2017 - bondaltiwhat had already happened in 2016 – inflation moved from 1.8% to 2.1% in the united...

2017MANAGEMENT

REPORT

The Board of Directors

Management report

01 Macro economic environment

02 Highlights for the year

03 Evolution of key indicators

04 Companies included in the consolidation

05 Activities and results of CUF – Químicos Industriais, S.A.

5.1 Marketing activity

5.2 Industrial activity

5.3 Procurement

5.4 Human resources

5.5 Information systems

5.6 Innovation and sustainability

06 Economic and financial analysis

07 Activities of subsidiaries

ELNOSA – Electroquímica del Noroeste, S.A.U.

RENOESTE – Valorização de Recursos Naturais, S.A.

AQP – Aliada Química de Portugal, S.A.

NUTRIQUIM – Produtos Químicos, S.A.

ALTAMIRA – Electroquímica del Cantábrico, S.A.

MIRALCALIS – Ativos de Produção de Cloro, S.A.

08 Outlook for 2018

09 Proposal for appropriation of results

10 Final note

Consolidated financial statements

INDEX

Notes for the consolidated financial statements 2017

01 The company

02 Bases of preparation of the financial statements

03 Main accounting policies

04 Cash flows

05 Related Parties

06 Tangible fixed assets

07 Investment property

08 Intangible assets

09 Equity holdings

10 Inventories

11 Government and other public entities

12 Deferrals

13 Financial instruments

14 Provisions

15 Employees benefits

16 Other equity instruments

17 Subsidies and other funding from public entities

18 Revenue

19 Gains/losses of subsidiaries, associates and joint undertakings

20 Work for own entity

21 Supplies and Services

22 Other income

23 Other expenses

24 Effects of changes in exchange rates

25 Expenses/Reversal of depreciation and amortisation

26 Interest and similar income

27 Interest and similar expenses

28 Income tax

29 Other information

30 Subsequent events

27

28

28

28

42

42

45

46

47

48

49

50

50

51

54

55

57

58

59

60

60

61

62

63

63

64

64

64

65

66

68

04

05

07

08

09

10

10

10

10

14

14

16

17

18

19

19

19

20

20

20

20

20

21

21

22

THE BOARDOF DIRECTORS

| THE BOARD OF DIRECTORS | CUF - QUÍMICOS INDUSTRIAIS, S.A. | 4 |

GENERAL MEETING

CHAIRMAN

Dr. Alexandre Cabral Côrte-Real de Albuquerque

SECRETARY

Dr. Fernando Jorge Gonçalves Guedes de Figueiredo

BOARD OF DIRECTORS

CHAIRMAN

Eng.º João Maria Guimarães José de Mello

MEMBERS

Eng.º João Jorge Gonçalves Fernandes Fugas

Dr. André Cabral Côrte-Real de Albuquerque

Dr. Luís Augusto Nesbitt Rebelo da Silva

SOLE AUDITOR

Ernst & Young Audit & Associados – SROC, S.A.

ALTERNATE AUDITOR

Dr. Luís Miguel Gonçalves Rosado

MANAGEMENTREPORT

2017

| MANAGEMENT REPORT 2017 | CUF - QUÍMICOS INDUSTRIAIS, S.A. | 6 |

To the Shareholders,

According to the Law and the Articles of Association, the Board of Directors hereby submits to the General Meeting its Management Report and the Financial Statements relating to 2017.


01 MACRO ECONOMIC ENVIRONMENT

2017 was marked by an acceleration of economic activity, with world GDP growing to 3.7% from 3.2% in 2016. Moreover, for the first time since 2010, global economic growth occurred simultaneously in both advanced and emerging economies. GDP growth in advanced economies moved from 1.7% to 2.3%, backed by expansionary monetary and fiscal policies – the Euro Zone grew by 2.5% in 2017, outperfor-ming initial expectations (1.8% in 2016) – whereas emerging economies moved to 4.7% from 4.4%.

Notwithstanding this buoyant background, in 2017 inflationary pressures remained contained, in line with what had already happened in 2016 – inflation moved from 1.8% to 2.1% in the United States, 1.1% to 1.4% in the Euro Zone, against 2.5% to 1.8% in China, and 1.8% to 3% in the United Kingdom, because of the Brexit process.

Combined with a favourable economic outlook, a slight acceleration in prices in 2017 led to a gradual rise in expectations concerning inflation in both the US and the Euro Zone. The dissipation of the deflation risks of previous years allowed major central banks to start gradually and slowly reducing their quantita-tive easing policies. In the Euro Zone, the ECB kept its refinancing and deposit facility rates unchanged at 0% and -0.4% respectively; however, it slowed down its assets purchase programme from € 80 billion/month to € 60 billion/month starting in April and announced a further decrease to € 30 billion/month for the beginning of 2018.

Market interest rates for longer terms were sustained by a better outlook for both growth and inflation. As for shorter terms rates, the 3-month Euribor receded marginally from 0.319% to -0.329%.

In the foreign exchange market, the Euro rose almost 14% against the US Dollar, ending the year at EUR/USD 1.2022.

In Portugal, economic activity outperformed expectations, rising by 2.7% in 2017 as against 1.5% in 2016. Internal demand increased its contribution to GDP, as private consumption rose at a stable pace of 2.2% and investment accelerated from 0.9% to 8.4%. Confidence amongst households reached high levels in 2017, driven by the fall in the unemployment rate from 11.1% to 8.9% of working population, and by an increase in available income, benefiting from a reduction in direct taxes and wage rises. Investment was driven by improving financing conditions, recovery in public investment and, as far as corporations are concerned, by the need to improve or expand productive capacity taking advantage of the favourable economic background at internal and external levels. The rise in imports in 2017 (from 4.1% to 8.7%) motivated a slightly negative contribution of net external demand to GDP, despite the strong performance of exports, which rose by 8.8%.

Average annual inflation measured by the CPI rose to 1.4% from 0.6%.

The flow of new credit to non-financial companies reduced slightly in 2017, as companies continue their deleveraging processes.

Public deficit dropped from 2% to 1.2% of GDP and public debt fell to 126% from 130.4% of GDP – though it increased in absolute terms.

The favourable development of public accounts contributed to Portugal’s withdrawing from the exces-sive deficit procedures in June. In September, the credit rating of Portuguese public debt was upgraded to Investment Grade by S&P. In December, it was Fitch’s turn to upgrade Portugal’s rating from BB+ to BBB. Against this background, after reaching a 2-year high in March (4.3%), 10-year government bonds yield fell to 1.9% at the end of the year. The spread vis-à-vis the German Bund narrowed from 387 bps in February to 152 bps at the end of the year.

The current economic expansion cycle is likely to continue in 2018, backed by still favourable monetary and financial conditions and additional fiscal stimulus in some economies. In the Euro Zone, GGP growth is expected to hover around 2.2%.

In 2018, structural factors (technology, globalisation, lower unemployment, wage rise) should drive infla-


tion upwards though below the target of Euro and US central banks. Against this background, central banks are likely to continue reducing their monetary policy stimulus. With economic growth and increasing inflation, market interest rates are expected to rise.

Therefore, in 2018 the Portuguese economy is likely to continue its present expansion cycle, though at a slower pace, with GDP expected to grow close to 2.1%. In the short term, major risks are external and appear to be moderate.

02 HIGHLIGHTS FOR THE YEAR

Industrial units recorded high operating levels during the year under review, with various units hitting record levels.

These levels of production combined with relevant efficiency gains led to significant decreases in specific consumptions of main raw materials and energy and to better sales prices, fuelled by favourable market conditions in a context of economic recovery. At the end of the year, operating results were significantly higher than expected, both as concerns organic and inorganic products.

Throughout the current year, viewing to reduce the effect of fluctuations in the price of benzene, such as those occurred in previous years, the company maintained a hedging agreement for a significant part of supply.

As mentioned in previous years’ reports, energy prices practised in Portugal remain considerably higher than in Europe. CUF – QI continues to work with sector organisations to improve this critical factor that affects the competitiveness of our national industry. This pressure has already borne fruit, namely in the cost of natural gas; however, efforts must continue to be made as long as these negative global conditions persist. Notwithstanding, on a par with an efficient management of production, we continue to pursue active policies to reduce the cost of raw materials with main suppliers.

On the safety, health and environmental side, the company continues to post favourable results, in line with previous years.

The company continues to invest in the technological development of its processing units, with the support of main Portuguese universities, with a view to ensure the best operating conditions, based on benchmark analysis of the sectors where we operate, seeking to continuously improve indicators and find new technology solutions.

Expansion in the Iberian chlor-alkali market is amongst the company’s strategic objectives. The purchase of Elnosa completed in 2003 anticipated such expansion. EU Directive 2010/75 banning the production of chlorine using mercury cells as from 12 December 2017, and requiring the close down or conversion into membrane technology of 70% of installed capacity in Iberia, created favourable conditions to such strategy.

Given the resistance to transport of practically all chlor-alkali products and the substantial gains in conver-ting mercury cells units based on greenfield projects, it immediately became clear that expansion would be carried out preferably (a) through the installation of industrial capacity in Spain, and (b) conversion of existing units.

Elnosa, in Pontevedra, was a natural candidate for conversion. However, it was not yet possible to obtain the agreement of all authorities concerned and it may never be possible given the opposition of the Ponte-vedra Municipality, which does not want industrial companies in the area where Elnosa is established.

In view of this gridlock, CUF through Altamira – Electroquímica del Cantábrico, S.A. acquired from Solvay the latter’s chlorine plant in Torrelavega. This operation fulfils the requirements and has competitive advan-tages in terms of location and access to raw materials. The plant’s industrial conversion is already under


way, backed by CUF’s know-how and experience obtained following the conversion of the company’s plants in Estarreja and the operation of plants with the technology projected for Torrelavega.

The Torrelavega project is thus an important step towards the implementation of the strategy laid down for the chlor-alkali business, and it is expected to add significant capability to generate results.

03 EVOLUTION OF KEY INDICATORS

UNIT 2013 2014 2015 2016 2017

Turnover €M 329 350 296 266 323

Operating Cash Flow (EBITDA) €M 34 31 37 39 46

Operating Results (EBIT) €M 15 13 19 22 24

Operating Results / Sales % 4.7 3.6 6.5 8.1 7.4

Financial Costs €M 5.1 4.4 3.8 3.3 2.9

Profit Before Tax €M 10.5 8.4 16 18 21

Net Profit €M 7 5.5 11 13 16

Cash Flow (NP + Amort. + Provisions) €M 26 24 29 31 38

Equity €M 80 88 87 85 89

Net Assets €M 254 242 236 217 234

Financial Liabilities €M 121 102 92 77 65

Net Financial Liabilities €M 106 80 61 53 34

Financial Liabilities/EBITDA Number of x 3.6 3.3 2.5 2.0 1.4

Net Financial Liabilities/EBITDA Number of x 3.1 2.6 1.7 1.3 0.7

Equity / Assets Ratio % 31 36 37 39 38

Average no. of employees* Nr. 336 338 326 319 315

Sales per employee €M 979 1036 907 832 1024

* Not considering AQP employees; corporate bodies not included (2016 and 2017)


04 COMPANIES INCLUDED IN THE CONSOLIDATION

05 ACTIVITIES AND RESULTS OF CUF – QUÍMICOS INDUSTRIAIS, S.A.

5.1. MARKETING ACTIVITY

2017 was a record-setting year.

In the organic area, aniline and MNB sales outperformed sales of all previous years. In the inorganic area, sales of sodium hypochlorite exceeded 100,000 tonnes.

The increase in the quantity of aniline supplied was boosted by demand in the European market and the non-existence of new capacity in Europe. Even following the start-up of Dow’s unit in SADARA in the first half of 2017, the shortage of aniline supply is likely to continue to exist until the start-up of the new invest-ments announced by COVESTRO and BORSODCHEM.

On a par with the MDI market, the aramid fibre and rubber additives markets evolved positively.

The supply of MNB to a pharmaceutical company in the United States to produce paracetamol attests to the high production standards existing in Estarreja.

In the inorganic products area, we highlight the rise in sodium hypochlorite sales to new clients brought by the phase out of production based on mercury cells, which reduced the number of producers in the Iberian market.

Also as a result of the said phase out, the price of soda rose, with positive impact on our sales volume. This situation is likely to continue in the first half of 2018.

5.2. INDUSTRIAL ACTIVITY

5.2.1. PRODUCTION OF ORGANIC PRODUCTSIn 2017 main production units of aniline and by products hit monthly and annual records. Budgeted targets were largely surpassed, but specific consumptions of the most relevant raw materials were kept under control.

Aniline, MNB and nitric acid production in 2017 outperformed 2016’s by 12%, 14% and 11%, respectively.

Production levels of sulphanilic acid and cyclohexylamine were similar to last year’s, whilst cyclohexanol production fell by 5%.

COMPANIES EQUITY HOLDING CONSOLIDATION METHOD

CUF – Químicos Industriais, S.A. 100% Full consolidation

ELNOSA – Eletroquímica del Noreste, S.A.U. 100% Full consolidation

NUTRIQUIM – Produtos Químicos, S.A. 100% Full consolidation

RENOESTE – Valorização de Recursos Naturais, S.A. 100% Full consolidation

ALTAMIRA – Electroquímica del Cantábrico, S.A. 100% Full consolidation

MIRALCALIS – Ativos de Produção de Cloro S.A. 80% Full consolidation

AQP – Aliada Química de Portugal, Lda 49,90% Equity method


5.2.2. PRODUCTION OF INORGANIC PRODUCTSIn 2017 the amount of chlorine gas produced was 5% higher than in 2016. Likewise, the amount of hydro-chloric acid and hypochlorite rose by 7% and 10% respectively.

In April 2017 AGC electrolysis reached maximum capacity following the installation of new cells.

Storage capacity of hypochlorite was increased, which allowed to use all productive capacity during week-ends, resulting in an increase in capacity during a sales peak period and lower energy costs, thanks to better load modulation and improved interruptibility factor.

5.2.3. MINING PRODUCTIONDuring 2017 the amount of rock salt extracted from the Campina de Cima mine in Loulé reached 6,861 tonnes.

The volume of operation inside the mine corresponded to a production of nearly 2,670 tonnes of “run--of-mine” product, which entered the processing plant, producing rock salt to be used for road safety purposes and for the feed industry.

5.2.4. MAINTENANCEIndustrial maintenance activity evolved in line with established goals, following the best international prac-tices.

No serious accident occurred with either internal or external personnel. The availability of productive units increased by 1% in relation to 2016, ending 2017 with an average availability of 98.2%, which is in line with the world-class category of our international benchmarking – pit-stop to some critical assets in order to ensure the period between general shut-downs or any modernisation or replacement of any, banking on predictive maintenance technology.

5.2.5. LOGISTICSThe shipping of CUF – QI final products is made by pipeline to clients in the industrial complex, or by sea – for large volumes and long distances, or by road in case of short distances, or by multimodal transport in case of low volumes and long distances.

In 2017 over 1.51 million tonnes were handled by CUF at the Estarreja complex, 5% more than in 2016. This increase was due to larger production, with immediate impact on the shipment of finished products and reception of raw material.

362 thousand tonnes were shipped by pipeline, of which 27% consisted of raw materials and 73% were finished products.

The amount of cargo handled by CUF in Portuguese ports in 2017 totalled 347 thousand tonnes, involving 103 ships. These figures were similar to those recorded in 2016.

The cargo transported by road totalled 731 thousand tonnes, increasing by 7% over the previous year, whereas the amount of finished products using multimodal transportation totalled 23.6 thousand tonnes, increasing by 11% over 2016.

We received 48.6 tonnes of ammonia via railway, which was 11% more than in the previous year.

Variable expenses of unit sales in the organic and inorganic sector were in line with estimates.

5.2.6. TECHNICAL AREAThe Technical Area maintained its courses of action: reduction in costs of both energy and raw materials, improving efficiency and reinforcing the solidity of industrial processes; improvement of environmental protection and sustainability of resources, contributing to a culture of innovation with value creation.

In most cases, projects carried out by the Technical Department are developed and managed internally,


involving the different technical areas in their organisation and implementation. The use of multidisciplinary and over-arching teams has contributed to a more efficient management of the projects.

5.2.6.1. ANALYTICAL CONTROL In 2017, the following should be pointed out besides the analytical control of productive processes:

• Installation of two new gas chromatographs and software upgrade of four existing ones, allowing increased efficacy in the answer to requests from aniline and by-products production;

• Implementation and validation of a new method of analysis to determine the purity of benzene;• Finalisation of the contents of an e-learning programme, to consolidate the skills of the team;• Implementation of application improvements in SIAP:LIMS, in collaboration with the Automation and

Control Area.

