765.104 | 419.431.549 | |
| Investment available for sale | ´5/4 | 121.425 | 122.990 | |
| Deferred tax asset | 6 | 281.811 | 223.353 | |
| Other non current assets | ´7/4 | 18.286.113 | 9.412.467 | |
| Total Non Current Assets | 467.454.518 | 429.190.624 | ||
| CURRENT ASSETS | ||||
| Trade debtors | ´8/4 | 173.689 | 176.451 | |
| Other current debtors | ´8/4 | 4.876.328 | 12.546.236 | |
| Current tax asset | 8 | 613.260 | 826.041 | |
| Other current assets | ´9/4 | 623.878 | 495.976 | |
| Cash and cash equivalents | ´10/4 | 80.338 | 161.532 | |
| Total Current Assets | 6.367.493 | 14.206.235 | ||
| Total Assets | 473.822.011 | 443.396.859 | ||
| SHAREHOLDER'S FUNDS AND LIABILITIES | ||||
| SHAREHOLDER'S FUNDS: | ||||
| Share Capital | 253.319.797 | 812.107.574 | ||
| Legal reserve | 0 | 3.131.757 | ||
| Other reserves and accumulated earnings | 36.149.790 | -561.919.534 | ||
| Accumulated other comprehensive income | -23.641 | |||
| Total Shareholder's Funds | 11 | 289.469.587 | 253.296.157 | |
| NON CURRENT LIABILITIES | ||||
| Bank loans - net of current portion | ´12/4 | 159.536.306 | 179.422.837 | |
| Post-retirement benefits | 13 | 91.528 | ||
| Other non current liabilities | 14 | 317.547 | 1.399.949 | |
| Total Non Current Liabilities | 159.853.853 | 180.914.314 | ||
| CURRENT LIABILITIES | ||||
| Current portion of non-current bank loans | ´12/4 | 11.900.000 | ||
| Current bank loans | ´12/4 | 1.750.000 | 1.750.000 | |
| Trade creditors | ´15/4 | 157.506 | 167.285 | |
| Other current creditors | ´16/4 | 5.742.537 | 5.792.204 | |
| Current tax liability | 16 | 22.602 | 83.885 | |
| Other taxes and contributions | 16 | 20.939 | 28.832 | |
| Other current liabilities | ´17/4 | 1.629.268 | 1.364.183 | |
| Provisions | 18 | 3.275.719 | ||
| Total Current Liabilities | 24.498.571 | 9.186.388 | ||
| Total Liabilities | 184.352.424 | 190.100.702 | ||
| Total Shareholder's Funds and Liabilities | 473.822.011 | 443.396.859 |
(Amounts expressed in EUR)
| Notes | 31.12.17 | 31.12.16 | |
|---|---|---|---|
| Operating Income: | 0 | 0 | |
| Services rendered | 23 | 293.832 | 458.768 |
| Other income and gains | 24 | 1.109.870 | 5.378.428 |
| Total operating income | 1.403.702 | 5.837.196 | |
| Operating Costs: | - | - | |
| External supplies and services | -849.866 | -583.381 | |
| Staff expenses | 21/22 | -752.753 | -2.791.407 |
| Depreciation and Amortization | 3 | -200 | -438 |
| Provisions and impairment losses | 18 | -3.275.719 | - |
| Other expenses and losses | 24 | -166.926 | -3.385.464 |
| Total operating costs | -5.045.464 | -6.760.690 | |
| Operating profit/(loss) | -3.641.762 | -923.493 | |
| Financial profit/(loss) | 25 | -6.907.025 | (12.553.002) |
| Financial expenses | -8.617.677 | -16.389.028 | |
| Financial income | 1.710.652 | 3.836.027 | |
| Results related on investments in subsidiaries and joint ventures | 26 | 46.822.657 | -113.804.445 |
| Profit/(Loss) before taxation | 36.273.870 | -127.280.940 | |
| Corporate income tax - current tax | 27 | -182.540 | 146.930 |
| Corporate income tax - deferred tax | ´6/27 | 58.458 | -2.429.114 |
| Net Profit/(loss) from continuing operations, after taxation | 36.149.790 | -129.563.124 | |
| Profit/(loss) for the period | 28 | 36.149.790 | -129.563.124 |
| Profit (loss) per Share | |||
| From continuing operations | |||
| Basic | 28 | 0,79620 | -0,01141 |
| Diluted | 28 | 0,79620 | -0,01141 |
| 31.12.17 | 31.12.16 | ||
|---|---|---|---|
| Net profit/(loss) for the period | ´11/28 | 36.149.790 | -129.563.124 |
| Other comprehensive income | |||
| Actuarial gains / (losses) on post retirement plan | 23.641 | -23.641 | |
| Other comprehensive income for the period, net of tax | -225.852 | ||
| 23.641 | -249.493 | ||
| TOTAL COMPREHENSIVE INCOME FOR THE PERIOD | 36 173 431 | - 129 812 616 |
SEPARATE STATEMENTS OF CHANGES IN SHAREHOLDERS` FUNDS AT 31 DECEMBER 2017 AND 2016
(Amounts expressed in EUR)
| Share capital | Legal reserve |
Other Reserves and accumulated earnings |
Actuarial gains / (losses) on benefit pension plans |
Other comprehensive income for the period |
Subtotal | Total shareholder's funds |
||
|---|---|---|---|---|---|---|---|---|
| NOTES | 11 | 11 | 11 | |||||
| Balance as at 1 January 2017 | 812 107 574 | 3 131 757 | -561 919 534 | - 23 641 | - 23 641 | 253 296 156 | ||
| Loss cover | - 3 131 757 | 3 131 757 | ||||||
| Total comprehensive income | ||||||||
| Net profit /( loss) for the period | 11 | 36 149 790 | 36 149 790 | |||||
| Other comprehensive income | 23 641 | 23 641 | 23 641 | |||||
| Total | 36 149 790 | 23 641 | 23 641 | 36 173 431 | ||||
| Capital reduction | 11 | -558.787.777 | 558 787 777 | |||||
| Balance as at 31 December 2017 | 253 319 797 | 36 149 789 | 289 469 587 | |||||
| Balance as at 1 January 2016 | 812 107 574 | 3 131 757 | -432.356.410 | 225 852 | 225 852 | 383 108 771 | ||
| Total comprehensive income | ||||||||
| Net profit /( loss) for the period | 11 | - 129 563 124 | - 129 563 124 | |||||
| Other comprehensive income | - 23 641 | - 23 641 | - 23 641 | |||||
| Total | - 129 563 124 | - 23 641 | - 23 641 | - 129 586 764 | ||||
| Others | 11 | - 225 852 | - 225 852 | - 225 852 | ||||
| Balance as at 31 December 2016 | 812 107 574 | 3 131 757 | -561 919 534 | - 23 641 | - 23 641 | 253 296 157 |
SEPARATE STATEMENTS OF CASH FLOWS FOR THE PERIODS ENDED AT 31 DECEMBER 2017 AND 2016
(Amounts expressed in EUR)
| OPERATING ACTIVITIES | Notes | 2017 | 2016 | ||
|---|---|---|---|---|---|
| Receipts from trade debtors | 296.594 | 307.741 | |||
| Payment to trade creditors | 752.280 | 310.659 | |||
| Payments to staff | 1.033.369 | 1.336.033 | |||
| Net cash flow from operations | -1.489.055 | -1.338.951 | |||
| Payment/(receipt) of corporate income tax | -139.952 | -2.164.243 | |||
| Other receipts/ ( payments) relating to operating activities | 14.395 | 971.233 | |||
| Net cash flow from operating activities [1] | -1.334.708 | 1.796.525 | |||
| INVESTMENTS ACTIVITIES: | |||||
| Cash receipts arising from: | |||||
| Investments | 5.1.1 | 4.000.070 | 36.604.032 | ||
| Loans granted to related parties | 8,9 | 1.562.000 | 429.601.447 | ||
| Dividends | 26 | 22.396.693 | 27.958.763 | 101.472.142 | 567.677.621 |
| Cash payments arising from: | |||||
| Investments | 5 | 9.543.068 | 191.247.624 | ||
| Loans granted to related parties | 8,9 | 2.354.851 | 11.897.919 | 176.564.844 | 367.812.468 |
| Net cash flow from investing activities [2] | 16.060.844 | 199.865.153 | |||
| FINANCIAL ACTIVITIES | |||||
| Cash receipts arising from: | |||||
| Interest and similar income | 1.232.419 | 21.966.739 | |||
| Loans obtained | 12.2 | 837.055.145 | 838.287.564 | 929.754.000 | 951.720.739 |
| Cash payments arising from: | |||||
| Interest and similar charges | 8.336.293 | 16.432.367 | |||
| Loans obtained | 12.2 | 844.800.000 | 1.136.952.925 | ||
| Others | -41.399 | 853.094.894 | 1.153.385.292 | ||
| Net cash used in financing activities [3] | -14.807.330 | -201.664.554 | |||
| Net increase in cash and cash equivalents (4) = (1)+(2)+(3) | -81.194 | -2.876 | |||
| Cash and cash equivalents - at the beginning of the period | 10 | 161.532 | 164.408 | ||
| Cash and cash equivalents - at the end of the period | 10 | 80.338 | 161.532 | ||
| Net increase / (decrease) in cash and cash equivalents | -81.194 | -2.876 |
(Amounts expressed in Euros)
SONAE INDÚSTRIA, SGPS, S.A. headquarters is at Lugar do Espido, Via Norte, 4470-177 Maia, Portugal.
The Company's shares are listed on NYSE Euronext.
The main accounting policies adopted in preparing the accompanying financial statements are as follows:
These financial statements were prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and with Interpretations issued by the IFRS Interpretations Committee (IFRS IC), applicable to the period beginning 1 January 2017 and endorsed by the European Union.
2.1.1. In the year ended 31 December 2017, the following standards and interpretations, which have been endorsed by European Union, became effective:
IAS 7 (amendment), Statement of Cash Flows – Disclosure initiative (effective for annual periods beginning on or after 1 January 2017).This amendment introduces an additional disclosure about the changes in liabilities arising from financing activities, disaggregated between cash changes and non-cash changes and how it reconciles with the reported cash flows from financing activities, in the Cash Flow Statement;
IAS 12 (amendment), Income taxes – Recognition of deferred tax assets for unrealized losses (effective for annual periods beginning on or after 1 January 2017).This amendment clarifies how to account for deferred tax assets related to assets measured at fair value, how to estimate future taxable profits when temporary deductible differences exist and how to assess recoverability of deferred tax assets when restrictions exist in the tax law.
The application of these standards did not produce any significant effects on these consolidated financial statements.
2.1.2. At 31 December 2017, the following standards and interpretations had been issued by IASB and had been endorsed by the European Union, but had not been applied as they only become effective on later periods:
IFRS 4 (amendment), Insurance contracts (Applying IFRS 4 with IFRS 9) 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 allows companies that issue insurance contracts the option to recognize in Other Comprehensive Income, rather than Profit or Loss the volatility that could rise when IFRS 9 is applied before the new insurance contract standard is issued. Additionally, it is given an optional temporary exemption from applying IFRS 9 until 2021, to the companies whose activities are predominantly connected with insurance, not being applicable at consolidated level;
IFRS 9 (new), Financial instruments (effective for annual periods beginning on or after 1 January 2018). IFRS 9 replaces the guidance in IAS 39, regarding: (i) the classification and measurement of financial assets and liabilities; (ii) the recognition of credit impairment (through the expected credit losses model); and (iii) the hedge accounting requirements and recognition;
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 with customers to provide goods or services and requires an entity to recognize revenue when the contractual obligation to deliver the goods or services is satisfied and by the amount that reflects the consideration the entity is expected to be entitled to, following a five step approach.
IFRS 15 (amendment) Revenue from contracts with customers (effective for annual periods beginning on or after 1 January 2018). This amendment is still subject to endorsement by European Union. This amendment refers to additional guidance for determining the performance obligations in a contract, the timing of revenue recognition from a license of intellectual property, the review of the indicators for principal versus agent classification, and to new practical expedients to simplify transition;
IFRS 16 (new), Leases (effective for annual periods beginning on or after 1 January 2019). This standard is still subject to endorsement by European Union. This new standard replaces the IAS 17 with a significant impact on the accounting by lessees that are now required to recognize a lease liability reflecting future lease payments and a "right-of-use asset" for all lease contracts, except for certain short-term leases and for low-value assets. The definition of a lease contract also changed, being based on the "right to control the use of an identified asset".
The Company does not estimate any significant effect to arise from the application of these standards.
2.1.3. At 31 December 2017, the following standards, effective 1 January 2017 or later, had been issued by IASB but still had not been endorsed by the European Union:
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 when assets are transferred to, or from investment properties, the evidence of the change in use is required. A change of management intention in isolation is not enough to support a 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 cashsettled, share-based payments and the accounting for modifications to a share-based payment plan that change the classification an award from cash-settled to equity-settled. It also introduces an exception to the principles in IFRS 2 that will require an award to be treated as if it was wholly equitysettled, where an employer is obliged to withhold an amount for the employee's tax obligation associated with a share-based payment and pay that amount to the tax authority;
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. . The amendment introduces the possibility to classify certain financial assets with negative compensation features at amortized cost, provided that specific conditions are fulfilled, instead of being classified at fair value through profit or loss;
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. The amendment clarifies that long-term investments in associates and joint ventures (components of an entity's investments in associates and joint ventures), that are not being measured through the equity method, are to be measured in accordance with IFRS 9, being subject to impairment expected credit loss model prior to any impairment test of the investment as a whole;
IFRS 17 (new), Insurance contracts (effective for annual periods beginning 1 January 2021). This standard is still subject to endorsement by the European Union. This standard will revoke IFRS 4 – Insurance contracts and applies to all entities issuing insurance contracts, reinsurance contracts and investment contracts with discretionary participation characteristics. IFRS 17 is based on the current measurement of technical liabilities at each reporting date. The current measurement can be based on a complete "building block approach" or "premium allocation approach". The recognition of the technical margin is different depending on whether it is positive or negative. IFRS 17 is of retrospective application;
Annual Improvement 2014 - 2016, (generally effective for annual periods beginning on or after 1 January 2017). These improvements are still subject to endorsement by European Union. The 2014- 2016 annual improvements affects: IFRS 1, IFRS 12 and IAS 28;
Annual Improvement 2015 – 2017, (effective for annual periods beginning on or after 1 January 2019). These improvements are still subject to endorsement by the European Union. The 2015- 2017 annual improvements affects: IAS 23, IAS 12, IFRS 3 and IFRS 11;
IFRIC 22 (new),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. An Interpretation to IAS 21 'The effects of changes in foreign exchange rates' it refers to the determination of the "date of transaction" when an entity either pays or receives consideration in advance for foreign currency denominated contracts". The date of transaction determines the exchange rate used to translate the foreign currency transactions;
IFRIC 23 (new), Uncertainty over Income Tax Treatments (effective for annual periods beginning 1 January 2019). ). This interpretation is still subject to endorsement by the European Union. This is an interpretation of IAS 12 - Income tax referring to the measurement and recognition requirements to be applied when there is uncertainty as to the acceptance of an income tax treatment by the tax authorities. In the event of uncertainty as to the position of the tax authority on a specific transaction, the entity shall make its best estimate and record the income tax assets or liabilities under IAS 12 rather than IAS 37 - Provisions, contingent liabilities and contingent assets, based on the expected value or the most probable value. The application of IFRIC 23 may be retrospective or retrospective modified.
The Company does not estimate any significant effect to arise from the application of these standards.
The financial statements have been prepared from the books and accounting records.
Assets and liabilities of each subsidiary and joint venture are measured at their fair value at the date of acquisition. Financial investments in subsidiaries and joint ventures are tested for imparity when appropriate. If an impairment loss exists, it is recorded as a cost.
Subsidiaries are all entities (including special purpose entities) over which the Sonae Indústria, has the power to govern the financial and operating policies of those normally associated with the control, directly or indirectly, more than half of the voting rights.
Joint ventures are entities from which Sonae Indústria has joint control with another partner under a particular economic activity (represented by a contractual agreement)
Beyond the recognition of the impairment of the investment in subsidiary / joint ventures, Sonae Indústria recognize additional losses if incurred obligations or has made payments on behalf of subsidiary / joint ventures.
Entities that qualify as subsidiaries and as joint ventures are listed in Note 5.
Revenues from financial investments (dividends received) are recorded on the Profit and Loss statement of the period in which distribution is decided and announced.
Tangible assets acquired up to 1 January 2004 (transition date to IFRS) are recorded at their deemed cost, which corresponds to their acquisition cost or revaluated acquisition cost, in accordance with generally accepted accounting principles in Portugal at that date, net of depreciation and accumulated impairment losses.
Tangible assets acquired after that date, are recorded at acquisition cost, net of depreciation and accumulated impairment losses.
Depreciation is calculated on a straight line basis, as from the date the asset is first used, over the expected useful life for each class of assets.
Depreciation rates used correspond to the following expected useful lives of the underlying assets:
Other M achinery 5<x<20 Office Equipment 4
Maintenance and repair costs related to tangible assets are recorded directly as expenses in the year they are incurred.
Gains or losses arising from the sale or write-off of tangible assets are determined as the difference between the sale price and the accounting net value at the sale/write-off date and are registered as Other Operational Income/ Other Operational Losses.
Intangible assets are stated at acquisition cost, net of depreciation and accumulated impairment losses. Intangible assets are only recognized if it is likely that they will generate future economic benefits, if they are controlled by the company and if their cost can be reliably measured.
Development expenses are recognized as an intangible asset if the company demonstrates technical feasibility and intention to complete the asset, its ability to sell or use it and the probability that the asset
will generate future economic benefits. Development expenses which do not fulfil these conditions are recorded as an expense in the period in which they are incurred.
Intangible assets are recognized only if they are identifiable and it is probable that they will result in future economic benefits to the company, are controlled by it and it can reasonably measure its value.
Internal costs associated with maintenance and software development are recorded as an expense in the period in which they are incurred. Only costs directly attributable to projects for which the generation of future economic benefits is probable are capitalized as intangible assets.
Amortization is calculated on a straight line basis as from the date the asset is first used, over the expected useful life, which ranges from 3 to 6 years.
When accounting for leases in which the company is the lessee, the lease contracts are classified as (i) a finance lease if the risks and rewards incidental to ownership lie with the lessee and (ii) as an operating lease if the risks and rewards incidental to ownership do not lie with the lessee.
A lease is classified as a financial or an operating lease dependent on the substance of the transaction rather than the form of the contract.
Lease payments within operating lease contracts are recognized as expenses on a straight line basis over the lease term.
Assets are assessed for impairment at the end of each year, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Whenever the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recorded on the income statement under provisions and impairment losses.
The recoverable amount is the higher of an asset's fair value net of costs incurred on sale and its value in use. Fair value less sale related costs is the amount obtainable from the sale of an asset in an arm's length transaction less the costs of disposal. Value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. Recoverable amounts are estimated for individual assets or, if this is not possible, for the cash-generating unit to which the asset belongs.
Reversal of impairment losses recognized in prior years is only recorded when it is concluded that the impairment losses recognized for the asset no longer exist or have decreased. This analysis is performed
whenever there is an indication that the impairment loss previously recognized has been reversed. The reversal is recorded on the income statement as Other Operational income. However, the increased carrying amount of an asset due to a reversal of an impairment loss is recognized to the extent it does not exceed the carrying amount that would have been determined (net of depreciation) had no impairment loss been recognized for that asset in prior years.
Borrowing costs are normally recognized as an expense in the period in which they are incurred.
Borrowing costs directly attributable to the acquisition, construction or production of tangible and intangible assets are capitalized as part of the cost of the qualifying asset. Borrowing costs are capitalized from the time of preparation of the activities to construct or develop the asset up to the time the production or construction is complete or when asset development is interrupted. Any income earned on funds temporarily invested pending their expenditure on the qualifying asset, is deducted from the borrowing costs that qualify for capitalization Borrowing costs are recognized as an expense in the period in which they are incurred.
Provisions are recognized when, and only when, the company has an obligation (legal or constructive) resulting from a past event, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate can be made of that obligation. Provisions are reviewed and adjusted at the balance sheet date to reflect the best estimate as of that date.
In situations where it is estimated to have a significant period of time between the onset of the obligation and the related expenditure, the provision is recorded at its present value.
a) Investments
Investments are classified into the following categories:
Investments measured at fair value through profit or loss includes the investments held for trading by the company to be sold within a short period of time. They are classified as current assets in the statement of financial position.
Available-for-sale investments are stated as non-current assets except if they are intended to be sold within the next 12 months as from the balance sheet date.
All purchases and sales of investments are recognized on the trade date, independently of the settlement date.
Investments are initially measured at cost, which is the fair value of the consideration paid for them.
Available-for-sale investments measured at fair value through profit or loss are subsequently carried at fair value, without any deduction for transaction costs which may be incurred on sale, by reference to their quoted market price at the report date. Investments in equity instruments that do not have a quoted market price and whose fair value cannot be reliably measured are stated at cost, less impairment losses.
Changes in the fair value of investments measured at fair value through profit or loss are included in the income statement for the period.
Gains or losses arising from a change in fair value of available-for-sale investments are recognized directly in equity, under Fair value reserve, included in Reserves and retained earnings until the investment is sold or otherwise disposed of, or until it is determined to be impaired, at which time the cumulative gain or loss previously recognized in equity is transferred to net profit or loss for the period.
Receivables are stated at net realizable value corresponding to their nominal value less impairment losses (recorded under the caption Impairment losses in accounts receivable). The impairment losses are recognized in "Impairment loss in costumers".
The impairment losses are recorded when the company has objective evidence that part or the whole amount receivable will not be paid and as long as the loss can be reliably estimated.
The amount of the impairment is the difference between the assets carrying amount and the present value of estimated future cash flows, discounted at the financial assets original effective interest rate.
The receivables are recorded as currents assets, except when its maturity is greater than twelve months from the balance sheet date, situation when they are classified as non-current assets.
Financial liabilities and equity instruments are classified and accounted for based on their contractual substance, independently from the legal form they assume.
Loans are recorded as liabilities at their nominal value, net of up-front fees and commissions related to the issuance of those instruments. Financial expenses are calculated based on the effective interest rate and are recorded in the income statement on an accruals basis, in accordance with the accounting policy defined in Note 2.13. The portion of the effective interest charge relating to upfront fees and commissions, if not paid in the period, is added to the book value of the loan.
Accounts payable are stated at their nominal value.
The company uses derivatives in the management of its financial risks, only to hedge such risks. Derivatives are not used by the company for trading purposes.
Derivatives classified as cash flow hedge instruments (Swaps) are used by the company mainly to hedge interest risks on loans obtained. Conditions established for these cash flow hedge instruments are identical to those of the corresponding loans in terms of base rates, calculation rules, rate setting dates and repayment schedules of the loans and for these reasons they qualify as perfect hedges. Inefficiencies that may arise are recorded on the Income statement.
The company's criteria for classifying a derivative instrument as a cash flow hedge instrument include:
Cash flow hedge instruments used by the company are initially accounted for at fair value. Changes in fair value of these cash flow hedge instruments are recorded in equity under the caption Hedging reserves, included in Reserves and retained earnings on the statement of financial position, and
then recognized in the income statement over the same period in which the hedged instrument affects income statement.
The fair value of these financial instruments is calculated with resource to derivative valuation software and was based on the present value, at report date, of future cash flows of both the fixed and variable legs of the derivative instrument.
Hedge accounting of derivative instruments is discontinued when the instrument matures or is sold. Whenever a derivative instrument can no longer be qualified as a hedging instrument, the fair value differences recorded in equity under the caption Hedging reserve are transferred to profit or loss of the period or to the carrying amount of the asset that resulted from the hedged forecast transaction. Subsequent changes in fair value are recorded in the Income statement.
These derivative instruments, over which no hedge accounting was applied, are initially stated at cost, if any, and then adjusted to their fair value.
When embedded derivatives exist, they are accounted for as separate derivatives when the risks and the characteristics are not closely related to economic risks and characteristics of the host contract, and this is not stated at fair value. Gains and losses are taken through the Income statement.
Additionally, the company also negotiates, in specific situations, interest derivatives in order to hedge fair values. In these cases, derivatives are stated at fair value through profit or loss. When the hedged instrument is not measured at fair value (i.e. loans which are recorded at amortized cost) the book value is adjusted by the amount which is effectively hedged through profit or loss. Derivative instruments are stated on the Statement of Financial Position under Other non- current assets, other current assets, other non-current liabilities and other current liabilities.
For the periods presented, the company has no financial instruments traded derivatives.
The equity instruments that represent a residual interest in assets after deduction of liabilities and are recorded at the amount received net of any costs of issuance.
The own shares are recorded at acquisition cost as a deduction from equity. Gains or losses on the sale of own shares are recorded in other reserves included in other reserves and retained earnings.
Cash and cash equivalents include cash on hand, cash at banks, term deposits and other treasury applications which mature in less than three months and for which the risk of change in value is insignificant.
In the statement of cash flows, cash and equivalents also include bank overdrafts, which are included in the balance sheet item borrowings.
Each year the Company granted their employees that belong to a functional group classified as Executive or above a cash benefit which is related to the value added in the previous period for the shareholders. This compensation will be pay, after a period of three years if the employee is in function at the end of the period.
The liability is recorded in the Other Non Current and Current Liabilities item of the Statement of Financial Position, and Personnel Expenses, of the Income Statement by nature, linearly over the period of deferral of the payment,
Contingent liabilities are not recorded in the financial statements. Instead they are disclosed in the notes to the financial statements, unless the probability of a cash outflow is remote, in which case, no disclosure is made.
Contingent assets are not recorded in the financial statements but disclosed when future economic benefits are probable.
Income tax for the year is determined based on the taxable income of the Company, considering the interim period profit and using the estimated effective average annual income tax rate.
The Special Group Tax Regime includes the following companies: Sonae Indústria de Revestimentos, S.A.,Maiequipa – Gestão Florestal, S.A., Movelpartes – Componentes para a Industria do Mobiliário, S.A., and Frases e Frações – Imobiliária e Serviços, S.A.
In 2016, the Taxation Group reduced in 7 companies: Euroresinas - Indústrias Químicas, S.A., Ecociclo - Energia e Ambiente, S.A., Sonae Arauco Portugal,S.A.( Ex Sonae Indústria PCDM S.A.), Siaf Energia,
S.A., Imoplamac - Gestão de Imóveis, S.A., Agloma Investimentos, SGPS, S.A., and Somit Imobiliária, S.A., since all these companies were sold. Entered 1 new company, Frases e Frações – Imobiliária e Serviços, S.A. constituted at the end of 2015.
In 2017, entered to the Taxation Group 2 new companies, Sonae Indústria – Management Services, S.A. and Parcelas e Narrativas – Imobiliária, S.A constituted in 2016.
Deferred taxes are calculated using the report liability method, reflecting the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets and liabilities are calculated and annually reviewed using the tax rates in place or announced and thereby expected to apply at the time the temporary differences are expected to reverse.
Deferred tax assets are recognised only when it is probable that sufficient taxable profits will be available against which the deferred tax assets can be used, or when taxable temporary differences are recognised and expected to reverse in the same period. At each balance sheet date a review is made of the deferred tax assets recognised, which are reduced whenever their future use is no longer likely. Deferred tax assets and liabilities are recorded in the Income statement, except if they relate to items directly recorded in equity. In these cases the corresponding deferred tax is recorded in equity.
Deferred tax liabilities are recognized for all taxable temporary differences, except those relating to: i) the initial recognition of goodwill, or ii) the initial recognition of assets and liabilities that do not result in a business combination and at the time the transaction does not affect accounting profit nor taxable profit. In respect of taxable temporary differences associated with investments in subsidiaries should not be recognized to the extent that: i) the parent company is able to control the timing of the reversal of the temporary difference and ii) it is probable that the temporary difference not reverse in the foreseeable future.
Revenue from services rendered is recognised in the Income statement taking into consideration the stage of completion of the transaction at the report date.
As of 2011, the management services started to be performed by another company of the group reason why no value in the line of the revenue was recognized.
From 2016, with the restructuring, these services were once again provided by the company.
From 2017, with a new restructuring, the company only provided management services.
The dividends received from investments in subsidiaries, associates and joint ventures are recognized as income in the period they are assigned to the partners or shareholders. Interests earned from loans are recorded in the period to which they relate, having regard to the period up to the end of each year.
Income and expenses are recorded in the year to which they relate, independently of the date of the corresponding payment or receipt. Income and expenses for which their real amount is not known are estimated.
Other current assets and Other Current Liabilities include income and expenses of the reporting year which will only be invoiced in the future. Those captions also include receipts and payments that have already occurred but will only correspond to income or expenses of future years, when they are to be recognised in the income statement.
Capital gains and losses that result from the sale or write-off of tangible and intangible assets and of investments are presented on the Income statement as the difference between the sale price and the net book value at date of sale or write-off, under the caption Other Operating Profits and Losses.
Exchange gains and losses arising from differences between historical exchange rates and those prevailing at the date of collection, payment or the date of the report, are recorded as income or expenses of the period, except for those related to non-monetary assets or liabilities, for which adjustments to fair value are directly recorded under equity.
$$
\begin{array}{c|c}\n & 2017 \
\hline\n\text{GBP} & 0,8872\n\end{array}
$$
Events after the report date that provide additional information about conditions that existed at the balance sheet date (adjusting events), are reflected in the financial statements. Events after the balance sheet date that are non-adjusting events are disclosed in the notes when material.
Sonae Indústria credit Risk derives mainly from its account receivables items related with its operating activity.
The main objective of credit risk management at Sonae Indústria is to ensure the effective collection of customer's operating receipts in accordance with the negotiated conditions. The payment is as low as possible, while maintaining the lowest possible level of impairment debtors.
In order to mitigate credit Risk related with potential customers default on payment of outstanding receivables, Sonae Indústria :
-Implemented common proactive credit management processes and procedures; active and reactive, processes, these, supported and preventive, supported by advanced information systems;
Establishes and monitors the credit limits of its clients, monitoring daily the effective exposure;
Has created adequate protection mechanisms for hedging risks (such as credit insurance, letters of credit, and bank guarantees).
Uses credit rating agencies;
It uses the means of the insurance and legal companies available for recovery of credit when applicable.
To foster the sharing of experiences, the alignment of procedures and practices and to ensure compliance with adequate control rules, Sonae Arauco promotes, on an annual basis, a "Customer Credit Risk Management Forum". During 2017 Sonae Arauco also implemented a group project to review and optimize the group's current practices.
ii) Other financial assets, other than receivables
In addition to assets resulting from operating activities and related loan balances, Sonae Indústria holds other financial assets arising from its relationship, mainly related to its treasury management activities and deposits with financial institutions, such as deposits. As a result of these movements and bank balances, there is also a credit risk associated with the potential pecuniary default of the Financial institutions that are counterparts in these relationships.
As a rule, the financial assets resulting from this relationship with financial institutions preferably involve counterparties with a minimum Investment Grade rating. On the other hand, in general, the exposure related to this type of financial assets is broadly diversified and of limited duration in the periods by the group companies
Due to the relevant proportion of variable rate debt, and of the consequent interest payment cash flows, Sonae Indústria is exposed to interest rate risk, particularly to the risk of interest rate variation of the Euro, since most of its debt is denominated in this currency.
As a general rule, Sonae Indústria does not hedge its exposure to interest rate fluctuations through financial derivatives. This approach is based on the principle of a positive correlation between interest rate levels and "operational cash flow before net interest", which creates a natural hedge of "operational cash flow from net interest" to the Sonae Indústria.
As an exception to this policy, Sonae Indústria may contract interest rate derivatives solely to cover exposures to existing risks and only to the extent that the following principles are observed:
Derivatives are not used for purposes of trading, generation of income or speculative purposes;
The company only contracts derivatives with financial institutions with a minimum Investment Grade rating;
Contracted derivatives replicate exactly the underlying exposures with respect to settlement dates and base indexes;
The maximum financial cost of the derivative as a whole and the underlying exposure are always known and limited from the beginning of the derivative contract;
Quotations of two Financial Institutions are obtained prior to the contracting of interest rate derivatives (Note 20.2.1).
As at 31st December 2017, Sonae Indústria did not hold material investments classified as "available-for-sale".
At Sonae Indústria, liquidity risk management aims to ensure that the company obtains, in a timely manner, the financing necessary to continue its business, implement the defined strategy and comply with its obligations under the most favorable terms and conditions. The liquidity risk is analyzed in note 20.1. To this end, the Group's liquidity management comprises:
Financial planning and cash flow forecasts by country and at consolidated level, with different time horizons (weekly, monthly, annual and business plan);
Diversification of funding sources;
Diversification of debt maturities in order to avoid excessive concentration of repayments over short periods of time;
Negotiation with relationship banks of committed and uncommitted credit lines, commercial paper programs, and other types of financial operations, in order to ensure a balance between adequate levels of liquidity and committed fees;
Access and active management of the subsidiaries' liquidity positions and cash flows, taking into account the liquidity objectives of the Group
The most significant estimations included in these financial statements refer to:
a) Impairment tests on tangible and intangible assets ;
These estimations were based on the best available information at the date these financial statements were prepared and were based on the knowledge and experience of present and past events. Notwithstanding, some situations may occur in future periods which were not included in present estimations as they were not foreseeable. Changes to estimations after these financial statements date will be, prospectively, corrected through profit or loss in accordance with IAS 8.
Main estimations and assumptions relating to future events included in these financial statements are described in the correspondent notes.
In determining the fair value of an asset or liability if an active market exists, the market price is applied. This is level 1 of the fair value hierarchy as defined in IFRS 13 - Fair Value Measurement. If an active market is not available, generally accepted valuation techniques are used, based on market assumptions. The resulting fair value corresponds to level 2 of fair value hierarchy, as defined in IFRS 13. Sonae Indústria, SGPS, S.A. applies valuation techniques for unquoted financial instruments, such as available-for-sale financial assets. The most commonly used valuation models are discounted cash flow models and option valuation models that incorporate, for example, interest rate and market volatility curves. For some more complex types of derivatives, more advanced valuation models containing assumptions and data that are not directly observable in the market are used for which Sonae Indústria, SGPS, S.A. uses internal estimates and assumptions. This is the level 3 of the fair value hierarchy as defined in IFRS 13.
