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VISCOFAN, S.A. AND SUBSIDIARIES

Consolidated Financial Statements and Consolidated Management report for the year ended 31 December 2017

Consolidated income statement

(Thousands of euros)

Note 2017 2016
Sales and services rendered 5.1 778,136 730,833
Changes in inventories of finished goods and work in progress   18,809 2,387
Consumption of raw materials and other consumables   (229,549) (205,307)
Other operating income 5.2 17,297 13,781
Employee benefits expenses 5.3 (184,280) (168,576)
Other operating expenses 5.4 (189,889) (173,412)
Intangible assets amortization 9 (3,488) (3,282)
Property, plant and equipment depreciation 10 (52,894) (46,417)
Impairment and gains (losses) on disposal of non-current assets   711 (116)
Negative differences from business combinations   - 4,475
Operating profit   154,853 154,366
Finance income 5.5 279 431
Finance costs 5.5 (1,846) (1,819)
Losses on non-trade receivables 5.5 527 (721)
Exchange differences 5.5 (8,456) 2,998
Profit before tax   145,357 155,255
Income tax expense 21 (23,338) (30,244)
Net result for the year from continued operations   122,019 125,011
Net result for the year from discontinued operations   - -
Profit for the year   122,019 125,011
Result attributable to equity holders of the parent   122,101 125,084
Result attributable to non-controling interests   (82) (73)
Earnings per share, basic and diluted, from profit for the year attributable to equity holders of the parent (in euros) 6 2.6200 2.6840
Earnings per share, basic and diluted, from continuing operations attributable to equity holders of the parent (in euros) 6 2.6200 2.6840

Consolidated statements of other comprehensive income

(Thousands of euros)

Note 2017 2016
Result attributable to equity holders of the parent   122,101 125,084
Exchange differences on translation of foreign operations   (32,937) 11,227
Net movement on cash flow hedges 15.4 (724) 7,164
Income tax effect 15.4 256 (2,063)
Net other compehensive income to be reclasified to profit or loss in subsequent periods   (33,405) 16,328
Re-measurement gains (losses) on defined plans   642 (2,490)
Income tax effect   (217) 812
Net other compehensive income not to be reclasified to profit or loss in subsequent periods 17.1 425 (1,678)
Other comprehensive income for the year, net of tax   (32,980) 14,650
Total comprehensive income for the year, net of tax attibutable to equity holders of the parent   89,121 139,734

Consolidated statements of financial position

(Thousands of euros)

Assets Note 2017 2016
Intangible assets 9 19,293 16,425
Property, plant and equipment 10 469,799 431,910
Deferred tax assets 21 17,472 16,329
Other non-current financial assets 13 9,149 12,793
Total non-current assets   515,713 477,457
Inventories 11 238,530 229,578
Trade and other receivables 12.1 144,082 147,641
Receivable from public administrations 12.1 24,218 23,781
Income tax receivable 21 3,834 3,449
Prepayments   2,727 2,574
Current financial assets 13 3,557 1,460
Cash and cash equivalents 14 28,143 45,054
Total current assets   445,091 453,537
Total assets   960,804 930,994

Consolidated statements of financial position

(Thousands of euros)

Equity and liabilities Note 2017 2016
Share capital 15.1 32,623 32,623
Share premium 15.2 12 12
Other reserves 15.3 650,573 592,173
Profit for the year   122,101 125,084
Interim dividend 15.7 (28,894) (26,564)
Translation differences 15.5 (50,641) (17,704)
Hedge transaction reserves 15.4 1,772 2,240
Equity attributable to equity holders of the parent   727,546 707,864
Non-controlling interests   135 217
Total equity   727,681 708,081
Grants 16 2,482 3,001
Provisions 17 22,235 23,317
Non-current financial liabilities 19 74,336 54,867
Deferred tax liabilities 21 20,514 22,811
Total non-current liabilities   119,567 103,996
Current financial liabilities 19 19,386 30,119
Trade and other payables 18.1 71,869 65,440
Payable to public administrations 18.2 10,785 10,156
Income tax payable 21 6,517 6,524
Provisions 17 4,999 6,678
Total current liabilities   113,556 118,917
Total equity and liabilities   960,804 930,994

Consolidated statement of cash flows

(Thousands of euros)

Note 2017 2016
Profit for the year before tax   145,357 155,255
Amortization of intangible assets 9 3,488 3,282
Depreciation of property, plant and equipment 10 52,894 46,417
Changes in provisions   (695) 1,654
Capital grants 16 (637) (1,284)
Gains/(losses) on disposal of non-current assets   (711) 116
Negative differences from business combinations 8 - (4,475)
Finance income 5.5 (279) (431)
Finance costs 5.5 1,846 1,819
Losses on non-trade receivables 5.5 (527) 721
Foreign currency translation differences (net) 5.5 8,456 (2,998)
Adjustments to reconcile profits before tax with net cash flows   63,835 44,821
Inventories   (20,178) (7,443)
Trade and other receivables   (10,004) (11,665)
Trade and other payables   8,104 (8,054)
Changes in working capital   (22,078) (27,162)
Income tax paid 21 (28,549) (31,330)
Contributions and other payments related to pension plans 17 (1,577) (1,065)
Cash flow from operating activities   156,988 140,519
Acquisition of subsidiaries, net of cash acquired 8 (8,492) 1,110
Payments for acquisition of property, plant, equipment and intangible assets 15.1 (111,561) (80,747)
Interest received   1,619 678
Increase (decrease) from discontinued operations   696 796
Cash flows from investing activities   (117,738) (78,163)
Proceeds from borrowings 15.1 28,211 26,532
Repayment of borrowings 15.1 (11,382) (25,361)
Dividends paid to shareholders of the parent   (69,439) (64,779)
Interest paid 15.1 (1,836) (1,708)
Other financial liabilities (net)   (834) 2,504
Grants received 16 181 612
Cash flows from financing activities   (55,099) (62,200)
Impact of changes in exchange rates on cash and cash equivalents   (1,062) 445
Net increase (decrease) in cash and cash equivalents   (16,911) 601
Cash and cash equivalents at January 1, 14 45,054 44,453
Cash and cash equivalents at December 31, 14 28,143 45,054

Consolidated statement of changes in equity

(Thousands of euros)

                 
  Equity attributed to the parent    
  Share capital (Note 15.1) Share premium (Note 15.2)" Reserves (Note 15.3) Interim dividend (Note 15.7)" Profit for the year attributable to equity holders of the parent Hedge transaction reserves (Note 15.4)" Currency translation differences (Note 15.5) Non-controlling interests Total equity
Balance at January 1, 2016 32,623 12 536,278 (24,234) 120,022 (2,861) (28,931) 290 633,199
Total recognized income and expense - - (1,678) - 125,084 5,101 11,227 - 139,734
Profit for the year attributed to equity holders of the parent - - - - 125,084 - - - 125,084
Other comprehensive income - - (1,678) - - 5,101 11,227 - 14,650
Transactions with shareholders and owners - - - (2,330) (62,449) - - - (64,779)
Increase / (decrease) on share capital - - - - - - - - -
Dividends paid - - - (2,330) (62,449) - - - (64,779)
Dividends paid - - - - - - - - -
Other changes in equity - - 57,573 - (57,573) - - - -
Transfers between equity accounts - - 57,573 - (57,573) - - - -
Non-controlling interests - - - - - - - (73) (73)
Profit for the year attributed to non-controling interests - - - - - - - (73) (73)
Non-controlling interests arising on a business - - - - - - - - -
Balance at December 31, 2016 32,623 12 592,173 (26,564) 125,084 2,240 (17,704) 217 708,081
Total recognized income and expense - - 425 - 122,101 (468) (32,937) - 89,121
Profit for the year attributed to equity holders of the parent - - - - 122,101 - - - 122,101
Other comprehensive income - - 425 - - (468) (32,937) - (32,980)
Transactions with shareholders and owners - - - (2,330) (67,109) - - - (69,439)
Increase / (decrease) on share capital - - - - - - - - -
Dividends paid - - - (2,330) (67,109) - - - (69,439)
Acquisition of non-controlling interests - - - - - - - - -
Other changes in equity - - 57,975 - (57,975) - - - -
Transfers between equity accounts - - 57,975 - (57,975) - - - -
Non-controlling interests - - - - - - - (82) (82)
Profit for the year attributed to non-controling interests - - - - - - - (82) (82)
Non-controlling interests arising on a business - - - - - - - - -
Balance at December 31, 2017 32,623 12 650,573 (28,894) 122,101 1,772 (50,641) 135 727,681

1. Description and Principal Activities

VISCOFAN, S.A. (hereinafter the Company or the parent) was incorporated with limited liability on 17 October 1975 as Viscofan, Industria Navarra de Envolturas Celulósicas, S.A. At a meeting held on 17 June 2002 the shareholders agreed to change the name of the Company to the current one.

Its statutory and principal activity consists of the manufacture of artificial casings, mainly for use in the meat industry, as well as, to a lesser extent, the generation of electricity for sale to third parties through cogeneration systems. Its industrial installations are located in Cáseda and Urdiain (Navarra). The head office and registered office are located at Polígono Industrial Berroa, Calle Berroa nr. 15, 4ª planta, 31192 - Tajonar (Navarra). Its main offices and registered address are in Tajonar (Navarra).

Viscofan, S.A. is the parent of a group of companies (the Viscofan Group or the Group) which mainly carry out their activities in the food sector and in cellulose, plastic, fibrous and collagen casing sectors, as explained in more detail in Note 2.

The entirety of Viscofan S.A.'s shares have been listed since 1986, and are quoted on the Spanish electronic trading platform (continuous market).

The Group's 2016 consolidated financial statements were approved at the General Shareholders’ Meeting held on 27 April 2017.

The parent’s directors expect these 2017 consolidated financial statements, which were prepared on 28 February 2018, to be approved by the shareholders in general meeting without modification.

2. Viscofan Group

In November 2017, 100% of the shares of Supralon International AG and Supralon Verpackungs AG were acquired, including their subsidiaries (Supralon Produktions und Vertriebs GmbH and Supralon France SARL).

During October 2016, 100% of the shares in Vector USA Inc and Vector Europe NV were acquired, including their European subsidiaries (Vector Packaging Europe NV and Vector UK Ltd).

With these acquisitions, the Group strengthens its position in plastics technology, broadens its product range and improves its supply capacity in the main markets for this type of packaging: Europe and the United States.

The fair value of net assets acquired, both in 2017 and 2016, is reflected in Note 8.

Details of the subsidiaries and associates comprising the Viscofan Group at 31 December 2017 and 2016, including certain additional information, are shown below:

2.1. Details of subsidiaries and associates comprising the Viscofan Group at 31 December 2017

Percentage of interest
Group companies Direct Indirect Activity Registered offices
Gamex, C.B. s.r.o. 100.00% - Lease of an industrial warehouse (to the Group)/Other services Ceske Budejovice (Czech Republic)
Koteks Viscofan, d.o.o. 100.00% - Manufacture and marketing of artificial casings Novi Sad( Serbia)
Nanopack, Technology and Packaging S.L. 90.57% - Manufacture of interleaver film Tajonar, Navarra (Spian)
Naturin Viscofan GmbH 100.00% - Manufacture and marketing of artificial casings Weinheim (Germany)
Supralon Verpackungs AG - 100.00% Lease of an industrial machinery (to the Group)/Other services Chur (Switzerland)
Supralon Produktions und Vertriebs GmbH - 100.00% Manufacture and marketing of artificial casings Alfhausen (Germany)
Supralon France SARL - 100.00% Marketing of artificial casings Courcouronnes (France)
Supralon International AG - 100.00% Marketing of artificial casings Schaan (Liechtenstein)
Vector Europe NV. 100.00% - Marketing of artificial casings Hasselt (Belgium)
Vector Packaging Europe NV. - 100.00% Manufacture and marketing of artificial casings Hasselt (Belgium)
Vector UK Ltd. - 100.00% Marketing of artificial casings Manchester (United Kingdom)
Vector USA Inc. - 100.00% Manufacture and marketing of artificial casings Oak Brook, Illinois (USA)
Viscofan Canadá Inc. - 100.00% Marketing of artificial casings Quebec (Canada)
Viscofan Centroamérica Comercial, S.A. 99.50% 0.50% Marketing of artificial casings San José (Costa Rica)
Viscofan CZ, s.r.o. 100.00% - Manufacture and marketing of artificial casings Ceske Budejovice (Czech Republic)
Viscofan de México S.R.L. de C.V. 99.99% 0.01% Manufacture and marketing of artificial casings San Luis Potosí (Mexico)
Viscofan de México Servicios, S.R.L. de C.V. 99.99% 0.01% Services rendered San Luis Potosí (Mexico)
Viscofan do Brasil, soc. com. e ind. Ltda. 100.00% - Manufacture and marketing of artificial casings Sao Paulo (Brasil)
Viscofan Technology (Suzhou) Co. Ltd. 100.00% - Manufacture and marketing of artificial casings Suzhou (China)
Viscofan UK Ltd. 100.00% - Marketing of artificial casings Seven Oaks (United Kingdom)
Viscofan Uruguay, S.A. 100.00% - Manufacture and marketing of artificial casings Montevideo (Uruguay)
Viscofan USA Inc. 100.00% - Manufacture and marketing of artificial casings Montgomery, Alabama (USA)
Zacapu Power S.R.L. de C.V. - 100.00% Cogeneration plant Zacapu, Michoacán (Mexico)
           
           

         

2.2. Details of subsidiaries and associates comprising the Viscofan Group at 31 December 2016

Percentage of interest
Group companies Direct Indirect Activity Registered offices
Gamex, C.B. s.r.o. 100.00% - Lease of an industrial warehouse (to the Group)/Other services Ceske Budejovice (Czech Republic)
Koteks Viscofan, d.o.o. 100.00% - Manufacture and marketing of artificial casings Novi Sad (Serbia)
Nanopack, Technology and Packaging S.L. 90.57% - Manufacture of interleaver film Tajonar, Navarra (Spian)
Naturin Viscofan GmbH 100.00% - Manufacture and marketing of artificial casings Weinheim (Germany)
Vector Europe NV. 100.00% - Marketing of artificial casings Hasselt (Belgium)
Vector Packaging Europe NV. - 100.00% Manufacture and marketing of artificial casings Hasselt (Belgium)
Vector UK Ltd. - 100.00% Marketing of artificial casings Manchester (United Kingdom)
Vector USA Inc. - 100.00% Manufacture and marketing of artificial casings Oak Brook, Illinois (USA)
Viscofan Canadá Inc. - 100.00% Marketing of artificial casings Quebec (Canada)
Viscofan Centroamérica Comercial, S.A. 99.50% 0.50% Marketing of artificial casings San José (Costa Rica)
Viscofan CZ, s.r.o. 100.00% - Manufacture and marketing of artificial casings Ceske Budejovice (Czech Republic)
Viscofan de México S.R.L. de C.V. 99.99% 0.01% Manufacture and marketing of artificial casings San Luis Potosí (Mexico)
Viscofan de México Servicios, S.R.L. de C.V. 99.99% 0.01% Services rendered San Luis Potosí (Mexico)
Viscofan do Brasil, soc. com. e ind. Ltda. 100.00% - Manufacture and marketing of artificial casings Sao Paulo (Brasil)
Viscofan Technology (Suzhou) Co. Ltd. 100.00% - Manufacture and marketing of artificial casings Suzhou (China)"
Viscofan UK Ltd. 100.00% - Marketing of artificial casings Seven Oaks (United Kingdom)
Viscofan Uruguay, S.A. 100.00% - Manufacture and marketing of artificial casings Montevideo (Uruguay)
Viscofan USA Inc. 100.00% - Manufacture and marketing of artificial casings Montgomery, Alabama (USA)
Zacapu Power S.R.L. de C.V. - 100.00% Cogeneration plant Zacapu, Michoacán (Mexico)

3. Basis of preparation

The consolidated financial statements have been prepared based on the accounting records of Viscofan, S.A. and the companies comprising the Group. The consolidated financial statements for 2017 have been prepared under EU-endorsed International Financial Reporting Standards (EU-IFRS) to present fairly the consolidated equity and consolidated financial position of Viscofan, S.A. and subsidiaries at 31 December 2017 and 2016, as well as the consolidated results from its operations, its consolidated cash flows and consolidated recognised income and expenses for the year then ended. The Group adopted EU-IFRS on 1 January 2004, and also applied IFRS 1 First-time Adoption of International Financial Reporting Standards at that date.

3.1 New and amended standards and interpretations

The accounting policies used during the preparation of these consolidated financial statements are the same as those applied for the consolidated financial statements for the year ended 31 December 2016.

The Group has applied the following standards and amendments for the first time for its annual financial year beginning on 1 January 2017:

  • Recognition of Deferred Tax Assets for Unrealised Losses - Amendments to IAS 12.
  • Disclosure Initiative - Amendments to IAS 7 requiring disclosure of changes in liabilities arising from financing activities, see Note 15.1.

The adoption of these amendments had no material effect on the amounts recognised in the year. Most of the changes will not affect future years.

3.2 Published standards which are not applicable

The Group intends to adopt these standards, interpretations, and amendments thereof published by the IASB but not considered mandatory in the European Union at the date these consolidated financial statements were prepared. However, they will be applied when they come into force. The group's assessment of the impact of these new standards and interpretations is set out below:

(a) IFRS 9 Financial instruments

Applicable standards for the years commencing 1 January 2018, the Group plans to adopt the new standard on the required date of application.

The identified accounting effects of the first application are:

  • It simplifies the current financial asset valuation model and establishes three main categories: amortised cost, at fair value through profit or loss and at fair value with changes in other comprehensive income, based on the business model and the characteristics of the contractual cash flows: the Group expects to continue measuring its financial assets at fair value as is its current practice.

Loans and trade receivables are held for contractual cash flow, and it is expected that these will be solely used to pay principal and interest. Therefore, the Group expects to continue to recognize amortised cost in accordance with IFRS 9.