5.2.6.2. SHA (SAFETY, HYGIENE AND ENVIRONMENT) & QUALITYInformation and training about the dangers and hazards of industrial operations are part of this area’s permanent activities. Identification of tanks and equipment in line with Regulation 1272/2008 on packa-ging classification and labelling was carried out in 2017.

Information continued to be provided to clients on the need to be prepared to deal with emergency situa-tions. To this end, during the year, CUF – QI carried out emergency drills in customer facilities.

No serious industrial accident was recorded in 2017; only one labour accident occurred giving cause to sick leave.

Environment No environmental accident occurred.

Following the issue of the new Environmental Licence, a new 5-year environmental performance plan was prepared, and several actions were carried out to adapt to the new licences requirements.

QualityThe integrated management system (quality, environment and safety) is the benchmark for the application of management and operational organisation methodologies, based on the best management practices provided in ISO 9001, 14001 and OHSAS 18001 standards.

During 2017 the company carried out several improvement actions viewing the transition of the integrated management system to new standards (quality and environment), a process which involved the entire organisation in the identification of improvement strategies and stakeholders relevant for CUF.

5.2.6.3. DEVELOPMENT AND TECHNOLOGY (DTEDP)During 2017 the activity of the Development and Technology Department (DTEDP) focused on the Indus-trial Implementation projects, Innovation and R&D, technical support to the different areas and process/technological surveillance.

Industrial Implementation ProjectsAmongst the various industrial projects implemented in 2017 (most of which were conceived in-house), the most relevant in terms of size and impact were the following:

• Energy integration in the distillation of aniline;• Reduction in oxidation originating from carbonate decomposition in the MNB plant;• Change in the vents system of alkaline washing in the MNB plant;• Change in the nitrophenol concentration system; • Improvement in the effluent network of the sulphanilic acid plant;• Decomposition of chlorates in the brine electrolysis circuit;• Change in system adding reducing agent in brine coming from electrolysis.

Research & Development ProjectsWithin the scope of PhD work, studies were made in the aniline production field, viewing to optimise


hydrogenation reaction, improve purifying operations and recover the by-products originated from the process.

Research work is being developed concerning MNB production, such as nitration reaction and in MNB washing operations.

As far as chlor-alkali production is concerned, specifically brine electrolysis, PhD work is being developed to improve knowledge about the situation of electrodes, viewing their replacement at the right moment. This research should result in improved energy consumptions and lower maintenance costs.

R&D work has been developed in collaboration with a university and a specialised company to rationalise the use of water and reduce effluent emissions.

Technical Support During 2017, the DTEPD continued to technically support the activity of Production, Maintenance, Safety, Hygiene and Environment, Project Engineering and Analytical Control areas, in addition to the regular activities of process surveillance.

The latter focused on energy consumption, specific consumptions, process reliability and the explanation of anomalous operation and are based on a matrix of subjects with different surveillance frequencies. The methodology comprises a distribution list and periodical analysis, allowing to redirect activities, namely R&D’s. These actions were multiplied in 2017.

5.2.6.4. DESIGN ENGINEERING AREA Support to CUF’s Internationalisation Strategy With regard to CUF internationalisation activities, specifically in the chlor-alkali area, the Project Enginee-ring Department completed the development of various scenarios and budget estimates, which ended up with the approval of the investment and the contracts for the supply, assembly and commissioning of a membrane cell electrolysis unit to be deployed in Torrelavega, Spain.

In relation to Elnosa, the department studied different scenarios for investment in the technological conversion to membrane cells.

Optimisation of OperationsProjects developed viewing the optimisation of existing units included the assembly of 10 additional cells per electrolyser, allowing the AGC unit to reach maximum production capacity, and the construction of new storage facility for sodium hypochlorite.

Viewing to improve logistics for the supply of salt and benzene in Estarreja, we increased salt storage capacity and started the detailed study on connection to pier 24 at the Aveiro harbour.

Regarding social equipment, the construction of a rest room and shower room for the PCA unit was completed. Construction of an additional shower room and hall was started at the end of the year. These works, as well as the construction of a shower room for the PAD shifts, should be completed in the second quarter of 2018.

5.2.6.5. CONTROL AND INDUSTRIAL AUTOMATION SYSTEMS (CIAS)5.2.6.5.1. Industrial Automation2017 was marked by the development and implementation of automation and control solutions – mitiga-tion of stoppages at the MNB plant due to voltage drops (micro outages), revision and verification of the ESD-PCA system (Emergency Shutdown) to include new interlock signals; integrated CCTV system for Estarreja site - and upgrade of the control system in the Ammonia Tank in Lavradio.

5.2.6.5.2. SIAP Software SuiteThe SIAP software suite started a migration process towards an updated tool (SIAP.NET). New functiona-lities were introduced in the SIAP suite, namely a Logistics Support module.


5.3. PROCUREMENT

In 2017 the total amount of purchases negotiated by the Procurement Department was €267 million.

From an internal structure point of view, initiatives continued to be implemented to achieve efficiency gains in administrative tasks and database management, and specific services were provided to other areas of the company relating to REACH aspects and biocidal products.

CUF was considered as a reference in the production of active chlorine and sodium hypochlorite subs-tances. The licensing process of these substances as biocidal product should be completed until the end of 2018.

In the raw materials markets, an unexpected rise in salt price occurred in the mid of 2017, following the postponement of production by a major operation due to technical reasons that reduced available supply.

Notwithstanding this specific situation concerning salt supply, which should be overcome in mid-2018, CUF achieved considerable savings following the negotiation of other contracts.

5.4. HUMAN RESOURCES

In 2017 CUF’s human resources’ strategic axes remained aligned with the company’s strategy, with seve-ral projects under way, such as:

The Cornerstone Project views to provide greater efficiency to the company’s training process and make professional development a more participated and collaborative experience for all employees. It also views to make formation programmes more inclusive and truly addressed to the needs of the people and the company’s strategy. Training at CUF is managed autonomously by the different areas.

The assessment of stress levels, within the scope of the CUFAMINA programme, consisted of three parts: an evaluation questionnaire on stress symptoms and protection factors; an interview to assess the percep-tion of stress levels and a lab analysis of cortisol levels to the same sample of employees who participated in the interviews. This appraisal process led to the definition of an action plan to implement in 2018.

CUF is investing in the training of its managerial staff since 2012, specifically through the “Avaliação 360.º Líderes CUF” project. The first 360º assessment was made in 2014, following which development plans were drawn up for all leaders. An additional 360º assessment was carried out in 2017 to understand the development of CUF leaders, following the actions carried out over the last five years, and to identify solutions to promote the integration of leadership issues in working activities, taking into account the company’s objectives. Actions developed and the results of the 360º diagnosis revealed improvements at all hierarchy levels and in different scopes.

HUMAN RESOURCES STRATEGIC AXES DEVELOPED PROJECTS

OVERALL MANAGEMENTEnsure an overall management of CUF employees

Implementation of Cornerstone – Training Management

CONTINUOUS DEVELOPMENTEnhance leaderships and teams, developing critical skills to achieve goals

Assessment of stress levels, within the scope of the CUFAMINA programme

Avaliação 360.º Líderes CUF

COHESION AND WELL-BEING Strengthen CUF’s identity and culture

Family responsible companyOrganisational Happiness CUFAMINA

Renovation of Social Equipment

REJUVENATIONOf CUF’s human capital, ensuring the building of knowledge and sharing of experience between generations

4x4 TrainingMaintenance Technicians

Implementation of the defined rejuvenation plan


The company started a Family Responsibility Project: CUF believes that practices for reconciling work and family life contribute to the well-being of its employees. Within the scope of this project, a diagnosis was carried out to review existing practices, understand to what extent such practices are known and valued internally and identify other practices that could be considered in the future.

5.4.1. PERFORMANCE ASSESSMENTThe annual performance evaluation was carried out covering all employees, based on the Performance Management System in force at the company.

5.4.2. STAFF Amongst other changes occurred in 2017, the company integrated 4 young people who were part of a work learning project.

Average number of employees

Pensioners The number of pensioners fell by 18%.

5.4.3. DEVELOPMENT OF SKILLS BASED ON PROFESSIONAL TRAININGInvestment in development and training continued during the years, covering the following initiatives:

Quality and Environment • Internal Emergency Plan;• Continuous training on various subjects in the safety field;• Risk assessment of explosive atmospheres;• Prevention and fight of industrial fires; • Confined space rescue;• First aid re-certification.

Productive Processes

• Burning of carbonate purging;• Centrifuge of heavy liquids – C941;• 3rd edition of the 4x4 training programme in real work context, viewing future integration of trainees.

Maintenance

• Lean Asset Management;• Material corrosion and protection;• Quality control and inspection;• Wireless instrumentation and transmission.

LOCAL 2016 2017

CUF – Químicos Industriais, S.A. 245 247

NUTRIQUIM – Produtos Químicos, S.A. 1 1

RENOESTE – Valorização de Recursos Naturais, S.A. 10 6

ELNOSA – Eletroquímica del Noreste, S.A.U. 63 61

TOTAL 319 315


Cross-Disciplinary Training• Refreshing of information taking in account revised standards of our integrated management system;• Several training actions in the field of energy management and efficiency;• English;• CUF Leaders – 360º Assessment;• Meetings, Fairs, Conferences, Symposiums, amongst which the following:

» CPhl » Chemspec Europe 2017 » Supply Chain » Digital Commodities Summit

5.4.4. TRAINEESHIPS AND SCHOLARSHIPSWithin the scope of the strategic relationship entered with secondary schools and universities, the company continued to promote internships/ and scholarships (32), involving students and recently graduated students:

• 8 R&D and PhD scholarships• 9 Curricular traineeships• 10 IEFP traineeships• 1 internship introducing to professional life• 4 post-doctoral scholarships.

5.5. INFORMATION SYSTEMS

Information security occupied a relevant place in the Department’s activity in 2017. Information is a core asset and the equipments through which it is conveyed and where it is processed and stored require particular care.

Accordingly, the General Data Protection Regulation introduced the need to comply with a set of legal requirements regarding which a large part of the country’s economic fabric lacked awareness. The process was launched and is still ongoing in 2018. However, the need to see to specific aspects of the law raised the opportunity to provide the company with monitoring means and create alarm and intelligence mecha-nisms in surveillance based on information means.

One of the projects concerned the creation of a document platform adequately structured and with well--defined accesses. As a result of this project, the paradigm of network shares started to be changed, migrating to sharepoint online. Using defined accesses, information is available from anywhere and it is possible to ensure its traceability and control its degree of timeliness.

Additionally, we have deployed the EM+S tool from Microsoft, which views to establish a platform for the classification and protection of information, based on a holistic identity-driven protection concept. This platform protects the company from undue accesses to its information repositories (OnPrem, cloud and mobile devices) and allows Single Sign On (SSO) through which “CUF’s identity” validates access to other platforms. This technique is already operating for the Cornerstone e-learning platform.

Another tool was implemented - Advanced Threat Protection (ATP), which views to detect – through beha-viour observation – malware and malicious URL (phishing and other) in emails. These detection actions are triggered outside CUF’s perimeter, in sandbox environments, thus ensuring greater protection for “zero day” occurrences.

The physical component of the network is also the object of improvement, through a networking project at CUF – QI to provide the company with security and control systems regarding access to the corporate network (LAN and WAN). Architecture and procurement phases were completed in 2017 and implemen-tation is planned for 2018.

In relation to the data centre, we are still considering which paradigm should be followed and several possible solutions.


Additionally, we continued to actively work in the efficiency and streamlining of processes, whether opera-tional or administrative or relating to management monitoring.

5.6. INNOVATION AND SUSTAINABILITY

Sustainability is a strategic priority for the development of any organisation and a key subject when we discuss corporate competitiveness in the short, medium or long terms.

CUF wants to contribute to a more sustainable world, promoting economic growth by integrating princi-ples which it deems crucial, such as innovation, skills and human development, relationship with local and scientific communities and the mitigation of the environmental impact throughout the value chain.

Innovation is a core value at CUF, being crucial for the company’s competitiveness and development. The company invests significantly in innovation.

Sustainability In line with CUF’s sustainability vision, the company identified the Sustainable Development Goals (SDG) which are the most relevant for the organisation. These SDG, which are guidelines for sustainable corpo-rate growth at both national and international levels, are followed by CUF, which thus contributes to the global goals set forth.

• SDG 6 – Drinking water and sanitation • SDG 7 – Affordable renewable energy • SDG 8 – Decent work and economic growth • SDG 9 – Industry, innovation and infrastructure • SDG 12 – Responsible consumption and production

In 2017 CUF answered the ecoVadis questionnaire, a sustainability performance index to assess corpo-rate policies, actions and results in several fields, such as Environment, Labour Practices and Human Rights, Fair Trade Practices and Sustainable Purchasing. The score obtained places CUF amongst the top 3% of assessed companies, reflecting the company’s commitment and performance in the fields of Environment, Labour Practices and Human Rights, Fair Trade and Sustainable Purchasing.

Within the scope of the BCSD Portugal (Business Council for Sustainable Development) CUF participated in the work group “Sustainability in the Value Chain”, which views to extend the commitment towards sustainability to a larger number of corporations, supporting them and enabling them in this field. To this end, BSCD Portugal created a Charter of Principles, establishing the key sustainability principles for an adequate corporate management, which CUF has already subscribed and will seek to extend to the enti-ties within its value chain.

During 2017, CUF was involved in another project of BCSD Portugal, called “MEET 2030”; the final report was presented in November. This project viewed the creation of scenarios for Portugal in 2030 within the context of a fourth industrial revolution, taking into account the commitments towards carbon neutrality, identifying potential economic business sectors and increased added value solutions allowing to define strategic priorities at national and international level.

CUF – QI Inovation2017 was marked by added efforts to take advantage of Innovation and R&D activities and evaluate the performance of such activities.

In 2017 the Colombo project, which is aimed to capture novel ideas, celebrated its 10th anniversary, awar-ding prizes to the three best ideas and paid special tribute to the employee holding the record of most approved ideas so far.

In relation to Innovation and R&D partners, in 2017 CUF mapped its most relevant partners with a view to strengthen its relationship with them and promote greater knowledge sharing and R&D and Innovation partnerships and exploring new relation opportunities with our partners.


During the year under review CUF held 2 internal sessions for the sharing of lessons learned from mana-ging Innovation and R&D projects, which viewed the dissemination of best practices in project manage-ment.

Finally, it should be pointed out that CUF – QI Innovation and R&D strategy has been accompanied by the development and optimisation of organisational and innovation management structures, namely via the upgrading of the Innovation and R&D Management System – certified according to NP 4457 – focus on employee awareness raising and training.

06 ECONOMIC AND FINANCIAL ANALYSIS (See point 3. Evolution of key indicators)

In overall terms, all key indicators improved in 2017.

The company has a solid economic and financial situation, having posted net profit for the year of €16.4 million.

Turnover totalled €323 million, growing by 20% over the previous year. This performance must be seen in the light of the specific characteristics of the aniline and its by-products sector and respective price formula, which comprises the price of benzene; this price rose significantly in 2017. Accordingly, part of the said growth stems from larger quantities sold whilst another part is nominal, reflecting the increase in benzene price, with no significant impact on margins.

The relevant rise in EBITDA reflects a combination of particularly favourable circumstances in the aniline and by-products and the chlorine and by-products markets. In the aniline market, the scarcity of aniline available drove an increase in prices, and CUF – QI had available capacity to seize the opportunity. In the chlorine market, the close down of chlorine plants following the banning of mercury cell-based produc-tion, affected Spain’s capacity in particular, and was anticipated by clients who stockpiled in advance, thus benefiting suppliers, such as CUF – QI, which had already made the transition to authorised techno-logies and were able to ensure future supply.

This had a very positive impact on results, despite the negative performance of Renoeste and Elnosa:

• Renoeste recorded impairments on its land and buildings in the total amount of €3.7 million, as result of the close down of production.

• Elnosa recorded operating losses of €200 thousand in 2017 (€900 thousand in 2016), as a result of impairments associated with the shut down of chlorine production based on the mercury cell process as determined under the EU Directive mentioned above.

The impact of financial expenses on results is decreasing, as a result of the repayment of debt - which went from €77 million at the end of 2016 to €65 million in 2017, but also thanks to a continued fall in inte-rest expenses.

The debt-to-equity ratio stood at 38%, with a balanced distribution between short, medium and long-term liabilities.

The Net financial liabilities/EBITDA ratio reduced from 1.3 in 2016 to 0.7 in 2017, continuing to evolve positively. Financial debt concerns medium and long-term financing operations and hedging operations with a negative mark to market, with financial liabilities for the year corresponding to the repayments to be made in 2018.