Nothing special to point out.
During the periods ended 31 December 2017 and 2016, movements in tangible assets, accumulated depreciation and impairment losses were as follows:
| 3 1.12 .17 | |||
|---|---|---|---|
| M achinery and equipment |
Office equipment |
Total | |
| Gross asset : | |||
| Opening balance | 38.099 | 133.355 | 171.454 |
| Closing Balance | 38.099 | 133.355 | 171.454 |
| A ccumulat ed dep reciat io n and impairment lo sses |
|||
| Opening balance | 38.029 | 133.160 | 166.188 |
| Depreciations for the period | 40 | 160 | 200 |
| Closing Balance | 38.069 | 133.320 | 171.389 |
| C arrying amo unt | 30 | 35 | 65 |
| 3 1.12 .16 | |||
| M achinery and equipment |
Office equipment |
Total | |
| Gross asset : Opening balance Capital expenditure |
38.099 | 133.355 | 171.454 0 |
| Closing Balance | 38.099 | 133.355 | 171.454 |
| A ccumulat ed dep reciat io n | |||
| and impairment lo sses | |||
| Opening balance | 37.985 | 132.766 | 166.188 |
| Depreciations for the period | 44 | 394 | 438 |
| Closing Balance | 38.029 | 133.160 | 171.189 |
As of December 31, 2017 and 2016, the assets and liabilities recognized in the statement of financial position correspond to the following categories:
| Loans | Assets out of scope |
|||||||
|---|---|---|---|---|---|---|---|---|
| and | Available-for-sale | of | ||||||
| notes | receivables | assets | Sub-total | IAS39 | Total | |||
| 3 1.12 .17 | ||||||||
| Non current assets | ||||||||
| Available for sale investments | 5 | 121.425 | 121.425 | 121.425 | ||||
| Other non current assets | 7 | 18.286.113 | 18.286.113 | 18.286.113 | ||||
| Current assets | ||||||||
| Customers | 8 | 173.689 | 173.689 | 173.689 | ||||
| Other current debtors Other current assets |
8 9 |
4.876.328 | 4.876.328 | 623.878 | 4.876.328 623.878 |
|||
| Cash and cash equivalents | 10 | 80.338 | 80.338 | 80.338 | ||||
| To t al | 23.416.468 | 121.425 | 23.537.893 | 623.878 | 24.161.771 | |||
| 3 1.12 .16 | ||||||||
| Non current assets | ||||||||
| Available for sale investments Other non current assets |
5 7 |
9.412.467 | 122.990 | 122.990 9.412.467 |
122.990 9.412.467 |
|||
| Current assets | ||||||||
| Customers | 8 | 176.451 | 176.451 | 176.451 | ||||
| Other current debtors | 8 | 12.546.236 | 12.546.236 | 12.546.236 | ||||
| Other current assets | 9 | 495.976 | 495.976 | |||||
| Cash and cash equivalents | 10 | 161.532 | 161.532 | 161.532 | ||||
| To t al | 22.296.686 | 122.990 | 22.419.676 | 495.976 | 22.915.652 | |||
| Liabilities | ||||||||
| Other | out of scope | |||||||
| financial | of | |||||||
| Liabilities | Sub-total | IAS 39 | Total | |||||
| 3 1.12 .17 | ||||||||
| Non current liabilities | ||||||||
| Bank loans - net of current portion 12 159.536.306 | 159.536.306 | 159.536.306 | ||||||
| Other current non liabilities 14 | 317.547 | 317.547 | ||||||
| Current liabilities | ||||||||
| 12 | Bank loans - currente position of non current liabilities 11.900.000 |
11.900.000 | 11.900.000 | |||||
| Bank loans Trade creditors |
12 15 |
1.750.000 | 157.506 | 1.750.000 157.506 |
1.750.000 157.506 |
|||
| Other current creditors 16 | 5.742.537 | 5.742.537 | 5.742.537 | |||||
| Other current liabilities 17 | 1.629.268 | 1.629.268 | ||||||
| T o t al | 179.086.349 | 179.086.349 | 1.946.815 | 181.033.164 | ||||
| 3 1.12 .16 | ||||||||
| Non current liabilities | Bank loans - net of current portion 12 179.422.837 | 179.422.837 | 179.422.837 | |||||
| Other current non liabilities 14 | 0 | 1.399.949 | 1.399.949 | |||||
| Current liabilities | ||||||||
| Bank loans | 12 | 1.750.000 | 1.750.000 | 1.750.000 | ||||
| Trade creditors | 15 | 167.285 | 167.285 | 167.285 | ||||
| Other current creditors 16 | 5.792.204 | 5.792.204 | 5.792.204 | |||||
| Other current liabilities 17 | 1.364.183 | 1.364.183 | ||||||
| T o t al | 187.132.326 | 187.132.326 | 2.764.132 | 189.896.458 | ||||
| At 31 December 2017 and 31 December 2016, details of investments were as follows: | |||||||
|---|---|---|---|---|---|---|---|
| -- | -- | -- | -- | -- | -- | -- | ----------------------------------------------------------------------------------- |
| 31.12.17 | 31.12.16 | ||||
|---|---|---|---|---|---|
| Non current | Current | Non current | Current | ||
| Invest ment in sub sidiaries | |||||
| Opening balance at 1 January | 244.831.903 | - | 275.462.311 | - | |
| Acquisition over the period | 4.621.105 | - | 3.832.080 | - | |
| Disposals over the period | - | -34.462.488 | - | ||
| Other | -4.000.000 | - | 0 | - | |
| Closing balance for the period | 245.453.009 | - | 244.831.903 | - | |
| Accumulated impairment losses | -24.061.473 | - | -21.308.888 | - | |
| 221.391.535 | - | 223.523.015 | - | ||
| Invest ment in join vent ures | |||||
| Opening balance at 1 January | 1.088.400.304 | - | 1.087.554.828 | - | |
| Acquisition over the period | - | 845.476 | - | ||
| Disposals over the period Other |
-635.476 | - - |
- | - - |
|
| Closing balance for the period | 1.087.764.828 | - | 1.088.400.304 | - | |
| Accumulated impairment losses | -860.391.259 | - | -892.491.770 | - | |
| 227.373.569 | - | 195.908.534 | - | ||
| 448.765.104 | 419.431.549 |
During the year 2017, the acquisitions and disposals were as follow:
| Subsidiaries | Value |
|---|---|
| Increases | 4.621.105 |
| - Share capital increase | 700.000 |
| - Frases e Frações - Imobiliária e Serviços ,S.A.(190.000 shares) | 700.000 |
| - Loss Cover | 3.921.105 |
| - Movelpartes - Componentes para a Indústria do Mobiliário,S.A. | 1.165.452 |
| - Parcelas e Narrativas - Imobiliária, S.A. | 1.965.808 |
| - Frases e Frações - Imobiliária e Serviços ,S.A. | 688.267 |
| - Sonae Indústria - Management Services, S.A. | 101.577 |
| Decreases | 4.000.000 |
| - Share capital decrease | 4.000.000 |
| - Sonae Indústria de Revestimentos,S.A. | 4.000.000 |
As of December 31, 2017 and 2016, receipts and payments of financial investments may be detailed as follows:
| Subsidiaries | 31 december 2017 | 31 december 2016 | |||
|---|---|---|---|---|---|
| Receipts | Payments | Receipts | Payments | ||
| - Taiber, Tableros Alglomerados Ibéricos S.L. | 65.292 | ||||
| - Sonae Arauco Portugal (Sonae Indústria - Produção e Comercialização de Derivados de Madeira,S.A.) | 4.000.000 | 3.497.787 | |||
| - Sonae Indústria de Revestimentos,S.A. | |||||
| - Euroresinas - Indústrias Quimicas,S.A. | 18.169.378 | ||||
| - Sonae Indústria - Management Services, S.A. | |||||
| - Somit Imobiliária,S.A. | 10 | ||||
| - Imoplamac - Gestão de Imóveis,S.A. | 6.000.000 | ||||
| - Siaf Energia,S.A. | 5.000 | ||||
| - Ecociclo - Energia e Ambiente, S.A. | 1.720.021 | ||||
| - Agloma Investimentos,SGPS,S.A. | 5.000.000 | ||||
| - Agloma Imobiliária y Servicios, S.L. | 5.000 | 5.000 | |||
| - Parcelas e Narrativas - Imobiliária, S.A. | 682.627 | ||||
| - Sonae Indústria - Management Services, S.A. | 1.965.808 | 50.000 | |||
| - Glunz UK | 101.577 | 1 | |||
| - Movelpartes - Componentes para a Indústria do Mobiliário,S.A. | 1.165.452 | 470.570 | |||
| - Frases e Frações - Imobiliária e Serviços ,S.A. | 1.388.267 | 2.623.882 | |||
| 4.000.000 | 4.621.105 | 34.462.488 | 3.832.080 |
Assumptions used:
| At 31 December 2017, Sonae Industria, SGPS had the following investments in subsidiaries companies: | |
|---|---|
| ----------------------------------------------------------------------------------------------------- | -- |
| Subsidiaries | % Share | Acquisition Value | Accumulated Impairment Losses |
Net Value | Shareholder´s Funds | Net profit |
|---|---|---|---|---|---|---|
| Maiequipa - Gestão Florestal,S.A. | 100,00% | 3.438.885 | 609.712 | 2.829.173 | 2.829.172 | 22.073 a) |
| Movelpartes - Componentes para Industria do Mobiliário,S.A. | 100,00% | 9.297.933 | 6.794.065 | 2.503.868 | 92.793 | - 1.338.241 a)- b) |
| Sonae Industria de Revestimentos,S.A. | 100,00% | 18.552.828 | 10.195.530 | 8.357.298 | 7.962.193 | 626.372 a)- b) |
| Frases e Frações - Imobiliária e Serviços,S.A. | 100,00% | 4.639.689 | 4.239.694 | 399.995 | 399.995 | - 600.005 a) |
| Parcelas e Narrativas - Imobiliária,S.A. | 100,00% | 2.070.895 | 2.070.895 | 0 | - 271.901 | - 1.021.901 a) |
| Sonae Indústria - Mangement Services,S.A. | 100,00% | 151.577 | 151.577 | 0 | - 60.862 | - 89.582 |
| Glunz UK | 100,00% | 1 | 0 | 1 | 22.261 | 44.774 |
| Megantic BV | 100,00% | 207.300.000 | 0 | 207.300.000 | 78.485.026 | 16.918.698 |
| Sonae RE, Societé Anonyme | 0,04% | 1.200 | 0 | 1.200 | 1.202.059 | - 48.581 |
| 2 45. 453 .00 8 | 2 4.0 61.4 73 | 221.391.53 5 |
a) It is estimated that the amount by which the cost of acquisition of the financial interests in Sonae Indústria de Revestimentos, S.A., in Movelpartes - Componentes para a Indústria do Mobiliário ,S.A., in Frases e Frações - Imobiliária e Serviços, S.A., in Parcelas e Narrativas – Imobiliária, S.A. and Sonae Indústria - Management Services, S.A. is registered, is higher than its recoverable amount, and impairment losses were recognized in the year and in previous years (Note 18).
b) Impairment tests were performed on November 30, 2017, related to Sonae Indústria de Revestimentos S.A. and Movelpartes - Componentes para a Indústria do Mobiliário, S.A., which consisted of determining the value of use using the discounted cash flow method. For this purpose, operating cash flow projections were made for a period of 5 years, subsequently extrapolated through perpetuity and restated at the closing date of these financial statements. The discount rates used correspond to the weighted average cost of capital (WACC) rates, recalculated using the Capital Asset Pricing Model (CAPM) methodology for each reportable segment, before taxes. These rates consider market specificities by incorporating different risk factors as well as the 10-year risk-free interest rate of 10-year German Treasury Bonds plus a risk premium in each country considered. The use of a 5-year period for the projection of cash flows took into account the extent and intensity of the economic cycles to which the group activity is subject. The cash flows considered are based on the Group's Business Plan, which includes projections updated annually in order to incorporate the developments occurring in the markets in which the Group operates.
Following the tests carried out, no adjustment to existing impairment losses was necessary.
c) The shares of Parcelas e Narrativas – Imobiliária, S.A. are pledged to guarantee a loan (Note 12).
At December 31, 2017, the Company held the following investment in a joint venture, included in Investments in Subsidiaries and Joint Ventures:
| Joint Venture | % Share | Acquisition Value | Accumulated Impairment Losses |
Net Value | Shareholder´s Funds | Net profit |
|---|---|---|---|---|---|---|
| Sonae Arauco, S.A. | 50,00% | 1.087.764.828 | 860.391.259 | 227.373.569 | 249.281.675 | 25.629.081 |
As of December 31, 2017 and December 31, 2016, receipts and payments of financial investments may be detailed as follows:
| Joint Venture | 31 december 2017 | 31 december 2016 | ||
|---|---|---|---|---|
| Receipts | Payments | Receipts | Payments | |
| - Sonae Arauco,S.A. (Note 26) | 4.921.962 | 210.000 | ||
| 0 | 4.921.962 | 0 | 210.000 |
As of December 31, 2017 and 2016, the recoverable value of the investment in Sonae Arauco, S.A., was estimated based on the following assumptions:
| 2017 | Cash G enera ting Rules | |||||
|---|---|---|---|---|---|---|
| Pe nínsula Ibérica |
Ale ma nha | Afric a do Sul | ||||
| Discount rate (pre- tax) (a) | 9,44% | 7,99% | 13,72% | |||
| Growth rate on perpetuity (b) | 2,00% | 2,00% | 2,00% | |||
| Growth rate c): | ||||||
| Total net income | 2,22% | 1,55% | 5,41% | |||
| Cost of goods sold and materials consumed | 2,10% | 1,94% | 6,39% |
(a) weighted average cost of capital (WACC) rates calculated using the CAPM methodology (pre- tax values)
(b) Growth rate used to extrapolate cash flows in perpetuity (c) Composite average growth rate, including perpetuity
2016
| Cash G enera ting Rules | |||||
|---|---|---|---|---|---|
| Pe nínsula Ibérica |
Ale ma nha | Afric a do Sul | |||
| Discount rate (pre- tax) (a) | 9,67% | 8,46% | 14,65% | ||
| Growth rate on perpetuity (b) | 2,00% | 2,00% | 2,00% | ||
| Growth rate c): | |||||
| Total net income | 2,24% | 2,75% | 5,13% | ||
| Cost of goods sold and materials consumed | 2,86% | 3,48% | 6,46% |
(a) weighted average cost of capital (WACC) rates calculated using the CAPM methodology (pre- tax values)
(b) Growth rate used to extrapolate cash flows in perpetuity
(c) Composite average growth rate, including perpetuity
A reversal impairment loss in the amount of Eur 32.100.511 was recorded for the joint venture Sonae Arauco, S.A. (Note 26).
At December 31, 2017 and December 31, 2016, available-for-sale investments is detailed as follows:
| INVESTMENTS | ||||
|---|---|---|---|---|
| 31.12.17 | 31.12.16 | |||
| Non current | Current | Non current | Current | |
| Assets he ld for sa le | ||||
| Fair value at 1 January | 122.990 | - | 122.922 | - |
| Acquisition over the period | - | 68 | - | |
| Other | - 1.565 | - | - | |
| Fair value at the end of the period | 121.425 | - | 122.990 | - |
Available-for-sale investments refer to financial holdings that do not meet the criteria to be classified as subsidiaries or associates and is detailed as follows:
| 31.12.17 | 31.12.16 | |
|---|---|---|
| Shares INEGI | 109.976 | 109.976 |
| Shares CTIMM | 5.986 | 5.986 |
| Shares PIEP | 5.000 | 5.000 |
| Shares PINUS | 1.496 | |
| Shares BIOMASSA | 297 | 297 |
| Deposir guarantee | 167 | 167 |
| Compensation Fund | 68 | |
| 121.425 | 122.990 |
Details of deferred tax asset at 31 December 2017 and 31 December 2016 were as follows:
| DEFERRED TAXES - BALANCE | ||||
|---|---|---|---|---|
| 31.12.17 | 31.12.16 | |||
| Assets | Liabilities | Assets | Liabilities | |
| Others | 281.811 | - | 223.353 | - |
| 281.811 | - | 223.353 | - | |
| DEFERRED TAXES - FLOWS | ||||
| 31.12.17 | 31.12.16 | |||
| Assets | Liabilities | Assets | Liabilities | |
| Opening Balance | 223.352 | - | 2.652.466 | - |
| Net losses carried forward | - | - 1.511.726 | - | |
| Others | 58.458 | - 917.388 | ||
| Sub- total (Note 25) | 58.458 | - | - 2.429.114 | - |
| Closing Balance | 281.811 | 223.352 | - |
The amount included in others concerns SIFIDE to deduct tax benefits in the coming years .The variation in the period refers to the SIFIDE 2016 of Sonae Indústria de Revestimentos, S.A.
In 2017, no deferred tax asset was recorded on the tax losses generated by the Special Tax Group of Companies (about 585.400 euros) because there is no prospect of recoverability.
Details of Other Non-Current Assets at 31 December 2017 and 31 December 2016 were as follows:
| 31.12.17 | 31.12.16 | |
|---|---|---|
| Loans granted to group companies (Nota 2.2 e 21) | 18.286.113 18.286.113 |
9.412.467 9.412.467 |
| Accumulated Imparment Losses | ||
| 18.286.113 | 9.412.467 |
Loans granted at the end of the period 2017 and 2016:
| 2017 | 2016 | |
|---|---|---|
| Companies | Final Balance | Final Balance |
| Maiequipa - Gestão Florestal,S.A. | 532.880 | 445.900 |
| Movelpartes - Componentes para a Indústria do Mobiliário,S.A. | 906.000 | 906.000 |
| Frases e Frações - Imobiliária e Serviços,S.A. | 6.498.567 | 8.060.567 |
| Parcelas e Narrativas - Imobiliária,S.A. | 10.348.666 | |
| 18.286.113 | 9.412.467 |
In compliance with the article no 5, no. 4 of Decree-Law no. 495/88 of December 30, added by article no 1 of Decree-Law no. 318/94 of December 24, it is informed that loans contracts were entered into during the period ended December 31 of 2017 with the companies Maiequipa - Gestão Florestal, S.A. and Parcelas e Narrativas – Imobiliária, S.A..
Loans granted to Group companies have a medium and long term maturity and they yield interest at an average rate of 4.579 %.
The loans are subject to interest rate conditions but do not provide conditions for repayment, that is to say, repayment is made through the availabilities of each of the companies, and it is not possible at this moment to predict its date, nor is it expected that its reimbursement occurs next year.
8.1) At 31 December 2017 and 31 December 2016, details of Current Trade Debtors were as follows:
At 31 December 2017 and 31 December 2016, the detail of trade debtors' maturities was as follows:
| 31.12.17 | 31.12.16 | |
|---|---|---|
| Not due Due and not impaired |
151.488 | 124.020 |
| < 30 days > 90 days |
22.038 163 |
52.431 |
| 22.201 | 52.431 | |
| 173.689 | 176.451 |
8.2) At 31 December 2017 and 31 December 2016, details of Other Current Trade Debtors were as follows:
| 31.12.17 | 31.12.16 | |
|---|---|---|
| Group companies - interest (note 21) | 744.498 | 94.202 |
| Group companies - current Income Tax (note 21) | 138.350 | 346.644 |
| Group companies - loans (Note 8.2.1) | 3.990.164 | 12.055.959 |
| Others | 15.000 | |
| 4.873.012 | 12.511.805 | |
| Other debtors | 3.315 | 34.431 |
| Total (Note 8.2.2) | 4.876.328 | 12.546.236 |
8.2.1) Financial transactions at the end of the period:
| 2017 | 2016 | |
|---|---|---|
| Companies | Final Balance | Final Balance |
| Maiequipa - Gestão Florestal,S.A. | 9.000 | 13.000 |
| Movelpartes - Componentes para a Indústria do Mobiliário,S.A. | 3.677.500 | 209.000 |
| Glunz UK | 303.664 | 602.026 |
| Parcelas e Narrativas - Imobiliária, S.A. | 11.231.933 | |
| 3.990.164 | 12.055.959 |
In compliance with the article no 5, no. 4 of Decree-Law no. 495/88 of December 30, added by article no 1 of Decree-Law no. 318/94 of December 24, it is informed that financial transaction contracts were entered into during the period December 2017 with the companies Maiequipa - Gestão Florestal, S.A, Movelpartes – Componentes para a Indústria do Mobiliário, S.A., Sonae Indústria – Management Services,S.A. and Glunz UK.
Financial transactions granted to Group companies have a short term maturity and they yield interest at an average rate of 4.579 %.
8.2.2) At 31 December 2017 and 31 December 2016, detail of Others Debtors maturities was as follows:
| AGEING OF ADVANCE CREDITORS | AGEING OF TRADE CREDITORS (ASSET BALANCES) |
TOTAL DEBTORS | |||||
|---|---|---|---|---|---|---|---|
| 31.12.17 | 31.12.16 | 31.12.17 | 31.12.16 | 31.12.17 | 31.12.16 | ||
| Due and not impaired | |||||||
| < 30 days | 129 | 959 | 129 | 959 | |||
| 30 - 90 days | 0 | 0 | |||||
| > 90 days | 25.492 | 3.187 | 7.980 | 3.187 | 33.472 | ||
| 0 | 25.492 | 3.315 | 8.939 | 3.315 | 34.431 | ||
8.3) At 31 December 2017 and 31 December 2016, Current Tax Assets were as follows:
| 31.12.17 | 31.12.16 | |
|---|---|---|
| Current ta x a sset | ||
| Income Tax | 613.260 | 826.041 |
| 613 260 | 826 041 |
Details of Other Current Assets at 31 December 2017 and 31 December 2016 were the following:
| 31.12.17 | 31.12.16 | |
|---|---|---|
| Accrued revenue | 134 131 | 342 077 |
| Deferred costs | 489 747 | 153 900 |
| 623 878 | 495 976 |
The item accrued revenue refers to interest receivable from loans granted to its subsidiaries.
At 31 December 2017 and 31 December 2016 detail of Cash and cash equivalents was the following:
| 31.12.17 | 31.12.16 | |
|---|---|---|
| Cash at Hand | 1.989 | 1.889 |
| Deposits | 78.348 | 159.643 |
| Cash & Cash Equivalent in balance sheet | 80 338 | 161 532 |
Cash & equivalents comprise cash at hand, deposits, treasury applications and short-term deposits with less than three months maturity, and for which the risk of value change is insignificant.
In May 2017, the company carried out a capital reduction operation to cover accumulated losses, as a result of which capital increased from Eur 812 107 574,17 to Eur 253 319 797,26, without changing the number of existing shares .
In July 2017, the company carried out a reorganization of the 11,350,757,250 shares that came to represent its share capital, after the extinction of 167 shares that were donated by the shareholder Migracom, SGPS, SA. in July 31, 2017 and included the application of a coefficient of 1: 250, according to which each set of 250 (two hundred and fifty) shares, with ISIN code PTS3P0AM0017, corresponded to a new share, with ISIN code PTS3P0AM0025.
As a consequence, on December 31, 2017, the Company's capital, fully subscribed and paid up,
amounted to Eur 253 319 797,26 (Eur 812 107 574,17 as at 31 December 2016) and is represented by 45 403 029 common shares, book-entry and nominative, with no par value (11,350,757,417 shares, as of December 31, 2016).
The shares representing the share capital, on the dates of December 31, 2017 and 2016, do not confer the right to any fixed remuneration.
As of December 31, 2017 and 2016, the company and its subsidiaries did not hold any of their own shares.
The following entities had more than 20% of the subscribed capital on 31 December 2017:
| Entity | % |
|---|---|
| Efanor Investimentos, SGPS, S. A. | 42,66 |
| Pareuro BV | 25,83 |
Shareholder's Funds Detail:
| 2017 | 2016 | |
|---|---|---|
| Share Ca pital | 25 3.3 19 .79 7 | 812.107 .57 4 |
| Legal Re serve | 3.131.75 7 | |
| Othe r re servs and ac cumula ted e arnings | 3 6.149 .79 0 | - 56 1.9 19 .53 4 |
| Free Reserve | 20.145.630 | |
| Other Reserves | 245.913.105 | |
| Accumulated Earnings | - 698.415.145 | |
| Net Income | 36.149.790 | - 129.563.124 |
| Othe r a cc umulate d comprehensive Inc ome | - 23 .64 1 | |
| 289.469.587 | 253.296.157 |
In 2017, the net negative results for the year 2016 and part of the loss generated in previous years not covered by the capital reduction were covered by the application of free reserves in the amount of 20.145.629,80 euros, of merger reserves in the amount of 245.913.105,07 euros and legal reserves in the amount of 3.131.756,77 euros.
Legal Reserve: Commercial legislation establishes that at least 5% of annual net profit has to be intended to strengthen the legal reserve until it represents at least 20% of the capital. This reserve is not distributable to not be in the event of the liquidation of the company, but can be used to absorb losses, after exhausted the other reserves, or incorporated into the capital. The amount at December 2016, was used to cover accumulated losses.
At 31 December 2017 and 31 December 2016 Sonae Indústria, SGPS, S.A had the following outstanding loans:
| 31.12.17 | 31.12.16 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Amortised cost | Nominal Value | Amortised cost | Nominal Value | ||||||
| NOTES | Current | Non Current | Current | Non Current | Current | Non Current | Current | Non Current | |
| Loans - Commercial Paper | 13.650.000 | 158.985.161 | 13.650.000 | 160.100.000 | 1.750.000 | 179.422.837 | 1.750.000 | 180.900.000 | |
| Bank Overdrafts | 551.145 | 551.145 | |||||||
| Gross Debt | 13.650.000 | 159.536.306 | 13.650.000 | 160.651.145 | 1.750.000 | 179.422.837 | 1.750.000 | 180.900.000 |
The loans (nominal value) have the following repayment schedule:
| 31.12.17 | 31.12.16 | |
|---|---|---|
| 2017 | 1.750.000 | |
| 2018 | 13.650.000 | 1.900.000 |
| 2019 | 17.801.145 | 38.000.000 |
| 2020 | 45.850.000 | 44.000.000 |
| 97.000.000 | 97.000.000 | |
| 174.301.145 | 182.650.000 |
The average interest rates of each class of debt stated in the previous table were as follows:
| 2017 | 2016 | ||
|---|---|---|---|
| Bank Loans Debentures Loans - Commercial Paper |
4,591% | 6,450% 5,370% 4,614% |
In the calculation of these average interest rates, bank overdrafts were not considered due to the immateriality of the amounts involved.
| Company | Loan | Contract date |
Maturity (with reference to 31.12.2017) |
Currency | Outstanding principal at 31.12.2017 (Eur) |
Outstanding principal at 31.12.2016 (Eur) |
|---|---|---|---|---|---|---|
| Sonae Indústria, SGPS, S.A. | Commercial paper programme |
june 2013 | june2018 Note: programme without subscription guarantee |
EUR | € 1.750.000 | € 1.500.000 |
| Sonae Indústria, SGPS, S.A. | Commercial paper programme |
july 2014 | repaid between july 2018 and january 2020 |
EUR | € 7.500.000 | € 0 |
| Sonae Indústria, SGPS, S.A. | Commercial paper programme 2) |
may 2016 | repaid between may 2019 and may 2021 |
EUR | € 143.500.000 | € 175.000.000 |
| Sonae Indústria, SGPS, S.A. | Commercial paper programme |
july 2016 | repaid between january 2018 and july 2019 4) |
EUR | € 4.000.000 | € 4.900.000 |
| Sonae Indústria, SGPS, S.A. | Commercial paper programme |
july 2016 | repaid between july 2017 and july 2018 |
EUR | € 1.000.000 | € 1.250.000 |
| Sonae Indústria, SGPS, S.A. | Commercial paper programme 3) |
december 2016 |
repaid between june 2018 and december 2019 |
EUR | € 16.000.000 | € 0 |
| Others | EUR | € 551.145 | € 0 | |||
| Total | € 174.301.145 | € 182.650.000 |
1) The aforemenioned loans pay interest at variable rate
2) The shares of subsidiaries Megantic B.V. e Tafisa Canada Inc.,shares held by Megantic BV, were pledged as collateral for this loan.In this agreement, Sonae Indústria,SGPS,S.A. is obliged to maintain a certain maximum level of financial debt calculated based on the Company´s separate financial statements,also commintting it self to a maximum "Net Debt/Ebitda" ratio for Tafisa Canadá Inc. calculated based on the separate financial statements of this subsidiary.Failure to comply with any of these rations may lead to the anticipated maturity of the loan
3) Under this financing,Sonae Indústria,SGPS,S.A.pledged the shares of its subsidiary Parcelas e Narrativas - Imobiliária,S.A..Under this financing, Sonae Indústria,SGPS,S.A. is obliged to maintain a racio of financial autonomy ("Total Equity/Total Assets").This ratio is tested annually from december 31, 2017 until the end of the financing based on the Company´s consolidated financial statements, and its failure may lead to the early maturity of this loan.
4) In february 2018,by agreement between the parties,the maturity of this loan moved to july 2019.
As of December 31, 2017, the ratios associated with the aforementioned loans complied with the contractually established limits.
The financial liabilities (nominal value) derived from the financing activities disclosed in note 12 were as follows:
| 31.12.2017 | |||||
|---|---|---|---|---|---|
| Demonstração Separada de Posição Financeira | Opening balance | Increase | Decrease | Others | Closing balance |
| Non-current liabilities: | |||||
| Bank loans - net of current portion | 180 900 000 | 551 145 | (20 800 000) | 160 651 145 | |
| Current liabilities: | |||||
| Current portion of non-current bank loans | 250 000 | 11 650 000 | 11 900 000 | ||
| Current bank loans | 1 500 000 | 835 900 000 | 844 800 000 | 9 150 000 | 1 750 000 |
| Current loans to subsidiaries | 4 541 000 | 604 000 | 5 145 000 | ||
| Total | 187 191 000 | 837 055 145 | 844 800 000 | 179 446 145 | |
| Cash receipts from | Cash payments to | ||||
| Demonstração Separada dos Fluxos de Caixa | |||||
| Financing activities: | |||||
| Loans obtained | 837 055 145 | 844 800 000 | |||
| Total | 837 055 145 | 844 800 000 |
During the year 2017, several people were transferred to another company of the Industry Sonae Group as well as the responsibility for the payment of a future benefits plan and therefore the existing provision for this effect in the amount of Eur 91.528, was canceled against operating revenues in the amount of Eur 67.887 and other comprehensive income in the amount of Eur 23.641.
At 31 December 2017 and 31 December 2016 details of this item were as follows:
| 31.12.17 | 31.12.16 | |
|---|---|---|
| Accrued Costs | ||
| Personal expenses | 317.547 | 1.399.949 |
| Liabilities out of scope of IFRS7 | 317 547 | 1 399 948 |
The amount entered in the "Personal expenses" relates to the company's responsibility for the medium and long-term incentive plan recorded on a straight-line basis over the payment deferral period granted in 2015, 2016 and 2017
In 2017, the excess of the estimated amount recorded in 2016 as non-current liabilities, amounting to approximately 807.316 euros, was canceled.
At 31 December 2017 and 31 December 2016 all amounts recorded under this item resulted from normal operations. Trade creditor maturities were as follows:
| MATURITY OF TRADE CREDITORS | ||||
|---|---|---|---|---|
| 31.12.17 | 31.12.16 | |||
| To be paid | ||||
| < 90 days | 157.191 | 164.590 | ||
| > 180 days | 315 | 2.695 | ||
| 157.506 | 167.285 |
16.1) At 31 December 2017 and 31 December 2016 details of Others Creditors were as follows:
| 31.12.17 | 31.12.16 | |
|---|---|---|
| Other Creditors | ||
| Group companies - current Income Tax (Note 21) | 225.770 | 272.805 |
| Group companies - others operations (Nota 21) | 635.476 | |
| Loans from group companies (Note 21) | 5.145.000 | 4.541.000 |
| Other Creditors - financial investments (Note 21) | ||
| Others | 371.767 | 342.915 |
| Financial Instrumets | 5.742.537 | 5.792.196 |
| Others Creditors | 8 | 8 |
| 5.742.545 | 5.792.204 |
Loans from Group companies is related with Sonae Indústria de Revestimentos,S.A., Eur 5.054.500, it has a short term maturity and an average interest rate of 2,429% and Sonae Indústria – Management Services,S.A., Eur 90.500 it has a short term maturity and an average interest rate of rate of 0,729 %.
In compliance with the article no 5, no. 4 of Decree-Law no. 495/88 of December 30, added by article no 1 of Decree-Law no. 318/94 of December 24, it is informed that financial transaction contracts were entered into during the period December 2017 with the companies Sonae Indústria de Revestimentos, S.A. and Sonae Indústria – Management Services,S.A.
