Notes to the consolidated financial statements - Efacec

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1.11 Loans Obtained Loans are initially recognised at their nominal value or fair value, whenever different, less any impairment loss. Loans are subsequently presented at amortised cost. Any difference between receipts (net of transaction costs) and the amortized value is recognised in the profi t and loss account throughout the loan period, using the effective rate method. Loans are shown in current liabilities, unless the company has an unconditional right to defer payment of the liability until at least 12 months after the balance sheet date. 1.12 Income tax and deferred taxes EFACEC Capital, SGPS opted for taxation based on consolidated profi ts as from 1993, currently covered by the “Special Rules for Taxation of Groups of Companies”, (Article 36 of the Corporate Income Tax Code - CIRC). All Group companies whose headquarters are located in Portugal and are subject to the Portuguese Corporate Income Tax (IRC), and where the direct and indirect share holding is greater than 90%, have been included in the tax consolidation in accordance with the applicable legislation. The consolidated tax charge is determined on the basis of the arithmetic sum of taxable profi ts and losses as derived from individual companies’ tax returns. Deferred taxes are generally recognised using the liability method concerning temporary differences arising from the carrying amounts of assets and liabilities for consolidated fi nancial reporting purposes and amounts used for income tax purposes. However, if the deferred tax arises through the initial recognition of an asset or liability in a transaction that is not a business concentration that at the date of the transaction did not affect either the accounting or fi scal result, it is not booked. Deferred taxes are determined by fi scal taxes (and laws) in force or substantially in force at the balance sheet date and which are expected to be applicable in the period when the deferred tax asset or the payment of the deferred tax liability takes place. The tax rate that has been used to determine deferred taxes is that of current legislation - 25%, plus the maximum local tax possible - 1.5% of taxable profi t. Deferred tax assets are recognised to the extent that it is probable that future taxable profi ts will be available to make use of the timing difference. Deferred taxes on timing differences arising from investments in subsidiaries and associates are recognised, except when the Group is able to control the haphazard nature of the reversal of the timing difference and when it is probable that the timing difference does not revert in the foreseeable future. 1.13 Provisions Provisions are booked when the company has a legal or constructive obligation when, as a result of past events, it is probable that an outfl ow of resources will be necessary to pay an obligation, and a reliable estimate of the amount of the obligation can be made. When there is a number of similar obligations, the probability of generating an outfl ow is worked out together. The provision is booked even when the probability of an outfl ow, relating to an element included in the same class of obligations, may be reduced. 1.14 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. Services rendered 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. 1.15 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. 56
1.16 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. 1.17 Dividend distribution Dividend distribution to shareholders are recognised as a liability in the company’s fi nancial statements in the period in which the dividends are approved in the Shareholders’ General Meeting. 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”). 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 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 over several years which the work of Group companies can take place. 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. 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. 57 2008 Consolidated and Individual Financial Statements
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1 2 Index Consolidated Financial St
Page 5 and 6: Non-current assets EFACEC Capital,
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Page 37 and 38: 24. Dividends per share The dividen
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Notes to the consolidated financial statements - Efacec

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