Consolidated Annual Report and Financial Statements€¦ · The Board of Directors: José Henrique Pinto dos Santos , Richard Zakaib, Vítor Manuel Pereira Neves 17 COLEP PORTUGAL,

1

Consolidated Annual Reportand Financial Statements

2018

2

3

Report of the Board of Directors

Consolidated Financial Statements

Notes to the Consolidated Financial Statements

Statutory Auditor’s Report

Report of the Fiscal Council

5

11

19

73

77

Index

42

5

Report of the Board of Directors

6

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Colep is one of the most important global players in the Contract Manufacturing of aerosol based cosmetic products, personal care, home care and pharmaceutical, for multinational companies and under an outsourcing regime, with a strong presence in the metal and plastic packaging markets.

Together with its partners in different regions of the world, Colep is part of a network of 16 industrial units in Europe, Brazil, Mexico, UAE, Australia, Thailand, China and Japan. From these industrial units, this group of companies, of which Colep is a key player, positions itself as an important partner of multinational brand owners, as well of regional and local market leaders.

After achieving in 2017 very interesting activity and profitability levels, 2018 presented some unexpected difficulties, both in terms of its activity in the markets where it operates, as well as in finalizing some projects started in the previous years, both time-wise and cost-wise.

To our Shareholders,

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The Packaging Division performed slightly below expectation, mainly because of the increasing competition by non-traditional players, with origin in countries from Eastern European and Asia, in the Aerosols segment. However, a good operational management allowed to reduce costs with some relevance, which enabled to mitigate the profitability loss of the segment.

In the General Line segment, by taking advantage of a favourable situation in the Paints market and in the Food market niches, the company was able to modestly grow in sales, reinforcing its market position, which was accompanied by an improvement in the operational indicators. As such, the profitability of the segment reached the expected levels.

In 2018, the performance of the Consumer Products Division was below expectation. In Europe, Aerosol Filling sales had a good evolution, as a result of the sustained growth the company has been demonstrating in this segment, in which it is one of the most important players. However, a rising difficulty in hiring and retaining human capital led productive efficiency to deteriorate, which translated into higher costs than expected.

In the case of the Liquids & Creams segment, the results were severely affected by the operational difficulties of the transfer of products from the Zulpich plant to the Bad Schmiedeberg plant, from which resulted significantly higher costs than expected.

It is worth mentioning that, at the end of the first quarter of 2017, the company announced the reinforcement of its positioning in the segment of Liquids & Creams in Europe, through the sale of the industrial assets of its operation in Zulpich (Germany) and the consequent relocation of production to the Bad Schmiedeberg (Germany) and Kleszczów (Poland) plants. With these moves, which were fully accomplished in the second half of 2018, the company aims to significantly increase its competitiveness in the European market, boosting its future growth in this segment.

The Healthcare Division, the smallest of Colep’s business portfolio, experienced a performance aligned with expectations. In fact, after achieving a successful business turnaround in 2017, with the obtention of positive Ebitda, 2018 was extremely important in the consolidation of the Division’s activity and in the creation of the conditions for its long-term sustainability.

In Brazil, the company concluded, during the first quarter of the year, the consolidation of its two Liquids

& Creams industrial units, with the aim of increasing the operational standards and to improve the profitability of the business. Despite this, the sociopolitical situation of the country still has not allowed for a rebound in consumption, which prompted the company to implement an additional restructuring plan. With these measures, it was possible to obtain a positive Ebitda, even though it was inferior to expected. It should be noticed that Brazil has experienced, in the last years, a deep recession, which, combined with a maximization of the use of internal productive capacity by some of the major clients, has contributed to a significant reduction on the volume of outsourcing of personal care and home care products.

Nonetheless, it was possible to boost the company’s sales in Brazil by 9%, to 264 million R$, essentially due to the good performance of the unit of Itatiba plant, dedicated to Aerosols contract manufacturing, which experienced significant growth.

A positive evolution of the business and profitability in this market is expected for 2019 and following years, due not only to the recovery of the Brazilian economy, but also to the expected results from the company’s decisions taken in last years, primarily focused on competitiveness increase.

In Mexico, sales of the Santiago de Querétaro unit increased significantly from 123 million Mexican pesos in 2017 to 157 million Mexican pesos in 2018, based on the development of projects that had already been implemented in the previous year and the realization of new projects, especially with new customers. Despite this growth, the operational cash-flow of the unit was not yet positive, as the rapid growth has created some difficulties in operations, which exhibited levels of efficiency lower than expected, mainly in the first half of the year.

In order to respond to the rapid growth already seen and the strong growth expected over the next few years, the management team has been significantly strengthened in order to face the major challenges posed to this unit.

In the United Arab Emirates, where Colep entered into a joint venture with the Albatha Group in 2013, for the creation of a contract manufacturing operation for aerosol-based products in Sharjah, CSA achieved, in 2018, marginally lower sales than the previous year, as a consequence of the instability in the Middle East and Northern Africa, destination markets of this unit. It is expected that, in the course of 2019, new projects may be added to the portfolio of this unit, as a result of the

9

global negotiation that the company makes with some of its multinational clients.

As a result of an in-depth study conducted in 2017, the company carried out a profound change in the Consumer Products Division, in its process and organizational aspects. On the other hand, the company increased its investment in the training of its senior management, by reinforcing the training activities included in the “Colep Academy” program, created in 2016 in partnership with “Porto Business School”.

In 2018, the company continued with the implementation of its strategic Continuous Improvement programme, which was extended to all areas within the organization. This programme is expected to have a profound impact on the processes and management methodologies of the company, with the objective of creating sustainable competitive advantages.

Based on its strong presence in Europe, Brazil, North America and the Middle East, and with the international diversification reinforced by the activity in the new geographies through ACOA (The Alliance of Colep and One Asia), it is expected that the company can show a sustained growth of its activity and results in the coming years, giving full expression to its position in the different markets in which it operates.

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Comments to the Accounts

In 2018, Colep’s consolidated turnover was of 432.5 million Euros, which represented a 5.2% growth regarding the previous year.

The operational cash flow (EBITDA), excluding restructuring costs, presented a decrease of 6.2% when compared with the previous year, at 45.2 million Euros, mainly as a consequence of the negative impact on operational costs of the Liquids & Creams transfer from Zulpich to Bad Schmiedeberg. It is worth mentioning, however, the progress achieved in the operations in Brazil and Mexico.

The company’s Net Income was, in 2018, of 6.9 million Euros.

During 2018, the company invested 17 million Euros, which did not impact its financial situation, which remains solid, as evidenced by the Total Debt / EBITDA ratio of 2.5.

Most of the investments carried out were geared to

the capacity and productivity increase and operations restructuring, without neglecting the investment effort that has been made over the last years in systems, quality, safety and environmental protection.

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Financing

The improvement of the financial conditions obtained by the Group was the main contribution to the reduction in net financial costs in 2018, even though it was less relevant than the reduction achieved in 2017. The decrease in the costs with financial instruments to protect foreign currency investments in Brazil and Mexico has also contributed to this positive evolution.

Following the contracting of bond loans in 2017, it was possible to extend the average maturity of the medium and long-term debt of the company to 4.1 years. Therefore, it is guaranteed an adequate funding to support Colep’s current needs as well as to support the implementation of its growth strategy.

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Information according to the Portuguese Commercial Code

In compliance with article nr. 447 of the Portuguese Commercial Code, we inform that the members of the Board of Directors and of the Supervisory Board do not hold or have negotiated any of the company’s equity shares during 2018. Additionally, we inform that, by the end of the period, RAR – Sociedade de Controle (Holding), S.A. holds 100% of the company’s subscribed capital.

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Final Note

Management expresses its gratitude to all stakeholders for their support, especially to our employees for their dedication and commitment, and to our customers for continuing to prefer our services. We would also like to thank our financial partners for their continued support.

Vale de Cambra, 22 of March 2019

The Board of Directors: José Henrique Pinto dos SantosRichard ZakaibVítor Manuel Pereira Neves

108

11

Consolidated FinancialStatements

12

13

COLEP PORTUGAL, S.A.

Consolidated statements of financial position as at 31 December 2018 and 2017(Amounts in Euro)

The accompanying notes are part of these financial statements.

The Chartered Accountant: Virgílio Manuel Ferreira MarquesThe Board of Directors: José Henrique Pinto dos Santos, Richard Zakaib, Vítor Manuel Pereira Neves


Consolidated statements of financial position as at 31 December 2018 and 2017 (Amounts in Euro)

ASSETS Notes 2018 2017 NON-CURRENT ASSETS:

Property, plant and equipment 9 139.336.670 142.593.171 Goodwill 10 43.001.715 43.424.559 Intangible assets 11 2.141.201 2.538.526 Investment in associates 6 200.900 200.900 Deferred tax assets 12 25.572.091 31.204.514 Other non-current assets 13 18.587.722 13.830.415

Total non-current assets 228.840.299 233.792.085 CURRENT ASSETS:

Inventories 14 58.965.259 59.047.234 Trade Receivables 15 21.879.807 22.795.502 State and other public entities 16 5.871.360 5.791.691 Other receivables 17 2.869.936 5.304.253 Other current assets 18 1.947.789 2.420.972 Cash and cash equivalents 19 11.322.568 1.486.095

Total current assets 102.856.719 96.845.747 NON-CURRENT ASSETS HELD FOR SALE 46 - 4.957.495 TOTAL ASSETS 331.697.018 335.595.327

EQUITY AND LIABILITIES EQUITY:

Issued capital 20 27.000.000 27.000.000 Supplementary capital 20 10.000.000 10.000.000 Legal reserves 20 6.138.627 6.338.627 Revaluation reserves 20 11.934.482 12.307.279 Exchange translation and hedging reserves (7.833.486) (2.740.571) Other reserves 39.072.488 37.867.927 Profit for the year 6.922.045 11.222.168

TOTAL EQUITY 93.234.156 101.995.430 LIABILITIES:

NON-CURRENT LIABILITIES: Bank loans 21 8.000.000 8.000.000 Bond loans 22 50.000.000 50.000.000 Finance leases 23 2.823.922 3.445.117 Other loans 27 - 1.779.401 Net employee defined benefit liabilities 25 1.066.876 1.050.764 Other non-current creditors 24 8.511.264 5.411.333 Other non-current liabilities 26 2.214.356 2.139.248 Deferred tax liabilities 12 7.386.244 8.287.829 Provisions 33 1.335.233 1.653.468

Total non-current liabilities 81.337.895 81.767.160 CURRENT LIABILITIES:

Bank Loans 21 16.862.382 18.555.826 Finance leases 23 1.114.803 1.267.299 Other loans 27 42.936.538 18.964.630 Trade payables 29 67.517.854 71.313.664 Other current creditors 30 9.552.490 16.499.022 State and other public entities 31 3.900.656 4.586.750 Other current liabilities 32 15.240.244 18.588.321 Current provisions 33 - 272.731

Total current liabilities 157.124.967 150.048.243 LIABILITIES DIRECTLY ASSOCIATED WITH THE ASSETS HELD FOR SALE 46 - 1.784.494 TOTAL EQUITY AND LIABILITIES 331.697.018 335.595.327

The accompanying notes are part of these financial statements

The Chartered Accountant: Virgílio Manuel Ferreira Marques The Board of Directors: José Henrique Pinto dos Santos, Richard Zakaib, Vítor Manuel Pereira Neves

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Consolidated income statements for the years ended 31 December 2018 and 2017(Amounts in Euro)




Consolidated income statements for the years ended 31 December 2018 and 2017 (Amounts in Euro)

Notes 2018 2017 Operating income:

Sales 38 427.658.469 409.503.560 Rendering of services 38 4.832.093 1.725.689 Other operating income 39 12.240.792 5.705.550

Total operating income 444.731.354 416.934.799 Operating expenses:

Cost of goods sold and materials consumed 40 282.301.701 258.283.029 Change in stocks 41 (3.231.074) (4.906.435) External supplies and services 42 56.633.944 50.245.407 Employee benefits expenses 43 58.903.034 59.274.791 Amortisation and depreciation 9 e 11 15.358.129 14.304.218 Provisions and impairment losses 33 178.795 494.134 Other operating expenses 44 4.793.633 5.391.620

Total operating expenses 414.938.162 383.086.764 Operating profit before restructuring costs 29.793.192 33.848.035

Restructuring costs 47 1.379.041 2.563.065

Operating profit after restructuring costs 28.414.151 31.284.970

Finance costs 45 6.195.235 10.045.327 Finance income 45 256.476 687.891 Other investment result - (2.301)

Profit before tax 22.475.392 21.925.233 Income tax expense 48 10.277.516 7.345.905

Profit for the year from continuing operations 12.197.876 14.579.328 Profit/(loss) for the year from discontinued operations 46 (5.275.831) (3.357.160) Profit for the year 6.922.045 11.222.168 Attibutable to:

Equity holders of the parent 6.922.045 11.222.168 Earnings per share: 6.922.045 11.222.168

Including discontinuing operations Basic 0,08 0,13 Diluted 0,08 0,13

Excluding discontinuing operations Basic 0,14 0,17 Diluted 0,14 0,17





































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Consolidated statements of other comprehensive income for the years ended 31 December 2018 and 2017

(Amounts in Euro)




Consolidated statements of other comprehensive income for the years ended 31 December 2018 and 2017

(Amounts in Euro)

2018 2017 Profit for the year 6.922.045 11.222.168

Other comprehensive income to be reclassified to profit or loss in

subsequent periods (net of tax)

Exchange differences on translation of foreign operations and other (5.092.915) (6.853.625)

(5.092.915) (6.853.625) Other comprehensive income not to be reclassified to profit or loss in

subsequent periods (net of tax)

Change in revaluation reserves 10.959 (287.111) Tax effect on revaluation reserves - - Other changes in equity 4 9.929

10.963 (277.182) Other comprehensive income/(loss) for the year, net of tax (5.081.952) (7.130.807) Total comprehensive income/(loss) for the year, net of tax 1.840.093 4.091.361 Attributable to:

Equity holders of the parent 1.840.093 4.091.361



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Consolidated statements of cash flows for the years ended 31 December 2018 and 2017(Amounts in Euro)


The Chartered Accountant: Virgílio Manuel Ferreira MarquesThe board of directors: José Henrique Pinto dos Santos, Richard Zakaib, Vítor Manuel Pereira Neves


Consolidated statements of cash flows for the years ended 31 December 2018 and 2017

(Amounts in Euro)

Notes 2018 2017 OPERATING ACTIVITIES: Receipts from customers 455.534.293 445.046.152 Payments to suppliers 367.491.474 332.845.419 Payments to employees 65.906.595 69.058.100

Operating cash flow 22.136.224 43.142.633 Income tax (payment)/receipt (5.730.601) (7.267.959) Other receipts/(payments) related to the operating activity 6.273.063 (3.353.197)

Net cash flow from operating activities (1) 22.678.686 32.521.477 INVESTING ACTIVITIES: Proceeds from:

Property, plant and equipment and Investment properties 1.997.704 3.596.135 Intangible assets - 579 Grants 5.880 10.413 Interests and similar income 63.391 194.438 Loans granted - 17.000.000

2.066.975 20.801.565 Payment of:

Property, plant and equipment 17.044.220 21.632.160 Intangible assets 633.218 1.076.002 Loans granted - 17.000.000

17.677.438 39.708.162 Net cash flows used in investing activities (2) (15.610.463) (18.906.597)

FINANCING ACTIVITIES: Proceeds from:

Borrowings 100.936.538 76.795.476 100.936.538 76.795.476 Payment of:

Loans obtained 78.752.682 80.350.000 Finance lease liabilities 1.250.139 1.158.079 Interests and similar costs 6.312.951 6.616.628 Dividends 10.000.000 15.000.000

96.315.772 103.124.707 Net cash flows from/(used in) financing activities (3) 4.620.766 (26.329.231)

Net increase/(decrease) in cash and cash equivalents (4) = (1) + (2) + (3) 11.688.989 (12.714.351)

Net foreign exchange difference (159.072) 561.152 Cash and cash equivalents at the beginning of the period 19 (17.069.731) (4.916.532) Cash and cash equivalents at the end of the period 19 (5.539.814) (17.069.731)



17

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18

1. INTRODUCTORY NOTE

Colep Portugal, S.A. (“Colep” or “Company”) was established on 6 September 1994 and is the parent company of a group of companies, as detailed in note 5 (“Colep Group”).

The Company’s corporate object consists essentially in the production and sale of packaging (metal and plastic) and similar products, filling and industrial equipment, including auxiliary or complementary activities directly or indirectly related to the primary activity. The Company’s head-office is in Vale de Cambra.

The accompanying financial statements are presented in Euro since that is the currency used in the economic environment in which the Group operates. Foreign currency transactions are reflected in the financial statements in accordance with the accounting policies explained in note 2.2.

2. MAIN ACCOUNTING POLICIES

The main accounting policies used in preparing the accompanying consolidated financial statements are as follows:

2.1. Basis of presentation

The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and interpretations issued by the International Financial Reporting Interpretations Committee (“IFRIC”) the former Standing Interpretations Committee (“SIC”) effective for annual periods beginning on 1 January 2018 as adopted by the European Union.

The accompanying consolidated financial statements have been prepared on a going concern basis and under the historical cost convention, except for property, plant and equipment (own use real estate assets) and investment properties which are stated at fair value, from the accounting records of the companies included in the consolidation (note 5).

2.2. Basis of consolidation

The consolidated financial statements comprise the assets, the liabilities and results of the Group and its subsidiaries (note 5) as at 31 December 2018.

An entity is a subsidiary when it is controlled by the Group. Control is achieved if, and only if, the Group has: (a) Power over the investee;(b) Exposure, or rights, to variable returns from its involvement with the investee;(c) The ability to use its power over the investee to affect its returns.

Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

(a) The contractual arrangement with the other vote holders of the investee; (b) Rights arising from other contractual arrangements; (c) The Group’s voting rights and potential voting rights.

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(Amounts in Euro)

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to one or more of the three elements of control above mentioned.

The subsidiaries are included in the consolidated financial statements using the full consolidation method, since the date the control is obtained and to the date when it effectively ends.

All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation, except if the transaction indicates impairment of an asset.

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling interest and other components of equity while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value.

The portion of net assets in subsidiaries consolidated through the full consolidation method which is attributable to entities out of the Group are considered in the statement of financial position as “non-controlling interests”.

The interests held by persons outside the Group over the net income of subsidiaries are identified and adjusted by deducting the profit attributable to Equity holders of the parent and registered in the income statement in the “non-controlling interests”.

During the year ended 31 December 2018, there were no fundamental changes in the consolidation perimeter.

Translation of financial statements of foreign companies

Assets and liabilities in the financial statements of foreign entities are translated to Euro using exchange rates in force at the statement of financial position date, and costs and income as well as cash flows are translated to Euro using the average exchange rates for the year. Exchange differences arising after 1 January 2004 are recorded in the equity caption “Exchange translation”. Exchange differences arising prior to 1 January 2004 (date of transition to IFRS) are recorded in other reserves.

Goodwill and fair value adjustments arising on the acquisition of foreign entities are treated as assets and liabilities of these companies and translated to Euro using the exchange rates at the statement of financial position date.

2.3. Business combinations and Goodwill

Business combinations are accounted for using the acquisition method.