The maturity of other debts to third parties is as follows:
| 31.12.17 | < 90 days | 90 - 180 days | > 180 days | Total |
|---|---|---|---|---|
| Subsidiaries | 225.770 | 90.500 | 5.054.500 | 5.370.770 |
| Other Current Maturity of Creditors | 371.767 | - | - | 371.767 |
| 597.537 | 90.500 | 5.054.500 | 5.742.537 | |
| 31.12.16 | < 90 days | 90 - 180 days | > 180 days | Total |
| Subsidiaries | 908.281 | 4.541.000 | 5.449.281 | |
| Maturity of Current Assets Supplliers | 342.915 | 0 | 0 | 342.915 |
| 1.251.196 | 0 | 4.541.000 | 5.792.196 | |
16.2) At 31 December 2017 and 31 December 2016, details of Current tax liability and Other taxes and contributions were as follows:
| 31.12.17 | 31.12.16 | |
|---|---|---|
| Current ta x lia bility | 22 6 02 | 8 3 88 5 |
| Income Tax | 0 | 51.549 |
| Tax retention | 22.602 | 32.335 |
| Othe r ta xes and contributions | 2 0.9 39 | 28 .83 2 |
| Value Added Tax | 10.979 | 9.942 |
| Social Security Contributions | 9.835 | 18.639 |
| Others | 126 | 251 |
| Liabilities out of scope of IFRS7 | 43.541 | 112.716 |
At 31 December 2017 and 31 December 2016 this item had the following detail:
| 31.12.17 | 31.12.16 | ||
|---|---|---|---|
| Accrued Costs | |||
| Personal expenses | 544.144 | 463.242 | |
| Insurances | 20.358 | 0 | |
| Accrued financial expenses | 1.027.316 | 722.928 | |
| External supllies & services | 37.450 | 178.013 | |
| Liabilities out of scope of IFRS7 | 1 629 268 | 1 364 183 |
Changes in provisions and accumulated impairment losses during the period ended December, 31 2017 and December, 31 2016 were the following:
| 31.12.2017 | |||||
|---|---|---|---|---|---|
| Description | Opening Balance | Increase | Utilization | Reversion | Closing Balance |
| Accumulated imparment losses on investments (Note 5) | 913.800.658 | 3.105.657 | 32.453.583 | 884.452.732 | |
| Non current provisions (Note 13) | 91.528 | 91 528 | 0 | ||
| Current provisions | 3.275.719 | 3.275.719 | |||
| 913.892.185 | 6.381.376 | 91.528 | 32.453.583 | 887.728.451 | |
| 31.12.2016 | |||||
| Description | Opening Balance | Increase | Utilization | Reversion | Closing Balance |
| Accumulated imparment losses on investments (Note 5) | 698.524.071 | 217.415.807 | 2.139.220 | 913.800.658 | |
| Non current provisions (Note 13) | 91.528 | 91.528 | |||
| 698.524.071 | 217.507.335 | 2.139.220 | 0 | 913.892.186 |
Impairment losses are offset against the corresponding asset on Statement of Financial Position. Increase in impairment losses relates as described (note 26).
Provisions were created for other risks and charges of Eur 3.275.719,Eur 2.250.000 relating to 50% of legal expenses and claims estimated by Sonae Arauco Deutschland for litigation with clients, and Eur 1.025.719 relating to the estimated 50% interest to be borne by Sonae Arauco Deutschland in respect of cartel proceedings to be settled in 2018.
As described in Note 29, Sonae Indústria, SGPS, S.A. assumed the obligation to compensate Sonae Arauco for certain losses incurred by Sonae Arauco Deutschland, which includes the above mentioned expenses.
At the balance sheet date, the company had irrevocable operating lease contracts with the following payment maturities:
| 31.12.17 | 31.12.16 | |
|---|---|---|
| Maturing in em 2017 | 31.308 | |
| Maturing in em 2018 | 13.224 | 25.059 |
| Maturing in em 2019 | 1.102 | 10.410 |
| 14.326 | 66.777 |
20.1. Liquidity Risk
The liquidity risk described on note 2.17, c), related to gross debt referred to on note 12, can be analysed as follows:
| 2017 | 2016 | ||||||
|---|---|---|---|---|---|---|---|
| Liquidity Risk | Liquidity Risk | ||||||
| Ma turity of gross debt |
Inte rest | Total | Ma turity of gross debt |
Intere st | Tota l | ||
| 20 17 | 0 | 2 017 | 1.750.000 | 7.111.757 | 8.861.757 | ||
| 20 18 | 13.650.000 | 6.258.329 | 19.908.329 | 2 018 | 1.900.000 | 7.056.751 | 8.956.751 |
| 20 19 | 17.801.145 | 5.855.085 | 23.656.230 | 2 019 | 38.000.000 | 6.187.883 | 44.187.883 |
| 2 02 0 | 45.850.000 | 4.549.634 | 50.399.634 | 20 20 | 44.000.000 | 4.561.050 | 48.561.050 |
| 20 21 | 97.000.000 | 1.559.494 | 98.559.494 | 2 02 1 | 97.000.000 | 1.555.233 | 98.555.233 |
| 174.301.145 | 18.222.541 | 192.523.686 | 182.650.000 | 26.472.674 | 209.122.674 |
The interest amounts indicated in the previous tables were calculated based on the interest rates in effect at December 31, 2017 and 2016 for each of the outstanding amounts. The amount indicated for 2018 (2017) in the gross debt maturity profile includes, in addition to the scheduled debt repayments, the amortization of the amounts considered in the end-2017 debt (2016) for which the debt commitment is less than one year.
The maturity profile of the remaining financial instruments is included in the respective explanatory notes.
As at 31 December 2017, the Sonae Indústria, SGPS,S.A. had, in the above mentioned bank loan agreements, unused limits maturing beyond 31 December 2018 in the amount of Eur 31.5 million.
In the interest rate risk analysis in Note 2.17 b), the effect that would have been produced in the results for 2017 and 2016 was calculated, in the event of a + 0.75% change in relation to the interest rates and of -0.75% in relation to the interest rates fixed during those years.
| Se nsitivity Ana lysis | |||||||
|---|---|---|---|---|---|---|---|
| 2 0 17 | 2 0 16 | ||||||
| "Notiona l" | Effe ct in Profit a nd Loss ( Euros) | "Notiona l" | Effe ct in Profit a nd Loss ( Euros) | ||||
| 0,75% | - 0,75% | 0,75% | - 0,75% | ||||
| Gross De bt | |||||||
| G roup | - 5.145.000 | - 54.302 | 54.302 | - 4.541.000 | - 172.978 | 172.978 | |
| Exte rnal | - 174.301.145 | - 1.120.964 | 1.120.964 | - 182.650.000 | - 970.223 | 970.223 | |
| - 179.446.145 | - 1.175.266 | 1.175.266 | - 187.191.000 | - 1.143.201 | 1.143.201 | ||
| Loa ns to group c ompa nie s | 22.231.424 | 173.416 | - 173.416 | 21.468.426 | 514.981 | - 514.981 | |
| Tre a sury Aplic a tions | |||||||
| 22.231.424 | 173.416 | - 173.416 | 21.468.426 | 514.981 | - 514.981 | ||
| - 1.0 0 1.8 5 0 | 1.0 0 1.8 5 0 | 6 3 0 .3 21 | - 6 3 0 .3 2 1 |
Considering the Euribor 6M as a benchmark for the level of interest rates in the Euro, an increase of 0.75 percentage points corresponds to 48,9 times the standard deviation of that variable in 2017 (16,6 times in 2016).
21.1 Balances and transactions with related parties may be summarized as follows:
| Balance | Accounts Receivable | Accounts Payable | Other Creditors | Other non Currents Assets | Other debtors | |||||
|---|---|---|---|---|---|---|---|---|---|---|
| 31.12.17 | 31.12.16 | 31.12.17 | 31.12.16 | 31.12.17 | 31.12.16 | 31.12.17 | 31.12.16 | 31.12.17 | 31.12.16 | |
| 173.526 | 176.451 | 104.467 | 110.197 | 5.375.957 | 5.449.281 | 18.286.113 | 9.412.467 | 4.873.012 | 12.496.815 | |
| - Euroresinas | 1.763 | |||||||||
| - Sonae Arauco Portugal | 1.439 | 39.615 | 16.733 | 11.170 | ||||||
| - Maiequipa | 5.558 | 5.558 | 9.015 | 8.416 | 532.880 | 445.900 | 30.274 | 49.448 | ||
| - Movelpartes | 3.593 | 1.710 | 58.349 | 63.027 | 906.000 | 906.000 | 3.727.632 | 263.192 | ||
| - Siaf Energia | 3.187 | |||||||||
| - Sonae Industria Revestimentos | 19.374 | 3.205 | 1.019 | 10.109 | 5.214.011 | 4.742.363 | 127.355 | 338.037 | ||
| - Sonae ,sgps | 49.000 | 49.000 | ||||||||
| - Sind - Management services | 2.988 | 90.500 | 3.165 | |||||||
| - Sonae Arauco | 25.296 | 635.476 | ||||||||
| - Taiber | - 5.884 | |||||||||
| - Sonae Arauco Deustchland | 97 | |||||||||
| - Solinca investimentos Turisticos | 830 | 150 | ||||||||
| - Sonaecenter II | 28.017 | 27.813 | ||||||||
| - Sonae Arauco France | 105.044 | |||||||||
| - Imosede | 55 | |||||||||
| - Tafisa Canadá | 44.076 | 104.862 | ||||||||
| - Nos | 170 | 739 | ||||||||
| - Mds Consulting | 5.658 | |||||||||
| - Frases e Frações | 895 | 6.498.567 | 8.060.567 | 375.769 | 4.576 | |||||
| - Glunz UK | 317.344 | 615.513 | ||||||||
| - Parcelas e Narrativas | 10.348.666 | 291.472 | 11.231.933 |
| Transactions | Sales & Services Rendered |
Purc hases & Acquired Services |
Interest Income | Interest Expenses | ||||
|---|---|---|---|---|---|---|---|---|
| 31.12.17 | 31.12.16 | 31.12.17 | 31.12.16 | 31.12.17 | 31.12.16 | 31.12.17 | 31.12.16 | |
| 293.832 | 458.769 | 314.023 | 205.994 | 1.080.347 | 3.699.690 | 84.285 | 245.480 | |
| - Agloma Investimentos | 203 | |||||||
| - Ecociclo | 3.443 | |||||||
| - Euroresinas | 10.032 | 54.362 | ||||||
| - Imoplamac | 58.949 | |||||||
| - Sonae Arauco Portugal | 58.823 | 137.064 | 100.137 | 221.419 | ||||
| - Maiequipa | 23.668 | 39.067 | ||||||
| - Movelpartes | 4.404 | 4.655 | 153.129 | 45.888 | 2 | 6.409 | ||
| - Somit Imobiliária | 5.025 | |||||||
| - Siaf Energia | 18.137 | 13.353 | ||||||
| - Sonae Industria Revestimentos | 24.972 | 18.242 | 61.027 | 65.403 | ||||
| - Sonaecenter II | 67.924 | 41.748 | ||||||
| - Sonae ,sgps | 50.000 | 50.000 | ||||||
| - Sind - Management services | 29.148 | 827 | 417 | |||||
| - Sonae Arauco | 235 | 46 | 194.793 | |||||
| - Taiber | 2.484.083 | |||||||
| - Sonae Arauco Deustchland | 97 | |||||||
| - Solinca investimentos Turisticos | 3.706 | 1.137 | ||||||
| - Nos | 5.814 | 9.956 | ||||||
| - Digitmarket | 1.627 | |||||||
| - Imosede | 271 | 2.970 | ||||||
| - Tafisa Canadá | 264.456 | 367.017 | ||||||
| - Glunz UK | 21.946 | 13.477 | ||||||
| - Megantic | 12.767 | 100.608 | ||||||
| - Frases e Frações | 375.761 | 295.093 | 9.704 | 1.812 | ||||
| - Parcelas e Narrativas | 505.016 | 341.693 | 368 | 90 |
| 2017 | 2016 | |
|---|---|---|
| Short term benefit Medium term benefit |
552.557 72.172 |
699.541 1.399.949 |
| 624.729 | 2.099.490 |
In 2017, a correction was made to the estimate created in 2016 regarding the medium and long-term incentive plan amounting to approximately Eur 807.316. This income is reclassified in other operating income (Note 24).
Remuneration of the Supervisory Board, General Assembley and Remuneration Committee is detailed as follow:
2017 2016 Total Fixed salaries 37.700 37.700
Fees paid to the Audit company PricewaterhouseCoopers, SROC, Lda is detailed as follows:
Total Fees related to audit and legal certification of the accounts 12.375
The remuneration policy of the members of the board of directors and supervisory board, as well as the annual amount earned by their members in an individual are presented in the report of government in society .
Services provided are as follows:
| 2017 | 2016 | |
|---|---|---|
| Management Service | 293.832 | |
| Corporate Finance Service | 161.595 | |
| Legal Service | 133.744 | |
| Management Control Service | 92.834 | |
| Other | 70.595 | |
| TOTAL | 293.832 | 458.768 |
At the beginning of 2017, several functional areas passed to another company of the Industry Group, and the company only provided management services.
Other operating income and costs are detailed as follows:
| Other Operation Gains | 31.12.17 | 31.12.16 |
|---|---|---|
| Supplementary revenue | 204.606 | 29.861 |
| Gains on disposal of non current investments | 5.243.699 | |
| Others | 905.264 | 104.868 |
| 1.109.870 | 5.378.428 |
The caption "other operating income" essentially refers to the cancellation of part of the estimate of the medium and long-term incentive plan amounting to approximately Eur 807.316 (Note 21).
| Other Operation Losses | 31.12.17 | 31.12.16 |
|---|---|---|
| Losses on disposal of non current investments | 3.102.155 | |
| Taxes | 142.938 | 225.649 |
| Others | 4.945.742 | 57.661 |
| 5.088.680 | 3.385.464 |
| 31.12.17 | 31.12.16 | |
|---|---|---|
| Financial e xpe nse s: | ||
| Interest expenses (Note 20 e 21) | 7.028.725 | 14.806.655 |
| Exchange Losses | 266 | 80.205 |
| Others | 1.588.686 | 1.502.169 |
| Financial expenses | 8.617.677 | 16.389.028 |
| Financial results | - 6.907.025 | - 12.553.002 |
| 1.710.651 | 3.836.027 | |
| Financial inc ome | ||
| Interest income (Note 21) | 1.082.163 | 3.699.569 |
| Exchange Gains | 41.665 | 38.570 |
| Others | 586.824 | 97.888 |
| 1.710.652 | 3.836.027 |
The variation in interest and interest income is mainly due to the restructuring of the group on May 31, 2016 and amortizations of loans in 2017 (Note 2.21 and 5).
In 2017 and 2016 the company had the following investment results:
| 2017 | 2016 | |
|---|---|---|
| Dividends | 22 .39 6.6 92 | 10 1.4 72 .14 2 |
| Sonae Indústria de Revesyimentos,S.A. | 1.162.735 | 230.893 |
| Sonae Arauco,S.A. | 5.661.957 | 75.013.749 |
| Megantic, B.V. | 15.572.000 | 26.227.500 |
| Reversa l of Impa irment Reversal of Impairment of participation of Ecociclo,S.A.(Note 5) Reversal of Impairment of paraticipation of Sonae Arauco Portugal,S.A.(Note 5) |
32 .45 3.5 83 | 2.139 .22 0 691.359 1.447.861 |
| Reversal of Impairment of participation of Maiequipa,S.A.(Note 5) | 353.072 | |
| Reversal of Impairment of paraticipation of Sonae Arauco,S.A.(Note 5) | 32.100.511 | |
| Gains related with investments | 54.850.275 | 103.611.362 |
| Othe r lost in inve stme nts Sonae Arauco,S.A. |
- 4 .92 1.9 62 - 4.921.962 |
|
| Registration of impairme nt | - 3 .10 5.6 57 | - 217.4 15 .80 7 |
| Registration of impairment of participation of Sonae Arauco,S.A.(Note 5) | - 214.059.298 | |
| Registration of impairment of participation of Sims,S.A.(Note 5) | - 151.577 | |
| Registration of impairment of participation of Frases e Frações,S.A.(Note 5) | - 1.565.812 | - 2.673.882 |
| Registration of impairment of participation of Parcelas e Narrativas,S.A.(Note 5) | - 1.388.268 | - 682.627 |
| Losses related with investments | - 8.027.619 | - 217.415.807 |
| Profit/(loss) on other investments | 46.822.657 | - 113.804.445 |
"Other losses on investments" in the amount of Eur 4.921.962 relates to expenses incurred by the joint venture Sonae Arauco, S.A .which, under the partnership agreement entered into with the Arauco group, are contractually transferable to Sonae Indústria, SGPS, S.A..
The income and deferred taxation recorded at 31 December 2017 and 31 December 2016 were:
| 31.12.17 | 31.12.16 | |
|---|---|---|
| Current tax | 108.741 | 295.095 |
| Deferred tax (Note 6) | 58.458 | (2.429.114) |
| 167.200 | (2.134.019) | |
| Current tax - Prior Year adjustment | (291.281) | (148.165) |
| (124.081) | (2.282.183) | |
| Current tax | (182.540) | 146.930 |
| Deferred tax | 58.458 | (2.429.114) |
| 2017 | 2016 | |
|---|---|---|
| Net income/(loss) before tax | 36.273.871 | - 127.280.940 |
| Tax rate | 21% | 21% |
| Expectable tax | - 7.617.513 | 26.728.997 |
| Impairment loss of financial assets | - 652.188 | - 45.657.319 |
| Reversal impairment loss of financial assets | 6.815.253 | |
| Provisions | - 678.609 | |
| Dividends | 4.703.305 | 21.309.150 |
| Capital gains and losses | 449.724 | |
| Non- deductible costs | - 1.033.612 | |
| Current tax at special rate | - 5.242 | - 9.057 |
| Non- deductible financial charges | - 1.322.827 | - 2.415.607 |
| Deferred tax asset unrecognize | - 2.429.114 | |
| Deferred tax asset recognize | - 58.458 | |
| Others | 17.093 | - 110.792 |
| 167.200 | - 2.134.019 | |
| Effective tax rate | 0,5% | 1,7% |
Non-deductible costs refer to other investment losses in the amount of Eur 4.921.962 (Note 26).
Earnings per share were calculated as follows:
| Net Profit (loss) | 31.12.17 | 31.12.16 |
|---|---|---|
| Net Profit / (loss) considered to calculate base earnings per share | ||
| (Periodic Net Profit/(loss)) | 36 149 790 | - 129 563 124 |
| Net Profit/(loss) considered diluted earnings per share | 36 149 790 | - 129 563 124 |
| Number of Sha res | ||
| Weighted average number of shares used to calculate basic earning per share | 45 403 029 | 11 350 757 417 |
| Weighted average number of shares used to calculate diluted earnings per share | 45 403 029 | 11 350 757 417 |
| Basic and diluted earnings per share | 0,79620 | - 0,01141 |
During 2017, no effect from discontinued operations was recorded.
In October 2010 Sonae Indústria, SGPS, S.A. received a notice of assessment from tax authorities according to which the loss resulting from the dissolution of its subsidiary Socelpac, SGPS, S.A. in 2006, amounting to Eur 74 million, should be considered at 50% for tax calculation purposes. The company filed a lawsuit challenging this interpretation.
The subsidiary Sonae Indústria de Revestimentos, S.A. rendered surety of Eur 2.271.000 in favor of tax authorities for suspension of tax enforcement procedures initiated against Sonae Indústria, SGPS, S.A., having been brought court challenges against the respective settlement.
The subsidiary Maiequipa – Gestão Florestal, S.A. rendered surety of Eur 1.242.746 in favor of tax authorities for suspension of tax enforcement procedures initiated against Sonae Indústria, SGPS, S.A., having been brought court challenges against the respective settlement.
Sonae Indústria, SGPS, S.A. presented bank guarantees of Eur 8.701.741 to suspend tax enforcement procedures initiated by tax authorities, having been brought court challenges against the respective settlement, with the exception of the process IRC 2014, which to date only a graceful complaint has been filed
According to the information available on this date, the Board of Directors considers that the probability of a negative outcome is low, thus no adjustment was done to current tax and deferred tax asset recognized in these separate financial statements.
The guarantee of Sonae Indústria, SGPS, S.A. provided to the Social Security Institute in the amount of Eur 5.049.804 expired once the suit of Sonae Arauco Portugal, S.A. (Ex Sonae Indústria PCDM) was concluded in a manner favorable to the company. The guarantee of Sonae Indústria, SGPS, S.A. provided to the Social Security Institute in the amount of Eur 321.858 to guarantee the contingency that Sonae Arauco Portugal, S.A. has with this entity still remains, since the complaint process is not yet completed
Sonae Indústria, SGPS, S.A. has a guarantee granted to Montepio of Eur 1.090.248 under a real estate lease agreement entered into between the subsidiary Frases e Frações - Imobiliária e Serviços, S.A. and Montepio.
The former subsidiary, Sonae Arauco Deutschland GmbH (formerly Glunz AG) and other German producers of wood-based panels are involved in certain litigation procedures instituted by some clients for damages arising from alleged breaches of competition law, following in which the former subsidiaries Sonae Arauco Deutschland GmbH (formerly Glunz AG) and GHP GmbH received a notice of unlawfulness from the German Competition Authority in March 2010. Some of these processes have already known the outcome during the years 2015, 2016 and 2017 and their respective effects have been recorded in the individual financial statements of each company and, when applicable, in the consolidated financial
statements of the subsidiary Sonae Arauco S.A. (whose consolidation perimeter ex-subsidiaries are included). Under the terms of the share subscription agreement of Sonae Arauco S.A., entered into by Sonae Arauco, S.A., Sonae Indústria, SGPS, S.A. and the companies of the Arauco Group, Inversiones Arauco Internacional Limitada and Celulosa Arauco y Constitución SA, Sonae Indústria, SGPS, the obligation to compensate Sonae Arauco, S.A. for any losses resulting from these proceedings will be compensated by Sonae Indústria, SGPS, S.A.. For the cases still in progress, the complaints submitted specifically to former subsidiaries Sonae Arauco Deutschland GmbH (formerly Glunz AG) and GHP GmbH amount to a maximum contingency of Eur 31.5 million. There are other cases where these former subsidiaries are jointly involved with other German producers whose amounts amount to Eur 42.7 million of maximum contingency. According to the opinion of the lawyers of these former subsidiaries, at the date of closing of these individual financial statements, it is not possible to reliably estimate the outcome of the proceedings in progress or the amount of any payments that may be established.
Darbo SAS, a former subsidiary of Sonae Indústria, SGPS, S.A. located in France, was sold on 3 July 2015 to a subsidiary of Gramax Capital and was excluded from the Group's separate financial statements on that date. This company's insolvency was requested at the Trade Court of Dax, in France, in September 2016, and was declared by that court to be liquidated, in October of that year.
Following that case, 110 former employees of Darbo filed various lawsuits with the Labour Court of Dax, in France, against, among others, Sonae Indústria, SGPS, S.A. and Gramax Capital, through which they claim compensation for alleged dismissal without fair reason, for a total amount of Eur 13.653.917,28. The same former employees also filed a lawsuit against the seller and buyer companies and against Sonae Indústria, SGPS, S.A., through which they claim annulment of the sale of Darbo SAS and the payment of compensation for alleged damages suffered, in the same amount claimed before the Labour Court of Dax (Eur 13.653.917,28). At the date of approval of these separate financial statements, legal proceedings are under way and it is not possible to predict whether the outcome will result in any obligation to be recognized under the liabilities of Sonae Indústria.
These financial statements were approved by the Board of Directors and authorised for issuance on 05 of April 2018.
Consolidated Statement of Financial Position Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Changes in Shareholders' Funds Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements
(Amounts expressed in Euros)
| ASSETS | Notes | 31.12.2017 | 31.12.2016 |
|---|---|---|---|
| NON-CURRENT ASSETS: | |||
| Tangible fixed assets | 10 | 146 469 904 | 148 065 694 |
| Goodwill | 13 | 347 082 | 347 082 |
| Intangible assets | 11 | 142 979 | 270 689 |
| Investment properties | 12 | 6 001 043 | 6 251 947 |
| Investment in joint ventures | 9 | 205 616 464 | 195 908 535 |
| Investment available for sale | 9 | 130 487 | 130 821 |
| Deferred tax asset | 14 | 1 462 160 | 1 364 497 |
| Other non-current assets Total non-current assets |
15 | 360 170 119 | 442 298 352 781 563 |
| CURRENT ASSETS: | |||
| Inventories | 17 | 16 998 114 | 18 138 293 |
| Trade debtors | 18 | 13 591 178 | 15 193 129 |
| Other current debtors | 19 | 285 410 | 303 310 |
| Current tax asset | 1 677 850 | 1 090 204 | |
| Other taxes and contributions | 21 | 2 096 256 2 128 573 |
3 246 215 1 951 835 |
| Other current assets Cash and cash equivalents |
20, 25 22 |
4 084 771 | 4 795 077 |
| Total current assets | 40 862 152 | 44 718 063 | |
| Non-current assets held for sale | 16 | 1 535 588 | |
| TOTAL ASSETS | 401 032 271 | 399 035 214 | |
| SHAREHOLDERS`FUNDS AND LIABILITIES | |||
| SHAREHOLDERS`FUNDS: Share capital |
23.1 | 253 319 797 | 812 107 574 |
| Legal reserve | 23.2 | 3 131 757 | |
| Other reserves and accumulated earnings | 23.3 | (182 494 467) | (759 319 894) |
| Accumulated other comprehensive income | 23.4 | 55 287 278 | 54 418 718 |
| Total shareholders' funds attributabble to equity holders of Sonae Indústria | 126 112 608 | 110 338 155 | |
| TOTAL SHAREHOLDERS`FUNDS | 126 112 608 | 110 338 155 | |
| LIABILITIES: | |||
| NON-CURRENT LIABILITIES: | |||
| Bank loans - net of current portion | 24, 26 | 197 650 071 | 214 868 703 |
| Finance lease creditors - net of current portion | 24, 26 | 898 793 | 1 132 741 |
| Post-retirement liabilities | 28 | 962 252 | 1 110 071 |
| Other non-current liabilities | 27 | 2 122 999 | 3 554 341 |
| Deferred tax liability | 14 | 20 568 786 | 20 754 938 |
| Provisions Total non-current liabilities |
32 | 1 983 940 224 186 841 |
1 933 644 243 354 438 |
| CURRENT LIABILITIES: | |||
| Current portion of non-current bank loans | 24, 26 | 11 949 858 | 390 967 |
| Current bank loans | 24, 26 | 1 750 000 | 1 500 000 |
| Current portion of non-current finance lease creditors | 24, 26 | 500 227 | 417 272 |
| Trade creditors | 29 | 19 626 920 | 23 050 212 |
| Current tax liability | 53 391 | 2 422 190 | |
| Other taxes and contributions | 30 | 734 383 | 699 465 |
| Other current liabilities | 25, 31 | 12 842 324 | 16 862 515 |
| Provisions Total current liabilities |
32 | 3 275 719 50 732 822 |
45 342 621 |
| TOTAL SHAREHOLDERS' FUNDS AND LIABILITIES | 401 032 271 | 399 035 214 |
The notes are an integral part of the consolidated financial statements
(Amounts expressed in Euros)
| Notes | 31.12.2017 | 31.12.2016 | |
|---|---|---|---|
| Sales | 38 | 229 768 280 | 239 555 683 |
| Services rendered | 38 | 1 209 951 | 1 301 165 |
| Other income and gains | 35, 38 | 7 058 706 | 5 756 786 |
| Cost of sales | 32, 38 | (121 786 487) | (125 721 669) |
| Increase / (decrease) in production | 32, 38 | 89 205 | ( 537 841) |
| External supplies and services | 38 | (48 310 684) | (49 498 574) |
| Staff expenses | 38 | (24 814 767) | (27 872 095) |
| Depreciation and amortisation | 10, 11, 12 | (12 561 647) | (12 065 676) |
| Provisions and impairment losses (increase / reduction) | 32, 38 | (3 881 626) | (3 546 011) |
| Other expenses and losses | 36, 38 | (3 790 083) | (4 733 384) |
| Operating profit / (loss) | 22 980 848 | 22 638 384 | |
| Financial income | 39 | 1 407 191 | 4 707 115 |
| Financial expenses | 39 | (13 018 615) | (21 213 172) |
| Gains and losses in joint ventures | 5 | 10 353 561 | 5 512 158 |
| Net profit/(loss) from continuing operations, before taxation | 21 722 985 | 11 644 485 | |
| Taxation | 40 | (6 457 254) | (8 565 782) |
| Consolidated net profit / (loss) from continuing operations, after taxation | 15 265 731 | 3 078 703 | |
| Profit / (loss) from discontinued operations, after taxation | 6, 41 | 7 930 251 | |
| Consolidated net profit / (loss) for the period | 15 265 731 | 11 008 954 | |
| Attributable to: | |||
| Equity Holders of Sonae Industria | |||
| Continuing operations | 15 265 731 | 3 078 703 | |
| Discontinuing operations | 7 930 251 | ||
| Equity Holders of Sonae Industria | 15 265 731 | 11 008 954 | |
| Profit/(Loss) per share | |||
| Fom continuing operations: | |||
| Basic | 42 | 0.3362 | 0.0003 |
| Diluted | 42 | 0.3362 | 0.0003 |
| From discontinued operations: | |||
| Basic | 42 | 0.0007 | |
| Diluted | 42 | 0.0007 | |
The notes are an integral part of the consolidated financial statements
(Amounts expressed in Euros)
| Notes | 31.12.2017 | 31.12.2016 | |
|---|---|---|---|
| Net consolidated profit / (loss) for the period (a) | 15 265 731 | 11 008 954 | |
| Other consolidated comprehensive income | |||
| Items that may be subsequently transferred to profit or loss | |||
| Change in currency translation reserve | 23.4 | (4 240 137) | 4 275 995 |
| Change in fair value of available-for-sale financial assets | 9 | 8 508 | |
| Group share of other comprehensive income of joint ventures | 5 | ( 618 288) | 4 416 002 |
| Items that may not be subsequently transferred to profit or loss | |||
| Revaluation of tangible fixed assets | 10 | 5 796 847 | |
| Remeasurements of defined benefit plans | 28 | 106 021 | ( 149 140) |
| Group share of other comprehensive income of joint ventures | 5 | 1 360 282 | (1 313 640) |
| Income tax relating to items that will not be reclassified | 14 | (1 536 165) | |
| Other consolidated comprehensive income for the period, net of tax (b) | 868 560 | 7 237 725 | |
| Total consolidated comprehensive income for the period (a) + (b) | 16 134 291 | 18 246 679 | |
| Total consolidated comprehensive income attributable to: | |||
| Equity holders of Sonae Industria | 16 134 291 | 18 246 679 | |
| 16 134 291 | 18 246 679 | ||
| Other comprehensive income reclassified to profit or loss in the period | (36 592 671) | ||
The notes are an integral part of the consolidated financial statements
| Share capital | Legal reserve |
Other Reserves and accumulated earnings |
Accumulated other comprehensive income |
Total shareholders` funds attributable to the equity holders of Sonae Indústria |
Non controlling interests |
Total shareholders' funds |
|
|---|---|---|---|---|---|---|---|
| Notes | 23.1 | 23.2 | 23.3 | 23.4 | |||
| Balance as at 1 January 2017 | 812 107 574 | 3 131 757 | (759 319 894) | 54 418 718 | 110 338 155 | 110 338 155 | |
| Total consolidated comprehensive income for the period Net consolidated profit/(loss) for the period Other consolidated comprehensive income for the period |
15 265 731 | 868 560 | 15 265 731 868 560 |
15 265 731 868 560 |
|||
| Total | 15 265 731 | 868 560 | 16 134 291 | 16 134 291 | |||
| Share capital reduction Others |
(558 787 777) | (3 131 757) | 561 919 534 ( 359 838) |
( 359 838) | ( 359 838) | ||
| Balance as at 31 December 2017 | 253 319 797 | (182 494 467) | 55 287 278 | 126 112 608 | 126 112 608 |
| Share capital | Legal reserve |
Other Reserves and accumulated earnings |
Accumulated other comprehensive income |
Total shareholders` funds attributable to the equity holders of Sonae Indústria |
Non controlling interests |
Total shareholders' funds |
|
|---|---|---|---|---|---|---|---|
| Notes | 23.1 | 23.2 | 23.3 | 23.4 | |||
| Balance as at 1 January 2016 | 812 107 574 | 3 131 757 | (801 248 687) | 43 785 859 | 57 776 503 | ( 106 611) | 57 669 892 |
| Total consolidated comprehensive income for the period Net consolidated profit/(loss) for the period Other consolidated comprehensive income for the period |
11 008 954 | 7 237 725 | 11 008 954 7 237 725 |
11 008 954 7 237 725 |
|||
| Total | 11 008 954 | 7 237 725 | 18 246 679 | 18 246 679 | |||
| Medium term incentive plan Change in method Transferred to Net consolidated profit/(loss) for the period Others |
( 166 190) 35 060 569 (3 974 540) |
(35 060 569) 36 592 671 1 863 032 |
( 166 190) 36 592 671 (2 111 507) |
106 611 | ( 166 190) 36 592 671 (2 004 896) |
||
| Balance as at 31 December 2016 | 812 107 574 | 3 131 757 | (759 319 894) | 54 418 718 | 110 338 155 | 110 338 155 |
The notes are an integral part of the consolidated financial statements
(Amounts expressed in Euros)
| 31.12.2017 | 31.12.2016 | ||
|---|---|---|---|
| OPERATING ACTIVITIES | Notes | 6 | |
| Receipts from trade debtors | 229 521 296 | 548 207 712 | |
| Payments to trade creditors | 171 336 178 | 436 529 074 | |
| Payments to staff | 26 210 054 | 78 109 973 | |
| Net cash flow from operations | 31 975 064 | 33 568 665 | |
| Payment / (receipt) of corporate income tax | 10 397 236 | 5 528 064 | |
| Other receipts / (payments) relating to operating activities | 2 178 634 | ( 941 559) | |
| Net cash flow from operating activities (1) | 23 756 462 | 27 099 042 | |
| INVESTMENT ACTIVITIES | |||
| Cash receipts arising from: | |||
| Investments | 2 517 | 240 | |
| Tangible fixed assets and intangible assets | 211 695 | 2 208 917 | |
| Investment subventions | 29 008 | ||
| Dividends Increase in share capital (Sonae Arauco, SA) |
9 | 5 661 957 | 137 500 000 |
| 5 905 177 | 139 709 157 | ||
| Cash Payments arising from: | |||
| Investments | 2 076 | 219 469 | |
| Tangible fixed assets and intangible assets | 11 082 685 | 14 731 599 | |
| Investment properties | 131 191 | ||
| Others | 5 | 4 921 962 | |
| 16 006 723 | 15 082 259 | ||
| Net cash used in investment activities (2) | (10 101 546) | 124 626 898 | |
| FINANCING ACTIVITIES | |||
| Cash receipts arising from: | |||
| Interest and similar income | 67 558 | 414 066 | |
| Loans obtained | 24.3 | 855 828 995 | 1182 770 925 |
| 855 896 553 | 1183 184 991 | ||
| Cash Payments arising from: | |||
| Interest and similar charges | 9 381 619 | 26 054 507 | |
| Loans obtained | 24.3 | 859 631 085 | 1311 613 957 |
| Finance leases - repayment of principal | 24.3 | 427 939 | 3 322 952 |
| 869 440 643 | 1340 991 416 | ||
| Net cash used in financing activities (3) | (13 544 090) | (157 806 425) | |
| Net increase in cash and cash equivalents (4) = (1) + (2) + (3) | 110 826 | (6 080 485) | |
| Effect of foreign exchange rate | ( 821 132) | 7 318 | |
| Cash and cash equivalents at the beginning of the period | 22 | 4 795 077 | 15 808 205 |
| Cash and cash equivalents of excluded companies, at 31.05.2016 | 4 939 961 | ||
| Cash and cash equivalents at the end of the period | 22 | ||
| 4 084 771 | 4 795 077 |
The notes are an integral part of the consolidated financial statements
FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Euros)
SONAE INDÚSTRIA, SGPS, S.A., whose head-office is at Lugar do Espido, Via Norte, 4470-177 Maia, Portugal, is the parent company of a group of companies as detailed in notes 4 e 5 ("Group").