  • It introduces a new model of impairment losses on financial assets, the expected credit loss model, which replaces the current model of loss incurred.
  • It introduces a new, less restrictive accounting recording model for hedges, requiring an economic relationship between the hedged item and the hedging instrument and requiring the same coverage ratio as that applied by the entity for its risk management. The new standard also modifies the criteria for documenting hedging relationships.

Based on the analysis of the new criteria, the Group envisages that the main changes will focus on documenting cash flow hedging policies and strategies and estimating the expected impairment loss on financial assets and its timing, although the Group does not expect any significant changes in the impairment provisions recorded.

(b)IFRS 15 Revenue from customer contracts

Applicable standards for the years commencing 1 January 2018. This standard has been amended in order to:

  • Clarify  guidance  on  identifying  performance  obligations,  accounting  for  intellectual  property licenses, and principal vs. agent evaluation (net versus gross regular income submission).
  • Include new and modified illustrative examples for each of these areas of the guide.
  • Provide additional practical resources related to the transition to the new standard.

These amendments do not change the fundamental principles of IFRS 15, but they do clarify some of the more complex aspects of this standard.

The Group has not identified any significant potential impact on its financial statements beyond the new disclosures to be provided in accordance with the requirements introduced by the Standard.

(c)IFRS 16 – Leases.

Applicable for years beginning on or after 1 January 2019, the Group plans to adopt the new standard on the required date of application and intends to apply the simplified transition approach and will not restate the comparative figures for the year prior to the first adoption.

Under the new standard, most leases will have to be recorded on the balance sheet as an asset for the right of use and a liability for the amounts payable. The only exceptions are short-term, low-value leases.

At the reporting date, the Group has non-cancellable operating lease commitments amounting to 7,613 thousand euros, see Note 10.

In 2018, the Group will continue to evaluate the potential effect of IFRS 16 on its consolidated financial statements. in relation to the change in the definition of the lease term and the different treatment of variable lease payments and extension and termination options. Therefore, it is not yet possible to estimate the amount of the leasing assets and lease liabilities that will have to be recognised when the new standard is adopted and how this may affect the group's profit or loss and the classification of future cash flows. However, management does not believes that the impact on its consolidated financial statements will be material.

Policies used by the Group when several options are permitted

International Financial Reporting Standards occasionally allow for more than one alternative accounting treatment for a transaction. The criteria adopted by the Group for its most relevant transactions are the following:

  • Capital grants can be recognised reducing the cost of the assets for which financing was granted or as deferred income (which was the Group's choice). They are recognised in the income statement under "Other income."
  • Certain property, plant, and equipment may be measured at market value or historical cost less depreciation and impairment loss. Viscofan has chosen the latter criteria.

3.3 Comparison of information

These consolidated financial statements present for comparative purposes, for each of the headings on the consolidated statement of financial position, the consolidated income statement, the consolidated comprehensive income statement, the consolidated cash flow statement, the consolidated statement of changes in equity and the notes to the consolidated financial statements, except when an accounting standard specifically establishes that this is unnecessary.

3.4.Relevant accounting estimates, assumptions and judgments

The preparation of financial statements in conformity with EU-IFRS requires Group management to make judgments, estimates, and assumptions, and to apply relevant accounting estimates in the process of applying Group accounting policies.

This section describes the main assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a significant risk of causing a material adjustment to the carrying amounts  of assets  and liabilities  within the next financial year. The Group based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Group. Such changes are reflected in the assumptions when they occur.

(a)Taxes

The subsidiaries comprising the Group are individually responsible for their own local tax obligations, and do not file consolidated tax returns.

The Group analyses the possible inspections by the tax authorities of the respective countries and establishes provisions based on their best estimate. The amount of such provisions is based on various factors, such as experience of previous tax inspections and differing interpretations of tax regulations by the Group and the corresponding tax authority. Such differences of interpretation may arise on a wide variety of issues depending on the conditions prevailing in the country where the respective Group company is domiciled. The Group's policy, affecting all subsidiaries, is to apply conservative criteria when interpreting the different prevailing regulations in each of the countries where it operates.

Deferred tax assets are recognised for all unused tax losses and other temporary differences to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgment is required to determine the amount of deferred tax assets that can be recognised, based upon likely timing and future taxable profits together with future tax planning strategies.

The years open for review by the tax authorities vary depending on each country's tax legislation, and returns are not considered definitive until the corresponding inspection period has elapsed or until they have been inspected and accepted by tax authorities.

The Company’s management considers that all applicable taxes have been duly paid so that even in the event of discrepancies in the interpretation of prevailing tax legislation with respect to the treatment applied, the resulting potential tax liabilities, if any, would not have a material impact on the accompanying financial statements.

Further details on taxes are disclosed in Note 21.

(b)Pension benefits

The cost of defined benefit pension plans and other obligations and the present value of pension obligations are determined using actuarial valuations. Actuarial valuations involve making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases, mortality rates, and future pension increases. Due to the complexity of the valuation and its long-term nature, calculating the obligation is highly sensitive to changes in these assumptions.

Mortality rates are based on publicly available mortality tables for the specific country. Future salary and pension increases are based on expected future inflation rates for the respective countries.

Details on the hypotheses used and a sensitivity analysis are provided in Note 17.1.

(d)Provisions for litigation and contingent assets and liabilities

Estimation of the amounts to provision with respect to potential assets and liabilities arising from ongoing litigation is carried out based on the professional opinion of the legal representatives hired to deal with such matters and the internal evaluation performed by the Group's Legal Department.

The breakdown of provisions for litigations is shown in Note 17.3, while the main contingent assets and liabilities that may give rise to the future recognition of assets and liabilities are described in Note 17.7.

(e)Other accounting estimates and hypotheses

  • Assessment of possible impairment losses on certain assets: (Notes 4.12 and 10).
  • Useful life of property, plant, and equipment and intangible assets: (Notes 4.11 and 4.12)
  • Measurement of derivative financial instruments: (Note 4.21)

4. Significant accounting principles

The  consolidated  financial  statements  have  been  prepared  in  accordance  with  International  Financial Reporting Standards (IFRS) and its interpretations as endorsed by the European Union (EU-IFRS).

A summary of the most significant principles is as follows:

4.1.Going concern basis

The consolidated financial statements have been prepared on a going concern basis.

4.2. Method of consolidation

All the subsidiaries were consolidated using the full consolidation method.

Control is obtained when the Group is exposed, or has the rights attached to variable interest rates arising from its involvement in a subsidiary, and is able to influence them as a result of the exercise of power over the subsidiary. Specifically, the Group has control of a subsidiary if, and only if it has:

  • Power over the subsidiary (existing rights allowing it to manage relevant subsidiary's activities)
  • Exposure, or rights, to variable returns from its involvement with the other company
  • The ability to use its power over the other company to affect the amount of the company's return

Generally, it is presumed that the majority of voting rights grants control.

The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date it ceases. Subsidiaries are excluded from the consolidation scope from the moment control is lost. Note 2 breaks down the nature of the relationships between the parent and its subsidiaries.

The Group has applied the exemption permitted by IFRS 1 First-time Adoption of International Financial Reporting Standards regarding business combinations. Consequently, only business combinations which occurred subsequent to 1 January 2004, the date of transition to EU-IFRS, have been recognised using the purchase method. Entities acquired prior to that date were recognised under the former Spanish general chart of accounts, once the necessary transition date adjustments and corrections were considered.

All of the assets, liabilities, equity, income, expenses, and cash flow arising from transactions between Group companies are totally eliminated during the consolidation process.

The accounting policies of subsidiaries have been adapted to those of the Group.

The financial statements of consolidated subsidiaries reflect the same reporting date and period as that of the parent.

4.3. Effects of changes in foreign exchange rates

(a)Foreign currency transactions

The consolidated financial statements are presented in thousands of euros, which is the functional and presentation currency of the parent.

Each Group entity determines its own functional currency and the balances included in the financial statements of each company are measured using this functional currency.

Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the transaction date.

Monetary assets and liabilities expressed in foreign currencies have been translated into euros at the year-end exchange rate, whereas non-monetary assets and liabilities measured at historical cost in a foreign currency are translated using the exchange rate at the transaction date. Non-monetary assets denominated in foreign currencies measured at fair value are translated to euros at the foreign currency exchange rate prevailing at the date the value was determined.

Differences arising on settlement of transactions in foreign currency and on translation of monetary assets and liabilities expressed in foreign currency are taken to the income statement. Exchange differences arising from the translation of monetary items forming part of the net investment in foreign operations are recognised as translation differences in equity.

Translation gains or losses related to monetary financial assets or liabilities expressed in foreign currency are also recognised in the income statement.

(b)Translation of foreign operations

Translation differences are recognised in the Group’s equity. Translation of foreign operations, excluding foreign operations in hyperinflationary economies, is based on the following criteria:

  • Assets and liabilities, including goodwill and adjustments to net assets arising from the acquisition of businesses, including comparative balances, are translated at  the year-end exchange rate at each balance sheet date.
  • Income and expenses  relating to foreign operations, including comparative balances, are translated at the exchange rates prevailing at each transaction date; and
  • Foreign exchange differences arising from application of the above criteria are recognised under translation differences in equity

The Group does not carry out any business activities in hyperinflationary countries.

Translation differences arising as a result of the sale of foreign businesses recognised in equity are recognised as a single line item in the consolidated income statement when there is a loss of control of such businesses.

4.4. Classification of assets and liabilities as current and non-current

The Group classifies assets and liabilities in the consolidated statement of financial position as current or non-current based on the following criteria: For these purposes, current assets or liabilities are those that meet the following criteria:

  • Assets are classified as current when they are expected to be realised, sold or traded in the Group’s ordinary course of business within 12 months of the balance sheet date and when held essentially for trading. Cash and cash equivalents are also classified as current, except where they may not be exchanged or used to settle a liability, at least within the 12 months following the balance sheet date. The Group classifies the remainder of its assets as non- current.
  • ·Liabilities are classified as current when expected to be settled in the Group’s ordinary course of business within 12 months of the balance sheet date and when essentially held for trading, or where the Group does not have an unconditional right to defer settlement of the liability for at least 12 months from the balance sheet date. The Group classifies the remainder of its liabilities as non-current.
  • Deferred tax assets and liabilities are classified as non-current assets and liabilities.

4.5. Calculation of fair value

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

  • In the principal market for the asset or liability, or
  • In the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible to by the Group.

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

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

  • Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities
  • Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
  • Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable

For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

The Company considers that its cash, trade and other receivables, trade and other payables, and balances of accounts payable to and receivable from public administrations, have a fair value very close to their carrying amounts mainly as a result of their coming due in the short term.

The fair values for the remaining financial assets and liabilities are disclosed in Notes 13 and 19, respectively.

4.6. Financial instruments- Initial recognition and subsequent measurement

(a)FINANCIAL ASSETS

Initial recognition and measurement

Financial assets within the scope of IAS 39 are classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets, or derivatives designated as hedging instruments in "effective hedges," as appropriate. The Group determines the classification of its financial assets at initial recognition.

All financial assets are recognised initially at fair value plus transaction costs, except in the case of financial assets recorded at fair value through profit or loss.

Subsequent measurement

Subsequent measurement of financial assets depends on their classification, as described below:

Loans and receivable

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, these financial assets are re- measured at amortised cost using the effective interest rate method, less any impairment losses. amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest. Interests accrued in accordance with the effective interest rate are included in "Finance income" in the consolidated income statement. The losses arising from impairment are recognised as "Finance costs" for loans and in "Other operating expenses" for receivables.

Held-to-maturity   investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group’s management has the intention and ability to hold to maturity and which are recognised at amortised cost.

Held-to-maturity investments are initially recognised at fair value, including transaction costs that are directly attributable to the acquisition, and are subsequently carried at amortised cost using the effective interest method.

Interests accrued in accordance with the effective interest rate are included in "Finance income" in the consolidated income statement.  The losses arising from impairment are recognised under "Finance costs" in the consolidated income statement.

Available-for-sale financial  assets

Available-for-sale financial investments include equity investments and debt securities. Equity investments classified as available for sale are those that are neither classified as held for trading nor designated at fair profit or loss. Debt securities in this category are those that are intended to be held for an indefinite period of time and that may be sold in response to needs for liquidity or in response to changes in the market conditions. The Group did not hold any significant debt securities classified under this category during 2017 and 2016.

After initial measurement, available-for-sale financial investments are subsequently measured at fair value with unrealised gains or losses recognised as other comprehensive income in the available- for-sale reserve until the investment is derecognised, at which time the cumulative gain or loss is recognised in the consolidated income statement, or if the investment is found to be impaired the cumulative loss is reclassified to "Financial expense" in the income statement. Interest earned while holding available-for-sale financial investments is reported as interest income using the EIR method.

The Group evaluates whether the ability and intention to sell its available-for-sale financial assets in the near term is still appropriate. When, in rare circumstances, the Group is unable to trade these financial assets due to inactive markets and Management’s intention to do so may significantly change in the foreseeable future, the Group may elect to reclassify these financial assets. Reclassification to loans and receivables is permitted when the financial assets meet the definition of loans and receivables and the Group has the intent and ability to hold these assets for the foreseeable future or until maturity. Reclassification to the held-to-maturity category is permitted only when the entity has the ability and intention to hold the financial asset accordingly.

For a financial asset reclassified from the available-for-sale category, the fair value carrying amount at the date of reclassification becomes its new amortised cost and any previous gain or loss on the asset that has been recognised in equity is amortised to profit or loss over the remaining life of the investment using the EIR. Any difference between the new amortised cost and the maturity amount is also amortised over the remaining life of the asset using the EIR. If the asset is subsequently determined to be impaired, then the amount recorded in equity is reclassified to the income statement.

Derecognition

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when:

  • The rights to receive cash flows from the asset have expired.
  • The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. In that case, the Group also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations retained by the Group.

(b)Impairment and irrecoverability of financial assets

The Group assesses, at each reporting date, whether there is objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if there is objective evidence of impairment as a result of one or more events that has occurred since the initial recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and observable data indicating that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

Financial assets carried at amortised cost

For financial assets carried at amortised cost, the Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes  the asset in a group of financial assets  with similar credit risk  characteristics  and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised, are not included in a collective assessment of impairment.

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current EIR.

The carrying amount of the asset is reduced through the use of an allowance account and the loss is recognised in profit or loss. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as finance income in the income statement. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or transferred to the Group. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a write-off is later recovered, the recovery is credited to finance costs in the income statement.

(c)Financial liabilities

Initial recognition and measurement

Financial liabilities within the scope of IAS 39 are classified as financial liabilities at fair value through profit or loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial liabilities at initial recognition.

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

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

Subsequent measurement

After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation process.

amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in the income statement.

Derecognition

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

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

4.7. Impairment of non-financial assets subject to depreciation or amortisation

The Group periodically evaluates whether there are indications of possible impairment losses on assets other than financial assets, inventories, deferred tax assets and non-current assets held for sale, to determine whether their carrying amount exceeds their recoverable value (impairment loss).

(a)Calculation of recoverable amount

The recoverable amount of assets is the greater of their net selling value and value in use. An asset's value in use is calculated based on the expected future cash flows deriving from use of the assets, expectations of possible variations in the amount or timing of those future cash flows, the time value of money, the price for bearing the uncertainty inherent in the asset and other factors that market participants would reflect in pricing the future cash flows the entity expects to derive from the asset.

Recoverable amounts are calculated for individual assets, unless the asset does not generate cash inflows that are largely independent from those corresponding to other assets or groups of assets. In this case, the recoverable amount is determined for the cash-generating unit (CGU) to which the asset belongs.

(b)Reversal of impairment

Impairment losses are only reversed if there has been a change in the estimates used to determine the recoverable amount. Impairment losses on goodwill are not reversible.

An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment had been recognised.

The amount of the reversal of the impairment of a CGU is allocated to its assets, except goodwill, pro rata on the basis of the carrying amount of the assets, to the limit referred to in the previous paragraph.

4.8. Revenue recognition

Revenue from the sale of goods or services is recognised at the fair value of the consideration received or receivable. Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services, net of VAT and any other amounts or taxes which are effectively collected on the behalf of third parties. Volume or other types of discounts for prompt payment are recorded as a reduction in revenue if considered probable at the time of revenue recognition.

(a)Goods sold

Revenue on the sale of goods is recognised when the following conditions have been satisfied:

  • The Group has transferred the significant risks and rewards of ownership of the goods to the buyer.
  • The Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;
  • The amount of revenue and incurred or to be incurred costs can be measured reliably;
  • It is probable that the economic benefits associated with the transaction will flow to the Group; and
  • The costs incurred or to be incurred in respect of the transaction can be measured reliably.

(b)Services rendered

When the outcome of a transaction involving the rendering of services can be estimated reliably revenue associated with the transaction is recognised in the income statement by reference to the stage of completion of the transaction at the balance sheet date.

4.9. Earnings per share

Basic earnings per share are calculated by dividing net profit for the year attributable to the ordinary shares of the parent by the weighted number of ordinary shares outstanding during that year, excluding the average number of shares of the parent, Viscofan, S.A. held by any of the Group companies.

Diluted earnings per share are calculated by dividing net profit for the year attributable to the ordinary shareholders of the parent by the weighted average number of ordinary shares which would be in issue if all potential ordinary shares were converted into ordinary shares of Viscofan, S.A.

In the case of the Viscofan Group's financial statements for the years ended 31 December 2017 and 2016, there is no difference in basic earnings per share and diluted earnings per share as there were no instruments potentially convertible into ordinary shares during those years.

4.10. Business combinations and goodwill

The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises:

  • the fair values of the assets transferred
  • liabilities incurred with former owners of the acquired business
  • equity investments issued by the group
  • the fair value of any asset or liability resulting from a contingent consideration arrangement, and
  • the fair value of any previous equity interest in the subsidiary.

