Notes to the Financial Statements - Efacec

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a) Sales The income recognised, in the case of multi-year contracts, in which the percentage of completion method is used, is in accordance with the policy defi ned for the recognition of income and costs related to multi-year contracts (Note 1.10). The sale of other goods is recognised when the products are delivered to and accepted by the customer, and when payment of the related trade debts is reasonably assured. b) Services The rendering of services is recognised in the accounting period in which they are rendered, with reference to the phase of completion of the transaction at the balance sheet date. 1.18 Leases Leases are classifi ed as operational leases if a signifi cant part of the inherent risks and benefi ts at the time the lease is taken on is retained by the lessee. Payments made for operational leases are booked in the profi t and loss account on settlement. Leases of tangible assets where the Group holds substantially all the risks and benefi ts associated with the asset are classifi ed as fi nancial leases. Financial leases are capitalised at the beginning of the lease for the lower of the fair value of the asset leased and the present value of the minimum payments of the lease. Each payment made is split between the capital sum due and the fi nancial costs, in order to obtain a constant rate on the debt outstanding. Lease obligations net of fi nancial charges are shown in Other Creditors. The interest is booked to fi nancial costs in the lease period to a constant periodic interest rate on the remaining debt of each period. Tangible assets acquired through fi nancial leases are depreciated over the lesser of the useful life of the asset or the lease period. 1.19 Dividend distribution Dividend distributions to shareholders are recognised as a liability in the Group fi nancial statements in the period in which the dividends are approved in the Shareholders’ General Meeting. 1.20 Subsidies Subsidies received are booked at their fair value when a reasonable level of comfort exists that the subsidy will be received and the Group will comply with its obligations. Subsidies relating to the purchase of tangible assets are included in long term liabilities as deferred subsidies and are credited to the profi t and loss account in proportion to the useful life of the corresponding assets. 1.21 Discontinued operations A discontinued operation is one component part of an entity that was either written off or was classifi ed for sale or liquidation and: (a) represents a signifi cant line of business or geographical area of operation; (b) is part of a restructuring of an area of business or geographical area of operations; or (c) is a subsidiary acquired for sale. 2. Financial risk management 2.1 Factors of financial risk The Group operates internationally and thus has exposure to the market, in particular to changes in interest rates, exchange rates and the price of raw materials. Thus Group activities are exposed to a variety of fi nancial risks: market risk (including exchange rate risk, fair value risk relating to interest rates and price risk), liquidity risk and cash fl ow risk associated with interest rates. The Group has no signifi cant concentrations of credit risk. Various fi nancial instruments are used to minimise the potential adverse effects on the fi nancial performance of the Group. However, the Group only uses such fi nancial instruments to cover risks arising from its business and activities (“hedging purposes”). a) Exchange rate risk The Group operates internationally, and as a result, is exposed to risks from exchange rates. This risk arises from commercial transactions, recognition of assets and liabilities and net investments in operations outside the Euro zone. 15 2007 Consolidated and Individual Financial Statments
The Group has signifi cant sales and delivery of services in countries outside the Euro zone, particularly in US Dollars (USD). Group companies are required to carefully manage exchange risk cover, considering the operational margins in their business. Exchange risk cover is made from the proposal date in some cases or from the order date, until cash payment is received. In this way, not only are the majority of balance sheet assets and liability values covered but also future sales linked with proposals (considering an acceptable level of success) and orders. Accordingly cover can be for several years depending on how long the project or installations take, refl ecting the possible period of several years over which the work of Group companies can take place. b) Liquidity risk The management of the risk of liquidity implies maintaining a suffi cient level of cash and bank deposits, the viability of fl oating debt through adequate credit facilities, and skill in liquidating market positions. In line with the business needs, the Group Treasury aims at maintaining the fl exibility of the fl oating debt, keeping credit lines available. c) Cash fl ow risks and fair value related to interest rates Since the Group does not have assets that earn signifi cant amounts of interest, profi ts and cash fl ows are relatively independent of changes to interest rates. Interest rate risks of the Group come from long term borrowings. Borrowings with variable rates of interest expose the Group to cash fl ow risks related to interest rates. The Group manages interest rate cash fl ow risks by transforming variable interest rates into swaps with fi xed interest rates. In these transactions, the Group agrees to exchange with other parties at specifi ed intervals (mainly quarterly), the difference between amounts at contracted fi xed rates of interest and amounts at a variable rate of interest. 