In line with its interest rate risk management, the company contracted additional hedging operations covering the whole financial debt until 2020, except for current accounts.


Risk exposure to benzene prices, which bears considerable weight on CUF – QI operation, is mitigated by hedging contracts with suppliers.

Still with the purpose of reducing exposure to market risks, the company contracted hedging operations on the prices of other raw materials, the cost of which is included in financial results.

Loans and advances to customers continue under strict control.

07 ACTIVITIES OF SUBSIDIARIES ELNOSA – ELECTROQUÍMICA DEL NOROESTE, S.A.U.Electrochemical production at Elnosa was closed down as from December 11, 2017, as a result of EU Directive 2010/75 banning the use of mercury cells in the production of chlorine, which as the method used by Elnosa.

Although the company informed the relevant authorities of its intention to convert its production method to membrane cells, in accordance with European requirements, and start producing chlorine again, the necessary licences for the conversion had still not been issued as of the date of this report.

As production using membrane cells will require significantly less personnel, an “expediente de regulación de empleo” (collective redundancies) was concluded in January 2018 involving a total of 33 employees out of 62.

In the light of this shut down, the company set up provisions and impairments on inventories and fixed assets associated with the restructuring of production in the amount of €1.8 million, which compares to €526 thousand in the previous year. As a result, provisions mentioned above totalled € 3,899 thousand at the end of the year.

An increase in sales was recorded in 2017, to €29.1 million, growing by 9% over 2016, driven by the favou-rable price of caustic soda and the rise in hypochlorite sales, both facts associated with prospects of a decrease in supply following the shut down of mercury cell units operating in Europe.

If it were not for the rise in provisions and impairment mentioned above, net profit for the year would have been higher than 2016’s.

Thanks to the provisions and impairment set up and a high working capital, the company is comfortable enough to face the challenges which may emerge from current market circumstances and resulting from the demurral of Spanish authorities, which will determine the company’s industrial future.

The company posted net losses of approximately €166 thousand.

RENOESTE – VALORIZAÇÃO DE RECURSOS NATURAIS, S.A.Over the last few years, Renoeste’s activity relied on the supply by REN of brine deriving from the extrac-tion of salt needed for the construction of gas storage caverns. The construction of new caverns stopped, and the supply of brine was suspended.

Despite the efforts developed in 2016 and 2017, the Group could not find a partner with experience in the production and marketing of salt to resume its operation nor any company interested in purchasing the company or its assets allocated to the operation.

Failure to attract investors into this operation determined the shut-down of the business, and the recording of impairment on all equipment and buildings and creation of impairment on the value of the land.

This explains the losses for the year.


Renoeste has a high solvency level, with current assets exceeding total liabilities 14x over, and is thus able to comfortably face its responsibilities towards third parties.

Net losses for the year totalled €3,811,249, reflecting the shut down of activity.

AQP – ALIADA QUÍMICA DE PORTUGAL, S.A.Sales driven by exports already account for 47% of total sales, increasing by 10% over 2016 to €4.7 million.

Production totalled 34,000 tonnes in 2017 - the maximum annual amount ever achieved, which required the unit to operate continuously since November.

Operating results grew by 2.8% and net profit rose by 2% over 2016, despite the pressure on raw material prices and sale prices in Portugal.

In 2017 the company’s posted net profit of €908,748.

NUTRIQUIM – PRODUTOS QUÍMICOS, S.A.The company stopped production in May 2012. The relevant authority (APA) approved the dismantling of the facilities in July 2017.

Following the agreement in principle from the land owner, Baía do Tejo, approval from Direção-Geral do Património Cultural was requested, and issued in January 2018.

We expect that the Municipal Council of Barreiro will issue the licence in time to begin dismantling during the second half of 2018, to be completed in 2018.

In 2017 the company posted net losses of €121,912.

ALTAMIRA – ELECTROQUÍMICA DEL CANTÁBRICO, S.A.During 2017, the company contracted the engineering, procurement and construction management (EPC) of the installation of a membrane cell electrolysis unit to be installed in Torrelavega, Spain, in a total amount of €55 million.

The EPC project started up in December 2017 and should be completed at the end of 2019.

The company recorded net losses for the year of €27,296.

MIRALCALIS – ATIVOS DE PRODUÇÃO DE CLORO, S.A.Within the scope of ALTAMIRA’s conversion of its chlor-alkali unit to membrane cell technology, Portu-guese company MIRALCALIS – Activos de Produção de Cloro, S.A., which is 80% held by CUF – QI, was set up.

At the beginning of 2018, fulfilling its first purpose, this company acquired 20% of ALTAMIRA – Electro-química del Cantábrico, S.A..

Results for 2017 were negative by €241.

08 OUTLOOK FOR 2018 In 2018 operation is expected to keep up at high pace.

Deactivation of the Elnosa’s mercury unit in Pontevedra, Spain is under way and the final negotiation of the operation should be completed this year. Engineering/construction of the chlor-alkali unit in Torrelavega is in progress, with start-up expected to occur in the second half of 2019.


For 2018 we expect a rise in sales in the chlor-alkali Iberian market obtained mostly from the maximisation of operations in Estarreja, following the increase in capacity achieved in 2017, and increased trading acti-vity resulting from company’s profound knowledge of the market.

We also expect strong activity in the organic products market, not only on the MDI market but also in the merchant market of aniline and mononitrobenzene in Europe and the United States.

We will continue to look for new opportunities, in line with our Strategic Plan.

Context costs, specifically energy-related costs, continue to be a cause of concern, as they have an adverse impact on the competitiveness of the Portuguese industrial sector.

As in previous years, within the scope of the industrial associations of which we are member, we will conti-nue to argue against existing constraints and to keep a close eye on consumption levels.

09 PROPOSAL FOR APPROPRIATION OF RESULTS The Board of Directors proposes to appropriate the net profit for the year in the amount of €16,407,208.93 as follows:

10 FINAL NOTE

We convey our thanks to all employees, other stakeholders, supervisory bodies and financial institutions for their commitment, collaboration and contribution to the results achieved in the year.

Estarreja, 27 March 2018

Legal Reserve €292,159.79

Income distribution €14,000,000.00

Retained earnings €2,115,049.14

CONSOLIDATEDFINANCIAL

STATEMENTS 2017

| CONSOLIDATED FINANCIAL STATEMENTS | CUF - QUÍMICOS INDUSTRIAIS, S.A. | 23 |

CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2017 AND 2016(Amounts in Euro)

HEADINGS NOTES 31/12/2017 31/12/2016

ASSETS

NON CURRENT ASSETS

Tangible fixed assets 6 101 396 062 106 334 684

Investment property 7 19 291 556 19 359 821

Intangible assets 8 2 235 799 2 044 579

Equity holdings – eq. method Equity 9 1 070 266 1 061 608

Equity holdings – other methods 9 9 228 9 228

Other financial assets 6 277 3 164

Deferred tax assets 28 3 592 481 2 952 601

127 601 668 131 765 687

CURRENT ASSETS

Inventories 10.1 20 420 618 14 784 401

Clients 13.1 49 013 707 45 456 256

State and other public entities 11 232 366 203 963

Other accounts receivable 13.1 1 198 813 1 061 391

Deferrals 12.1 993 027 157 830

Cash and bank deposits 4 30 966 152 23 771 824

102 824 684 85 435 665

Total assets 230 426 352 217 201 352

EQUITY AND LIABILITIES

EQUITY

Subscribed share capital 16.1 30 500 000 30 500 000

Legal reserves 16.2 5 807 840 5 143 163

Other reserves 16.2 18 384 726 18 430 600

Results brought forward 16.2 11 318 715 12 143 981

Adjustments and other changes in equity 16.3 6 290 592 5 961 174

Net Profit/(Loss) for the year 16 407 209 13 293 537

Non controlling interests 16.4 300 000

Total equity 89 009 083 85 472 455

LIABILITIES

NON CURRENT LIABILITIES

Provisions 14 4 351 480 2 826 398

Borrowings 13.4 50 392 952 66 867 992

Liabilities for post-employment benefits 15.1 3 900 381 4 424 826

Deferred tax liabilities 28 3 719 408 3 700 976

Other debts payable 13.3 10 700 000

73 064 221 77 820 192

CURRENT LIABILITIES

Trade payables 13.2 39 202 179 29 679 353

Cash receipts from clients 125 767 59 978

State and other public entities 11 407 955 1 442 927

Borrowings 13.4 14 687 500 9 937 500

Other debts payable 13.3 13 806 363 12 652 947

Deferrals 12.2 123 285 136 000

68 353 049 53 908 705

Total Liabilities 141 417 269 131 728 897

Total equity and liabilities 230 426 352 217 201 352


INCOME AND EXPENSES NOTES 31/12/2017 31/12/2016

Sales and services 18 322 517 054 265 534 013

Operating subsidies 17 12 256 19 272

Gains/losses of subsidiaries and associates Joint Undertakings 19 453 465 444 808

Product stock variation 10.2 1 624 739 (2 460 882)

Work for own entity 20 140 458 128 875

Cost of goods sold 10.3 (211 661 105) (159 117 252)

Supplies and Services 21 (57 190 372) (56 163 449)

Staff costs 15.4 (12 778 448) (12 834 257)

Impairment of inventories (Losses/Reversals) 10.4 (48 555) 226 803

Impairment of receivables (Losses/Reversals) 13.1 (54 765) (33 910)

Provisions (Increase/Decrease) 14 (1 513 891) (347 352)

Increase/decrease in fair value (2 057) -

Other income 22 5 775 217 4 825 488

Other expenses 23 (985 291) (894 493)

RESULTS BEFORE DEPRECIATION, FINANCIAL EXPENSES AND TAX 46 288 704 39 327 665

Expenses/Reversal of Depreciation and Amortisation 25 (18 062 622) (17 807 893)

Impairment of depreciable inventories 25 (3 726 675) -

OPERATING RESULT (BEFORE FINANCIAL EXPENSES AND TAX) 24 499 407 21 519 772

Interest and similar income 26 31 272 24 455

Interest and similar expenses 27 (3 396 394) (3 310 424)

PROFIT/(LOSS) BEFORE TAX 21 134 285 18 233 803

Income tax for the year 28 (4 727 125) (4 940 266)

NET PROFIT/(LOSS) FOR THE YEAR 16 407 161 13 293 537

Net profit for the year attributable to:

› Parent company shareholders 16 407 209 13 293 537

› Non-controlling interests 16.4 (48) -

16 407 161 13 293 537

CONSOLIDATED PROFIT AND LOSS STATEMENT BY NATUREPeriod ended at 31 December 2017 (Amounts in Euro)


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POSITION AT BEGINNING OF 2016 1 30 500 000 4 572 113 18 474 790 6 903 783 14 749 843 11 420 998 86 621 527 - 86 621 527

CHANGES IN THE PERIOD

Revaluation surplus of tangible and intangible assets and respective changes

- - (57 020) 57 020 - -

Adjustments for deferred tax - - 12 829 273 661 (12 829) 273 661 273 661

Hedging derivatives 1 607 041 1 607 041 1 607 041

Subsidies - - - (1 397 830) (1 397 830) (1 397 830)

Emission allowances - - - (1 425 481) (1 425 481) (1 425 481)

2 - - (44 190) (942 609) 44 190 - (942 609) - (942 609)

Net profit/(loss) for the year 3 13 293 537 13 293 537 - 13 293 537

Comprehensive result 10=8+9 13 293 537 12 350 928 - 12 350 928

OPERATIONS WITH EQUITY HOLDERS DURING THE YEAR

Distributions - - (13 500 000) - (13 500 000) (13 500 000)

5 - - - - (13 500 000) - (13 500 000) - (13 500 000)

APPROPRIATION OF RESULTS

Set up of Legal Reserve - 571 050 - - - (571 050) - -

Transfer of results for the year to Retained Earnings

- - - - 10 849 948 (10 849 948) - -

6 - 571 050 - - 10 849 948 (11 420 998) - - -

POSITION AT END OF 2016 7=1+2+3+5+6 30 500 000 5 143 163 18 430 600 5 961 174 12 143 981 13 293 537 85 472 455 - 85 472 455

POSITION AT BEGINNING OF 2017 7 30 500 000 5 143 163 18 430 600 5 961 174 12 143 981 13 293 537 85 472 455 - 85 472 455

CHANGES IN THE PERIOD

Revaluation surplus of tangible and intangible assets and respective changes

- - (59 192) 59 192 - - -

Adjustments for deferred tax - - 13 318 (96 748) (13 318) - (96 748) (96 748)

Hedging derivatives - - 1 787 540 - 1 787 540 1 787 540

Subsidies - - (1 504 209) - (1 504 209) (1 504 209)

Emission allowances - - 146 658 - 146 658 146 658

Other changes recognised in equity - - (3 823) - (3 823) (3 823)

8 - - (45 874) 329 418 45 874 - 329 418 - 329 418

Net profit/(loss) for the year 9 16 407 209 16 407 209 - 16 407 209

Comprehensive result 4=2+3 16 407 209 16 736 627 - 16 736 627

OPERATIONS WITH EQUITY HOLDERS DURING THE YEAR

Distributions (13 500 000) (13 500 000) (13 500 000)

Acquisition of non controlling interests - 300 000 300 000

11 - - - - (13 500 000) - (13 500 000) 300 000 (13 200 000)

APPROPRIATION OF RESULTS

Set up of Legal Reserve - 664 677 - - - (664 677) - -

Transfer of results for the year to Retained Earnings

- - - - 12 628 860 (12 628 860) - -

12 - 664 677 - - 12 628 860 (13 293 537) - - -

POSITION AT END OF 2017 13=8+9+11+12 30 500 000 5 807 840 18 384 726 6 290 592 11 318 715 16 407 209 88 709 083 300 000 89 009 083

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR 2017Period ended at 31 December 2017 (Amounts in Euro)


HEADINGS NOTES 31/12/2017 31/12/2016

CASH FLOW FROM OPERATING ACTIVITIES - DIRECT METHOD

Cash flow from operating activities - direct method 369 580 655 299 775 297

Cash paid to suppliers (298 492 226) (236 983 119)

Cash paid to personnel (12 772 804) (14 192 181)

Flows generated by operations 58 315 625 48 599 997

Income tax received/paid (525 374) (641 130)

Other cash received/paid (14 716 896) (16 588 772)

Net cash from operating activities (1) 43 073 355 31 370 096

CASH FLOWS ARISING FROM INVESTING ACTIVITIES

Cash payments relating to:

Tangible fixed assets (17 546 442) (9 445 032)

Intangible assets (28 594) (75 119)

Other assets (13 973 502) -

(31 548 538) (9 520 151)

Cash receipts relating to:

Tangible fixed assets 8 301 237 685

Investment property 98 319 14 008

Intangible assets - 634 400

Financial investments 23 -

Other assets 12 250 004 -

Investment subsidies - 40 911

Interest and similar income 34 881 44 469

Dividends 444 808 519 594

12 836 335 1 491 068

Cash flows arising from investing activities (2) (18 712 204) (8 029 083)

CASH FLOWS ARISING FROM FINANCING ACTIVITIES

Cash receipts relating to:

Borrowings 3 879 318 -

Paid-up capital and other equity instruments 300 000 -

Other financing operations 4 700 000 -

8 879 318 -

Cash payments relating to:

Borrowings (9 940 639) (13 441 471)

Interest and similar costs (2 605 502) (3 193 309)

Dividends (13 500 000) (13 500 000)

(26 046 141) (30 134 780)

Cash flows arising from investing activities (3) (17 166 823) (30 134 780)

Variation in cash and cash equivalents (1+2+3) 7 194 328 (6 793 768)

Effect of foreign exchange differences

Cash and cash equivalents at the beginning of the year 4 23 771 824 30 565 592

Cash and cash equivalents at the end of the period 4 30 966 152 23 771 824

CONSOLIDATED CASH FLOW STATEMENTPeriod ended at 31 December 2017 (Amounts in Euro)

NOTES TO THECONSOLIDATED

FINANCIALSTATEMENTS 2017

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2017 | CUF - QUÍMICOS INDUSTRIAIS, S.A. | 29 |

01 THE COMPANY Group CUF – Químicos Industriais (“Group”) - made up of CUF – Químicos Industriais, S.A. is known as CUF – Químicos Industriais, S.A. and has its head-office and plant in Estarreja. The Company was incorporated on 30 December 1977 and its corporate object is the industrial production and marketing of organic and inorganic chemical products.

The parent company CUF – Companhia União Fabril SGPS, S.A. has its head-office in Lisbon.

02 BASES OF PREPARATION OF THE FINANCIAL STATEMENTS The Group prepares its accounts according to the Accounting and Financial Reporting Standards (NCRF) which form an integral part of the SNC (Portuguese accounting system).