Acquisitions after 2010:

Under the acquisition method the difference between the aggregate of: (i) the consideration transferred and the amount recognised for non-controlling interests, and any previous interest held (formerly denominated as “minority interests”) and (ii) the net identifiable assets acquired and liabilities assumed is recognized at the acquisition date as Goodwill, if positive or as a gain, if negative.

The consideration transferred in a business combination is measured at fair value, which shall be calculated as the sum of the acquisition-date fair values of the assets transferred by the acquirer, the liabilities incurred by the acquirer to former owners of the acquiree and the equity interests issued by the acquirer. In order to determine Goodwill/gain in the combination, the consideration transferred shall not consider amounts that are not part of the exchange for the acquiree but part of other transaction (ie remuneration for future services or settlement of pre-existing relationships) which should be recognized separately in profit or loss.

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Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Changes in the fair value of the contingent consideration are recognized (i) in equity if the contingent consideration is classified as equity, (ii) as an asset or liability that is a financial instrument and within the scope of IAS 39 and measured at fair value with changes in fair value recognised in either profit or loss or as a change to OCI and (iii) in profit and loss in accordance with IAS 37 or the appropriate IFRS, in other cases.

Acquisition-related costs are expensed as incurred and included in the expenses of the year.

At the acquisition date, the acquirer shall classify or designate the identifiable assets acquired and liabilities assumed as necessary to apply other IFRS subsequently, except for lease contracts and insurance contracts which should be classified on the basis of the contractual terms and other conditions at the inception of the contract.

Assets that result from indemnification paid by the seller for the outcome of a contingency or uncertainty related to all or part of a specific liability (indemnification asset) shall be recognised at its acquisition-date fair value on the same basis as the related liability.

The acquirer shall recognise as of the acquisition date a contingent liability assumed in a business combination if it is a present obligation that arises from past events and its fair value can be measured reliably, even if it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation.

For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets, which impacts the amount of Goodwill to be recognized. In a business combination achieved in stages, the acquirer shall remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and recognise the resulting gain or loss, if any, in profit or loss, which impacts the amount of Goodwill.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the acquirer shall report in its financial statements provisional amounts for the items for which the accounting is incomplete. The Group retrospectively adjust, during a period that shall not exceed one year from the acquisition date, the provisional amounts recognised at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date and, if known, would have affected the measurement of the amounts recognised as of that date.

Goodwill is an asset with an indefinite useful life and therefore should not be amortised but it is subject to an impairment testing annually and whenever there is an indication that the intangible asset may be impaired. An impairment loss shall be recognised immediately in profit or loss and can not be reversed in a subsequent period.

For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Where the operation or part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash-generating unit retained.

Goodwill arising on the acquisition of foreign entities acquired after 1 January 2005 is treated as an asset of these companies and translated to Euro using the exchange rates at the statement of financial position date.

Acquisitions before 2010:

Compared to the accounting treatment applicable to business combinations from 1 January onwards, the main changes are as follows:

• Acquisition-related costs were included in the cost of the acquisition thus impacting the determination of goodwill;

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• The non-controlling interests in the acquiree (formerly “minority interest”) were measured at the proportionate share of the acquiree’s identifiable net assets, and did not impact the amount of Goodwill/ gain to be recognized;

• In a business combination achieved in stages, the previously held equity interest in the acquiree was not remeasured at the control acquisition-date and therefore the previously recognized Goodwill was maintained;

• Any contingent consideration to be transferred by the acquirer was recognised at fair value at the acquisition date if and only if a present obligation that arises from past events was identified and its fair value could be measured reliably, and an outflow of resources embodying economic benefits would be required to settle the obligation; subsequently changes in the fair value of the contingent consideration were reflected in the carrying amount of goodwill.

2.4. Financial investments on associated companies and joint ventures

An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies. Usually there is a rebuttable presumption to consider as an associate entities in which the Group has participations greater than 20% of their share capital.

The existence of a joint arrangement is determined on the basis of a contractually agreement for the sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.The Group has no interest in a joint arrangement as defined by IFRS 11.20.

The considerations made in determining significant influence or joint control are similar to those necessary to determine control over subsidiaries.

The Group’s investments in its associate and joint venture are accounted for using the equity method. Under the equity method, the carrying amount of the investment is adjusted to recognise changes in the Group’s share of net assets of the associate or joint venture since the acquisition date until is ceases. Dividends received are recognized against the investments corresponding carrying amounts.

The income statement reflects the Group’s share of the results of operations of the associate or joint venture. In addition, when there has been a change recognised directly in the equity of the associate or joint venture, the Group recognises its share of any changes, when applicable, in the statement of changes in equity. When the Group’s share of losses exceeds the carrying amount of the investment, the investment is reported at nil value except to the extent of the Group’s commitment to the associate or joint arrangement or to the extent the Group had made cash disbursements on behalf of the associate/joint venture.

The excess of the cost of acquisition of investments in associate or joint venture over the Group’s share of the fair value of the identifiable assets, liabilities and contingent liabilities of these companies at the date of acquisition is reflected as goodwill and included in the investment carrying amount, therefore goodwill is not tested for impairment individually. If the cost of acquisition of investments in Group companies is lower than the Group’s share of the fair value of the identifiable net assets of these companies at the date of acquisition the difference is recognized in the income statement.

Unrealized gains arising from transactions with associates are eliminated to the extent of the Group’s interest in the associate/joint venture against that investment. Unrealized losses are similarly eliminated but only to the extent that there is no evidence of impairment of the asset transferred. When necessary, adjustments are made to the financial statements of subsidiaries/ joint venture to bring their accounting policies into line with the Group’s accounting policies.

After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on its investment in its associate or joint venture. At each reporting date, the Group determines whether there is objective evidence that the investment in the associate or joint venture is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate or joint venture and its carrying value, and then recognises the loss as ‘Share of profit of an associate and a joint venture’ in the statement of

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profit or loss.

Upon loss of significant influence over the associate or joint control over the joint venture, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associate or joint venture upon loss of significant influence or joint control and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss.

2.5. Property, plant and equipment

a) Owner occupied property

Land and buildings for own use are measured at fair value less accumulated depreciation and impairment losses recognised at the date of revaluation. Valuations are performed with sufficient frequency by professionals working in the real estate business of the Group which are compared to valuations performed by independent valuation specialists for the main assets. Valuations are recorded to ensure that the carrying amount of a revalued asset does not differ materially from its fair value, and the valuation with lower value prevails.

A revaluation surplus is recorded in OCI and credited to the asset revaluation surplus in equity. However, to the extent that it reverses a revaluation deficit of the same asset previously recognised in profit or loss, the increase is recognised in profit and loss. A revaluation deficit is recognised in the statement of profit or loss, except to the extent that it offsets an existing surplus on the same asset recognised in the asset revaluation reserve.

Depreciation of buildings is provided on a systematic basis over their expected period of useful life (between 10 and 60 years), while land is not depreciated.

An annual transfer from the asset “revaluation reserve” and “other reserves” to “retained earnings” is made for the difference between depreciation based on the revalued carrying amount of the asset and depreciation based on the asset’s original cost. Upon disposal, any revaluation reserve relating to the particular asset being sold is transferred to retained earnings.

b) Other property, plant and equipment

Tangible fixed assets are recorded at cost, less accumulated depreciation and impairment losses.

Depreciation is provided on a systematic basis, as from the date the assets are in condition to be brought into use, over their period of useful life, which is determined considering their use by the Group and natural expected waste and technical obsolescence.

The depreciation rates used correspond to estimate useful life (years) with the following ranges:

Machinery 1 to 30Administrative equipment 2 to 20Vehicles 1 to 15Tools 1 to 20Fixture and fittings 3 to 10Other tangible fixed assets 1 to 24

Subsequent expenditure incurred by the Group on the substitution of components of property, plant and equipment is added to the carrying amount of the asset, the net book value of the substituted components being recognised as an expense under caption “Other operating expenses”.

Maintenance and repair expenses which do not increase the useful life or represent a significant improvement in the asset, are recorded as expenses in the period they are incurred.

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Assets in progress correspond to property, plant and equipment still under construction and are stated at cost less possible impairment losses. These assets are depreciated as from the date the underlying assets are completed or are in condition to be used.

Gains or losses on the sale of property, plant and equipment are determined based on the difference between the selling price (net of sale expenses) and net book value of the assets at the date of sale, the net amount being recorded in the income statement caption “Other operating income” or “Other operating expenses”. Losses arising on the write-off of property, plant and equipment are also recorded at their net amount in the income statement caption “Other operating expenses”.

c) Investment Properties

Investment property is property (land or a building—or part of a building—or both) held to earn rentals or for capital appreciation or both, rather than for use in the production or supply of goods or services or for administrative purposes or sale in the ordinary course of business.

Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at fair value, which reflects market conditions at the reporting date. Valuations are performed with sufficient frequency by professionals working in the real estate business of the Group which are compared to valuations performed by independent valuation specialists for the main assets. When the carrying amount differs significantly from the results of the valuation, the valuation with lower value is recorded. When the fair value of the investment property is not reliably measurable, the investment propriety is measured at cost, net of accumulated depreciation and accumulated impairment losses, if any.

The aforementioned specialized entities use the following valuation techniques:

- The fair value of each property or fraction of property is estimated using the market approach or income approach, based on its highest and best use from a market participant’s perspective;

- When using the income approach, the fair value is measured based on the discounted cash flow, with projections based on reliable estimates of future rental income and expenditure, supported by the terms of existing lease contracts at reporting date (fair value level 3). Where practicable, current market rents for properties of a similar nature, condition and location are also used;

- When using market approach, fair value per m2 is determined based on observable data of comparable transactions, adjusted to reflect the corresponding differences (fair value level 2).

Changes in fair values of investment properties are accounted for in the period in which they occur, under the statement of profit and loss caption “Variation in fair value of investment properties”.

Expenses relating to investment properties in use, such as maintenance, repairs, insurance and property taxes are recognised in the consolidated income statement for the period to which refer. Improvements expected to generate inflows of additional future economic benefits are added to the investment properties carrying amount.

Transfers are made to (or from) investment property only when there is a change in use. For a transfer from investment property to owner-occupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use. If owner-occupied property becomes an investment property recognized at fair value, the Group accounts for such property in accordance with the accounting policy ofproperty, plant and equipment up to the date of change in use.

In case of there is a change in use, for a transfer from inventories to investment property that will be carried at fair value, any difference between the fair value of the property at that date and its previous carrying amount shall be recognised in profit or loss of the period. If the Group initiates the development of the property with the intent of sale in the ordinary course of business the property is transferred to inventories being the property’s deemed cost for subsequent accounting its fair value at the date of change in use.

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2.6. Intangible Assets

Intangible assets are stated at cost less accumulated amortization and impairment losses. Intangible assets are only recognized if it is probable that future economic benefits will arise from them, if they are controlled by the Group and if their cost can be reasonably measured.

Internal software maintenance and development costs are expensed in the period in which they are incurred, unless such costs are incurred directly on projects which will probably generate future economic benefits for the Group, in which case they are capitalised as intangible assets.

Amortization is provided on a straight-line basis, as from the date the assets start being used, over their expected useful life, which is normally 3 to 4 years.

Brands and patents with indefinite useful lives are not depreciated, being subject to impairment tests on annual basis.

Expenditure incurred on research relating to new technical knowledge or alternative technical solutions is recognised in the income statement when incurred. Expenditure incurred on development is capitalised as an intangible asset if the Group demonstrates its ability to complete the development and begin commercialising and/or using it.

2.7. Financial assets and liabilities

2.7.1 Financial assets

Financial assets are recognized on the financial position statement when the Group becomes a contractual party to the respective financial instrument.

a) Initial Recognition and mensuration

Initially, the assets are classified and subsequently measured at amortised cost, at fair value through other comprehensive income and at fair value through profit or loss.

The initial classification of financial assets depends on the contractual characteristics of the cash flow and the business model that the Group adopts to manage them. Except for accounts receivables from customers that do not contain a significant financial component and for which the Group adopts the practical expedient, the Group initially measures a financial asset at its fair value added, in the case of non-classified asset as fair value through profit or loss, of transaction costs. The account receivable that do not contain a significant financial component, and for which the Group adopts the practical expedient, are measured at the transaction price determined under IFRS 15 (Note 15).

In order for a financial asset to be classified and measured at amortised cost or fair value through other comprehensive income, it needs to give rise to cash flow that are “solely payments of principal and interest (SPPI)” on the principal amount outstanding. This assessment is referred to as solely payments of principal and interest test and is performed at an instrument level

The Group’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flow. The business model determines whether cash flow will result from collecting contractual cash flow, selling financial assets, or both.

Purchases or sales of financial assets that requires delivery assets within a time frame established by regulation or convention in the market place (Regular way trader) are recognised on the trade date, i.e., the date that the Group commits to purchase or sell the asset.

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b) Subsequent Measurement

For purposes of subsequent measurement, financial assets are classified in four categories:

• Financial assets at amortised cost (debt instruments);• Financial assets at fair value through other comprehensive income with recycling of cumulative gains and losses

(Debt instruments);• Financial assets designated at fair value through other comprehensive income with no recycling of cumulative

gains and losses upon derecognition (equity instruments);• Financial assets at fair value through profit or loss.

i) Financial assets at amortised cost (debt instruments)

This category is the most relevant to the Group. The Group measures financial assets at amortised cost if both of the following conditions are met:

- The financial asset is held within a business model with the objective to held financial assets in order to collect contractual cash flow;

and - The contractual terms of the financial assets give rise on specific dates to cash flow that are solely payments of principal and interest on the principal amount outstanding.

Financial assets at amortised cost are subsequently measured using the effective interest and are subject to impairment.

The Group’s financial assets at amortised costs includes trade receivables and other debtors, loan to a director and related parties.

ii) Financial Assets at fair value through other comprehensive income (debt instruments)

The Group measures debt instruments at fair value through other comprehensive income if both of the following conditions are met:

- The financial asset is held within a business model with the objective of both holding to collect contractual cash flow and selling;

and

- The contractual terms of the financial asset give rise on specific dates to cash flow that are solely payments of principal and interest on the principal amount outstanding.

For debt instruments at fair value through other comprehensive income, interest income, foreign exchange revaluation and impairment losses or reversals are recognised in the statements of profit or loss and computed in the same manner as for financial assets measured at amortised cost. The remaining fair value changes are recognised in other comprehensive income. Upon derecognition, the cumulative fair value change recognised in other comprehensive income is recycled to profit or loss.

The Group’s debt instruments at fair value through other comprehensive income includes investments in quoted in debt instruments included under other non-current financial assets.

iii) Financial assets designated at fair value through Other Comprehensive Income (Equity Instruments)

Upon initial recognition, the Group can elect to classify irrevocably its equity investments as equity instruments

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designated at fair value through other comprehensive income when they meet the definition of equity under IAS 32 Financial Instruments: Presentation and are not held for trading. The classification is determined on an instrument-by-instrument basis.

Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognised as other income in the statement of profit or loss when the right of payment has been established, except when the Group benefits from such proceeds as a recovery of part of the cost of the financial asset, in which case, such gains are recorded in other comprehensive income. Equity instruments designated at fair value through other comprehensive income are not subject to impairment assessment.

The Group elected to classify irrevocably its non-listed equity investments under this category.

iv) Financial assets at fair value through profit or loss.

Financial assets at fair value through profit or loss include financial assets held for trading, financial assets designated upon initial recognition at fair value through profit or loss, or financial assets mandatorily required to be measured at fair value. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments.

Financial assets with cash flow that are not solely payments of principal and interest are classified and measured at fair value through profit or loss, irrespective of the business model. Notwithstanding the criteria for debt instruments to be classified at amortised cost or at fair value through other comprehensive income, as described above, debt instruments may be designated at fair value through profit or loss on initial recognition if doing so eliminates, or significantly reduces, an accounting mismatch.

Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value recognised in the statement of profit or loss.

c) Derecognition

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e., removed from the Group’s consolidated statement of financial position) when:

The rights to receive cash flow from the asset have expired; or

The Group has transferred its rights to receive cash flow from the asset or has assumed an obligation to pay the received cash flow under a ‘pass-through’ arrangement in which the group has no obligation to pay amounts to final recipients unless it receives equivalent amounts resulting from the original asset; ii) is prohibited by the terms of the transfer agreement from selling or pledging the original asset other than as a guarantee to final recipients for the obligation to pay them cash flow; e iii) the Group has an obligation to remit any cash flow it receives on behalf of the final recipients without significant delays; and

The Group transferred substantially all the risks and rewards of the asset, or the Group did not transfer or substantially retain all the assets and benefits of the asset, but transferred control over the asset

When the Group transfers its rights to receive cash flow from an asset or is part of an agreement that may enable derecognition, it assesses whether and to what extent the risks and rewards associated with ownership of the asset have been retained.

When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Group continues to recognise the transferred asset to the extent of its continuing involvement. In that case, the Group also recognises an associated liability, the transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained

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If the continued involvement of the Group takes the form of a guarantee provided on the transferred asset, the measure of continued involvement is the lower of the original book value of the asset and the maximum amount of the consideration received that the Group may pay.

d) Impairment of financial assets

The Group recognises an allowance for expected credit losses for all debt instruments not held at fair value through profit or loss. Expected credit losses are based on the difference between the contractual cash flow due in accordance with the contract and all the cash flow that the Group expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flow will include cash flow from the sale of collateral held or other credit enhancements that are integral to the contractual terms.

Expected credit losses are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, expected credit losses are provided for credit losses that result from default events that are possible within the next 12 months; for those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default.

For trade receivables and trade receivables related with contract assets, the Group applies a simplified approach in calculating expected credit losses.

Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime expected credit losses at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.

For debt instruments at fair value through other comprehensive income, the Group applies the low credit risk simplification. At every reporting date, the Group evaluates whether the debt instrument is considered to have low credit risk using all reasonable and supportable information that is available without undue cost or effort. In making that evaluation, the Group reassesses the internal credit rating of the debt instrument. In addition, the Group considers that there has been a significant increase in credit risk when contractual payments are more than 90 days past due.

The Group considers a financial asset in default when contractual payments are 90 days past due. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flow.

2.7.2 Financial Liabilities

Financial liabilities are recognised on the financial position statement when the Group becomes a contractual party to the respective financial instrument.

a) Initial recognition and measurement

Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge.

All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.

The Group’s financial liabilities include trade and other payables, loans and borrowings including bank overdrafts, and derivative financial instruments.

b) Subsequent measurement

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The measurement of financial liabilities depends on their initial classification, as described below:- Financial liabilities at fair value through profit or loss;- Financial liabilities at fair value through the income statement include the financial liabilities held for trading and the financial liabilities that at the time of initial recognition were so designated.

Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by IFRS 9. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.

Gains or losses on liabilities held for trading are recognised in the statement of profit or loss.

Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of recognition, and only if the criteria in IFRS 9 are satisfied. The Group has not designated any financial liability as at fair value through profit or loss.

Loans and Borrowings

This is the category most relevant to the Group. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the effective interest amortisation process.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest amortisation is included as finance costs in the statement of profit or loss.

c) Derecognition

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, the exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of profit or loss.

2.7.3 Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to or settle on a net basis, to or realise the assets or settle the liabilities simultaneously.

