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Consolidated Annual Report dst – sgps, s.a. December 31, 2016


Index

A) 1. 2. 3. 4. 5. 6. 7. 8.

CONSOLIDATED MANAGEMENT REPORT TO THE BOARD OF DIRECTORS MACROECONOMICS FRAMEWORK ECONOMIC AND FINANCIAL ANALYSIS MATERIAL EVENTS OCCURRING AFTER THE END OF THE PERIOD FUTURE PERSPECTIVES FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES INFORMATION REQUIRED BY LEGISLATION AUTHORIZED DISCLOSURE DATE FOR ISSUE THE FINANCIAL STATEMENTS FINAL NOTE

3 3 26 49 49 50 50 50 51

B)

ANNEX TO THE BOARD OF DIRECTORS CONSOLIDATED REPORT

52

C)

CONSOLIDATED FINANCIAL INFORMATION

54

CONSOLIDATED BALANCE SHEET CONSOLIDATED INCOME STATEMENT CONSOLIDATED STATEMENT OF EQUITY CHANGES IN 2016 CONSOLIDATED STATEMENT OF EQUITY CHANGES IN 2015 CONSOLIDATED CASH FLOWS STATEMENT ANNEX AT DECEMBER 31, 2016

54 55 56 57 58 59

D)

LEGAL CERTIFICATION OF CONSOLIDATED ACCOUNTS

109

E)

REPORT AND OPINION OF THE SOLE FISCAL AUDITOR

111


Consolidated Annual Report 2016

A)

Consolidated Management Report to the Board of Directors

Dear Shareholders,

In compliance with the legal and statutory regulations, the Board of Directors presents the management report for 2016 fiscal year. As the environment where we operate is directly related to the positive evolution or downturn of the global economy, before presenting the entity’s financial information and its business centers we will do a slight approach to the most important national and international macroeconomic data.

1.

Macroeconomics framework

1.1

International macroeconomic framework

With regard to the international framework, the current outlook points to a gradual pick-up in activity and world trade. Despite this positive development in 2016, in the coming years world economic growth is expected to remain below the levels seen, on average, in the period prior to the financial crisis. In the fourth quarter of 2016, the world economy was more buoyant, boosted by advanced economies, accompanied by an improvement in industrial production in both Japan and the European Union. Among the advanced economies, the Gross Domestic Product (GDP) of the United States of America (USA) accelerated to 1.9% year on year (1.7% in the 3rd quarter), coupled with robust private consumption and recovery of private investment; while that of the United Kingdom remained at 2.2%. For emerging countries, China’s GDP slowed down to 6.7% (the lowest in the last 25 years) and both exports and imports of goods fell to -7.2% and 5.3%, respectively (-2.9% and -14.3% in 2015). In 2016, world trade in goods also accelerated as a result of more dynamic world exports, since world imports decelerated. The strengthening of trade was mainly observed in emerging and developing countries (especially in Asia).

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In the fourth quarter of 2016, the economic sentiment indicator showed a significant recovery for both the European Union (EU) and the euro area (EA), as a result of improved confidence indicators. According to the European Commission’s (EC) preliminary estimate, the GDP of the European Union and the euro area increased to 1.9% and 1.8% year on year in real terms. The quantitative indicators for the euro area for the whole of 2016 indicate a strengthening of economic activity (industrial production, retail sales and exports of goods in nominal terms).

Macroeconomic Indicators

2014

2015

2016(e)

2,4 1,6 1,2 0,3

2,6 2,2 2,0 1,2

1,6 1,9 1,8 1,0

GDP: USA EUROPEAN UNION EUROZONE JAPÃN

Source: GPEARI Finanças Reading: Percentage variationl (e) - estimated

The EU labour market saw a gradual improvement throughout 2016, with a drop in the unemployment rate for both the EU and the EA, standing at 8.2% and 9.6%, respectively, in, December 2016 (9.0% and 10.5% in December 2015). In December 2016, the expectations of euro area entrepreneurs in relation to job creation worsened for the manufacturing, service and retail sectors, but improved for the construction industry. In the US, the unemployment rate dropped to 4.9% (5.3% in 2015), strengthening the trend of the gradual pick-up in employment observed in recent years. In December 2016, the annual rate of inflation of the euro area rose to 1.1%, mainly due to the recovery of energy prices and the acceleration of unprocessed food prices. However, for 2016 as a whole, the annual average inflation rate only increased to 0.2% (0.0% in 2015), reflecting a less marked fall in energy prices, to -5.0%, on average (-6.9% in 2015). The annual rate of inflation of advanced economies and China accelerated at the end of 2016, rising to 1.3% in the US (0.1% in 2015).