Sonae Indústria, SGPS, S.A. is included in the perimeter of consolidation of Efanor Investimentos, SGPS, S.A., which is both its immediate and ultimate parent company.
The shares of the company are listed on NYSE Euronext Lisbon.
The main activity of the Group is the production and commercialization of woodbased panels and derivative products, through industrial plants and commercial facilities located in Portugal, Canada and South Africa.
The main accounting policies adopted in preparing the accompanying consolidated financial statements in a consistent way for all disclosed periods are as follows:
These consolidated financial statements were prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and with Interpretations issued by the IFRS Interpretations Committee (IFRS IC), applicable to the period beginning 1 January 2017 and endorsed by the European Union.
2.1.1. In the year ended 31 December 2017, the following standards and interpretations, which have been endorsed by European Union, became effective:
IAS 7 (amendment), Statement of Cash Flows – Disclosure initiative (effective for annual periods beginning on or after 1 January 2017). This amendment introduces an additional disclosure about the changes in liabilities arising from financing activities, disaggregated between cash changes and non-cash changes and how it reconciles with the reported cash flows from financing activities, in the Cash Flow Statement;
IAS 12 (amendment), Income Taxes – Recognition of deferred tax assets for unrealised losses (effective for annual periods beginning on or after 1 January 2017). This amendment clarifies how to account for deferred tax assets related to assets measured at fair value, how to estimate future taxable profits when temporary deductible differences exist and how to assess recoverability of deferred tax assets when restrictions exist in the tax law.
The application of these standards did not produce any significant effects on these consolidated financial statements.
2.1.2. At 31 December 2017, the following standards and interpretations had been issued by IASB and had been endorsed by the European Union, but had not been applied as they only become effective on later periods:
IFRS 4 (amendment), Insurance Contracts (Applying IFRS 4 with IFRS 9) transactions (effective for annual periods beginning on or after 1 January 2018). This amendment allows companies that issue insurance contracts the
option to recognise in Other Comprehensive Income, rather than Profit or Loss the volatility that could rise when IFRS 9 is applied before the new insurance contract standard is issued. Additionally, it is given an optional temporary exemption from applying IFRS 9 until 2021, to the companies whose activities are predominantly connected with insurance, not being applicable at consolidated level;
IFRS 9 (new), Financial Instruments (effective for annual periods beginning on or after 1 January 2018). IFRS 9 replaces the guidance in IAS 39, regarding: (i) the classification and measurement of financial assets and liabilities; (ii) the recognition of credit impairment (through the expected credit losses model); and (iii) the hedge accounting requirements and recognition;
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 with customers to provide goods or services and requires an entity to recognise revenue when the contractual obligation to deliver the goods or services is satisfied and by the amount that reflects the consideration the entity is expected to be entitled to, following a five step approach;
IFRS 15 (amendment) Revenue from Contracts with Customers (effective for annual periods beginning on or after 1 January 2018). This amendment refers to additional guidance for determining the performance obligations in a contract, the timing of revenue recognition from a license of intellectual property, the review of the indicators for principal versus agent classification, and to new practical expedients to simplify transition;
IFRS 16 (new), Leases (effective for annual periods beginning on or after 1 January 2019). This new standard replaces the IAS 17 with a significant impact on the accounting by lessees that are now required to recognise a lease liability reflecting future lease payments and a "right-of-use asset" for all lease contracts, except for certain short-term leases and for low-value assets. The definition of a lease contract also changed, being based on the "right to control the use of an identified asset".
The Company has analysed the effect that may result from the application of these standards. In relation to IFRS 9, which is applicable as of 1 January 2018, the Group has identified the area of impairment of financial assets as the one that will be most affected by the application of this new standard. In this context, the Group has set up a new methodology for assessing impairment of financial assets. If this methodology were to be used, impairment of trade debtors would have increased by approximately EUR 3 500 as of 31 December 2017, which represents an insignificant increase in the amount of accumulated impairment losses on Trade debtors recorded at that date (note 18). With respect to the other standards applicable as of 1 January 2018, the Group does not expect any significant effects arising from its application.
2.1.3. At 31 December 2017, the following standards, effective 1 January 2017 or later, had been issued by IASB but still had not been endorsed by the European Union:
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 when assets are transferred to, or from investment properties, the evidence of the change in use is required. A change of management intention in isolation is not enough to support a 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 cashsettled, share-based payments and the accounting for modifications to a share-based payment plan that change the classification an award from cash-settled to equity-settled. It also introduces an exception to the principles in IFRS 2 that will require an award to be treated as if it was wholly equity-settled, where an employer is obliged to withhold an amount for the employee's tax obligation associated with a share-based payment and pay that amount to the tax authority;
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. . The amendment introduces the possibility to classify certain financial assets with negative compensation features at amortized cost, provided that specific conditions are fulfilled, instead of being classified at fair value through profit or loss;
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. The amendment clarifies that long-term investments in associates and joint ventures (components of an entity's investments in associates and joint ventures), that are not being measured through the equity method, are to be measured in accordance with IFRS 9, being subject to impairment expected credit loss model prior to any impairment test of the investment as a whole;
IFRS 17 (new), Insurance Contracts (effective for annual periods beginning 1 January 2021). This standard is still subject to endorsement by the European Union. This standard will revoke IFRS 4 – Insurance contracts and applies to all entities issuing insurance contracts, reinsurance contracts and investment contracts with discretionary participation characteristics. IFRS 17 is based on the current measurement of technical liabilities at each reporting date. The current measurement can be based on a complete "building block approach" or "premium allocation approach". The recognition of the technical margin is different depending on whether it is positive or negative. IFRS 17 is of retrospective application;
Annual Improvement 2014 - 2016, (generally effective for annual periods beginning on or after 1 January 2017). These improvements are still subject to endorsement by European Union. The 2014-2016 annual improvements affects: IFRS 1, IFRS 12 and IAS 28;
Annual Improvement 2015 – 2017, (effective for annual periods beginning on or after 1 January 2019). These improvements are still subject
to endorsement by the European Union. The 2015-2017 annual improvements affects: IAS 23, IAS 12, IFRS 3 and IFRS 11;
IFRIC 22 (new), 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. An Interpretation to IAS 21 'The effects of changes in foreign exchange rates' it refers to the determination of the "date of transaction" when an entity either pays or receives consideration in advance for foreign currency denominated contracts". The date of transaction determines the exchange rate used to translate the foreign currency transactions;
IFRIC 23 (new), Uncertainty over Income Tax Treatments (effective for annual periods beginning 1 January 2019). This interpretation is still subject to endorsement by the European Union. This is an interpretation of IAS 12 - Income tax referring to the measurement and recognition requirements to be applied when there is uncertainty as to the acceptance of an income tax treatment by the tax authorities. In the event of uncertainty as to the position of the tax authority on a specific transaction, the entity shall make its best estimate and record the income tax assets or liabilities under IAS 12 rather than IAS 37 - Provisions, contingent liabilities and contingent assets, based on the expected value or the most probable value. The application of IFRIC 23 may be retrospective or retrospective modified.
The Company did not complete the analysis of the effects that may arise from the future application of these standards.
The accompanying consolidated financial statements have been prepared from the books and accounting records of the companies included in the consolidation (note 4) on a going concern basis and under the historical cost convention, except for financial instruments, which are stated at fair value (note 2.13), and land and buildings, which are stated for their revalued amounts, as described on note 2.3.
The consolidation methods adopted by the Group are as follows:
Investments in companies in which the Group holds control, directly or indirectly, were included in these consolidated financial statements using the full consolidation method.
The Group holds control of entities when it fulfils all the following conditions: (i) power over the entity; (ii) exposure, or rights, to returns from its involvement with the entity; and (iii) the ability to use its power over the entity to affect the amount of its own returns.
Equity and comprehensible income attributable to minority shareholders are shown separately, under the caption Non-controlling Interests, in the Consolidated Statement of Financial Position and in the Consolidated Income Statement, respectively.
Comprehensive income and the remaining items of net shareholders' funds are attributed to the holders of non-controlling interests, according to their interest, even if this caption turns negative.
Assets and liabilities of each Group company are measured at their fair value at the date of acquisition. Any excess of the acquisition cost plus the noncontrolling holders' share in the fair value of acquired assets and liabilities or, alternatively, plus the fair value of non-controlling holders' investment in the acquired subsidiary, over the Group's interest in the fair value of the identifiable net assets acquired is recognized as goodwill (note 2.2.c and 13). If the difference between the acquisition cost plus the non-controlling holders' share in the fair value of acquired assets and liabilities or, alternatively, plus the fair value of non-controlling holders' investment in the acquired subsidiary and the fair value of the identifiable net assets acquired is negative, this difference is recognized as income in profit or loss for the period of acquisition, after reassessment of the estimated fair value. Non-controlling interests include their proportion of the fair value of net identifiable assets and liabilities or, alternatively, the fair value of their investment in the subsidiary acquired.
The results of Group companies acquired or disposed of during the period are included in the Consolidated Income Statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.
Adjustments to the financial statements of Group companies are performed, whenever necessary, in order to adapt accounting policies to those used by the Group. All intra-group transactions, balances, income and expenses and distributed dividends are eliminated on consolidation.
Entities included in these consolidated financial statements are listed on note 4.
Financial investments in joint ventures (companies that the Group holds together with third parties and in which joint control is established in a shareholders' agreement, which reflects on the governance structure of these entities) and in associates (companies where the Group exercises significant influence through the participation on financial and operational decisions but does not hold its control or joint-control – usually corresponding to holdings between 20% and 50% in a company's share capital) are accounted for on these consolidated financial statements in accordance with the equity method.
Under the equity method, investments are recorded at cost, under Investments in joint ventures or Investments in associates, on the Consolidated Statement of Financial Position, then adjusted by the amount corresponding to the Group's share of changes in equity (including net profit or loss) of the entity, against losses or profits in the period or against other comprehensive income for the period and against dividends received.
The excess value resulting from the difference between the acquisition cost and the fair value of the assets and liabilities of the entity, at the time of acquisition, is recorded under Investments in joint ventures or Investments in associates, on the Consolidated Statement of Financial Position. If the difference between the acquisition cost and the fair value of the assets at the time of acquisition is negative, it is recognized as income in the period.
Adjustments to the financial statements of the entity are performed, whenever necessary, in order to adapt accounting policies to those used by the Group.
An assessment of investments in joint ventures and in associated companies is performed when there is an indication that the asset might be impaired. Any impairment loss that is shown to exist is stated on the Consolidated Income Statement. Impairment losses recorded in prior years that are no longer justifiable are reversed.
When the Group's share of losses exceeds the carrying amount of the investment, the investment is reported at nil value, unless the Group is committed beyond the value of its investment.
Gains on transactions with joint ventures or associates are eliminated proportionately to the Group's interest in these entities, against the carrying amount of investment. Losses are also eliminated, as long as it does not reflect an impairment situation.
Investments in joint-venture companies are detailed on note 5.
c) Goodwill
The excess of the acquisition cost plus the non-controlling holders' share in the fair value of acquired assets and liabilities or, alternatively, plus the fair value of non-controlling holders' investment in the acquired subsidiary, over the Group's interest in the fair value of the identifiable net assets acquired is recognized as goodwill (note 13).
Goodwill arising on the consolidation of subsidiaries located in foreign countries is accounted for on the functional currency of these subsidiaries and is then translated into the Group's reporting currency (euro) at the exchange rate of the closing date of these consolidated financial statements. Exchange rate differences arising from this translation are stated as Translation Reserve in Other accumulated comprehensive income.
Goodwill is not amortized, but it is subject to impairment tests on an annual basis. Impairment losses identified in the period are disclosed on the
Consolidated Income Statement under Provisions and Impairment Losses, and cannot be reversed.
If the difference between the acquisition cost plus the non-controlling holders' share in the fair value of acquired assets and liabilities or, alternatively, plus the fair value of non-controlling holders' investment in the acquired subsidiary, and the fair value of the identifiable net assets acquired over cost is negative, this difference is recognized as income in profit or loss for the period of acquisition, after reassessment of the estimated fair value.
Assets and liabilities denominated in foreign currencies in the individual financial statements of foreign companies are translated to euro using exchange rates at the closing date of these consolidated financial statements. Profit and loss and cash flows are converted to euro using the average exchange rate for the period. Exchange rate differences originated after 1 January 2004 are recorded as equity under Translation Reserves in Other accumulated comprehensive income. Exchange rate differences that originated prior to 1 January 2004 (date of transition to IFRS) were written-off through Other reserves and accumulated earnings.
Goodwill and fair value adjustments arising from the acquisition of foreign companies are recorded as assets and liabilities of those companies and translated to euro using exchange rates at the closing date of these consolidated financial statements.
Whenever a foreign company is sold or liquidated, accumulated exchange rate differences are recorded on the Consolidated Income Statement as a gain or loss on the disposal.
Exchange rates used on translation to euro of foreign subsidiaries are listed below:
| 31.12.2017 | 31.12.2016 | |||||
|---|---|---|---|---|---|---|
| Closing | Average | Closing | Average | |||
| rate | rate | rate | rate | |||
| Great Britain Pound | 0.8872 | 0.8761 | 0.8562 | 0.7763 | ||
| South African Rand | 14.8060 | 14.9993 | 14.4571 | 17.2325 | ||
| Canadian Dollar | 1.5039 | 1.4631 | 1.4188 | 1.4647 | ||
| American Dollar | 1.1993 | 1.1272 | 1.0541 | 1.1061 | ||
Source: Bloomberg
Tangible fixed assets acquired up to 1 January 2004 (transition date to IFRS) are recorded at acquisition cost or revaluated acquisition cost, in accordance with generally accepted accounting principles in Portugal until that date, net of depreciation and accumulated impairment losses.
Tangible assets, except land and buildings, acquired after that date, are recorded at acquisition cost, net of accumulated depreciation and impairment losses.
Land and buildings are recognized for their revalued amounts, net of accumulated depreciation, in case of buildings, and impairment losses.
Increase in tangible fixed assets arising from revaluation is recognized through Other comprehensive income for the period revaluation occurs, which will thereafter be transferred to Other reserves and accumulated earnings of Consolidated Statement of Financial Position, to match the effect of depreciating or selling the assets.
Further revaluation will be carried out whenever revalued amounts significantly differ from the carrying amount of revalued assets, never exceeding a five-year period between two successive revaluations.
The Group separately recognizes and depreciates the components of tangible fixed assets whose useful lives are significantly different from the related main asset's ones and the components that can only be used in connection with a specific asset. These components are depreciated separately on the basis of their useful lives.
Repair and maintenance expenses are recognized in profit or loss in the period they occur.
Depreciation is calculated on a straight line basis, from the date the asset is available for use, over the expected useful life for each class of assets.
Depreciation rates used correspond to the following estimated useful lives of underlying assets:
| Years | |
|---|---|
| Buildings | 20 - 40 |
| Plant & Machinery | 2 - 25 |
| Vehicles | 5 |
| Tools | 5 |
| Fixtures and Fittings | 4 - 10 |
| Other Tangible Assets | 5 |
Tangible assets in progress represent fixed assets still under construction/development and are stated at acquisition cost net of impairment losses. These assets are transferred to the captions of tangible fixed assets, according to their nature, and are depreciated from the date they are available for use.
Residual values, useful lives and the depreciation method are assessed annually.
Intangible assets are stated at acquisition cost, net of accumulated amortization and accumulated impairment losses. Intangible assets are only recognized if it is probable that future economic benefits will flow from them, if they are controlled by the Group and if their cost can be reliably measured.
Expenditure on research associated with new technical know-how is recognized as an expense recorded on the Consolidated Income Statement when it is incurred (note 37).
Expenditure on development is recognized as an intangible asset if the Group demonstrates the technical feasibility and its intention to complete the asset, its ability to sell or use it and the probability that the asset will generate future economic benefits. Expenditure on development which does not fulfil these conditions is recorded as an expense in the period in which it is incurred.
Internal costs associated with maintenance and development of software are recorded as an expense in the period in which they are incurred. Only costs directly attributable to projects for which the generation of future economic benefits is probable are capitalized as intangible assets.
Amortisation is calculated on a straight line basis from the date the asset is available for use, over the expected useful life, which ranges from three to six years.
Lease contracts are classified as (i) a finance lease, if the risks and rewards incidental to ownership lie with the lessee and (ii) as an operating lease, if the risks and rewards incidental to ownership do not lie with the lessee.
Whether a lease is classified as finance or operating lease depends on the substance of the transaction rather than the form of the contract.
Tangible assets used by the Group under finance lease contracts, as well as the corresponding liabilities, are recorded on the Consolidated Statement of Financial Position for the lower of fair value of leased assets and the amount of minimum lease payments. In addition, interest included in rents, depreciation and impairment losses are recognized on the Consolidated Income Statement as expenses of the period they relate to. Depreciation and impairment losses are calculated and recognized as set out in note 2.3 for tangible fixed assets. Whenever there is no reasonable certainty as to the acquisition of leased assets upon end of contract, the depreciation period of leased assets will be the lower of estimated useful life and leasing period.
Lease payments under operating lease contracts are recognized as an expense on the Consolidated Income Statement, on a straight line basis over the lease term.
Investment properties are recorded at acquisition cost net of depreciation and of accumulated impairment losses. These are registered as a result of land and
buildings used in discontinued operations and that the Group had established lease contracts with third parties.
Useful lives and the depreciation method are the ones set out in note 2.3. for tangible fixed assets.
Non-current assets are stated under Non-current assets held for sale, on the Consolidated Statement of Financial Position, if their carrying amounts will be recovered mainly through a sale transaction rather than through continuing use.
Carrying amount will be recovered through sale when non-current assets are available for immediate sale in their present conditions and the probability of concluding a sale transaction in the following twelve months is high.
Non-current assets held for sale may be either an individual asset or a disposal group when a group of assets is included in the same sale transaction. Disposal groups may include current assets and liabilities as long as they are included in the same sale transaction. Current and non-current assets and liabilities are stated on the Consolidated Statement of Financial Position under Non-current assets held for sale and Liabilities directly associated with non-current assets held for sale, respectively.
Non-current assets held for sale and disposals groups are measured at the lower of cost and fair value less estimated costs to sell.
Depreciation of depreciable assets ceases after classification as Non-current assets held for sale.
Government grants are recorded at fair value when there is reasonable assurance that they will be received and that the Group will comply with the conditions attaching to them.
Grants received as compensation for expenses, namely grants for personnel training, are recognized on the Consolidated Income Statement in accordance with the relevant expense.
Grants related to depreciable assets are disclosed as Other non-current liabilities on the Consolidated Statement of Financial Position and are recognized on a straight line basis on the Consolidated Income Statement over the expected useful lives of those assets.
Assets are assessed for impairment at each closing date, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Assets are assessed for impairment individually. In case of tangible fixed assets that cannot autonomously produce cash flows, impairment is assessed for the cash-generating unit to which the asset is assigned (note 32). Whenever a cashgenerating unit includes intangibles assets without defined useful life, impairment is assessed, irrespective of events that may indicate that the carrying amount of the cash-generating unit may not be recoverable.
Whenever the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recognized on the Consolidated Income Statement under Provisions and impairment losses.
For tangible fixed assets that were revalued, occurring impairment losses are recognized under Revaluation of tangible fixed assets, on the Consolidated Statement of Comprehensive Income, until the revaluation effect is offset. Any additional impairment is recognized on the Consolidated Income Statement under Provisions and impairment losses.
The recoverable amount is the higher of an asset's fair value less costs to sell and its value in use. Fair value less costs to sell is the amount obtainable from the sale of an asset in an arm's length transaction less the costs of disposal. Value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life.
Reversal of impairment losses recognized in prior years is only recorded when it is concluded that the impairment losses recognized for the asset no longer exist or have decreased. This analysis is performed whenever there is an indication that the impairment loss previously recognized has been reversed. The reversal is recorded on the Consolidated Income Statement under Provisions and impairment losses. However, the increased carrying amount of an asset due to a reversal of an impairment loss is recognized to the extent it does not exceed the carrying amount that would have been determined (net of depreciation) had no impairment loss been recognized for that asset in prior years. Impairment losses on goodwill are not reversible.
Borrowing costs directly attributable to the acquisition, construction or production of qualifying tangible and intangible assets are capitalized as part of the cost of the qualifying asset. Borrowing costs are capitalized from the time of preparation of the activities to construct or develop the asset up to the time the production or construction is complete or when asset development is interrupted. Any income earned on funds temporarily invested pending their expenditure on the qualifying asset, is deducted from the borrowing costs that qualify for capitalisation.
The remaining borrowing costs are recognized as an expense in the period in which they are incurred.
Consumer goods and raw materials are stated at the lower of cost and net realisable value. Cost is determined on a weighted average basis.
Finished goods and work in progress are stated at the lower of the weighted average production cost or net realisable value. Production cost includes cost of raw materials, labour costs and overheads (including depreciation of production equipment based on normal levels of activity).
Net realisable value is the estimated selling price less estimated costs of completion and estimated costs necessary to make the sale.
Differences between cost and net realisable value, if negative, are shown as operating expenses under Cost of sales or Changes in stocks of finished goods and work in progress, depending on whether they refer to consumer goods and raw materials or finished goods and work in progress, respectively.
Provisions are recognized when, and only when, the Group has an obligation (legal or constructive) resulting from a past event, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate can be made of that obligation.
When a significant time delay occurs between the onset of the obligation and the related expenditure, related provision is recognized for its present value.
Provisions are reviewed and adjusted at the reporting date to reflect the best estimate as of that date.
Restructuring provisions are recorded by the Group whenever a formal and detailed restructuring plan exists and that plan has been communicated to the parties involved.
Increase and utilization or reversal of provisions are recognized under Provisions and Impairment losses on the Consolidated Income Statement.
Investments are classified into the following categories:
Investments measured at fair value through profit or loss include the investments held for trading acquired by the Group to be sold within a short
period of time. They are classified as current investments on the Consolidated Statement of Financial Position.
The Group classifies as available-for-sale the investments which cannot be regarded as investments measured at fair value through profit or loss or as held-to-maturity investments.
Available-for-sale investments are stated as non-current assets except if they are intended to be sold within the next twelve months as from the closing date of the consolidated financial statements.
Held-to-maturity investments are classified as non-current assets unless they mature within twelve months of the closing date of the consolidated financial statements. Investments classified as held-to-maturity have defined maturities and the Group has the intention and ability to hold them until the maturity date.
All purchases and sales of investments are recognized on the trade date, independently of the settlement date.
Investments are initially measured at cost, which is the fair value of the consideration paid for them.
Available-for-sale investments and investments measured at fair value through profit or loss are subsequently carried at fair value, without any deduction for transaction costs which may be incurred on sale, by reference to their quoted market price at the closing date of the consolidated financial statements. Investments in equity instruments that do not have a quoted market price and whose fair value cannot be reliably measured are stated at cost less impairment losses.
Changes in the fair value of investments measured at fair value through profit or loss are included as Financial results, on the Consolidated Income Statement.
Gains or losses arising from a change in fair value of available-for-sale investments are recognized directly in Other comprehensive income, on the Consolidated Statement of Comprehensive Income, and included in Other accumulated comprehensive income, on the Consolidated Statement of
Financial Position, until the investment is sold, settled or otherwise disposed of or until it is determined to be impaired, at which time the cumulative gain or loss previously recognized in equity is transferred to the Consolidated Income Statement.
Receivables are initially stated at fair value, which corresponds to its nominal value, and stated on the Consolidated Statement of Financial Position deducted from any impairment losses, recorded under the caption Provisions and impairment losses, on the Consolidated Income Statement, and thereby reflect their net realisable value.
Impairment losses are recognized following objective evidence that part or the whole amount receivable will not be paid, as long as the loss can be reliably estimated. For that, each group company takes into consideration market information showing that the customer is insolvent, along with historical data of overdue and not paid amounts receivable.
Recognized impairment losses correspond to the difference between the carrying amount and the present value of the estimated cash flows, discounted at the original effective interest rate, which is nil whenever payment is expected to occur within less than twelve months.
Accounts receivable are stated on the Consolidated Statement of Financial Position as current assets, unless they mature after twelve months as from the closing date, in which case they will be stated as non-current assets.
Financial liabilities and equity instruments are classified and accounted for based on their contractual substance, independently from the legal form they assume.
Loans are recorded as liabilities at their nominal value, net of up-front fees and commissions related to the issuance of those instruments. Financial expenses are calculated based on the effective interest rate and are recorded under Financial expenses, on the Consolidated Income Statement, on an accruals basis, in accordance with the accounting policy defined in note 2.10. The portion of the effective interest charge relating to up-front fees and commissions, if not paid in the period, is added to the book value of the loan.
Accounts payable are initially recorded at fair value, which corresponds to its nominal value, as no interest is paid and financial discount is deemed to be not relevant.
The Group may use derivatives in the management of its financial risks, only to hedge such risks. Derivatives are not used by the Group for trading purposes.
Derivatives classified as cash flow hedge instruments (Swaps) are used by the Group mainly to hedge interest risks on loans obtained. Conditions established for these cash flow hedge instruments are identical to those of the corresponding loans in terms of base rates, calculation rules, rate setting dates and repayment schedules of the loans and for these reasons they qualify as perfect hedges. Inefficiencies that may arise are recorded under Financial expenses or Financial income, on the Consolidated Income Statement.
The Group's criteria for classifying a derivative instrument as a cash flow hedge instrument include:
The effectiveness of the hedge can be reliably measured;
There is adequate documentation of the hedging relationships at the inception of the hedge;
The forecasted transaction that is being hedged is highly probable.
Cash flow hedge instruments used by the Group are initially accounted for at cost and subsequently adjusted to their corresponding fair value. Changes in fair value of these cash flow hedge instruments are recorded in Other comprehensive income, on the Consolidated Statement of Comprehensive Income, and in Other accumulated comprehensive income, on the Consolidated Statement of Financial Position, and then reclassified to Financial results on the Consolidated Income Statement, over the same period in which the hedged instrument affects Income Statement.
The fair value of these financial instruments is calculated with resource to derivative valuation software as described on note 25.
Hedge accounting of derivative instruments is discontinued when the instrument matures or is sold. Whenever a derivative instrument can no longer be qualified as a hedging instrument, the fair value differences recorded under Other accumulated comprehensive income, are transferred to profit or loss of the period or added to the carrying amount of the asset that resulted from the hedged forecast transaction. Subsequent changes in fair value are recorded in the Consolidated Income Statement.
In some cases, derivative instruments were negotiated to hedge cash flows mainly related to exchange rate hedges (forwards) of loans and trade transactions which do not consist in perfect hedging relations therefore not qualifying for hedge accounting. Notwithstanding, they significantly mitigate the effect on loans and accounts receivable denominated in foreign currencies of changes in exchange rates which the Group intends to hedge.
These derivative instruments, over which no hedge accounting was applied, are initially stated at cost, if any, and then adjusted to their fair value. Changes in fair value, calculated with resource to specific software under the terms described on note 25, are accounted for as Financial results on the Consolidated Income Statement.
When embedded derivatives exist, they are accounted for as separate derivatives when the risks and the characteristics are not closely related to economic risks and characteristics of the host contract, and this is not stated at fair value. Gains and losses are taken through the Consolidated Income Statement.
Additionally, the Group also negotiates, in specific situations, interest derivatives in order to hedge fair values. In these cases, derivatives are stated at fair value through the Consolidated Income Statement. When the hedged instrument is not measured at fair value (i.e. loans which are recorded at amortized cost) the book value is adjusted by the amount which is effectively hedged through the Consolidated Income Statement.
Derivative instruments are stated on the Consolidated Statement of Financial Position under Other non-current assets, Other current assets, Other noncurrent liabilities and Other current liabilities.
Equity instruments are those that represent a residual interest on the Group's net assets and are recorded at the amount received, net of costs incurred with their issuance.
Own shares are recorded at acquisition cost as a reduction to equity. Gains or losses arising from sales of own shares are recorded in Other reserves, under Other reserves and accumulated earnings.
Cash and cash equivalents include cash on hand, cash at banks, term deposits and other treasury applications which mature in less than three months and are subject to insignificant risk of change in value.
In the Consolidated Statement of Cash Flows, cash and cash equivalents also include bank overdrafts, which are included in Bank Loans on the Consolidated Statement of Financial Position.
As referred to in note 28, some of the Group companies are committed to provide benefits to their employees when they get retired. These commitments are considered as defined benefit plans, and autonomous pension funds have been established to this effect.
In order to estimate its obligations, the Group obtains, annually, actuarial valuations according to the "Projected Unit Credit Method".
Remeasurements (actuarial gains or losses) arising from experience adjustments, from changes in demographic and financial assumptions and from the difference between the actual return on assets and the share in net interest are recognized through Other comprehensive income, under Net Shareholders' Funds.
Net interest results from the product of discount rates, which are derived from high quality bonds, and the amount of liabilities deducted by the fair value of plan assets.
Past service costs are recorded immediately through profit or loss for the period.
Obligations recorded at the closing date of the consolidated financial statements reflect the present value of obligations for defined benefits adjusted for remeasurements, net of the fair value of net assets of the pension fund.
Contingent liabilities are not recorded in the consolidated financial statements. Instead they are disclosed in the notes to the financial statements, unless the probability of a cash outflow is remote, in which case, no disclosure is made.
Contingent assets are not recorded in the consolidated financial statements but disclosed in the notes to the financial statements when future economic benefits are probable.
Income tax for the period is calculated based on the taxable income of companies included on consolidation and considers deferred taxation.
Current income tax is determined based on the taxable income of companies included on consolidation, in accordance with the tax rules in force in the respective country of incorporation, considering the period net profit and using the estimated effective average annual income tax rate.
Deferred taxes are calculated using the balance sheet liability method, reflecting the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets and liabilities are calculated and annually remeasured using the tax rates that have been enacted or substantively enacted and therefore are expected to apply in the periods when the temporary differences are expected to reverse.
Deferred tax assets are recognized only when it is probable that sufficient taxable profits will be available against which the deferred tax assets can be used, or when taxable temporary differences are recognized and expected to reverse in the same period. At each closing date a review is made of the deferred tax assets recognized, which are reduced whenever their future use is no longer probable. Deferred tax liabilities are recognized on all taxable temporary differences, except for: i) the initial recognition of goodwill; or ii) the initial recognition of assets and liabilities that do not result from a business combination and that do not affect the accounting or tax result at the date of transaction. However, regarding temporary taxable differences relating to investments in subsidiaries, they should not be recognized in so far as: (i) the parent company has the ability to control the period of reversal of the temporary difference; and (ii) it is likely that the temporary difference will not reverse in the near future.
Deferred tax assets and liabilities are recorded on the Consolidated Income Statement, except if they relate to items directly recorded in Other comprehensive income, in which case the corresponding deferred tax is recorded therein.
Revenue from sales is recognized on the Consolidated Income Statement when the risks and benefits have been transferred to the buyer and the amount of the revenue can be measured reasonably. Sales are recognized net of taxes, discounts and other expenses arising from the sale, and are measured at the fair value of the amount received or receivable.
Revenue from services rendered is recognized on the Consolidated Income Statement, taking into consideration the stage of completion of the transaction at the closing date of the financial statements.
Dividends are recognized as income in the year they are attributed to the shareholders.
Income and expenses are recorded in the year to which they relate, independently of the date of the corresponding payment or receipt. Income and expenses for which their real amount is not known are estimated.
Other current assets and Other current liabilities include income and expenses of the reporting year which will only be invoiced in the future. Those captions also include receipts and payments that have already occurred but will only correspond to income or expenses of future years and that will be recognized in the Consolidated Income Statement of those years, for the corresponding amount.
Capital gains and losses that result from the sale or write-off of tangible and intangible assets and of investments are presented on the Consolidated Income Statement as the difference between the sale price and the net book value at date of sale or write-off, under the captions Other income and gains and Other expenses and losses.
Transactions are recorded on individual financial statements of subsidiaries on their functional currency, using applicable exchange rates on transaction date.
At each closing date, all monetary assets and liabilities expressed in foreign currencies are translated to the functional currency of each foreign company at the exchange rates as at that date. All non-monetary assets and liabilities recorded at fair value and stated in foreign currencies are converted to the functional currency of each company, using the exchange rate at the date the fair value was determined.
Exchange gains and losses arising from differences between exchange rates on transaction date and those prevailing at the date of collection, payment or the date of the financial statements, are recorded as operating income or expenses of the period, in case of operating transactions, or as finance income and expenses, in case of financial transactions, on the Consolidated Income Statement. Exchange differences related to non-monetary assets or liabilities whose change in fair value is directly recognized in equity are also recognized under equity.
When the Group wants to reduce currency exposure, it negotiates hedging currency derivatives (note 2.13.f).
Each year, the Company and its subsidiaries grant their employees that belong to a functional group classified as Executive or above a compensation which is related to the value added in the previous year for the shareholders, to be paid after a 3 year period in case the executive is still in the company.
This compensation, which consists in a monetary obligation, is stated under Other non-current liabilities and Other current liabilities, on the Consolidated Statement of Financial Position.
Events after the closing date that provide additional information about conditions that existed at the Consolidated Statement of Financial Position date are reflected
in the consolidated financial statements (adjusting events). Events after the closing date that are non-adjusting events are disclosed in the notes to the consolidated financial statements, when material.
At the reporting date, reportable segments are assessed on the basis of the internal reporting system of financial information (note 44).