2.2 Accounting for financial instruments – derivatives and hedging Derivatives are initially recognised at fair value and subsequently readjusted to their fair value. The method for recognising changes in fair value depends on whether the derivative is defi ned as a hedge instrument and if so, the nature of the asset/liability to be covered. The group arranges certain derivatives as: (1) fair value cover of recognised assets and liabilities or of commitments (fair value cover); (2) cover of highly probable forecast transactions (cash fl ow cover). For each transaction, the Group prepares documentation to justify the relationship between the hedge instruments and the related assets/liabilities covered, as well as the objective of risk management and the strategy for taking out cover. The Group also documents its evaluation, both at the start of the cover and on a continuous basis, as to whether the derivatives used for cover effectively compensate for fl uctuations in fair value or in the cash fl ows of the items covered. The fair value of derivatives used to take out cover is disclosed in Note 8, as well as the movements that took place in Shareholders’ Funds. a) Fair value hedging Changes in the fair value of derivatives that are arranged and qualifi ed for fair value hedging are recognised in the profi t and loss account, together with changes to the fair value of the assets and liabilities covered (in the covered position) attributable to the risk covered. b) Cash fl ow hedging The effective part of the change in fair value of derivatives that are arranged and qualifi ed for cash fl ow hedging is recognised in shareholders’ funds. The gain or loss related to the ineffective part is immediately recognised in the profi t and loss account. Concerning cover strategies that use options, in accordance with IAS 39 and complying with the effi ciency test, the strategy value is split into the intrinsic value and the temporary value. The cumulative amounts in shareholders’ funds are reclassifi ed to profi t and loss in the same period in which the item covered generates gains and losses (for example, when the Sales forecast covered occurs). However, when the forecast covered transaction results in a non fi nancial asset (for example, stocks) or non fi nancial liability being recognised, the previously deferred gains and losses in shareholders’ funds are transferred and included in the initial measurement of that asset or liability. When a hedge instrument expires or is sold, or when a hedging does not comply with the accounting and qualifi cation criteria, any cumulative gain or loss existing at that moment in shareholders’ funds, remains in shareholders’ funds and is recognised when the forecast transaction is fi nally refl ected in the profi t and loss account. When the expected occurrence of a forecast transaction is no longer highly probable, the cumulative gains or losses refl ected in shareholders’ funds are immediately transferred to profi t and loss. c) Non qualifi ed derivatives for hedging purposes Certain derivatives do not comply with hedging accounting and qualifi cation criteria. Changes in fair value of these derivatives are immediately recognised in the profi t and loss account. 16
Page 2 and 3: 1 2 Index Consolidated Financial St
Page 4 and 5: EFACEC Capital, SGPS, S.A. and Affi
Page 6 and 7: Attributable to shareholders Reserv
Page 8 and 9: A. General Information Notes to the
Page 10 and 11: 1.3 Reporting by segments A busines
Page 12 and 13: 1.7 Asset impairment Assets that do
Page 16 and 17: 2.3 Estimates of fair value The fai
Page 18 and 19: 3.2 Information by geographical seg
Page 20 and 21: 5.2 Goodwill The breakdown of goodw
Page 22 and 23: 8. Derivatives In relation to fi na
Page 24 and 25: 11. Stocks 31.12.2007 31.12.2006 Ra
Page 26 and 27: Commercial Paper On 8 July 2005, a
Page 28 and 29: Denomination of Loans The accountin
Page 30 and 31: 17. Provisions for risks and charge
Page 32 and 33: 21. Net financial charges 22. Incom
Page 34 and 35: 27.1 Transactions that took place i
Page 36 and 37: 27.4 Commitments and contingencies
Page 38 and 39: Foreign companies Company Name Head
Page 40 and 41: 41 2007 Consolidated and Individual
Page 42 and 43: EFACEC Capital, SGPS, S.A. Profit a
Page 44 and 45: Reserves Financial Instruments Merg
Page 46 and 47: A. General Information Notes to the
Page 48 and 49: 1.5 Investments Investments in grou
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Page 52 and 53: 4. Investments in group and associa
Page 54 and 55: 6. Customers and Accrued Income 200
Page 56 and 57: On 30 November 2006, a second Comme
Page 58 and 59: Deferred tax booked in shareholders
Page 60 and 61: 17. Profit per share Basic The basi
Page 62 and 63: 21.4 Loans to related parties 2007
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To the Shareholders, Report and Opi
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Notes to the Financial Statements - Efacec

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