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2014

2015

2016(e)

USA EUROPEAN UNION

1,6 0,5

0,1 0,0

1,3 0,3

EUROZONE

0,4

0,0

0,2

JAPÃN

2,8

0,8

-0,1

USA EUROPEAN UNION

6,2 10,3

5,3 9,4

4,9 8,2

EUROZONE

11,6

10,9

9,6

JAPÃM

3,6

3,4

3,1

USA

2,9

0,3

-1,0

EUROPEAN UNION EUROZONE

1,2 0,9

2,2 2,0

1,9 1,7

JAPÃN

2,1

-1,2

-0,9

Macroeconomic Indicators Inflation:

Unemployment rate::

Industrial Production Index:

Source: IMFI/ European Commission/ Eurostat/ GPEARI Finance Reading: Percentage variation (e) - estimated

In average annual terms, the price of oil fell again in 2016 compared to the previous year, prolonging the trend observed since 2013. This downward trend is expected to be halted in 2017, with a projected average oil increase of approximately 15%. In the years ensuing, the growth rate should slow down. At the end of 2016, the spot price of Brent crude oil averaged USD 45/bbl (EUR 42/bbl). However, in the last months of the year, oil prices rose significantly to an average of USD 55/bbl (EUR 52/bbl) in December 2016, reflecting the agreement reached between member and nonmember countries of OPEC (in November 2016) to reduce production by 1.2 million barrels per day from January 2017. In the fourth quarter of 2016, the price of non-energy raw materials accelerated 9.8% year-on-year (1.3% in the third quarter), a trend that extended to all products, with emphasis on metals and industrial inputs. The reduction of the price of oil in an oil-importing economy, such as the Portuguese economy, has a positive impact on GDP growth by reducing production and transport costs and their transmission to consumer prices. The impact on consumer prices reflects both the direct effect of the reduction in the price of oil products and the indirect effect of reducing the cost of producing other goods. In addition, by reducing the price of oil the reduction of inflation has a positive effect on the real disposable income of households and, consequently, on private consumption.

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Despite the direct effect of the oil price reduction described above, there are no negligible effects in this regard, in particular the effect of the fall in the price of this raw material in oil-exporting economies, by significantly reducing revenues associated with the exploitation of this raw material, as is the case of Angola. With oil production as the main source of export and tax revenues, Angola is suffering the impact of the steep decline in this raw material since mid2014. In this context, and due to the strong link between the Portuguese and Angolan market, the sharp contraction in external demand from Angola, which has had a significant impact on Portuguese exports, cannot go unnoticed.

Raw materials

Brent oil USD/Barrel (1) Agricultural goods (2) Metal (2)

2014

2015

2016(e)

99,5 1,9 -10,3

53,6 -13,5 -23,1

45,1 -6,9 -5,4

Source: Ministry of Finance / Bank of Portugal Reading: (1) Barrel average price/USD / (2) Percentage variation (e) - estimated

In December 2016, the euro exchange rate depreciated significantly against the dollar, with the euro standing at USD 1,054 at the end of the year, corresponding to a depreciation of 3.2% in comparison to the end of 2015 (USD 1,089). Throughout 2016, the euro-dollar followed a markedly downward trend, in the context of diverging monetary policies between the two sides of the Atlantic.

Foreign currencies

EUR/USD EUR/JPY EUR/GBP EUR/CHF

2014

1,214 145,23 0,779 1,202

2015

1,089 131,07 0,734 1,084

2016

1,054 123,00 0,856 1,074

Source: Ministry of Finance / Bank of Portugal Reading: Foreign currencies parity at the end of the period

The Council of the European Central Bank (ECB) maintained a set of unconventional monetary policy measures during 2016, with the rate of the main refinancing operations declining to 0,00%. In December 2016, short-term interest rates on the euro money market continued their downward trend, renewing historically low levels, to -0.26% on average for the year 2016. In the US, 3-month interest rates accentuated the upward movement since the beginning of the year, with a yearly average of 0.74%. Thus, at the end of December 2016, 3-, 6- and 12-month Euribor interest rates stood at 0.32%, -0.22% and -0.08%, respectively. In the US, short-term interest rates rose to close to 1.00% at the end of 2016. dst - sgps, s.a.