The most significant estimations included in these consolidated financial statements refer to:
a) Useful lives of tangible and intangible assets (notes 2.3, 2.4, 10, 11 and 12);
b) Impairment analysis of accounts receivable (notes 18 and 19);
c) Adjustments to assets, namely fair value adjustments and, relating to inventories, write-down to net realizable value (note 9, 17 and 32);
d) Calculation of post-employment liabilities (notes 28);
e) Calculation of provisions and impairment losses on intangible assets and tangible fixed assets (note 32);
f) Calculation of income tax (note 40).
These estimations were based on the best available information at the date these consolidated financial statements were prepared and were based on the knowledge and experience of present and past events. Notwithstanding, some situations may occur in future periods, which were not included in present estimations, as they were not foreseeable. Changes to estimations after these financial statements date will be prospectively corrected through the Consolidated Income Statement, in accordance with IAS 8.
Main estimations and assumptions relating to future events included in these consolidated financial statements are described in the correspondent notes.
The Group discloses non-recurring items included under operating captions, except under amortization, depreciation, provisions and impairment losses, but including impairment losses on trade debtors, aiming to assist the readers of its consolidated financial statements to better assess the trend of future results.
Non-recurring items include those events that are infrequent, unusual, exceptional, unique or residual, therefore not expected to occur regularly in the context of the company's normal activity. In particular, the Group classifies as non-recurring items reimbursements from insurance, expenditure related to fines and penalties and income or expenses related to or following the discontinuing of assets, including:
Gains or losses on sale or write-off of tangible fixed assets or intangible assets;
Restructuring expenses;
All items that are not classified as non-recurring are therefore classified as recurring.
If an active market is available, market price is used for determining asset and liability fair value. This corresponds to level 1 of fair value hierarchy, as defined in IFRS 13 – Fair Value measurement.
If an active market is not available, generally accepted valuation techniques are used, based on market assumptions. The resulting fair value corresponds to level 2 of fair value hierarchy, as defined in IFRS 13. When these techniques use mostly or exclusively unobservable information, the resulting fair value corresponds to level 3 or fair value hierarchy, as defined on the aforementioned standard.
Sonae Indústria credit risk derives mainly from account receivables items associated with its operating activity.
The main objective of Sonae Indústria credit risk management policy is to guarantee the effective collection of its operating receivables, according to the most commercially adequate reduced payment terms, while maintaining the level of debtors' impairments as low as possible.
In order to mitigate credit risk related with potential customers defaulting on payment of outstanding receivables, Group companies have:
Established a committee to analyse and monitor, on a quarterly basis, credit risks;
Implemented common proactive and preventive credit management procedures and processes, supported by IT systems;
Establish and review credit limits for their customers, daily monitoring effective exposure to their customers;
Establishes appropriate risk coverage mechanisms (for example, credit insurance, letters of credit and bank guarantees);
Make use of credit rating agencies;
Make use of legal proceedings in order to recover bad debt, if applicable.
To foster the sharing of experiences, the alignment of procedures and practices and to ensure the enforcement of sound controlling rules, Sonae Arauco promotes, on a yearly basis, a Customer's Credit Risk Management Forum. During 2017, Sonae Arauco has also implemented a group project to review and optimize the Group's current practices.
In addition to its operating activities and the related trade debtor balances, Group companies have other financial assets, which are mainly associated with its cash management activities and with deposits, in financial institutions. As a result of these bank movements and balances, credit risk arises from the potential counterparty default by the applicable financial institutions.
Group companies preferably engage in financial operations with Investment Grade financial institutions. On the other hand, generally speaking, esposure related with this type of financial assets is widely spread and short lived.
Due to the significant proportion of floating rate debt on Sonae Indústria Consolidated Statement of Financial Position and the consequent cash flows related to interest payments, the company is exposed to interest rate risk and it is particularly exposed to the risk of variation of Euro interest rates, as most of its floating rate debt is denominated in Euro.
As a general rule, Sonae Indústria does not hedge its exposure to floating interest rates.
This approach is based on the principle of the existence of a positive correlation between the interest rate levels and the "operating cash flow before net interest charges", which creates a natural hedge on the "operating cash flow after net interest charges" for Sonae Indústria. The rationale behind this principle is as follows:
Sonae Indústria is mainly exposed to the Euro area on its operating activity and, as referred before, it is also mainly exposed to the Euro currency in what concerns to its floating rate debt.
Sonae Indústria operating activity is cyclical in the sense it is tied to business cycles of the overall economy and, particularly, of the
construction sector (and also of the furniture sector on its own). This is mostly due to the nature of our products and to the fact that they are commodity-like and durable goods, performing better when there are good economic conditions.
Under regular economic circumstances, when there is a strong level of economic activity and demand, inflation tends to increase. Since nominal interest rates are a function of inflation and also because the European Central Bank (ECB) has as its main mission keeping price stability, it normally acts in order to relieve inflationary tensions by increasing interest rates. Opposite effects occur when there is a weak level of activity and demand, with low pressure on prices.
When activity and demand are strong in the Euro Area, Sonae Indústria tends to have superior economic performance and operating cash flow generation. On the other hand, when economic conditions are strong, ECB tends to increase interest rates, in order to refrain demand and avoid price increases, which is reflected on higher net interest charges for Sonae Indústria, creating a natural hedge on "operating cash flow after net interest charges". The same principle (with opposite signs) applies on economic downturn situations.
It is our understanding that, apart from the Euro interest rate, the same rationale applies to other interest rates to which Sonae Indústria is exposed, such as the pound sterling, the Canadian dollar or the South African rand (while acknowledging that, in emerging markets, interest rate behaviour is influenced by other effects not directly related with domestic economic conditions).
As an exception to this general rule, Sonae Indústria may engage in certain interest rates derivatives, solely aimed at hedging risk exposures and only to the extent that the following is observed:
Derivatives are not used for trading, profit making or speculative purposes;
Group companies only engage in derivative transactions with Investment Grade financial institutions;
Derivatives match exact periods, settlement dates and base interest rate of the underlying exposures;
Maximum financial charges on the aggregate of the derivative and the underlying exposures are always known and limited on the inception of the hedging period;
Quotes from two financial institutions are considered before closing any interest rate hedging deal.
ii) Foreign Exchange Risk
As a geographically diversified Group, present in three different continents, Sonae Indústria is exposed to foreign exchange risk. Consolidated Statement of Financial Position and Profit and Loss are exposed to foreign exchange translation risk and Sonae Indústria subsidiaries are exposed to foreign exchange risk of both translation and transaction type.
Foreign exchange risk relates to the possibility of registering gains or losses resulting from the change in exchange rates.
Transaction risk arises when there is exchange risk related to a cash flow in other than a subsidiary local currency. Sonae Indústria subsidiaries cash flows are largely denominated in the subsidiary's local currency. This is valid independently of the nature of the cash flows, i.e.: operating or financial, and provides a degree of natural currency hedging, reducing the Group's transaction risk. In line this rationale, as a principle, Sonae Indústria's subsidiaries financial debt is denominated in their local currency.
As a Group rule, whenever possible and economically viable, subsidiaries aim to offset assets and liabilities denominated in the same foreign currency, thus mitigating exchange risks.
Also as a rule, in situations where relevant exchange risk arises from trade in a currency other than that of the subsidiary, exchange risk should be mitigated through the use of short-term forward exchange agreements contracted by the subsidiary exposed to such risk. Sonae Indústria
subsidiaries do not engage in forward exchange rate agreements for trading, speculative or profit making purposes.
Translation risk arises from the fact that, for each accounting period, the financial statements of the subsidiaries denominated in other currencies than Euro must be translated or converted into Euro in order to prepare the consolidated financial statements of the Group. As exchange rates vary between periodical financial statements and the referred subsidiaries assets' do not match their liabilities, volatility in the consolidated accounts arises as a result of conversion at different exchange rates.
As a policy, translation risk in connection with the conversion of the equity investments in foreign non-euro subsidiaries is not hedged, as these are considered long-term investments. Also, it is assumed that hedging transactions would not add value in the long term. Gains and losses related to the translation at different exchange rates of assets and liabilities of foreign non-euro subsidiaries are accounted as equity under Accumulated other comprehensive income.
Some Sonae Indústria subsidiaries concede or receive intercompany funding on currencies other than their local currency. Whenever this happens, intercompany funding is always denominated in the currency of the other Group counterparty. It is Sonae Indústria policy to hedge systematically the outstanding amount of this intercompany funding, in order to reduce volatility on subsidiaries (and consolidated) financial statements. This volatility arises from the fact that there is no offset of the exchange rate gain or loss registered in the profit or loss of the Group counterparty with the intercompany asset or liability denominated in other than its local currency (gain or loss registered as a result of the change in value of its foreign currency intercompany asset or liability), on the side of the other Group counterparty (and as a result, on the consolidated accounts).
These intercompany loans hedges are done through forward exchange rate agreements, performed by the subsidiary exposed to the exchange rate risk and rolled over consistently on a semi-annual basis. Quotes from at least two financial institutions are considered before closing any of these foreign
exchange hedging deals. These foreign exchange rate derivatives are also not used for trading, profit making, or speculative purposes.
Sensitivity analysis to interest rate risk and exchange rate risk is disclosed on note 26.
iii) Other Price Risks
At 31 December 2017, Sonae Indústria did not hold material investments classified as available-for-sale.
c) Liquidity Risk
Liquidity risk management in Sonae Indústria aims to ensure that the company can obtain, on a timely basis, the financing required to properly carry on its business activities, implement its strategy and meet its payment obligations when due, under the most favourable terms and conditions.
For this purpose, liquidity management at the Group comprises:
Consistent financial planning and cash flow forecasting at country and consolidated levels with different time horizons (weekly, monthly, annual and business plan);
Diversification of financing sources;
Diversification of debt maturities issued in order to avoid excessive concentration of debt repayments in short periods of time;
Negotiation of (committed and uncommitted) credit facilities, commercial paper programmes and other facilities with relationship banks to ensure the right balance between satisfactory liquidity and adequate commitment fees;
Active access and management of subsidiaries' cash positions and cash flows, taking into account the Group's objectives on liquidity.
Liquidity risk is analysed in note 26.
In October 2017, industrial plants of Mangualde and Oliveira do Hospital, which are controlled by Sonae Arauco, S. A., a company 50%-owned by Sonae Indústria, SGPS, S. A., were hit by serious wild fires that affected central Portugal. As a consequence, wood yards, the exposed equipment within the wood yards and the electrical and cabling systems were significantly damaged, forcing these plants to stop operating. It is estimated that these plants will resume full operation in the first half of 2018.
Both plants are subject to an insurance policy that will indemnify them for property damage and business interruption losses.
The results of Sonae Arauco Group, whose 50%-share was recognized on these consolidated financial statement using equity method (note 5), include the following effects which arise from this event:
Losses in inventories for EUR 3 032 958 along with the relating estimated insurance compensation, reduced by the applicable insurance deductible, amounting to EUR 1 032 958;
Impairment loss on damaged tangible fixed assets amounting to EUR 7 663 093, as well as the relating insurance compensation, which was estimated for the same amount;
Insurance compensation gain relating business interruption losses, which were estimated to amount to EUR 7 299 053.
Group companies included in the consolidated financial statements, their head offices and percentage of capital held by the Group as at 31 December 2017 and 31 December 2016 are as follows:
| PERCENTAGE OF CAPITAL HELD | ||||||
|---|---|---|---|---|---|---|
| COM PANY | HEAD OFFICE | 31.12.2017 | 31.12.2016 | TERM S FOR INCLUSION |
||
| Direct | Total | Direct | Total | |||
| Frases e Frações - Imobiliária e Serviços, SA | M aia (Portugal) | 100.00% | 100.00% | 100.00% | 100.00% | a) |
| Glunz UK Holdings, Ltd. | Liverpool (United Kingdom) |
100.00% | 100.00% | 100.00% | 100.00% | a) |
| Glunz UkA GmbH | M eppen (Germany) | 100.00% | 100.00% | 100.00% | 100.00% | a) |
| Isoroy, SAS | La Garenne Colombes (France) |
100.00% | 100.00% | 100.00% | 100.00% | a) |
| M aiequipa - Gestão Florestal, SA | M aia (Portugal) | 100.00% | 100.00% | 100.00% | 100.00% | a) |
| M egantic B.V. | Amsterdam (The Netherlands) |
100.00% | 100.00% | 100.00% | 100.00% | a) |
| M ovelpartes - Comp. para a Indústria do M obiliário, SA |
Paredes (Portugal) | 100.00% | 100.00% | 100.00% | 100.00% | a) |
| Novodecor (Pty) Ltd | Woodmead (South Africa) |
100.00% | 100.00% | 100.00% | 100.00% | a) |
| Parcelas e Narrativas - Imobiliária, SA | M aia (Portugal) | 100.00% | 100.00% | 100.00% | 100.00% | a) |
| Poliface North America | Lac M égantic (Canada) |
100.00% | 100.00% | 100.00% | 100.00% | a) |
| Sonae Indústria - M anagement Services, S. A. | M aia (Portugal) | 100.00% | 100.00% | 100.00% | 100.00% | a) |
| Sonae Indústria - Soc. Gestora de Participações Sociais, SA |
M aia (Portugal) | Parent | Parent | Parent | Parent | Parent |
| Sonae Indústria de Revestimentos, SA | M aia (Portugal) | 100.00% | 100.00% | 100.00% | 100.00% | a) |
| Spanboard Products Ltd | Belfast (United Kingdom) |
100.00% | 100.00% | 100.00% | 100.00% | a) |
| Tafisa Canadá Inc | Lac M égantic (Canada) |
100.00% | 100.00% | 100.00% | 100.00% | a) |
| Tafisa France S.A.S. | La Garenne Colombes (France) |
100.00% | 100.00% | 100.00% | 100.00% | a) |
a) Majority of voting rights;
The direct percentage of capital held refers to the direct investment of a group company in the subsidiary.
The total percentage of capital held relates to the ownership percentage held by the parent.
The joint ventures, their head offices, percentage of share capital held on 31 December 2017 and 31 December 2016 are as follows:
| PERCENTAGE OF CAPITAL HELD | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| COM PANY | HEAD OFFICE | 31.12.2017 | 31.12.2016 | ||||||
| Direct | Total | Direct | Total | ||||||
| Sonae Arauco, SA | M adrid (Spain) | 50.00% | 50.00% | 50.00% | 50.00% | ||||
| Agepan Eiweiler M anagement, GmbH | Eiweiler (Germany) | 100.00% | 50.00% | 100.00% | 50.00% | a) | |||
| Agloma Imobiliaria y Servicios, S. L. | M adrid (Spain) | 100.00% | 50.00% | 100.00% | 50.00% | a) | |||
| Agloma Investimentos, SGPS, S. A. | M aia (Portugal) | 100.00% | 50.00% | 100.00% | 50.00% | a) | |||
| Aserraderos de Cuellar, S.A. | M adrid (Spain) | 100.00% | 50.00% | 100.00% | 50.00% | a) | |||
| 1) | Sonae Arauco Beeskow GmbH | M eppen (Germany) | 100.00% | 50.00% | 100.00% | 50.00% | a) | ||
| Ecociclo, Energia e Ambiente, S. A. | M aia (Portugal) | 100.00% | 50.00% | 100.00% | 50.00% | a) | |||
| Euroresinas - Indústrias Quimicas, S.A. | M aia (Portugal) | 100.00% | 50.00% | 100.00% | 50.00% | a) | |||
| GHP Glunz Holzwerkstoffproduktions GmbH | M eppen (Germany) | 100.00% | 50.00% | 100.00% | 50.00% | a) | |||
| 2) | Sonae Arauco Deutschland GmbH | M eppen (Germany) | 100.00% | 50.00% | 100.00% | 50.00% | a) | ||
| 3) | Glunz Service GmbH | M eppen (Germany) | - | - | 100.00% | 50.00% | a) | ||
| Impaper Europe GmbH | M eppen (Germany) | 100.00% | 50.00% | 100.00% | 50.00% | a) | |||
| Imoplamac – Gestão de Imóveis, S. A. | M aia (Portugal) | 100.00% | 50.00% | 100.00% | 50.00% | a) | |||
| Laminate Park GmbH & Co. KG | Eiweiler (Germany) | 50.00% | 25.00% | 50.00% | 25.00% | b) | |||
| 3) | OSB Deustchland | M eppen (Germany) | - | - | 100.00% | 50.00% | a) | ||
| Racionalización y M anufacturas Florestales, S.A. | M adrid (Spain) | 100.00% | 50.00% | 100.00% | 50.00% | a) | |||
| 4) | Sociedade de Iniciativa e Aproveit. Florestais – Energias, S.A. |
M angualde (Portugal) | - | - | 100.00% | 50.00% | a) | ||
| Somit – Imobiliária, S.A. | M angualde (Portugal) | 100.00% | 50.00% | 100.00% | 50.00% | a) | |||
| Sonae Arauco France | La Garenne-Colombes (France) |
100.00% | 50.00% | 100.00% | 50.00% | a) | |||
| 5) | Sonae Arauco Portugal, SA | M angualde (Portugal) | 100.00% | 50.00% | 100.00% | 50.00% | a) | ||
| 6) | Sonae Arauco South Africa (Pty) Ltd | Woodmead (South Africa) | 100.00% | 50.00% | 100.00% | 50.00% | a) | ||
| 7) | Sonae Arauco Netherlands B. V. | Woerden (The Netherlands) | 100.00% | 50.00% | 100.00% | 50.00% | a) | ||
| 8) | Sonae Arauco (UK), Ltd. | Liverpool (United Kingdom) | 100.00% | 50.00% | 100.00% | 50.00% | a) | ||
| 9) | Sonae Arauco Espana - Soluciones de M adera, S. L. | M adrid (Spain) | 100.00% | 50.00% | 100.00% | 50.00% | a) | ||
| Tafiber. Tableros de Fibras Ibéricas, S.L. | M adrid (Spain) | 100.00% | 50.00% | 100.00% | 50.00% | a) | |||
| 10) | Tafisa U.K, Ltd. | Liverpool (United Kingdom) | - | - | 100.00% | 50.00% | a) | ||
| Taiber, Tableros Aglomerados Ibéricos, S.L. | M adrid (Spain) | 100.00% | 50.00% | 100.00% | 50.00% | a) | |||
| 11) | Sonae Arauco Suisse SA | Tavannes (Switzerland) | 100.00% | 50.00% | 100.00% | 50.00% | a) | ||
| Tecnologias del M edio Ambiente, S.A. | Barcelona (Spain) | 100.00% | 50.00% | 100.00% | 50.00% | a) | |||
| Tecmasa. Reciclados de Andalucia, S. L. | M adrid (Spain) | 50.00% | 25.00% | 50.00% | 25.00% | b) | |||
| Tool, GmbH | M eppen (Germany) | 100.00% | 50.00% | 100.00% | 50.00% | a) |
a) Company included in the consolidation perimeter of Sonae Arauco, S.A.; b) Company whose investment is recognized on the consolidated financial statements of Sonae Arauco, S.A. using the equity method, as it is classified as a joint venture of this company.
The direct percentage of capital held refers to the direct investment of a group company in the subsidiary.
The total percentage of capital held relates to the ownership percentage held by the parent.
Level one fair value of investment in these companies is not available as shares representing their share capital are not listed.
Net assets and net profit/loss for these jointly-controlled companies, whose share was recognized on these consolidated financial statements under equity method, as stated on note 2.2.b), are detailed as follows:
| Sonae Arauco - Consolidated | ||
|---|---|---|
| 31.12.2017 | 31.12.2016 | |
| Non-current assets | 486 460 459 | 516 229 548 |
| C urrent assets (without cash and cash equivalents) | 203 319 660 | 181 815 850 |
| C ash and cash equivalents | 26 708 564 | 29 903 996 |
| Non-current financial liabilities | 181 836 027 | 204 590 512 |
| Other non-current liabilities | 82 277 751 | 95 963 697 |
| C urrent financial liabilities | 29 796 341 | 21 836 327 |
| Other current liabilities | 173 296 890 | 176 328 520 |
| Sonae Arauco - Consolidated | ||||||
|---|---|---|---|---|---|---|
| 31.12.2017 | 31.12.2016 | 31.05.2016 | ||||
| (a) | (b) | (a) - (b) | ||||
| Operating revenues | 846 696 381 | 831 690 131 | 353 636 452 | 478 053 678 | ||
| Operating expenses | (797 604 346) | 782 279 238 | 327 383 577 | 454 895 661 | ||
| Depreciation and amortization | (43 550 736) | 45 988 781 | 18 872 798 | 27 115 983 | ||
| Interest income | 740 714 | 674 217 | 318 751 | 355 466 | ||
| Interest expense | (8 052 634) | 13 807 322 | 7 846 417 | 5 960 905 | ||
| Taxation | (8 725 379) | 3 189 140 | 3 538 028 | ( 348 888) | ||
| Net profit/(loss) from continuing operations | 25 629 081 | 20 175 245 | 9 150 930 | 11 024 315 | ||
| Adjustments to the Group's accounting policies | ||||||
| Group's share on net profit/(loss) | 12 814 541 | 5 512 158 | ||||
| Group's share on other comprehensive Income | 741 994 | 3 102 362 |
Gains and losses in joint ventures, on the Consolidated Income Statement is detailed as follows:
| 31.12.2017 | 31.12.2016 | |
|---|---|---|
| Group's share in the consolidated net profit/(loss) of joint ventures Other gains and losses in joint ventures |
12 814 541 (2 460 980) |
5 512 158 |
| 10 353 561 | 5 512 158 |
In the year ended 31 December 2017, Other gains and losses in joint ventures include 50% of certain expenses incurred by the joint venture Sonae Arauco, S.A. which, under the partnership agreement entered into with the Arauco Group, are contractually transferred to Sonae Indústria, SGPS, SA. The amount corresponding to the remaining 50% of these expenses was included under Group's share in the consolidated net profit/(loss) of joint ventures, using the equity method.
At 31 December 2017 and 31 December 2016, Investment in joint ventures, on the Consolidated Statement of Financial Position included the investment on companies mentioned on note 5, which was measured using equity method, under which the investment's carrying amount is changed by recognizing Sonae Indústria's share in consolidated net profit/(loss), in consolidated other comprehensive income and in the changes on consolidated net equity of Sonae Arauco, S. A.
On 31 May 2016, the then subsidiary Tableros de Fibras, S. A. (currently Sonae Arauco, S. A.) carried out a share capital increase, which was fully subscribed and paid by Arauco Group. As a consequence, Sonae Arauco, S. A. and its subsidiaries identified on note 5 were excluded from consolidation as they were classified as joint ventures on that date. From then on, these companies have been recognized on the consolidated financial statements of Sonae Indústria, SGPS, S. A. using the equity method. Net profit of these companies for the five-month period ended 31 May 2016, which amounted to EUR 7 930 251, were stated under Profit/(loss) of discontinued operations, after taxation, on the Consolidated Income Statement (note 41). Net profit/(loss) recognized after 31 May 2016 was accounted for using equity method and stated under Gains and losses in joint ventures, on the Consolidated Income Statement for the periods ended 31 December 2017 and 31 December 2016.
In the consolidated financial statements for the period ended 31 December 2016, Sonae Indústria, SGPS, S. A. recognized the fair value of its investment in Sonae Arauco, S. A., which was estimated to amount to EUR 185 981 068, with reference to 31 May 2016. The recognition of this fair value implies adjusting the identifiable assets and liabilities of Sonae Arauco, S. A. and its subsidiaries at fair value, with reference to 31 May 2016, for equity method purposes. Based on external appraisals, the fair value adjustment to land and buildings amounts to EUR 10 000 000, which would adjust final goodwill, which amounted to EUR 80 975 628, by the same amount. This adjustment would increase annual depreciation charge by EUR 100 000, of which 50% would be attributable to Sonae Indústria, SGPS, S. A.. Taking into consideration the irrelevance of this amount, Sonae Indústria decided to not adjust the consolidated net profit or loss of Sonae Arauco, S. A. for equity method purposes from 31 May 2016.
The Consolidated Statement of Cash Flows for the year ended 31 December 2016 includes the cash flows of entities classified as discontinued operations, which are detailed on note 41.
In the Consolidated Statements of Financial Position at 31 December 2017 and 31 December 2016, the following financial instruments are included:
| 31.12.2017 | Loans and receivables |
Assets at fair value through profit or loss |
Available-for-sale assets |
Sub-total | Assets out of scope of IAS 39 |
Total |
|---|---|---|---|---|---|---|
| Non current assets Available for sale investments |
130 487 | 130 487 | 130 487 | |||
| Current assets | ||||||
| C ustomers | 13 591 178 | 13 591 178 | 13 591 178 | |||
| Other current debtors | 77 425 | 77 425 | 207 985 | 285 410 | ||
| Other current assets | 1 645 | 1 645 | 2 126 928 | 2 128 573 | ||
| C ash and cash equivalents | 4 084 771 | 4 084 771 | 4 084 771 | |||
| Total | 17 753 374 | 1 645 | 130 487 | 17 885 506 | 2 334 913 | 20 220 419 |
Assets
| Loans | out of scope | ||||
|---|---|---|---|---|---|
| and | Available-for-sale | of | |||
| 31.12.2016 | receivables | assets | Sub-total | IAS 39 | Total |
| Non current assets | |||||
| Available for sale investments | 130 821 | 130 821 | 130 821 | ||
| Other non current assets | 442 298 | 442 298 | 442 298 | ||
| Current assets | |||||
| Customers | 15 193 129 | 15 193 129 | 15 193 129 | ||
| Other current debtors | 209 171 | 209 171 | 94 139 | 303 310 | |
| Other current assets | 1 951 835 | 1 951 835 | |||
| C ash and cash equivalents | 4 795 077 | 4 795 077 | 4 795 077 | ||
| Total | 20 639 675 | 130 821 | 20 770 496 | 2 045 974 | 22 816 470 |
| Liabilities at | Liabilities | ||||
| fair value | Liabilities | out of scope | |||
| through | at amortized | of | |||
| 31.12.2017 | profit or loss | cost | Sub-total | IAS 39 | Total |
| Non current liabilities | |||||
| Bank loans - net of current portion | 197 650 071 | 197 650 071 | 197 650 071 | ||
| Finance lease creditors - net of current portion | 898 793 | 898 793 | 898 793 | ||
| Other non current liabilities | 2 122 999 | 2 122 999 | |||
| C urrent liabilities | |||||
| Bank loans | 13 699 858 | 13 699 858 | 13 699 858 | ||
| Finance lease creditors | 500 227 | 500 227 | 500 227 | ||
| Other current liabilities | 71 838 | 2 652 307 | 2 724 145 | 10 118 179 | 12 842 324 |
| Total | 71 838 | 235 028 176 | 235 100 014 | 12 241 178 | 247 341 192 |
| Liabilities at | Liabilities | ||||
| fair value | Liabilities | out of scope | |||
| through | at amortized | of | |||
| 31.12.2016 | profit or loss | cost | Sub-total | IAS 39 | Total |
| Non current liabilities | |||||
| Bank loans - net of current portion | 214 868 703 | 214 868 703 | 214 868 703 | ||
| Finance lease creditors - net of current portion | 1 132 741 | 1 132 741 | 1 132 741 | ||
| Other non current liabilities | 2 000 000 | 2 000 000 | 1 554 341 | 3 554 341 | |
| Current liabilities |
| Bank loans | 1 890 967 | 1 890 967 | 1 890 967 | ||
|---|---|---|---|---|---|
| Finance lease creditors | 417 272 | 417 272 | 417 272 | ||
| Trade creditors | 23 050 212 | 23 050 212 | 23 050 212 | ||
| Other current liabilities | 431 254 | 3 673 936 | 4 105 190 | 12 757 325 | 16 862 515 |
| Total | 431 254 | 247 033 831 | 247 465 085 | 14 311 666 | 261 776 751 |
Assets and liabilities out of the scope of IAS 39 consist essentially of accounts receivable from and payable to the State and the Group's employees and items of accruals and deferrals.
There are no financial assets offset against financial liabilities.
Use of fair value in the preparation of these consolidated financial statements may be summarized as follows:
| Financial assets | ||||||
|---|---|---|---|---|---|---|
| Measured at fair value | Not measured at fair value | Description | ||||
| Level of fair value |
Amount | Fair value quantified |
Fair value not quantified* |
Total | of used valuation techniques |
|
| 31.12.2017 | ||||||
| Non current assets Available for sale investments |
- | 130 487 | 130 487 | - | ||
| Current assets | ||||||
| C ustomers Other current debtors |
- - |
13 591 178 77 425 |
13 591 178 77 425 |
- - |
||
| Other current assets | 2 | 1 645 | 1 645 | note 20, 25 | ||
| C ash and cash equivalents | - | 4 084 771 | 4 084 771 | - | ||
| 1 645 | 17 883 861 | 17 885 506 | ||||
| 31.12.2016 | ||||||
| Non current assets | ||||||
| Available for sale investments Other non current assets |
- - |
130 821 442 298 |
130 821 442 298 |
- - |
||
| Current assets C ustomers |
- | 15 193 129 | 15 193 129 | - | ||
| Other current debtors | - | 209 171 | 209 171 | - | ||
| C ash and cash equivalents | 4 795 077 | 4 795 077 | - | |||
| - | ||||||
| Total | 20 770 496 | 20 770 496 | ||||
| Financial liabilities | ||||||
| Level of fair value |
Measured at fair value Amount |
Fair value quantified |
Not measured at fair value Fair value not quantified* |
Total | ||
| 31.12.2017 | Description of used valuation techniques |
|||||
| Non current liabilities | ||||||
| Bank loans - net of current portion | - | 197 650 071 | 197 650 071 | - | ||
| Finance lease creditors - net of current portion | 2 | 201 156 | 697 637 | 898 793 | ||
| C urrent liabilities | ||||||
| Bank loans | - | 13 699 858 | 13 699 858 | - | ||
| Finance lease creditors | 2 | 107 615 | 392 612 | 500 227 | ||
| Trade creditors Other current liabilities |
- 2 |
71 838 | 19 626 920 2 652 307 |
19 626 920 2 724 145 |
- | |
| 71 838 | 308 771 234 719 405 | 235 100 014 | ||||
| Total 31.12.2016 |
||||||
| Non current liabilities | ||||||
| Bank loans - net of current portion | - | 214 868 703 | 214 868 703 | - | ||
| Finance lease creditors - net of current portion Other non current liabilities |
2 - |
1 132 741 | 2 000 000 | 1 132 741 2 000 000 |
- | |
| C urrent liabilities Bank loans |
- | 1 890 967 | 1 890 967 | - | ||
| Finance lease creditors | 2 | 417 272 | 417 272 | |||
| Trade creditors | - | 23 050 212 | 23 050 212 | - | ||
| Other current liabilities | 2 | 431 254 | 3 673 936 | 4 105 190 | note 24 note 24 note 25, 31 note 24 note 24 note 25, 31 |
* As it is estimated to not materially differ from carrying amounts.
Investment properties are recognized at cost as referred to on note 2.6. Their fair value is disclosed on note 12.
Land and buildings are recognized for their revalued amounts, which was determined as at 31.12.2017. The accounting policy regarding the periodicity of revaluation of these assets is stated on note 2.3.
The revalued amount of land and buildings is disclosed on note 10.
These assets are valued at fair value less estimated costs to sell, as described on note 2.7.
Fair value hierarchy is described on note 2.25.
At 31 December 2017 and 31 December 2016 details of Investments are as follows:
| 31.12.2017 | 31.12.2016 | |
|---|---|---|
| Non current | Non current | |
| Investment in group companies excluded from consolidation | ||
| Opening balance | 36 969 914 | 36 969 914 |
| Closing balance | 36 969 914 | 36 969 914 |
| Accumulated impairment losses Net investment in group companies excluded from consolidation |
36 969 914 | 36 969 914 |
| 31.12.2017 Non current |
31.12.2016 Non current |
|
|---|---|---|
| Investment in joint ventures | ||
| Opening balance | 195 908 535 | 5 695 259 |
| Effect of change in perimeter | (5 695 259) | |
| Effect of equity method | 15 369 886 | 195 908 535 |
| Dividends | (5 661 957) | |
| Closing balance | 205 616 464 | 195 908 535 |
| 31.12.2017 | 31.12.2016 | |
|---|---|---|
| Non current | Non current | |
| Available-for-sale investment | ||
| Opening balance | 134 810 | 1 171 674 |
| Acquisition | 2 076 | 5 042 |
| Disposal | ( 2 410) | |
| Effect of change in perimeter | (1 050 414) | |
| Change in fair value | 8 508 | |
| Closing balance | 134 476 | 134 810 |
| Accumulated impairment losses | 3 989 | 3 989 |
| Net available-for-sale investment | 130 487 | 130 821 |
The amount included under Investment in group companies excluded from consolidation refers to the former subsidiary Tarnaise des Panneaux, held indirectly by Sonae Industria, SGPS, SA for 100% of its share capital. In 2001, this company filed for bankruptcy, which is still pending conclusion. Consequently control was lost and the company has been excluded from consolidation. The Consolidated Statement of Financial Position includes an impairment loss for the full amount of the investment.
Impairment analysis to Investments in joint ventures is detailed on note 5.2 to the Company's separate financial statements and did not show any impairment loss to be recorded on these consolidated financial statements.
Available-for-sale investment consists of financial undertakings which do not fulfil the criteria to be stated as investment in subsidiaries or associates. They are recognized at cost as no relevant difference to their fair value is estimated.