2.7.4 Derivative financial instruments and hedge accounting

a) Initial recognition and subsequent measurement

The Group uses derivative financial instruments, such as forward currency contracts, interest rate swaps, to hedge its foreign currency risks, interest rate risks, respectively. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.

b) For the purpose of hedge accounting, hedges are classified as:

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Cash Flow HedgesThe effective portion of the changes in the fair value of derivatives designated as cash flow hedges is recognised in equity disclosed in the Statement of Comprehensive Income. The gain or loss of the ineffective portion is recognised immediately in the income statement.

The amounts accumulated in equity are reclassified to profit and loss in the periods in which the hedged instrument affects the results, that is, in the specific case of the Group’s hedging strategies, when interest on loans is recognised in the income statement or when the consumed, depending on the purpose of the coverage.

Hedge of net investment denominated in reais and mexican pesos

The Group hedges the currency risk of its net investments in Brazil and Mexico through exchange rate swaps and/or the purchase of options that delimit the value of the foreign exchange loss.

Swaps are initially recognised at fair value and measured at fair value in subsequent periods. The gain or loss resulting from the hedged item attributable to the hedged risk adjusts the carrying amount of the hedged item and will be recognised in profit or loss.

Options are accounted for as fair value hedge, since they are hedging the risk of changes in the value of an asset recognised in the balance sheet. The gain or loss resulting from the remeasurement of the hedging instrument at fair value or the foreign currency component of its carrying amount measured in accordance with IAS 21 will be recognised in profit or loss.

The change in hedging instruments does not in itself cause the obligation to discontinue the accounting of hedge accounting. In this sense, the adjustment of the carrying amount of the hedged item is not changed.

The Group documents at the contracting date the relationship between the hedging instrument and the hedged instrument, as well as documents on that date and the dates following its analysis regarding the effectiveness of the hedging relationship

2.8. Leases

The determination of whether an arrangement is (or contains) a lease is based on the substance of the arrangement at the inception of the lease being the earlier of the date of the arrangement and the date of commitment by the parties to the principal terms of the arrangement. The arrangement is, or contains, a lease if fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement.

The duration of the lease is the sum of the period during which the lease can not be canceled with an additional period that the lessee is expected to have the option to maintain the lease and at the beginning of the lease the Group has reasonable certainty that the lessee to go exercise.

A lease is classified at the beginning of the agreement as a finance lease or operating lease. A lease that transfers substantially all the risks and rewards of ownership of an asset to the Group is classified as a finance lease. Finance leases are recorded in assets at fair value in assets or, if lower, the present value of minimum lease payments. The minimum lease payments are divided between the financial burden and the reduction of the outstanding liability in order to produce a constant periodic interest rate on the remaining balance of the liability. The financial charges are recorded in the income statement as financial expenses.

The leased asset is depreciated over its useful life. However, if there is reasonable certainty that the lessee will obtain the property at the end of the term of the lease, the asset is depreciated over the term of the lease or its useful life, considering the shorter.

An operating lease is a lease that is not financial. Payments from operating leases are recorded as operating expense

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in the straight-line statement of income over the period of the lease.

2.9. Inventories

Merchandise and raw, subsidiary and consumable materials are stated at average cost, which includes the invoice price and all the expenses incurred up to their reception in the warehouse, which is lower than their net realizable value. Work in progress, sub-products, waste and finished goods are stated at production cost (which includes the cost of the raw materials incorporated, direct labour and production overheads), whenever is lower than their net realizable value.

Accumulated inventory impairment losses reflect the difference between cost and net realizable value of inventories, as well as estimated impairment losses due to slow turnover, obsolescence and deterioration.

Net realisable value corresponds to normal selling price less costs to complete production and selling costs.

2.10. Provisions

Provisions are recognised when, and only when, the Group has an obligation (legal or constructive) resulting from a past event, and it is probable that an outflow of resources will be required to settle the obligation and a reasonable estimate can be made of the obligation. When the Group expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to a provision is presented in the income statement net of any reimbursement Provisions are reviewed and adjusted at the statement of financial position date to reflect the best estimate as of that date.

If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

Restructuring: Restructuring provisions are recognised only when the Group has a constructive obligation, which is when a detailed formal plan identifies the business or part of the business concerned, the location and number of employees affected, a detailed estimate of the associated costs, and an appropriate timeline, and the employees affected have been notified of the plan’s main features. Operating costs should not be included in the provision.

Restructuring expenses are detailed in the income statement so as not to distort the analysis of the Group’s financial performance and its comparability. These expenditures include, but are not limited to, expenses for compensation and transfer of equipment from discontinued locations

Onerous contracts: A provision for an onerous contract is recognised when the Group has entered into a contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it.

The Group records a provision for the estimate of the costs of dismantling and removing an asset and restoring the site on which it is located. Decommissioning costs are provided at the present value of expected costs to settle the obligation using estimated cash flow and are recognised as part of the cost of the particular asset being the adjustment in provision due to the unwinding of the discount recognised as a finance cost.

A contingent liability recognised in a business combination is initially measured at its fair value. Subsequently, it is measured at the higher of the amount that would be recognised in accordance with the requirements for provisions above or the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with the requirements of IAS 18 Revenue recognition.

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2.11. Grants from the government and other public entities

Government grants are recognised at fair value when there is reasonable assurance that they will be received and that the Group will comply with the conditions attached to them.

Non repayable grants received to finance investment in property, plant and equipment are recorded in the captions “Other non-current liabilities” and “Other current liabilities” and are reflected in the income statement in proportion to depreciation of the subsidised assets.

Operating grants are recorded as income in the period they are granted, irrespective of the date they are received.

The economic benefit obtained with government loans at a rate and interest rate below that of the market is treated as a government subsidy. Government loans are recognised and measured in accordance with IFRS 9. The economic benefit derived from the contracted interest rate below market rate is measured by the difference between the initial book value of the loan (determined by IFRS 9) and the amount received.

2.12. Impairment of non-current assets, except for Goodwill

Assets are assessed for impairment at each statement of financial position date and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Whenever the book value of an asset exceeds its recoverable amount, an impairment loss is recognised in the income statement, recorded in the caption “Provisions and impairment losses”.

The recoverable amount of an asset is the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal is the present value of the estimated future cash flow from a market participant’s perspective (fair value level 3). Value in use is the present value of the estimated future cash flow from the continued use of an asset and its sale at the end of its useful life. The recoverable amount is estimated for each asset individually or, if this is not possible, for the cash-generating unit to which the asset belongs.

Impairment losses recognised in prior years are reversed when there are indications that the impairment losses no longer exist or have decreased. The reversal of impairment losses is recorded in the income statement. However, reversal of an impairment loss is recognised only up to the amount that would have been recognised (net of amortisation or depreciation) had no impairment loss been recognised for that asset in prior years.

2.13. Borrowing costs

Borrowing costs on loans obtained are recognised in the income statement as a finance cost on an accruals basis, unless they are related to qualifying assets, when its construction began after 1 january 2010.

2.14. Non-current assets held for sale and discontinued operations

The Group classifies non-current assets and disposal groups as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. Such non-current assets and disposal groups classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Costs to sell are the incremental costs directly attributable to the disposal, excluding the finance costs and income tax expense.

The criteria for held for sale classification is regarded as met only when the sale or distribution is highly probable and the asset or disposal group is available for immediate distribution in its present condition. Actions required to complete the sale should indicate that it is unlikely that significant changes to the sale will be made or that the sale will be withdrawn. Management must be committed to the distribution expected within one year from the date of the classification.

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Property, plant and equipment and intangible assets are not depreciated or amortised once classified as held for sale. However, interest and other expenses attributalble to the the disposal group classified as held for sale are recognised. A disposal group qualifies as discontinued operation if it is a component of an entity that either has been disposed of, or is classified as held for sale, and:

a) represents a separate major line of business or geographical area of operations; b) is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations; orc) is a subsidiary acquired exclusively with a view to resale.

Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as profit or loss after tax from discontinued operations in the statement of profit or loss, including any gain or loss on the re-measurement of a non-current asset (or disposal group) classified as held for sale and the proceeds related to the disposal.

2.15. Revenue Recognition and accruals basis

Revenue from customer contracts is recorded when the control of goods and services is transferred to customers for an amount corresponding to the remuneration that the Group expects to receive in exchange for such goods or services.

The most significant judgments, estimates and assumptions related to the revenue from contracts with customers are disclosed in the note of the Statement of Results by Nature on Sales and Services.

Sales of goods

Revenue from the sale of products is recognised at the time when the control over the goods is transferred to the customer, which usually happens when the product is delivered. The credit time granted varies between 30 and 90 days after billing

For each contract, the Group assesses whether there are other commitments in the contract that are separate performance obligations and for which a portion of the transaction price should be allocated. In determining the transaction price, the Group considers possible variable remuneration, the existence, or not, of a significant component of financing, non-monetary consideration receivable and the possibility of remuneration payable to the customer.

(i) Variable Renumeration

If the consideration provided for in a contract includes a variable component, the Group estimates the amount that it expects to be entitled to receive in exchange for the transfer of the goods to the customer. The variable component is estimated at the inception of the contract and is restricted in the event of uncertainty until it is highly probable that a significant reversal of the recognised revenue will not occur when the uncertainty associated with the variable compensation component is finally dissipated.

Some contracts, give the customer the right to return the goods and rebate volume (rappel). The return rights and the volume discounts give rise to a variable return.

Volume Rebate

The Group provides retrospective discounts of volumes to certain customers when a certain amount of purchases in a given period exceeds a certain limit established in the contract. Discounts are recorded on the credit of the customer’s account receivable. To estimate the variable return associated with the expected value of quantity discounts to be granted, the Group is based on the billing volume for the year.

The requirements of IFRS 15 to restrict the amounts of estimated variable remuneration are also applicable, and the

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Group records a liability related to the amount to be granted for discounts.

Contractual Assets

Customer contractual Assets

A customer contract asset is a right to receive a return in exchange for goods or services transferred to the customer

If the Group delivers the goods or services to a customer before the customer pays the compensation or before the compensation is due, the contractual asset corresponds to the amount of the consideration that is conditional.

Accounts Receivables

An account receivable represents the unconditional right (that is, it only depends on the passage of time until the remuneration is due) of the Group to receive the consideration - See customer’s note (financial assets).

Customer Contracts Liabilities

A liability of contracts with customers is the obligation to transfer goods or services for which the Group received (or is entitled to receive) a return from a customer. If the customer pays the compensation before the Group transfers the goods or services, a contractual liability is recorded when the payment is made or when it is due (whichever comes first). Contractual liabilities are recognised as revenue when the Group performs its contractual performance obligations

The Group updates the estimate of liabilities to be repaid (and corresponding change in transaction prices) at the end of each reporting period.

2.16. Employees benefits

2.16.1 Provisions for post-employment benefits

Some subsidiaries operate a defined benefit pension plan awarded to former employees, establishing the amount that the employees will received after retirement and which require contributions to be made depending on the age, years of service and remuneration.

The liability with respect to post-employment defined benefit plan corresponds to the present value of its defined benefit obligations as at the statement of financial position date. This liability is determined by external actuaries projected unit credit method. The present value of the obligation takes into account the future cash outfows and the discount rate used shall be determined by reference to market yields at the end of the reporting period on high quality corporate bonds denominated in the same currency and for similar maturities.

Remeasurements, comprising of actuarial gains and losses, the effect of the asset ceiling, are recognised immediately in the statement of financial position with a corresponding debit or credit to retained earnings through OCI in the period in which they occur. Remeasurements are not reclassified to profit or loss in subsequent periods.

Net interest on the net defined liability and the return on plan assets are included in the income statement.

Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. The Group recognises the service costs comprising current service costs, past-service costs, gains and losses on curtailments and non-routine settlements in the consolidated income statement under the caption of employees’ benefits expenses.

Past service costs are recognised immediately in profit or loss, except in the case the entitlement is dependent on future employment. In that case, past service costs are recognised on a straight-line basis over the vesting period.

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Gains or losses on curtailments or settlements in the defined benefit plan are recognised in the income statement when it occurs. A curtailment occurs when an entity significantly reduces the number of employees covered by a plan or the benefits employees are entitled are reduced significantly.

2.16.2 Termination Benefits

The Group recognises a liability and expense for termination of labour agreements by mutual agreement before retirement date or when the employees accept to leave the Group. The Group recognises the termination benefits when the group is committed in accordance with a detailed plan of termination and the Group can no longer withdraw the offer of those benefits or those befits are awarded to encourage the employee’s decision to accept an offer. Whenever termination benefits are not expected to be settled wholly before 12 months after the statement of financial position date, the present value of the liability is determined.

Termination benefits at the earlier of the following dates: (i) when the entity can no longer withdraw the offer of those benefits and (ii) when the entity recognises costs for a restructuring that is within the scope of IAS 37.

2.17. Income tax for the year

Income tax for the year is determined based on the taxable income of the companies included in the consolidation and includes deferred taxation.

Current income tax is determined based on taxable income (which differs from accounting income) of the companies included in the consolidation, in accordance with the tax rules in force in the jurisdiction where the head office of each Group company is located.

Almost every company belonging to RAR Group with its head-office in Portugal and mentioned beneath, are integrated in SIEL, SGPS, S.A. (parent company of RAR – Sociedade de Controle (Holding), S.A .) for income tax purposes. These companies are included in SIEL, SGPS, S.A. group and are taxed in accordance with Special Regime for Taxation of Groups of Companies – “Regime Especial de Tributação de Grupos de Sociedades” (RETGS). The amounts recorded as payables and receivables from SIEL, SGPS, S.A. in the consolidated statement of financial positions as of 31 December 2018 and 2017, are related to the contribution of the RAR Group’s Companies in the calculation of the SIEL Group (group for tax purposes) income.

The companies included in the group for tax purposes according to RETGS are as follows:

Acembex Vitacress Portugal S.A. S. Simão da JunqueiraCentrar RAR - Serv. Assist. Clínica SIUP - Soc. Imob. Urb. ParqueColep Portugal RAR Açúcar Vitacress Agric. IntensivaComp-RAR RAR Cogeração Vitacress Portugal SGPSEuralface Agricultura RAR Holding TibãesGolfeRAR Imobiliária

In accordance with the tax rules presently in force, tax statements of the subsidiaries with head-office located in Portugal may be revised and corrected by the Tax Authorities for a period of four years and consequently tax situation from the period of 2013 to 2016 may yet be altered. The Board of Directors from the parent company and its subsidiaries expect no significant impacts to occur in the accompanying financial statements resulting from the revision by the Tax Authorities.

Deferred taxes are calculated using the statement of financial position liability method, and reflect the temporary differences between the amounts of assets and liabilities for financial reporting and for income tax purposes. Deferred tax assets and liabilities are not recognised on temporary differences resulting from goodwill and from the initial

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recognition of assets and liabilities other than through business concentration operations. Deferred tax assets and liabilities are calculated and reassessed annually using the tax rates in force or announced to be in force in the periods in which the temporary differences are expected to reverse.

Deferred tax assets are recognised only when there is reasonable expectation that there will be sufficient future taxable income to use them, or when there are taxable temporary differences that offset the deductible temporary differences in the period they revert. Also, deferred taxes are not recognised for all taxable temporary differences associated with investments in associates and interests in joint arrangements when the following conditions are met:• the Group is able to control the timing of the reversal of the temporary difference; and• it is it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each reporting date so as to recognise the deferred tax assets not recognised previously due to not fulfilling the conditions required for their recognition and, or, to reduce it to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised.

The measurement of deferred tax liabilities and deferred tax assets reflect the tax consequences that the Group expects from the manner in which the entity expects, at the end of the reporting period, to recover or settle the carrying amount of its assets taking into account decisions that have been enacted or substantively enacted by the end of Consolidated Financial Statements.

Deferred taxes are recorded as cost or income for the year, except if they relate to items recorded either in OCI or directly in equity, in which case deferred tax items are recognised in correlation to the underlying transaction either in OCI or directly in equity.

2.18. Statement of financial position classification

Assets realisable and liabilities payable in more than one year from the statement of financial position date are classified, respectively, as non-current assets and liabilities.

Additionally, because of their nature, deferred tax assets, provisions for risks and charges and part of investment grants are classified as non-current assets and liabilities.

2.19. Foreign currency balances and transactions

Transactions in currencies other than Euro are translated to Euro using the exchange rates in force on the transaction dates. At each statement of financial position date, the foreign currency monetary assets and liabilities are translated to Euro using the exchange rates in force on at that date. Non- monetary foreign currency assets and liabilities recorded at fair value are translated to Euro using the exchange rates in force on the date fair value is determined.

Exchange gains and losses arising from differences between the exchange rates in force on the dates of the transactions and those in force on the dates of collection, payment or the date of the statement of financial position, are recorded as income or expenses for the period, except for those relating to non- monetary items for which adjustments to fair value are recorded directly in equity.

2.20. Contingent assets and liabilities

Contingent liabilities are not recognised in the Consolidated Financial Statements, but are disclosed in the notes to the financial statements, unless the probability of an outflow of funds affecting future economic benefits is remote, in which case they are not disclosed. Contingent assets are not recognised in the Consolidated Financial Statements but are disclosed in the notes to the

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financial statements when future economic benefits are probable.

2.21. Fair Value measurement

The Group measures financial instruments such as derivatives and non-current assets as land and buildings and investment properties at fair value at each balance sheet date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

- In the principal market for the asset or liability; or - In the absence of a principal market, in the most advantageous market for the asset or liability, which is the market that maximises the amount that would be received to sell the asset or minimises the amount that would be paid to transfer the liability, after taking into account transaction costs and transport costs.

Because different entities (and businesses within those entities) with different activities may have access to different markets, the principal (or most advantageous) market for the same asset or liability might be different for different entities (and businesses within those entities), but is it presumed that the principal or the most advantageous market is accessible by the group.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities, which are accessible to the entity;

Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable; and

Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

Unobservable inputs shall be used to measure fair value to the extent that relevant observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. However, the fair value measurement objective remains the same, ie an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability. Therefore, unobservable inputs shall reflect the assumptions that market participants would use when pricing the asset or liability, including assumptions about risk.

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2.22. Subsequent events

Events that occur after the statement of financial position date that provide additional information about conditions that existed at the statement of financial position date (adjusting events) are reflected in the Consolidated Financial Statements. Events that occur after the statement of financial position date that provide information about conditions that occur after the statement of financial position date (non-adjusting events) are disclosed in the notes to the Consolidated Financial Statements when material.

2.23. Judgements and estimates

The most significant accounting estimates reflected in the Consolidated Financial Statements as at 31 december 2018 and 2017, are as follows:

a) Useful lives of tangible and intangible assets

To determine the discounted cash flow derived from the use of intangible assets the Group has used assumptions such as revenues estimates, discount rate and assets useful lives;

b) Impairment analysis of goodwill and of tangible and intangible assets (namely brands and patents, with indefinite useful lives)

An annual impairment test goodwill is performed in order to assess if an impairment exist. The recoverable amount of the cash-generating unit to which goodwill has been allocated is based on a discounted cash flow model. This model requires estimates of cash flow derived from the operations of each cash-generating unit the selection of a discount rate deemed appropriate;

c) Recognition of adjustments on assets and provisions

The group is party to legal proceedings which are running their course on account of which it judges whether to raise a provision for contingent legal expenses based on the opinion of its legal advisors (note 33). Adjustments to receivables are calculated based on an age analysis of such receivables, the risk profile of the clients involved, and their financial standing. Estimates related to adjustments to receivables differ from business to business.

