Notes to the Financial Statements - Efacec

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A. General Information Notes to the Consolidated Financial Statements The EFACEC Group’s business activities cover an extensive range of high technology products and services. Diversity in creative and engineering capability enables us to offer technical solutions to a wide variety of activities and sectors in both internal and external markets. A signifi cant part of our output is in support of operational control tools and management, developed in accordance with the most sophisticated consumer requirements. The variety of services and products which we offer include a wide range of equipment used in electricity transport and distribution, in remote control systems, ventilation, electric traction, industrial electronics, telecommunications, automation and robotics and in engineering projects focused on industrial plant and maintenance. The Group operates in a highly competitive market, and it is necessary to be alert to the constant developments and changes in customer preferences and in new technologies. With this in mind, the Group has adapted its structure to ensure the most appropriate solution. Over the last few years, there has been a commitment to internationalise and diversify activities that has seen branches and agents set up across more than 30 countries. Since 2000 the focus has been on analysing and evaluating the strategies followed, developing business areas with greater added value and building up the Group with the correct level of competencies for the new market and organisational challenges. EFACEC Capital, holding company of the EFACEC Group, is a publicly quoted company with its registered offi ce in Arroteia, parish of Leça do Balio, Matosinhos in Portugal. B. Summary of main accounting policies used The main accounting polices used to prepare these consolidated fi nancial statements are described below. These policies have been consistently applied over the years unless otherwise stated. 1.1 Basis of Preparation The Financial Statements of EFACEC Capital, SGPS, SA were prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union, as in force on 1 January 2007. The consolidated fi nancial statements were prepared using historical costs with the exception of land, fi nancial assets and liabilities (including derivatives) which have been valued in the accounts at their just value. The preparation of the fi nancial statements in accordance with the International Financial Reporting Standards requires the use of some important accounting estimates. It also requires that the management entity uses its judgement in the process of applying the accounting policies of the company. The area involving the greatest degree of judgement or complexity, or the area where the assumptions and estimates are signifi cant for the fi nancial statements, relate to the estimate of goodwill impairment (Note 1.6). For the fi rst time in 2007, the International Financial reporting Standard IFRS 7 was used, which is compulsory for fi nancial years after 1 January 2007. During the period, the following Standards became mandatory: - IFRIC 7 - Restatement approach as specifi ed in IAS 29; - IFRIC 8 - Scope of IFRS 2; - IFRIC 9 - Embedded Derivatives; - IFRIC 10 – Interim Financial Reporting and Imparity. The adoption of these standards did not have any signifi cant impact on the accounting policies of the EFACEC Group. At the end of the year, the following standards were issued which were not mandatory as at 31 December 2007: - IAS 23 - Cost of Borrowings – 2007 update; - IFRS 8 - Operational Segments - IFRIC 13 – Customer Retention Programmes; - IFRIC 11 – Own Shares Transactions; - IFRIC 12 – Concessionary Contracts. In view of the fact that applying these standards was not mandatory for the year beginning 1 January 2007, the Group decided not to adopt them immediately. It is estimated however that there would be no signifi cant impact from applying them to the consolidated fi nancial statements of the Group for those standards which are applicable to the group. 9 2007 Consolidated and Individual Financial Statments
1.2 Consolidation (a) Affi liates Affi liates are all those entities (including those Entities with Special Purposes) over which the Group has the power of decision concerning fi nancial and operational policies, generally where it holds over half of the voting rights. The existence or the impact of potential voting rights that may be currently exercisable or convertible is considered when an evaluation is made as to whether the Group has control over the other entity. Affi liates are consolidated from the date on which control is transferred to the Group, and are excluded from consolidation from the date on which that control ceases. The purchase method is used to account for the acquisition of subsidiaries. The cost of acquisition is measured by the fair value of the goods delivered, the instruments of share capital issued, the liabilities incurred or assumed on the date of acquisition, plus the directly attributable costs of acquisition. The identifi able assets acquired and the contingent liabilities taken on in a business merger are initially measured at their fair value on the date of acquisition, independently of the existence of minority interests. The excess of the cost of acquisition compared to the fair value of the Group’s share of the identifi able assets acquired is booked as goodwill (IFRS 3). If the cost of acquisition was less than the fair value of the net assets of the affi liate acquired, the difference is refl ected directly in the Profi t and Loss Account. The transactions, balances and unrealised gains on operations that took place between group companies are eliminated. Unrealised losses are also eliminated, except if the transaction shows evidence of impairment relating to a transferred asset. The accounting policies of affi liates were changed whenever necessary to ensure consistency with the policies used by the Group. The amount of Minority Interests is included in Shareholders’ Funds. The list of affi liates included in the consolidation perimeter is shown in Chapter G, as well as the respective impacts. (b) Associates Associates are all those entities over which the Group exercises a signifi cant infl uence but where the Group does not have control, generally shareholdings having between 20% and 50% of voting rights. Investments in associates are accounted for using the equity method and are initially booked at cost. Investment of the Group in associates includes goodwill (from which accumulated impairment losses are deducted) that was identifi ed on acquisition (see Note 1.6). The share of the Group of gains and losses of its associates after acquisition is refl ected in the Profi t and Loss Account and its share of movements in reserves after acquisition is refl ected in reserves and in the accounting value of the investment. When the share of the Group in the losses of the associate is equal to or greater than the investment in the associate, including receivables not covered by guarantees, the Group does not recognise additional losses, unless they have been caused by bonds or if the Group made payments in the name of the associate. If the cost of acquisition was less than the fair value of the net assets of the associates acquired, the difference is booked directly to Profi t and Loss. The goodwill identifi ed on acquisition of associates, less accumulated impairment losses, is shown in a specifi c line in the Balance Sheet. Unrealised gains on transactions with associates are eliminated when Group shareholdings are increased in associates. Unrealised losses are also eliminated, except if the transaction reveals evidence of impairment of an asset transferred. Accounting policies of associates are changed whenever necessary, to ensure consistency with the policies used by the Group. (c) Joint Ventures Interests in jointly controlled entities are booked using the proportional consolidation method. The Group adds its share of profi ts/losses, assets, liabilities and cash fl ows of joint ventures on a line by line basis with similar items of the Group Consolidated Financial Statements. The Group recognises the proportion of gains and losses on the sale of assets of assets of the Group to the Joint Venture that is attributable to other partners. It does not recognise its share in the gains or losses of the Joint Venture that result from the purchase by the Group of assets belonging to the Joint Venture until it sells them to an independent entity. The loss on the transaction is immediately recognised if there is evidence of a reduction in the value of the net realisable value of current assets, or of an impairment loss. The accounting policies of Joint Ventures are changed whenever necessary, to ensure consistency with the policies used by the Group. 10
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 10 and 11: 1.3 Reporting by segments A busines
Page 12 and 13: 1.7 Asset impairment Assets that do
Page 14 and 15: a) Sales The income recognised, in
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
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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
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Page 48 and 49: 1.5 Investments Investments in grou
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Page 54 and 55: 6. Customers and Accrued Income 200
Page 56 and 57: On 30 November 2006, a second Comme
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Deferred tax booked in shareholders
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17. Profit per share Basic The basi
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21.4 Loans to related parties 2007
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To the Shareholders, Report and Opi
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