In 2017 and 2016, movements in tangible fixed assets, accumulated depreciation and impairment losses were as follows:
| 31.12.2017 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Land and Buildings |
Plant and Machinery |
Vehicles | Tools | Fixtures and Fittings |
Other Tangible Fixed Assets |
Tangible Fixed Assets under construction |
Total tangible fixed assets |
|
| Gross cost: | ||||||||
| Opening balance | 91 307 802 | 272 235 761 | 2 612 591 | 143 635 | 3 621 704 | 218 223 | 3 971 483 | 374 111 199 |
| Capital expenditure Disposals |
( 14 505) | (3 116 953) | 288 181 ( 373 755) |
( 47 398) | ( 102 388) | ( 3 477) | 10 947 162 | 11 235 343 (3 658 476) |
| Revaluation | 9 532 969 | 9 532 969 | ||||||
| Transfers and reclassifications Exchange rate effect |
332 735 | 7 734 041 (4 025 002) (14 285 639) |
185 424 ( 131 279) |
71 991 ( 112 752) |
( 43) | (6 750 151) ( 261 202) |
1 574 040 (18 815 917) |
|
| Closing balance | 97 133 999 | 262 567 210 | 2 581 162 | 96 237 | 3 478 555 | 214 703 | 7 907 292 | 373 979 158 |
| Accumulated depreciation and impairment losses: | ||||||||
| Opening balance | 33 296 782 | 186 752 575 | 2 251 161 | 141 110 | 3 397 687 | 206 190 | 226 045 505 | |
| Depreciations for the period | 2 227 653 | 9 654 342 | 116 885 | 794 | 83 600 | 3 412 | 12 086 686 | |
| Impairment losses for the period - through P/L Disposals |
1 281 964 ( 14 505) |
227 670 (2 989 182) |
( 372 770) | ( 47 303) | ( 97 617) | ( 3 477) | 1 509 634 (3 524 854) |
|
| Reversion of impairment losses for the period | ( 663 222) | ( 356 208) | (1 019 430) | |||||
| Revaluation | 3 736 123 | 3 736 123 | ||||||
| Transfers and reclassifications | 68 267 | 68 267 | ||||||
| Exchange rate effect Closing balance |
(1 521 433) 38 343 362 |
(9 668 542) 183 688 922 |
( 101 708) 1 893 568 |
94 601 | ( 100 988) 3 282 682 |
( 6) 206 119 |
(11 392 677) 227 509 254 |
|
| C arrying amount | 58 790 637 | 78 878 288 | 687 594 | 1 636 | 195 873 | 8 584 | 7 907 292 | 146 469 904 |
| 31.12.2016 | ||||||||
| Land and Buildings |
Plant and Machinery |
Vehicles | Tools | Fixtures and Fittings |
Other Tangible Fixed Assets |
Tangible Fixed Assets under construction |
Total tangible fixed assets |
|
| Gross cost: | ||||||||
| Opening balance Changes in consolidation perimeter |
646 791 354 | 1370 041 227 (545 967 605) (1084 104 786) |
10 931 046 | 13 196 327 (8 457 368) (12 973 716) |
26 896 730 (22 926 895) |
10 287 939 | 21 556 726 (9 512 382) (12 933 945) |
2099 701 349 (1696 876 697) |
| Capital expenditure Disposals |
149 455 (16 128 393) |
(44 896 995) | ( 472 880) | ( 108 958) | ( 649 981) | ( 721 067) | 13 319 373 | 13 468 828 (62 978 274) |
| Transfers and reclassifications | 1 632 069 | 14 330 704 | 469 620 | 14 704 | 169 205 | 162 105 (18 391 798) | (1 613 391) | |
| Exchange rate effect | 4 830 922 | 16 865 611 | 142 173 | 15 278 | 132 645 | 1 628 | 421 127 | 22 409 384 |
| Closing balance | 91 307 802 | 272 235 761 | 2 612 591 | 143 635 | 3 621 704 | 218 223 | 3 971 483 | 374 111 199 |
| Accumulated depreciation and impairment losses: | ||||||||
| Opening balance | 377 423 482 | 1034 831 385 | 10 313 762 | 12 541 503 | 25 818 573 | 9 218 418 | 774 498 | 1470 921 621 |
| Changes in consolidation perimeter Depreciations for the period |
(339 676 366) 5 870 079 |
(839 839 024) 24 713 179 |
198 250 | (7 912 407) (12 402 841) 96 203 |
(22 092 857) 201 901 |
(8 456 307) 172 910 |
( 774 498) | (1231 154 300) 31 252 522 |
| Impairment losses for the period - through P/L | 3 478 160 | 550 325 | 4 028 485 | |||||
| Disposals | (15 464 338) | (44 567 245) | ( 471 939) | ( 108 958) | ( 647 894) | ( 720 884) | (61 981 258) | |
| Transfers and reclassifications Exchange rate effect |
1 665 765 | 11 063 955 | 123 495 | 15 203 | 117 964 | ( 7 874) ( 73) |
( 7 874) 12 986 309 |
|
| Closing balance | 33 296 782 | 186 752 575 | 2 251 161 | 141 110 | 3 397 687 | 206 190 | 226 045 505 | |
| Carrying amount | 58 011 020 | 85 483 186 | 361 430 | 2 525 | 224 017 | 12 033 | 3 971 483 | 148 065 694 |
Changes in consolidation perimeter disclosed for the period ended 31 December 2016 refer to the tangible fixed assets and related accumulated depreciation and impairment losses of subsidiaries over which control was lost, at 31 May 2016 (notes 5 and 6).
In accordance with the accounting policy disclosed on note 2.3, the Group carried out, at 31 December 2017, a revaluation of land and buildings, whose value was determined by independent appraisal. As a consequence, the carrying amount of land and buildings was increased by EUR 5 796 847 through other comprehensive income. Still as a consequence of this revaluation, impairment losses on land and buildings were recognized for EUR 1 281 964 and reversed for EUR 663 222. Depreciation for the period was not affected by this revaluation. The valuation methods used include mainly the market approach, the cost approach and the income approach, and the estimated values correspond to level 2 of fair value hierarchy. The market approach consists in comparing the asset under valuation
with other assets showing similar characteristics which were sold recently or which are being offered on the market, taking into consideration differences that may affect the value. The cost approach consists in using the replacement cost of an asset as a proxy for its market value. The income approach consists in identifying the market value based on discounted cash flows which are projected taking into consideration the future best and largest used of the asset.
Transfer and reclassification include mostly the assets that were classified as Noncurrent assets held for sale (note 16).
Exchange rate effect results mainly from the translation into euro of tangible fixed assets of subsidiaries whose functional currency is the Canadian Dollar (CAD).
During 2017 and 2016 no interest paid or any other financial charges were capitalized, in accordance with conditions defined on note 2.10.
At 31 December 2017, mortgaged tangible fixed assets amounted to EUR 128 604 501 (EUR 133 392 714 at 31 December 2016) as collateral for loans amounting to EUR 37 380 912 (EUR 39 578 123 at 31 December 2016).
On the same date, there were no commitments to the acquisition of tangible fixed assets.
At 31 December 2017, gross cost of totally depreciated or impaired tangible fixed assets amounted to EUR 83 176 910 (EUR 88 499 930 at 31 December 2016). In addition, tangible fixed assets which were inactive at 31 December 2017 amounted to EUR 5 480 815 (5 706 140 at 31 December 2016).
At 31 December 2017 and 2016 details of tangible fixed assets used by the Group under financial leases were as follows:
| 31.12.2016 | ||||||
|---|---|---|---|---|---|---|
| Opening balance |
Increase | Decrease | Other changes |
Closing balance |
Closing balance |
|
| Gross cost: | ||||||
| Land and Buildings | 5 121 453 | 5 121 453 | 5 121 453 | |||
| Plant and Machinery | 213 490 | (12 080) | 201 410 | 213 490 | ||
| Vehicles | 1 306 175 | 288 181 | (318 193) | (73 093) | 1 203 070 | 1 306 175 |
| Fixtures and Fittings | 328 014 | (27 047) | (17 828) | 283 139 | 328 014 | |
| Closing balance | 6 969 132 | 288 181 | (345 240) | (103 001) | 6 809 072 | 6 969 132 |
| Accumulated depreciation and impairment losses: |
||||||
| Land and Buildings | 554 702 | 106 949 | 661 651 | 554 702 | ||
| Plant and Machinery | 43 931 | 13 816 | (2 860) | 54 887 | 43 931 | |
| Vehicles | 1 306 175 | 4 803 | (318 193) | (65 414) | 927 371 | 1 306 175 |
| Fixtures and Fittings | 321 732 | 1 290 | (22 673) | (17 624) | 282 725 | 321 732 |
| Closing balance | 2 226 540 | 126 858 | (340 866) | (85 898) | 1 926 634 | 2 226 540 |
| C arrying amount | 4 742 592 | 161 323 | (4 374) | (17 103) | 4 882 438 | 4 742 592 |
Minimum payments of finance lease are stated in note 24.2.
During 2017 and 2016, movements in intangible assets, accumulated amortization and impairment losses were as follows:
| Patents, Development Assets Under Royalties And Software Total intangible assets Costs Development Other Rights |
|
|---|---|
| Total | |
| Non internally Non internally Internally Non internally Internally Internally Non internally generated generated generated generated generated generated generated |
|
| Gross cost: Opening balance 40 493 89 514 1 828 556 119 823 1 828 556 249 830 C apital expenditure 107 162 107 162 |
2 078 386 107 162 |
| Disposals ( 3 803) ( 3 803) Transfers and reclassifications 107 162 ( 107 162) Exchange rate effect ( 82 583) ( 82 583) |
( 3 803) ( 82 583) |
| Closing balance 40 493 89 514 1 849 332 119 823 1 849 332 249 830 |
2 099 162 |
| Accumulated depreciation and impairment losses |
|
| Opening balance 40 493 63 039 1 584 342 119 823 1 584 342 223 355 Amortization for the period 6 073 217 983 217 983 6 073 Disposals ( 3 803) ( 3 803) Exchange rate effect ( 71 767) ( 71 767) |
1 807 697 224 056 ( 3 803) ( 71 767) |
| Closing balance 40 493 69 112 1 726 755 119 823 1 726 755 229 428 |
1 956 183 |
| C arrying amount 20 402 122 577 122 577 20 402 |
142 979 |
| 31.12.2016 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Patents, Development Royalties And Software Costs Other Rights |
Other Intangible Assets | Assets Under Development |
Total intangible assets | Total | ||||||
| Non internally generated |
Non internally generated |
Internally generated |
Non internally generated |
Internally generated |
Non internally generated |
Non internally generated |
Internally generated |
Non internally generated |
||
| Gross cost: | ||||||||||
| Opening balance | 184 848 | 3 771 845 14 547 305 | 3 225 963 | 63 454 | 2 617 771 | 823 418 14 610 759 10 623 845 | 25 234 604 | |||
| Changes in consolidation perimeter | (106 423) | (4 188 115) (12 987 840) | (3 143 141) | (63 454) | (2 331 407) | (439 663) (13 051 294) (10 208 749) (23 260 043) | ||||
| Capital expenditure Disposals |
(37 932) | (160 502) | 741 705 | 306 089 | 1 047 794 (198 434) |
1 047 794 (198 434) |
||||
| Transfers and reclassifications | 655 455 | 36 332 | (1 028 069) | (689 844) | (1 026 126) | (1 026 126) | ||||
| Exchange rate effect | 10 831 | 269 091 | 669 | 269 091 | 11 500 | 280 591 | ||||
| Closing balance | 40 493 | 89 514 | 1 828 556 | 119 823 | 1 828 556 | 249 830 | 2 078 386 | |||
| Accumulated depreciation and impairment losses |
||||||||||
| Opening balance | 184 848 | 3 288 639 13 289 422 | 2 552 490 | 63 454 | 1 652 723 | 13 352 876 | 7 678 700 | 21 031 576 | ||
| Changes in consolidation perimeter | (106 423) | (3 151 659) (12 290 302) | (2 506 444) | (63 454) | (1 505 275) | (12 353 756) | (7 269 801) (19 623 557) | |||
| Amortization for the period | 82 377 | 337 580 | 73 571 | 58 813 | 337 580 | 214 761 | 552 341 | |||
| Disposals | (37 932) | (160 502) | (198 434) | (198 434) | ||||||
| Reversion of impairment losses | (24 028) | (24 028) | (24 028) | |||||||
| Transfers and reclassifications | (182 233) | (182 233) | (182 233) | |||||||
| Exchange rate effect | 4 184 | 247 642 | 206 | 247 642 | 4 390 | 252 032 | ||||
| Closing balance | 40 493 | 63 039 | 1 584 342 | 119 823 | 1 584 342 | 223 355 | 1 807 697 | |||
| C arrying amount | 26 475 | 244 214 | 244 214 | 26 475 | 270 689 |
Changes in consolidation perimeter disclosed for the period ended 31 December 2016 refer to the intangible assets and related accumulated amortisation and impairment losses of subsidiaries over which control was lost, at 31 May 2016 (notes 5 and 6).
At 31 December 2017, gross cost of totally amortized or impaired intangible assets amounted to EUR 818 633 (EUR 653 726 at 31 December 2016).
During 2017 and 2016 movements in investment properties, accumulated depreciation and impairment losses were as follows:
| 31.12.2017 | 31.12.2016 | ||||
|---|---|---|---|---|---|
| Cost | Total | Cost | Total | ||
| Gross cost: | |||||
| Opening balance | 37 254 929 | 37 254 929 | 37 123 738 | 37 123 738 | |
| Increase | 131 191 | 131 191 | |||
| Closing balance | 37 254 929 | 37 254 929 | 37 254 929 | 37 254 929 | |
| Accumulated depreciations and impairment losses: |
|||||
| Opening balance | 31 002 982 | 31 002 982 | 30 672 761 | 30 672 761 | |
| Charge for the period | 250 904 | 250 904 | 330 221 | 330 221 | |
| Closing balance | 31 253 886 | 31 253 886 | 31 002 982 | 31 002 982 | |
| C arrying amount | 6 001 043 | 6 001 043 | 6 251 947 | 6 251 947 |
| 31.12.2017 31.12.2016 | ||
|---|---|---|
| Rents from investment properties Direct operating costs |
377 303 257 172 |
216 344 171 891 |
At the closing date of these consolidated financial statements, Investment properties included the land and the buildings of Betanzos industrial plant, in Spain, which has been leased to third parts. These assets are recognized at historical cost. Fair value was determined at 24 May 2017 through independent appraisal and amounted to EUR 6.3 million (level two of fair value hierarchy). Fair value was estimated under a development approach and under an income approach. At 31 December 2017, Sonae Indústria estimated that fair value had not significantly changed.
During 2017 and 2016, movements in goodwill arising on consolidation were as follows:
| 31.12.2017 | 31.12.2016 | |
|---|---|---|
| Gross value: | ||
| Opening balance | 347 082 | 82 584 032 |
| Changes to consolidation perimeter | 82 026 263 | |
| Currency translation | - 210 687 | |
| Closing balance | 347 082 | 347 082 |
| Accumulated impairment losses: | ||
| Opening balance | 1 700 000 | |
| Changes to consolidation perimeter Closing balance |
1 700 000 | |
| C arrying amount | 347 082 | 347 082 |
Changes to consolidation perimeter, in the period ended 31 December 2016, comprise goodwill arising on the consolidation of companies on which control was lost at 31 May 2016 (notes 5 and 6). As disclosed on these notes, since that date investment in Sonae Arauco, S. A. (former Tableros de Fibras, S. A.) has been measured using equity method, which requires any existing goodwill to be included in the carrying amount of Investments in joint ventures, on the Consolidated Statement of Financial Position (note 2.2.b).
Due to the reduced value of goodwill recorded on the Consolidated Statement of Financial Position, the Company decided not to carry out an impairment analysis of its value in the year ended 31 December 2017.
At 31 December 2017 and 31 December 2016, deferred tax assets and liabilities were detailed according to underlying temporary differences as follows:
| Deferred Tax Assets | Deferred Tax Liabilities | ||||
|---|---|---|---|---|---|
| 31.12.2017 | 31.12.2016 | 31.12.2017 | 31.12.2016 | ||
| Harmonisation Adjustments | 18 126 186 | 19 775 606 | |||
| Provisions not Allowed for Tax Purposes | 54 222 | 15 837 | |||
| Impairment of Assets | 1 059 442 | 1 057 012 | |||
| Tax Losses Carried Forward | 66 685 | 68 295 | |||
| Revaluation of Tangible Fixed Assets | 2 441 232 | 977 511 | |||
| Other Temporary Differences | 281 811 | 223 353 | 1 368 | 1 821 | |
| 1 462 160 | 1 364 497 | 20 568 786 | 20 754 938 |
| Deferred tax assets | Deferred tax liabilities | |||
|---|---|---|---|---|
| 31.12.2017 | 31.12.2016 | 31.12.2017 | 31.12.2016 | |
| Opening balance | 1 364 497 | 28 358 134 | 20 754 938 | 55 427 496 |
| Effect on profit or loss of continuing operation: | ||||
| C hanges in temporary differences affecting profit or loss: Harmonisation adjusments |
(546 661) | (1 990 643) | ||
| Provisions not allowed for tax purposes | 38 258 | (5 166) | ||
| Impairment of Assets | 2 430 | 780 052 | ||
| Revaluation of tangible assets | (13 880) | (13 373) | ||
| Tax losses carried forward | (1 511 727) | |||
| Others | 58 459 | (917 387) | (404) | (62) |
| Subtotal (note 40) | 99 147 | (1 654 228) | (560 945) | (2 004 078) |
| Effect on profit or loss of discontinued operations: | ||||
| C hanges in temporary differences affecting profit or loss: | ||||
| Harmonisation adjusments | 137 795 | |||
| Provisions not allowed for tax purposes | (116 222) | |||
| Impairment of Assets | (256 828) | |||
| Tax losses carried forward | 1 438 154 | |||
| Derecognized tangible assets | (450) | |||
| Revaluation of tangible assets | 1 886 522 | |||
| Others | (1 682 926) | 233 460 | ||
| Subtotal | (618 272) | 2 257 777 | ||
| Effect on other comprehensive income: | ||||
| C hanges in temporary differences affecting other comprehensive income: | ||||
| Revalorização de ativos fixos tangíveis | 1 536 165 | |||
| Subtotal | 1 536 165 | |||
| Currency translation effect | (1 484) | 48 864 | (1 161 372) | 1 606 740 |
| Changes in consolidation perimeter | (24 770 001) | (36 532 997) | ||
| Closing balance | 1 462 160 | 1 364 497 | 20 568 786 | 20 754 938 |
Harmonization adjustments refer to the difference between amortization and depreciation for accounting and for tax purposes.
In accordance with International Financial Reporting Standards, the Group annually assesses deferred tax asset related to tax losses carried forward on the basis of cash flows projected over a five-year period.
According to the estimation of taxable profit or deductible loss for the fiscal year 2017 and according to the tax returns for the fiscal year 2016, tax losses carried forward and the corresponding deferred tax asset are detailed as follows:
| 31.12.2017 | 31.12.2016 | |||
|---|---|---|---|---|
| To be used until | Tax loss carried forward |
Deferred tax asset |
Tax loss carried forward |
Deferred tax asset |
| Without time limit | 238 162 | 66 685 | 243 910 | 68 295 |
| Total | 238 162 | 66 685 | 243 910 | 68 295 |
Furthermore, at 31 December 2017 and 31 December 2016, tax losses for which no deferred tax asset was recognized are detailed as follows:
| 31.12.2017 | 31.12.2016 | |||
|---|---|---|---|---|
| To be used until | Tax loss carried forward |
Tax credit | Tax loss carried forward |
Tax credit |
| 2017 | 117 849 | 23 570 | ||
| 2018 | 11 447 823 | 2 403 207 | 11 447 823 | 2 403 207 |
| 2019 | 119 987 | 23 997 | 119 987 | 23 997 |
| 2020 | 125 939 | 25 188 | 125 844 | 25 169 |
| 2021 | 123 549 | 24 710 | 121 939 | 24 388 |
| 2022 | 4 074 921 | 842 861 | 1 287 230 | 257 446 |
| 2023 | 456 536 | 91 307 | 456 536 | 91 307 |
| 2024 | 71 379 | 14 276 | 71 379 | 14 276 |
| 2026 | 116 802 | 23 360 | ||
| 2027 | 33 325 | 6 998 | 33 325 | 6 998 |
| 2028 | 5 528 711 | 1 161 029 | ||
| 22 098 972 | 4 616 933 | 13 781 912 | 2 870 358 | |
| Without time limit | 762 164 101 | 236 304 881 | 767 282 034 | 237 367 433 |
| Total | 784 263 073 | 240 921 814 | 781 063 946 | 240 237 791 |
The amounts presented as a tax credit refer to the deferred tax asset that was not recorded in these consolidated financial statements, as the conditions required by International Financial Reporting Standards for that were not met. In the future,
this deferred tax asset may be recorded, in part or by the total above quantified amount, if conditions required by International Financial Reporting Standards are fulfilled.
Deferred tax asset is offset against deferred tax liability in situations where:
i) The company which generates the respective temporary differences is legally entitled to offset current tax assets and liabilities; or
ii) Calculated deferred tax assets and liabilities are related with income tax payable to the same tax authority:
31.12.2016
At 31 December 2016, details of Other non-current assets on the Consolidated Statements of Financial Position were as follows:
| Gross Value | Net Value | |
|---|---|---|
| Trade debtors and other debtors | 442 298 | 442 298 |
| Financial Instruments | 442 298 | 442 298 |
| Total | 442 298 | 442 298 |
| AGEING OF NON | ||
| CURRENT TRADE | ||
| DEBTORS AND OTHER | ||
| DEBTORS AND OF | ||
| LOANS TO RELATED | ||
| PARTIES | ||
| 31.12.2016 | ||
| Not due | 442 298 | |
| Total | 442 298 | |
At 31 December 2017, there were no assets recognized under Other non-current assets, on the Consolidated Statement of Financial Position.
In December 2015, the assets (equipment) of Souselas industrial plant, in Portugal, which is inactive, were classified as Non-current assets held for sale as they were available for immediate sale and it was then estimated that a sale transaction would be completed in a twelve-month period. As these expectations did not materialize, these assets were reclassified under Tangible fixed assets, on the Consolidated Statement of Financial Position as at 31 December 2017.
At 31 December 2017 and 31 December 2016, details of Inventories on the Consolidated Statements of Financial Position were as follows:
| 31.12.2017 | 31.12.2016 | |
|---|---|---|
| Merchandise | 1 467 476 | 1 562 647 |
| Finished and intermediate products | 7 408 605 | 7 667 357 |
| Products and working in progress | 576 291 | 587 122 |
| Raw Materials and Consumables | 8 496 688 | 9 231 599 |
| 17 949 060 | 19 048 725 | |
| Accumulated losses on inventories (Note 32) | 950 946 | 910 432 |
| 16 998 114 | 18 138 293 |
Inventories consist mainly of wood, raw boards, faced boards and chemical products.
At 31 December 2017 and 31 December 2016, details of Trade debtors on the Consolidated Statements of Financial Position were as follows:
| 31.12.2017 | 31.12.2016 | |||||
|---|---|---|---|---|---|---|
| Gross Value | Impairment | Net Value | Gross Value | Impairment | Net Value | |
| Trade Debtors | 14 008 405 | 417 227 | 13 591 178 | 15 770 699 | 577 570 | 15 193 129 |
| 31.12.2017 | 31.12.2016 | |
|---|---|---|
| Not due | 11 501 044 | 11 933 384 |
| Due and not impaired | ||
| 0 - 30 days | 1 565 094 | 2 468 345 |
| 30 - 90 days | 73 456 | 216 126 |
| + 90 days | 308 625 | 364 722 |
| 1 947 175 | 3 049 193 | |
| Due and impaired | ||
| 0 - 90 days | 113 242 | |
| 90 - 180 days | 110 877 | 207 342 |
| 180 - 360 days | 126 980 | |
| + 360 days | 336 067 | 453 800 |
| 560 186 | 788 122 | |
| Total | 14 008 405 | 15 770 699 |
At 31 December 2017 and 31 December 2016, details of Other current debtors on the Consolidated Statements of Financial Position were as follows:
| 31.12.2017 | 31.12.2016 | ||||
|---|---|---|---|---|---|
| Gross Value | Net Value | Gross Value | Net Value | ||
| Other debtors | 59 076 | 59 076 | 209 171 | 209 171 | |
| Related parties Financial Instruments |
18 349 77 425 |
18 349 77 425 |
209 171 | 209 171 | |
| Other debtors | 207 985 | 207 985 | 94 139 | 94 139 | |
| Assets out of scope of IAS 39 | 207 985 | 207 985 | 94 139 | 94 139 | |
| Total | 285 410 | 285 410 | 303 310 | 303 310 | |
| AGEING OF OTHER DEBTORS AND RELATED PARTIES |
|||||
| 31.12.2017 | 31.12.2016 | ||||
| Not due | 10 852 | ||||
| Due and not impaired | |||||
| 0 - 30 days | 28 682 | 150 423 | |||
| 30 - 90 days | 15 372 | ||||
| + 90 days | 37 891 | 43 376 | |||
| 66 573 | 209 171 | ||||
| Total | 77 425 | 209 171 |
Other debtors (financial instruments) include advances to Trade creditors for EUR 173 309 (EUR 70 710 at 31 December 2016).
At 31 December 2017 and 31 December 2016, details of Other current assets on the Consolidated Statements of Financial Position were as follows:
| 31.12.2017 | 31.12.2016 | ||||
|---|---|---|---|---|---|
| Gross Value | Net Value | Gross Value | Net Value | ||
| Derivatives instruments Financial Instruments |
1 645 1 645 |
1 645 1 645 |
|||
| Accrued income Deferred expenses Assets out of scope of IAS 39 |
287 210 1 839 718 2 126 928 |
287 210 1 839 718 2 126 928 |
402 038 1 549 797 1 951 835 |
402 038 1 549 797 1 951 835 |
|
| Total | 2 128 573 | 2 128 573 | 1 951 835 | 1 951 835 |
At 31 December 2017 and 31 December 2016, the Group did not hold any cash flow hedging derivative financial instruments. The amounts included in the previous table relate to derivative financial instruments recognized at fair value through profit or loss (note 25).
Deferred expenses include EUR 929 454 related to insurance expenses (EUR 827 000 at 31 December 2016).
At 31 December 2017 and 31 December 2016, details of Other taxes and contributions on the Consolidated Statements of Financial Position were as follows:
| 31.12.2017 | 31.12.2016 | |
|---|---|---|
| Other taxes and contributions: | ||
| Value Added Tax | 1 180 718 | 1 741 841 |
| Others | 915 538 | 1 504 374 |
| 2 096 256 | 3 246 215 |
At 31 December 2017 and 31 December 2016, the detail of Cash and Cash Equivalents on the Consolidated Statements of Financial Position and on the Consolidated Statements of Cash Flows was as follows:
| 31.12.2017 | 31.12.2016 | |
|---|---|---|
| C ash at Hand Bank Deposits and Other Treasury Applications |
6 556 4 078 215 |
6 536 4 788 541 |
| Cash and Cash Equivalents on the Consolidated Statement of Financial Position |
4 084 771 | 4 795 077 |
| Cash and Cash Equivalents on the Consolidated Statement of Cash Flows |
4 084 771 | 4 795 077 |
At 31 December 2017, cash and cash equivalents held in a currency other than the Group's functional currency amounted to EUR 3 548 078 (EUR 3 338 195 at 31 December 2016).
At 31 December 2017, bank deposits and other treasury applications amounted to EUR 4 078 215 (EUR 4 788 541 at 31 December 2016). There is only one deposit of more than EUR 1 000 000, made in a financial institution with a rating level of Aa2 (Moodys).
Consolidated shareholders' funds consist of the following items:
In May 2017, the Company reduced its share capital by EUR 558 787 776.91 to cover accumulated losses. As such, share capital was reduced from EUR 812 107 574.17 to EUR 253 319 797.26, without change of the existing number of shares.
In July 2017, the Company carried out a reverse stock split of 11 350 757 250 shares which represented its share capital after the the cancellation of 167 shares which were donated by its shareholder Migracom, SGPS, S. A.. This reverse stock split operation was effective 31 July 2017 and used a ratio of 1:250 shares, in accordance which every 250 (two hundred and fifty) shares with ISIN code PTS3P0AM0017 were replaced by 1 (one) new share with ISIN code PTS3P0AM0025.
As a consequence, at 31 December 2017, the Company's share capital, which was fully underwritten and paid, amounted to EUR 253 319 797.26 (EUR 812 107 574.17 at 31 December 2016) and was represented by 45 403 029 ordinary, registered and nominative shares, without nominal value (11 350 757 417 shares at 31 December 2016).
At 31 December 2017 and 31 December 2016, shares are not entitled to any fixed income.
The caption Legal reserve includes the parent company's reserve set up in accordance with articles 295 and 296 of the Portuguese Company Law.
In May 2017, the Company used the full amount of its legal reserve, which amounted to EUR 3 131 757, to cover accumulated losses.
This caption includes:
Reserves set up by the parent company and the Group's share of reserves set up by subsidiaries included in consolidation in accordance with statutory rules or by proposition of the respective Board of Directors, approved in the General Shareholders' Meeting;
The parent company's net profits or losses of previous years and the subsidiaries' share thereon whose application was not carried out;
The parent company's net profit or loss of the current period and the subsidiaries' share thereon;
Consolidation adjustments to any of the aforementioned components.
In May 2017, the Company covered accumulated losses amounting to EUR 561 919 534 though share capital and legal reserve reduction.
This caption includes:
Currency translation reserves resulting from the conversion to Euros of subsidiaries' financial statements which are expressed in a different functional currency;
Change in fair value of available-for-sale assets (note 8);
Revaluation of tangible fixed assets (notes 2.3, 2.9 and 10);
Group's share in accumulated other comprehensive income of joint ventures;
Consolidation adjustments to any of the aforementioned components.
| Accumulated other comprehensive income Atributable to the parent's shareholders |
||||||||
|---|---|---|---|---|---|---|---|---|
| Share of Other C omprehensive Income of Joint Ventures |
Income tax related to |
|||||||
| Currency translation |
Revaluation Reserve |
Remeasurements on defined benefit plans |
Which may be subsequently transferred to profit or loss |
Which may not be subsequently transferred to profit or loss |
components of other comprehensive income |
Total | ||
| Balance as at 1 January 2017 | 11 114 057 | 6 367 184 | ( 192 092) | 4 468 623 | 33 694 328 | (1 033 382) | 54 418 718 | |
| Other consolidated comprehensive income for the period | (4 240 137) | 5 796 847 | 106 021 | ( 618 288) | 1 360 282 | (1 536 165) | 868 560 | |
| Balance as at 31 December 2017 | 6 873 920 | 12 164 031 | ( 86 071) | 3 850 335 | 35 054 610 | (2 569 547) | 55 287 278 |
| Accumulated other comprehensive income Atributable to the parent's shareholders |
||||||||
|---|---|---|---|---|---|---|---|---|
| Share of Other C omprehensive Income of Joint Ventures Available-for Remeasurements |
Income tax related to |
|||||||
| C urrency translation |
sale financial assets |
Revaluation Reserve |
on defined benefit plans |
Which may be subsequently transferred to profit or loss |
Which may not be subsequently transferred to profit or loss |
components of other comprehensive income |
Total | |
| Balance as at 1 January 2016 | (31 461 322) | 96 733 | 106 260 850 | (6 260 935) | 1 388 833 | (26 238 300) | 43 785 859 | |
| Other consolidated comprehensive income for the period Change in method |
4 275 995 | 8 508 ( 105 241) |
(99 895 009) | ( 149 140) 6 218 070 |
4 416 002 52 621 |
(1 313 640) 33 619 135 |
25 049 855 | 7 237 725 (35 060 569) |
| Tranferred to Net consolidated profit/(loss) for the period Others |
36 592 671 1 706 713 |
1 343 | ( 87) | 155 063 | 36 592 671 1 863 032 |
|||
| Balance as at 31 December 2016 | 11 114 057 | 6 367 184 | ( 192 092) | 4 468 623 | 33 694 328 | (1 033 382) | 54 418 718 |
At 31 December 2017 and 31 December 2016, Currency translation reserve refers mostly to the subsidiary Tafisa Canada Inc.
Movement occurred in Revaluation reserve refers to the revaluation of tangible fixed assets, carried out in the period ended 31 December 2017 (notes 2.3 and 10).
As at 31 December 2017 and 31 December 2016 Sonae Indústria had the following outstanding loans:
| 31.12.2017 | |||||
|---|---|---|---|---|---|
| Amortised cost | Nominal value | ||||
| Current | Non current |
Current | Non current |
||
| Current portion of non-current bank loans | 11 949 858 | 11 949 858 | |||
| Bank loans | 1 750 000 | 197 650 071 | 1 750 000 | 199 012 843 | |
| Obligations under finance leases | 500 227 | 898 793 | 500 227 | 898 793 | |
| Gross debt | 14 200 085 | 198 548 864 | 14 200 085 | 199 911 636 |
31.12.2016
| Amortised cost | Nominal value | |||
|---|---|---|---|---|
| Current | Non current |
Current | Non current |
|
| Current portion of non-current bank loans | 390 967 | 390 967 | ||
| Bank loans | 1 500 000 | 214 868 703 | 1 500 000 | 216 670 580 |
| Obligations under finance leases | 417 272 | 1 132 741 | 417 272 | 1 132 741 |
| Gross debt | 2 308 239 | 216 001 444 | 2 308 239 | 217 803 321 |
The maturity schedule of these loans is detailed on note 26.
There are leasing contracts subject to a fixed interest rate. As of 31 December 2017, the fair value of the minimum lease payments was calculated, which does not present any materially relevant difference in relation to the amounts recorded under Finance lease creditors, on the Consolidated Statement of Financial Position.
The average interest rates of each class of debt stated in the previous table were as follows:
| 2017 | 2016 | |
|---|---|---|
| Bank loans | 4.23% | 4.25% |
| Debentures | 5.37% | |
| Finance leases | 5.18% | 5.30% |
Bank overdrafts were not included in the calculation of average interest rates as they amounted to irrelevant values.
At 31 December 2017, the total amount of outstanding debt in respect of which the creditors have the possibility to consider as due, in the event of a shareholder change, was approximately 165 million euros (79% of the carrying amount of net consolidated debt).
Bank loans presented in the table in note 24 include "Non-current Bank Loans – net of the current portion". "Current portion of Non-current Bank Loans" and "Current Bank Loans" on the Consolidated Statement of Financial Position and their composition as at 31 December 2017 and 31 December 2016 is detailed in the following table:
| 31.12.2017 | |||||||
|---|---|---|---|---|---|---|---|
| Non current | Current | ||||||
| Company | Short term portion |
Short term | Total | ||||
| Sonae Indústria-SGPS,SA | 160 651 145 | 11 900 000 | 1 750 000 | 174 301 145 | |||
| Tafisa C anada Inc. | 34 361 698 | 49 858 | 34 411 556 | ||||
| Sonae Industria de Revestimentos,SA | 4 000 000 | 4 000 000 | |||||
| 199 012 843 | 11 949 858 | 1 750 000 | 212 712 701 | ||||
| Non current | 31.12.2016 Current |
||||||
| C ompany | Short term portion |
Short term | Total | ||||
| Sonae Indústria-SGPS,SA | 180 900 000 | 250 000 | 1 500 000 | 182 650 000 | |||
| Tafisa C anada Inc. | 35 770 580 | 140 967 | 35 911 547 | ||||
| 216 670 580 | 390 967 | 1 500 000 | 218 561 547 |
Figures on the previous table correspond to the nominal values of bank loans disclosed on note 24.