The group has access to major databases of relevant market information which, together with the experience of its technical analysts, enable it to clearly assess and minimize its credit risk.

d) Estimates of accrued expenses related with discounts/rappel awarded to customers and provisions for sale returns;

e) Estimates over the recoverability of the deferred tax assets

Deferred tax assets are recognised for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised;

f) Fair value of financial instruments

Estimates used are based on the best information available during the preparation of Consolidated Financial Statements and are based on best knowledge of past and present events. Although future events, are not controlled by the Group neither foreseeable, some could occur and have impact on the estimates. Changes to the estimates used by the management that occur after the date of these Consolidated Financial Statements, will be recognised in net income, in accordance with IAS 8, using a prospective methodology.

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3. FINANCIAL RISK MANAGEMENT

The Group’s activities expose it to a variety of financial risks such as market risk, liquidity risk and credit risk. These risks arise from the unpredictability of financial markets that affect the capacity of project cash flow and profits. The Group financial risk management, subject to a perspective of long-term ongoing, seeks to minimize potential adverse effects that derive from that uncertainty, using, every time that is possible and advisable, derivative financial instruments to hedge certain risks exposure.

3.1. Market Risk

a) Interest rate risk

The interest rate risk is mainly due to loans at floating interest rates.

Most of the Group exposure to interest rate risk arises as it borrows funds mainly at floating interest rates, exposing financial costs to volatility. The impact of this volatility on the Group net profit and equity is not significant due to the low level of indebtdness and the possible connection between interest rates and the economic growth. As this economic growth can have a positive impact on the operating results of the Group, the growth of financial costs is partially covered by the growth of operating results (“natural hedge”).

Considering that the interest rate risk is not significant, in rare circumstances the Group uses derivate transactions to cover this risk.

As at 31 december 2018 and 2017, the net debt amounts to approximately 111 million euros and 100 million euros, respectively, divided between current and non-current liabilities (notes 21, 22, 23, 24 e 27) and cash and cash equivalents (note 19) negotiated with several entities.

Interest rate sensitivity analysis

The sensitivity analysis below has been determined based on the exposure to interest rates for financial instruments considering the average net debt of 2018. For floating rate financial instruments, the analysis was prepared assuming that changes in market interest rates affect the interest income or expense of those instruments.

If interest rates had been 50 basis points higher and all other variables were held constant, net financial result for the year ended 31 december 2018 would decrease by 595 thousand euros.

b) Foreign currency risk

Transaction exposure risk

The Group undertakes certain transactions denominated in foreign currencies (defined as a currency different from the currency in which the asset/liability is measured - Euro). The individual Group entities predominantly execute their operating activities in their respective functional currencies, defined as the currencies that best represent their cash flow. Therefore, foreign currency risk arises mainly from commercial transactions, as a result of acquisitions and sales of products and services in a different currency from the functional currency.

Exchange rate exposures are managed by the Group with the purpose of reducing or eliminating that risk, contributing to a lower sensibility of Group results to exchange rate variations. Every time it is possible, the Group uses natural hedges to the amounts exposed, compensating the credits granted and the credits received that are expressed in the same currency. When it is not possible, the Group uses other hedging financial instruments, mainly exchange rate forwards.

When derivative instruments, contracted with specific purposes to hedge foreign currency risk, do not accomplish the requirements defined in IAS 39 to its classification as hedge operations, the fair value changes are recognised through

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profit and loss.

The Group is mainly exposed to exchange rate risk of the British Pound, US Dollar, Brazilian Real, Zloty from Poland and Mexican Peso. The financial assets and liabilities, included in the statement of financial position, related with operating activities denominated in foreign currencies show a low level of exposure of the Group to the foreign currency risk.

c) Price Risk

The price of the main raw materials used by Colep is correlated with the price of commodities such as steel, oil and aluminum.

The evolution of the price of raw materials is, in general, reflected in sales prices and, consequently, hedging operations are not used. Only in specific situations, as a consequence of arrangements with customers to maintain the sales price for determined periods, these instruments are used.

3.2. Credit Risk

The Group’s exposure to the credit risk is mainly associated to receivable accounts arising from operational activities. Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in a loss for the Group.

The credit risk arising from operational activities is related to accounts receivable from sales and services rendered to customers (note 15). The management of this risk seeks to guarantee an effective collection of its credits in the periods negotiated without impact on the financial Group’s equilibrium. This risk is controlled on a regular basis with the objective of a) define credit limits to customers, considering the average collection period, b) control the level of credit, and c) perform, on a regular basis, impairment analysis on accounts receivable.

The Group does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics, as the account receivables are distributed by several customers, different businesses and different geographic areas. The Group obtains credit guarantees, whenever the financial situation of the customer indicates that need. In these situations, the guarantees are based in credit insurances and bank guarantees.

Impairment losses on accounts receivable are computed considering a) the risk profile of the customer, b) the average collection period, which is different from business to business, and c) the financial situation of the customer. The movements of these impairment losses during the years ended 31 december 2018 and 2017 are disclosed in note 33.

As at 31 december 2018 and 2017 the Group considers that is not necessary additional impairment losses for over the amount registered and recorded on those dates highlighted in summary form, in note 33.

The carrying amount of financial assets recorded in the financial statements, which is net of impairment losses, represents the Group’s maximum exposure to credit risk.

3.3. Liquidity risk

Liquidity risk is defined as the risk that the Group could not be able to settle or meet its obligations on time or at a reasonable price. Due to the existence of liquidity risk, management of liquidity is performed with the objective of maximize liquidity gains and minimize opportunity costs of retaining liquidity on a safe and efficient way.

The Group manages liquidity risk with the following objectives:

- Liquidity – ensure permanent and efficient access to funds to fulfill its commitments;- Safety – minimize the probability of not being able to fulfill its commitments; and- Financial efficiency – minimize the opportunity cost of retaining excess of liquidity in the short-term.

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The Group adopted the policy of matching the maturity profiles of financial assets and liabilities, with the objective of balancing maturities. Considering the level of liquidity and the maturities of liabilities included in the Consolidated Statement of Financial Position in 2018 and 2017, it is noted that “permanent capital” are aligned with non-current assets, showing the objective of the Group of maintaining a balanced financial situation. The parent company is responsible to define objectives to optimize the long-term capital structure, considering the operational risk, the indebtedness capability and the benchmarking for each business.

The Group manages liquidity risk by ensuring the contract of financial instruments and different borrowing facilities, with appropriate amounts to the funding needs of each business and subsidiary, ensuring comfortable levels of liquidity. It is also policy of the Group, that those facilities are agreed without any guarantees attached.

The information in this document includes undiscounted cash flow of financial liabilities based on the earliest date on which the Group can be required to pay (worst case scenario), and assuming that all contractual requirements are accomplished.

4. CHANGES IN ACCOUNTING POLICIES AND CORRECTION OF FUNDAMENTAL ERRORS

During the twelve-month period ended december 31, 2018 there were no changes in judgments or estimates relating to prior years, nor were there corrections of material errors. Note the changes in accounting policies resulting from the entry into force of IFRS 15 and IFRS 9 described below.

Regarding new standards and interpretations, the following issues, revisions, changes and improvements in standards and interpretations occurred:

4.1. Revisions, changes and improvements to standards and interpretations endorsed by the EU with effect on the accounting policies and disclosures adopted by the Group as of january 1, 2018:

IFRS 15 Revenue from contracts with customers

This standard applies to all income from contracts with customers, replacing the following existing standards and interpretations: IAS 11 - Construction Contracts, IAS 18 - Income, IFRIC 13 - Customer Loyalty Programs, IFRIC 15 - Construction Agreements of real estate, IFRIC 18 - Transfers of customer assets and SIC 31 - Revenues - Swap operations involving advertising services). The standard applies to all customer contract revenues, except if the contract is in the scope of IAS 17 (or IFRS 16 - Leases when applied).

IFRS 15 also provides a model for the recognition and measurement of sales of certain non-financial assets, including disposals of property, equipment and intangible assets.This standard highlights the principles that an entity must apply when it measures and recognizes revenue. The basic principle is that an entity must recognize revenue for an amount that reflects the consideration it expects to be entitled in exchange for the goods and services promised under the contract.

The principles of this standard should be applied in five steps: (1) identify the contract with the customer, (2) identify the performance obligations of the contract, (3) determine the transaction price, (4) allocate the transaction price to performance of the contract and (5) recognize the income when the entity meets a performance obligation.

The standard requires an entity to apply professional judgment in applying each of the model steps, taking into account all relevant facts and circumstances.

This standard also specifies how to account for incremental expenses in obtaining a contract and expenses directly related to the performance of a contract.

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The Group adopted IFRS 15 using the modified retrospective method, with an initial application date of January 1, 2018. The Group reviewed in the light of the standard the contracts that were not concluded on january 1, 2018 and the impacts on the recognition form and measurement of revenue from contracts with customers were recorded in the accounts for the year. The impact of the adoption of this standard was 601, 367 thousand euros, resulting from contracts that include specific production investments co-financed by customers.

IFRS 9 Financial Instruments

The summary of this rule by subject is as follows:

Classification and measurement of financial assets

All financial assets are measured at fair value at the date of initial recognition, adjusted for transaction costs if the instruments are not accounted for at fair value through profit or loss (FVTPL). However, customer accounts without a significant financing component are initially measured at their transaction value, as defined in IFRS 15 - Income from contracts with customers.

Debt instruments are subsequently measured based on their contractual cash flow and the business model in which such instruments are held. If a debt instrument has contractual cash flow that are only the payments of principal and interest on the outstanding principal and is held within a business model to hold the assets to collect contractual cash flow, then the instrument is recorded at amortised cost. If a debt instrument has contractual cash flow that are exclusively the payments of principal and interest on the capital owed and is held in a business model whose purpose is to collect contractual cash flow and the sale of financial assets, then the instrument is measured at fair value through profit or loss (FVTOCI) with subsequent reclassification to results.

All other debt instruments are subsequently accounted for by the FVTPL. In addition, there is an option that allows financial assets in initial recognition to be designated as FVTPL if this eliminates or significantly reduces significant accounting decompensation in the results of the year.

The equity instruments are generally measured to the FVTPL. However, entities have an irrevocable option, on an instrument-by-instrument basis, to present fair value changes of non-trade instruments in the statement of comprehensive income (without subsequent reclassification to profit or loss).

The Entity does not hold investments in debt instruments and does not hold investments in equity instruments (in addition to interests held in subsidiaries), so this change in the classification and measurement of financial assets had no impact on the financial statements. Accounts receivable were and will continue to be measured at amortised cost.

Classification and measurement of financial liabilities

For financial liabilities designated as FVTPL (fair value changes through profit and loss) using the fair value option, the amount of the change in the fair value of these financial liabilities that is attributable to changes in credit risk must be presented in the statement of comprehensive income. The remainder of the change in fair value shall be presented in profit or loss unless the presentation of the change in fair value relative to credit risk of the liability in the statement of comprehensive income will create or increase an accounting decompensation in profit or loss.

All other classification and measurement requirements for financial liabilities of IAS 39 were transposed to IFRS 9, including embedded derivatives separation rules and criteria for using the fair value option.

The Group does not designate financial liabilities designated as FVTPL using the fair value option, so this situation had no impact on the financial statements.

Impairment

Impairment requirements are based on an expected credit loss model (PCE), which replaces the loss model incurred

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in IAS 39.

The PCE model applies to: (i) debt instruments accounted for at amortised cost or at fair value through comprehensive income, (ii) most of loan commitments,(iii) financial guarantee contracts, (iv) contractual assets under IFRS 15 and (v) receivables from leases under IAS 17 - Leases / IFRS 16 – Leases.

Generally, entities are obliged to recognize PCEs for 12 months or over their duration, depending on whether there has been a significant increase in credit risk since the initial recognition (or when the commitment or guarantee was entered). For accounts receivable from customers without a significant financing component, and depending on the choice of an entity’s accounting policy for other customer receivables and lease receivables, a simplified approach can be applied in which the PCE over the respective duration are always recognised.

The PCE measurement should reflect the weighted probability of the outcome, the effect of the time value of money, and be based on reasonable and bearable information that is available at no cost or overexertion.

The main customer balances do not have a significant financial component. An individual analysis of the balances receivable is carried out, which considers the particular situation of each debtor, the guarantees held by the Group, and other aspects. In the evaluation of the needs for impairment recording, macroeconomic forecast information and the effect of the time value of money were incorporated, factors that did not give rise to material impacts.

The Group reassessed the amount of impairment and concluded that there was no need to increase the balance of impairment arising from the adoption of IFRS 9.

Coverage Accounting

The coverage effectiveness tests should be prospective and may be qualitative, depending on the complexity of the coverage, without the 80% - 125% test.

A risk component of a financial or non-financial instrument may be designated as the hedged item if the risk component is separately identifiable and reliably measurable.

The time value of an option, any forward element of a forward contract and any foreign currency spread may be excluded from the designation as hedging instruments and be accounted for as hedging costs.

Larger sets of items can be designated as covered items, including layered designations and some liquid positions.

The Entity has not contracted hedging instruments, so this situation had no impact on the financial statements.

The Entity applied IFRS 9 prospectively with the initial application date on january 1, 2018.

As provided in IFRS 9, the Company did not restate comparative information which continues to be reported in accordance with IAS 39 (the main aspects of which are included in the accounting policies included in the Notes to the financial statements for the year ended december 31, 2017). In view of the foregoing, no material differences in material value were identified in relation to IAS 39 arising from the adoption of IFRS 9.

Other rules applicable in the fiscal year beginning on january 1, 2018:

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Standard/Interpretation

Amendments to IFRS 4 - Insurance contracts The amendments address some of the issues raised by the implementation of IFRS 9 prior to the implemen-tation of the new insurance contract standard that the IASB will issue to replace IFRS 4.

Amendment to IAS 28 - Investments in associates and jointly controlled entities (included in the annual improvements for the 2014-2016 cycle)

It clarifies that: i) A entity that is a venture capital organisation, or another qualifying entity, may choose, at initial recognition on and investment-by-investment basis, to measure its investments in associates and / or joint ventures at fair value through results; (ii) If a company which is not itself an investment entity holds an interest in an associate or joint venture which is an investment entity, the enterprise may, in applying the equity method, choose to maintain the fair value investees apply to the measurement of their subsidiar-ies. This option is taken separately for each investment on the later date between the initial recognition of the investment in that investee; that investee becomes an investment entity; and this subsidiary becomes a parent company.

Amendment to IFRS 1 - First-time adoption of IFRS (included in the annual improvements for the 2014-2016 cycle)

It removes the short-term exemption provided for adopters for the first time in paragraphs E3-E7 of IFRS 1 because it served its purpose (which related to exemptions from certain disclosures of financial instru-ments under IFRS 7, exemptions at the benefit level of employees and exemptions at the level of investment entities).

IFRIC 22 - Transactions in foreign currency and further-ance of consideration

This interpretation clarifies that in determining the spot exchange rate to be used in the initial recognition of an asset, expense or income (or part) associated with the derecognition of non-monetary assets or liabilities relat-ed to an advance of consideration, the Transaction date is the date on which the entity initially recognizes the non-monetary asset or liability related to an advance of the consideration. If there are multiple payments or receipts of an advance of consideration, the entity shall determine the transaction date for each payment or receipt.

Application of IFRS 9 to IFRS 4 - Amendments to IFRS 4

The amendments address some of the issues raised by the implementation of IFRS 9 prior to the implemen-tation of the new insurance contract standard that the IASB will issue to replace IFRS 4. Regarding the tempo-rary exemption from IFRS 9, the temporary exemption option of IFRS 9 is available to entities whose activity is predominantly related to insurance.

Changes to IFRS 2 - Classification and measurement of share-based payment transactions

Amendments to IFRS 2 in relation to the classification and measurement of share-based payment transactions that address three key areas:(i) Vesting conditions, (ii) Classification of share-based payment transactions with settlement option at net val-ue, to comply with withholding tax obligations, and (iii) Accounting for a change in the terms and conditions of a transaction of share-based payment that changes its classification of cash settled for settlement with equity instruments.

Amendments to IAS 40 - Investment properties The amendments clarify when an entity should transfer a property, including properties under construction or development for, or out of investment properties.

44

No effects were recorded in the Group’s financial statements for the twelve-month period ended december 31, 2018, as a result of the adoption of the standards, interpretations, amendments and revisions referred to in the above table.

4.2. Standards, interpretations, amendments and revisions that will take effect in future years

The following standards, interpretations, amendments and revisions, with mandatory application in future financial years, were, as of the date of approval of these financial statements, endorsed by the European Union:

Standard/Interpretation Applicable in the European Union for financial years beginning

IFRS 16 – Leases 1-jan-19 This standard introduces the principles of rec-ognition and measurement of leases, replacing IAS 17 - Leases. The standard defines a single accounting model for lease contracts that results in the lessee's recognition of assets and liabilities for all lease contracts, except for leases with a period of less than 12 months or for leases that relate to assets of value reduced. Lessors will continue to classify the leases between oper-ational or financial, and IFRS 16 will not entail substantial changes to such entities as defined in IAS 17.

IFRIC 23 - Uncertainty about different treatments of income tax

1-jan-19 This interpretation clarifies the application and measurement requirements of IAS 12 - Income tax when there is uncertainty about the treat-ment of income tax. The interpretation addresses the accounting of income tax when tax treatment involving uncertainty and affecting the application of IAS 12. The interpretation does not apply to taxes or charges that are not within the scope of IAS 12, nor does it specifically include require-ments relating to interest or penalties associated with the uncertainty of tax treatments.

Amendments to IFRS 9 - Prepayments with negative compensation

1-jan-19 Under IFRS 9, a debt instrument can be mea-sured at amortised cost or at fair value through comprehensive income provided that the implicit cash flow are “only principal and interest pay-ment on capital outstanding” (the SPPI criterion) and the instrument is held in a business model that allows such classification. Amendments to IFRS 9 clarify that a financial asset passes the SPPI criteria regardless of the event or circum-stances that caused the anticipated termination of the agreement and regardless of which party pays or receives reasonable compensation for the early termination of the contract.

The Group did not apply any of these standards in advance in the financial statements for the twelve-month period ended december 31, 2018.

No significant impacts on the financial statements arising from its adoption are considered, with the exception of IFRS 16.

IFRS 16 Leases

IFRS 16 was issued in january 2016 and it replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC 15 Operating Leases - Incentives and SIC 27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 sets out the principles for the recognition, measurement, presentation and

45

disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17.

The standard includes two recognition exemptions for lessees – leases of low-value assets such as printers and short-term leases (i.e. leases with a lease term of 12 months or less).

At the commencement date of a lease, a lessee will recognize a liability for future lease payments (i.e. the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e. the right-of-use asset). Lessees will be required to separately recognize the interest expense on the lease liability and the depreciation expense on the right-of-use asset.

Under the standard, lessees will have to remeasure the lease liability upon the occurrence of certain events (i.e., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will recognize the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset.