Identifiable assets acquired and contingent liabilities and liabilities assumed in a business combination, with limited exceptions, are initially measured at their fair values at the acquisition date. The group recognises any non-controlling interest in the acquired entity on an acquisition-to-acquisition basis at fair value or by the proportionate share of the non-controlling interest in the acquiree's net identifiable assets.

Acquisition-related costs are recognised as an expense when incurred. The excess of:

  • the consideration transferred
  • the amount of any non-controlling interest in the acquiree; and
  • the fair value at the acquisition date of any previous equity interest in the acquired entity

the fair value of the identifiable net assets acquired is recognised as goodwill. If those amounts are less than the fair value of the acquired subsidiary's identifiable net assets, the difference is recognised directly in profit or loss as a purchase on very advantageous terms.

When the settlement of any part of the cash consideration is deferred, future amounts payable are discounted to their present value at the exchange date. The discount rate used is the entity's incremental borrowing interest rate, the rate at which a similar loan could be obtained from an independent lender under comparable terms and conditions.

The contingent consideration is classified as equity or financial liability. The amounts classified as a financial liability are subsequently restated to fair value with changes in fair value recognised in profit or loss.

If the business combination is carried out in stages, the carrying amount at the acquisition date of the acquiree's equity interest in the previously-held acquiree is measured again at its fair value at the acquisition date, recognising any resulting gain or loss in profit or loss.

4.11. Intangible assets

(a) Self-constructed assets

Expenditure on research activities is recognised in the consolidated income statement as an expense as incurred.

Expenditure on activities which cannot be clearly distinguished from costs attributable to the development of intangible assets is recognised in the consolidated income statement. Expenditure on development that was recognised initially as an expense is not recognised subsequently as part of the cost of an intangible asset. The Group has not capitalised any development expenses.

(b)Other tangible assets

Other intangible assets are stated at cost, less accumulated amortisation and impairment losses. Software maintenance costs are expensed as incurred.

(c)Useful lives and amortisation rates

The Group evaluates whether the useful life of each intangible asset acquired is finite or indefinite. An intangible asset is considered to have an indefinite useful life where there is no foreseeable limit to the period over which it will generate net cash inflows. At 31 December 2017 and 2016, the Group had no intangible assets with indefinite useful lives, except for Goodwill discussed in Note 9.

Intangible assets with finite useful lives are amortised by allocating the depreciable amount systematically on a straight-line basis over the useful lives of the assets in accordance with the following criteria:

Estimate useful life

(years)

Concessions, patents, and licenses10

Development costs5

Concession rights10 - 30

Concession land rights in China50

Software4 - 6

The depreciable amount of intangible asset items is the cost of acquisition or deemed cost less the residual value.

The Group reassesses residual values, useful lives, and amortisation methods at the end of each financial year. Changes to initially established criteria are recognised as a change in accounting estimates.

Property, plant, and equipment

(a)Initial recognition

Property, plant, and equipment is stated at cost, less accumulated depreciation and any impairment losses. The cost of self-constructed assets is determined using the same principles as for an acquired asset, considering the principles established to determine the cost of production. The cost of production is capitalised with a charge to work performed by the Group on non-current assets in the consolidated income statement.

The cost of assets which have long installation periods includes finance costs accrued prior to their being put to use. Such costs meet the capitalisation requirements described above.

The Group opted to use the previous GAAP revaluation of property, plant, and equipment, as the cost recognised at 1 January 2004, as permitted by IFRS 1 First Time Adoption of IFRS.

(b)amortisation and depreciation

Property, plant, and equipment is depreciated systematically over the useful life of the asset. The depreciable amount of PP&E items is the cost of acquisition less the residual value. Each part of a PP&E item with a cost that is significant in relation to the total cost of the item is depreciated separately.

Depreciation of PP&E items is calculated using the straight-line method over their estimated useful lives, as follows:

Estimate useful life (years)

Buildings30 - 50

Plant and equipment10

Other installations, tools and furniture5 - 15

Property, plant, and equipment3 - 15

The Group reassesses residual values, useful lives, and depreciation methods at the end of each financial year. Changes to initially established criteria are recognised as a change in accounting estimates.

(c)Subsequent recognition

Subsequent to initial recognition of the asset, only costs that will probably generate future economic benefits and which may be measured reliably are capitalised. Ordinary maintenance costs are expensed as they are incurred.

Replacements of property, plant, and equipment which meet the requirements for capitalisation are recognised as a reduction in the carrying amount of the items replaced. Where the cost of the replaced items has not been depreciated independently and it has not been practical to determine the respective carrying amount, the replacement cost is used as indicative of the cost of items at the time of acquisition or construction.

4.12. Leases

(a)Finance leases

The Viscofan Group classifies as finance leases all lease agreements in which the lessor substantially transfers to the lessee all the risks and rewards incidental to ownership of the asset. All other leases are classified as operating leases.

Assets acquired under finance leases are recognised as non-current assets according to their nature and purpose. Each asset is depreciated/amortised over its useful life when the Group considers there to be no doubt that it will acquire ownership of the assets at the end of the lease term. The assets are recognised at the lower of the fair value of the leased item and the present value of future lease payments.

(b)Operating leases

Lease payments under an operating lease, net of any incentives received, are recognised as an expense on a straight-line basis unless another systematic basis is representative of the time pattern of the user’s benefit.

4.13. Inventories

Inventories comprise non-financial assets which are held for sale by the consolidated entities in the ordinary course of business.

Cost comprises all costs of acquisition, costs of conversion, and other costs incurred in bringing the inventories to their present location and condition.

Inventory conversion costs comprise the costs directly related with the units produced and a systematically calculated part of the indirect, variable or fixed costs incurred in the conversion process. Indirect fixed costs are distributed on the basis of the normal production capacity or actual production.

Indirect fixed costs distributed to each production unit are not increased as a result of a low level of production or idle production capacity. Indirect costs that are not distributed are recognised as expenses for the financial year in which they are incurred. In periods of abnormally high production, the amount of indirect costs distributed to each production unit is decreased so that inventories are not measured above cost. Variable indirect costs are distributed to each production unit on the basis of the actual use of the production facilities.

The methods applied by the Group to determine inventory costs are as follows:

  • Raw materials, other materials consumed, and goods for resale: at weighted average cost.
  • Finished and semi-finished products: at weighted average cost of raw and other materials and includes direct and indirect labour, plus other manufacturing overheads.

Volume discounts from suppliers are recognised when it is probable that the discount conditions will be met. Prompt payment discounts are recognised as a reduction in the cost of inventories acquired.

The cost of inventories is adjusted against profit or loss in cases where cost exceeds net realizable value. Net realizable value is considered as the following:

  • Raw materials and other consumables: the Group only makes adjustments if the finished products in which the raw materials are incorporated are expected to be sold at a price equivalent to their production cost or lower;
  • Goods for resale and finished products: estimated sale price, less selling costs.
  • Work in progress: estimated sale price for corresponding finished products, less the estimated costs for completion of their production and selling costs.

Write-downs and reversals of write-downs are recognised in the consolidated income statement for the year. When the circumstances that previously caused the inventories to be written down below cost no longer exist or when there is clear evidence of an increase in net realizable value because of changed economic circumstances, the amount of the write-down is reversed against the following headings: “Changes in inventories of finished products” and “Work in progress and consumption of materials and other supplies.” Write-downs may be reversed to the limit of the lower of cost and the new net realizable value.

(a)  Emission rights

The Viscofan Group records emission rights when it owns them under the "Inventories" heading.

Rights assigned free of charge to each plant under each national emission rights assignment plan are initially measured at market value on the date granted and are recognised as a credit to "Grants" (Note 4.18) in the consolidated statement of financial position. Rights acquired from third parties are recognised at their acquisition cost.

These assets are measured using the cost method. At each year end they are analysed for any indications of impairment of their carrying amounts.

These emission rights are eliminated from the statement of financial position when they are sold, delivered, or have expired. Should the rights be delivered, they are derecognised from the provision made when the CO2 emissions take place applying the FIFO method (first in, first out).

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

The Group classifies assets whose carrying amount is expected to be realised through a sale transaction, rather than through continuing use, as “Non-current assets held for sale” when the following criteria are met:

  • When they are immediately available for sale in their present condition, subject to the normal terms of sale; and
  • When it is highly probable that they will be sold.

Non-current assets held for sale are accounted for at the lower of their carrying amount and fair value less cost to sell, except deferred tax assets, assets arising from employee benefits, and financial assets which do not correspond to investments in Group companies, joint ventures and associates, which are measured according to specific standards. These assets are not depreciated and, where necessary, the corresponding impairment loss is recognised to ensure that the carrying amount does not exceed fair value less costs to sell.

Disposal groups held for sale are measured using the same criteria described above. The disposal group as a whole is then remeasured at the lower of the carrying amount and fair value less costs to sell.

Related liabilities are classified as “Liabilities held for sale and discontinued activities.”

A disposal group of assets is considered a discontinued operation if it is a component of an entity which either has been disposed of or is classified as held for sale and:

  • Represents  a  significant  and  separate  major  line  of  business  or  geographical  area  of operations.
  • Is part of a single coordinated plan to dispose of a significant and separate major line of business or geographical area of operations.

Discontinued operations are presented in the consolidated income statement separately from income and expenses from continuing operations, on a single line under "Profit from discontinued operations."

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4.15. CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash on hand and demand deposits with credit institutions. Other short-term, highly-liquid investments are also included under this heading, provided that they were readily convertible into specified amounts of cash and had an original maturity of close to or not exceeding three months.

4.16. Dividend

The interim dividends approved by the Board of Directors in 2017 and 2016 are included as a reduction of the Viscofan Group's equity.

4.17. Government grants

Government grants are recognised on the face of the balance sheet when there is reasonable assurance that they will be received and that the Group will comply with the conditions attached.

(a)Capital grants

Government grants in the form of non-monetary assets are recognised at fair value in the same manner, with a debit to deferred income. They are transferred to “Other income” in the consolidated income statement in line with the depreciation of the related asset.

Non-repayable grants related to emission rights are initially recognised at market value on the date granted under "Grants," and are recognised in the consolidated income statement as they are used. They are recognised in "Other income" on the consolidated income statement.

(b)Operating subsidies

Operating subsidies are recognised as “Other income” in the consolidated income statement.

Grants received as compensation for expenses or losses already incurred, or for the purpose of providing immediate financial support not related to future expenses, are recognised as a credit to "Other Income" in the consolidated income statement.

(c)Interest rate subsidies

Financial liabilities with implicit interest rate subsidies in the form of below-market rates of interest are initially recognised at fair value. The difference between this value, adjusted where applicable by the costs of issue of the financial liability and the amount received, is recorded as an official grant based on the nature of the grant.

4.18. Employee benefits

(a)Liabilities for retirement benefits and other commitments

Defined benefit plans include those financed by insurance premium payments for which a legal and implicit obligation exists to settle commitments with employees when they fall due or pay additional amounts in the event the insurer does not pay all employee benefits relating to employee service in the current and prior periods.

Defined benefit liabilities recognised in the consolidated statement of financial position reflect the present value of defined benefit plans at year end, less the fair value of the assets related to those benefits.

Defined benefit plan costs are recognised under "Employee benefits expense" in the consolidated income statement and comprise current service costs plus the effect of any reduction or liquidation of the plan.

Interest on the net liability/(asset) relating to the defined benefit plan is calculated by multiplying the net liability/(asset) by the discount rate and is recognised in financial results under "Financial expenses."

Subsequent to initial measurement, the re-evaluation, which comprises actuarial gains and losses, the effect of the limit on the assets, excluding amounts included in net interest and performance of the plan assets are recognised immediately in the statement of financial position with a credit or debit to reserves, as appropriate, through other comprehensive income in the period in which they occur. These changes are not reclassified to profit or loss in subsequent periods.

A description of each of the Group’s defined benefit pension plans is included in Note 17.1.

(b)Termination benefits

The Group recognizes termination benefits unrelated to restructuring processes when it is demonstrably committed to terminating the employment of current employees before the normal retirement date. The Group is demonstrably committed to terminating the employment of current employees when a detailed formal plan has been prepared and those affected have valid expectations that the process will be carried out, and there is no possibility of withdrawing or changing the decisions made. Indemnities payable in over 12 months are discounted at interest rates based on market rates of quality bonds and debentures.

(c)Short-term employee benefits

Short-term benefits accrued by Group personnel are recorded in line with the employees’ period of service. The amount is recorded as an employee benefit expense and as a liability net of settled amounts. If the contribution already paid exceeds the accrued expense, an asset is recorded to the extent that it will reduce future payments or a cash refund.

The Group recognizes the expected cost of short-term benefits in the form of accumulated compensated absences, when the employees render service that increases their entitlement to future compensated absences, and in the case of non-accumulating compensated absences, when the absences occur.

The Group recognizes the expected cost of profit-sharing and bonus payments when it has a present legal or constructive obligation to make such payments as a result of past events and a reliable estimate of the obligation can be made.

4.19. Provisions

(a)General criteria

A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation, provided a reliable estimate can be made of the amount of the obligation.

The amounts recognised as a provision in the consolidated statements of financial position are the best estimate of the expenditure required to settle the present obligation at the consolidated balance sheet date, taking into account the risks and uncertainties related to the provision and, where significant, financial effect of the discount, provided that the expenditures required in each period can be reliably measured. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

The financial effect of provisions is recognised under finance costs in the consolidated income statement.

Reimbursement rights from third parties are recognised as a separate asset where it is practically certain that these will be collected. The income reimbursed, where applicable, is recognised in the consolidated income statement as a reduction in the associated expense and is limited to the amount of the provision.

If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed against income. The provision is reversed against the consolidated income statement where the corresponding expense was recorded.

(b)Onerous contracts

A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract.

(c)Restructuring expenses

A provision for restructuring is recognised when the Group has approved a detailed and formal restructuring plan, and the restructuring has either commenced or has been announced publicly. Provisions for restructuring only include payments directly related to the restructuring which are not associated to continuing activities of the Group.

(d)Emission rights provision

Provision is made systematically for expenses related to the emission of greenhouse gases. This provision is cancelled once the corresponding free-of-charge and market-acquired rights granted by public entities have been transferred.

4.20. Derivatives and hedge accounting

Derivatives are initially recognised at fair value on the date the derivative contract is signed and subsequently restated to fair value at each balance sheet date. The accounting for subsequent changes in fair value depends on whether the derivative has been designated as a hedging instrument and, if so, on the nature of the item  being hedged. The group  designates certain derivatives as:

  • fair value hedges of recognised assets or liabilities or a firm commitment (fair value hedges)
  • hedges of a specific risk associated with cash flows of recognised assets and liabilities and highly probable forecast transactions (cash flow hedges), or
  • hedges of a net investment in a foreign operation (net investment hedges).

At the start of the hedge transaction, the Group documents the relationship between the hedging instruments and the hedged items, their objective for risk management and the strategy for undertaking various hedging transactions. The group also documents its assessment, both at the start and on a continuing basis, of whether the derivatives used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of the hedged items.

The fair values of certain derivative financial instruments used for hedging purposes are disclosed in note 7(h). Changes in the hedging reserve included in shareholders' equity are shown in note 9(c). The total fair value of a hedging derivative is classified as a non-current asset or liability if the remaining maturity of the hedged item exceeds 12 months; it is classified as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Trading derivatives are classified as current assets or liabilities.

(a)Cash flow hedges

The effective portion of changes in the fair value of derivatives designated and classified as cash flow hedges is recognised in other comprehensive income and accumulated in reserves in equity. The gain or loss relating to the ineffective portion is immediately recognised in the income statement for the year within other income or expenses.

Accumulated amounts in equity are reclassified to profit or loss in periods when the hedged item affects profit or loss (for example, when the hedged forecasted sale takes place). The gain or loss relating to the effective portion of interest rate swaps covering floating rate loans is recognised in profit or loss within "interest expense". The gain or loss on the effective portion of forward exchange rate contracts covering export sales is recognised as income or an expense within "sales". However, when the expected transaction to be hedged involves the recognition of a non-financial asset (e.g. inventories or property, plant and equipment), the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset. Deferred amounts are definitively recognised in profit or loss as cost of goods sold in the case of inventories or as depreciation or impairment in the case of fixed assets.

When a hedging instrument expires or is sold or disposed of, or when a hedge no longer complies with hedge accounting criteria, any accumulated gain or loss in equity to that date remains in equity and is recognised when the forecast transaction is finally recognised in the income statement. When the forecasted transaction is not expected to eventually occur, the accumulated gain or loss in equity is immediately reclassified to profit or loss.

(b)Net investment hedges

Hedges of net investments in foreign operations are accounted for in a similar way to cash flow hedges.

Any gain or loss on the hedging instrument related to the effective portion of the hedge is recognised in other comprehensive income and accumulated in reserves in equity. The gain or loss relating to the ineffective portion is immediately recognised in the income statement within other income or expenses.

Accumulated gains and losses in equity are reclassified to profit or loss when the foreign operation is partially disposed of.

(c)Derivatives that do not qualify for hedge accounting

Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognised immediately in profit or loss and included in other income or expense.

4.21. Income tax

Income tax on the profit for the year comprises current and deferred tax.

Current tax is the amount of income taxes payable or recoverable in respect of the taxable profit or tax loss for the year. Current tax assets or liabilities are measured for amounts payable to or recoverable from tax authorities, using tax rates enacted or substantively enacted at the balance sheet date.

Deferred tax liabilities are the amounts of income taxes payable in future periods in respect of taxable temporary differences, whereas deferred tax assets are the amounts of income taxes recoverable in future periods in respect of deductible temporary differences, the carryforward of unused tax losses, and the carryforward of unused tax credits. Temporary differences are differences between the carrying amount of an asset or liability in the balance sheet and its tax base.

Current and deferred tax is recognised as income or an expense and included in profit or loss for the year except to the extent that the tax arises from a transaction or event which is recognised, in the same or a different year, directly in equity, or from a business combination.