Non-current bank loans, the related short term portion and current bank loans are detailed as follows:
| Company(ies) | Loan | Contract date | Maturity (with reference to 31.12.2017) |
Currency | Outstanding principal at 31.12.2017 (EUR) |
Outstanding principal at 31.12.2016 (EUR) |
|---|---|---|---|---|---|---|
| Tafisa Canada Inc. | Bank loan (Revolving ) 1 ) |
July 2011 | to be repaid from March 2017 to May 2021 |
CAD | 33 380 912 | 34 678 123 |
| Sonae Indústria, SGPS, S.A. | C ommercial paper programme |
June 2013 | June 2018 Note: programme without subscription guarantee |
EUR | 1 750 000 | 1 500 000 |
| Sonae Indústria, SGPS, S.A. | C ommercial paper programme |
July 2014 | to be repaid from July 2018 to January 2020 |
EUR | 7 500 000 | |
| Sonae Indústria, SGPS, S.A. | C ommercial paper 2 ) programme |
May 2016 | to be repaid from May 2019 to May 2021 |
EUR | 143 500 000 | 175 000 000 |
| Sonae Indústria, SGPS, S.A. | C ommercial paper programme |
July 2016 | to be repaid from January 2018 to July 2019 3 ) |
EUR | 4 000 000 | 4 900 000 |
| Sonae Indústria, SGPS, S.A. | C ommercial paper programme |
July 2016 | to be repaid from July 2017 to July 2018 |
EUR | 1 000 000 | 1 250 000 |
| Sonae Indústria, SGPS, S.A. | C ommercial paper 4 ) programme |
December 2016 | to be repaid from June 2018 to December 2019 |
EUR | 16 000 000 | |
| Sonae - Indústria de Revestimentos, S. A. |
Bank loans | September 2017 | to be repaid from March 2019 to September 2022 |
EUR | 4 000 000 | N/A |
| Others | EUR | 1 581 789 | 1 233 424 | |||
| Total | EUR | 212 712 701 | 218 561 547 |
N/A – loans that did not exist as of 31 December 2016.
Figures on the previous table correspond to the nominal value of bank loans disclosed on note 24.
The aforementioned contracts are subject to variable interest rates.
At 31 December 2017, the aforementioned ratios associated with existing loans fulfilled the contractually established limits.
At the same date, in the bank loan agreements referred to above, the Group had unused limits, maturing after 31 December 2018, amounting to approximately 46.7 million euros.
At 31 December 2017, in addition to mortgaged tangible fixed assets disclosed on note 10, there were other assets amounting to EUR 26 613 983 (EUR 27 014 465 at 31 December 2016) which were pledged as collateral for the Group's liabilities. These assets consisted mostly in inventories and accounts receivable.
Details of finance leases creditors at 31 December 2017 and at 31 December 2016 are as follows:
| Minimum | Present value | ||||
|---|---|---|---|---|---|
| lease payments | of minimum lease payments | ||||
| 31.12.2017 | 31.12.2016 | 31.12.2017 | 31.12.2016 | ||
| 2017 | 492 123 | 417 272 | |||
| 2018 | 559 407 | 488 176 | 500 227 | 435 104 | |
| 2019 | 518 451 | 444 764 | 482 791 | 413 495 | |
| 2020 | 367 105 | 293 417 | 355 254 | 284 142 | |
| 2021 | 61 472 | 60 748 | |||
| 1 506 435 | 1 718 480 | 1 399 020 | 1 550 013 | ||
| Lease creditors - current | 500 227 | 417 272 | |||
| Lease creditors - non current | 898 793 | 1 132 741 | |||
Assets recognized under finance lease arrangements are stated on note 10.
Amounts stated under cash receipts arising from loans obtained and cash payment arising from loans obtained, on financing activities of the Consolidated Statement of Cash Flows include the rollover of commercial paper programmes detailed on note 24.1.
Financial liabilities (nominal value) arising from financial activities, which are disclosed on note 24, are detailed as follows:
| 31.12.2017 | ||||||
|---|---|---|---|---|---|---|
| Consolidated Statement of Financial Position | Opening balance |
Inc rease | Dec rease | Exchange rate effec t |
Others | Closing balance |
| Non-current liabilities: | ||||||
| Bank loans - net of current portion | 216 670 581 | 19 928 995 | 14 728 550 | (2 041 096) | (20 817 087) | 199 012 843 |
| Finance lease c reditors - net of current portion Other loans |
1 132 741 | 288 181 | 427 938 | ( 6 890) | ( 87 301) | 898 793 |
| Current liabilities: | ||||||
| Current portion of non-current bank loans | 390 967 | 102 536 | ( 5 661) | 11 667 088 | 11 949 858 | |
| Current bank loans | 1 500 000 | 835 900 000 | 844 800 000 | 9 150 000 | 1 750 000 | |
| Current portion of non-current finance lease creditors Other loans |
417 272 | ( 4 345) | 87 300 | 500 227 | ||
| Total | 220 111 561 | 856 117 176 | 860 059 024 | (2 057 992) | 214 111 721 | |
| Movements which do not affect cash flows: | ||||||
| Finance lease c reditors - net of current portion | (-) | 288 181 | 288 181 | |||
| Total | 220 111 561 | 855 828 995 | 860 059 024 | (2 057 992) | 213 823 540 | |
| Consolidated Statement of Cash Flows | Cash receipts from |
Cash payments to |
||||
| Financing ac tivities: | ||||||
| Loans obtained | 855 828 995 | 859 631 085 | ||||
| Finance lease c reditors | 427 939 | |||||
| Total | 855 828 995 | 860 059 024 |
The fair value of derivative instruments is stated as follows:
| Other current assets |
Other current liabilities | |||
|---|---|---|---|---|
| 31.12.2017 | 31.12.2017 | 31.12.2016 | ||
| Derivatives at fair value through profit or loss: Exchange rate forw ards (notes 20 and 31) |
1 645 | 71 838 | 431 254 | |
| 1 645 | 71 838 | 431 254 |
They consist of exchange rate derivatives (forwards) over which no hedge accounting was applied.
The fair value of exchange rate forwards was determined using derivative valuation software and external appraisals when software do not allow some derivatives to be valued, and consisted in updating the receivable/payable amount at maturity date to the closing date of the consolidated financial statements (level 2 of fair value hierarchy). Receivable/payable amount, which was used for valuing, corresponds to the amount denominated in foreign currency multiplied by the difference between the contracted exchange rate and the market exchange rate
at the maturity date that was determined at valuation date (forward exchange rate determined between valuation and maturity date using market information).
Gains and losses resulting from changes in fair value are stated under the item Adjustments to fair value of financial instruments at fair value through profit or loss (notes 35 and 36), which corresponds to a net loss of EUR 150 913 (net loss of EUR 906 348 in 2016).
Derivative instruments recognized at fair value through profit or loss held by the Group at 31 December 2017 fully mature in 2018.
In 2017 and 2016 no derivative financial instruments at fair value through reserves were contracted.
Liquidity risk described in note 2.26, c) related to gross debt referred to in note 24, can be analysed as follows:
| 31.12.2017 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Maturity of gross debt (note 24) |
Interest | Total | ||||||
| 2018 | 14 200 085 | 7 399 956 | 21 600 041 | |||||
| 2019 | 19 483 418 | 6 958 108 | 26 441 526 | |||||
| 2020 | 47 404 736 | 5 608 920 | 53 013 656 | |||||
| 2021 | 131 641 142 | 1 977 866 | 133 619 008 | |||||
| 2022 | 1 199 482 | 17 031 | 1 216 513 | |||||
| 2023 | 182 858 | 182 858 | ||||||
| 214 111 721 | 21 961 881 | 236 073 602 | ||||||
| 31.12.2016 | |||
|---|---|---|---|
| Maturity of gross debt (note 24) |
Interest | Total | |
| 2017 | 2 308 239 | 8 113 825 | 10 422 064 |
| 2018 | 2 571 220 | 7 970 960 | 10 542 180 |
| 2019 | 38 603 796 | 7 073 251 | 45 677 047 |
| 2020 | 44 474 443 | 5 426 771 | 49 901 214 |
| 2021 | 131 868 424 | 1 850 572 | 133 718 996 |
| 2022 | 190 301 | 190 301 | |
| After 2022 | 95 137 | 95 137 | |
| 220 111 560 | 30 435 379 | 250 546 939 |
The calculation of interest in the previous table was based on interest rates at 31 December 2017 and 31 December 2016 applicable to each item of debt. Gross debt maturing in 2018 (2017) includes scheduled repayment of debt along with the repayment of debt as at end 2017 (2016) which is maturing within less than one year.
Maturities for the remaining financial instruments are stated on the respective notes.
The analysis of interest rate risk, described on note 2.26, b), i), consisted in calculating the way net profit before tax for 2017 and 2016 would have been impacted if there would have been a change of +0.75 or -0.75 percentage points in interest rates that were determined for the corresponding periods:
| Sensitivity Analysis | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2017 | 2016 | |||||||
| "Notional" (Euros) |
Effect in Profit and Loss (Euros) |
"Notional" (Euros) |
Effect in Profit and Loss (Euros) |
|||||
| 0.75% | -0.75% | 0.75% | -0.75% | |||||
| Gross Debt | ||||||||
| EUR CAD |
179 391 401 34 720 320 |
(1 133 789) ( 275 480) |
1 133 789 275 480 |
184 113 032 35 998 529 |
( 976 566) ( 294 174) |
976 566 294 174 |
||
| 214 111 721 | (1 409 269) | 1 409 269 | 220 111 561 | (1 270 740) | 1 270 740 |
The sensitivity analysis disclosed in the previous table excludes bank overdrafts and borrowings which are not subject to change in interest rate.
Considering Euribor 6 months as a reference indicator for Euro interest rates, a change of 0.75 percentage points corresponds to 48.9 times the standard deviation of that variable in 2017 (16.6 times in 2016).
With respect to exchange rate risk, described in note 2.26., b), ii), the following calculations were performed:
a) Sensitivity analysis of amounts denominated in a currency other than the functional currency of each company included in the consolidation, by considering a change of +1% and -1% in actual 2017 and 2016 closing exchange rates of each currency against the Euro.
i) Loans (-) net of treasury applications (+)
| Amount held in foreign currency |
Eur equivalent | Sensitivity analysis (EUR) |
||
|---|---|---|---|---|
| 31.12.2016 | 31.12.2016 | 2016 | ||
| -1% | 1% | |||
| GBP ZAR |
280 000 17 428 273 |
327 034 1 205 514 |
( 3 270) ( 12 055) |
3 270 12 055 |
At 31 December 2017, the Group had no outstanding loans or treasury applications held in a currency other than the functional currencies of its subsidiaries.
| ii) Other balances: net assets (+) and net liabilities (-) | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| -- | -- | ------------------------------------------------------------ | -- | -- | -- | -- | -- | -- | -- |
| Amount held in foreign currency |
Eur equivalent | Sensitivity analysis (EUR) | |||||||
|---|---|---|---|---|---|---|---|---|---|
| 31.12.2017 | 31.12.2016 | 31.12.2017 | 31.12.2016 | 2017 | 2016 | ||||
| -1% | 1% | -1% | 1% | ||||||
| USD | 1 555 938 | (1 364 129) | 1 297 372 | (1 294 122) | ( 12 974) | 12 974 | 12 941 | ( 12 941) | |
| ZAR | 20 259 303 | 24 878 393 | 1 368 313 | 1 720 838 | ( 13 683) | 13 683 | ( 17 208) | 17 208 | |
| GBP | ( 22 527) | ( 25 390) | 254 | ( 254) |
Sensitivity refers to the effect that -1% and 1% changes in closing exchange rates for 2017 and 2016 financial years would have on net exchange differences disclosed on notes 35, 36 and 39.
b) Sensitivity analysis of existing derivatives to hedge the exchange rate risk set out in the previous point, by considering a change of +1% and -1% in actual 2017 and 2016 closing exchange rates of each currency against the Euro:
i) Loans net of treasury applications
| Amount held in foreign currency |
Eur equivalent | Sensitivity analysis (EUR) |
||
|---|---|---|---|---|
| 31.12.2016 | 31.12.2016 | 2016 | ||
| -1% | 1% | |||
| ZAR | 17 428 273 | 1 205 514 | 12 055 | ( 12 055) |
At 31 December 2017, the Group had derivatives to hedge outstanding loans or treasury applications held in a currency other than the functional currencies of its subsidiaries.
ii) Other balances: net assets (+) and net liabilities (-)
| Amount held in foreign currency |
Eur equivalent | Sensitivity analysis (EUR) | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 31.12.2017 | 31.12.2016 | 31.12.2017 | 31.12.2016 | 2017 | 2016 | |||||
| -1% | 1% | -1% | 1% | |||||||
| ZAR | 20 770 117 | 23 993 072 | 1 402 814 | 1 659 601 | 14 028 | ( 14 028) | 16 596 | ( 16 596) |
Sensitivity refers to the effect that -1% and 1% changes in closing exchange rates for 2017 and 2016 financial years would have on the hedging of the amounts identified on a).
Credit risk described on note 2.26, a) is mostly reflected through the amount stated in Trade Debtors (note 18) and Other current debtors (note 19). No relevant differences between the amounts recognized and the corresponding estimated fair value were identified.
At 31 December 2017 and 31 December 2016 details of Other non-current liabilities were as follows:
| 31.12.2017 | 31.12.2016 | |
|---|---|---|
| Other creditors | ||
| Financial instruments | 2 000 000 2 000 000 |
|
| Other creditors | 2 122 999 | 1 554 341 |
| Liabilities out of scope of IAS 39 | 2 122 999 | 1 554 341 |
| Total | 2 122 999 | 3 554 341 |
| 31.12.2016 | After 2019 | Total |
| Maturity of Other non current creditors | 2 000 000 | 2 000 000 |
Other creditors include EUR 1 189 166 (EUR 1 119 940 at 31 December 2016) related to deferred investment subventions
2 000 000 2 000 000
Various Group companies assumed the liability of giving their employees cash contributions to pension plans for old age, incapacity, early retirement and survival. These contributions are determined as a percentage that increases as a result of the number of years that the employee has worked at the company, and which is applied to a salary table that is negotiated on a yearly basis.
Present value of defined benefit liabilities associated are evaluated every year through actuarial reports and based on the "Projected Unit Credit" methodology. Actuarial assumptions employed on the last report prepared at 31 December 2017 and 2016 were:
| Portugal | |||
|---|---|---|---|
| 31.12.2017 | 31.12.2016 | ||
| Mortality table | TV 88/90 | TV 88/90 | |
| Salary growth rate | 3,00% | 3,0% | |
| Return on fund | 2,50% | 3,0% | |
| Pension growth rate | 0,0% | 0,0% | |
| Actuarial tecnical rate | 2,75% | 2,5% |
Benefit plans set up in previous periods by several Group companies are as follows:
Various Group companies have a defined benefit plan and funds managed by third parties, calculated in accordance with International Accounting Standard 19 and based on actuarial studies carried out by an independent entity. Employees of three companies hired until 31 December 1994 are covered by this plan under which they will receive as from retirement, a life-long monthly payment equivalent to 20% of their salary at their retirement date. Employees may choose to be paid a lump sum instead of a monthly amount.
The actuarial discount rate of 2.75% used for calculating the defined benefit liability of Portuguese subsidiaries was obtained from the yield curves of high quality zero coupon government bonds from the Euro Zone, plus a spread, determined based on iTaxx Europe Main index.
The average duration of the defined benefit obligation recognized by the Portuguese subsidiaries is 21 years.
An actuarial report calculated the liabilities of these companies on 31 December 2017 to be EUR 962 252 (EUR 1 070 475 at 31 de December 2016).
The main risk to which these defined benefit plans expose the Group is the liquidity risk. At 31 December 2017 assets funding the plans represented 38% (37% at 31 December 2016) of the defined benefit obligation. However, this risk is mitigated by the long average duration of the Group's defined benefit liabilities and by the fact that employees do not retain any right to benefits if they terminate work.
The main changes, during the periods ending 31 December 2017 and 31 December 2016, to the present value of the defined benefit obligations are presented as follows:
| 31.12.2017 | 31.12.2016 | |||||
|---|---|---|---|---|---|---|
| Plan with fund | Total | Plan without fund |
Plan with fund | Total | ||
| (+) Opening balance of defined benefit obligations' present value | 1 757 059 | 1 757 059 | 798 854 | 32 002 161 | 32 801 015 | |
| (+) Interest cost | 6 482 | 6 482 | 44 203 | 44 203 | ||
| (+) C urrent service cost | 8 590 | 8 590 | 50 690 | 50 690 | ||
| (+) Remeasurements: | ||||||
| Due to change in financial assumptions Due to change in demographic assumptions |
( 74 487) | ( 74 487) | 288 035 | 288 035 | ||
| Due to experience adjustements | ( 97 460) | ( 97 460) | ( 138 895) | ( 138 895) | ||
| (+) Recognised past service cost | ( 39 596) | ( 39 596) | ||||
| (+) C hange in consolidation perimeter | ( 759 260) (30 528 728) (31 287 989) | |||||
| (=) Closing balance of defined benefit obligations' present value | 1 560 588 | 1 560 588 | 39 594 | 1 717 466 | 1 757 059 |
During 2017 and 2016 the fair value of the plan assets changed as follows:
| 31.12.2017 | 31.12.2016 | |
|---|---|---|
| (+) Opening balance of plan assets (+) Interest income (+) Remeasurements (+) Change in consolidação perimeter |
646 988 17 274 ( 65 926) |
6 543 224 17 729 38 297 (5 952 262) |
| (=) Closing balance of plan assets | 598 336 | 646 988 |
Funding assets do not include any assets occupied or used by the Group nor do they include any securities issued by the Company or its subsidiaries.
At 31 December 2017 and 31 December 2016, the amount of liabilities for defined benefits recognized in the Consolidated Statements of Financial Position is detailed as follows:
| 31.12.2017 | 31.12.2016 | |
|---|---|---|
| (+) Present value of defined benefit obligations | 1 560 588 | 1 757 059 |
| (-) Fair value of plan assets | 598 336 | 646 988 |
| (=) Defined benefit liability | 962 252 | 1 110 071 |
Sensitivity of the defined benefit obligation is as follows:
| 2017 | 2016 | |||||
|---|---|---|---|---|---|---|
| -0,5 pp | Valuation basis |
+0,5 p | -0,5 pp | Valuation basis |
+0,5 p | |
| Defined benefit obligation | 1 714 065 | 1 560 588 | 1 423 958 | 1 898 231 | 1 717 466 | 1 557 399 |
The valuation basis refers to the actuarial discount rate that was included in the actuarial assumptions disclosed herewith.
At 31 December 2017 and 31 December 2016, Trade creditors stated on the Consolidated Statements of Financial Position had the following maturities:
| MATURITY OF TRADE CREDITORS |
||||
|---|---|---|---|---|
| 31.12.2017 31.12.2016 |
||||
| To be paid | ||||
| < 90 days | 19 589 609 | 22 988 942 | ||
| 90 - 180 days | 11 591 | 19 533 | ||
| > 180 days | 25 720 | 41 737 | ||
| 19 626 920 | 23 050 212 |
At 31 December 2017 and 31 December 2016 Other taxes and contributions had the following composition:
| 31.12.2017 | 31.12.2016 | |
|---|---|---|
| Other taxes and contributions | ||
| Value Added Tax | 247 234 | 187 864 |
| Social Security Contribution | 203 737 | 231 147 |
| Others | 283 412 | 280 454 |
| 734 383 | 699 465 |
At 31 December 2017 and 31 December 2016 Other current liabilities were composed of:
| 31.12.2017 | 31.12.2016 | |
|---|---|---|
| Derivatives | 71 838 | 431 254 |
| Tangible fixed assets suppliers | 2 155 951 | 2 511 973 |
| Other creditors | 496 357 | 1 161 966 |
| Financial instruments | 2 724 146 | 4 105 193 |
| Other creditors | 488 389 | 292 949 |
| Accrued expenses: | ||
| Insurances | 14 105 | |
| Personnel expenses | 4 318 109 | 6 687 970 |
| Accrued financial expenses | 1 049 512 | 635 463 |
| Rebates | 3 305 322 | 3 506 541 |
| External supplies and services | 346 339 | 553 128 |
| Other accrued expenses | 268 090 | 763 925 |
| Deferred income: | ||
| Investment subventions | 173 377 | 168 412 |
| Other deferred income | 154 935 | 148 934 |
| Liabilities out of scope of IAS 39 | 10 118 178 | 12 757 322 |
| Total | 12 842 324 | 16 862 515 |
| 31.12.2017 | < 90 days | 90 - 180 days |
> 180 days | Total |
|---|---|---|---|---|
| Derivatives | 71 838 | 71 838 | ||
| Maturity of current fixed assets' suppliers | 2 155 951 | 2 155 951 | ||
| Maturity of Other current creditors | 448 854 | 1 616 | 45 887 | 496 357 |
| 2 604 805 | 73 454 | 45 887 | 2 724 146 |
| 31.12.2016 | < 90 days |
90 - 180 days |
> 180 days |
Total |
|---|---|---|---|---|
| Derivatives | 431 254 | 431 254 | ||
| Maturity of current fixed assets' suppliers | 2 465 276 | 45 838 | 859 | 2 511 973 |
| Maturity of Other current creditors | 455 737 | 631 | 705 598 | 1 161 966 |
| 2 921 013 | 477 723 | 706 457 | 4 105 193 |
Movements occurred in provisions and accumulated impairment losses during the periods ended 31 December 2017 and 31 December 2016 were as follows:
| 31.12.2017 | |||||||
|---|---|---|---|---|---|---|---|
| Description | Opening balance |
Exchange rate effect |
Increase | Reversion | Other changes |
Closing balance |
|
| Impairment losses: | |||||||
| Investment properties | 2 259 929 | 2 259 929 | |||||
| Tangible fixed assets | 5 861 104 | 1 509 634 | (1 019 431) | (45 153) | 6 306 154 | ||
| Intangible assets | 19 242 | 19 242 | |||||
| Trade debtors | 577 570 | (9 691) | 113 705 | (8 701) | (255 656) | 417 227 | |
| Subtotal impairment losses | 8 717 845 | (9 691) | 1 623 339 | (1 028 132) | ( 300 809) | 9 002 552 | |
| Provisions: | |||||||
| Litigations in course | 738 644 | 553 000 | (542 300) | 749 344 | |||
| Other | 1 195 000 | 3 275 719 | 39 596 | 4 510 315 | |||
| Subtotal provisions | 1 933 644 | 3 828 719 | (542 300) | 39 596 | 5 259 659 | ||
| Subtotal impairment losses and provisions | 10 651 489 | (9 691) | 5 452 058 | (1 570 432) | ( 261 213) | 14 262 211 | |
| Other losses: | |||||||
| Investments | 36 973 903 | 36 973 903 | |||||
| Write-down to net realizable value of inventories | 910 432 | (6 405) | 561 787 | (514 868) | 950 946 | ||
| Total | |||||||
| 48 535 824 | ( 16 096) | 6 013 845 | (2 085 300) | ( 261 213) | 52 187 060 |
| 31.12.2016 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Description | Opening balance |
Exchange rate effect |
C hanges to perimeter |
Increase | Utilization | Reversion | Other changes |
C losing balance |
| Impairment losses: | ||||||||
| Investment properties | 2 259 929 | 2 259 929 | ||||||
| Tangible fixed assets | 41 690 361 | (25 299 027) | 4 028 485 | (14 558 715) | 5 861 104 | |||
| Goodwill | 1 700 000 | (1 700 000) | ||||||
| Intangible assets | 366 436 | (319 243) | (24 028) | (3 923) | 19 242 | |||
| Other non-current assets | 10 931 182 | (10 931 182) | ||||||
| Trade debtors | 25 345 784 | 32 614 | (25 064 264) | 1 606 216 | (934 953) | ( 407 827) | 577 570 | |
| Other debtors | 3 502 | (3 502) | ||||||
| Subtotal impairment losses | 82 297 194 | 32 614 | (52 382 534) | 5 634 701 | (958 981) | (25 905 149) | 8 717 845 | |
| Provisions: | ||||||||
| Litigations in course | 1 523 885 | (24 284) | (347 703) | (421 271) | 8 017 | 738 644 | ||
| Warranties to customers | 549 120 | (27) | (607 393) | 58 300 | ||||
| Restructuring | 1 492 766 | (210 000) | (1 282 766) | |||||
| Other | 6 945 108 | (5 494 474) | 73 634 | (329 268) | 1 195 000 | |||
| Subtotal provisions | 10 510 879 | (24 311) | (6 659 570) | 131 934 | (2 033 305) | 8 017 | 1 933 644 | |
| Subtotal impairment losses and provisions | 92 808 073 | 8 303 | (59 042 104) | 5 766 635 | (2 033 305) | ( 958 981) | (25 897 132) | 10 651 489 |
| Other losses: | ||||||||
| Investments | 36 985 875 | (25 642) | 13 670 | 36 973 903 | ||||
| Write-down to net realizable value of inventories | 4 401 009 | 11 788 | (3 354 143) | 1 386 275 | (1 521 603) | ( 12 894) | 910 432 | |
| Total | ||||||||
| 134 194 957 | 20 091 | (62 421 889) | 7 166 580 | (2 033 305) | (2 480 584) | (25 910 026) | 48 535 824 |
Impairment losses are offset against the corresponding asset on the Consolidated Statement of Financial Position.
Increase and utilization of provisions and impairment losses are stated on the Consolidated Income Statement as follows:
| 31.12.2017 | 31.12.2016 | |||
|---|---|---|---|---|
| Losses Gains |
Losses | Gains | ||
| C ost of sales (Increase) / decrease in production Provisions and impairment losses |
336 768 225 019 5 452 058 |
(306 232) (208 636) (1 570 432) |
393 164 188 237 4 045 743 |
(173 465) (208 917) (499 730) |
| Profit / (loss) from discontinued operations Total (Consolidated Income Statement) |
6 013 845 | (2 085 300) | 2 539 436 7 166 580 |
(3 631 777) (4 513 889) |
Provisions and impairment losses recognized under Profit or loss from discontinued operations, on the Consolidated Income statement, are included under the following items detailed on note 41:
31.12.2016
| Losses | Gains | |
|---|---|---|
| C ost of sales (discontinued operations-note 41) Change in production (discontinued operations-note 41) Provisions and impairment losses (discontinued operations-note 41) Gains and losses in investments (discontinued operations-note 41) Staff expenses (discontinued operations-note 41) |
310 399 494 475 1 677 258 13 670 43 634 |
(708 418) (430 803) (2 425 832) (66 724) |
| Profit/(loss) from discontinued operations, after taxation | 2 539 436 | (3 631 777) |
Movements occurred in impairment losses during the period ended 31 December 2017 were as follows:
At 31 December 2017, the amount of provisions could be detailed as follows:
Provisions for ongoing litigations amounting to EUR 749 344 refer mostly to litigation with former workers of decommissioned industrial plants. It is not possible to estimate the period this provision will be utilized;
Other provisions: EUR 1 195 000 for environmental liabilities and EUR 3 275 719 for contractually established responsibilities with the jointventure Sonae Arauco, S. A..
During the period, the recognition of provisions for the present value of estimated liabilities did not include any significant amounts.
At 31 December 2017 and 31 December 2016 the Group held irrevocable operating leases with the following lease payments:
| Minimun operating lease payments |
|||
|---|---|---|---|
| 31.12.2017 | 31.12.2016 | ||
| 2017 | 1 439 605 | ||
| 2018 | 1 245 701 | 1 047 738 | |
| 2019 | 305 735 | 276 525 | |
| 2020 | 81 162 | 41 362 | |
| 2021 | 295 | 313 | |
| 1 632 893 | 2 805 543 | ||
During the period ended 31 December 2017, the Group recognized under External Suppliers and Services, on the Consolidated Income Statement, rents related to operating leases for EUR 2 245 000 (EUR 2 806 000 in 2016).
34.1. Balances and transactions with related parties may be summarized as follows:
| Balances | Accounts receivable | Accounts payable | ||
|---|---|---|---|---|
| 31.12.2017 | 31.12.2016 | 31.12.2017 | 31.12.2016 | |
| Other subsidiaries of the parent company | 100 248 | 137 543 | 405 851 | 2 320 894 |
| Joint ventures | 537 449 | 598 675 | 1 496 292 | 2 145 323 |
| Transactions | Income | Expenditure | |||
|---|---|---|---|---|---|
| 31.12.2017 | 31.12.2016 | 31.12.2017 | 31.12.2016 | ||
| Other subsidiaries of the parent company | 68 483 | 49 831 | 1 045 866 | 1 088 270 | |
| Joint ventures | 3 921 967 | 21 889 682 | 16 066 435 | 28 627 822 |
Income and expenses recorded as a result of transactions with related parties refer to operating activities.
34.2. Remuneration of the Board of Directors of the Company is detailed as follows:
| 31.12.2017 | 31.12.2016 | |
|---|---|---|
| Short term benefits | 953 595 | 825 261 |
| Medium term benefits | 143 935 | 1 399 949 |
| 1 097 530 | 2 225 210 |
The amounts disclosed on the previous table relate to remunerations of the Board of Directors of Sonae Indústria, SGPS, S. A. which were recognized under Staff expenses, on the Consolidated Income Statements for the periods ended 31 December 2017 and 31 December 2016.
At 31 December 2017 and 31 December 2016 there were no post retirement liabilities attributed to the members of the board of directors.
34.3. During the period ended 31 December 2017 and 31 December 2016, the Group recognized on these consolidated financial statements the following fees from audit company PricewaterhouseCoopers & Associados, SROC, Lda and respective international network:
| 31.12.2017 | 31.12.2016 | |
|---|---|---|
| Total fees related to audit of end year accounts Total fees related to other realiability assurance services Total fees related to other services |
88 329 2 000 9 500 |
201 260 2 093 |
| 99 829 | 203 354 |
Details of Other operating income on the Consolidated Income Statement for the periods ended 31 December 2017 and 31 December 2016 are as follows:
| 31.12.2017 | 31.12.2016 | |
|---|---|---|
| Gains on disposals of non current investments | 1 601 | 314 |
| Gains on disp. and write off of invest. prop., tang. and intang. assets | 216 901 | 939 917 |
| Supplementary revenue | 2 228 983 | 2 087 401 |
| Investment subventions | 165 877 | 149 254 |
| Tax received | 6 172 | 24 844 |
| Positive exchange gains | 1 955 406 | 2 174 845 |
| Adjustment to fair value of financial instruments at fair value through profit or loss | 242 041 | 250 663 |
| Others | 2 241 725 | 129 548 |
| 7 058 706 | 5 756 786 |
Details of Other operating expenses on the Consolidated Income Statement for 2017 and 2016 are as follows:
| 31.12.2017 | 31.12.2016 | |
|---|---|---|
| Taxes | 1 412 494 | 1 417 785 |
| Losses on disp. and write off of invest. prop., tang. and intang. assets | 123 828 | 337 576 |
| Negative exchange gains | 1 586 701 | 1 449 985 |
| Adjustment to fair value of financial instruments at fair value through profit or loss | 392 954 | 1 157 011 |
| Others | 274 106 | 371 027 |
| 3 790 083 | 4 733 384 |
During the period, the Group recognized in several items of the Consolidated Income Statement research and development expenses amounting to EUR 48 686 (EUR 71 794 in 2016).
Recurring and non-recurring operating items on the Consolidated Income Statement are detailed as follows:
| 31.12.2017 | 31.12.2016 | |
|---|---|---|
| Recurring | Recurring | |
| Sales | 229 766 809 | 239 555 683 |
| Services rendered | 1 209 951 | 1 301 165 |
| Other income and gains | 4 766 617 | 4 811 068 |
| Cost of sales | (121 786 487) | (125 721 193) |
| Increase / (decrease) in production | 89 205 | (537 841) |
| External supplies and services | (47 899 989) | (49 118 127) |
| Staff expenses | (24 286 323) | (27 544 328) |
| Impairment losses in trade debtors - (increase)/reduction | (105 004) | 16 050 |
| Other expenses and losses | (3 637 349) | (4 392 460) |
| Recurring operating profit/(loss) before amortization, depreciation, provisions and impairment losses (except trade debtors) |
38 117 430 | 38 370 017 |
| Non-Recurring operating profit/(loss) before amortization, depreciation, provisions and impairment losses (except trade debtors) |
1 201 687 | (103 895) |
| Total operating profit/(loss) before amortization, depreciation, provisions and impairment losses (except trade debtors) |
39 319 117 | 38 266 122 |
Classification of items as either recurring or non-recurring is done in accordance with criteria set out on note 2.24.
| 31.12.2017 | 31.12.2016 | |
|---|---|---|
| F inancial income: | ||
| Interest income | ||
| related to bank loans | 18 575 | 21 036 |
| related to loans to related parties | 1 968 | 2 964 350 |
| 20 543 | 2 985 386 | |
| Gains in currency translation | ||
| related to loans | 112 439 | 374 244 |
| related to cash and cash equivalents | 614 918 | 1 152 251 |
| 727 357 | 1 526 495 | |
| Cash discounts obtained | 70 062 | 100 893 |
| Other finance gains | 589 229 | 94 341 |
| 1 407 191 | 4 707 115 | |
| F inancial expenses: | ||
| Interest expenses | ||
| related to bank loans and overdrafts | (8 120 074) | (10 469 313) |
| related to non convertible bonds | (5 315 242) | |
| related to finance leases | (74 995) | (87 656) |
| related to loans from related parties | (256 683) | |
| others | (12 482) | (1 461) |
| (8 207 551) | (16 130 355) | |
| Losses in currency translation | ||
| related to loans | (160 123) | (381 583) |
| related to cash and cash equivalents | (1 229 364) | (1 209 914) |
| (1 389 487) | (1 591 497) | |
| Cash discounts granted | (1 805 941) | (1 872 557) |
| Other finance losses | (1 615 636) | (1 618 763) |
| (13 018 615) | (21 213 172) | |
| F inance profit / (loss) | (11 611 424) | (16 506 057) |
Corporate income tax accounted for in 2017 and 2016 is detailed as follows:
| 31.12.2017 | 31.12.2016 | |
|---|---|---|
| Current tax | 7 117 346 | 8 915 632 |
| Deferred tax | (660 092) | (349 850) |
| 6 457 254 | 8 565 782 |
Reconciliation of consolidated Net profit/(loss) from continuing operations, before tax, with taxation for the year may be detailed as follows:
| 31.12.2017 | 31.12.2016 | |
|---|---|---|
| Consolidated net profit before tax | 21 722 985 | 13 728 121 |
| Tax rate | 21.00% | 21.00% |
| Expectable tax | 4 561 827 | 2 882 905 |
| Differences to foreign tax rates | 1 511 951 | 1 791 203 |
| Effect of provincial/municipal taxes | 8 142 | 22 082 |
| Consolidation adjustments | (2 768 819) | (1 168 819) |
| Permanent differences Non deductible costs Non taxed profits |
1 879 384 ( 71 891) |
50 686 ( 178 450) |
| Tax losses carried forward Deferred tax asset not recognized in complience with IAS 12 Utilization of tax losses carried forward whose deferred tax was not recognized in prior periods Reverted deferred tax asset |
605 868 ( 386 680) |
3 645 560 ( 451 702) 1 511 726 |
| Effect of change in tax rates | 6 256 | ( 296 812) |
| Tax benefits | 892 122 | |
| Others | 1 111 216 | ( 134 719) |
| Consolidated corporate income tax | 6 457 254 | 8 565 782 |
The amount disclosed as Consolidation adjustments relates mainly to the share of the consolidated net profit of the joint venture Sonae Arauco, S.A, which was recorded in these consolidated financial statements using the equity method.