Lessor accounting under IFRS 16 is substantially unchanged from today’s accounting under IAS 17. Lessors will continue to classify all leases using the same classification principle as in IAS 17 and distinguish between two types of leases: operating leases and finance leases.

IFRS 16, which is effective for annual periods beginning on or after january 1, 2019 requires lessees and lessors to make more extensive disclosures than under IAS 17.

Transition to IFRS 16

The Group will adopt IFRS 16 retrospectively for each reporting period presented in the financial statements. The group will apply the standard to all contracts that were previously identified as leases under IAS 17 and IFRIC 4. As a result, the Group will not apply the standard to contracts that were not previously identified as containing a lease.

The Group has decided to apply the exemptions provided for in the standard for leases whose lease term ends within the next 12 months from the initial application date, and for lease contracts for which the underlying asset has little value. The Group has lease agreements for certain types of administrative equipment (such as personal computers, printing machines and photocopiers) which the Group considers to be of little value.

During the period of 2018, the Group performed a detailed assessment of the impacts of IFRS 16. In summary, the expected impact of adopting IFRS 16 is as follows:

Expected impact on the consolidated statement of financial position as of january 1, 2019:

44


Increase / (decrease) (Euros)

Assets Tangible fixed assets (Assets under the right of use) 4.749.156 Liabilities Lease liabilities 4.749.156 Net impact on equity 0

Expected impact on the consolidated income statement for the period 2019:


Depreciation expense 2.163.438 Operating lease expense (2.260.879) Operating profit 97.442 Finance costs 142.949 Income tax expense (10.239) Net impact on profit or loss (35.268)

Due to the adoption of IFRS 16, the Group's operating profit will improve, while its interest expense will increase. This is due to the change in the accounting for expenses of leases that were classified as operating leases under IAS 17.


44



Assets Tangible fixed assets (Assets under the right of use) 4.749.156 Liabilities Lease liabilities 4.749.156 Net impact on equity 0



Depreciation expense 2.163.438 Operating lease expense (2.260.879) Operating profit 97.442 Finance costs 142.949 Income tax expense (10.239) Net impact on profit or loss (35.268)

Due to the adoption of IFRS 16, the Group's operating profit will improve, while its interest expense will increase. This is due to the change in the accounting for expenses of leases that were classified as operating leases under IAS 17.

46

Due to the adoption of IFRS 16, the Group’s operating profit will improve, while its interest expense will increase. This is due to the change in the accounting for expenses of leases that were classified as operating leases under IAS 17.

4.3. Norms, interpretations, amendments and revisions not yet adopted by the European Union

The following standards, interpretations, amendments and revisions, with mandatory application in future financial years, have not been endorsed by the European Union until the date of approval of these financial statements:

Standard/Interpretation

Changes to IFRS 3 - Business combinations (included in the annual improvements for the 2015-2017 cycle)

The amendments clarify that when an entity obtains control of a joint operation, it must apply the require-ments of the business combination in stages, including remeasuring the interest previously held in the assets and liabilities of the joint transaction to its fair value. In doing so, the acquirer remeasures its interest previously held in that joint operation.

Amendment to IFRS 11 - Joint Arrangements (included in the annual improvements for the 2015-2017 cycle)

A party that participates but does not have joint control in a joint venture may obtain joint control over a joint venture whose business activity is a business as defined in IFRS 3. This amendment clarifies that the interest previously held should not be remeasured.

Amendments to IAS 12 - Income tax (included in the annual improvements for the 2015-2017 cycle)

These changes clarify that the dividend tax conse-quences are directly associated with the transaction or past event that generated distributable results to shareholders. As a result, the company recognizes tax-level impacts in the income statement, comprehen-sive income or other equity instrument in accordance with the entity’s past recognition of such transactions or events.

Amendment to IAS 23 - Borrowing costs (included in annual improvements for the 2015-2017 cycle)

The amendment clarified that an entity treats as part of global loans any loan originally the development of the qualifying asset, when substantially all the activities necessary to prepare the asset for its intended use or for sale are complete. The changes are applicable to borrowing costs incurred on or after the commence-ment of the reporting period in which the company adopts these changes.

IFRS 17 - Insurance contracts IFRS 17 applies to all insurance contracts (ie life, non-life, direct insurance and reinsurance), irrespective of the type of entity issuing them, as well as certain guar-antees and certain financial instruments with discretion-ary participation characteristics. Some exceptions will apply. The general objective of IFRS 17 is to provide an accounting model for insurance contracts that is most useful and consistent for issuers. In contrast to the requirements of IFRS 4, which are based on previously adopted local accounting policies, IFRS 17 provides a comprehensive model for insurance contracts covering all relevant accounting aspects.

Amendments to IAS 28 - Long-term interests in Associ-ates or Joint Ventures

The amendments clarify that an entity shall apply IFRS 9 for long-term interests in associates or joint ventures to which the equity method is not applied but which are, in substance, part of the net investment in that associate or joint venture (long-term interests).

47

Definition of business activity - Amendments to IFRS 3 This amendment clarified the minimum requirements to be considered as a business activity, removes the as-sessment if market participants can replace the missing elements, add guidance to assess whether an acquired process is substantive, constrains the definitions of business activity and output and introduces an optional fair value test of business activity.

Definition of materiality - Amendments to IAS 1 and IAS 8

The purpose of this amendment was to make the definition of “material” consistent across all existing standards and to clarify certain aspects related to their definition. The new definition states that “information is material if it is omission, error or concealment can rea-sonably be expected to influence the decisions that the primary users of the financial statements make based on those financial statements which provide financial information about a given reporting entity “. The chang-es clarify that materiality depends on the nature and magnitude of the information, or both. An entity must assess whether certain information, either individually or in combination with other information, is material in the context of the financial statements.

IAS 19 Changes to the plan, cuts or liquidation of the plan

This amendment clarifies the following accounting treatment in case there is a change to the plan, or there is a cut or the liquidation of the plan.

IFRS 14 Deferral accounts related to regulated activities This standard allows an entity whose activities are subject to regulated rates to continue to apply most of its previous accounting policies for deferred accounts related to regulated activities when adopting IFRSs for the first time.

The conceptual framework for financial reporting The conceptual framework for the revised financial reporting is not a standard and none of its concepts prevail over the concepts present in standards or other requirements of any of the standards.

Amendments to IFRS 10 - Consolidated financial state-ments and IAS 28 - Investments in associates and joint ventures

These amendments eliminate a conflict between those rules, related to the sale or contribution of assets between the investor and the associate or between the investor and the joint venture.

In December 2015, the IASB decided to defer the date of application of this amendment until any amendments that result from the research project on the equity method are finalised.In any case early application is allowed.

These standards have not yet been endorsed by the European Union and as such have not been applied by the Entity in the twelve-month period ended december 31, 2018. No significant impacts on the financial statements arising from its adoption are estimated.

48

5. COMPANIES INCLUDED IN THE CONSOLIDATION

The subsidiaries included in Consolidated Financial Statements, their head offices and the proportion of capital held in 31 december 2018 and 2017, are as follows:

46

combination with other information, is material in the context of the financial statements.

IAS 19 Changes to the plan, cuts or liquidation of the plan

This amendment clarifies the following accounting treatment in case there is a change to the plan, or there is a cut or the liquidation of the plan.

IFRS 14 Deferral accounts related to regulated activities

This standard allows an entity whose activities are subject to regulated rates to continue to apply most of its previous accounting policies for deferred accounts related to regulated activities when adopting IFRSs for the first time.

The conceptual framework for financial reporting

The conceptual framework for the revised financial reporting is not a standard and none of its concepts prevail over the concepts present in standards or other requirements of any of the standards.

Amendments to IFRS 10 - Consolidated financial statements and IAS 28 - Investments in associates and joint ventures

These amendments eliminate a conflict between those rules, related to the sale or contribution of assets between the investor and the associate or between the investor and the joint venture. In December 2015, the IASB decided to defer the date of application of this amendment until any amendments that result from the research project on the equity method are finalised. In any case early application is allowed.

These standards have not yet been endorsed by the European Union and as such have not been applied by the Entity in the twelve-month period ended december 31, 2018. No significant impacts on the financial statements arising from its adoption are estimated.

5. COMPANIES INCLUDED IN THE CONSOLIDATION The subsidiaries included in Consolidated Financial Statements, their head offices and the proportion of capital held in 31 december 2018 and 2017, are as follows:

Name Head Office Percentage of capital held

Parent Company:

Colep Portugal, S.A. V. Cambra - Portugal Mãe

Subsidiaries: Colep Navarra, S.A. San Adrian – Espanha 100,00 Colep Polska, Sp. Z.o.o. Kleszczóm – Polónia 100,00 Colep Laupheim GmbH & Co. KG Laupheim – Alemanha 100,00 Colep Laupheim Verwaltungs GmbH Neutraubling – Alemanha 100,00 Colep Holding GmbH Regensburg - Alemanha 100,00 Colep Bad Schmiedeberg GmbH Bad Schmiedeberg - Alemanha 100,00 Colep Zülpich GmbH Zülpich – Alemanha 100,00 Colep Regensburg GmbH Laupheim - Alemanha 100,00 Colep UK Limited Gainsborough – Inglaterra 100,00 SFP Service for Filling and Packaging GmbH Regensburg – Alemanha 100,00 Colep do Brasil Participações Lda. Itatiba – São Paulo - Brasil 100,00 Colep Provider Aerossol S.A. Itatiba - São Paulo - Brasil 100,00 Provider Indústria e Comércio S.A. Louveira – São Paulo - Brasil 100,00 Total Pack Indústria e Comércio S.A. Louveira - São Paulo - Brasil 100,00

Colep S. A. de CV Queretaro -México 100,00

These subsidiaries were consolidated through the full consolidation method, as described in note 2.2. The Company formed by the end of 2013 an alliance with Soap and Chemicals Trading Company (SCITRA), which belongs to Group Albatha, for the creation of an aerosol filling operation, located in Sharjah, United Arab Emirates.

These subsidiaries were consolidated through the full consolidation method, as described in note 2.2.

The Company formed by the end of 2013 an alliance with Soap and Chemicals Trading Company (SCITRA), which belongs to Group Albatha, for the creation of an aerosol filling operation, located in Sharjah, United Arab Emirates.

Although Colep Portugal does not hold an interest in the total share capital of SCITRA, under the agreement settled, the Company ensures compliance with the standards “Colep” through the rendering of services to different areas of operation. The agreement establishes an annual amount to be paid by Scitra as compensation by the services rendered and also defines the form of participation in the results/ losses of the operation.

6. INVESTMENTS

This caption includes essentially the following investment:

47

Although Colep Portugal does not hold an interest in the total share capital of SCITRA, under the agreement settled, the Company ensures compliance with the standards “Colep” through the rendering of services to different areas of operation. The agreement establishes an annual amount to be paid by Scitra as compensation by the services rendered and also defines the form of participation in the results/ losses of the operation.

6. INVESTMENTS

This caption includes essentially the following investment:

Company Head-Office % of control

2018 % of control

2017 Equity 2017

Net profit 2017

Litarte – Lit. Artística, Lda. V. N. Gaia 11,33 11,33 1.347.256 30.118

The above investment is stated at cost. The Board of Directors believes that its realizable value exceeds its carrying amount. During 2018 no dividends have been distributed.

7. SUBSIDIARIES AND ASSOCIATE COMPANIES EXCLUDED FROM CONSOLIDATION There are no subsidiaries and associates excluded from consolidation.

8. CHANGES TO THE CONSOLIDATION PERIMETER During the year ended 31 december 2018, there were no fundamental changes in the consolidation perimeter.

9. PROPERTY, PLANT AND EQUIPMENT The changes in property, plant and equipment and accumulated depreciation and impairment in the years ended 31 december 2018 and 2017 are as follows:

The above investment is stated at cost. The Board of Directors believes that its realizable value exceeds its carrying amount.

During 2018 no dividends have been distributed.

49

7. SUBSIDIARIES AND ASSOCIATE COMPANIES EXCLUDED FROM CONSOLIDATION

There are no subsidiaries and associates excluded from consolidation.

8. CHANGES TO THE CONSOLIDATION PERIMETER

During the year ended 31 december 2018, there were no fundamental changes in the consolidation perimeter.

9. PROPERTY, PLANT AND EQUIPMENT

The changes in property, plant and equipment and accumulated depreciation and impairment in the years ended 31 december 2018 and 2017 are as follows:

50

48

2018

La

nd a

nd

natu

ral

reso

urce

s

Build

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an

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her

cons

tr.

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and

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O

ther

ta

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le

fixed

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for t

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17.4

25.9

27

140.

209.

173

24

1.23

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7

4.62

0.68

6

13.6

76.8

60

9.11

5.35

3

372.

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2.

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14

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-

443.

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(480

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) (1

9.06

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(129

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) (1

41.3

86)

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(1

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(182

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) -

(5.5

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1.39

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1.31

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455.

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6

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(10.

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(3

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(2.7

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51

49

20

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.031

.786

-

142.

593.

171

52

The net book value of the assets acquired through finance lease contracts at 31 december 2018 and 2017 is as follows:

50


31.12.18 31.12.17 Machinery 2.387.574 4.342.411 Vehicles 1.227.478 1.012.074 Tangible fixed assets in progress 610.979 - 4.226.031 5.354.485

In 2017, the Group transferred from Tangible Fixed Assets (the amount of 4,957,495 euros), to non-current Assets held for sale, the assets included in Zülpich's disposal business (note 46). The disposal of the assets was completed in 2018 as contractually envisaged. In 2015 Colep proceeded with the revaluation of land and buildings located in different geographies, reported at the date of the statement of financial position. The appraisals were performed all by the same independent valuer, American Appraisal. The value of the appraisal is the fair value, as defined in Accounting Financial Reporting Standards (IFRS 13), assuming the continued use. In addition to the changes in revaluation reserves and related deferred tax liabilities, a loss of 917,561 euros and the related deferred taxes of 311,971 euros were recognised.

10. GOODWILL As at 31 december 2018 and 2017 “Goodwill” was made up as follows:

Movements 2018

31.12.17 Currency

translation effect

Additions 31.12.18

Colep Europe 38.582.511 - - 38.582.511 Colep Brazil 4.284.785 (453.297) - 3.831.488 Colep Mexico 557.263 30.453 - 587.716 43.424.559 (422.844) - 43.001.715

The recoverable amount of each cash-generating unit is determined based on value-in use calculations. The Group allocates the goodwill to the geographies in which operates: Europe, Brazil and Mexico. For the calculations, cash flow projections based on financial budgets approved by management covering a five-year period are used. Cash flows for periods exceeding five years are extrapolated using a fixed growth rate for Colep of 4% for Brazil, 3% for Mexico, 1.9% for Spain and 2.6% for Germany and 2,5% for Poland. These growth rates are in line with the long-term average growth rate for the markets in which the Group operates:

Business Unit Discount rate

Colep Brazil 15,70% Colep Europe (average) 6,50% Colep Mexico 14,00%

In 2017, the Group transferred from Tangible Fixed Assets (the amount of 4,957,495 euros), to non-current Assets held for sale, the assets included in Zülpich’s disposal business (note 46). The disposal of the assets was completed in 2018 as contractually envisaged.

In 2015 Colep proceeded with the revaluation of land and buildings located in different geographies, reported at the date of the statement of financial position. The appraisals were performed all by the same independent valuer, American Appraisal. The value of the appraisal is the fair value, as defined in Accounting Financial Reporting Standards (IFRS 13), assuming the continued use. In addition to the changes in revaluation reserves and related deferred tax liabilities, a loss of 917,561 euros and the related deferred taxes of 311,971 euros were recognised.

10. GOODWILL

As at 31 december 2018 and 2017 “Goodwill” was made up as follows:

50





Movements 2018

31.12.17 Currency

translation effect

Additions 31.12.18






50





Movements 2018

31.12.17 Currency

translation effect

Additions 31.12.18





The following table indicates the level of discount rate and sales from which the Group would have to recognize an

impairment loss.

51

The following table indicates the level of discount rate and sales from which the Group would have to recognize an impairment loss.

Increase in the discount rate Decrease in sales

Brazil 1pp 5% Europe 19pp 71% Mexico 1pp 9%

11. INTANGIBLE ASSETS

During the years ended 31 december 2018 and 2017, changes in intangible assets and corresponding accumulated amortization and impairment losses were as follows:

2018

Development expenses

Industrial property Software

Other Intangible

assets

Intangible assets in progress

Total

Gross amount: Opening balance 2.308.101 4.251.929 8.316.908 813.265 177.824 15.868.027 Currency translation effect - (8.464) (155.325) - - (163.789) Increases 524.050 16.450 92.718 - - 633.218 Transfers - - 5.633 - - 5.633 Disposals and write-offs - - (184.491) - - (184.491) Closing balance 2.832.151 4.259.915 8.075.443 813.265 177.824 16.158.598

Accumulated depreciation:

Opening balance 1.304.339 4.116.722 7.556.025 352.415 - 13.329.501 Currency translation effect - (9.927) (37.919) - - (47.846) Amortization 2.651 97.779 657.150 162.653 - 920.233 Disposals and write-offs - - (184.491) - - (184.491) Closing balance 1.306.990 4.204.574 7.990.765 515.068 - 14.017.397

Net book value 1.525.161 55.341 84.678 298.197 177.824 2.141.201

2017



Other Intangible

assets


Total

Gross amount: Opening balance 1.309.638 4.135.861 8.179.083 813.265 190.430 14.628.277 Currency translation effect - (75.011) (79.214) - (25.262) (179.487) Increases 998.463 5.965 567.716 - 22.449 1.594.593 Transfers - 185.114 (176.572) - (9.793) (1.251) Disposals and write-offs - - (174.105) - - (174.105) Closing balance 2.308.101 4.251.929 8.316.908 813.265 177.824 15.868.027

Accumulated depreciation: Opening balance 1.301.688 4.054.272 7.631.354 189.762 - 13.177.076 Currency translation effect - (89.140) (66.081) - - (155.221) Amortization 2.651 151.590 186.776 162.653 - 503.670 Transfers - - (22.498) - - (22.498) Disposals and write-offs - - (173.526) - - (173.526) Closing balance 1.304.339 4.116.722 7.556.025 352.415 - 13.329.501

Net book value 1.003.762 135.207 760.883 460.850 177.824 2.538.526

53



51

The following table indicates the level of discount rate and sales from which the Group would have to recognize an impairment loss.