(a)Taxable temporary differences

Taxable temporary differences are recognised in all cases except where:

  • Arising from the initial recognition of goodwill or an asset or liability in a transaction which is not a business combination and at the time of the transaction, affects neither accounting profit nor taxable profit, or
  • Associated with investments in subsidiaries over which the Group is able to control the timing of the reversal of the temporary difference and it is probable that the timing difference will reverse in the foreseeable future.

In the foreseeable future, the group does not intend to dispose of companies or repatriate dividends beyond the profit for the year.

(b)Deductible temporary differences

Deductible temporary differences are recognised provided that:

  • It is probable that taxable profit will be available against which the deductible temporary difference can be utilised, unless the differences arise from the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction, affects neither accounting profit nor taxable profit.
  • The temporary differences are associated with investments in subsidiaries to the extent that the difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilised.

Tax planning opportunities are only considered on evaluation of the recoverability of deferred tax assets and if the Group intends to use these opportunities or it is probable that they will be used.

(c)Measurement

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the years 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 and reflecting the tax consequences that would follow from the manner in which the Group expects to recover or settle the carrying amount of its assets or liabilities.

The carrying amounts of deferred tax assets are reviewed by the Group at each balance sheet date to reduce these amounts to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of the deferred tax assets to be utilised.

Deferred tax assets which do not comply with the aforementioned conditions are not recognised in the consolidated statement of financial position. At year end the Group reassesses unrecognised deferred tax assets.

(d)Classification and offsetting

The Group only offsets current tax assets and liabilities if it has a legally enforceable right to offset the recognised amounts and intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.

The Group only offsets tax assets and liabilities where it has a legally enforceable right, where these relate to taxes levied  by the same tax authority and on the same entity and where the tax authorities permit the entity to settle on a net basis, or to realize the asset and settle the liability simultaneously for each of the future years in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered.

Deferred tax assets and liabilities are recognised on the consolidated statement of financial position under non-current assets or liabilities, irrespective of the date of realisation or settlement.

(e)investment tax credits

The group has investment tax credits in certain subsidiaries. These tax credits are recorded by reducing the corporate income tax expense for the year in which they are applied.

4.22. Environmental issues

The Group takes measures to prevent, reduce or repair the damage caused to the environment by its activities.

Costs incurred from these activities are recognised under “Other operating costs” in the year in which they are incurred.

Assets used by the Group to minimize the environmental impact of its activity and protect and improve the environment, including the reduction or elimination of future pollution caused by the Group’s operations, are recognised in the consolidated balance sheet based on the criteria for recognition, measurement, and disclosure detailed in Note 25.

4.23. Related party transactions

Transactions with related parties are accounted for in  accordance with the measurement criteria detailed throughout this Note. The only transactions with related parties are detailed in Note 23 on "Information relating to directors of the parent and key management personnel of the Group".

5. Operating income and operating expenses

5.1. Sales and rendered services

The sales and services provided in the consolidated income statement include the delivery of goods to customers, services rendered in the course of the Group's ordinary activities and the sale of energy, net of sales-related taxes.

The detail of this heading for 2017 and 2016 is as follows:

Thousands of euros
  Casings sales and services Energie sales and services Total sales and rendered services
  2017 2016 2017 2016 2017 2016
Spain 70,197 64,148 37,529 33,529 107,726 97,677
Other European and Asian countries 326,421 313,399 - - 326,421 313,399
North America 221,533 211,232 6,534 6,096 228,067 217,328
South America 115,922 102,429 - - 115,922 102,429
Total 734,073 691,208 44,063 39,625 778,136 730,833

5.2. Other operating income

The breakdown of "Other Operating Income" for 2017 and 2016 is as follows:

Thousands of euros
  2017 2016
Work performed by the Group on non-current assets 262 571
Capital Grants (Note 16) 637 672
Other Grants 2,221 1,950
Emission rights 53 612
Other income 14,124 9,976
Total other income 17,297 13,781

Other income includes the payment of compensation for the fire in November 2016 at a spare parts warehouse on the site of Naturin Viscofan GmbH. The total amount of compensation received amounted to 14 million euros, 11 million euros of which were recorded in 2017 and 3 million euros had already been collected on account and recorded in the financial statements for 2016

The conditions or contingencies associated to grants received.

5.3. Personnel expenses

The breakdown of "Personnel expenses" in 2017 and 2016 is as follows:

Thousands of euros
  2017 2016
Wages and salaries 140,737 127,787
Indemnity payments 743 981
Current service cost of defined benefits (Notes 17.1) 358 321
Company social security contributions 27,354 24,980
Other welfare benefits and taxes 15,088 14,507
Total personnel expenses 184,280 168,576

Group employees in continued operations during 2017 and 2016, by professional category and gender, were as follows:

Year 2017
  Executives Technicians and supervisors Administratives Specialized personnel Unskilled workers Total
Men 87 782 62 671 1,735 3,337
Women 15 280 145 241 730 1,411
Total headcount at the end of year 102 1,062 207 912 2,465 4,748
             
Average number of employees 99 1,028 191 879 2,357 4,554
Year 2016
  Executives Technicians and supervisors Administratives Specialized personnel Unskilled workers Total
Men 62 723 145 494 1,795 3,219
Women 10 227 225 137 723 1,322
Total headcount at the end of year 72 950 370 631 2,518 4,541
             
Average number of employees 71 923 328 618 2,423 4,363

Employees, in the parent company, with a recognised level of disability of 33% or more, who are reported in accordance with Royal Decree 602/2016, of December 2, amount to 5 employees, the same as in 2016. Broken down by professional category these are 3 technicians, 1 administrative assistant and 1 technician/manager.

Due to the circumstances of the production process, since 3 May 2017, Viscofan S.A. has recognised, through Resolution 1187 of the Managing Director of the Navarre Employment Service, the recognition of exceptionality that justifies adopting alternative measures to comply with the reserve quota in favour of disabled workers and authorises, as an alternative measure, the conclusion of civil or commercial contracts with Special Employment Centres, for a period of three years.

5.4. Other operating expenses

Thousands of euros
  2017 2016
Research and development costs 2,535 2,183
Repair and maintenance 29,271 28,563
Environment 3,797 3,598
Power supplies 51,371 47,816
Plant expenses (surveillance, cleasing and others) 24,594 20,507
Leasing expenses 6,652 4,663
Insurance premium 4,477 3,943
Other taxes 5,640 4,643
Administrative and selling costs 52,231 46,857
Other expenses 9,321 10,639
Other operating expenses 189,889 173,412

R&D expenses are not susceptible to capitalisation, and were recognised as expenses during the year they were incurred.

"Plant expenses" includes, among other things, the works carried out at the Weinheim plant (Germany) as a result of the fire that occurred in November 2016 (see Note 10) and which have lasted until the first half of 2017.

“Other expenses” includes those corresponding to the acquisition of the Supralon Group companies, amounting to 598 thousand euros. Expenses relating to the acquisition of the Vector Group companies amounting to 1,544 thousand euros were included in 2016.

5.5. Financial income and expense

The breakdown of financial income and expenses for 2017 and 2016, according to the origin of the items making it up, is as follows:

Thousands of euros
  2017 2016
Financial income 279 431
Bank borrowings and other financial liabilities (1,431) (1,230)
Net finance cost of pension plans (415) (589)
Financial expense (1,846) (1,819)
Losses on non-trade receivables 527 (721)
Exchange gains 12,370 17,967
Exchange losses (20,826) (14,969)
Exchange gains (losses) (8,456) 2,998
Financial incomer (expenses) total (9,496) 889

6. Earnings per share

6.1. Basic

The calculation of basic earnings per share is based on the profit for the year attributable to the shareholders of the parent and a weighted average number of ordinary shares in circulation throughout the year, excluding treasury shares.

The breakdown of the calculation of basic earnings per share is as follows:

Thousands of euros
  2017 2016
Weighted average number of ordinary shares in circulation 46,603,682 46,603,682
Profit from continued operations attributable to ordinary equity holders of the parent 122,101 125,084
Basic earnings per share (in euros) from continued operations 2.6200 2.6840
Profit attributable to ordinary equity holders of the parent 122,101 125,084
Basic earnings per share (in euros) 2.6200 2.6840

6.2 Diluted

The weighted average number of ordinary shares in circulation coincides with the number of shares comprising the parent’s share capital.

Diluted earnings per share are calculated by dividing profit attributable to equity holders of the parent by the weighted average number of ordinary shares in circulation considering the diluting effects of potential ordinary shares. As there are no potential ordinary shares, diluted earnings per share does not differ from basic earnings per share.

7. Segment reporting

GIRL 8: "Operating segments" establishes that an operating segment is a component of an entity:

a) when it engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity);

b) when its operating results are regularly reviewed by the entity's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and

c) for which discrete financial information is available.

The Group's management bases its decisions on the assignment of resources and performance evaluations on the profitability of the markets in which it operates; its key geographic areas are Spain, Europe, and Asia, North America, and South America. Segment performance is evaluated based on operating profit or loss and is measured consistently with operating profit or loss on the consolidated financial statements.

The Group also carries out production-related activities, and sells electricity through its cogeneration plants in Spain, Mexico, and Germany. These cogeneration activities have three aims: to decrease the cost of electricity while remaining self-sufficient, and at the same time reducing CO2 emissions. Although the plants located in Spain and Mexico sell part of the energy produced to third parties, these activities are not organised as business segments, nor are they contemplated as business units to be reported on per se.

The following PP&E items and intangible assets in different segments were acquired during 2017 and 2016:

Year 2017 Thousands of euros
Spain Other European and Asian countries North America South America Eliminations and other Consolidated
Revenue from external customer 107,726 326,421 228,067 115,922 - 778,136
Revenue from inter-segment 79,057 239,977 92,826 29,859 (441,719) -
Total revenue 186,783 566,398 320,893 145,781 (441,719) 778,136
Depreciation and amortization (13,576) (23,974) (10,849) (7,983) - (56,382)
Finance revenue 15 65 157 42 - 279
Finance costs (752) (584) (467) (43) - (1,846)
Exchange differences (2,391) (5,585) 132 (612) - (8,456)
Segment profit 19,577 79,310 18,009 28,417 44 145,357
Total assets 215,248 426,051 226,021 163,354 (69,870) 960,804
Total equity and liabilities 114,425 106,118 70,681 23,961 (82,062) 233,123
Acquisition of assets 54,220 35,523 10,538 6,882 - 107,163
Year 2016 Thousands of euros
Spain Other European and Asian countries North America South America Eliminations and other Consolidated
Revenue from external customer 97,677 313,399 217,328 102,429 - 730,833
Revenue from inter-segment 78,522 215,432 98,531 14,442 (406,927) -
Total revenue 176,199 528,831 315,859 116,871 (406,927) 730,833
Depreciation and amortization (12,437) (21,661) (9,358) (6,243) - (49,699)
Finance revenue 47 75 258 51 - 431
Finance costs (591) (654) (380) (194) - (1,819)
Exchange differences 271 244 (450) 2,933 - 2,998
Segment profit 17,616 89,015 19,976 23,923 4,725 155,255
Total assets 200,285 412,160 249,113 176,066 (106,630) 930,994
Total equity and liabilities 117,179 94,331 90,400 36,204 (115,201) 222,913
Acquisition of assets 26,550 20,291 21,084 18,775 - 86,700

8. Business combinations

8.1. Acquisitions in 2017

In November 2017, the Group, through its subsidiary Naturin Viscofan GmbH, acquired 100% of the shares of Supralon International AG and Supralon Verpackungs AG, including their subsidiaries (Supralon Produktions und Vertriebs GmbH and Supralon France SARL).

The fair value of the compensation received at the acquisition date amounted to 12 million euros, 10,5 million euros of which were paid in cash; an agreement was reached to pay the remainder in instalments.

With this acquisition, the Viscofan Group strengthens its position in plastics technology, broadens its product range and improves its supply capacity in Europe, one of the main markets for this type of packaging.

Amounts recognised at the date the assets, liabilities, and contingent liabilities were recognised at their fair value follow:

Thousands of euros
Intangible assets (Note 9) 1,403
Property, plant and equipment (Note 10) 4,843
Deferred tax assets -
Inventories 2,515
Receivables 2,968
Cash and cash equivalents 2,008
Total assets 13,737
Non-current financial liabilities (279)
Current financial liabilities (197)
Payables (1,505)
Deferred tax liabilities (1,142)
Total liabilities (3,123)
Total identififiable net assets 10,614
Goodwill 1,386
Purchase consideration transferred 12,000

The goodwill generated and measured at cost amounts to 1,386 thousand euros, being the excess of the aggregate of the consideration transferred over the fair value of assets acquired and liabilities assumed.

The acquired business generated a consolidated profit for the period for the Group amounting to 178 thousand euros during the period ranging from the acquisition date and year end, and ordinary income totalling 1,776 thousand euros, which were incorporated in the consolidated income statement.

Ordinary income generated during the entire year from the acquired business totals 17,042 thousand euros, with net ordinary total results of 213 thousand euros.

Net assets recognised on the 2017 financial statements were definitively measured at fair value; obtained through an independent valuation of the land, buildings and machinery owned by Supralon Verpackungs AG and its subsidiaries. The remaining acquired net assets were also valued, including those which are intangible. The Group used an independent expert to carry out the main valuations.

8.2. Acquisitions in 2016

In October 2016, when effective control was taken, the Group acquired 100% of the shares in Vector USA Inc. and Vector Europe NV, including its European subsidiaries (Vector Packaging Europe NV and Vector UK Ltd.) through its parent Viscofan S.A. and its subsidiary Viscofan USA Inc.

The fair value of the consideration at the acquisition date amounted to 2,671 thousand euros, 641 thousand euros of which in cash in 2016 and 300 thousand euros in 2017, leaving 1,730 thousand euros as a deferred amount that could be reduced if unrecognised liabilities relating to the period prior to the Group's takeover were identified.

The acquisition of Vector USA Inc. and Vector Europe NV makes it possible to increase the Viscofan Group product range, while improving its plastic technology production offer, to thereby support its strategy to become the reference in the casings market and improve the service worldwide.

Subsequent to the acquisition, the Group paid off nearly the entirety of its bank borrowings, representing payment of 9,067 thousand euros (disbursement included in the cash flow of financing activities).

The 1,544 thousand euros in transaction costs were recognised under “Other operating expenses” (including cash flow for operating activities).

The acquired business generated a consolidated profit for the period for the Group amounting to 106 thousand euros during the period ranging from the acquisition date and year end, and ordinary income totalling 5,353 thousand euros, which were incorporated in the consolidated income statement.

The profit arising from the transaction totalled 4,475 thousand euros, and is recognised on the consolidated income statement under “Negative difference on business combinations.”

The most relevant factors contributing to the generation of a negative difference on business combinations is the Vector Group’s financial situation, which indicates that it would be not be complying with certain financial ratios. After obtaining control of Vector, the Group paid off all its bank borrowings.

Net assets recognised on the 2016 financial statements were definitively measured at fair value; in this regard, the Group obtained an independent appraisal on Vector’s land and buildings. The remaining acquired net assets were also valued, including those which are intangible. The Group used an independent expert to carry out the main valuations.

Amounts recognised at the date the assets, liabilities, and contingent liabilities were recognised at their fair value follow:

Thousands of euros
Intangible assets (Note 9) 719
Property, plant and equipment (Note 10) 9,443
Deferred tax assets 442
Inventories 6,887
Receivables 7,107
Cash and cash equivalents 1,716
Total assets 26,314
Non-current financial liabilities (5,217)
Current financial liabilities (5,301)
Payables (6,836)
Deferred tax liabilities (1,814)
Total liabilities (19,168)
Total identififiable net assets 7,146
Negative differences from business combinations (4,475)
Purchase consideration transferred 2,671

9. Intangible assets

The breakdown and movements in other intangible assets during 2017 and 2016 are as follows:

Thousands of euros
  Client portfolio Software Concessions, patents, licenses and use rights Emission rights Good will (Note 8) Prepayments Amortization Total
Balance at January 1, 2016 - 30,198 19,940 2,117 3,520 876 (38,317) 18,334
Translation differences - 574 191 - - 35 (822) (22)
Acquisition of a subsidiary 621 98 - - - - - 719
Additions - 2,207 - - - 586 (3,282) (489)
Disposals - (1,467) - - - - 1,467 -
Transfers - 1,272 - (2,117) - (1,258) (14) (2,117)
Balance at December 31, 2016 621 32,882 20,131 - 3,520 239 (40,968) 16,425
Translation differences - (1,188) (1,292) - - - 2,306 (174)
Acquisition of a subsidiary (Note 8.1) - 12 1,391 - 1,386 - - 2,789
Additions - 3,434 191 - - 121 (3,488) 258
Disposals - (5) - - - - - (5)
Transfers - 186 - - - (183) (3) -
Balance at December 31, 2017 621 35,321 20,421 - 4,906 177 (42,153) 19,293

The balances of this heading at 31 December 2017 and 2016 are the following:

Thousands of euros
  31.12.2017 31.12.2016
  Cost Amortization Total Cost Amortization Total
Client portfolio 621 (124) 497 621 - 621
Software 35,321 (26,596) 8,725 32,882 (24,920) 7,962
Concessions, patents, licenses and use rights 20,421 (15,433) 4,988 20,131 (16,048) 4,083
Good will (Note 8) 4,906 - 4,906 3,520 - 3,520
Prepayments 177 - 177 239 - 239
TOTAL 61,446 (42,153) 19,293 57,393 (40,968) 16,425

“Software” includes the ownership and usage rights for IT programs acquired from third parties.

Details of the cost of fully amortised intangible assets in use at 31 December 2017 and 2016 are as follows:

  Thousands of euros
    2017 2016
Software   19,926 17,716
Concessions, patents, licenses and use rights   12,917 13,088
Fully anortizated intangible assets   32,843 30,804

Impairment test

Goodwill recorded on the Group’s consolidated balance sheet corresponds to Nanopack Technology & Packaging, S.L.; its CGU corresponds to the legal company or subgroup (Note 5.2). It engages in manufacturing and marketing of film plastics and new products based on the acquired technology and its expected development.