There were no derogations to the true and appropriate image.

Financial statements for 2017 and 2016 were prepared using principles consistent with those used in the previous year, therefore all balance sheet and profit and loss captions are comparable with those of the previous year.

03 MAIN ACCOUNTING POLICIES

3.1 – MEASUREMENT BASES USED IN THE PREPARATION OF THE FINANCIAL STATEMENTS

The financial statements were prepared on the ongoing concern and accrual basis of accounting, consis-tency of presentation, materiality and aggregation, offsetting and comparative information.

Based on provisions in the NCFR, the accounting policies followed by the Company were as follows:

(A) TANGIBLE FIXED ASSETSTangible fixed assets refer to assets used in production, services or for administrative purpose.

The Group adopted the deemed cost in the measurement of tangible fixed assets as of 1 January 2009 (date of transition to the NCRF), pursuant to the exemption provided in NCFR 3 - First time adoption of NCFR. The Group adopted as deemed cost the amount recorded in the former financial statements prepa-red according to the former accounting standards (POC), which included revaluation reserves carried out pursuant to various decree-laws that took into account currency devaluation coefficients.

Except for the Land that is not depreciable, depreciation of Tangible Fixed Assets is provided over their estimated useful lives and assessed for impairment whenever there is an indication that the asset may be impaired. Depreciation is determined on a twelfth basis as from the moment the assets become available for their intended use, in accordance with the straight-line method. Depreciation rates used are as follows:

2017 2016

Buildings and other constructions 2.00% - 33.33% 2.00% - 33.33%

Basic equipment 5.00% - 50.00% 5.00% - 50.00%

Transport equipment 6.25% - 25.00% 6.25% - 25.00%

Administrative equipment 5.88%- 50.00% 5.88%- 50.00%

Other tangible fixed assets 12.5% - 20.00% 12.5% - 20.00%


Depreciation cost is recognised in the profit and loss statement under caption Expenses / Reversals of Depreciation and Amortisation.

Costs with the dismantling and removal of property from tangible fixed assets and the cost of restoring the sites where these are located, which is an obligation incurred when the goods are purchased or for having been used during a certain period for purposes other than production, are part of the cost of the corresponding tangible fixed asset and are depreciated in the year of useful life of the assets they concern.

Current maintenance and repair costs are recognised as expenses in the period they occur.

Costs with replacements and major repairs are capitalised whenever they extend the useful life of the fixed asset and are depreciated in the remaining period of the said asset useful life or in its own useful life, if lower.

Any loss or gain arising on de-recognition of a tangible asset (calculated as the difference between the net disposal proceeds minus sale costs and the carrying amount) is included in the profit and loss account for the year the asset is de-recognised.

Tangible fixed assets in progress concern goods which are still under construction or development and are measured at acquisition cost, and they can only be depreciated when they will become available for use.

At the end of each year the company assesses any possible impairment in assets, which if any, will be recognised in the profit and loss statement for the year.

(B) INVESTMENT PROPERTYThe Group adopted deemed cost in the measurement of tangible fixed assets referring to 1 January 2009 (transition to the NCRF), under the terms of the exemption provided in NCRF 3 – First Adoption of the NCRF.

Deemed cost resulted from an assessment made as of the said date by independent and qualified audi-tors. Subsequently, the Group adopted the cost model in the measurement of investment property.

Depreciation is determined on a twelfth basis as from the moment the assets become available for their intended use, in accordance with the straight-line method. Depreciation rates used are as follows:

(C) INTANGIBLE ASSETSIntangible assets acquired separately are measured at cost on the date of the initial recognition.

The cost of internally generated intangible assets, excluding development costs in certain circumstances, are recognised as expenses when incurred.

Following initial recognition, intangible assets are recorded at cost minus cumulative depreciation and amortisation and impairment losses.

The useful lives of intangible assets are finite or indefinite. Intangible assets with indefinite life are not amortised but tested annually for impairment, whether or not there is evidence that they are impaired. Intangible assets with finite useful lives are amortised over their estimated useful lives and assessed for impairment whenever there is an indication that the asset may be impaired. Amortisation of Intangible Assets is recorded in the Income Statement by Nature in line “Gains/Reversal of Depreciation and Amor-tisation”.

2017 2016

Buildings and other constructions 5.00% - 10.00% 5.00% - 10.00%


Depreciation is determined on a twelfth basis using the straight-line method. Depreciation rates used are as follows:

Any loss or gain arising on de-recognition of an intangible asset (calculated as the difference between the net disposal proceeds minus sale costs and the carrying amount) is included in the profit and loss account for the year the asset is de-recognised.

Some of the specific characteristics relating to each type of intangible asset are as follows:

(C.1) DEVELOPMENT PROJECTSResearch costs are recognised as expenses in the period they occur.

Development costs of an individual project are recognised as intangible assets when the Group can show:

• The technical feasibility of completing the intangible asset so that will be available for use or sale• Its intention to complete the intangible asset and use or sell it;• How the intangible asset will generate probable future economic benefits;• The availability of adequate resources to complete the development of the intangible asset;• Its ability to measure reliably the expenditure attributable to the intangible asset during its development.

(C.2) INDUSTRIAL PROPERTYThis caption includes the patents registered in the name of the companies included in the consolidation, in relation to which there exists an exclusive right to use.

Depreciation is determined over the period of exclusive use of each patent.

(C.3) EMISSION RIGHTSCO2 licences attributed to the Group pursuant to the National Allocation Plan for CO2 Emissions Allowan-ces are recognised according to NCRF 26 , i.e. under Intangible Assets through Other Changes in Equity - Subsidies and Donations, for their market value as of allocation date.

Purchased allowances are recognised as Intangible Assets through the corresponding accounts payable or liquid funds.

Based on FIFO criteria, for its CO2 emissions the Group recognises a depreciation and amortisation cost through Cumulative Depreciation of Intangible Assets and, simultaneously transfers to Other Income, through Subsidies and Donations, an amount equivalent to the share of corresponding allowance.

Whenever the Group produces CO2 emissions without holding respective allowances, a provision is recognised under the terms of NCRF 21 – Provisions, Contingent Liabilities and Contingent Assets for the amount corresponding to the best price estimate for obtaining it, added of the estimated penalties incurred for CO2 emissions without allowance.

The sale of allowance rights gives rise to gains or losses determined between the carrying amount and respective acquisition cost, being recorded under Other Income - Income and Gains on Non Financial Investments or other Expenses - Expenses and Losses on Non Financial Investments, respectively.

Since there is an active market for emission rights, these are reassessed at market value at the end of each period, resulting in the adjustment of the Equity caption - Subsidies and Donations or Income whether the allowances are allocated or purchased, respectively.

2017 2016

Development projects 20.00% - 33.33% 20.00% - 33.33%

Industrial property 20.00% - 33.33% 20.00% - 33.33%

Other intangible assets 20.00% - 33.33% 20.00% - 33.33%


(D) EQUITY HOLDINGS – EQUITY METHODThe following associates are measured according to the equity method:

At acquisition date, the difference between the cost of the acquisition over the Group’s share of net fair value of the acquired entity’s identifiable assets, liabilities and contingent liabilities was recorded in accor-dance with NCRF 14 - Business Combinations. Hence:

• Associated goodwill was included in the recorded amount of the investment. • The excess of the Group’s share of net fair value of the acquired entity’s identifiable assets, liabilities

and contingent liabilities over the cost of the acquisition was not included in the recorded amount of the investment and was included as income in the profit and loss statement for the period of the acquisition.

Subsequently, at acquisition date, the recorded amount of the investments:

• Was increased or decreased to recognise the Company’s share of the profits or losses of the associates after the date of acquisition;

• Was reduced by the distributions received;• Was increased or decreased to reflect through Equity, alterations in the Group’s proportionate interest

in the associates arising from changes in the latter’s equity that have not been included in the income statement. These changes include, amongst other situations, those resulting from the reassessment of tangible fixed assets and currency translation differences.

The following provisions relating to the application of this method were also complied with:

• The financial statements of subsidiaries and associates were already prepared or were adjusted off the books in order to reflect the Group’s accounting policies before they can be used for determining the effects of the equity method;

• The financial statements of associates used to determine the effects of the equity method refer to the same date of those of the Group or, if different, they do not differ more than three months in relation to the Group’s;

• Results from «ascending» and «descending» transactions are recognised only insofar as they correspond to the interests of other investors in the associate not related to the investor.

• When the value of an investment is reduced to zero, additional losses are taken into account by recognising a liability whenever the Company incurs into legal or constructive obligations. If the subsidiaries and associates subsequently report profits, the Group will resume recognising its share of those profits only after the its share of the profits equals the share of losses not previously recognised.

(E) EQUITY HOLDINGS – OTHER METHODSThe Group uses the cost model in relation to financial investments in non listed companies in which the equity method does not apply.

According to the cost model, equity holdings are initially recognised at acquisition cost, which includes transaction costs, subsequently deducted of impairment losses, if any.

(F) INCOME TAX(F.1) DEFERRED TAX ASSETS AND LIABILITIESDeferred tax assets and liabilities result from determining the temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts in the Group’s financial state-ments.

Deferred tax assets reflect:

• Deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilised;

• Unused tax losses and unused tax credits to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be used.

Deferred tax liabilities reflect taxable temporary differences.


The Group does not recognise deferred tax relating to temporary differences associated to investments in associates and joint ventures as it considers that the following conditions are simultaneously met:

• The Group is capable of controlling the timing of the reversal of the temporary difference;• It is probable that the temporary difference will not reverse in the near future.

The measurement of deferred tax assets and liabilities:

• Is made at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date.

• Reflects the tax consequences that would follow from the manner in which the Group expects, at the balance sheet date, to recover or settle the carrying amount of its assets and liabilities.

(F.2) INCOME TAX FOR THE YEARIncome Tax for the Year comprises current and deferred tax for the year.

Current tax is calculated based on the accounting results adjusted according to the laws to which each of the companies included in the consolidation is subject.

Income tax of the parent company and subsidiaries in which it holds, directly or indirectly, at least 90% of respective share capital and simultaneously have their head-office in Portugal is determined according to the Special Taxation Regime of Group Companies at the rate of 21% added of Municipal Surcharge at the maximum rate of 6.5% on taxable income, resulting in a total tax rate of 27.5%.

Income tax relating to remaining companies included in the consolidation is calculated based on the tax rates in force in the countries of respective head-offices:

In accordance with current legislation in the various jurisdictions where the companies included in the consolidation develop their business, tax returns are subject to review and correction by the tax authori-ties during a period of four years to five years, except where there are tax losses, tax benefits have been granted or inspections, claims or appeals are in progress, in which case, depending on the circumstances, the period can be extended or suspended.

The Board of Directors believes that any possible corrections resulting from revisions/inspections of these tax returns will not have a significant effect on the consolidated financial statements.

(G) INVENTORIESThe assessment of inventories and respective costing methods are as follows:

The cost of inventories includes:

• Average production cost of the raw materials incorporated;• Purchase costs (acquisition price and transport costs)

COUNTRY 2017 TAX 2016 TAX

Income tax Portugal 21.0% 21.0%

Municipal surcharge Portugal 1.5% 1.5%

State surcharge Portugal 3% - 5% 3% - 5%

Income tax Spain 25.0% 25.0%

(*) Or net realizable value, whichever the lower

VALUATION VALUATION METHODS

Goods Acquisition cost (*) Average cost

Raw materials, subsidiary materials and consum. Acquisition cost (*) Average cost

Finished and semi-finished products Production cost (*) Average cost

Works in progress Production cost (*) Average cost


Where the realisable net value is lower than the purchase or translation price, the value of inventories is reduced by recognising an impairment loss, which is reversed when the reasons that originated it ceased to exist.

To this end, the realisable net value is the estimated selling price in the ordinary course of business minus any cost to complete and to sell the goods. Estimates take into account changes with events occurred following the end of the period.

(H) OTHER FINANCIAL ASSETSFinancial assets are recognised when the companies included in the consolidation become a party to the contractual relationship.

Financial assets not included in the preceding sub-paragraphs and which are not valued at fair value are valued at cost, net of impairment losses when applicable.

At the end of the year, the Group assesses the impairment of these assets. Whenever an objective evidence of impairment existed, the Group recognised an impairment loss in the statement of comprehen-sive income.

The objective evidence that a financial asset or group of assets was impaired took into account observa-ble data that drew attention to the following loss events:

• Significant financial difficulty of the debtor;• Contractual breach, such as the non payment or non compliance with the payment of interest or

repayment of the debt;• Companies included in the consolidation, due to economic or legal reasons relating to the debtor’s

financial difficulties, offered concessions to the debtor, that otherwise would not be considered.• The debtor is likely to become bankrupt or subject to any other financial reorganisation;• Observable data indicating that there is a measurable decrease in the estimated future cash flows

from a portfolio of financial assets since the initial recognition of those assets. All significant financial assets were assessed separately for impairment purposes. Remaining financial assets were assessed based on similar credit risk characteristics.

Some of the specific characteristics relating to each type of Financial Asset are as follows:

(H.1) CLIENTSAccounts receivable are initially measured according to measuring criteria for Sales and Services descri-bed in sub-paragraph q) and subsequently measured at amortised cost minus impairment.

Impairment is determined based on the criteria defined in sub-paragraph h).

(H.2) OTHER TRADE RECEIVABLESOther trade receivables are measured as follows:

• Personnel – at cost minus impairment;• Receivables for accrued income – at cost;• Other receivables – cost minus impairment.• Loans to shareholders do not accrue interest or involve any type of interest, therefore they are stated

at respective nominal value, minus any impairment loss where applicable. In both cases, impairment is determined based on the criteria defined in sub-paragraph h).

(H.3) CASH AND BANK DEPOSITSAmounts in this caption include cash, bank deposits which mature in less than three months and can be demanded immediately with insignificant risk of change in amount.


These balances are measured as follows:

• Cash – at cost;• Deposits with no specific maturity – at cost;• Other deposits with defined maturity – at amortised cost, determined based on effective interest rate

method. For the purposes of the cash flow statement, caption “Cash and cash equivalents” also includes bank overdrafts, reflected in the balance sheet in the caption “Other loans”.

(I) GOVERNMENT AND OTHER PUBLIC BODIESBalances and liabilities in this caption are measured based on the law in force.

In what concerns assets, no impairment was recognised as it was deemed not applicable given the speci-fic nature of the relationship.

(J) DEFERRED ASSETS AND LIABILITIESThis caption includes transactions and other events the full recognition of which in the income statement for the period is not adequate, but that should be recognised in future results.

(L) EQUITY CAPTIONS(L.1) LEGAL RESERVESAccording to article 295 of the CC, at least 5% of annual net profit must be appropriated to a legal reserve until the reserve equals at least 20% of share capital.

This reserve is not available for distribution except upon liquidation of the company, but can be used to absorb losses once the other reserves have been exhausted, or to increase capital (art. 296 of the CC).

(L.2) OTHER RESERVESThis caption includes revaluation reserves made under the terms of the former GAAP (Generally Accepted Accounting Principles) and those made on transition date, net of corresponding deferred tax, which are recorded in caption Revaluation Surpluses as the company adopted the considered cost method on the date of conversion to the SNC.

Revaluation reserves made pursuant to the relevant laws, according to such laws, are only available to increase the share capital or cover losses incurred up to the date to which the revaluation refers, and only after realised (for respective use or sale).

They also include reserves resulting from the revaluation made on transition date, which are only available following realisation (for respective use or sale).

(L.3) RETAINED EARNINGSThis caption includes earnings available for distribution to shareholders and gains deriving from increase in the fair value of derivative financial instruments, financial investments and investment property which, according to paragraph 2 of article 32 of the CC, will only be available for distribution when the respective underlying elements or rights will be sold, exercised, extinguished or settled.

(L.4) OTHER CHANGES IN EQUITYThis caption includes adjustments to fair value of financial assets such as derivatives used to manage interest rate, exchange rate or commodity risks already contracted or having a high probability of being transacted in the future which, according to paragraph 2 of article 32 of the CC, will only be available for distribution when the respective underlying elements or rights will be sold, exercised, extinguished or settled.

It also includes adjustments deriving from the application of the equity method, namely the allocation of the changes in the equity of subsidiaries and associates and non appropriated profit.

Other changes in equity include the following:


(l.4.1) Investment subsidiesThis caption includes non repayable subsidies, net of deferred tax, relating to tangible and intangible fixed assets.

Subsidies are only recognised when there is reasonable certainty that they will be received and that the Group will comply with the conditions required for them to be granted.