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Reference interest rates

2014

2015

2016

Eurozone USA

0,05 0,25 0,10

0,05 0,50 0,10

0,00 0,75 -0,10

Japan

0,50

0,50

0,25

2014

2015

2016

0,14 0,02 0,08 0,17 0,33

-0,13 -0,21 -0,13 -0,04 0,06

-0,33 -0,37 -0,32 -0,22 -0,08

0,26

0,61

1,00

0,11

0,08

-0,05

Source: Ministry of Finance / Bank of Portugal Reading: Percentage at the end of the period

Monetary Market interest rates

Eurozone Eonia Euribor 1 month Euribor 3 months Euribor 6 months Euribor 12 months USA Libor 3 months Japan Libor 3 months Source: Ministry of Finance / Bank of Portugal Reading: Percentage, annual average

In December 2016, long-term interest rates rose for both the US and the euro area, albeit more sharply for the former. Investors also penalised some bond markets (Portugal and Italy), resulting in a spread versus Germany, partly due to the fragility of the banking sector of both countries. Concerns about the political situation in Europe led to the widening of intra-euro spreads, particularly in Portugal, Italy and Spain. At the end of 2016, international stock indices took a downturn. The drop in stock prices was influenced by the negative performance of the Chinese stock exchange, the significant decline in the price of oil and some instability in the financial sector.

Stock markets

Dow Jones EURO STOXX Nikkei 225 Standard & Poors 500

2014

2015

2016

13,1 14,2 17,5

11,8 23,9 6,8

-9,7 -11,7 1,5

Source: European Central Bank

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Despite the emergence of new positive factors in 2016, namely low energy prices, the uncertainty associated with the global economic outlook remains high and the intensification of downside risks are related to geopolitical tensions, the reappearance of volatility in financial and foreign exchange markets in the context of diverging monetary policies among major economies and the incomplete implementation of structural reforms. Moreover, a prolonged period of very low inflation, or even deflation, will be equally detrimental both to the prospects of world growth, and in particular to European growth, and to the persistence of excessive public and private indebtedness. In this context, the uncertainty surrounding economic policy guidelines in the United States, as well as the development of the UK's relations with the European Union and a possible weaker recovery of emerging market economies generate risks of possibly less buoyant developments in economic activity and trade flows on a global level. In terms of financial markets, the possibility of renewed tensions cannot be excluded and there is some uncertainty about the configuration of the ECB’s non-conventional monetary policy. In addition, the vulnerable situation of the banking system or the fiscal position in some euro area countries may lead to an increase in sovereign debt interest rates. These factors could lead to an increase in the financing costs of the European economy, with an impact on private consumption and investment.

1.2

National macroeconomic framework

In 2016, the Portuguese economy maintained the path of moderate recovery that has characterised the past few years. This moderate growth translates into an average annual GDP growth rate of 1.2% in 2016, with GDP expected to accelerate to 1.4% in 2017 and stabilise its growth rate by 1.5% in the two years ensuing. In the coming years, GDP growth should be close to that projected by the ECB for the euro area, but it will not be able to reverse the negative spread accumulated between 2010 and 2013. This lack of real convergence vis-Ă -vis the euro area reflects the persistence of structural constraints to the growth of the Portuguese economy, with emphasis on the high levels of indebtedness of the public and private sectors, unfavourable demographic trends and the persistence of inefficiency in the labour and product markets, which require the continuation of the process of structural reforms. After a very dynamic growth of exports of goods and services in 2015 (6.1%), in 2016 the growth rate decelerated to 3.7%. This slowdown, which should not prevent a new gain in market shares, reflects both the deceleration of external demand and some temporary factors, such as the reduction in production in industrial units in the automotive and energy sectors. In addition, in 2016 exports continued to reflect unfavourable sales behaviour for some non-EU markets, most notably Angola. Current projections point to a dissipation of these factors in 2017 and an acceleration of external demand, contributing to the return of more dynamic growth of exports.