Group companies are subject to the following corporate income tax rates:
| 2017 | 2016 | |||
|---|---|---|---|---|
| National | Provincial | National | Provincial | |
| Portugal | 21% | 21% | ||
| Canada | 15% | 11.80% | 15% | 11.90% |
| South Africa | 28% | 28% |
In the period ended 31 December 2016, Profit/(loss) from discontinued operations, after taxation, on the Consolidated Income Statement, includes the net profit or loss for the first five months of 2016 of the companies classified as joint ventures (note 5 and 6) as of 31 May 2016.
Profit (loss) from discontinued operations, after taxation, can de detailed as follows:
| 31.12.2016 | |
|---|---|
| Sales | 339 858 763 |
| Services rendered | 830 586 |
| Other income and gains | 8 744 363 |
| Cost of sales | (167 993 678) |
| Increase / (decrease) in production | 2 711 434 |
| External supplies and services | (84 495 943) |
| Staff expenses | (51 864 328) |
| Depreciation and amortisation | (20 069 407) |
| Provisions and impairment losses - (increase) / reduction | 748 574 |
| Other expenses and losses | (3 206 691) |
| Operating profit / (loss) | 25 263 673 |
| Net finance profit / (loss) | (13 888 033) |
| Gains and losses in associated companies | 222 216 |
| Gains and losses in joint ventures | 74 869 |
| Gains and losses in investments | (13 670) |
| Net profit/(loss) from discontined operations, before taxation | 11 659 055 |
| Taxation | (3 728 804) |
| Consolidated net profit / (loss) from discontinued operations, after taxation |
7 930 251 |
Other income and gains, on the above-mentioned table, includes EUR 38 676 813 related to the recognition of the investment in the joint venture Sonae Arauco, S. A. for its fair value. It also includes EUR -36 592 671 related to the reclassification of the translation reserve to profit or loss following the Group's loss of control on the entities disclosed on note 5.
Cash flows arising from discontinued operations, which were included line by line on the Consolidated Statement of Cash Flows, are detailed as follows:
| 31.12.2016 | |
|---|---|
| Operating activities | (10 966 545) |
| Investment activities | 4 809 572 |
| Financing activities | 178 279 233 |
| 31.12.2017 Net profit/(loss) |
31.12.2016 Net profit/(loss) |
||||
|---|---|---|---|---|---|
| from continuing operations |
total | from continuing operations |
from discontinued operations |
total | |
| Net loss | |||||
| Net loss considered to calculate base earnings per share (net loss attributable to equity holders of Sonae Indústria) |
15 265 731 | 15 265 731 | 3 078 703 | 7 930 251 | 11 008 954 |
| Net loss considered to calculate diluted earnings per share | 15 265 731 | 15 265 731 | 3 078 703 | 7 930 251 | 11 008 954 |
| Number of shares | |||||
| Weighted average number of shares used to calculate basic earnings per share |
45 403 029 | 45 403 029 | 11 350 757 417 11 350 757 417 | 11 350 757 417 | |
| Weighted average number of shares used to calculate diluted earning per share |
45 403 029 | 45 403 029 | 11 350 757 417 11 350 757 417 | 11 350 757 417 | |
| Basic earnings per share | 0.3362 | 0.3362 | 0.0003 | 0.0007 | 0.0010 |
| Diluted earnings per share | 0.3362 | 0.3362 | 0.0003 | 0.0007 | 0.0010 |
The main activity of the Group is the production and commercialization f wood based panels and derivative products through industrial plants and commercial facilities located in Portugal, Canada and South Africa.
The Company's system of internal report to the chief operating decision maker focus on type of business. Secondary activities are materially irrelevant as far as segmental report is concerned and the Group decided to present one only segment.
Consolidated revenue derives mostly from the production and sale of wood based panels and derivative products.
In October 2010 Sonae Indústria, SGPS, S. A. received a notice of assessment from tax authorities according to which the loss resulting from the dissolution of its subsidiary Socelpac, SGPS, S.A. in 2006, amounting to EUR 74 million, should be considered at 50% for tax calculation purposes. The company filed a lawsuit challenging this interpretation.
The subsidiary Sonae Indústria de Revestimentos, S. A. rendered surety of EUR 2 271 000 in favour of tax authorities for suspension of tax enforcement procedures initiated against Sonae Indústria, SGPS, SA, having been brought court challenges against the respective settlement.
The subsidiary Maiequipa – Gestão Florestal, S. A. rendered surety of EUR 1 242 746 in favour of tax authorities for suspension of tax enforcement procedures initiated against Sonae Indústria, SGPS, SA, having been brought court challenges against the respective settlement.
Sonae Indústria, SGPS, SA presented bank guarantees of EUR 8 701 741 to suspend tax enforcement procedures initiated by tax authorities, having been brought court challenges against the respective settlement, except for the process IRC 2014, for which only a complaint was filed, up until now.
According to the information available on this date, the Board of Directors considers that the probability of a negative outcome of the aforementioned lawsuits and complaint is low, thus no adjustment was done to the estimation of current tax recognized in these consolidated financial statements.
Surety rendered by Sonae Indústria, SGPS, S. A. in favour of "Instituto de Segurança Social" (Social Security Institute), amounting to EUR 5 049 804, ceased as the case of Sonae Arauco Portugal, S. A. was concluded in a favourable manner to the company. Surety rendered by Sonae Indústria, SGPS, S. A. in favour of "Instituto de Segurança Social" (Social Security Institute), amounting to EUR 321 858, to guarantee the contingency of Sonae Arauco Portugal, S. A. with that entity is still maintained , as the complaint process is still not concluded.
Sonae Indústria, SGPS, S.A. has a guarantee granted to Montepio, amounting to EUR 1 090 248, under a real estate lease agreement entered into between the subsidiary Frases and Fractions - Imobiliária e Serviços, S.A. and Montepio.
Former subsidiary Sonae Arauco Deutschland GmbH (formerly Glunz AG) and other German producers of wood-based panels are involved in certain litigation procedures filed by some customers for damages resulting from alleged breaches of competition law, after which former subsidiaries Sonae Arauco Deutschland GmbH (formerly Glunz AG) and GHP GmbH received, in March 2010, a statement
of objections from the German Competition Authority. Some of these processes were resolved during the years 2015, 2016 and 2017 and their respective effects were recognized on the individual financial statements of each company and on the consolidated financial statements of the joint venture Sonae Arauco, S. A. (in which perimeter of consolidation these former subsidiaries are included). Under the terms of the agreement for the subscription of Sonae Arauco, S. A. shares, entered into by Sonae Arauco, S. A., Sonae Indústria SGPS S. A. and the companies of the Arauco Group, Inversiones Arauco Internacional Limitada and Celulosa Arauco y Constitucion SA, Sonae Indústria, SGPS, S. A. assumes the obligation to compensate Sonae Arauco, S. A. for any losses resulting from these proceedings. For the cases still in progress, the complaints submitted specifically to the former subsidiaries Sonae Arauco Deutschland GmbH (formerly Glunz AG) and GHP GmbH amount to a maximum contingency of EUR 31.5 million. There are other cases in which these former subsidiaries are jointly involved with other German producers and whose maximum contingency amounts to EUR 42.7 million. According to the opinion of these former subsidiaries' lawyers, at the closing date of these consolidated financial statements, it is not possible to reliably estimate the outcome of the proceedings in progress or the amount of any payments that may be established.
Darbo SAS, a former subsidiary of Sonae Indústria, SGPS, S.A located in France, was sold on 3 July 2015 to a subsidiary of Gramax Capital and was excluded from the Group's consolidated financial statements on that date. This company's insolvency was requested at the Trade Court of Dax, in France, in September 2016, and was declared by that court to be liquidated, in October of that year.
Following that case, 110 former employees of Darbo filed various lawsuits with the Labour Court of Dax, in France, against, among others, Sonae Indústria, SGPS, SA and Gramax Capital, through which they claim compensation for alleged dismissal without fair reason, for a total amount of EUR 13 653 917.28. The same former employees also filed a lawsuit against the seller and buyer companies and against Sonae Indústria, SGPS, SA, through which they claim annulment of the sale of Darbo SAS and the payment of compensation for alleged damages suffered, in the same amount claimed before the Labour Court of Dax (EUR 13 653 917.28). At the date of approval of these consolidated financial statements, legal proceedings are under way and it is not possible to predict whether the outcome will result in any obligation to be recognized under the consolidated liabilities of Sonae Indústria Group.
From the three raw boards presses that were stopped as a result of the forest fires which affected Sonae Arauco plants in Portugal in October 2017, Mangualde MDF line 1 and line 2 resumed production in January and March, respectively, while the Oliveira do Hospital PB line is expected to resume production in early April. The timeline for execution of the investment in the new MDF line at Mangualde has not been affected by the forest fires disruption and the new line is expected to be operational by the end of third quarter 2018.
On 5 April 2018, the Board of Directors of Sonae Indústria, SGPS, S. A. decided that these consolidated financial statements shall be submitted to approval at the Company's General Shareholders' Meeting.
We have audited the financial statements of Sonae Indústria, SGPS, S.A. (the Entity), which comprise the statement of financial position as at 31 December 2017 (which shows total assets of Euro 473,822,011 and total shareholders' equity of Euro 289,469,587 including a net profit of Euro 36,149,790), the statement of income by nature, the statement of comprehensive income, the statement of changes in equity and the statement of cash flows for the year then ended, and the notes to the financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying financial statements present fairly in all material respects, the financial position of Sonae Indústria, SGPS, S.A as at 31 December 2017, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union.
We conducted our audit in accordance with International Standards on Auditing (ISAs) and other technical and ethical standards and recommendations issued by the Institute of Statutory Auditors. Our responsibilities under those standards are described in the "Auditor's responsibilities for the audit of the financial statements" section below. In accordance with the law we are independent of the Entity and we have fulfilled our other ethical responsibilities in accordance with the ethics code of the Institute of Statutory Auditors.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current year. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
PricewaterhouseCoopers & Associados - Sociedade de Revisores Oficiais de Contas, Lda. o′Porto Bessa Leite Complex, Rua António Bessa Leite, 1430 - 5º, 4150-074 Porto, Portugal Tel +351 225 433 000 Fax +351 225 433 499, www.pwc.pt Matriculada na CRC sob o NUPC 506 628 752, Capital Social Euros 314.000 Inscrita na lista das Sociedades de Revisores Oficiais de Contas sob o nº 183 e na CMVM sob o nº 20161485
PricewaterhouseCoopers & Associados - Sociedade de Revisores Oficiais de Contas, Lda. pertence à rede de entidades que são membros da PricewaterhouseCoopers International Limited, cada uma das quais é uma entidade legal autónoma e independente. Sede: Palácio Sottomayor, Rua Sousa Martins, 1 - 3º, 1069-316 Lisboa, Portugal
As disclosed in the note 5 of the separate financial statements, Sonae Indústria, SGPS, SA held financial interests in subsidiaries and joint ventures amounting to Euro 448,765,104, measured at acquisition cost and assessed for impairment at each reporting date through indicators that might indicate impairment. Those financial assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. As at 31 December 2017, valuation models were used for testing the recoverability of financial interests amounting to Euro 238,234,735, as disclosed in the notes 5.1.2 b) and 5.2.
The assessment of fair value of those financial investments, based on the methodology of discounted cash flows, was considered a key audit matter due to their value and the significant impact on the separate financial statements as at 31 December 2017 (reversal of impairment charges amounting to 32,100,511 euros and impairment charge amounting to Euro 3,105,6576) and because the assessment process is highly judgmental, as it is based on estimations and assumptions defined by the management that are affected by expected future market and economic conditions impacting on the projected cash flows and on fair value adjustments on the buildings owned by some subsidiaries.
The related disclosures are presented in notes 2.6, 5.1.2 b), 5.2 and 26 to the separate financial statements.
Key Audit Matter Summary of the Audit Approach
Our audit procedures included, among others (i) verifying the existence of impairment indicators in financial interests (ii) assessing the methodology and key assumptions used for the determination of the realizable value of the interest in the joint venture; (iii) assessing the reasonableness of the key assumptions and methodology used in the calculation, namely, discount rate and growth rate comparing with the external valuation from the previous year and, namely, involving our internal experts in reviewing the discount rate, as well as (iv) reviewing scenarios and performing sensitivity analysis around the key variables.
We also focused on the adequacy of the Entity's disclosures regarding the valuation of financial investments in subsidiaries and joint ventures, in accordance with the applicable accounting standard.
As outlined in the note 29 to the separate financial statements, there is a number of ongoing tax and regulatory cases against the group, particularly the anti-trust processes filed by some customers for damages resulting from the alleged violation of competition regulations against two subsidiaries of the joint venture, Sonae Arauco, SA, fully indemnifiable by Sonae Indústria SGPS, as contemplated in the share subscription agreement with the other partner, as well as lawsuits filed by former employees of the former subsidiary, Darbo SAS, sold in 2015.
At the closing date of these separate financial statements, it is not possible to estimate the outcome of the abovementioned cases. The maximum contingency amounts to approximately, respectively, Euro 31.5 million and Euro 42.7 million jointly with other woodbased panels manufacturers, and Euro 13.6 million.
Due to the amounts involved, litigations and contingencies were considered a key audit matter and also because management's assessment process is complex and highly judgmental and the outcome depends upon potential future developments and, consequently, the calculation of potential liabilities, if deemed to be determined, is subject to a high level of unpredictability.
The related disclosures are presented in notes 2.11, 2.18 and 29 to the separate financial statements.
Our audit procedures included, among others, identifying the events generating potential contingencies at the date of the financial reporting; understanding their nature, inquiring management's judgment of the related outcome, the nature and the status of the ongoing contingent processes dealt by the external lawyers, as well as reviewing the legal letters received from them. We have also assessed the objectivity and competency of those lawyers and, particularly, in which concerns the independence requirements, independence confirmations have been obtained.
We also validated the appropriateness of the related disclosures in the separate financial statements in accordance with the applicable accounting standards.
Management is responsible for the preparation and gathering the alternative indicators (proportional proforma and corporate responsibility) included in the sections 3.5 and 5 of the director's report, as management considers that this information enables a more comprehensive view of Sonae Industria's business. That other information comprises the referred sections of the director's report, but does not include the remaining sections, nor the financial statements and our statutory audit report and auditor's report thereon.
Our opinion on the financial statements and our report on other legal and regulatory requirements does not cover the information included in the sections 3.5 and 5 of the director's report and we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements and report on other legal and regulatory requirements, our responsibility is to read the sections 3.5 and 5 of the director's report and, in doing so, consider whether the other information included in those sections is materially inconsistent with our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Management is responsible for:
a) the preparation of the financial statements, which present fairly the financial position, the financial performance and the cash flows of the Entity in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union;
b) the preparation of the Directors' Report, including the Corporate governance Report, in accordance with the applicable law and regulations;
c) the creation and maintenance of an appropriate system of internal control to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error;
d) the adoption of appropriate accounting policies and criteria;
e) the assessment of the Entity's ability to continue as a going concern, disclosing, as applicable, events or conditions that may cast significant doubt on the Entity's ability to continue its activities.
The supervisory board is responsible for overseeing the process of preparation and disclosure of the Entity's financial information.
Our responsibility is to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:
a) identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;
b) obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Entity's internal control;
c) evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management;
d) conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Entity's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Entity to cease to continue as a going concern;
e) evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation;
f) communicate with those charged with governance, including the supervisory board, regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit;
g) of the matters we have communicated to those charged with governance, including the supervisory board, we determine which one's were the most important in the audit of the financial statements of the current year, these being the key audit matters. We describe these matters in our report, except when the law or regulation prohibits their public disclosure;
h) confirm to the supervisory board that we comply with the relevant ethical requirements regarding independence and communicate all relationships and other matters that may be perceived as threats to our independence and, where applicable, the respective safeguards.
Our responsibility also includes verifying that the information included in the Directors' report is consistent with the financial statements and the verification set forth in paragraphs 4 and 5 of article No. 451 of the Portuguese Company Law.
In compliance with paragraph 3 e) of article No. 451 of the Portuguese Company Law, it is our understanding that the Director's report, except for the sections 3.5 and 5, has been prepared in accordance with applicable requirements of the law and regulation, that the information included in the Directors' report, except in the sections 3.5 and 5, is consistent with the audited separate financial statements and, taking into account the knowledge and assessment about the Group, no material misstatements were identified.
In compliance with paragraph 4 of article No. 451 of the Portuguese Company Law, it is our understanding that the Corporate governance report includes the information required under article No. 245-A of the Portuguese Securities Market Code, that no material misstatements were identified in the information disclosed in this report and that it complies with paragraphs c), d), f), h), i) and m) of that article.
In accordance with article No. 10 of Regulation (EU) 537/2014 of the European Parliament and of the Council, of April 16, 2014, and in addition to the key audit matters referred to above, we also provide the following information:
a) We were first appointed auditors of Sonae Indústria, SGPS, S.A. in the Shareholders' General Meeting of 31 May 2006 for the period from 2006 to 2008, having remained in functions until the current period. Our last appointment was in the Shareholders' General Meeting of 31 March 2015 for the period from 2015 to 2017.
b) The management has confirmed to us it has no knowledge of any allegation of fraud or suspicions of fraud with material effect in the financial statements. We have maintained professional scepticism throughout the audit and determined overall responses to address the risk of material misstatement due to fraud in the consolidated financial statements. Based on the work performed, we have not identified any material misstatement in the financial statements due to fraud.
c) We confirm that our audit opinion is consistent with the additional report that was prepared by us and issued to the Entity's supervisory board as of 21 March 2017.
d) We declare that we did not provide any prohibited non-audit services referred to in paragraph 8 of article No. 77 of the by-laws of the Institute of Statutory Auditors ("Estatutos da Ordem dos Revisores Oficiais de Contas") and that we remain independent of the Entity in conducting our audit.
5 April 2018
PricewaterhouseCoopers & Associados - Sociedade de Revisores Oficiais de Contas, Lda. represented by:
Herminio António Paulos Afonso, R.O.C.
We have audited the consolidated financial statements of Sonae Indústria, SGPS, S.A. (the Group), which comprise the consolidated statement of financial position as at 31 December 2017 (which shows total assets of Euro 401,032,271 euros and total shareholders' equity of Euro 126,112,608 euros including a net profit of Euro 15,265,731 euros), the consolidated statement of income by nature, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and the notes to the consolidated financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly in all material respects, the consolidated financial position of Sonae Indústria, SGPS, S.A. as at 31 December 2017, and their consolidated financial performance and their consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union.
We conducted our audit in accordance with International Standards on Auditing (ISAs) and other technical and ethical standards and recommendations issued by the Institute of Statutory Auditors. Our responsibilities under those standards are described in the "Auditor's responsibilities for the audit of the consolidated financial statements" section below. In accordance with the law we are independent of the entities that are included in the Group and we have fulfilled our other ethical responsibilities in accordance with the ethics code of the Institute of Statutory Auditors.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current year. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
PricewaterhouseCoopers & Associados - Sociedade de Revisores Oficiais de Contas, Lda. o′Porto Bessa Leite Complex, Rua António Bessa Leite, 1430 - 5º, 4150-074 Porto, Portugal Tel +351 225 433 000 Fax +351 225 433 499, www.pwc.pt Matriculada na CRC sob o NUPC 506 628 752, Capital Social Euros 314.000 Inscrita na lista das Sociedades de Revisores Oficiais de Contas sob o nº 183 e na CMVM sob o nº 20161485
PricewaterhouseCoopers & Associados - Sociedade de Revisores Oficiais de Contas, Lda. pertence à rede de entidades que são membros da PricewaterhouseCoopers International Limited, cada uma das quais é uma entidade legal autónoma e independente. Sede: Palácio Sottomayor, Rua Sousa Martins, 1 - 3º, 1069-316 Lisboa, Portugal
As mentioned in notes 2.2 b) and 5 to the consolidated financial statements, the Group has a significant interest in the joint venture Sonae Arauco, SA, amounting to 205,616,464 euros, accounted for using the equity method and has recognised Gains in joint venture amounting to 10,353,561 euros.
As referred to in note 3 to the consolidated financial statements, the results of the joint venture include estimates of compensation for property damages (8,696,051 euros) and business interruption (7,299,053 euros) to be received from the insurance company regarding the inactivity of the industrial units of Oliveira do Hospital and Mangualde, both controlled by the joint venture, following the wildfires that affected Portugal.
Those indemnities were considered a key audit matter given the magnitude of the impact of the fires in the consolidated financial statements of the joint venture and, consequently, in the share recognized by Sonae Industria, SGPS, S.A., as well as because the quantification process by management is judgmental.
As disclosed in the note 5 of the consolidated financial statements, the dilution of the financial interest in the investment in Sonae Arauco in 2016 with the subsequent change from control to joint control resulted in the revaluation of the interest and a goodwill amounting to 80,975,630 euros including in the Investiments in Joint Ventures caption. As mentioned in the note 2.9 of the consolidated financial statements, an investment is tested for impairment, when indicators of impairment are present.
Regarding the review of the estimates of the indemnities, our audit procedures included, among others (i) assessing the procedures used by management to calculate those estimates; (ii) checking the amounts estimated with the clauses and conditions of the insurance policy in force at the date of the claim, as well as (iii) circularizing the insurer regarding the existence of the policy and its coverage.
In respect of the impairment testing, our audit procedures included, among others: (i) assessing the methodology and key assumptions used for the determination of the realizable value of the interest in the joint venture; (ii) assessing the reasonableness of the key assumptions and methodology used in the calculation, namely, discount rate and growth rate comparing with the external valuation from the previous year and, namely, involving our internal experts in reviewing the discount rate, as well as (iii) reviewing scenarios and performing sensitivity analysis around the key variables.
We also focused on the adequacy of the group's disclosures in respect of the interest in the joint venture, as defined by the applicable accounting standard.
Key Audit Matter Summary of the Audit Approach
This testing based on the methodology of discounted cash flows was considered a key audit matter due to the amount of the goodwill included in the related investment as at 31 December 2017 and because the assessment process of the realizable value is highly judgmental and based on estimations and assumptions defined by the management that are affected by expected future market and economic conditions.
The related disclosures are presented in notes 2.2b), 2.9, 3.5 and 6 to the consolidated financial statements.
As outlined in the note 44 to the consolidated financial statements, there is a number of ongoing tax and regulatory cases against the group, particularly the anti-trust processes filed by some customers for damages resulting from the alleged violation of competition regulations against two subsidiaries of the joint venture, Sonae Arauco, SA, fully indemnifiable by Sonae Indústria SGPS, as contemplated in the share subscription agreement with the other partner, as well as lawsuits filed by former employees of the former subsidiary, Darbo SAS, sold in 2015.
At the closing date of these consolidated financial statements, it is not possible to estimate the outcome of the abovementioned cases. The maximum contingency amounts to approximately, respectively, Euro 31.5 million and Euro 42.7 million jointly with other woodbased panels manufacturers, and Euro 13.6 million.
Due to the amounts involved, litigations and contingencies were considered a key audit matter and also because management's assessment process is complex and highly judgmental and the outcome depends upon
Our audit procedures included, among others, identifying the events generating potential contingencies at the date of the financial reporting; understanding their nature, inquiring management's judgment of the related outcome, the nature and the status of the ongoing contingent processes dealt by the external lawyers, as well as reviewing the legal letters received from them. We have also assessed the objectivity and competency of those lawyers and, particularly, in which concerns the independence requirements, independence confirmations have been obtained.
We also validated the appropriateness of the related disclosures in the consolidated financial statements in accordance with the applicable accounting standards.
Key Audit Matter Summary of the Audit Approach
potential future developments and, consequently, the calculation of potential liabilities, if deemed to be determined, is subject to a high level of unpredictability. The related disclosures are presented in notes 2.12, 2.15 and 44 to the consolidated financial statements.
As referred to in the group accounting policies (note 2.3), the group adopts the revaluation model for land and buildings subsequent to initial recognition and the fair value of those assets is determined through valuations performed by an external appraiser. Those valuations performed as at 31 December 2017 led to an increase of tangible fixed assets amounting to 5,796,847 euros through other comprehensive income and a decrease of 618,742 euros through profit and loss in respect of losses related to inactive operational sites without any perspective of sale in the near future amounting to 5,480,815 euros.
The assessment of the fair value of land and buildings and, particularly, of inactive assets was considered a key audit matter, taking into account that there were no recent transactions nor an active market, and consequently, a highly judgment is required for determining the related value.
The related disclosures are presented in notes 2.3, 10 and 32 to the consolidated financial statements.
Our audit procedures included, among others, obtaining the external appraisals, assessing the criteria used by the external appraiser for determining the fair value of those assets and its adequacy for the consolidated financial statements purposes and inactive items. We also assessed the objectivity and the competence of the appraiser and particularly in which concerns the independence requirements, an independence confirmation has been obtained.
We also focused on the adequacy of the Group's disclosures, in accordance with the applicable accounting standards.
Management is responsible for the preparation and gathering the alternative indicators (proportional proforma and corporate responsibility) included in the sections 3.5 and 5 of the director's report, as management considers that this information enables a more comprehensive view of Sonae Industria's business. That other information comprises the referred sections of the director's report, but does not include the remaining sections, nor the consolidated financial statements and our statutory audit report and auditor's report thereon.
Our opinion on the consolidated financial statements and our report on other legal and regulatory requirements does not cover the information included in the sections 3.5 and 5 of the director's report and we do not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements and report on other legal and regulatory requirements, our responsibility is to read the sections 3.5 and 5 of the director's report and, in doing so, consider whether the other information included in those sections is materially inconsistent with our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Management is responsible for:
a) the preparation of the consolidated financial statements, which present fairly the financial position, the financial performance and the cash flows of the Group in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union;
b) the preparation of the Directors' Report , including the Corporate governance Report, in accordance with the applicable law and regulations;
c) the creation and maintenance of an appropriate system of internal control to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error;
d) the adoption of appropriate accounting policies and criteria;
e) the assessment of the Group's ability to continue as a going concern, disclosing, as applicable, events or conditions that may cast significant doubt on the Group's ability to continue its activities.
The supervisory board is responsible for overseeing the process of preparation and disclosure of the Group's financial information.
Our responsibility is to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:
a) identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;
b) obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control;
c) evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management;
d) conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern;
e) evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation;
f) obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion;
g) communicate with those charged with governance, including the supervisory board, regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit;
h) of the matters we have communicated to those charged with governance, including the supervisory board, we determine which one's were the most important in the audit of the consolidated financial statements of the current year, these being the key audit matters. We describe these matters in our report, except when the law or regulation prohibits their public disclosure;
i) confirm to the supervisory board that we comply with the relevant ethical requirements regarding independence and communicate all relationships and other matters that may be perceived as threats to our independence and, where applicable, the respective safeguards.
Our responsibility also includes verifying that the information included in the Directors' report is consistent with the consolidated financial statements and the verification set forth in paragraphs 4 and 5 of article No. 451 of the Portuguese Company Law.
In compliance with paragraph 3 e) of article No. 451 of the Portuguese Company Law, it is our understanding that the Director's report, except for the sections 3.5 and 5, has been prepared in accordance with applicable requirements of the law and regulation, that the information included in the Directors' report, except in the sections 3.5 and 5, is consistent with the audited consolidated financial statements and, taking into account the knowledge and assessment about the Group, no material misstatements were identified.
In compliance with paragraph 4 of article No. 451 of the Portuguese Company Law, it is our understanding that the Corporate governance report includes the information required under article No. 245-A of the Portuguese Securities Market Code, that no material misstatements were identified in the information disclosed in this report and that it complies with paragraphs c), d), f), h), i) and m) of that article.
In accordance with article No. 10 of Regulation (EU) 537/2014 of the European Parliament and of the Council, of April 16, 2014, and in addition to the key audit matters referred to above, we also provide the following information:
a) We were first appointed auditors of Sonae Industria, SGPS, S.A. in the Shareholders' General Meeting of 31 May 2006 for the period from 2006 to 2008, having remained in functions until the current period. Our last appointment was in the Shareholders' General Meeting of 31 March 2015 for the period from 2015 to 2017.
b) The management has confirmed to us it has no knowledge of any allegation of fraud or suspicions of fraud with material effect in the financial statements. We have maintained professional scepticism throughout the audit and determined overall responses to address the risk of material misstatement due to fraud in the consolidated financial statements. Based on the work performed, we have not identified any material misstatement in the consolidated financial statements due to fraud.
c) We confirm that our audit opinion is consistent with the additional report that was prepared by us and issued to the Group's supervisory board as of 5 April 2018.
d) We declare that we did not provide any prohibited non-audit services referred to in paragraph 8 of article No. 77 of the by-laws of the Institute of Statutory Auditors ("Estatutos da Ordem dos Revisores Oficiais de Contas") and that we remain independent of the Group in conducting our audit.
5 April 2018
PricewaterhouseCoopers & Associados - Sociedade de Revisores Oficiais de Contas, Lda. represented by:
Hermínio António Paulos Afonso, R.O.C.
(Free translation from the original in Portuguese)
To the Shareholders of Sonae Indústria, SGPS, S.A.
In accordance with current law, statutory norms and the mandate we have been conferred, the Statutory Audit Board presents this report and opinion regarding the management report of Sonae Indústria, S. G. P.S., S. A. as at 31 December 2017 and further related separate and consolidated financial statements, which are the Board of Directors' responsibility.
During the period the Statutory Audit Board has accompanied the Company's management, the evolution of its activities and those of its subsidiaries and convened meetings with the frequency and extent deemed appropriate. According to the nature of the matters under analysis, the meetings were attended by the financial area's operational managers, especially the CFO, and by the internal audit and risk management manager. We have been in close contact with the Statutory External Auditor who kept us informed about the nature and conclusions of performed audit work. The Statutory Audit Board was given by the Board of Directors, the company's services, the subsidiaries included in the consolidation perimeter and the Statutory External Auditor all information and clarifications requested, namely, for gaining a greater insight into understanding and assessing the evolution of businesses, performance and financial position as well as the risk management and internal control systems.
The Statutory Audit Board has also monitored the process of preparing and disclosing financial information as well as the audit of separate and consolidated financial statements, for which it received from the Statutory External Auditor all requested information and clarifications. Furthermore, within the scope of its competence, the Statutory Audit Board has verified the separate and consolidated statements of financial position as at 31 December 2017, the separate and consolidated income statements, the separate and consolidated statements of comprehensive income, the separate and consolidated statements of changes in shareholders' funds and the separate and consolidated statements of cash flows and corresponding appendices for the period ended on the aforementioned date. It has also verified the management report for the fiscal year ended on 31 December 2017 issued by the Board of Directors, and the Statutory External Auditor's Report on the accounts, with which the Statutory Audit Board agrees.
In light of the above, it is the Statutory Audit Board's opinion that the information relating to the financial statements under analysis has been prepared in accordance with the applicable accounting, legal and statutory norms, reflecting a true and appropriate image of the assets and liabilities, the financial position and results of Sonae Indústria, S.G.P.S., S. A. and of its subsidiaries included in the consolidation perimeter. The management report duly states the evolution of the businesses, performance and financial position of the company and subsidiaries included in its consolidation perimeter and contains a description of the main risks and uncertainties they are confronted with. Furthermore, the Statutory Audit Board informs that the Company's Corporate Governance Report complies with the provisions of article 245-A of the Portuguese Securities Code.
The Statutory Audit Board acknowledges the Board of Directors and other departments for their cooperation.
As a result of what was previously stated, it is the Statutory Audit Board's opinion that the Shareholders' General Meeting approves the:
In accordance with the provisions of article 245, nr. 1, c) of the Securities Code ("Código dos Valores Mobiliários"), the Statutory Audit Board's members state to the best of their knowledge that the information included in the management report and the other financial statements was prepared in compliance with the applicable accounting standards and provides a true and appropriate image of the assets, liabilities, financial position and results of the company and subsidiaries included in its consolidation perimeter.
Furthermore, the Statutory Audit Board is of the opinion that the management report duly states the evolution of businesses, performance and position of the company and subsidiaries included in its consolidation perimeter, and contains a description of the main risks and uncertainties they are confronted with.
Maia, 5 April 2018
The Statutory Audit Board,
Manuel Heleno Sismeiro
António Augusto Almeida Trabulo
Óscar José Alçada da Quinta
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