Subsequently to the initial recognition, this caption is reduced:

• In what concerns subsidies relating to depreciable tangible fixed assets and intangible assets with a definite useful life, by their allocation, on a systematic basis, to income during the periods necessary to offset the subsidies with related expenses.

• In what concerns non depreciable and intangible assets with an indefinite useful life, by their allocation to income in the periods in which it is necessary to offset any impairment loss concerning such assets.

These subsidies will not be available for distribution until they are allocated to income during the periods required to: (i) balance the subsidies with related expenses which they are intended to offset, i.e. deprecia-tion and amortisation and/or (ii) any impairment loss recognised in relation to such assets.

(l.4.2) Emission rightsThese reserves, corresponding to Emission Rights given and recognised as provided in sub-paragraph c.2) above are transferred to Other income and gains as the corresponding CO2 emissions are made by the group companies.

According to sub-paragraph 2 of article 32 of the CC, these reserves will only be available for distribution when the underlying rights will be sold, exercised, extinguished or liquidated.

(M) PROVISIONS This account reflects a present (legal or constructive) obligation arising from past events, the settlement of which is expected to result in an outflow of resources embodying economic benefits, and a reliable estimate can be made of that obligation.

Provisions are measured at the best estimate of the expenditure required to settle the present obligation at balance sheet date. Whenever the time value of money is significant, the amount of a provision is the present value of the expenditure expected to be required to settle the obligation, using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the obligation and which does not reflect risks in relation to which estimated future cash flows have been adjusted.

(N) LIABILITIES FOR POST-EMPLOYMENT BENEFITS AND PERSONNEL EXPENSES Personnel expenses are recognised when the service is provided by employees, irrespective of respective payment date.

Some of the specific characteristics relating to each benefit are as follows:

(N.1) POST-EMPLOYMENT BENEFITSThe Group holds the following post-employment benefit plans:

Pursuant to the Social Benefits Regulations in force at the Group, a number of employees of the permanent staff who are entitled, upon retirement, to health care benefits and monetary complements to pensions for old age, disability, early retirement or survival. These contributions are determined according to the number of years of service and the wage scale in force at the company that originally employed them.

COMPANY NAME OF PLAN TYPE ADDRESSEES LOCATION

CUF – QI Retirement pension plans Defined benefit - complementary pension for old age, disability and survival

Of some of the former and present employees

Portugal

CUF – QI Medical benefits Defined benefit - medical benefits without provided fund


Portugal


In the Defined Benefits Plan, recognition and measurement of liabilities are made according to NCFR 28 - Employment Benefits.

Under these terms, the cost of providing the benefits is determined:

• Separately for each plan;• Using the projected credit unit method;• Based on actuarial assumptions in force in Portugal.

The cost of past services of current employees is recognised: (i) immediately, as concerns the share already due, and (ii) on a straight-line basis over the remaining period of service, as concerns the share not yet due.

(N.2) HOLIDAY PAY AND HOLIDAY BONUSAccording to the law in force, employees are entitled to holiday pay and holiday bonus in the following year to which the service is provided. Hence, the company recognised in the profit and loss statement for the year an amount payable in the following year, which is recorded in caption “Other Debts Payable”.

(O) FINANCIAL LIABILITIES Financial liabilities are recognised when the companies included in the consolidation become a party to the contractual relationship.

(O.1) BORROWINGSLoans covered by variable interest rate hedges are recorded at amortised cost determined based on the effective interest rate. According to this method, loans are initially recognised as liabilities at the amount received, net of issuing costs, which corresponds to the respective fair value at that date. Subsequently, loans are measured according to the amortized cost method, which includes all financial expenses calcu-lated according to the effective interest rate method.

Other loans are measured at cost, and recognised as liabilities at their nominal value.

(O.2) SUPPLIERS, ADVANCES FROM CLIENTS AND OTHER DEBTS PAYABLEAccounts payable to suppliers are measured at cost.

(O.3) SHAREHOLDERSShareholders loans do not accrue interest or involve any type of interest, therefore they are stated at respective nominal value, in caption “other debts payable”, minus any impairment loss where applicable, determined based on the criteria provided in sub-paragraph p).

(P) EFFECT OF CHANGES IN EXCHANGE RATESForeign currency transactions are translated into Euro at the date of transaction.

Balances due at the end of the period are translated at closing rate and the difference is recognised in the income statement.

(Q) SALES AND SERVICESSales and rendered services are measured at the fair value of the consideration received or receivable, minus the amounts relating to trade discount for multiple purchase/orders.

Where the selling price of products/services includes an identifiable amount of subsequent services, such amount is deferred and recognised as revenue in the period in which the service is provided.

Although revenue is only recognised when it is probable that any future economic benefit associated with the item of revenue will flow to the company, when there is doubt as to the recoverability of an amount already recognised as revenue, the irrecoverable amount, or the amount unlikely to be recovered, will be recognised as impairment and not as an adjustment to the revenue amount initially recognised.

The recognition of sales and rendered services is subject to specific features, amongst which the following:


(Q.1) SALESRevenue arising from the sale of goods should be recognised when all of the following criteria have been satisfied:

• The seller has transferred to the buyer the significant risks and rewards of ownership;• The seller retains neither continuing managerial involvement to the degree usually associated with

ownership nor effective control over the goods sold;• The amount of revenue can be measured reliably;• It is probable that the economic benefits associated with the transaction will flow to the seller, and• The costs incurred or to be incurred in respect to the transaction can be measured reliably.

(Q.2) RENDERED SERVICESRevenue arising from rendered services is recognised when the result of the transaction can be reliably estimated, which occurs when all of the following criteria are met:

• The amount of revenue can be measured reliably;• It is likely that the economic benefits associated to the transactions will flow to the Group;• The costs incurred, or to be incurred, in respect of the transaction can be measured reliably;

The stage of completion is determined based on the proportion of the costs incurred so far on total esti-mated costs of services (relating to rendered services or services to be rendered).

When the outcome of a contract cannot be estimated reliably, the Group recognises it according to the null profit method. According to this method, total costs incurred are recognised as expenses for the period combined with equivalent revenues, and no profit is recognised.

Gradual payments and cash receipts from clients are not taken into account for determining the comple-tion percentage, not even according to the null profit method.

(R) OPERATING SUBSIDIESThis caption recognizes non repayable subsidies not related to assets and only when there is reasonable certainty that the Group will comply with the conditions required for them to be granted.

(S) INTEREST AND SIMILAR EXPENSESLoan costs are recognised in the income statement for the period to which they relate and include:

• Interest paid determined based on the effective interest rate method;• Interest of interest rate hedging instruments and raw-materials (swaps);

Costs incurred on loans obtained directly to finance the acquisition, construction or production of tangi-ble fixed assets are capitalised as part of the cost of the assets. Such costs are capitalised as from the beginning of the preparation for construction or development of the assets and end upon termination of the production or construction of the asset or when the project in question is suspended.

(T) HEDGING INSTRUMENTSHedging instrument is an instrument whose fair value or cash flows are expected to offset changes in the fair value or cash flows of a designated hedged item, attributable to the hedged risk,

In the absence of detailed directives in NCRF 27 - Financial Instruments on how to test and substantiate the effectiveness of the hedging, companies included in the consolidation follow provisions in IAS 39 - Financial instruments.

Changes in the fair value of derivative instruments of fixed interest rate risk or commodity price risk as well as changes in the fair value of the asset or liability subject to such risk are recognised in the income statement in caption “Increase/Decrease at fair value”.

Changes in the fair value of derivative instruments of floating interest rate risk, foreign exchange risk, commodity price risk resulting from firm commitment or highly probable transaction are recognised in


equity under caption “adjustments to financial assets” as concerns their effective part and in the income statement in caption “Increase/decrease at fair value” as concerns their ineffective part.

Hedge accounting is discontinued when the hedging instrument matures, is sold or exercised, or when the hedging relationship ceases to comply with the requirements NCRF 27 - Financial Instruments, under the terms specified in of IAS 39 - financial instruments.

The effective part of the hedging instruments are recorded in the balance sheet in caption “other financial assets” or in “Borrowings”, as they are receivable or payable or as current or non current depending on the caption where respective hedged instruments are recorded in the balance sheet.

(U) CONTINGENT ASSETS AND LIABILITIESA contingent asset is a possible asset arising from past events the existence of which will depend on whether some uncertain future event will occur which are not entirely under company’s control and there-fore are not recognised. However, they are disclosed when a future inflow is likely to occur.

A Contingent Liability is:

• A possible obligation arising from past events the existence of which will depend on whether some uncertain future event occurs which are not entirely under the company’s control; or

• A present obligation as a result of past events but which is not recognized as: » An outflow of resources is not likely to be required to settle the obligation; or » The amount of the obligation cannot be reasonably quantified;

Contingent liabilities are not recognised. However, they are disclosed when there is a probability of future outflows which is not remote.

(V) SUBSEQUENT EVENTSEvents that occur after the balance sheet date that provide additional information on conditions that exis-ted as of the balance sheet date are reflected in the consolidated financial statements. Events that occur after the balance sheet date that provide information on conditions that exist after the balance sheet date, if relevant, are disclosed in the notes to the consolidated financial statements.

3.2 – CONSOLIDATION BASES

The corporate universe of the Group is made up of the subsidiaries listed in Note 5.

Joint ventures are included in the financial statements according to the proportional consolidation method, combining, line by line, the share in each item of assets, liabilities, income and gains and expenses and losses of the jointly controlled ventures with the similar items of the Groups financial statements.

In compliance with provisions in article 6 of Decree-law 158/2009, of 15 July, as amended by Decree-Law No. 98/2015, of 2 June, which approved the SNC, the entity prepares consolidated accounts of the Group composed by itself and all the subsidiaries in which:

• Irrespective of the capital ownership, one of the following occurs: » It can exercise or effectively exercises a controlling influence; » It governs the business policies of both companies as though they constituted a single entity;

• As holder of share capital: » It holds the majority of voting rights, except if it is proven that such rights do not confer control; » It has the power to appoint or remove the majority of the members of the governing body of the other entity with powers to govern the financial and operating policies of such entity; » It exercises a controlling influence over the other entity, by virtue of a contract entered with such entity or any other clause in the said entity’s memorandum of association;


» It holds at least 20% of the voting rights and the majority of the members of the governing body of the other entity with the powers to govern the financial and operating policies of such entity who have held office during the year to which the consolidated financial statements refer, or in the preceding year until the moment these are prepared, were exclusively appointed as result of the exercise of its voting rights; » It holds, alone or by virtue of an agreement with other capital holders of the other entity, the majority of the voting rights of the holders of this entity’s share capital.

The existence and the effect of the potential voting rights that are currently exercisable or convertible are considered when assessing whether an entity exercises significant influence.

Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control and continue to be consolidated until the date when such control ceases.

Accounting policies followed by the subsidiaries and joint ventures for preparing their separate financial statements were altered, where necessary, to ensure consistency with the policies adopted by the Group.

The purchase method is used for accounting business combinations. The cost of an acquisition is measu-red at the fair value of the delivered assets, capital instruments issued and liabilities incurred or assumed on the acquisition date plus costs directly attributed to the acquisition.

The excess of the acquisition cost over the share of the Group in the fair value of the identifiable assets, liabilities and contingent liabilities purchase is recognised as Goodwill.

If the acquisition cost is lower than the said fair value, the difference is recognised directly in the income statement for the year it is determined, after reassessing the identification process and measuring of the fair value of the liabilities and contingent liabilities.

In the consolidation process, transactions, balances and non realised gains in intra-group transactions and dividend distributed amongst group companies are eliminated. Unrealised losses are also eliminated, unless the transaction provides evidence of loss through the impairment of the assets being transferred.

Provisions in NCRF 25 - Income Tax were applied for temporary differences arising from the elimination of results deriving from intra-group transactions.

Equity and net profit of subsidiaries which are held by other than the Group are recorded in Non Controlling Interests captions of the Balance Sheet (separately under equity) and in the consolidated income state-ment, respectively. On the date of each business combination, the amounts attributable to Non Controlling Interests are determined using the shareholding percentage held by them at the fair value of the identifia-ble net assets and contingent liabilities acquired.

Where losses attributed to minority shareholders exceed non controlling interests in shareholders’ equity of the subsidiary, the Group absorbs such excess and any additional losses, except where the non controlling interests are required to and can cover such losses. Where the subsidiary subsequently reports profits, the Group appropriates them up to the amount of the losses absorbed by the Group.

3.3 – MAIN JUDGEMENTS AND ESTIMATES USED IN THE PREPARATION OF THE FINANCIAL STATEMENTS

In the preparation of the consolidated financial statements according to the ASS, the Board of Directors of the Group uses judgements, estimates and assumptions which affect the application of policies and reported amounts.

Estimates and judgements are continually evaluated based on the historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may deviate from these estimates and assumptions, namely in what concerns the impact of the costs and income that will actually occur.


The estimates and judgements that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities are discussed below:

(A) USEFUL LIFE OF TANGIBLE AND INTANGIBLE FIXED ASSETSThe useful life of an asset is the estimated period of during which an asset subject to depreciation is judged to be productive in a business and should be reviewed at least at the end of each economic year.

The amortisation/depreciation method applicable and estimated losses arising from replacing the equi-pment before the end of their useful life, due to technology obsolescence, is crucial to determine the effective life of an asset.

These parameters are defined according to the management’s best estimate for the assets and busi-nesses concerned, considering the practices adopted by companies in the sector where the Company operates.

(B) DEFERRED TAX ASSETSDeferred tax assets are recognised for all recoverable losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised.

Given the impact it can have on future results, management judgement is required to determine the amount of deferred tax assets that can be recognised taking into account:

• Probable date and amount of future tax profits;• Strategies for future tax planning.

(C) PROVISIONS FOR TAXThe Group, based on the opinion of its tax consultants and taking into account recognised liabilities, believes that any possible revision of such tax returns will not result in significant corrections of the conso-lidated financial statements that may require any provision for tax.

(D) FAIR VALUE OF FINANCIAL INSTRUMENTSWhen the fair value of financial assets and liabilities at the date of the consolidated balance sheet cannot be determined on active markets, it will be determined based on valuation techniques including discoun-ted cash flows and other adequate techniques under the circumstances. The inputs for these techniques will be withdrawn, where possible, from market variables, but if not possible, a certain degree of judge-ment will be required to determine the fair value, including considerations on the liquidity risk, credit risk and volatility.

(E) POST-EMPLOYMENT BENEFITSEvaluation of the liabilities for retirement and healthcare benefits of employees is made annually, based on actuarial valuations made by independent experts, based on actuarial assumptions associated to econo-mic and demographic indicators. All indicators used are specific to the countries where the benefits are attributed and include, among others:

• Wage growth rate, Fund income rate and technical interest rate;• Mortality tables available for Portugal;• Future salary and pension increases based on expected future inflation rates for Portugal.

Changes in these assumptions may have a significant impact on liabilities.

(F) DEVELOPMENT COSTSDevelopment costs are capitalised according to the accounting policy described in Note 3. Initial capi-talisation of costs is based on management’s judgement that technological and economical feasibility is confirmed, usually when a product development project has reached a defined milestone according to an established project management model. In determining the amounts to be capitalised the Board of Directors makes assumptions regarding the expected cash flows which will be generated by the project, discount rates to be applied and the expected period of benefits.


(G) IMPAIRMENT IN ACCOUNTS RECEIVABLEThe credit risk of accounts receivable is assessed at each reporting date, taking into account historical information on the debtor and respective risk profile as referred to in paragraph 3.1.

Accounts receivable are adjusted by the assessment made to estimated collection risks existing at balance sheet date, which may differ from the effective risk to incur in the future.

(H) PROVISIONSThe recognition of provisions includes determining the probability of future outflows and its reliable measurement.

These factors are often dependent on future events which are not always under the Group’s control, hence they may lead to significant adjustments in the future, via change in the assumptions used or the future recognition of provisions previously recorded as contingent liabilities.

(I) PROVISIONS DISMANTLING AND RESTORING SITESProvisions for dismantling and removal of goods from the tangible fixed asset and for restoring the site depend on assumptions and estimates that make them sensitive to:

• Expected cost to be incurred;• Foreseeable date for the occurrence of the costs;• Discount rate used in the discount of expected outflows.

3.4 – CHANGES IN ACCOUNTING POLICIES

Following the transposition into the domestic legal order of Directive 2013/34/UE, of the European Parlia-ment and of the Council of 26 June 2013, enacted by Decree-law 98/2015 of 2 June, the following chan-ges occurred in the Accounting Normalization System (SNC) the implementation of which is mandatory for financial years beginning at or after 1 January 2016. The application of these standards and interpretations did not produce impacts on the Group’s financial statements.