Increase in the discount rate Decrease in sales

Brazil 1pp 5% Europe 19pp 71% Mexico 1pp 9%



2018



Other Intangible

assets


Total

Gross amount: Opening balance 2.308.101 4.251.929 8.316.908 813.265 177.824 15.868.027 Currency translation effect - (8.464) (155.325) - - (163.789) Increases 524.050 16.450 92.718 - - 633.218 Transfers - - 5.633 - - 5.633 Disposals and write-offs - - (184.491) - - (184.491) Closing balance 2.832.151 4.259.915 8.075.443 813.265 177.824 16.158.598

Accumulated depreciation:

Opening balance 1.304.339 4.116.722 7.556.025 352.415 - 13.329.501 Currency translation effect - (9.927) (37.919) - - (47.846) Amortization 2.651 97.779 657.150 162.653 - 920.233 Disposals and write-offs - - (184.491) - - (184.491) Closing balance 1.306.990 4.204.574 7.990.765 515.068 - 14.017.397

Net book value 1.525.161 55.341 84.678 298.197 177.824 2.141.201

2017



Other Intangible

assets


Total

Gross amount: Opening balance 1.309.638 4.135.861 8.179.083 813.265 190.430 14.628.277 Currency translation effect - (75.011) (79.214) - (25.262) (179.487) Increases 998.463 5.965 567.716 - 22.449 1.594.593 Transfers - 185.114 (176.572) - (9.793) (1.251) Disposals and write-offs - - (174.105) - - (174.105) Closing balance 2.308.101 4.251.929 8.316.908 813.265 177.824 15.868.027

Accumulated depreciation: Opening balance 1.301.688 4.054.272 7.631.354 189.762 - 13.177.076 Currency translation effect - (89.140) (66.081) - - (155.221) Amortization 2.651 151.590 186.776 162.653 - 503.670 Transfers - - (22.498) - - (22.498) Disposals and write-offs - - (173.526) - - (173.526) Closing balance 1.304.339 4.116.722 7.556.025 352.415 - 13.329.501

Net book value 1.003.762 135.207 760.883 460.850 177.824 2.538.526

12. DEFERRED TAXES

Deferred tax assets and liabilities as at 31 december 2018 and 2017, with its corresponding temporary differences, are as follows:

54

52

12. DEFERRED TAXES


Deferred tax assets Deferred tax liabilities

31.12.18 31.12.17 31.12.18 31.12.17 Difference in the tax base of assets 5.202 5.953 48.239 64.620 Non tax deductible provisions and impairment losses 1.208.627 1.032.912 868.456 941.670

Non tax deductible currency translation losses - 10.869 - 19.590 Non taxable currency translation gains - 65.104 121.420 73.337 Non tax deductible fixed assets 321.364 294.802 2.752.030 3.325.387 Tax losses carried forward 22.892.500 29.262.723 - - Revaluations of property, plant and equipment 286.801 218.785 3.258.663 3.776.083 Legal revaluations of property, plant and equipment 17.949 19.798 - -

Other temporary differences 839.649 293.568 337.436 87.141 25.572.091 31.204.514 7.386.244 8.287.829

The changes in deferred tax assets and liabilities in the years ended 31 december 2018 and 2017 were as follows:

31.12.18 31.12.17 Opening balance: 22.916.685 24.717.348 Impact on results:

Difference on tax base (751) (1.736) Non tax deductible amortisation and

depreciation (77.129) 95.814

Non tax deductible currency translation gains (31.564) (39.920) Non tax deductible currency translation losses (74.354) - Tax losses carried forward (5.357.083) 826.657 Non tax deductible provisions 373.447 (782.093) Revaluation of property, plant and equipement 359.862 155.726 Other temporary differences 516.627 (536.636)

Sub-total (4.290.945) (282.188) Impact on equity:

Revaluation of property, plant and equipment 10.959 144.916 Sub-total 10.959 144.916 Impact of currency translation (949.045) (1.716.864) Others 498.194 53.474 Closing Balance 18.185.848 22.916.686

As a result of the analysis of the recoverability of deferred taxes relating to reportable tax losses, the Group decided, for the sake of prudence, to cancel 6.3 million euros of deferred tax.

In accordance with the tax statements of the companies that recognise deferred taxes related to tax losses, the deferred tax assets relating to tax losses carried forward with no expiration date as at 31 december 2018 are as follows:

31.12.18 31.12.17

Tax Loss Deferred tax assets Tax Loss Deferred tax

assets

68.015.059 20.797.247 89.385.055 26.916.319

The total tax losses available at december 31, 2018 amount to 128 million euros.


52

12. DEFERRED TAXES















31.12.18 31.12.17


assets

68.015.059 20.797.247 89.385.055 26.916.319




52

12. DEFERRED TAXES















31.12.18 31.12.17


assets

68.015.059 20.797.247 89.385.055 26.916.319



55

13. OTHER NON-CURRENT ASSETS

As at 31 december 2018 and 2017 this caption was made up as follows:

53



31.12.18 31.12.17 Non-current debtors:

State and other public entities 18.040.044 13.389.301 Associates - -

Other non-current financial assets:

Labour compensation fund 56.079 37.473 Other 491.599 403.641

18.587.722 13.830.415

The caption "State and other public entities" refers to the tax credit of the Brazilian subsidiaries. In 2018 it includes the credit referring to the favorable decision of the Court, related to a case filed against the Tax Administration in Brazil in the scope of PIS and COFINS taxes.

14. INVENTORIES As at 31 december 2018 and 2017 this caption was made up as follows:

31.12.18 31.12.17 Raw, subsidiary and consumable materials 37.176.661 37.984.663 Merchandise 1.011.267 941.025 Finished and semi-finished goods 19.496.957 20.309.291 Work in progress 3.254.924 2.224.793 60.939.809 61.459.772 Accumulated impairment losses on inventories (note 33) (1.974.550) (2.412.538) 58.965.259 59.047.234

15. TRADE RECEIVABLES

“Trade receivables” as at 31 december 2018 and 2017 is made up as follows:

31.12.18 31.12.17 Customers current account 21.872.165 22.787.859 Customers doubtful accounts 727.560 727.560 22.599.725 23.515.419 Accumulated impairment losses on trade receivables (note 33) (719.918) (719.918) 21.879.807 22.795.501

As at the statement of financial position date, trade receivables ageing can be detailed as follows:

31.12.18 31.12.17 Not past due 16.866.753 18.395.388 Past due

Between 0 and 90 days 4.213.807 2.565.997 Between 90 and 180 days 381.217 1.169.346 Over 180 days 418.030 664.772

21.879.807 22.795.502

The Group’s exposure to credit risk is attributable to its receivables resulting from its operations. The amounts presented on the statement of financial position are net of accumulated impairment

The caption “State and other public entities” refers to the tax credit of the Brazilian subsidiaries. In 2018 it includes the credit referring to the favorable decision of the Court, related to a case filed against the Tax Administration in Brazil in the scope of PIS and COFINS taxes.

14. INVENTORIES


53







18.587.722 13.830.415










21.879.807 22.795.502




53







18.587.722 13.830.415










21.879.807 22.795.502



53







18.587.722 13.830.415










21.879.807 22.795.502


56

The Group’s exposure to credit risk is attributable to its receivables resulting from its operations. The amounts presented on the statement of financial position are net of accumulated impairment losses on doubtful accounts receivables, which were estimated by the Group in accordance with its experience and assessment of the economic environment.

16. STATE AND OTHER PUBLIC ENTITIES (ASSET)

The caption “State and other public entities” as at 31 december 2018 and 2017 is made up as follows:

54

losses on doubtful accounts receivables, which were estimated by the Group in accordance with its experience and assessment of the economic environment.

16. STATE AND OTHER PUBLIC ENTITIES (ASSET) The caption “State and other public entities” as at 31 december 2018 and 2017 is made up as follows:

31.12.18 31.12.17 Income tax 1.038.772 441.550 Value added tax 4.181.053 4.749.813 Other 651.535 600.328

5.871.360 5.791.691

17. OTHER RECEIVABLES

The caption “Other Receivables” as at 31 december 2018 and 2017 is made up as follows:

31.12.18 31.12.17 Other debtors 2.149.346 4.559.319 Advances to suppliers 701.751 666.217 Advances to suppliers of fixed assets 18.839 20.069 Group companies (note 37) - 58.648 2.869.936 5.304.253

Accumulated impairment losses on other receivables (note 33) - -

2.869.936 5.304.253

As at 31 december 2018 and 2017, other receivables ageing can be detailed as follows: 31.12.2018

Total Not past due Past due

0-90 days 90-180 dias +180 dias 0-90 days Other debtors 2.149.346 2.082.449 29.063 9.923 27.911 66.897 Advances to suppliers 701.751 74.968 444.930 68.040 113.813 626.783 Advances to suppliers of fixed

assets 18.839 - 3.600 - 15.239 18.839

Group companies - - - - - - 2.869.936 2.157.417 477.593 77.963 156.963 712.519 31.12.2017



assets 20.069 3.000 - - 17.069 17.069

Group companies 58.648 58.648 - - - - 5.304.253 4.748.363 166.523 122.066 267.301 555.890



54




5.871.360 5.791.691





2.869.936 5.304.253




assets 18.839 - 3.600 - 15.239 18.839

Group companies - - - - - - 2.869.936 2.157.417 477.593 77.963 156.963 712.519 31.12.2017



assets 20.069 3.000 - - 17.069 17.069

Group companies 58.648 58.648 - - - - 5.304.253 4.748.363 166.523 122.066 267.301 555.890

As at 31 december 2018 and 2017, other receivables ageing can be detailed as follows:

54




5.871.360 5.791.691





2.869.936 5.304.253




assets 18.839 - 3.600 - 15.239 18.839

Group companies - - - - - - 2.869.936 2.157.417 477.593 77.963 156.963 712.519 31.12.2017



assets 20.069 3.000 - - 17.069 17.069

Group companies 58.648 58.648 - - - - 5.304.253 4.748.363 166.523 122.066 267.301 555.890

57

55

18. OTHER CURRENT ASSETS

“Other current assets” as at 31 december 2018 and 2017 were made up as follows:

31.12.18 31.12.17 Credits to be granted from suppliers 1.099.941 465.816 Invoices to be issued 29.027 297.833 Other income accruals 267.219 997.435 Interests 263.947 337.360 Deferred insurance expenses 215.405 278.185 Prepaid rents 19.587 19.644 Specialized services 32.912 17.944 Other deferred expenses 19.751 6.755 1.947.789 2.420.972

19. CASH AND CASH EQUIVALENTS

“Cash and cash equivalents” as at 31 december 2018 and 2017 are made up as follows:

31.12.18 31.12.17 Cash on hand 19.701 22.832 Demand deposits in banks 11.302.867 1.463.263 Cash and cash equivalents 11.322.568 1.486.095 Bank overdrafts (note 21) (16.862.382) (18.555.826) (5.539.814) (17.069.731)

20. CAPITAL AND RESERVES

RAR – Sociedade de Controle (Holding), S.A. holds 100% of the subscribed capital as at 31 december 2018. The caption “Revaluation reserves” results from the revaluation of tangible fixed assets in accordance with the applicable legislation of each jurisdiction and under the policy described in 2.5. a). In accordance with current legislation and accounting practices in Portugal this reserve cannot be distributed to the shareholders but can, in certain circumstances, be used for future capital increases or in other situations specified in the legislation. Commercial legislation in Portugal establishes that at least 5% of annual net income must be appropriated to the legal reserve, until it represents at least 20% of share capital. This reserve is not distributable except in the case of liquidation of the company, but can be used to cover losses after all the other reserves have been used up or to increase share capital.

21. BANK LOANS “Bank loans” as at 31 december 2018 and 2017 are made up as follows:

Entity 31.12.18 31.12.17

Amount drawn Amount drawn Current Non-Current Current Non-current

Loans - 8.000.000 - 8.000.000 Overdrafts 16.862.382 - 18.555.826 - 16.862.382 8.000.000 18.555.826 8.000.000

The foreign currency bank loans bear interest at market rates and were translated to Euro using the exchange rates in force at the statement of financial position date.




RAR – Sociedade de Controle (Holding), S.A. holds 100% of the subscribed capital as at 31 december 2018.

The caption “Revaluation reserves” results from the revaluation of tangible fixed assets in accordance with the applicable legislation of each jurisdiction and under the policy described in 2.5. a). In accordance with current legislation and accounting practices in Portugal this reserve cannot be distributed to the shareholders but can, in certain circumstances, be used for future capital increases or in other situations specified in the legislation.

Commercial legislation in Portugal establishes that at least 5% of annual net income must be appropriated to the legal reserve, until it represents at least 20% of share capital. This reserve is not distributable except in the case of liquidation of the company, but can be used to cover losses after all the other reserves have been used up or to increase share capital.

21. BANK LOANS

“Bank loans” as at 31 december 2018 and 2017 are made up as follows:

55










Entity 31.12.18 31.12.17





As at 31 december 2018, loans had the following maturity including interests:55










Entity 31.12.18 31.12.17






58

56

As at 31 december 2018, loans had the following maturity including interests:

2019 2020 2021 Depois 2021 Total

Amortization - - - 8.000.000 8.000.000 Interests 148.800 148.800 148.800 297.600 744.000

148.800 148.800 148.800 8.297.600 8.744.000

22. BOND LOANS

As at 31 december 2018 bond loans are as follows:

Entity Nominal

value Amortization Nominal value

Term Current Non-current

Banco Bilbao Vizcaya Argentaria - - - 7.500.000 10/10/2020 Banco BPI - - - 17.500.000 10/10/2022 Banco de Investimento Global, S.A. - - - 25.000.000 08/08/2024

- 50.000.000

Bond loans cannot be converted and the interests are due in arrears each semester. The bonds are listed on Euronext Access (ex EasyNext).

23. FINANCE LEASES As at 31 december 2018 and 2017 this caption was made up as follows:

Minimum lease payments Present value of minimum lease payments

31.12.18 31.12.17 31.12.18 31.12.17 Amounts payable under finance leases:

2017 - 1.373.110 - 1.267.299 2018 1.193.844 1.136.056 1.114.803 1.059.921 2019 1.041.511 934.812 988.235 885.305 2020 792.879 682.785 761.611 654.361 2021 637.925 527.039 621.672 512.662 2022 357.903 336.609 353.704 332.868 After 2022 99.217 - 98.700 - 4.123.279 4.990.411 3.938.725 4.712.416 Future interest (184.554) (277.995) - - 3.938.725 4.712.416 3.938.725 4.712.416 Creditors under finance lease –current

portion 1.114.803 1.267.299

Creditors under finance lease – net of current portion 2.823.922 3.445.117

The finance lease contracts bear interest at market rates and have defined maturities. The fair value of the liability under finance lease contracts as at 31 december 2018 corresponds approximately to its book value. The liability under finance lease contracts is guaranteed by reserve of ownership of the leased assets.

Finance leases relate to machinery (details in note 9).

22. BOND LOANS


56


2019 2020 2021 Depois 2021 Total


148.800 148.800 148.800 8.297.600 8.744.000

22. BOND LOANS


Entity Nominal




- 50.000.000






portion 1.114.803 1.267.299




Bond loans cannot be converted and the interests are due in arrears each semester.

The bonds are listed on Euronext Access (ex EasyNext).

23. FINANCE LEASES


23. FINANCE LEASES




2017 - 1.373.110 - 1.267.299 2018 1.193.844 1.136.056 1.114.803 1.059.921 2019 1.041.511 934.812 988.235 885.305 2020 792.879 682.785 761.611 654.361 2021 637.925 527.039 621.672 512.662 2022 357.903 336.609 353.704 332.868 After 2022 99.217 - 98.700 - 4.123.279 4.990.411 3.938.725 4.712.416 Future interest (184.554) (277.995) - - 3.938.725 4.712.416 3.938.725 4.712.416 Creditors under finance lease –current portion 1.114.803 1.267.299 Creditors under finance lease – net of current portion 2.823.922 3.445.117

25. PENSION LIABILITIES

The caption as at 31 December 2018 and 2017 is made up as follows:

31.12.18 31.12.17 Pension liabilities 1.066.876 1.050.764 1.066.876 1.050.764

27. OTHER LOANS As at 31 December 2018 and 2017 this caption is made up as follows:

Nominal value

31.12.18

Issue Current Non- Current Interest and commissions

Commercial paper 42.936.538 - -

Nominal value

31.12.17


Commercial paper 18.964.630 1.788.052 (8.650)

46. II) NON CURRENT ASSETS HELD FOR SALE AND ASSOCIATED LIABILITIES

The finance lease contracts bear interest at market rates and have defined maturities.

The fair value of the liability under finance lease contracts as at 31 december 2018 corresponds approximately to its book value.

The liability under finance lease contracts is guaranteed by reserve of ownership of the leased assets.


The difference between the minimum lease payments (sum of the future lease payments) and the present value of the minimum lease payments (sum of the future lease payments excluding interest) in the above table, corresponds to the amount of interest payable.

59

56


2019 2020 2021 Depois 2021 Total


148.800 148.800 148.800 8.297.600 8.744.000

22. BOND LOANS


Entity Nominal




- 50.000.000






portion 1.114.803 1.267.299




24. OTHER NON-CURRENT CREDITORS

As at 31 December 2018 and 2017 this caption is made up as follows:

57

The difference between the minimum lease payments (sum of the future lease payments) and the present value of the minimum lease payments (sum of the future lease payments excluding interest) in the above table, corresponds to the amount of interest payable.

24. OTHER NON-CURRENT CREDITORS As at 31 December 2018 and 2017 this caption is made up as follows:

31.12.18 31.12.17 Advances from customers 4.902.563 4.579.073 Government Grants 671.054 190.538 Other creditors 2.937.647 641.723 8.511.264 5.411.333

As of december 31, 2018, the caption "Other non-current creditors" includes 671,054 euros relating to a refundable incentive which is recorded at its discounted value. The incentive results from the application to the "Business Incentive System" submitted in 2016 by Colep Portugal. This is a financial grant from the European Union, as a refundable incentive, with interest rate 0%, for a total amount of 2,675,834 euros (approved amount). On april 19, 2018, the company received 769,210 euros in respect of the first request for anticipation submitted. The reimbursable incentive was granted without interest or any other charges for a period of eight years, being repayable in 12 semiannual installments of equal amount, with the first being due in january 2020.

25. PENSION LIABILITIES The caption as at 31 December 2018 and 2017 is made up as follows:

31.12.18 31.12.17 Pension liabilities 1.066.876 1.050.764

1.066.876 1.050.764

The amount of the retirement pension liability was calculated by independent actuaries within the framework of the policy described in paragraph 2.16.1. The plan includes only people admitted up to January 1, 1996, for a total of 54 and a discount rate of 1.9% was used for the calculation (equal to 2017).

As of december 31, 2018, the caption “Other non-current creditors” includes 671,054 euros relating to a refundable incentive which is recorded at its discounted value.

The incentive results from the application to the “Business Incentive System” submitted in 2016 by Colep Portugal. This is a financial grant from the European Union, as a refundable incentive, with interest rate 0%, for a total amount of 2,675,834 euros (approved amount).

On april 19, 2018, the company received 769,210 euros in respect of the first request for anticipation submitted. The reimbursable incentive was granted without interest or any other charges for a period of eight years, being repayable in 12 semiannual installments of equal amount, with the first being due in january 2020.



23. FINANCE LEASES









Nominal value

31.12.18



Nominal value

31.12.17



46. II) NON CURRENT ASSETS HELD FOR SALE AND ASSOCIATED LIABILITIES

The amount of the retirement pension liability was calculated by independent actuaries within the framework of the policy described in paragraph 2.16.1. The plan includes only people admitted up to January 1, 1996, for a total of 54 and a discount rate of 1.9% was used for the calculation (equal to 2017).