The company acquired in 2015 is a start-up that is extremely focused on R&D&i in plastics technology in which they had made promising progress. As befits any company with these characteristics, it needs investment and commercial support to launch its novel products onto the market. After an improvement in UGE's turnover in 2017, it is expected to continue with increases in turnover in 2018, once the Company’s performance fully reflects the efforts made in its new Cáseda plant, as well as novel products developed in Gerona, which add value and, in this vein, establish the foundations for growth in the future.

During 2017, the second complete year within the Group, Viscofan has continued investing in increasing capacity and plant and equipment by following the initial plan, based on the forecasts of future growth expected by the Management, which is coherent with the long-term view and industrial policies of Viscofan Group.

The assumptions include an increasing volume of sales during the first year’s activity. 5-year projections were done, in which Management established forecasted business figures broken down by CGU managers (by year, country, customer, average product sales prices) based on historic data (internal/external sources), market, competition scenarios, information on new products and those in development, and actions to be implemented aimed at geographical expansion, and available macroeconomic forecasts.

The main assumption affecting cash flows arise from the projections made based on hypotheses on increases in average volumes and use of the installed capacity, as well as increases in sales prices and moderate costs.

The residual growth rate stands at 1.5%, in line with estimated long-term growth. The pre-tax discount rate (Wacc) is 8%.

The cash flows projections did not contemplate investments from capital increases. The investments made in 2017 make it possible to achieve the level of production required to satisfy sales of the last projected year on which the residual value is calculated. Current investments totalling ‘0.5 million euros should suffice to ensure that the plant remains operational and competitive.

The estimated residual value included a sustainable average flow and a growth rate of 1.5%. The sustainable average flow corresponds to cash flows during the most recently projected period.

Based on a sensitivity analysis;

  • Variations of 10% in the discount rate do not imply the recognition of impairment.
  • Sensitivity to reasonably possible changes in turnover does not entail the need to record any impairment losses.

The consolidated carrying amount totalled 6,660 thousand euros (goodwill totalling 3,520 thousand, with PP&E items amounting to 3,140 thousand euros).

Therefore, taking the above into consideration, the Directors consider that at year-end 2017, there were no indications that any impairment losses should be recorded.

Based on the business plan used for the November 2017 acquisition of the companies that make up the Supralon group, the company determined that it does not apply an impairment adjustment.

10. Property, plant, and equipment

The breakdown and movements in property, plant, and equipment during 2017 and 2016 are as follows:

Thousands of euros
  Land and buildings Plant and machinery Other install., equip. and furniture Other property, plant and equipment Advances and assets under construct. Amorti- zation Impairment Total
Balance at January 1, 2016 214,118 668,692 83,956 29,425 28,564 (642,142) (588) 382,025
Translation differences 2,296 12,227 230 274 233 (11,410) 5 3,855
Acquisition of a subsidiary 6,212 3,080 16 31 104 - - 9,443
Additions 5,634 28,758 3,237 2,657 43,619 (46,417) (128) 37,360
Disposals (709) (17,145) (5,211) (2,682) (662) 25,280 356 (773)
Transfers 6,724 29,820 1,114 795 (38,347) (106) - -
Balance at December 31, 2016 234,275 725,432 83,342 30,500 33,511 (674,795) (355) 431,910
Translation differences (5,722) (29,834) (872) (1,611) (246) 21,639 (10) (16,656)
Acquisition of a subsidiary (Note 8.1) 4,170 545 7 116 5 - - 4,843
Additions 12,042 17,695 3,895 2,006 67,779 (52,894) 72 50,595
Disposals (3,250) (3,328) (240) (892) (353) 7,031 139 (893)
Transfers 9,333 39,305 1,339 777 (50,757) 3 - -
Balance at December 31, 2017 250,848 749,815 87,471 30,896 49,939 (699,016) (154) 469,799

The balances of this heading at 31 December 2017 and 2016 are the following:

Thousands of euros
  31.12.2017 31.12.2016
  Cost Amortization and impairment Total Cost Amortization and impairment Total
Land and buildings 250,848 (105,307) 145,541 234,275 (103,389) 130,886
Plant and machinery 749,815 (504,881) 244,934 725,432 (486,786) 238,646
Other installations, equipment and furniture 87,471 (66,815) 20,656 83,342 (63,662) 19,680
Other property, plant and equipment 30,896 (22,167) 8,729 30,500 (21,313) 9,187
Advances and assets under construction 49,939 - 49,939 33,511 - 33,511
TOTAL 1,168,969 (699,170) 469,799 1,107,060 (675,150) 431,910

In 2017, investments in property, plant and equipment in the Group totalled 103,417 thousand euros. The main projects have been the construction of a new plant to install fibrous production in Cáseda (Spain), improvement of capacity and processes in cellulose, fibrous, plastic and collagen, energy optimisation improvements as well as improving safety conditions in various facilities.

On 3 November 2016, a fire broke out in a spare parts warehouse owned by Naturin Viscofan GmbH in Weinheim, Germany, which affected production for two days and caused the near destruction of the warehouse. Based on the insurance policy taken out, the compensation of 14,200 thousand euros includes the replacement value of the spare parts warehouse, its contents and the associated clearing and cleaning costs. Of the total amount, 3,300 thousand euros had already been collected on account and recorded in the financial statements for 2016.

Details of fully depreciated property, plant, and equipment in use at 31 December 2017 and 2016 are as follows:

Thousands of euros
  2017 2016
Buildings 37,677 34,401
Plant and machinery 348,869 333,715
Other installations, equipment and furniture 51,669 50,296
Other property, plant and equipment 14,343 14,004
Fully depreciated property, plant and equipment 452,558 432,416

The Group’s buildings, plant, and equipment were partly financed by government grants of 181 and 78 thousand euros in 2017 and 2016, respectively (Note 16).

The Group has insurance policies covering the various risks to which its items of property, plant, and equipment are exposed. The coverage of these policies is considered sufficient.

Within the framework of the annual investment plan, at year-end 2017 there were commitments to acquire PP&E for 7,000 thousand euros, which was mainly related to the reconstruction of the building that went on fire in Germany and innovation in technological processes.

At year-end 2016 there were commitments to acquire PP&E for the amount of 7,460 thousand euros, which were mainly related to optimising energy use in Mexico and Spain, as well as processes and technological updates.

Finance leases

The Group leases buildings and other items under finance leases as follows:

Thousands of euros
  Cost Amortization
At January 1, 2016 1,154 (433)
Net movement - (142)
At December 31, 2016 1,154 (575)
Net movement (*) (209) 9
At December 31, 2017 945 (566)

Details of minimum payments and current finance lease liabilities, by maturity date, are as follows:

Thousands of euros
  2017   2016  
  Minimum payments (Note 19) Interest Minimum payments (Note 19) Interest
Up to one year 157 5 182 11
Between one and five years 33 1 160 4
Total 190 6 342 15

Operating leases

The Group leases various warehouses and other PP&E items in various countries. The minimum future payments on these contracts, by nature of the fixed assets, at 31 December are as follows:

Thousands of euros
Year 2017 Up to one year Between one and five years More than five years Total
Buildings 1,028 1,716 241 2,985
Machinery and other equipment 969 1,995 43 3,007
Vehicles 842 779 - 1,621
Total 2,839 4,490 284 7,613
Thousands of euros
Year 2016 Hasta un año Entre uno y cinco años Más de cinco años Total
Buildings 1,432 1,129 - 2,561
Machinery and other equipment 809 2,010 590 3,409
Vehicles 842 1,077 - 1,919
Total 3,083 4,216 590 7,889

Lease-related expenses during the year totalled 6,652 thousand euros (2016: 4,663 thousand euros - Note 5.4).

Impairment test

No evidence of impairment was detected in any of the Group's cash-generating units, as they are generally performing well; therefore, it was not considered necessary to perform any impairment tests.

11. Inventories

Details of inventories at 31 December 2017 and 2016 are as follows:

Thousands of euros
  2017 2016
Raw materials and other supplies 62,931 60,038
Semi-finished products 58,730 62,654
Finished products 107,678 93,843
Goods for resale 5,609 9,717
Greenhouse gas emission rights 2,064 2,821
Prepayments to suppliers 1,518 505
Total Inventories 238,530 229,578

The valuation adjustments in 2017, corresponding to impairment and obsolescence, entailed an income of 139 thousand euros (an expense of 2,600 thousand euros in 2016 and they are recognised under "Consumption of raw materials and other consumables" and “Changes in inventory of finished goods and work in progress” on the consolidated income statement and are recognised under "Consumption of raw materials and other consumables" and “Changes in inventory of finished goods and work in progress” on the consolidated income statement.

At 31 December 2017 and 2016, there were no inventories with a reimbursement period greater than 12 months recognised in the consolidated statement of financial position.

The emission rights consumed by the Company during 2017 and 2016 amounted to 250,324 and 240,356 tonnes, respectively.

Group companies have contracted various insurance policies to cover the risk of damage to inventories. The coverage of these policies is considered sufficient.

12. Trade and other receivables

12.1. Trade and other receivables

The breakdown for "Trade and other receivables" at 31 December 2017 and 2016 is as follows:

Thousands of euros
  2017 2016
Trade receivables 143,673 143,669
Other receivables 3,454 6,168
Advances to employees 343 316
Provisions for bad debts (3,388) (2,512)
Total trade and oher receivables 144,082 147,641

As of December 2016, the "Other non-trade receivables" heading included, among others, 3,300 thousand euros as part of the total amount receivable from the insurance company for damage to a spare parts store fire in Weinheim (Germany) and the estimated compensation for damage and loss of profit caused by a maintenance supplier in connection with the work carried out for Naturin Viscofan GmbH (Note 10). Management considers that the carrying amount of “Trade and other receivables” is similar to its fair value, as its items are recognised at their invoiced amounts, and therefore the effect of discounts is rendered totally immaterial.

At 31 December 2016 and 2016, the age of balances receivable related to sales based on their maturity, including balances which have not yet fallen due, those which have, and those which are totally impaired is the following:

Thousands of euros
  Not due Due not impaired
    < 30 days 31-60 days 61-90 days > 90 days Total
2017 125,739 15,094 2,240 259 750 144,082
2016 128,732 11,752 1,694 2,062 3,401 147,641

The Group has credit insurance contracts which cover the collection of the greater portion of its customer balances.

The movement in provisions for irrecoverable debt from trade receivables and other receivables is as follows:

Thousands of euros
  2017 2016
Balance at January 1, (2,512) (2,193)
Translation differences 80 (11)
Amounts provisioned (1,570) (876)
Amounts applied 614 568
Balance at December 31, (3,388) (2,512)

Trade receivables do not carry interest, and generally payment conditions range from 45 to 90 days. The breakdown by currency for “Trade and other receivables” is as follows:

Thousands of euros
  Euros US dollars Czeck crown Brazilian real Mexican peso Chinese yuan Others Total carrying amount
2017 54,452 62,021 20 17,061 495 7,151 2,882 144,082
2016 52,212 63,648 299 19,074 908 8,777 2,723 147,641

12.2. Receivables from public administrations

At 31 December 2017 and 2016, balances receivable from public administrations are as follows:

Thousands of euros
  2017 2016
VAT receivable form the Treasury 22,598 23,765
Withholdings and peyments on account receivable from the Treasury - 2
Other public bodies 1,620 14
Balance at December 31, 24,218 23,781

A breakdown by currency is as follows:

Thousands of euros
  Euros US dollars Czeck crown Brazilian real Mexican peso Chinese yuan Others Total carrying amount
2017 10,847 - 716 5,849 4,824 - 1,982 24,218
2016 7,926 14 712 6,172 5,992 413 2,552 23,781

13. Current and non-current financial assets

All financial instruments at 31 December 2017 and 2016 are included in level 2: assets and liabilities whose fair value has been determined with technical valuation techniques that use hypotheses observable in the market.

The breakdown at 31 December 2017 and 2016 of current and non-current financial assets not including trade and other receivables is as follows:

Thousands of euros
  Loans and receivables Available-for-sale Hedges Carrying amount Fair value
Financial investments 7,884 266 - 8,150 8,150
Cash flow hedges - - 322 322 322
Guarantees and deposits 677 - - 677 677
Non-current financial assets 8,561 266 322 9,149 9,149
Current deposits - 750 - 750 750
Guarantees and deposits 40 - - 40 40
Cash flow hedges - - 2,767 2,767 2,767
Current financial assets 40 750 2,767 3,557 3,557
Total at December 31, 2017 8,601 1,016 3,089 12,706 12,706
Thousands of euros
  Loans and receivables Available-for-sale Hedges Carrying amount Fair value
Financial investments 9,116 134 - 9,250 9,250
Cash flow hedges - - 2,798 2,798 2,798
Guarantees and deposits 745 - - 745 745
Non-current financial assets 9,861 134 2,798 12,793 12,793
Current deposits - - - - -
Guarantees and deposits 19 - - 19 19
Cash flow hedges - - 1,441 1,441 1,441
Current financial assets 19 - 1,441 1,460 1,460
Total at December 31, 2016 9,880 134 4,239 14,253 14,253

Financial investments include the balance to be recovered by ICMS (Brazilian VAT equivalent) amounting to 6,439 thousand euros (7,199 thousand euros in 2016). In the state of Sao Paulo, the import ICMS increased 18%, while ICMS charged to sales ranges from 4% to 18%, depending upon the jurisdiction in question. This is the reason for the negative ICMS balance which, the Sao Paulo state’s tax authorities only permits recovery through offsetting against other balances generated by the same tax. In this regard, Viscofan do Brasil took steps to enable it to compensate and recover them within an estimated 2- 3 years.

A breakdown of financial instruments by maturity is as follows:

Thousands of euros
  Less than 1 year From 1 to 2 years From 2 to 3 years From 3 to 4 years From 4 to 5 years More than 5 years Total
Cash flow hedges 2,767 322 - - - - 3,089
Other financial assets 790 7,065 157 82 63 1,460 9,617
Total at December 31, 2017 3,557 7,387 157 82 63 1,460 12,706
Thousands of euros
  Less than 1 year From 1 to 2 years From 2 to 3 years From 3 to 4 years From 4 to 5 years More than 5 years Total
Cash flow hedges 1,441 2,424 374 - - - 4,239
Other financial assets 19 3,046 2,691 2,567 469 1,222 10,014
Total at December 31, 2016 1,460 5,470 3,065 2,567 469 1,222 14,253

A breakdown by currency is as follows:

Thousands of euros
  Euros US dollars Czeck crown Brazilian real Mexican peso Chinese yuan Others Total carrying amount
2017 4,974 281 504 6,798 8 135 6 12,706
2016 6,059 440 - 7,597 8 144 5 14,253

14. Cash and cash equivalents

"Cash and cash equivalents" at December, 31 2017 and 2016 correspond entirely to balances held by the Group in cash and credit accounts, and an account which earns interest at market rates. The Group had no banking overdrafts during the periods, with all its balances freely distributable.

A breakdown by currency is as follows:

Thousands of euros
  Euros US dollars Czeck crown Brazilian real Mexican peso Chinese yuan Others Total carrying amount
2017 11,953 5,904 615 1,505 610 4,309 3,247 28,143
2016 24,743 9,153 1,612 898 253 4,224 4,171 45,054

15. Equity

15.1. Share capital

At 31 December 2017 and 31 December 2016, the parent's share capital consisted of 46,603,682 registered ordinary shares with a par value of 0.70 euros each, fully subscribed and paid in. The shares were fully subscribed and paid in. The total capital value amounts to 32,623 thousand euros.

All shares bear the same voting and dividend rights and obligations, and are listed on the official Stock Exchanges of Madrid, Barcelona, and Bilbao under the automatic quotation system (continuous market). All shares are freely distributable.

At 31 December 2017 and 2016, the parent was aware of the following shareholders with a direct or indirect stake of over 3%:

% of investment
  2017 2016
Corporación Financiera Alba, S. A. 11.32 11.02
APG Asset Management N.V. 5.17 5.17
Angustias y Sol, S.L. 5.00 5.00
Norges Bank 4.96 5.25
Marathon Asset Management, LLP. 4.93 4.98

Additionally, in accordance with Article 32 of Royal Decree 1362/2007, of 19 October, on shareholders obliged to notify their residence in tax havens or in countries not requiring the payment of taxes, or with whom there is no effective exchange of tax information, no notification was received at year- end 2017 and 2016.

Capital management

The primary objective of the Viscofan Group’s capital management is to safeguard its capital ratios to ensure the continuity of its business and maximize performance.

To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders, increase capital or cancel treasury shares.

The Group monitors capital by analysing trends in its leverage ratio, in line with common practice in Spain. This ratio is calculated as net financial debt divided by total equity. Net financial debt includes total borrowings in the consolidated financial statements less cash and cash equivalents, and excluding current financial assets.