04 CASH FLOW Caption Cash and Cash Equivalents in the Cash Flow Statement is made up as follows:

The Deposits on Demand heading includes a Debt Service Reserve Account in the amount of EUR 8,468 thousand.

05 RELATED PARTIES

5.1 – GROUP ENTITIES

The Company is 100% held by CUF – Companhia União Fabril SGPS, S.A., which in turn is 100% held by CUF – Consultoria e Serviços, S.A.

CUF – Consultoria e Serviços, S.A. also discloses consolidated financial statements.

31/12/2017 31/12/2016

Cash 10 092 31 732

Demand deposits 30 956 060 23 740 092

30 966 152 23 771 824


The companies included in the consolidation, their head offices and the proportion of capital held in them at 31 December 2017 and 2016 are as follows:

With regard to Renoeste, despite the efforts developed in 2016 and 2017, the Group could not find a partner with experience in the production and marketing of salt to resume its operation nor any company interested in purchasing the company or its assets allocated to the operation.

Failure to attract investors into this operation determined the shut-down of the business, and the recor-ding of impairment on all equipment and buildings and creation of impairment on the value of the land.

A capital increase in the amount of EUR 4,980 thousand was carried out at the Spanish company Altamira, which is fully held by CUF – QI. The conversion of the chlor-alkalis unit has already started and should be concluded in 2019.

During the year, company Miralcalis – Activos de Produção de Cloro, SA was set up, having as corporate object the purchase of assets related to the production of chlorine and or the technological conversion of chlorine plants. The company is 80% held by CUF and 20% held by independent entities.

These subsidiaries were fully consolidated according to the criteria described in Note 3.2.

5.2 – TRANSACTIONS WITH RELATED PARTIES

Transactions with related parties occurred in the years ended 31 December 2017 and 2016 were as follows:

ASSOCIATES LOCATION % HELD 2017 2016

AQP – Aliada Química Portugal, Lda Estarreja 49.9% 49.9% 49.9%

SUBSIDIARIES LOCATION % HELDEFFECTIVE

CONTROL 2017EFFECTIVE

CONTROL 2016

RENOESTE – Valorização de Recursos Naturais, S.A. Estarreja 100% 100% 100%

ELNOSA – Electroquímica del Noroeste, S.A.U. Pontevedra 100% 100% 100%

NUTRIQUIM – Produtos Químicos, S.A. Barreiro 100% 100% 100%

ALTAMIRA – Electroquímica del Cantábrico, S.A. Pontevedra 100% 100% 100%

MIRALCALIS – Ativos de Produção de Cloro, S.A. Oeiras 80% 80% -

COMPANIES

2017

SALES AND SERVICES SERVICES PURCHASED OTHER INCOME

CUF SGPS, S.A. - 21 108 -

CUF – Consultadoria Serviços, S.A. - 2 838 724 -

AQP – Aliada Química Portugal, Lda 663 588 - 42 543

AP – Amoníaco de Portugal, S.A. - 14 728 834 -

DOLOPAND – Invest. Imobiliários e Turísticos, S.A. - 8 400 -

INNOVNANO – Materiais Avançados, S.A. 3 924 - -

SGPAMAG, S.A. 5 525 1 390 933 137 283

673 037 18 988 000 179 826


As of 31 December 2017 and 2016, balances with these entities were made up as follows:

In line with previous years, the balance of Other debts payable with CUF Consultadoria e Serviços concerns changes occurred within the scope of the special taxation regime for company groups (RETGS).

During the year the company obtained a one-off partners’ loan with the parent company.

COMPANIES

2016

SALES AND SERVICES SERVICES PURCHASED OTHER INCOME

CUF SGPS, S.A. - 21 108 -

CUF – Consultadoria Serviços, S.A. - 2 831 282 -

AQP – Aliada Química Portugal, Lda 505 029 - 56 252

AP – Amoníaco de Portugal, S.A. - 14 728 834 -

EUROPARIS – Sociedade Imobiliária, Lda - 200 -

INNOVNANO – Materiais Avançados, S.A. 2 259 - 847

SGPAMAG, S.A. 7 503 1 494 052 159 301

514 791 19 075 476 216 399

COMPANIES

31/12/17

ASSETS LIABILITIES

CLIENTS (NOTE 13.1)

OTHER ACCOUNTS RECEIVABLE (NOTE 13.1)

SUPPLIERS (NOTE 13.2)

OTHER DEBTS PAYABLE (NOTE 13.3)

CUF – Consultadoria Serviços, S.A. 4 257 324 861 66 137 5 217 422

CUF SGPS, S.A. - 50 000 8 654 6 000 000

AQP – Aliada Química Portugal, Lda 49 352 - - -

AP – Amoníaco de Portugal, S.A. 111 207 - 1 963 201 -

INNOVNANO – Materiais Avançados, S.A. 7 702 - - -

SGPAMAG, S.A. 16 107 - 553 518 -

188 626 374 861 2 591 511 11 217 422

COMPANIES

31/12/16

ASSETS LIABILITIES

CLIENTS (NOTE 13.1)

OTHER ACCOUNTS RECEIVABLE

(NOTE 13.1)

SUPPLIERS (NOTE 13.2)

OTHER DEBT PAYABLE |(NOTE 13.3)

CUF – Consultadoria Serviços, S.A. 466 532 299 11 385 4 170 304

CUF SGPS, S.A. - - 6 491 -

AQP – Aliada Química Portugal, Lda 38 399 - - -

AP – Amoníaco de Portugal, S.A. 3 878 013 - 3 077 105 -

INNOVNANO – Materiais Avançados, S.A. 2 294 - - -

EUROPARIS – Sociedade Imobiliária, Lda - - - -

DOLOPAND – Invest. Imob. e Turíst., S.A. - - - -

SGPAMAG, S.A. 391 832 - 608 746 -

4 311 004 532 299 3 703 727 4 170 304


06 TANGIBLE FIXED ASSETS The gross recorded amount and any cumulative depreciation and impairment losses and the reconciliation of the recorded amount for the beginning and end of the period, separately showing increases, revalua-tions, disposals, assets held for sale, depreciation, impairment losses and respective reversals and other changes, are specified in the following table:

As shown in table above, depreciation for the period totalled EUR 17,668 thousand (2016: EUR 17,447 thousand) and cumulative depreciation at the end of the period totalled EUR 241,128 thousand (2016: EUR 219,741 thousand).

LAND

AND

N

ATUR

AL

RESO

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S

BUIL

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S AN

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CONS

TRUC

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ENT

TRAN

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ADM

INIS

TRAT

IVE

EQUI

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T

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R FI

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ASSE

TS

SUBT

OTAL

INVE

STM

ENTS

IN

PROG

RESS

ADVA

NCES

TOTA

L FI

NAN

CIAL

AS

SETS

COST

01 JANUARY 2016 1 173 006 34 830 475 271 885 347 615 284 2 739 573 1 996 189 313 239 875 3 436 203 - 316 676 077

Increases 10 674 435 616 7 067 268 - 56 186 273 088 7 842 831 1 906 988 - 9 749 819

Transfers - 143 167 3 779 779 - 2 782 76 729 4 002 457 (4 051 754) - (49 297)

Disposals (100) - (194 972) - (297) (116) (195 484) - - (195 484)

Write-downs - - - - - (104 973) (104 973) - - (104 973)

31 DECEMBER 2016 1 183 580 35 409 257 282 537 422 615 284 2 798 244 2 240 918 324 784 705 1 291 436 - 326 076 142

Increases 1 561 160 064 4 145 601 27 467 40 616 25 683 4 400 991 2 166 399 10 039 598 16 606 989

Transfers - 80 200 702 966 32 991 883 94 729 911 770 (968 958) - (57 188)

Disposals (466) - - - (1 470) (462) (2 398) - - (2 398)

Write-downs - - - - - (99 491) (99 491) - - (99 491)

31 DECEMBER 2017 1 184 675 35 649 522 287 385 989 675 742 2 838 273,51 2 261 376,24 329 995 577 2 488 878 10 039 598 342 524 054

LAND

AND

N

ATUR

AL

RESO

URCE

S

BUIL

DING

S AN

D OT

HER

CONS

TRUC

TION

S

BASI

C EQ

UIPM

ENT

TRAN

SPOR

T EQ

UIPM

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ADM

INIS

TRAT

IVE

EQUI

PMEN

T

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ASSE

TS

SUBT

OTAL

INVE

STM

ENTS

IN

PROG

RESS

ADVA

NCES

TOTA

L FI

NAN

CIAL

AS

SETS

AMORTIZATION AND IMPAIRMENT:

01 JANUARY 2016 - 25 500 941 172 154 069 530 257 2 618 943 1 577 012 202 381 222 - - 202 381 222

Depreciation (Note 25) - 1 204 971 16 058 408 35 098 39 055 108 990 17 446 521 - - 17 446 521

Other reclassific. - - - - 97 907 97 907 97 907

Disposals - - (194 972) - (297) (116) (195 384) - - (195 384)

Impairment - - 11 191 - - - 11 191 - - 11 191

31 DECEMBER 2016 - 26 705 911 188 028 696 565 355 2 657 701 1 783 793 219 741 457 - - 219 741 457

Depreciation (Note 25) - 1 177 303 16 274 080 27 922 42 201 146 728 17 668 234 - - 17 668 234

Other restatements - - - - - (598) (598) - - (598)

Transfers - - - - (1 470) (462) (1 932) - - (1 932)

Write-downs - - - - 5 347 - 5 347 - - 5 347

Impairment 219 308 2 657 402 838 375 - 399 - 3 715 484 - - 3 715 484

31 DECEMBER 2017 219 308 30 540 617 205 141 151 593 277 2 704 177,73 1 929 461 241 127 992 - - 241 127 992

NET CARRYING AMOUNT:

AS OF 31 DECEMBER 2017

965 366 5 108 905 82 244 838 82 465 134 096 331 915 88 867 586 2 488 878 10 039 598 101 396 062

AS OF 31 DECEMBER 2016

1 183 580 8 703 346 94 508 726 49 929 140 543 457 125 105 043 248 1 291 436 - 106 334 684

AS OF 01 JANUARY 2016

1 173 006 9 329 534 99 731 278 85 027 120 629 419 177 110 858 653 3 436 203 - 114 294 855


Depreciation for the period was not included as part of the cost of other assets and was fully recognised in the income statement under caption Depreciation and Amortisation Expenses/Reversals.

During the year an impairment loss was recorded on the tangible fixed assets of Renoeste in the amount of EUR 3,727 thousand, except for the land, which was evaluated and recorded at market value.

The advance in the amount of EUR 10,040 thousand concerns Altamira’s plant, which is undergoing refurbishment.

07 INVESTMENT PROPERTY Investment property is property held (by the owner or by the lessee under a finance lease) to earn rentals or for capital appreciation or both. Therefore, an investment property generates cash flows largely inde-pendent from the other assets held by the entity, which are whether occupied by Group companies or held for use in the production or supply of goods or services, or determined as for short-term sale in the ordinary course of business.

As described in paragraph 3.1-b), the Company adopts the cost model to evaluate its investment property.

The gross recorded amount and any cumulative depreciation and impairment losses and the reconciliation of the recorded amount for the beginning and end of the period, separately showing increases, revalua-tions, disposals, assets held for sale, depreciation, impairment losses and respective reversals and other changes, are specified in the following table:

LAND AND NATURAL RESOURCES

BUILDINGS AND OTHER CONSTRUCTIONS

TOTAL INVESTMENT PROPERTY

COST

01 JANUARY 2016 18 738 572 2 481 839 21 220 411

Disposals (10 335) - (10 335)

31 DECEMBER 2016 18 728 237 2 481 839 21 210 076

Increases 2 100 6 300 8 400

Disposals (2 567) - (2 567)

31 DECEMBER 2017 18 727 770 2 488 139 21 215 909

LAND AND NATURAL RESOURCES

BUILDINGS AND OTHER CONSTRUCTIONS

TOTAL INVESTMENT PROPERTY

AMORTIZATION AND IMPAIRMENT

01 JANUARY 2016 - 1 774 850 1 774 850

Depreciation (Note 25) - 75 405 75 405

31 DECEMBER 2016 - 1 850 255 1 850 255

Depreciation (Note 25) - 74 098 74 098

31 DECEMBER 2017 - 1 924 353 1 924 353

NET CARRYING AMOUNT

AS OF 31 DECEMBER 2017 18 727 770 563 786 19 291 556

AS OF 31 DECEMBER 2016 18 728 237 631 584 19 359 821

AS OF 01 JANUARY 2016 18 738 572 706 989 19 445 562


As shown in table above, depreciation for the period totalled EUR 74 thousand (2016: EUR 75 thousand) and cumulative depreciation at the end of the period totalled EUR 1,924 thousand (2016: EUR 1,850 thousand).

08 INTANGIBLE ASSETS

The gross recorded amount and any cumulative amortisation and the reconciliation of the recorded amount for the beginning and end of the period, separately showing increases, disposals, assets held for sale, amortisation, impairment losses and other changes, are shown in the following table:

As shown in table above, depreciation for the period totalled EUR 320 thousand (2016: EUR 286 thou-sand) and cumulative depreciation at the end of the period totalled EUR 2,784 thousand (2016: EUR 2,688 thousand).

DEVELOPMENT PROJECTS

SOFTWAREINDUSTRIAL

PROPERTYEMISSION

ALLOWANCESTOTAL INTANGIBLE

ASSETS

COST

01 JANUARY 2016 1 906 316 638 981 80 127 3 503 141 6 128 565

Acquisitions - - 25 822 - 25 822

Other restatements - - 49 297 - 49 297

Use of emission allowances - - - (245 353) (245 353)

Changes in fair value - - - (538 919) (538 919)

Disposals - - - (658 400) (658 400)

Transfers - - - (28 361) (28 361)

31 DECEMBER 2016 1 906 316 638 981 155 246 2 032 109 4 732 652

Acquisitions 22 985 - - - 22 985

Use of emission allowances - - - (208 711) (208 711)

Changes in fair value - - - 431 336 431 336

Transfers 57 188 - - (15 607) 41 581

31 DECEMBER 2017 1 986 490 638 981 155 246 2 239 127 5 019 843

DEVELOPMENT PROJECTS

SOFTWAREINDUSTRIAL

PROPERTYEMISSION

ALLOWANCESTOTAL INTANGIBLE

ASSETS

AMORTIZATION AND IMPAIRMENT

01 JANUARY 2016 1 772 323 625 136 3 125 275 236 2 675 820

Amortisation (Note 25) 67 708 13 845 4 611 199 802 285 966

Write-downs - - - (273 713) (273 713)

31 DECEMBER 2016 1 840 031 638 981 7 736 201 324 2 688 073

Amortisation (Note 25) 43 165 - 8 054 269 071 320 290

Write-downs - - - (224 318) (224 318)

31 DECEMBER 2017 1 883 197 638 981 15 790 246 077 2 784 044

NET CARRYING AMOUNT

AS OF 31 DECEMBER 2017 103 293 - 139 456 1 993 050 2 235 799

AS OF 31 DECEMBER 2016 66 285 - 147 510 1 830 785 2 044 579

AS OF 01 JANUARY 2016 133 994 13 845 77 002 3 227 905 3 452 745


09 EQUITY HOLDINGS The Group’s equity holdings at 31 December 2017 and 2016 are made up as follows:

9.1 – INVESTMENTS IN ASSOCIATES

Associated companies consolidated according to the equity method, their head offices and the proportion of capital held in them are as follows:

Changes occurred during the year in subsidiaries measured by the equity method are as follows:

9.2 – EQUITY HOLDINGS – OTHER METHODS

31/12/2017 31/12/2016

EQUITY METHOD

Investments in associates (Note 9.1) 1 070 266 1 061 608

1 070 266 1 061 608

31/12/2017 31/12/2016

OTHER METHODS

Investment in other companies

Non listed shares (Note 9.2) 9 228 9 228

9 228 9 228

FINANCIAL INFORMATION AT

LOCATIONSHARE

CAPITAL OWNRESULT

NET31/12/2017 31/12/2016

EQUITY METHOD

AQP Estarreja 2 277 343 453 465 1 070 266 1 061 608

BALANCE AT 01 JANUARY 2017

NET PROFIT (NOTE 19)

DIVIDEND DISTRIBUTION

BALANCE AT 31 DECEMBER 2017

AQP 1 061 608 453 465 (444 808) 1 070 266


NET PROFIT (NOTE 19)

DIVIDEND DISTRIBUTION

BALANCE AT 31 DECEMBER 2016

AQP 1 136 394 444 808 (519 594) 1 061 608

31/12/2017 31/12/2016

ERASE – Emp. Regeneração de Águas e Solos de Estarreja, ACE 9 228 9 228

Other 13 400 13 400

22 628 22 628

Amortization and provisions for losses in securities and other applications (13 400) (13 400)

9 228 9 228


10 INVENTORIES

10.1 – INVENTORIES

The total amount of inventories and the amount recorded under adequate classifications are as follows:

The amounts of inventories recognised as expenses for the period are as follows:

10.2 – VARIATION IN PRODUCTION

10.3 – COST OF GOODS SOLD

FINISHED AND SEMI FINISHED PRODUCTS

BALANCE AT 01 JANUARY 2016 5 516 261

Adjustments 744 658

Increase/decrease for the year (2 460 882)

BALANCE AT 31 DECEMBER 2016 3 800 036

BALANCE AT 01 JANUARY 2017 3 800 036

Adjustments 679 131

Increase/decrease for the year 1 624 739

BALANCE AT 31 DECEMBER 2017 6 103 906

GOODS RAW MATERIALS, SUBSIDIARY

MATERIALS AND CONSUM. TOTAL

BALANCE AT 01 JANUARY 2016 10 009 14 592 090 14 602 100

Procurement 7 370 698 148 476 654 155 847 352

Correction of inventories - (74 083) (74 083)

BALANCE AT 31 DECEMBER 2016 (9 179) (11 248 938) (11 258 117)

7 371 528 151 745 724 159 117 252

BALANCE AT 01 JANUARY 2017 9 179 11 248 938 11 258 117

Procurement 3 514 903 211 495 879 215 010 782

Correction of inventories (5 901) (67 696) (73 597)

BALANCE AT 31 DECEMBER 2017 (22 955) (14 511 241) (14 534 197)

3 495 226 208 165 879 211 661 105

31/12/2017 31/12/2016

GROSS VALUE

Goods 22 955 9 179

Raw materials, subsidiary materials and consum. 15 017 905 11 705 601

Finished and semi-finished products 6 103 906 3 800 036

21 144 766 15 514 816

IMPAIRMENT LOSSES

Raw materials, subsidiary materials and consum. (506 664) (456 664)

Finished and semi-finished products (217 484) (273 752)

(724 148) (730 415)

20 420 618 14 784 401


10.4 – IMPAIRMENT OF INVENTORIES

The amount of adjustments and reversals of inventories recognised as expenses for the period and as decrease in expenses for the period are as follows:

During the current year no impairment losses were recorded on “Raw-materials, subsidiary materials and consumables”. Reversal recorded in the previous year concerns in the amount of EUR 200 thousand concerns the adjustment in the value of precious metals.