26. OTHER NON CURRENT LIABILITIES


58

26. OTHER NON CURRENT LIABILITIES As at 31 December 2018 and 2017 this caption is made up as follows:

31.12.18 31.12.17 Payments to third parties 2.214.356 2.139.248 2.214.356 2.139.248

27. OTHER LOANS


Nominal value

31.12.18

Issue Current Non- Current

Interest and commissions


31.12.17

Emissão Nominal value Current Non-current Interest and commissions

Commercial paper 18.964.630 1.788.052 (8.650) The nominal value corresponds to the due balance. The book value of the commercial paper corresponds to the nominal value of the debt less the costs relating to the financial structuring and interest. In accordance with the contracts of the commercial paper, issuances can be made for up to one year, up to the amount contracted, the Financial Institutions guaranteeing full placement of each issuance to be made under the Program contracts. As at 31 december 2018, the commercial paper programs had the following repayment plan and interest payment schedule:

2019 Total Amortization 42.936.538 42.936.538 Interests 132.376 132.376

43.068.914 43.068.914

As at 31 december 2018, Colep Group had available credit facilities, excluding leasing, in the amount of 143 million of euros, of which 118 million were effectively used as at that date.

The maturity of long-term credit lines facilities is 4,1 years on average.

It is the intention of the Board of Directors to use the amounts issued at the end of the current year, as mentioned above, for a period exceeding 12 months.

28. FINANCIAL DERIVATIVE INSTRUMENTS During 2018, Colep Group used exchange rate derivatives as cash flow hedge instruments. To manage the Group’s exposure to changes in the exchange rates it was used forwards on exchange rates and also calls and puts on foreign currencies.

60

23. FINANCE LEASES









Nominal value

31.12.18



Nominal value

31.12.17



46. II) NON CURRENT ASSETS HELD FOR SALE AND ASSOCIATED LIABILITIES The nominal value corresponds to the due balance. The book value of the commercial paper corresponds to the nominal value of the debt less the costs relating to the financial structuring and interest.

In accordance with the contracts of the commercial paper, issuances can be made for up to one year, up to the amount contracted, the Financial Institutions guaranteeing full placement of each issuance to be made under the Program contracts.

As at 31 december 2018, the commercial paper programs had the following repayment plan and interest payment schedule:

58

26. OTHER NON CURRENT LIABILITIES As at 31 December 2018 and 2017 this caption is made up as follows:

31.12.18 31.12.17 Payments to third parties 2.214.356 2.139.248 2.214.356 2.139.248

27. OTHER LOANS


Nominal value

31.12.18

Issue Current Non- Current

Interest and commissions


31.12.17

Emissão Nominal value Current Non-current Interest and commissions

Commercial paper 18.964.630 1.788.052 (8.650) The nominal value corresponds to the due balance. The book value of the commercial paper corresponds to the nominal value of the debt less the costs relating to the financial structuring and interest. In accordance with the contracts of the commercial paper, issuances can be made for up to one year, up to the amount contracted, the Financial Institutions guaranteeing full placement of each issuance to be made under the Program contracts. As at 31 december 2018, the commercial paper programs had the following repayment plan and interest payment schedule:

2019 Total Amortization 42.936.538 42.936.538 Interests 132.376 132.376

43.068.914 43.068.914




28. FINANCIAL DERIVATIVE INSTRUMENTS During 2018, Colep Group used exchange rate derivatives as cash flow hedge instruments. To manage the Group’s exposure to changes in the exchange rates it was used forwards on exchange rates and also calls and puts on foreign currencies.




28. FINANCIAL DERIVATIVE INSTRUMENTS

During 2018, Colep Group used exchange rate derivatives as cash flow hedge instruments. To manage the Group’s exposure to changes in the exchange rates it was used forwards on exchange rates and also calls and puts on foreign currencies.

Considering the nature and amount of these operations and the purpose of those acquisitions, the impact in the financial statements was not material.

29. TRADE CREDITORS

The caption “Trade creditors” as at 31 December 2018 and 2017 is made up as follows:

27. OTHER LOANS


61

59


29. TRADE CREDITORS


31.12.18 31.12.17 Suppliers, current account 64.515.463 68.081.079 Suppliers, invoices pending 3.002.391 3.232.585 67.517.854 71.313.664

This caption as at 31 December 2018 and 2017 corresponds to payables resulting from purchases in the normal course of the Group’s business. This caption had the following maturity schedule:

31.12.18 31.12.17 Until 3 months 59.793.794 65.569.347 Between 3 e 4 months 4.598.587 3.209.252 Over 4 months 3.125.473 2.535.065 67.517.854 71.313.664

30. OTHER CURRENT CREDITORS

The caption “Other creditors” as at 31 December 2018 and 2017 is made up as follows:

31.12.18 31.12.17 Group companies (note 37) 2.557.483 4.243.763 suppliers of property, plant and equipment 2.314.149 3.491.484 Advances from customers 1.248.039 3.411.834 Other creditors 3.432.820 5.351.941 9.552.490 16.499.022

As at 31 December 2018 and 2017, this caption had the following maturity schedule:


Until 90 days 884.054 1.186.508 Between 90 e 120 days 423.503 69.978 Over 120 days 1.600.552 6.448.195

9.552.490 16.499.022

This caption as at 31 December 2018 and 2017 corresponds to payables resulting from purchases in the normal course of the Group’s business.

This caption had the following maturity schedule:

59


29. TRADE CREDITORS











9.552.490 16.499.022



59


29. TRADE CREDITORS











9.552.490 16.499.022


59


29. TRADE CREDITORS











9.552.490 16.499.022

31. STATE AND PUBLIC ENTITIES (LIABILITIES)

The caption “State and other public entities” as at 31 December 2018 and 2017 is made up as follows:

60



31.12.18 31.12.17 Income tax 633.653 669.306 Value added tax 708.402 218.167 Social security contributions 1.422.973 1.460.085 Income tax withholdings 595.327 1.223.047 Other 540.301 1.016.145 3.900.656 4.586.750



31.12.18 31.12.17 Accrued expenses:

Insurance 77.423 94.239 Employee benefits 6.000.898 7.263.489 Taxes 91.792 39.325 Accrued financial expenses 478.072 1.079.088 Credits to be made to third parties 3.457.227 2.061.887 Specialized services 715.849 668.409 Other accrued expenses 3.123.226 7.120.223

13.944.487 18.326.660 Deferred income:

Investment grants 172.734 68.459 Other deferred income 1.123.023 193.200

1.295.757 261.659 15.240.244 18.588.319

33. PROVISIONS AND ACCUMULATED IMPAIRMENT LOSSES

The changes in “provisions and accumulated impairment losses” in the year ended 31 December 2018 are as follows:

Items Opening balance

31.12.17

Currency exchange variations

Increase Utilization Decrease Closing balance

31.12.18

Provisions 1.926.199 (105.035) 178.795 (664.725) - 1.335.233 Accumulated impairment losses on

inventories (note 14) 2.412.538 (8.609) 304.020 (23.237) (710.162) 1.974.550

Accumulated impairment losses on trade receivables (note 15) 719.918 - - - - 719.918

Accumulated impairment losses on tangible assets (note 9) 92.731 - - - - 92.731

5.151.386 (113.645) 482.815 (687.962) (710.162) 4.122.432

Impairment losses related to inventories are included in the cost of inventories (sales expense and production variation). Impairment losses are deducted from the value of the corresponding asset.

34. CONTINGENT ASSETS AND LIABILITIES

62

60








13.944.487 18.326.660 Deferred income:


1.295.757 261.659 15.240.244 18.588.319




31.12.17



31.12.18





5.151.386 (113.645) 482.815 (687.962) (710.162) 4.122.432





60








13.944.487 18.326.660 Deferred income:


1.295.757 261.659 15.240.244 18.588.319




31.12.17



31.12.18





5.151.386 (113.645) 482.815 (687.962) (710.162) 4.122.432



Impairment losses related to inventories are included in the cost of inventories (sales expense and production variation).

Impairment losses are deducted from the value of the corresponding asset.


Guarantees given

61

Guarantees given

31.12.18 31.12.17 Alfândega do Porto 124.699 124.699 Alfândega de Aveiro 150.000 150.000 Finanças Vale de Cambra 593.592 2.059.847 Banco Santander (México), S.A. 786.026 750.438 IAPMEI 57.766 62.656 Ernst Zeiss Wäschereibedarf-Vertriebs-GmbH 1.062.500 1.062.500

2.774.583 4.210.140

The reduction of the guarantee given to the Vale de Cambra Finance Division was due to the favorable conclusion of the appeal filed by the Treasury to the Central Administrative Court of the North of the additional liquidation process for the year 2001. The guarantee given to Ernst Zeiss Wäschereibedarf-Vertriebs-GmbH was related to the discontinued operations at Colep Zülpich and was canceled in January 2019 following the completion of the sale operation (note 46). Litigation processes In 2011, Colep Portugal was notified of a correction to the taxable amount of approximately 1.67 million euros compared to 2007, which led to an additional tax settlement amounting to approximately 472 thousand euros. A legal challenge was filed against this additional liquidation, related to the year 2007. At the beginning of 2019, the subsidiary Provider Indústria e Comércio, SA was notified of a correction to the calculation of the Industrialised Products Tax (IPI) of approximately R $ 8.3 million, related to the year 2014, which led to a tax assessment approximately R $ 18.4 million (including interest on late payment and fine). A legal challenge was filed against this notification. The Board of Directors considers that the reasoning presented by the Tax Administrations are not in accordance with the laws of the respective countries, and therefore, it filed, as mentioned, judicial challenges to contest the additional assessments received. Consequently, no provision was made for these situation.

The reduction of the guarantee given to the Vale de Cambra Finance Division was due to the favorable conclusion of the appeal filed by the Treasury to the Central Administrative Court of the North of the additional liquidation process



63

for the year 2001.

The guarantee given to Ernst Zeiss Wäschereibedarf-Vertriebs-GmbH was related to the discontinued operations at Colep Zülpich and was canceled in January 2019 following the completion of the sale operation (note 46). Litigation processes

In 2011, Colep Portugal was notified of a correction to the taxable amount of approximately 1.67 million euros compared to 2007, which led to an additional tax settlement amounting to approximately 472 thousand euros. A legal challenge was filed against this additional liquidation, related to the year 2007.

At the beginning of 2019, the subsidiary Provider Indústria e Comércio, SA was notified of a correction to the calculation of the Industrialised Products Tax (IPI) of approximately R $ 8.3 million, related to the year 2014, which led to a tax assessment approximately R $ 18.4 million (including interest on late payment and fine). A legal challenge was filed against this notification.

The Board of Directors considers that the reasoning presented by the Tax Administrations are not in accordance with the laws of the respective countries, and therefore, it filed, as mentioned, judicial challenges to contest the additional assessments received. Consequently, no provision was made for these situation.

35. COMMITMENTS ASSUMED

As at 31 December 2018 there were no significant commitments not included in the Consolidated statement of financial position.

36. OPERATING LEASES

During the year 2018, the amount of 435,416 euros (454,934 euros during the 2017 financial year) related to rents paid under operating lease contracts, essentially contracts for forklifts and vehicles, was recognised as an expense for the year.

In the statement of financial position date the Group had irrevocable operating lease contracts, under which lease payments are due as follows:

62

35. COMMITMENTS ASSUMED

As at 31 December 2018 there were no significant commitments not included in the Consolidated statement of financial position.

36. OPERATING LEASES

During the year 2018, the amount of 435,416 euros (454,934 euros during the 2017 financial year) related to rents paid under operating lease contracts, essentially contracts for forklifts and vehicles, was recognised as an expense for the year.

In the statement of financial position date the Group had irrevocable operating lease contracts, under which lease payments are due as follows:

31.12.18 31.12.17 Due in 2018 - 430.874 Due in 2019 328.249 314.048 Due in 2020 284.361 270.160 Due in 2021 164.608 150.407 Due in 2022 42.102 27.901 Due after 2022 14.858 -

834.178 1.193.390

37. RELATED PARTIES

Balances and transactions in the years ended 31 December 2018 and 2017 with related parties can be broken-down as follows:

Purchases and services obtained Transactions 31.12.18 31.12.17 Centrar – Centro de Serviços de Gestão, S.A. 702.622 650.690 COMP–RAR - Central de Compras, S. A. 45.287 41.352 RAR Imobiliária, S.A. 79.200 79.200 RAR – Serviços de Assistência Clínica, Lda. 336.995 334.479 RAR – Sociedade de Controle (Holding), S.A. 3.482.189 3.238.539 4.646.293 4.344.260

Interest charged Interest paid Transactions 31.12.18 31.12.17 31.12.18 31.12.17 RAR – Sociedade de Controle (Holding), S.A. - 58.648 - 6.570 - 58.648 - 6.570

Accounts payable Balances 31.12.18 31.12.17 Centrar – Centro de Serviços de Gestão, S.A. 38.148 15.390 COMP–RAR - Central de Compras, S. A. 4.642 4.239 RAR – Serviços de Assistência Clínica, Lda. 14.432 12.589 RAR – Sociedade de Controle (Holding), S.A. 6.754 6.777 RAR Imobiliária, S.A. - 500 SIEL, S.G.P.S., S.A. 28.304 28.304 RAR – Refinarias de Açúcar Reunidas, S.A. 2.935 1.409

64 63



Accounts payable Balances 31.12.18 31.12.17 Centrar – Centro de Serviços de Gestão, S.A. 38.148 15.390 COMP–RAR - Central de Compras, S. A. 4.642 4.239 RAR – Serviços de Assistência Clínica, Lda. 14.432 12.589 RAR – Sociedade de Controle (Holding), S.A. 6.754 6.777 RAR Imobiliária, S.A. - 500 SIEL, S.G.P.S., S.A. 28.304 28.304 RAR – Refinarias de Açúcar Reunidas, S.A. 2.935 1.409 95.215 69.208

Other receivables Other creditors Balances 31.12.18 31.12.17 31.12.18 31.12.17 SIEL, S.G.P.S., S.A. - - 2.557.483 3.326.766 RAR – Sociedade de Controle (Holding), S.A. - 58.648 - - - 58.648 2.557.483 3.326.766

Remuneration of the key management personnel (in accordance with the definition given in IAS 24) of the parent company and subsidiaries was as follows:

31.12.18 31.12.17 Fixed remuneration 144.643 154.295 Variable remuneration 274.307 411.958 418.950 566.253

At 31 December 2018 there are no post-employments benefits plans assigned to the board directors of the parent company and subsidiaries.

38. DISAGREGATION OF THE GROUP´S REVENUE FROM CONTRATCTS WITH CUSTOMERS AND

RENTAL INCOME “Sales and services rendered” in the years ended 31 December 2018 and 2017 are as follows:


63



Accounts payable Balances 31.12.18 31.12.17 Centrar – Centro de Serviços de Gestão, S.A. 38.148 15.390 COMP–RAR - Central de Compras, S. A. 4.642 4.239 RAR – Serviços de Assistência Clínica, Lda. 14.432 12.589 RAR – Sociedade de Controle (Holding), S.A. 6.754 6.777 RAR Imobiliária, S.A. - 500 SIEL, S.G.P.S., S.A. 28.304 28.304 RAR – Refinarias de Açúcar Reunidas, S.A. 2.935 1.409 95.215 69.208

Other receivables Other creditors Balances 31.12.18 31.12.17 31.12.18 31.12.17 SIEL, S.G.P.S., S.A. - - 2.557.483 3.326.766 RAR – Sociedade de Controle (Holding), S.A. - 58.648 - - - 58.648 2.557.483 3.326.766


31.12.18 31.12.17 Fixed remuneration 144.643 154.295 Variable remuneration 274.307 411.958 418.950 566.253


38. DISAGREGATION OF THE GROUP´S REVENUE FROM CONTRATCTS WITH CUSTOMERS AND

RENTAL INCOME “Sales and services rendered” in the years ended 31 December 2018 and 2017 are as follows:


37. RELATED PARTIES

Balances and transactions in the years ended 31 December 2018 and 2017 with related parties can be broken-down as follows:

65

64

31.12.18 31.12.17 Sales:

Internal market 33.372.980 30.905.877 External market 394.285.489 378.597.683

427.658.469 409.503.560 Services rendered:

Internal market 25.477 21.628 External market 4.806.616 1.704.061

4.832.093 1.725.689

Total revenue 432.490.562 411.229.248

Contract balances:

31.12.18 31.12.17 Account Receivables (note 15) 21.879.807 22.795.502 Income accruals (note 18) 29.027 297.833 Advances from customers (notes 24 e 30) (6.150.601) (7.990.907) Deferred income (note 32) (712.598) - 15.045.635 15.102.428

Right of return assets and refund liabilities:

31.12.18 31.12.17 Rappel (note 32) 1.446.431 1.747.303 Other expenses payable (notes 26 e 32) 4.225.152 2.453.832 5.671.583 4.201.135

Performance obligations: The performance obligation is met in the delivery of the products and payment, for most customers, is due between 30 to 90 days. Some contracts include the right of volume discounts that give rise to the variable consideration subject to restriction.

39. OTHER OPERATING INCOME

“Other operating income” for the years ended 31 December 2018 and 2017 is made up as follows:

31.12.18 31.12.17 Supplementary income 619.865 627.226 Contractual penalties gains 210.567 714.718 Operational grants 5.880 10.413 Gains on disposal of tangible fixed assets 236.490 117.164 Cash discounts obtained 541.468 520.300 Exchange differences gains 3.192.552 2.542.899 Other 7.433.970 1.172.830 12.240.792 5.705.550

Contract balances:

64

31.12.18 31.12.17 Sales:




4.832.093 1.725.689

Total revenue 432.490.562 411.229.248

Contract balances:









64

31.12.18 31.12.17 Sales:




4.832.093 1.725.689

Total revenue 432.490.562 411.229.248

Contract balances:








Performance obligations:

The performance obligation is met in the delivery of the products and payment, for most customers, is due between 30 to 90 days.

Some contracts include the right of volume discounts that give rise to the variable consideration subject to restriction.



64

31.12.18 31.12.17 Sales:




4.832.093 1.725.689

Total revenue 432.490.562 411.229.248

Contract balances:








The variation recorded under “Other” is mainly explained by the Court’s favorable decision regarding a proceeding we filed against the Brazilian Tax Administration in the scope of PIS and COFINS taxes.

38. DISAGREGATION OF THE GROUP´S REVENUE FROM CONTRATCTS WITH CUSTOMERS AND RENTAL INCOME

“Sales and services rendered” in the years ended 31 December 2018 and 2017 are as follows:

66

65

The variation recorded under "Other" is mainly explained by the Court's favorable decision regarding a proceeding we filed against the Brazilian Tax Administration in the scope of PIS and COFINS taxes.

40. COST OF GOODS SOLD AND MATERIALS CONSUMED Costs of goods sold and materials consumed in the years 2018 and 2017 are made up as follows:

31.12.18 31.12.17

Merchandise

Raw materials, and, subsidiary and

consumable materials and

distributions costs

Merchandise



distributions costs Opening balance 941.025 37.984.663 609.903 36.164.711 Acquisitions 8.690.310 272.736.235 7.940.209 252.252.784 Closing balance 1.011.267 37.176.661 941.025 37.984.663 Regularization of inventories - - - - Impairment losses 34.100 103.296 9.308 231.802 Expenses for the year 8.654.168 273.647.533 7.618.395 250.664.634

41. CHANGE IN STOCK

As at 31 December 2018 and 2017, this caption includes the impairment losses of finished goods, amounting to 88.071 euros and 104.634 euros, respectively.