The Viscofan Group's primary objective is to maintain a healthy capital position. The leverage ratios as well as the analysis of net debt, at 31 December 2017 and 2016 were as follows:

Thousands of euros
  2017 2016
Cash and cash equivalents 28,143 45,054
Other S.T. financial assets (Note 13) 3,557 1,460
Financial liabilities (Note 19) (93,722) (84,986)
Total net financial debt (62,022) (38,472)
Total equity (727,681) (708,081)
Leverage ratio 8.5% 5.4%
Thousands of euros
  2017 2016
Cash and cash equivalents (Note 14) 28,143 45,054
Other financial assets, S.T. (Note 13) 3,557 1,460
Financial debt refundable in one year (Note 19) (19,386) (30,120)
Financial debt refundable in more than one year (Note 19) (74,336) (54,867)
Net debt (62,022) (38,473)
Thousands of euros
  2017 2016
Cash and cash equivalents (Note 14) 28,143 45,054
Other financial assets, S.T. (Note 13) 3,557 1,460
Gross debt at fixed interest rates (77,811) (52,095)
Gross debt at variable interest rates (Note 22.4) (15,911) (32,892)
Net debt (62,022) (38,473)

The change in net debt, at 31 December 2017 and 2016 is as follows:

  Liabilities included on cash flows from financing activities
  Cash and cash equivalents Other financial assets, S.T. S.T. Financial debt L.T. Financial debt Interest Assets suppliers Other financial liabilites, S.T. Other financial liabilites, L.T. Total net debt
Saldo inicial al 1 de enero de 2016 44,453 1,214 (14,941) (26,130) (136) (5,609) (9,150) (11,487) (21,786)
Cash flow 156 70 25,361 (26,532) 1,708 80,747 (702) (1,872) 78,936
Adquisitions and other non-monetary changes - 103 (20,436) 11,368 (1,754) (86,568) (343) 343 (97,287)
Variarion on fair value - - - - - - 2,674 338 3,012
Translation differences 445 73 (1,500) (853) 1 (201) 730 (42) (1,347)
Saldo final al 31 de diciembre de 2016 45,054 1,460 (11,516) (42,147) (181) (11,631) (6,791) (12,720) (38,472)
Cash flow (15,849) 776 11,382 (28,211) 1,836 111,561 1,016 (958) 81,553
Adquisitions and other non-monetary changes - - (6,598) 6,598 (1,892) (107,163) (1,782) 1,782 (109,055)
Variarion on fair value - 1,310 - - - - 2,859 135 4,304
Translation differences (1,062) 11 389 1,081 9 (846) (38) 104 (352)
Saldo final al 31 de diciembre de 2017 28,143 3,557 (6,343) (62,679) (228) (8,079) (4,736) (11,657) (62,022)

15.2. Share premium

The revised text of the Spanish Corporate Enterprises Act expressly permits companies to use the balance of the share premium account to increase capital and does not place any limit on the amount of the balance which may be used for this purpose.

15.3. Reserves

The movement is as follows:

Thousands of euros
Balance at January 1, 2016 536,278
Actuarial gain (losses) (1,678)
Apropiation of prior year results 57,573
Balance at December 31, 2016 592,173
Actuarial gain (losses) 425
Apropiation of prior year results 57,975
Balance at December 31, 2017 650,573

(a) Legal reserves

In accordance with the Spanish Corporate Enterprises Act, companies registered in Spain are obliged to transfer 10% of the profits for the year to a legal reserve until it reaches an amount of at least an amount equivalent to 20% of share capital. This reserve is not distributable to shareholders and its value at 31 December 2017 and 2016 amounts to 2,935 thousand euros.

(b) Revaluation reserve

The parent opted for the voluntary revaluation of PP&E items as established in the Navarre Regional Law 21/2012 of December 26, on modifying various taxes and other tax measures. The revaluation was carried out with respect to items recorded in the balance sheet for the year ended 31 December 2012, with the resulting reserve, net of 5% tax, amounting to 7,329 thousand euros. The effect of said revaluation was not recognised in the consolidated financial statements of the Group.

Once the inspection period had past, during 2017 the balance may be used to:

  • Offset prior years’ losses.
  • Increase share capital.
  • Increase freely distributable reserves once ten years have elapsed from the closing date of the balance sheet for the year in which the revaluation was recognised. However, said balance can only be distributed, directly or indirectly, when the revalued equity items have been fully depreciated, transferred, or derecognised.

Revaluation reserve in accordance with Navarra Regional Law 23/1996, is considered as distributable from 31 December 2006, on to the extent that gains have been realised, that is, when the related assets have been depreciated, disposed of or otherwise written off.

15.4. Unrealised gains/(losses) reserve

Movements in the years ended 31 December 2017 and 2016 were as follows:

Thousands of euros
  Interest rate swaps Exchange rate insurance Raw material derivatives Total
Balance at January 1, 2016 (23) (502) (2,336) (2,861)
Gains/(losses), net of tax effects - (806) 3,068 2,262
Reclassification of gains to the income statement, net of tax 19 502 2,318 2,839
Balance at December 31, 2016 (4) (806) 3,050 2,240
Gains/(losses), net of tax effects - 274 - 274
Reclassification of gains to the income statement, net of tax 4 806 (1,552) (742)
Balance at December 31, 2017 - 274 1,498 1,772

15.5. Exchange gains (losses)

The detail of the most significant translation differences by company for the years ended 31 December 2017 and 2016 is as follows:

Thousands of euros
  2017 2016
Koteks Viscofan, d.o.o. (10,781) (12,570)
Viscofan de México S.R.L. de C.V. (8,533) 4,547
Viscofan do Brasil, soc. com. e ind. Ltda. (30,376) (10,107)
Viscofan Uruguay, S.A. (14,792) (5,861)
Rest of Group companies 13,841 6,287
Balance at December 31, 2017 (50,641) (17,704)

15.6. Movement in treasury shares

No transactions were carried out with treasury shares in 2017 and 2016.

The shareholders at their ordinary general meeting on 29 April 2013 agreed to renew the authorisation, for the maximum legal period, granted to the Board of Directors to buy and sell Company shares on the stock market at the price quoted on the transaction date, up to the legal maximum number of shares permitted by Article 146 of the revised text of the Corporation Tax Law, and at a minimum price of the nominal value and a maximum 15% greater than the quoted share price in the stock exchange system at the moment of acquisition.

15.7. Appropriation of profit and other remuneration paid to the shareholders

The proposed distribution of income of the parent for 2017, formulated by the Directors of the parent and pending approval by the General Shareholders' Meeting, corresponds to a total remuneration to shareholders of 1.55 euros per share, of which, the distribution of earnings in the form of dividends is 1.54 euros per share and 0.01 euros per share for the premium payment for attending the General Shareholders' Meeting in 2018.

In relation to 2016, the total remuneration for shareholders amounted to a total of 1.45 euros per share. Of the above, the distribution of profit represented a per-share dividend of 1.44 euros and 0.01 euros corresponding to the payment of attendance fees related to the 2017 General Shareholders Meeting. This premium was recognised as an expense for the year.

Parent profits for the year ended 31 December 2016 were distributed as approved by the shareholders at their annual general meeting held on 27 April 2017.

Thousands of euros
Distribution proposal year 2017 Distributed profits year 2016
Dividends 71,770 67,109
Voluntary reserves 18,360 3,602
Distributable profits attributable to the parent 90,130 70,711
---------------------------------

On 23 November 2017, based on projected profit for the year, the Board of Directors approved an interim dividend for 2017 of 28,894 thousand euros, equal to 0.62 euros per share. This dividend was paid on 21 December 2017. The amount of the dividend is less than the maximum limit permitted by prevailing legislation on distributable profit after the previous year end.

The statement required by current legislation and prepared by the parent's Board of Directors in respect of the distribution of the interim dividend for 2017 is as follows:

Thousands of euros
Cash available at 22.11.2017 15,430
Trade and other receivables 211,384
Other income -
Trade and other payables (133,692)
Payments to employees (49,992)
Interest expense (1,005)
Other payments (6,300)
Cash flow from operating activities 20,395
Dividends received 71,367
Purchases of property, plant and equipment (29,093)
Cash flow from investment activities 42,274
Variations in bank borrowings 2,516
Dividends paid (72,236)
Cash flows from financing activities (69,720)
Projected liquidity at 22.11.2018 8,379

16. Capital grants

The movements under this heading in 2017 and 2016 were as follows:

Thousands of euros
Balance at January 1, 2016 3,578
Translation differences 17
Additions 78
Taken to profit (672)
Balance at December 31, 2016 3,001
Translation differences (63)
Additions 181
Taken to profit (637)
Balance at December 31, 2017 2,482

The breakdown of capital grants during 2017 and 2016, all related to PP&E items, is as follows:

Thousands of euros
  2017 2016
Navarra Regional Government 1,950 2,260
International organizations 532 741
Balance at December 31 2,482 3,001

17. Current and non-current provisions

Details at 31 December 2016 and 2015 are as follows:

Thousands of euros
  Note 2017 2016
Defined benefit 17.1 18,361 19,733
Other employee benefits 17.2 3,277 3,177
Provisions for other litigation 17.3 554 398
Others   43 9
Total non-current provisions   22,235 23,317
Provisions for warranties/repayments 17.4 1,512 1,865
Provisions for safety in the workplace 17.5 1,664 2,276
Provisions for emission rights 17.6 1,390 1,754
Others   433 783
Total current provisions   4,999 6,678

17.1. Provisions for defined benefit plans

The Group makes contributions to various different defined benefit plans. The most relevant plans are located in Germany.

Independent actuarial valuations are used for all of them and there are no assets assigned to pension plans.

  • Pension plans in Germany

A contribution is made through the Naturin Viscofan GmbH subsidiary for a defined benefit plan consisting of a life pension plan for retired employees. At 31 December 2017, there were 401 employees, 449 retirees, and ex-employees. At 31 December 2016, there were 415 employees and 450 retirees and ex-employees.

The number of the above beneficiaries does not included retirees which, from 2010 and 2013 are paid by the insurance company. The agreement does not imply cutting back or cancelling the policy, as the obligation ultimately lies with Naturin Viscofan GmbH. However, the characteristics of the plan make the value of the assets and liabilities constant for the duration of the contract, so that both the assets and the liabilities offset each other, resulting in a current value of zero for the obligation.

The net obligation corresponding to pension plans amounts to 16,446 thousand euros at 31 December 2017, and 17,577 thousand euros at 31 December 2016.

a) Changes in the present value of the obligations are as follows:

Thousands of euros
  Germany Plans in other countries Total
  2017 2016 2017 2016 2017 2016
Obligations at january 1, 17,577 15,027 2,156 2,151 19,733 17,178
Service cost for the current period (Note 5) 324 284 34 37 358 321
Interest cost 295 356 77 75 372 431
Payments made (1,004) (466) (217) (217) (1,221) (683)
Actuarial gains/(losses) (746) 2,376 104 114 (642) 2,490
Translations differences - - (239) (4) (239) (4)
Obligation at December 31, 16,446 17,577 1,915 2,156 18,361 19,733
Amount corresponding to active beneficiaries 9,381 9,767 341 312 9,722 10,079
Amount corresponding to exemployeebeneficiaries 2,822 2,988 - - 2,822 2,988
Amount corresponding to retired beneficiaries 4,243 4,822 1,574 1,844 5,817 6,666

b) The following table provides information relating to the amounts recognised in the consolidated income statement. Current service costs for the period are included in employee benefits expenses.

  2017 2016
Current service cost 358 321
Plans in Germany 324 284
Plans in other countries 34 37
Net financial cost 372 431
Interest expense for German plans 295 356
Interest expense for plans in other countries 77 75
Expense (income) recognized for the year 730 752

c) The following table provides information relating to the amounts recognised in the consolidated statement of comprehensive income:

Thousands of euros
  2017 2016
Actuarial losses and gains of 642 (2,490)
Arising from changes in demographic assumptions (26) (35)
Arising from changes in financial assumptions 669 (2,258)
Arising from experience (1) (197)
Tax effect (217) 812
Net results recognized in the consolidated statement of comprehensive income 425 (1,678)

d) The principal actuarial assumptions used in the plans located in Germany are as follows:

2017 2016
Annual discount rate 1.9% 1.7%
Expected rate of salary increases 2.0% 2.0%
Expected age of retirement for employees 65-67 65-67

The mortality tables used to quantify the defined benefit obligation were those corresponding to Heubeck Richttafeln 2005 G.

Future payments expected for coming periods are shown in the following table:

Thousands of euros
  2017 2016
Payable within the next 12 months 331 466
Payable within 1 and 2 years 354 487
Payable within 2 and 3 years 374 497
Payable within 3 and4 years 398 521
Payable within 4 and 5 years 431 548
Payable within 5 and 10 years 2,715 3,294
Payable within more than 10 years 22,082 22,181

The following table shows the sensitivity analysis for each of the main hypotheses on how a possible reasonable change in each hypothesis would affect the obligation at year end:

Thousands of euros
  2017 2016
Discount rate    
Increase of 50 basic points (1,541) (1,658)
Decrease of 50 basic points 1,773 1,914
Increase in pensions    
Increase of 50 basic points 1,184 1,244
Decrease of 50 basic points (1,073) (1,128)
Life expectancy    
Increase of 1 additional year 692 892

The sensitivity analysis is based on a change in one hypothesis while considering the remaining hypotheses as unchanged.

17.2. Other employee benefits and long-term remuneration

Thousands of euros
  2017 2016
Balance at January 1, 3,177 3,186
Translation differences (24) 36
Acquisition of a subsidiary 115 -
Allowances 199 499
Payments (190) (544)
Balance at December 31, 3,277 3,177

Included under this heading are prizes that the subsidiary Naturin Viscofan GmbH has established for its employees. When its employees complete 10 years of service, a payment of 1,000 euros, 25 and 40 years of service (both amounting to 1,000 euros plus the gross monthly salary multiplied by 1.6 and one day of holiday), and, if applicable, 50 years of service (one day of holiday). They are settled with lump sum payments on the date on which the workers complete the relevant years of service.

The hypotheses used for calculating the obligations were the same as those used for the pension plan of the same subsidiary as described in the previous point.

The number of beneficiaries amounts to 401 employees (415 in the previous period), while the obligation amounts to 2,593 and 2,605 thousand euros at 31 December 2017 and 2016, respectively. The beneficiaries received 166 thousand euros in payments during 2017 (2016: 397 thousand euros). The payable amount expected for 2018 totals 148 thousand euros.

recognised service costs and financial expenses for the current period amounted to 137 thousand and 43 thousand euros, respectively (2016: 148 thousand and 154 thousand euros, respectively).

17.3. Provisions for other litigations

The movements at 31 December 2017 and 2016, are as follows:

Thousands of euros
  2017 2016
Balance at January 1, 398 353
Translation differences (57) 80
Acquisition of a subsidiary 117 -
Allowances 96 -
Payments - (35)
Balance at December 31, 554 398

The provision for other litigation mainly covers claims brought against the Brazilian subsidiary by the Brazilian tax authorities and certain company employees. After seeking appropriate legal counsel, the directors consider that the result of the litigation will not significantly differ from the amounts provisioned at 31 December 2017.

17.4. Provision for guarantees / refunds

A provision is recognised for warranty claims anticipated for products sold during the last year, based on past experience regarding the volume of returns. Most of these costs are expected to be incurred in the following year.

17.5. Safety in the workplace provision

The safety in the workplace provision covers claims brought against the Group by certain employees, most of whom are based in the US, related to workplace accidents. These claims did not arise as a result of a specific incident, but are customary practice in many companies. After seeking appropriate legal counsel, the directors consider that the result of the litigation will not significantly differ from the amounts provisioned at 31 December 2017.

17.6. Emission rights provision

The emission rights provision includes the estimated consumption of emission rights during 2017 and 2016 valued in accordance with the measurement standard described in Note 4.14.

17.7. Contingent assets and liabilities

(a) Contingent liabilities

At year end, there were several legal claims filed against the Brazilian subsidiary totalling 4 million euros (2016: 4.4 million euros). As indicated in Note 17.3, at 31 December 2017, a 0.4 million euro provision was recognised (2016: 0.4 million euros). In the opinion of the Group's legal advisors in Brazil, all those which are not recognised under liabilities are considered to be potential risks, or that possible related amounts cannot be determined at the moment. Based on historic experience, the related amounts of all possible claims are under 5%.

Also, at year-end there were a number of ongoing lawsuits against Griffith Colombia, S.A. Griffith Colombia, S.A. held exclusive sales rights for Viscofan Group's products in Colombia since 2006. As a result of the end of its business relationship in November 2012, Griffith Colombia stopped paying invoices, which were guaranteed by bills of exchange, to two Viscofan Group companies (Viscofan do Brasil Sociedade Comercial e Industrial Ltda. and Viscofan CZ, s.r.o.) amounting  to approximately 1.2 million USA dollars, arguing a right to retention because of the indemnity it considered due. The two Group companies concerned have started legal proceedings against Griffith in their respective countries seeking to enforce the bills of exchange. In Brazil, Viscofan do Brasil won its lawsuit and received the amounts owed. In the Czech Republic, a ruling in favour of Viscofan CZ was also issued, in February 2017. However, Griffith does not have any assets in that country allowing the ruling to be enforced. As of the date of this report, no alternative has been found for enforcement. The claims process for terminating the sales relationship started by Griffith in Columbia is still open, with no relevant advances taking place in 2017.

On 15 June 2017, lawsuits were filed against Vector Europe NV and Vector Packaging Europe NV by Bellota de Encino BVBA ("Bellota") seeking compensation and damages for the termination of their respective management agreements. Vector Europe NV and Vector Packaging Europe NV reject the claims, arguing, among other things, that the nature and quality of the services effectively provided did not match what was established in the agreements and that the calculation of the compensation was incorrect. A ruling is pending and the risk of some of Bellota de Encino BVBA's claims being accepted is probable. However, the court's stance on the pleas submitted by Vector Europe NV and Vector Packaging Europe NV is uncertain. The companies have set aside provisions covering a portion of the amounts claimed, so the proceedings are unlikely to have a significant affect.

Berkes Construcción y Montajes, S.A. and Viscofan Uruguay, S.A. have filed lawsuits against each other, combined in a single proceeding, as a result of the agreement for the construction of the plant. Viscofan Uruguay believes there are deficiencies and non-compliance in the works carried out, and has withheld amounts so as to force Berkes to remedy them, while Berkes believes that the deficiencies and non-compliance are insignificant, and that the amounts withheld by Viscofan Uruguay are excessive and claims payments of the amounts. The ruling at first instance accepted Viscofan Uruguay, S.A.'s claims, but determined a smaller amount for the deficiencies and non- compliance by Berkes Construcciones y Montajes, S.A. than claimed. Viscofan Uruguay, S.A. has appealed the ruling, although the difference in the estimated amounts would not have a significant impact on Viscofan Uruguay, S.A.'s financial statements.