11 GOVERNMENT AND OTHER PUBLIC ENTITIES At 31 December 2017 and 2016 this caption was made up as follows:

12 DEFERRALS

12.1 – EXPENSES TO RECOGNISE

At 31 December 2017 and 2016 recognisable expenses are made up as follows:

Caption Interest concerns the amount of investment in subsidiary Altamira.

2017 2016

IMPAIRMENT LOSSES

Raw materials, subsidiary materials and consum. (50 000) (4 582)

REVERSAL OF IMPAIRMENT LOSSES

Raw materials, subsidiary materials and consum. - 200 353

Finished and semi-finished products 1 445 31 032

(48 555) 226 803

31/12/2017 31/12/2016

BALANCE RECEIVABLE

VAT 232 366 203 963

232 366 203 963

BALANCES PAYABLE

Income tax

Tax estimate - 39 881

Income tax withheld 169 779 158 867

VAT - 1 016 682

Payments to Social Security 238 176 227 496

407 955 1 442 927

31/12/2017 31/12/2016

EXPENSES TO RECOGNISE

Interest 615 000 -

Insurance 131 140 123 399

Other 246 887 34 431

993 027 157 830


12.2 – INCOME TO RECOGNISE

At 31 December 2017 and 2016 recognisable income is made up as follows:

13 FINANCIAL INSTRUMENTS Measurement bases and other accounting policies used in the accounting of financial statements that are relevant for an understanding of the financial statements are described in sub-paragraphs h) and o) of paragraph 3.1

13.1 – CLIENTS AND OTHER RECEIVABLES

Financial assets with recognised impairment losses, specifying separately for each category i) the carrying amount resulting from the measuring at amortised cost, and ii) cumulative impairment, are as follows:

The amount of impairment losses recognised for each class of financial assets is as shown in the following tables:

31/12/2017 31/12/2016

INCOME TO RECOGNISE

Surface rights 123 285 136 000

123 285 136 000

31/12/2017 31/12/2016

GROSS AMOUNT

CUMULATIVE IMPAIRMENT

NET AMOUNT

GROSS AMOUNT

CUMULATIVE IMPAIRMENT

NET AMOUNT

CLIENTS

Clients c/a 47 527 494 - 47 527 494 39 765 996 - 39 765 996

Clients – securities receivable 1 268 951 - 1 268 951 1 350 619 - 1 350 619

Group clients and other related parties (Note 5.2) 188 626 - 188 626 4 311 004 - 4 311 004

Doubtful receivables 2 383 133 (2 354 495) 28 637 2 417 202 (2 388 565) 28 637

51 368 203 (2 354 496) 49 013 707 47 844 821 (2 388 565) 45 456 256

OTHER ACCOUNTS RECEIVABLE

Other accounts receivable c/a 414 597 - 414 597 324 898 - 324 898

Other doubtful receivables 2 038 770 (2 038 770) - 2 038 770 (2 038 770) -

Other debtors – Group (Note 5.2) 374 861 - 374 861 532 299 - 532 299

Personnel 1 458 - 1 458 4 172 - 4 172

Advances to suppliers 407 534 - 407 534 200 022 - 200 022

Suppliers – Exchange differences 363 - 363

3 237 583 (2 038 770) 1 198 813 3 100 161 (2 038 770) 1 061 391

31/12/17 OPENING BALANCE IMPAIRMENT (P&L)USED AND

CORRECTEDCLOSING BALANCE

FINANCIAL ASSETS MEASURED AT COST MINUS IMPAIRMENT

CLIENTS

General clients (2 388 565) (54 765) 88 835 (2 354 496)

OTHER ACCOUNTS RECEIVABLE – CURRENT

Other accounts receivable c/a (2 038 770) - - (2 038 770)

(4 427 335) (54 765) 88 835 (4 393 266)


The company derecognised EUR 88 thousand of client debt which were considered as impairment, as there is no likelihood of recovering such amounts.

13.2 – TRADE PAYABLES

As at 31 December 2017 and 2016, caption Accounts Payable is made up as follows:

In 2016 caption “Invoices being checked” shows a balance of opposite nature due to an invoice from a benzene supplier which was accounted for in 2016, though the order was only delivered in 2017.

13.3 – OTHER DEBTS PAYABLE

As of 31 December 2017 and 2016, caption Other Debts Payable was made up as follows:

Other debts payable - non current, in the amount of EUR 4,700 thousand concerns the amount transferred by external entities as partners’ loans in Miralcalis.

Balance of caption Other Accruals in 2017 comprises accrued environmental levies, raw material swaps, property and similar taxes.

31/12/16 OPENING BALANCE IMPAIRMENT (P&L)USED AND

CORRECTEDCLOSING BALANCE

FINANCIAL ASSETS MEASURED AT COST MINUS IMPAIRMENT

CLIENTS

General clients (2 782 639) (33 910) 427 984 (2 388 565)

OTHER ACCOUNTS RECEIVABLE – CURRENT

Other accounts receivable c/a (2 038 770) - - (2 038 770)

(4 821 410) (33 910) 427 984 (4 427 335)

31/12/2017 31/12/2016

TRADE PAYABLES

Trade payables c/a 34 325 860 27 972 158

Suppliers – securities payable 1 173 969 880 024

Suppliers of the Group (Note 5.2) 2 591 511 3 703 727

Invoices expected or being checked 1 110 839 (2 862 730)

Exchange gains – suppliers - (13 828)

39 202 179 29 679 353

31/12/2017 31/12/2016

NON CURRENT

Other debts payable (Note 5.2) 6 000 000

Other debts payable 4 700 000

10 700 000

CURRENT

Suppliers of investment a/c 1 648 686 1 924 417

Personnel 4 754 3 771

Increase for holiday pay and holiday bonus 1 039 998 1 097 153

Other increase 689 669 758 893

Other debts payable 5 205 833 4 698 408

Other debts payable (Note 5.2) 5 217 422 4 170 304

13 806 363 12 652 947


Caption Other debts payable comprises a balance of EUR 2,376 thousand and EUR 2,714 thousand in 2017 and 2016 respectively, deriving from the amount of deferred taxation on subsidies.

13.4 – LOANS OBTAINED

Caption borrowings as of 31 December 2017 and 2016 is made up as follows:

Bank loans measured at amortised cost and respective terms and conditions are as shown in the following table:

The company has short-term credit lines in the amount of up to EUR 7 million which had not been used as of 31 December 2017.

FINANCING ENTITY2017 2016

CURRENT NON CURRENT CURRENT NON CURRENT

Bank loans at cost 14 687 500 50 392 952 9 937 500 66 867 992

14 687 500 50 392 952 9 937 500 66 867 992

MATURITY 31/12/2017 31/12/2016

LOANS PAYABLE

NON CURRENT

Bank loans

EIB 30/12/2022 22 110 000 29 160 000

Retail banking 30/12/2022 23 952 500 31 590 000

Floating interest rate swaps 30/12/2022 4 183 863 6 117 992

Raw material swap 30/12/2020 146 589 -

50 392 952 66 867 992

CURRENT

Bank loans

EIB 30/12/2022 7 050 000 4 770 000

Retail banking 30/12/2022 7 637 500 5 167 500

14 687 500 9 937 500

65 080 452 76 805 492


14 PROVISIONS The accounting policies followed to recognise Provisions are described in the following sub-paragraph m) of paragraph 3.1.

14.1 – PROVISIONS

The change occurred in provisions, according to provision, is as follows:

The Group has another provision in the amount of EUR 3,355 thousand relating to subsidiary Elnosa, which has its facilities located on a land subject to a concession agreement for a 50-year period, ending in 2018. At the end of the concession, the term of which may be extended, Elnosa will have to clean and decontaminate the land before returning it; to this end it set up the said provision in 2009. Accordingly, in 2017 provisions for this purpose were reinforced by EUR 1,516 thousand.

As far as Nutriquim is concerned, taking into consideration the company’s dismantling process, a provi-sion was also set up, in the amount of EUR 1,150 thousand in 2013; however, part of this provision was used to face costs, and was further increased for the same purposes, standing at EUR 746 thousand.

OTHER PROVISIONS

AS OF 01 JANUARY 2016 2 511 424

Used in the year (32 377)

Increases for the year 347 352

AS OF 31 DECEMBER 2016 2 826 398

AS OF 01 JANUARY 2017 2 826 398

Used in the year 11 191

Reversals in the year (Note 29.1 + PL) (2 398)

Increases for the year 1 516 289

AS OF 31 DECEMBER 2017 4 351 480


15 EMPLOYEES BENEFITS

15.1 – EMPLOYEES BENEFITS

The reconciliation between opening and closing balances of the current value of these obligations is shown in the following table:

15.2 – POST-EMPLOYMENT BENEFITS

The Group’s accounting policy concerning the recognition of actuarial gains and losses relating to post--employment benefits pursuant to Defined Benefit Plans is described in sub-paragraph n) of paragraph 3.1.

CUF – Químicos has commitments with some employees to complement the retirement pensions for old age, disability and survival.

These actuarial valuations were carried out using two methods:

Projected Unit Credit method and the following assumptions and technical bases in 2017 and 2016:

POST-EMPLOYEMENT BENEFITS

DEFINED RETIREMENT BENEFIT PLAN

(NO FUND SET UP)

MEDICAL BENEFIT PLAN (NO FUND SET UP)

TOTAL

LIABILITY FOR DEFINED BENEFITS AT 01 JANUARY 2016

4 181 710 773 601 4 955 311

Interest expenses 86 961 - 86 961

Cost of current service 3 554 - 3 554

Benefits paid (458 582) (87 941) (546 523)

Actuarial (gains) / losses (195 968) 121 491 (74 476)

LIABILITY FOR DEFINED BENEFITS AT 31 DECEMBER 2016

3 617 675 807 151 4 424 826

Interest expenses 51 170 - 51 170

Cost of current service 3 155 - 3 155

Benefits paid (409 362) (62 331) (471 693)

Actuarial (gains) / losses 3 641 (110 719) (107 078)

LIABILITY FOR DEFINED BENEFITS AT 31 DECEMBER 2017

3 266 280 634 101 3 900 381

COMPANY NAME OF PLAN TYPE ADDRESSEES LOCATION

CUF – QI Retirement pension plans Defined benefit - complementary pension for old age, disability and survival


Portugal

CUF – QI Medical benefits Defined benefit - medical benefits without provided fund


Portugal

31/12/2017 31/12/2016

Salary growth rate for Social Security Security 2.0% 2.0%

Salary growth rate 2.0% 2.0%

Rate of return of the fund 1.5% 1.5%

Pension growth rate 0.0% 0.0%

Technical rate (life rents) 1.5% 1.5%

Revaluation of salaries for Social Security 1.0% 1.0%

Mortality table TV 88/90 TV 88/90

Disability table EKV80 EKV80


CUF – Químicos has to complement the retirement pensions of its former and current employees and only those with whom it assumed such obligation.

Although it did not set up any fund or insurance to cover this responsibility, the Company set up a provi-sion for the purpose, which is adjusted according to an actuarial valuation carried out by a specialized and independent firm. According to the valuation report prepared by Ocidental Pensões – S.G.F.P., S.A., the current value of liabilities for retirement pensions at the date of the balance sheet is estimated at EUR 3,266 thousand; the liability for post-employment benefits was adjusted accordingly.

15.3 – HEALTHCARE BENEFITS

Pursuant to an agreement entered with Hospital CUF Infante Santo, CUF – Químicos has the responsibility to pay in-patient, out-patient and surgery expenses, as well as the share part of medicines not paid by Social Security (only medicines covered by Social Security) of its former and current employees and only those with whom it assumed this responsibility.

This Company has not set up any fund or insurance to cover this responsibility, however it did set up a provision for the purpose, which is adjusted according to an actuarial valuation. According to the valua-tion report, the current amount of the liabilities with healthcare as of 31 December 2017 is estimated at EUR 634 thousand (EUR 807 thousand at 31 December 2016), recorded under item “Liabilities for post--employment benefits”.

15.4 – PERSONNEL EXPENSES

Personnel expenses were as follows:

During 2017 and 2016 the average number of employees at the Group was of 318 and 322, respectively, as follows:

(Including 3 directors)

2017 2016

Remuneration of the members of governing bodies 887 089 1 112 089

Wages 8 511 773 8 400 280

Retirement benefits

Retirement pension plans 52 533 (92 835)

Indemnities 168 671 38 838

Wage expenses 2 235 691 2 200 983

Occupational insurance 88 763 102 562

Social security expenses 687 632 925 082

Other personnel expenses 146 296 147 259

12 778 448 12 834 257

2017 2016 CHANGE

CUF – QI 250 248 2

RENOESTE 6 10 (4)

ELNOSA 61 63 (2)

NUTRIQUIM 1 1 -

318 322 (4)


16 OTHER EQUITY INSTRUMENTS

16.1 – SHARE CAPITAL

The Company’s capital at 31 December 2017 and 2016 was made up of 6,100,000 fully subscribed and paid up shares of €5 each, 100% held by CUF – Companhia União Fabril, SGPS, S.A..

16.2 – RESERVES AND RESULTS

The amounts in reserves are not available for distribution.

16.3 – ADJUSTMENTS/OTHER CHANGES IN EQUITY

The amounts resulting from changes in the fair value of hedging instruments recognised in equity during the period, for the purpose of hedging the interest rate risk of the loans contracted for the Capacity Expan-sion Plan, and other adjustments are as follows:

Caption adjustments in financial assets, as described in 3.1, was restated and grouped into this new balance sheet line.

Changes in issuing rights are as follows:

31/12/2017 31/12/2016

ADJUSTMENTS TO FINANCIAL ASSETS AND LIABILITIES

Assets

Equity holdings (47 697) (43 874)

Liabilities

Derivatives with effective hedging

Floating interest rate swaps (3 356 100) (4 741 444)

Subsidies (Note 17) 8 183 850 9 321 252

Emission allowances 1 510 539 1 425 239

6 290 592 5 961 174

31/12/2017 31/12/2016

BALANCE AT 1 JANUARY 1 830 785 3 227 905

Used (Notes 22 and 29.1) (284 678) (228 162)

Fair value (Note 29.1) 431 336 (538 919)

Disposals (Note 8) - (658 400)

Transfers (28 361) 28 361

BALANCE AT 31 DECEMBER 1 949 082 1 830 785

Deferred taxation (Note 28) (438 544) (405 545)

NET BALANCE AT 31 DECEMBER, NET 1 510 539 1 425 239


16.4 – NON CONTROLLING INTERESTS

As of December 2016 and 2016, non controlling interests relate to the following subsidiaries:

Subsidiary Miralcalis, which is 80% held by the Group and 20% held by external entities was set up during the year under review.

