Notes to the consolidated financial statements - Efacec

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1.17 Recognition of income Income covers the fair value of the sale of goods and services, net of taxes and commercial discounts and after elimination of internal sales. 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 receivable accounts is reasonably assured. b) Service Rendering 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 lessor. Payments made for operational leases are booked in the profi t and loss account on settlement. Leases of tangible fi xed 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 fi xed 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 distribution 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 fi xed assets are included in non-current 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 a component 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 the restructuring of an area of business or geographical area of operations; or (c) is a subsidiary acquired for sale. 15 2008 Consolidated and Individual Financial Statments
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 exchange rates risks. This risk arises from commercial transactions, recognition of assets and liabilities and net investments in external operations. The Group has signifi cant Sales and Service Rendering in countries outside the Euro zone, namely in US Dollars (USD). Group companies have carefully managed 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 over several years which the work of Group companies can take place. b) Liquidity risk The management of liquidity risk 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 market interest rates. Interest rate risks of the Group come from long-term loans. Loans 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 associated to the interest rate by transforming variable interest rates into swaps with fi xed interest rates or by establishing caps over the variable rate. In these transactions, the Group agrees to exchange with other parties at specifi ed intervals (mainly half-yearly), the difference between amounts at contracted fi xed interest rate and amounts at a variable interest rate. 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 hedging). 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 covered risk. 16
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Page 5 and 6: Non-current assets EFACEC Capital,
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Page 11 and 12: In view of the fact that applying t
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Page 55 and 56: in the profi t and loss account of
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Revaluation Options Total As at 1 d
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19. Income Tax The reconciliation o
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2008 2007 Current transactions Grou
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To the Shareholders, Report and Opi
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Notes to the consolidated financial statements - Efacec

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