(b)Contingent assets

On 5 June 2014, the Murcia Provincial Court notified IAN, S.A.U. of a ruling relating to the appeal filed by Mivisa Envases, S.A. against the first instance sentence of Mercantile Court No. 1 of Murcia, issued in the judicial proceedings initiated by the claim filed by IAN, S.A.U. against Mivisa Envases,

S.A. on the grounds that the company was infringing two of its patents that protect the can-

opening system known commercially as 'Abre-ras'. The appeal judgment overturned the ruling in the first instance and dismissed the initial claim made by IAN, S.A.U. declaring the second patent ES 22256219 null due to lack of originality and inventiveness. Thus, the ruling found that there was no breach on the part of Mivisa Envases, S.L. and no compensation is due. IAN, S.A.U. filed an extraordinary appeal to the Supreme Court for procedural infraction on 22 September 2014. On 3 May 2017, the Supreme Court ruled in favour of Industrias Alimentarias de Navarra, S.A.U. (IANSA) and against Mivisa Envases, S.A. (now Crown Foods España, S.A.) for infringement of a patent that protects the can-opening system known commercially as 'Abre-ras'. As per the contract of sale of Industrias Alimentarias de Navarra, S.A.U., dated 10 March 2015, the compensation resulting from the legal proceedings corresponds to Viscofan, S.A. The enforcement action is ongoing to determine the payment of interest and the date on which Crown Foods España, S.A. effectively ceased the patent infringement. At 31 December Viscofan, S.A. has not collected anything.

Viscofan S.A. filed legal proceedings before the Mercantile Court against Sayer Technologies S.L. for revealing confidential information. The lawsuit is in the evidence phase.

In relation to the regulation of the electricity sector in Spain, Viscofan, S.A. maintained its appeal before the Chamber of the Supreme Court against Royal Decree 413/2014 of 15 July against the ruling of the Directorate General of Energy Policy and Mining on 15 July 2015, which determined the registration of the pre-assigned remuneration of 2,146 MW, requesting the specific remuneration scheme commence from the installation’s startup date, or subsidiarily as of 9 November 2014, (the date upon which this should have been resolved). Currently the procedure is pending voting and ruling.

Viscofan S.A. also filed ratifications for the tax returns or self-assessments on the Electricity Production Value corresponding to 2013, 2014, and 2015, as it considered that it violates different European legal precepts and the Spanish constitution.

On 6 June 2017 Viscofan, S.A. filed a lawsuit against its supplier Talleres Ezma, S.A. for defects in products supplied to Viscofan Uruguay, S.A., which also caused quality problems in its collagen casings, amounting to 443,000 euros. The procedure is in the evidence phase and the result is uncertain, although due to the partial acknowledgement of the damages presented by Talleres Ezma, S.A. in its reply, Viscofan, S.A. expects that it will consider its claim and recover part thereof.

18. Trade creditors, other accounts payable and payables to public authorities.

18.1. Trade and other payables

The breakdown of "Trade and other payables" is as follows:

Thousands of euros
  2017 2016
Suppliers 28,445 26,039
Amounts owed for services received and other payables 27,474 23,689
Customer advances 2,663 3,799
Remuneration pending payments 13,287 11,913
Balance at December 31, 71,869 65,440

A breakdown by currency is as follows:

Thousands of euros
  Euros US dollars Czeck crown Brazilian real Mexican peso Chinese yuan Others Total carrying amount
2017 35,919 18,028 2,138 4,072 3,368 3,954 4,390 71,869
2016 31,389 18,456 2,142 4,205 3,451 2,212 3,585 65,440

18.2. Payable to public administrations

The breakdown of this heading is as follows:

Thousands of euros
  2017 2016
VAT payable to Treasury 1,299 2,250
Amounts payable to the Treasury for withholdings 6,147 5,416
Payable to social security agencies 2,276 1,781
Other public bodies 1,063 709
Balance at December 31, 10,785 10,156

A breakdown by currency is as follows:

Thousands of euros
  Euros US dollars Czeck crown Brazilian real Mexican peso Chinese yuan Others Total carrying amount
2017 7,495 91 480 631 790 848 450 10,785
2016 6,906 8 432 - 2,032 525 253 10,156

18.3. Information on late payments to suppliers in Spain in commercial transactions

In accordance with the Third transitory provision "Disclosure requirements" of Law 15/2010 dated 5 July, information the average payment period to Spanish Group suppliers to the Spanish entities included in the consolidated group follows:

Days
  2017 2016
Average supplier payment period 25.96 33.57
Ratio of transactions paid 25.96 38.15
Ratio of unpaid transactions 25.95 11.98
Thousands of euros
  2017 2016
Total payments made 127,742 129,987
Total unmade payments 10,112 15,430

19. Current and non-current financial liabilities

The breakdown of current and non-current financial liabilities, taking into account discounted contractual maturities at 31 December 2017 and 2016, is as follows:

Thousands of euros
  Up to 3 months 3 months to 1 year 1 to 5 years More than 5 years Carrying amount Fair value
Bank borrowings 2,418 3,768 55,968 6,678 68,832 68,832
Accrued interest payable 206 22 - - 228 228
Finance lease payables 38 119 33 - 190 190
Derivative financial instruments 3 20 1 - 24 24
Other financial liabilities 7,363 5,429 8,617 3,039 24,448 24,448
Total at December 31, 2017 10,028 9,358 64,619 9,717 93,722 93,722
Thousands of euros
  Up to 3 months 3 months to 1 year 1 to 5 years More than 5 years Carrying amount Fair value
Bank borrowings 1,468 9,866 34,287 7,700 53,321 53,321
Accrued interest payable 124 57 - - 181 181
Finance lease payables 55 127 160 - 342 342
Derivative financial instruments 167 2,667 133 - 2,967 2,967
Other financial liabilities 11,571 4,017 9,918 2,669 28,175 28,175
Total at December 31, 2016 13,385 16,734 44,498 10,369 84,986 84,986

All current and non-current financial liabilities are included in Level 2 within the valuation hierarchies: assets and liabilities whose fair value has been determined with technical valuation techniques that use hypotheses observable in the market.

As can be seen in the previous table, the carrying amount of financial liabilities agrees with the fair value as the long-term debt corresponds to financing obtained in recent years under similar conditions to those currently obtainable in the market.

The classification was determined based on actual maturities of balances drawn down from credit lines.

Thus, the balance drawn down from credit lines whose annual renewal has already been agreed upon subsequent to year end are included in the 3-month period.

Financial liabilities for bank borrowings bearing interest at floating rates are referenced to Euribor or Libor plus an average spread of 0.744 percentage points (0.65 percentage points in 2016).

The average interest rate on financial liabilities for bank borrowings in 2017 is 1.067% (1.546% in 2016). As of 31 December 2017, all Libor loans are written off.

"Other financial liabilities" at 31 December 2017, both current and non-current, mainly includes:

  • A loan from the parent amounting to 3,333 thousand euros. The nominal amount received from COFIDES (Compañía Española de Financiación del Desarrollo) totalled 5,000 thousand euros. It accrues interest at market rates.
  • Loans with interest rates sponsored by entities such as the CTDI and the Ministry of Economy and Competitiveness amounting to 10,211 thousand euros.
  • Non-current assets suppliers, amounting to 8,079 thousand

31 December 2016 mainly includes:

  • A loan from the parent amounting to 4,167 thousand euros. The nominal amount received from COFIDES (Compañía Española de Financiación del Desarrollo) totalled 5,000 thousand euros. It accrues interest at market rates.
  • Loans with interest rates subsidised by entities such as the Government of Navarre, CDTI (Centre for Industrial Technological Development), and the Ministry of Economy and Competitiveness, amounting to 7,973 thousand euros.
  • Non-current assets suppliers, amounting to 11,631 thousand euros.

The Group recognizes the implicit interest on these loans using market interest rates.

A breakdown by currency is as follows:

Thousands of euros
  Euros US dollars Czeck crown Brazilian real Mexican peso Chinese yuan Others Total carrying amount
2017 80,371 10,091 1,393 - 21 - 1,846 93,722
2016 60,794 16,781 2,107 1,283 1,394 - 2,626 84,985

The limits, the amount drawn down, and the drawable amount under credit and discount lines, as well as customer invoice advances at December 31 are as follows:

Thousands of euros
  2017 2016
Limit 112,009 118,915
Amount draw down 2,993 2,671
Drawable amount 109,016 116,244

The undiscounted value of financial liabilities classified by maturity at 31 December 2017 and 2016 is as follows:

Thousands of euros
  Less than 1 year From 1 to 2 years From 2 to 3 years From 3 to 4 years From 4 to 5 years More than 5 years Total
Borrowings - debt principal 6,186 22,690 11,440 11,440 10,398 6,678 68,832
Interest 820 684 368 229 108 39 2,248
Financial liabilities - borrowings 7,006 23,374 11,808 11,669 10,506 6,717 71,080
Debt principal 12,948 2,966 2,031 2,302 1,351 3,039 24,637
Interest 72 52 37 21 9 11 202
Other financial liablities 13,020 3,018 2,068 2,323 1,360 3,050 24,839
Total at December 31, 2017 20,026 26,392 13,876 13,992 11,866 9,767 95,919
Thousands of euros
  Less than 1 year From 1 to 2 years From 2 to 3 years From 3 to 4 years From 4 to 5 years More than 5 years Total
Borrowings - debt principal 11,334 4,522 17,422 6,172 6,171 7,700 53,321
Interest 1,333 1,050 937 501 347 193 4,361
Financial liabilities - borrowings 12,667 5,572 18,359 6,673 6,518 7,893 57,682
Debt principal 15,769 3,043 3,070 1,907 2,058 2,669 28,516
Interest 713 319 243 166 118 67 1,626
Other financial liablities 16,482 3,362 3,313 2,073 2,176 2,736 30,142
Total at December 31, 2016 29,149 8,934 21,672 8,746 8,694 10,629 87,824

At 31 December 2017, the Group had reverse factoring facilities with a joint limit of 5,600 thousand euros (3,100 as at 31 December 2016), as well as multi-risk policies totalling 8,000 thousand euros, as in December 2016.

20. Derivatives

The breakdown of balances which include the values of derivatives at 31 December 2017 and 2016 is as follows:

Thousands of euros
  2017 2016
  Financial assets Financial liabilities Financial assets Financial liabilities
Exchange rate insurance 4 1 - 133
Raw materials hedges 318 - 2,798 -
L.T. Derivatives 322 1 2,798 133
Exchange rate insurance 1,004 23 - 2,828
Interest rate hedges - - 2 7
Raw materials hedges 1,763 - 1,439 -
S.T. Derivatives 2,767 23 1,441 2,835
Total 3,089 24 4,239 2,968

20.1. Raw material hedges

A significant amount of the Group's production costs is linked to energy costs. For this reason, and in order to mitigate the negative effect that variations in energy prices could have on energy prices, in 2016 the parent entered into hedging contracts on the cost of gas for a total of 1,200,000 MWh, covering gas purchases for the period from February 2016 to January 2019, the contracted prices of which range from 1.65 to 2.00 euro cents per kilowatt hour. The amount contracted in 2016 and earlier, for the year 2017, amounts to a total of 575,000 MWh. These contracts were arranged based on the parent's hedging policies, which cover up to 80% of the foreseen gas consumption.

The valuation formula used included, among other variables, Brent forward prices; and there are no significant inefficiencies.

20.2. Exchange rate insurance

Part of the fair value of the exchange rate insurances at year end was recognised as income or expense on the consolidated income statements for 2017 and 2016. The amount recognised directly in the consolidated income statements relates to exchange rate insurances designated as hedges to cover amounts payable or receivable recognised in the consolidated statements of financial position at the exchange rate at year end. No significant inefficiencies were noted in 2017 and 2016 in any derivative financial instruments contracted.

The Viscofan Group uses derivatives to hedge exchange rates in order to mitigate the possible adverse effects that exchange rate fluctuations might have on transactions in currencies other than the functional currency of certain Group companies.

The nominal value of the main exchange rate insurances in effect at 31 December 2017 and 2016, is as follows:

Thousands of euros
  2017 2016
US dollar 51,700 71,200
Pounds sterling 6,600 7,450
Canadian dollar 600 400

20.3. Interest rate hedges

At 31 December 2017 the Group did not have any interest rate swaps. These were 3,200 thousand euros at December 2016, entered into in 3 contracts under which the Group received variable interest rates linked to EURIBOR and LIBOR and in exchange paid fixed interest rates of 1.56% (600 thousand euros for notional amounts), 1.69% (600 thousand euros for notional amounts), and 2,000 euros (600 thousand euros for notional amounts).

21. Income tax

The breakdown for deferred tax assets and liabilities, by type, is as follows:

Thousands of euros
  Activos Pasivos Neto
  2017 2016 2017 2016 2017 2016
Non-current assets 4,818 2,536 17,069 19,590 (12,251) (17,054)
Current assets 7,447 7,228 2,047 1,635 5,400 5,593
Non-current liabilities 4,285 4,508 340 99 3,945 4,409
Current liabilities 922 2,057 1,058 1,487 (136) 570
Total at December 31, 17,472 16,329 20,514 22,811 (3,042) (6,482)

Deferred tax assets, on current assets, are mainly due to the effect on tax of the elimination of the margin in inventory acquired between Group companies, as well as provisions on inventories that are not tax- deductible in some countries. With respect to the deferred tax asset from non-current assets, this relates mainly to the activation of tax credits for tax losses in Belgium. In addition, deferred tax assets arising from current and non-current tax liabilities relate mainly to provisions at different Group companies that will be used for tax purposes when applied. A large number of the provisions described in Note 17 have led to adjustments in the tax assessment basis in the different countries.

Deferred tax liabilities arising from non-current assets for the years ended 31 December 2017 and 2016, mainly relate to the application of different amortisation rates by certain Group subsidiaries (mostly in the USA) than those used for tax purposes. Also included is the tax effect of net unrealised gains on PP&E items acquired in different business combinations (Germany and Serbia).

The breakdown of changes during the year in recognised deferred tax assets and liabilities arising from temporary differences recognised as income tax expense/(income) on the consolidated statement of recognised income and expense and as “Other income and expenses” on the consolidated comprehensive income statement is as follows:

Thousands of euros
  2017 2016
Non-current assets (5,628) (1,673)
Current assets (63) 529
Non-current liabilities 319 959
Current liabilities 1,205 (1,132)
Consolidated income statement (4,167) (1,317)
Non-current assets 825 1,839
Current assets 256 752
Non-current liabilities 145 (1,965)
Current liabilities (499) (750)
"Other comprehensive income" on the consolidated statements of comprehensive income 727 (124)
Total changes in taxes and deferred tax liablities (3,440) (1,441)

The breakdown of deferred taxes charged directly against “Other comprehensive income" on the consolidated income statement is as follows:

Thousands of euros
  2017 2016
Actuarial gains/(losses) on pension plans    
Germany 217 (768)
Other countries - (44)
Unrealized gains/(losses) on cash flow hedges (256) 2,063
Changes due to translation differences 766 (1,375)
Charged directly against "Other comprehensive income" on the consolidated income statement 727 (124)

The major components of income tax expense for the years ended 31 December 2017 and 2016, are as follows:

Thousands of euros
  2017 2016
Income tax expense for the year 28,051 31,573
Adjustment to income tax from prior years (546) (12)
Current income tax 27,505 31,561
Origination and reversal of temporaty differences (4,167) (1,317)
Deffered income tax (4,167) (1,317)
Tax on income expense 23,338 30,244

A reconciliation between tax expense/(income) on continued operations and the product of profit before tax multiplied by the tax rate prevailing in Spain on 31 December, is as follows:

Thousands of euros
  2017 2016
Profit before tax for the year 145,357 155,255
28% tax rate 40,700 43,471
Effect of application of tax rates in each country (5,813) (5,169)
Deductions generated (9,056) (6,399)
Adjustment to income tax from prior years (546) (12)
Change rate impact in USA (2017) and SPAIN (2016) (732) (28)
Impact of permanent differences (1,215) (1,619)
Tax on income expense 23,338 30,244

During 2016 the Chinese subsidiary Viscofan Technology (Souzhou) Co. Ltd.'s rating was again deemed as "High Tech" for 3 years and therefore its tax rate dropped from 25% to 15%.

Viscofan CZ, s.r.o. obtained investment incentives from the Czech Republic's Ministry of Industry and Commerce which will materialize in deductions in upcoming years. The maximum amount of the deduction is 3.65 million Czech crowns corresponding to investments of up to 16.23 million Czech crowns over the next 9 years. The deduction to be applied each year may not cause the effective corporation tax expense to be less than that from the two preceding years. In 2017 no deductions were applied because the aforementioned requirement was not met (0.73 million euros in 2016). At December 31, incentives pending application in upcoming years amounted to 1.75 million euros.

Koteks Viscofan, d.o.o. may avail itself of a tax incentive which would reduce the corporate income tax quota 83% in tax returns presented until 2021 thanks to investments and the creation of jobs in the Serbian Republic.

In addition, Uruguay's Ministry of Economy and Finance approved in 2012 the exemption from corporation tax for an amount related to the eligible investment, which will be applicable for a period of 25 years. The exemption may not exceed a maximum percentage of net tax revenue (90% in the first half of the 25- year period and thereafter will fall to 10%).

Income tax payable from continued operations was calculated as follows:

Thousands of euros
  2017 2016
Current tax 28,051 31,573
Withholdings and payments on account (25,368) (28,498)
Total at December 31, 2,683 3,075

This amount is broken down in the consolidated statement of financial position as follows:

Thousands of euros
  2017 2016
Tax assets receivable 3,834 3,449
Tax liabilities payable (6,517) (6,524)
Total at December 31, (2,683) (3,075)

In accordance with current legislation, taxes cannot be considered definitive until they have been inspected by the tax authorities or the inspection period of four years has elapsed. At 31 December 2017, the parent and subsidiaries in Spain are open to inspection of all applicable taxes to which they are liable and for which the corresponding inspection periods have yet to expire. The situation of foreign companies depends on the legislation prevailing in each country.