17 SUBSIDIES AND OTHER FUNDING FROM PUBLIC ENTITIES The accounting policies followed to recognise government subsidies, including the methods followed to present them in the financial statements are described in the following sub-paragraph l.e.1) of paragraph 3.1:

The nature and amount of the government subsidies recognised in the financial statements are as follows:

Recognised in Equity:

Recognised in Income for the Year:

The main investment subsidy concerns the Growth and Expansion Plan of CUF – QI in the net amount of EUR 8,172 thousand in 2017.

31/12/2017

PROPORTION IN NET RESULTS PROPORTION IN EQUITY

Miralcalis (48) 300 000

(48) 300 000

2017 2016

GROSS VALUEOTHER DEBTS

PAYABLENET VALUE GROSS VALUE

OTHER DEBTS PAYABLE

NET VALUE

OPENING BALANCE 12 035 656 (2 714 404) 9 321 252 13 461 847 (3 028 915) 10 432 931

Received in the year - - - 61 474 - 61 474

Transferred to results (Note 22) (1 504 209) - (1 504 209) (1 459 304) - (1 459 304)

Contractual transfer 28 361 6 381 34 742 (28 361) (6 381) (34 742)

Adjustment - 332 066 332 066 - 320 893 320 893

CLOSING BALANCE 10 559 807 (2 375 957) 8 183 850 12 035 656 (2 714 404) 9 321 252

Attributable to the Group (Note 16.3) 8 183 850 9 321 252

2017 2016

Investment subsidy (Note 22) 1 504 209 1 459 304

Operating subsidies 12 256 19 272

1 516 465 1 478 576


18 REVENUE The accounting policies followed to recognise revenue, including the methods followed to determine the ending phase of transactions involving the rendering of services are described in paragraph 3.1-q).

As of 31 December 2017 and 2016, item Sales and Services is broken down as follows:

Sales and services broken down by significant geographical market are as follows:

Gross margin is as shown in the following table:

2017 2016

SALE OF GOODS

Goods 11 835 359 14 021 999

Finished and semi-finished products 313 290 083 252 927 627

Sub-products, waste and residues 90 796 137 493

Return of sales (180 804) (3 023 815)

Discounts and reductions to sales (4 409 507) (631 669)

320 625 927 263 431 635

RENDERED SERVICES

Services 1 925 929 2 325 659

Discounts and reductions (34 802) (223 281)

1 891 127 2 102 378

322 517 054 265 534 013

2017

PORTUGAL EUROPE AFRICA ASIA AMERICA TOTAL

Sale of Goods 191 188 910 124 766 911,50 379 645 2 629 486 1 660 973 320 625 927

Rendered services 1 335 959 555 168 - - - 1 891 127

192 524 870 125 322 079 379 645 2 629 486 1 660 973 322 517 054

2016

PORTUGAL EUROPE AFRICA ASIA AMERICA TOTAL

Sale of Goods 160 113 146 99 002 046 607 094 2 870 997 838 353 263 431 635

Rendered services 1 546 415 555 963 - - - 2 102 378

161 659 560 99 558 009 607 094 2 870 997 838 353 265 534 013

2017 2016

Sales 320 625 927 263 431 635

Change in production (Note 10.2) 1 624 739 (2 460 882)

Cost of goods sold (Note 10.3) (211 661 105) (159 117 252)

110 589 561 101 853 501


19 GAINS/LOSSES OF SUBSIDIARIES, ASSOCIATES AND JOINT UNDERTAKINGS

At 31 December 2017 and 2016, this caption was made up as follows:

20 WORK FOR OWN ENTITY At 31 December 2017 and 2016, this caption was made up as follows:

2017 2016

INCOME AND GAINS SUBS. & ASSOCIATES JOINT UNDERTAKINGS

Application of the Equity Method (note 9.1) 453 465 444 808

453 465 444 808

2017 2016

WORK OF OWN COMPANY TO:

Tangible fixed assets (Note 6) 140 458 128 875

140 458 128 875


21 SUPPLIES AND SERVICES At 31 December 2017 and 2016, this caption was made up as follows:

2017 2016

SUB-CONTRACTS - 3 096

SPECIALISED SERVICES

Specialised works 6 533 122 6 345 153

Advertising costs 33 549 52 372

Surveillance and Safety 306 685 314 410

Fees 102 320 82 121

Other fees 56 406 55 785

Maintenance and repairs 2 243 756 3 305 769

MATERIAL

Tools and utensils 22 160 21 229

Books ant technical documentation 113 918 70 118

Stationery 62 317 77 560

Promotional items 25 608 23 157

Other 27 029 48 358

ENERGY AND FLUIDS

Electricity 25 606 068 24 167 933

Fuel 3 033 957 3 439 596

Water 29 280 29 760

Gas 352 115 352 009

Other fluids 25 535 59 295

TRAVELLING, ACCOMMODATION AND TRANSPORT

Travelling and accommodation 460 403 464 171

Transport of personnel 156 111

Transport of goods 13 549 133 12 909 882

Transport – other 5 686 16 366

SUNDRY SERVICES

Rents and rentals 2 519 661 2 524 970

Communication 46 439 55 892

Insurance 1 560 860 1 581 414

Legal services 2 710 3 446

Representation fees 82 925 70 004

Cleaning, hygiene and comfort 297 437 263 246

Other 351 727 149 340

Consolidation corrections (260 590) (323 117)

57 190 372 56 163 449


22 OTHER INCOME At 31 December 2017 and 2016, this caption was made up as follows:

Gains from emission allowances concern the Portuguese Carbon Fund subsidy concerning the reduction of CO2 emissions in the amount of EUR 285 thousand.

The amount of EUR 1,665 thousand recorded under Benefits from Contractual Penalties concern amounts charged to a client following the latter’s non compliance with respective contract, and a compensation received from a lawsuit started in 2009 by CUF – Químicos Industriais.

Caption Non Specified Other comprises compensation for the construction of a pipeline for the supply of sodium hypochlorite, in the amount of EUR 149 thousand.

2017 2016

Supplementary income

Equipment rental 889 908 801 026

Other 911 324 848 748

Recovery of receivables 42 786 4 533

Gains on inventories 38 086 -

Income and Gains on Non Financial Investments

Disposals 6 099 195 375

Accidents

Rents and other income on investment property 3 673

Gains on emission allowances

Use of allowances (Note 16.3) 284 678 228 162

Gains on the disposal of emission allowances - 658 400

Other 16 793 3 673

Other

Corrections relating to previous years 32 685 1 294

Excess of estimated tax 120 747 17 275

Appropriation of investment subsidies (Note 17) 1 504 209 1 459 304

Contractual benefits penalties 1 665 052 481 569

Indemnities of insurable events 35 357 5 337

Operating exchange differences (Note 24) 169 32 768

Other, non specified 223 649 88 023

5 775 217 4 825 488


23 OTHER EXPENSES At 31 December 2017 and 2016, this caption was made up as follows:

Taxes reflect environmental levies, property and similar taxes.

The amount in caption Other includes the additional commissioning of ammonia, in the amount of EUR 261 thousand, recorded following adjustments in budgeted purchases and fluctuations in ammonia prices.

24 EFFECTS OF CHANGES IN EXCHANGE RATES The amount of foreign exchange differences recognised in the income statement is shown in the following table:

No changes have occurred in the operating currency or in relation to the parent company or any of its foreign businesses.

2017 2016

Tax 393 222 151 617

Prompt payment discounts obtained 10 832 10 309

Losses on inventories - 73 744

Expenses and losses in remaining financial investments

Other 43 896 -

Expenses and losses on non financial investments

Disposals 2 447 -

Write-downs 103 515 104 973

Other

Corrections relating to previous years 15 278 2 112

Donations 133 680 13 925

Contributions 124 267 137 265

Samples and offers of inventories - 2 259

Insufficiency of estimated tax 935 -

Operating exchange differences (Note 24) 23 296 3 546

Penalties and fines 1 798 901

Other financial expenses and lossea 132 126 393 843

985 291 894 493

2017 2016

EXCHANGE GAINS INCLUDED IN:

Other Income and gains

Other operating exchange differences (Note 22) 169 32 768

169 32 768

EXCHANGE GAINS INCLUDED IN:

Other expenses and losses

Other operating exchange differences (Note 23) 23 296 3 546

23 296 3 546


25 EXPENSES/REVERSAL OF DEPRECIATION AND AMORTISATION At 31 December 2017 and 2016, this caption was made up as follows:

26 INTEREST AND SIMILAR INCOME At 31 December 2017 and 2016, this caption was made up as follows:

27 INTEREST AND SIMILAR EXPENSES At 31 December 2017 and 2016, this caption was made up as follows:

Expenses with swaps for the hedging of raw materials correspond to non speculative operations to miti-gate the impact of changes in respective prices on CUF – QI operating cash flows.

2017 2016

DEPRECIATION AND AMORTISATION EXPENSES

Investment property (Note 7) 74 098 75 405

Tangible fixed assets (Note 6) 17 668 234 17 446 521

Intangible assets (Note 8) 320 290 285 966

18 062 622 17 807 893

IMPAIRMENT OF DEPRECIABLE INVENTORIES

Tangible fixed assets (Note 6) 3 726 675 -

3 726 675 -

21 789 297 17 807 893

2017 2016

INTEREST EARNED

On deposits 3 278 8 258

OTHER SIMILAR INCOME

Raw material hedging swap 16 705 -

Other 11 289 16 197

31 272 24 455

2017 2016

INTEREST PAID

On loans obtained 2 253 308 2 670 089

Other 367 450

OTHER FINANCING EXPENSES AND LOSSES

Stamp duty 5 177 -

Raw material hedging swap 498 963 -

Other 638 579 639 884

3 396 394 3 310 424


28 INCOME TAX Expenses (income) for current taxes are as follows:

Deferred and current income tax on the items debited or credited to equity are shown in the following table:

The amounts of deferred tax assets and liabilities recognised in the balance sheet for each period shown according to each type of temporary difference and concerning each type of non used tax losses and credit for non used taxes are as follows:

2017 2016

CURRENT TAX

Corporate Income Tax for the year 7 031 338 5 113 424

7 031 338 5 113 424

DEFERRED TAX

Originated and subject to reversal for temporary differences (2 304 213) (173 158)

(2 304 213) (173 158)

4 727 125 4 940 266

2017 2016

DEFERRED TAX

Recognised in revaluation reserves 3 280 865 3 295 431

Net gains on adjustments in financial assets (974 352) (1 376 548)

Subsidies 438 544 405 545

2 745 057 2 324 428

BALANCE SHEET ITEMS PROFIT AND LOSS ITEMS OTHER EQUITY ITEMS

31/12/2017 31/12/2016 2017 2016 31/12/2017 31/12/2016

DEFERRED TAX ASSETS

Temporary differences:

Other:

Post employment benefits - medical benefits 142 673 181 609 (38 936) 7 549 - -

Post employment benefits - pensions 734 913 813 977 (79 064) (126 908) - -

Provisions not considered for tax purposes 1 730 171 580 467 (783 141) 59 777 - -

Changes in fair value 974 352 1 376 548 - - (402 196) (361 584)

Other 10 373 - (10 373) - - -

3 592 481 2 952 601 (911 514) (59 582) (402 196) (361 584)

BALANCE SHEET ITEMS PROFIT AND LOSS ITEMS OTHER EQUITY ITEMS

31/12/2017 31/12/2016 2017 2016 31/12/2017 31/12/2016

DEFERRED TAX LIABILITIES

Temporary differences:

Revaluation of investment property 3 280 865 3 295 431 (13 318) (12 829) - (3 636)

CO2 licence subsidy 438 544 405 545 - - 32 998 (320 733)

3 719 408 3 700 976 (13 318) (12 829) 32 998 (324 369)


29 OTHER INFORMATION

29.1 – ENVIRONMENTAL MATTERS – GREENHOUSE GAS EMISSIONS

Climate change is a key element of the current environmental policy and measures relating thereto are crucial and will have obvious implications in the near future.

Within the framework of the climate and energy package, the Parliament and Council issued Directive n.º 2009/29/CE, of 23 April 2009, which amends Directive 2003/87/CE, of the European Parliament and of the Council of 13 October 2003, to improve and extend the European emissions trading scheme «new EETS directive», which establishes the legal framework for the 2013-2020 period.

As from 2013 rules changed considerably, introducing a wider range of gases and sectors, a total amount of allowances that is determined at EU level and an allocation made through tenders. Allowances remain marginally free, based on benchmarks defined at community level.

National plans for the allocation of emission allowances for the 2013-2020 period were replaced by a list of facilities covered by the EEST and respective allowances awarded for free - the «NIMs List» -, prepared based on data provided for the purposes by eligible facilities, under the terms of Decision2011/278/UE, dated 27 April 2011.

CUF – Químicos Industriais was allocated the following licences per year, in a total amount of 546,203 for the 2013-2020 period.

As the allowances are allocated for periods of 8 years, the Company recorded the total allowances alloca-ted in the first year, and recognises them as they are being used.

Changes in CO2 ton relating to greenhouse gas emission allowances during the year were as follows:

Emissions in 2017 totalled 32,611 tons, which in terms of allowances, gives rise to a positive differential in relation to the previous years, of 80,080 ton.

As agreed with an equipment supplier, CUF – QI assigned 3218 allowances during the year.

2013 2014 2015 2016 2017 2018 2019 2020 TOTAL

Allowances 72 799 71 534 70 255 68 962 67 656 66 336 65 001 63 660 546 203

OPENING BALANCE

DISPOSALS TRANSFERS USED (NOTE 22)

FAIR VALUE (NOTE 16.3)

CLOSING BALANCE


Ton 425 655 (80 000) (3 446) (31 489) - 310 720

Amount 3 227 905 (658 400) 28 361 (228 162) (538 919) 1 830 785


Ton 310 720 - (3 019) (32 624) - 275 077

Amount 1 830 785 - 15 607 (284 678) 431 336 1 993 050


29.2 – BANK GUARANTEES

As of 31 December 2017 and 2016, the Company had liabilities for guarantees given, as follows:

The amount of EUR 30,618,000 corresponds to the guarantee associated to EIB loan.

The amount of EUR 74,282 corresponds to the guarantee required by the Municipal Council of Loulé concerning infrastructures for the real estate development located in Betunes, subject to Licence nr. 2/2002.

29.3 – OPERATING LEASES – AS LESSEE:

Operating leases in which the Group is lessee concern vehicles and premises. These leases do not have purchase option clauses.

The total amount of minimum future lease payments for operating leases assuming that existing ones will not be rescinded or renewed, is as follows:

29.4 – PLEDGES AND MORTGAGES

Pursuant to ongoing loans and to ensure the fulfilment of respective obligations, the company entered a mortgage on the plant, land and buildings, a pledge on the balance of bank accounts and on equipment and had credits assigned as guarantee.

Within the scope of the loans entered by Altamira – Electroquímica del Cantábrico, S.A. for the purchase and conversion of the chlor-alkali production plant, the company entered a promissory pledge on its shares, on its bank accounts and other credit and a mortgage on future assets.

29.5 – COMFORT LETTERS AND SURETIES

In order to finance the Capacity Expansion Plan, CUF SGPS provided a personal guarantee to CUF – Químicos Industriais, S.A. in the maximum amount of EUR 60.8 million.

CUF – Químicos Industriais, S.A. is the guarantor of the bank loan contracted by Altamira – Electroquí-mica del Cantábrico, S.A., in the maximum amount of EUR 39 million for the purchase and conversion of a chlorine plant.

ENTITIES 2017 2016

Leixões Customs 374 279 374 279

EIB 30 618 000 35 626 500

Municipal Council of Loulé 74 282 74 282

General Directorate for Energy and Geology 14 964 14 964

31 081 525 36 090 025

2017 2016

Up to 1 year 1 896 623 2 011 164

Over 1 year and up to 5 years 7 586 493 8 044 655

Over five years and up to 10 years 18 966 233 20 111 637

28 449 349 30 167 456


30 SUBSEQUENT EVENTS These financial statements were approved for issuing by the Board of Directors.

No events have occurred since 31 December 2017 to the said date that are not already adjusted and/or disclosed in the financial statements.

2017 - bondaltiwhat had already happened in 2016 – inflation moved from 1.8% to 2.1% in the united...

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