42. EXTERNAL SUPPLIES AND SERVICES

The caption “External supplies and services” for the years ended 31 December 2018 and 2017, is made up as follows:

31.12.18 31.12.17 Subcontracts, electricity and fuel 14.948.675 12.028.392 Rents 3.367.797 3.167.134 Transportation of goods 8.281.406 6.845.337 Travels 2.133.633 2.460.878 Maintenance and repair 8.737.111 7.530.357 Specialised works/ Professional services 10.645.930 9.829.567 Other 8.519.392 8.383.742 56.633.944 50.245.407

43. EMPLOYEE BENEFIT EXPENSES

“Employee benefit expenses” for the years ended 31 December 2018 and 2017 is made up as follows:

41. CHANGE IN STOCK




65

The variation recorded under "Other" is mainly explained by the Court's favorable decision regarding a proceeding we filed against the Brazilian Tax Administration in the scope of PIS and COFINS taxes.

40. COST OF GOODS SOLD AND MATERIALS CONSUMED Costs of goods sold and materials consumed in the years 2018 and 2017 are made up as follows:

31.12.18 31.12.17

Merchandise



distributions costs

Merchandise



distributions costs Opening balance 941.025 37.984.663 609.903 36.164.711 Acquisitions 8.690.310 272.736.235 7.940.209 252.252.784 Closing balance 1.011.267 37.176.661 941.025 37.984.663 Regularization of inventories - - - - Impairment losses 34.100 103.296 9.308 231.802 Expenses for the year 8.654.168 273.647.533 7.618.395 250.664.634

41. CHANGE IN STOCK




31.12.18 31.12.17 Subcontracts, electricity and fuel 14.948.675 12.028.392 Rents 3.367.797 3.167.134 Transportation of goods 8.281.406 6.845.337 Travels 2.133.633 2.460.878 Maintenance and repair 8.737.111 7.530.357 Specialised works/ Professional services 10.645.930 9.829.567 Other 8.519.392 8.383.742 56.633.944 50.245.407





66

31.12.18 31.12.17 Staff wages and salaries and social security contributions 52.418.904 52.914.311 Health expenses 997.952 1.008.055 Training costs 503.035 722.982 Indemnities 430.280 297.804 Other employee benefits 4.552.863 4.331.639 58.903.034 59.274.791

Average number of employees 2.791 2.939

44. OTHER OPERATING EXPENSES

The caption “Other operating expenses” in the years ended 31 December 2018 and 2017 is made up as follows:

31.12.18 31.12.17 Taxes:

Value added tax 51.115 109.170 Municipal property tax 312.946 257.491 Stamp tax 3.956 3.728 Other taxation 311.563 341.571

Losses on disposals of fixed assets - 164.846 Exchange losses 3.483.780 2.749.022 Works for the company (201.945) (315.018) Financial discount awarded 277.681 267.354 Bank services 65.469 105.986 Other 489.068 1.707.470 4.793.633 5.391.620

40. COST OF GOODS SOLD AND MATERIALS CONSUMED

Costs of goods sold and materials consumed in the years 2018 and 2017 are made up as follows:

67

66

31.12.18 31.12.17 Staff wages and salaries and social security contributions 52.418.904 52.914.311 Health expenses 997.952 1.008.055 Training costs 503.035 722.982 Indemnities 430.280 297.804 Other employee benefits 4.552.863 4.331.639 58.903.034 59.274.791

Average number of employees 2.791 2.939



31.12.18 31.12.17 Taxes:

Value added tax 51.115 109.170 Municipal property tax 312.946 257.491 Stamp tax 3.956 3.728 Other taxation 311.563 341.571

Losses on disposals of fixed assets - 164.846 Exchange losses 3.483.780 2.749.022 Works for the company (201.945) (315.018) Financial discount awarded 277.681 267.354 Bank services 65.469 105.986 Other 489.068 1.707.470 4.793.633 5.391.620

45. NET FINANCE COSTS

“Net finance costs” are made up as follows:

67



Losses and Costs: 31.12.18 31.12.17 Interest expense:

On bank overdrafts and bank loans 831.577 1.181.260 On non-convertible bonds 976.499 1.283.115 On commercial paper 254.229 202.865 On finance lease contracts 105.531 125.444 On loans from Group companies - 6.570 On financial operations 1.557.630 3.359.732

3.725.466 6.158.986 Exchange losses 400.066 79.963 Other expenses related to commercial paper 119.699 141.543 Other finance costs 1.950.004 3.664.835 6.195.235 10.045.327 Net finance costs (5.938.759) (9.357.436) 256.476 687.891 Income: Interest earned 15.940 105.943 Loans from Group companies - 58.648 Exchange gains 192.884 493.453 Other financial income 47.652 29.847 256.476 687.891

46. RESULTS FROM DISCONTINUED OPERATIONS, NON CURRENT ASSETS HELD FOR SALE AND ASSOCIATED LIABILITIES By the end of 2018, it took place the sale of the industrial assets of Zülpich operation (Germany), contractualised in 2017, to one of its main customers.

I) RESULTS FROM DISCONTINUED OPERATIONS

The results recognized in the period related to Discontinued Operations are negative by 5.276 thousand euros (3.357 thousands euros in 2017) and are detailed as follows:

Colep Zülpich 31.12.18 31.12.17

Revenue 26.153.261 36.177.073

Expenses (31.993.546) (39.468.510)

Operating income (5.840.285) (3.291.437)

Financial expenses and losses (82.604) (107.913)

Profit before tax (5.922.889) (3.399.350)

Income tax 647.058 42.190

Results from discontinued operations, net of tax (5.275.831)

(3.357.160)

46. RESULTS FROM DISCONTINUED OPERATIONS, NON CURRENT ASSETS HELD FOR SALE AND ASSOCIATED LIABILITIES

By the end of 2018, it took place the sale of the industrial assets of Zülpich operation (Germany), contractualised in 2017, to one of its main customers.





68

67



Losses and Costs: 31.12.18 31.12.17 Interest expense:

On bank overdrafts and bank loans 831.577 1.181.260 On non-convertible bonds 976.499 1.283.115 On commercial paper 254.229 202.865 On finance lease contracts 105.531 125.444 On loans from Group companies - 6.570 On financial operations 1.557.630 3.359.732

3.725.466 6.158.986 Exchange losses 400.066 79.963 Other expenses related to commercial paper 119.699 141.543 Other finance costs 1.950.004 3.664.835 6.195.235 10.045.327 Net finance costs (5.938.759) (9.357.436) 256.476 687.891 Income: Interest earned 15.940 105.943 Loans from Group companies - 58.648 Exchange gains 192.884 493.453 Other financial income 47.652 29.847 256.476 687.891

46. RESULTS FROM DISCONTINUED OPERATIONS, NON CURRENT ASSETS HELD FOR SALE AND ASSOCIATED LIABILITIES By the end of 2018, it took place the sale of the industrial assets of Zülpich operation (Germany), contractualised in 2017, to one of its main customers.



Colep Zülpich 31.12.18 31.12.17

Revenue 26.153.261 36.177.073

Expenses (31.993.546) (39.468.510)

Operating income (5.840.285) (3.291.437)

Financial expenses and losses (82.604) (107.913)

Profit before tax (5.922.889) (3.399.350)

Income tax 647.058 42.190

Results from discontinued operations, net of tax (5.275.831)

(3.357.160)

The net cash flows suported by discontinued operations are as follows:

68


31.12.18 31.12.17

Operating (1.939.097) (780.078) Investing 1.940.490 1.301.874 Financing (115.137) (259.376) Net cash flows (113.744) 262.420

II) NON CURRENT ASSETS HELD FOR SALE AND ASSOCIATED LIABILITIES

Under the terms of the contract for the sale of the Zülpich business, signed during 2017, the Group transferred the fixed assets established in this contract to non-current assets held for sale at their fair value. It also transferred to liabilities associated with non-current assets held for sale all liabilities related to the same contract (essentially, advances made by the buyer and the liability related to the pension fund attributable to the employees who will be transferred to the buyer).

31.12.17

Transfer of fixed assets net of impairment (note 9) 4.957.495

Non-current assets held for sale 4.957.495

Pension liabilities 363.288 Advances 1.301.874 Wages and salaries to be paid 119.332 Liabilities associated with non-current assets held for sale 1.784.494

47. RESTRUTURING COSTS

It was taken and implemented successfully in 2017 the decidion to consolidate the operations of the two production units of Liquids & Creams - Provider - Indústria e Comércio SA and Total Pack - Indústria e Comércio SA –, in Louveira, in one. Until then, these two units, focused on the personnel care and home care segments, respectively, carried their operations in different locations. In the first quarter of the year, the two industrial units of Liquids & Creams were consolidated in Brazil. Notwithstanding the synergies resulting from this operation, in June an additional restructuring plan was implemented in the Brazilian subsidiaries in response to the socio-political situation of the country, which did not allow any resumption of consumption. The synergies arising from this restructuring operation will permit additional cost savings and efficiency gains.

Details of restructuring costs:

31.12.18 31.12.17 Transfer of equipment 138.534 1.558.231 Severance payments 1.212.070 429.526 Storage of safety stocks 17.662 374.224 Other 10.775 201.084 Restructuring costs 1.379.041 2.563.065

48. INCOME TAXES




31.12.17





It was taken and implemented successfully in 2017 the decidion to consolidate the operations of the two production units of Liquids & Creams - Provider - Indústria e Comércio SA and Total Pack - Indústria e Comércio SA –, in Louveira, in one. Until then, these two units, focused on the personnel care and home care segments, respectively, carried their operations in different locations.

In the first quarter of the year, the two industrial units of Liquids & Creams were consolidated in Brazil. Notwithstanding the synergies resulting from this operation, in June an additional restructuring plan was implemented in the Brazilian subsidiaries in response to the socio-political situation of the country, which did not allow any resumption of consumption.

The synergies arising from this restructuring operation will permit additional cost savings and efficiency gains.

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31.12.18 31.12.17

Operating (1.939.097) (780.078) Investing 1.940.490 1.301.874 Financing (115.137) (259.376) Net cash flows (113.744) 262.420



31.12.17





It was taken and implemented successfully in 2017 the decidion to consolidate the operations of the two production units of Liquids & Creams - Provider - Indústria e Comércio SA and Total Pack - Indústria e Comércio SA –, in Louveira, in one. Until then, these two units, focused on the personnel care and home care segments, respectively, carried their operations in different locations. In the first quarter of the year, the two industrial units of Liquids & Creams were consolidated in Brazil. Notwithstanding the synergies resulting from this operation, in June an additional restructuring plan was implemented in the Brazilian subsidiaries in response to the socio-political situation of the country, which did not allow any resumption of consumption. The synergies arising from this restructuring operation will permit additional cost savings and efficiency gains.


31.12.18 31.12.17 Transfer of equipment 138.534 1.558.231 Severance payments 1.212.070 429.526 Storage of safety stocks 17.662 374.224 Other 10.775 201.084 Restructuring costs 1.379.041 2.563.065

48. INCOME TAXES 48. INCOME TAXES

“Income tax” for the years ended 31 December 2018 and 2017 is made up as follows:

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31.12.18 31.12.17 Current tax 5.986.571 7.063.717 Deferred tax (note 12) 4.290.945 282.188 10.277.516 7.345.905

Reconciliation between income before tax and income tax expense is as follows:

31.12.18 31.12.17 Profit before taxes 22.475.392 21.925.233 Nominal tax rate 21% 21% Estimated taxes 4.719.832 4.604.299 Differences on taxes (985.417) (806.344) Consolidation adjustments -

Permanent differences 110.094 822.354 Differences on nominal tax rate

Municipality Surtax 167.454 204.548 State surtax 502.724 657.286

Deferred taxes 4.290.945 282.188 Tax losses 2.797.255 2.690.833 Autonomous taxation 109.389 182.738 Insufficiency/(Excess) of income tax estimate (13.170) (233.954) Utilization of tax credits (928.706) (916.996) Other (492.885) (141.047)

Income tax expenses 10.277.516 7.345.905 Permanent differences: Non-deductible financial costs - 3.109.800 Non deductible provisions 110.540 920.772 Amortizations and depreciations not tax deductible 703.936 565.303 Tax benefits (126.045) (199.316) Others (164.172) (480.587) 524.259 3.915.971 Nominal tax rate 21% 21% Permanent differences 110.094 822.354

49. DIVIDENDS

According to a resolution adopted at the General Shareholders' Meeting of Colep Portugal held on March 28, 2018, dividends were distributed in connection with the result for the year 2017 in the amount of 10,000,000 euros.


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31.12.18 31.12.17 Current tax 5.986.571 7.063.717 Deferred tax (note 12) 4.290.945 282.188 10.277.516 7.345.905


31.12.18 31.12.17 Profit before taxes 22.475.392 21.925.233 Nominal tax rate 21% 21% Estimated taxes 4.719.832 4.604.299 Differences on taxes (985.417) (806.344) Consolidation adjustments -

Permanent differences 110.094 822.354 Differences on nominal tax rate

Municipality Surtax 167.454 204.548 State surtax 502.724 657.286

Deferred taxes 4.290.945 282.188 Tax losses 2.797.255 2.690.833 Autonomous taxation 109.389 182.738 Insufficiency/(Excess) of income tax estimate (13.170) (233.954) Utilization of tax credits (928.706) (916.996) Other (492.885) (141.047)

Income tax expenses 10.277.516 7.345.905 Permanent differences: Non-deductible financial costs - 3.109.800 Non deductible provisions 110.540 920.772 Amortizations and depreciations not tax deductible 703.936 565.303 Tax benefits (126.045) (199.316) Others (164.172) (480.587) 524.259 3.915.971 Nominal tax rate 21% 21% Permanent differences 110.094 822.354

49. DIVIDENDS

According to a resolution adopted at the General Shareholders' Meeting of Colep Portugal held on March 28, 2018, dividends were distributed in connection with the result for the year 2017 in the amount of 10,000,000 euros.

49. DIVIDENDS

According to a resolution adopted at the General Shareholders’ Meeting of Colep Portugal held on March 28, 2018,

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dividends were distributed in connection with the result for the year 2017 in the amount of 10,000,000 euros.

50. SUBSEQUENT EVENTS

No material subsequent events occurred after 31 December 2018.

51. FINANCIAL STATEMENTS APPROVAL

Financial statements were approved by the Board of Directors on 22 March 2019. However, they still need the approval from the Shareholders’ General Meeting, according to the Portuguese commercial rules.

Vale de Cambra, 22 March 2019

The Board of Directors:

José Henrique Pinto dos Santos

Richard Zakaib

Vítor Manuel Pereira Neves

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722

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Statutory Auditor’sReport

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LEGAL CERTIFICATION OF CONSOLIDATED ACCOUNTS

(Translation from the original Portuguese language. In case of doubt, the Portuguese version prevails.)

Statutory Auditor’s Report

REPORT ON THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS

Opinion

We have audited the accompanying consolidated financial statements of Colep Portugal, S.A. (the Group), which comprise the Consolidated Statement of Financial Position as at 31 December 2018 (showing a total of 331.697.018 euros and a total equity of 93.234.156 euros, including a net profit for the year of 6.922.045 euros), and the Consolidated Income Statement 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 notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements give a true and fair view, in all material respects, the consolidated financial position of Colep Portugal, S.A. as at 31 December 2018, and of its consolidated financial performance and its consolidated cash flows for the year then ended, in accordance with International Financial Reporting Statements as endorsed by the European Union.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs) and other technical and ethical standards and guidelines as issued by the Institute of Statutory Auditors. Our responsibilities under those standards are further described in the “Auditor’s Responsibilities for the audit of the consolidated financial statements” section below. We are independent of the entities comprising the Group in accordance with the law and we have fulfilled other ethical responsibilities in accordance with the Institute of Statutory Auditors’ code of ethics.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Responsibilities of management and the supervisory board for the consolidated financial statements

Management is responsible for

► the preparation of the consolidated financial statements that presents a true and fair view of the Group’s financial position, financial performance and cash flows in accordance with International Financial Reporting Statements as endorsed by the European Union;

► the preparation of the Management Report in accordance with the laws and regulations;

► designing and maintaining an appropriate internal control system to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error;

► the adoption of accounting policies and principles appropriate in the circumstances; and

► assessing the Group’s ability to continue as a going concern, and disclosing, as applicable, matters related to going concern that may cast significant doubt on the Group’s ability to continue as a going concern.

The supervisory board is responsible for overseeing the Group’s financial reporting process.

Auditor’s responsibilities for the audit of the consolidated financial statements Our objectives are 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:

Ernst & Young Audit & Associados - SROC, S.A. Avenida da Boavista, 36, 3º 4050-112 Porto Portugal

Tel: +351 226 002 015 Fax: +351 226 000 004 www.ey.com

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► 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;

► 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;

► evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management;

► 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;

► 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;

► obtain sufficient and 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 and we remain solely responsible for our audit opinion; and

► 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.

Our responsibility also includes the verification that the information contained in the Management Report is consistent with the consolidated financial statements.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

On the Management Report

Pursuant of article 451, n. 3, paragraph e) of the Commercial Companies Code, it is our opinion that the consolidated Management Report was prepared in accordance with the applicable legal and regulatory requirements and the information contained therein is consistent with the audited consolidated financial statements and, having regard to our knowledge and assessment over the Group, we have not identified any material misstatement.

Porto, 10 April 2019 Ernst & Young Audit & Associados – SROC, S.A. Sociedade de Revisores Oficiais de Contas Represented by: (Signed) Rui Manuel da Cunha Vieira - ROC n.º 1154 Registered with the Portuguese Securities Market Commission under license n. 20160766

Colep Portugal, S.A. Statutory Auditor’s Report

31 December 2018

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Report of theFiscal Council

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REPORT OF THE FISCAL COUNCIL

(Translation of a report originally issued in Portuguese)

To the Shareholders of Colep Portugal, S.A

In compliance with article 508-D n.1 of the Portuguese Commercial Code, the consolidated financial statements and the corresponding consolidated Board of Director’s Report of Colep Portugal, S.A., for the year ended December 31, 2018, were submitted for our review.

We have assessed the above-mentioned documents, and the statutory audit report, issued by Ernst & Young Audit & Associados – SROC, SA., which is hereby transmitted. We state our agreement with the content of the latter.

We have unanimously agreed to issue this report and we propose that the consolidated financial statements and the corresponding consolidated Board of Director’s Report for the year ended December 31, 2018 can be approved by the Shareholder’s General Meeting referenced in article 376 of the Portuguese Commercial Code.

Vale de Cambra, 11th april 2019

The Statutory Audit Board

- Carlos de Jesus Pinto de Carvalho – President Cartão de Cidadão nº 03435775 – ROC nº 622 e RSCMVM nº 20160268

- Filipa Carvalho de Azevedo Cartão de Cidadão nº 11900834 – Lawyer

- João Pedro Martins da Silva Simões Cartão de Cidadão nº 12105687 – ROC nº 1823 e RSCMVM nº 20170009

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Consolidated Annual Reportand Financial Statements 2018

www.colep.com

Documents

Consolidated Annual Report and Financial Statements€¦ · The Board of Directors: José Henrique Pinto dos Santos , Richard Zakaib, Vítor Manuel Pereira Neves 17 COLEP PORTUGAL,