Due to the different possible interpretations of prevailing legislation, additional liabilities could be identified in the event of inspection. Nonetheless, parent management considers that any additional liabilities that might arise would not have a significant impact on these consolidated financial statements.

22. Risk management

Risk management is controlled by the Group, in keeping with policies approved by the Board of Directors. The risk control system is described in section E. Risk management and control systems of the Annual Corporate Governance Report from the parent company, listing those that might affect the achievement of objectives, their materiality in 2016, and response and supervision plans. We will now focus on the financial risks described below.

The Group's activities are exposed to various financial risks: foreign currency, credit, liquidity and interest rate risk in cash flows and fair value. The Group’s global risk management program focuses on the uncertainty of financial markets and aims to minimize the potential adverse effects on the Group’s profitability. Certain risks are hedged by derivative instruments.

22.1. Exchange rate risk

As the Group operates internationally, it is exposed to variations in exchange rates, particularly the US Dollar. The exchange rate risk arises from future commercial transactions, recognised assets and liabilities and net investments abroad.

The risk management policy of the Group is to cover the net balance between collections and payments in currencies other than the functional currency with the most net risk. Therefore, forward currency contracts were formalised at the time the yearly budget was prepared; EBITDA forecasts were used as the basis for the following year, the degree of exposure, and the degree of risk the Group is willing to assume.

The following table shows the sensitivity of a possible exchange rate variation on net results for the year arising from certain currencies in the countries in which the Group carries out its activities, while maintaining the other variables constant:

Thousands of euros
  2017 2016
  + 5% - 5% + 5% - 5%
US dollar 5,631 (5,094) 3,331 (3,013)
Czech Crown (1,522) 1,378 (878) 795
Brazilian Real 696 (630) 808 (730)
Chinese Yuan Renmimbi 1,016 (920) 1,761 (1,592)

The following table shows the impact on consolidated equity of changes in the exchange rates of certain currencies of countries where the Group conducts business:

Thousands of euros
  2017 2016
  + 5% - 5% + 5% - 5%
US dollar 7,031 (6,360) 6,453 (5,838)
Czech Crown 2,562 (2,317) 2,117 (1,915)
Brazilian Real 4,926 (4,456) 5,455 (4,935)
Chinese Yuan Renmimbi 3,048 (2,757) 5,033 (4,553)

22.2. Credit risk

The Viscofan Group’s main financial assets are cash balances, trade and other receivables, and investments, which represent the Group’s maximum exposure to credit risk.

The Group's credit risk relates mainly to trade receivables. Amounts reflected on the consolidated balance sheet, net insolvency provisions, estimated based on experiences gleaned from prior years, age, and valuation in the current economic environment. This would be the maximum amount of exposure to this type of risk.

There is no significant concentration of credit risk within the Group; its exposure is spread among a large number of counterparties and customers. No clients or associated group companies represented sales and amounts receivable higher than 10% of total risk.

The Group has a credit policy, with exposure risk managed as part of its normal course of business. Credit evaluation of clients is performed in all cases where amounts exceed a set limit. It is habitual practice of Group companies to partially cover non-payment risk through contracting loan guarantee and sureties covering approximately 90% of each client’s debt. For countries at risk, coverage is reduced to 80%. In Countries without insurance coverage, guarantees such as advances and deposits on account are mandatory.

Credit risk arising from liquid funds and derivative financial instruments is limited due to the fact that counterparties are banking institutions with high credit ratings assigned by international agencies.

The Directors consider that during 2017, there were no significant assets which might be impaired as concerns their net realisable value.

22.3. Liquidity risk

The Group has a prudent policy to cover its liquidity risks which is focused on having sufficient cash and marketable securities as well as the ability to draw down sufficient financing through its existing borrowing facilities to settle the market positions of its short-term investments. Given the dynamic nature of its underlying business, the Group aims to be flexible with regard to financing through drawdowns on its contracted credit lines.

The Group adequately monitors each month expected collections and payments to be made in the coming months and analyses any deviations from expected cash flows in the previous month to identify any possible deviations which might affect liquidity.

The following ratios show the level of liquidity at 31 December 2017 and 2016:

Thousands of euros
  2017 2016
Current asstes 445,091 453,537
Current liabilities (113,556) (118,917)
Working capital 331,535 334,620
Current liabilities 113,556 118,917
% working capital/current liabilities 291.96% 281.39%
Cash and cash equivalents 28,143 45,054
Available borrowing facilities (Note 19) 109,016 116,244
Cash and available on credit and discount lines 137,159 161,298
% cash and cash equivalents+available on credit and discount lines/Current liabilities 120.79% 135.64%

The amounts available on credit and discount lines do not include confirming lines or multi-risk policies which are described in Note 19.

Certain of the Group’s non-current loans must meet a series of ratios calculated based on its consolidated financial statements. Lack of compliance represents an increase in finance costs and, depending on the case, represents the early termination of a contract. As of 31 December 2017 and 2016, all the main ratios have been satisfactorily met and neither Viscofan, S. A. nor any of its material subsidiaries were in breach of their financial commitments or any kinds of obligation that could trigger their early redemption.

In 2017 and 2016 there were no defaults or other noncompliance of the principal, interest, or repayments of debts with credit entities. No defaults are foreseen for 2018.

22.4. Interest rate risks in cash flows and fair value

The Group manages interest rate risk by maintaining a balanced portfolio of fixed and floating rate loans and credits. The Group's policy is to hold between 50% and 85% of its loans at a fixed interest rate. To manage it, the Group receives fixed-interest loans. At 31 December 2017, approximately 81% of the Group's loans are remunerated at a fixed interest rate (2016: 70 %).

The Group does not own significant remunerated assets.

At 31 December 2017 and 2016 the structure of financial liabilities subject to interest rate risk once hedges through the derivatives arranged have been taken into account is as follows:

Thousands of euros
  2017 2016
Bank borrowings 69,250 53,844
Other financiasl debt 16,369 16,544
Financial debt total 85,619 70,388
Fixed interest rate (*) 69,708 49,127
Variable interest rate 15,911 21,261
(*) Granted loans included  

In 2017 and 2016, the floating interest rates on loans are linked to Euribor and Libor dollar.

The Group is likewise exposed to changes in the interest rates used to calculate the pension plan obligations in US and Germany (Note 17.1).

The following table shows the sensitivity of profit (loss) for the year to a possible 1% variation in discount and/or interest rates:

Thousands of euros
  2017 2016
  + 1% - 1% + 1% - 1%
Pension plans commitments        
Germany (164) 176 (166) 160
Plans in other countries (21) 22 (19) 18
Financial debt        
Euribor (171) 169 (277) 278
Libor (16) 16 (34) 25

22.5. Fuel price risk (gas and other oil derivatives)

The Viscofan Group is exposed to variations in Brent prices, which is the main indicator affecting the price of gas and other fuels used in processing its casings.

The Group policy is to set the prices for main fuels through the arrangement of year-long contracts with suppliers, or by using hedging policies (Note 20.1). It thus attempts to mitigate the impact of Brent variations on the consolidated income statement.

The following table reflects the sensitivity to a possible Brent price fluctuation on 10% of operating results.

Thousands of euros
  2017 2016
+ 10% 2,614 1,689
- 10% (2,625) (1,690)

23. Transactions and balances with related partied

The operations with directors and members of senior management are detailed in Note 24. No material transactions have been carried out with the Company or its group of companies that were outside the ordinary course of business of the company or were not carried out under normal market conditions.

Financial debt includes a 2.50 million euro loan (2016: 3,75 million euros) granted in 2013 by a financial entity linked to Corporación Financiera Alba, S.A., which owns 11.32% of the Company's shares at year- end 2017 (2016: 11.02%). Payments made, including financial expenses, totalled 1,300 thousand euros (2016: 1.328 thousand euros). During 2017 and 2016, no additional services were provided by companies related to the shareholder: All transactions take place in normal market conditions.

24. Information on the Board of Directors of the Parent and Key Group Personnel

Directors compensation is outlined in Article 27 ter of the bylaws and remuneration policies approved by the shareholders during their general meeting.

The breakdown for Board remuneration in 2017 and 2016 is as follows:

Thousands of euros
  Salaries Fixed remuneration Allowances Variable short-term remuneration Remuneration: seniority and commission Total
Mr. José Domingo de Ampuero y Osma 362 350 - 147 - 859
Mr. Nestor Basterra Larroudé - 330 33 - 100 463
Ms. Agatha Echevarría Canales - 255 33 - 100 388
Mr. José Antonio Canales García 357 - - 285 - 642
Mr. Alejandro Legarda Zaragüeta - 80 30 - 30 140
Mr. Ignacio Marco-Gardoqui Ibáñez - 80 30 - 65 175
Mr. José María Aldecoa Sagastasoloa - 80 33 - 30 143
Mr. Jaime Real de Asúa y Arteche - 80 33 - 30 143
Mr. Juan March de la Lastra - 80 33 - 20 133
Mr. Santiago Domecq Bohórquez - 80 33 - 30 143
Total 2017 719 1,415 258 432 405 3,229
Thousands of euros
  Salaries Fixed remuneration Allowances Variable short-term remuneration Remuneration: seniority and commission Total
Mr. José Domingo de Ampuero y Osma 354 350 - 104 - 808
Mr. Nestor Basterra Larroudé - 330 33 - 100 463
Ms. Agatha Echevarría Canales - 255 33 - 100 388
Mr. José Antonio Canales García 342 - - 205 - 547
Mr. Alejandro Legarda Zaragüeta - 80 33 - 35 148
Mr. Ignacio Marco-Gardoqui Ibáñez - 80 33 - 63 176
Mr. José María Aldecoa Sagastasoloa - 80 33 - 30 143
Mr. Jaime Real de Asúa y Arteche - 80 33 - 27 140
Mr. Juan March de la Lastra - 80 30 - 20 130
Mr. Santiago Domecq Bohórquez - 51 21 - 20 92
Ms. Laura González Molero - 29 12 - - 41
Total 2016 696 1,415 261 309 395 3,076

Remuneration paid to Ms. Laura González Molero correspond till the month of April, when she stepped down as member of the parent's Board of Directors, in accordance with the decision made during the General Shareholders’ Meeting held on 21 April 2016.

During the same meeting, Mr. Santiago Domecq Bohórquez was appointed Propriety Director in representation of Angustias y Sol, S.L.

The two Executive directors, José Domingo de Ampuero y Osma and José Antonio Canales García earned a variable compensation totalling 432 thousand euros (2016: 309 thousand euros). This was calculated based on EBIDTA, net profit, sales, and share price values which were determined in accordance with the annual plan as well as personal performance.

At 31 December 2017 and 2016, no advances or loans had been granted to the Viscofan Group, nor did the Group have any pension commitments or other non-current savings plans. Likewise, no type of guarantee was granted on behalf of any present or former members of the Board of Directors, related individuals or entities. In addition, no remuneration was based on shares or share options.

During 2017, amounts were paid for insurance premiums covering the civil liability of its directors for damage caused by acts or omissions in their position amounting to 50 thousand euros (51 thousand euros in 2016).

In 2017 and 2016 the members of the Board of Directors and related individuals or entities did not perform any transactions with the Company or with Group companies other than in the ordinary course of business or on terms other than on an arms' length basis.

Viscofan's directors have communicated that insofar as article 229 of the Capital Companies Law is concerned they do not have any conflicts of interest with the Company.

In 2017, all the Group companies had no legal person administrators in any companies

The Viscofan Group has contracts with its two executive directors which include golden parachute clauses. The cancellation of these contracts in certain objective terms not attributable to these board members will entitle them to an indemnification. The average total indemnity payable is two the annual salary, and includes a non-competition condition.

The breakdown of parties holding executive positions during 2017 follows:

Name Position Company
Mr. Andrés Díaz Chief Operations Officer Viscofan Group
Mr. Armando Ares (*) Chief IR & Corporate Communications Officer Viscofan Group
Mr. César Arraiza Chief Financial Officer & IT Viscofan Group
Ms. Elena Ciordia (*) Chief Legal Officer Viscofan Group
Mr. Gabriel Larrea Chief Commercial Officer Viscofan Group
Mr. José Angel Arrarás R&D and Quality Officer Viscofan Group
Mr. José Ignacio Recalde Chief Technology & Diversification Officer Viscofan Group
Mr. Juan José Rota (*) Chief Human Resources Officer Viscofan Group
Mr. Oscar Ponz Chief Plastic Business Unit Officer Viscofan Group
Mr. Ricardo Royo Chief Europe Business Officer Viscofan Group
Ms. Belén Aldaz (*) Human Resources Manager Viscofan, S.A.
Mr. Jesús Calavia (*) Industrial Manager Viscofan, S.A.
Ms. Mary Carmen Peña (*) Financial Manager Viscofan, S.A.
Mr. Miloslav Kamis General Manager Gamex CB s.r.o, Viscofan CZ, s.r.o.
Mr. Iñigo Martinez General Manager Koteks Viscofan d.o.o.
Mr. Bertram Trauth General Manager Naturin Viscofan GmbH
Mr. Eduardo Aguiñaga General Manager Viscofan de México S.R.L. De C.V,
Mr. Luis Bertoli General Manager Viscofan do Brasil, soc. com. e ind. Ltda.
Mr. Juan Negri General Manager Viscofan Technology (Suzhou) Co. Ltd.
Mr. Angel Maestro General Manager Viscofan Uruguay, S.A.
Mr. Domingo González General Manager Viscofan USA Inc.

(*) Incorporated in 2017 as senior management to develop and maintain an effective and efficient management system within the strategic design of the organisation.

In 2017, remuneration received by key management personnel totalled 4,161 thousand euros, and does not include any additional payment for pluri-annual complements. During 2016, remuneration amounted to 2,595 thousand euros and did not include any additional payments for multiannual allowances. This amount does not include the abovementioned payments made to José Antonio Canales García and José Domingo de Ampuero y Osma, which is reflected further on.

25. Environmental information

The cost of items related to the Group’s environmental projects acquired during 2017 was 51,141 thousand euros (2016: 34,837 thousand euros), with an accumulated amortisation of 28,434 thousand euros (2016: 21,848 thousand euros).

In accordance with the 2013-2020 National Emission Allowance Assignment Plan, and after applying the inter-sectoral adjustment factors outlined in Appendix II to EU Decision 2013/448/EU to non-electricity generators, and the annual 1.74% annual reduction in electricity generators, in accordance with Articles 8 and 9 bis of EC Directive 2003/87/EC, the Group was  assigned emission allowances  equivalent to 356.915 tones.

The emission rights consumed by the Company during 2017 and 2016 amounted to 250,324 and 240,356 tonnes, respectively.

In 2017,  the Group incurred in  environmental protection and  improvement costs amounting to 3,797 thousand euros. In 2016 this amount totalled 3,598 thousand euros.

The Group arranged civil liability insurance coverage for damages to third parties caused by accidental and unintentional contamination; the insurance coverage refers to any possible risk involved and to date no significant claims in environmental matters have been filed.

The parent's directors do not deem it necessary to make any provisions to cover environmental contingencies and expenses.

26. Audit fees

The auditors of the Group's consolidated Financial Statements, PricewaterhouseCoopers Auditores, S.L. in 2017, and other related companies as defined in the fourteenth additional disposition of legislation governing the reform of the financial system have accrued fees for professional services for the year ended 31 December 2017 as follows:

Thousands of euros
  In the parent's Company In other companies Total
PwC Auditores, S.L. 84 76 160
PwC Network - 405 405
Audit services 84 481 565
PwC Auditores, S.L. 4 - 4
PwC Network - - -
Other services 4 - 4
Total at December 31, 2017 88 481 569

The financial statements of the parent and the main Group companies for 2016 were audited by Ernst & Young, and earned net fees for professional services as detailed below:

Thousands of euros
  In the parent's Company In other companies Total
Audit services 107 609 716
Other related audit services 23 - 23
Other services 178 26 204
Total at December 31, 2016 308 635 943

Audit services detailed in the above tables include the total fees for services rendered in 2017 and 2016, irrespective of the date of invoice.

27. Subsequent Events

On 15 January 2018, the Court dismissed the appeal filed by Crown Foods España, S.A. against the execution of the Supreme Court ruling for patent infringement and ordered the payment of 8,458 thousand euros corresponding to 15% of the profit obtained from exploiting the patent infringement from 16 July 2006 to 8 January 2013.

As per the contract of sale of Industrias Alimentarias de Navarra, S.A.U., dated 10 March 2015, the result of the litigation is owned by Viscofan S.A. and, therefore, the indemnity corresponds to Viscofan S.A.

The enforcement procedure is in progress with respect to the remaining amounts in dispute.

On 21 February 2018 Transform Pack Inc. was acquired for a value of 2 million US dollars.

In their meeting held on 28 February 2018, the Board of Directors agreed to propose a final dividend payment amounting to 0.92 euros per share on 7 June 2018. Thus, total remuneration for shareholders amounts to 1.55 euros per share, including the interim dividend of 0.62 euros per share paid on 21 December 2017, the abovementioned complementary dividend of 0.92 euros per share, and the per diem payment for attendance at the General Shareholders' Meeting of 0.01 euros per share. This proposal increases total remuneration by 6.9% as compared to the total of 1.45 euros approved for the previous year.

In addition, at the meeting  held on 28 February 2018 the Board of Directors agreed to distribute an extraordinary dividend of €0.13 per share to be paid on 22 March 2018, which corresponds to the contribution to 2018 net profit of the one-off gain from the Supreme Court ruling in the action brought by Industrias Alimentarias de Navarra S.A.U. against Mivisa Envases S.A.U. (now Crown Food España S.A.U.) for the infringement of a patent which, according to the sale contract of Industrias Alimentarias de Navarra, S.A.U., belongs to Viscofan S.A.

There are no significant events in addition to those mentioned above, from the year-end until the date of preparation of these annual accounts

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