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Portuguese economic recovery in 2016 thus continued to be sustained by the buoyancy of exports of goods and services, accompanied by a slightly higher growth in domestic demand and a positive evolution of Gross Fixed Capital Formation (GFCF). The external environment of the Portuguese economy should remain favourable, albeit with a downward revision of global trade flows relative to previous periods. In addition, monetary and financial conditions should remain globally accommodative, and the Portuguese economy should maintain the financing capacity vis-Ă -vis the exterior. In turn, the price of energy and non-energy raw materials should reverse the downward trend of recent years. In this globally favourable environment, exports of goods and services should be more dynamic than external demand and will continue to be the component of global demand with the greatest contribution to the growth of activity. The greater buoyancy of the Portuguese economy in the coming years will also be sustained by an acceleration of the GFCF, based on a recovery of business investment. In sectoral terms, at the end of 2016, there was a lower rate of change in the Gross Value Added (GVA) of the main activity sectors compared to 2015, especially in construction and industry. Activity in the services sector, which accounts for 74% of GVA, after a slight deceleration in 2016, should show a moderate acceleration profile in 2017. This sector will continue to benefit from the momentum of exports, in particular tourism, but also of services associated with the export of goods, in line with a greater allocation of productive resources to the sectors most exposed to international competition.

Indicadores MacroeconĂłmicos Expenditure and GDP - Private Consumption - Public Consumption - GFCF - Exports - Imports - GDP at market prices Inflation Industrial Production Index Industrial Turnover Index PSI 20 Index Unemployment rate

2014

2,2 -0,5 2,8 3,9 7,2 0,9 -0,2 1,8 -1,2 -26,8 13,9

2015

2,6 0,8 4,6 6,1 8,2 1,6 0,5 1,2 0,2 10,7 12,4

2016(e)

2,1 1,0 -1,7 3,7 3,5 1,2 0,8 -1,2 6,1 -11,9 11,0

Source: Ministry of Finance / Bank of Portugal Reading: Percentage variation, excepting unemployment rate (e)- Estimatied

Against a background of rising real disposable income, declining unemployment, and with consumer confidence remaining at particularly high levels, in the last quarter of 2016 private consumption was more dynamic and higher than GDP growth in the third quarter. The acceleration of this aggregate in year-on-year terms will have essentially reflected the acceleration of the consumption of non-durable goods. On the other hand, there was a slowdown in the consumption of durable goods for the second consecutive quarter, explained by the deceleration in the purchase of passenger cars.

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On the other hand, the GFCF once again recorded a year-on-year decrease in the last quarter of 2016, down -1.7% compared to a growth of 4.6% in 2015. The evolution of the GFCF throughout the year reflected the decline of the construction component, in line with the evolution of cement sales, conditioned by the sharp drop in public investment. Public investment dropped sharply in 2016, but this component is particularly uncertain given the late entry into force of the budget for this year and taking into account the expenditure profile associated with investment projects co-financed by Community funds. Inflation, as measured by the Harmonized Index of Consumer Prices (HICP), is expected to increase to 0.8% in 2016, compared to 0.5% in 2015. Compared with projections for the euro area, inflation is expected to remain 0.6 pp above the euro area average in 2016. The price increase in 2016 reflects a slight acceleration in service prices and a lower drop in the prices of energy and non-energy industrial goods. The upward trend in inflation is driven by an increase in internal and external inflationary pressures, motivated by the context of growth of the national and global economy, by the positive impact of the monetary policy measures adopted by the ECB, as well as by the incorporation of the technical hypotheses of price increases of raw materials in euro. In addition, there was an improvement in consumer quality indicators. On the other hand, the qualitative indicators of business opinion showed a mixed evolution, with domestic demand for consumer goods improving while the volume of retail sales deteriorated. With regard to the conditions on the labour market, there is also evidence of a favourable trend in employment. Employment growth will occur in the private sector, as public employment is expected to remain relatively stable. These developments in employment, along with the hypothesis of stabilisation of the active population, imply maintaining a downward trend in the unemployment rate, 11.0% at the end of 2016, versus 12.4% in 2015. However, the growth in activity has translated into rather sluggish labour productivity in the recent recovery period. After a slight drop in 2016, annual labour productivity growth is projected to be around 0.5% in the coming years. Despite the moderate recovery of the Portuguese economy since 2013, several structural constraints to economic growth persist, including the high level of indebtedness of the various sectors of the economy – households, nonfinancial corporations and the public sector – unfavourable demographic trends, a high level of long-term unemployment and a pace of recovery of investment short of that observed in previous recoveries. In this context, it is important to continue to deepen the process of structural reforms by increasing incentives for innovation, factor mobility and investment in physical and human capital, thereby creating conditions for a sustained increase in productivity and growth potential of the economy . In addition, in a context of relatively high levels of uncertainty, maintaining a predictable institutional and fiscal framework will contribute to preserving investor confidence and ensuring a favourable investment climate. Finally, pursuing an additional fiscal consolidation effort is crucial if the downward trend of the level of public indebtedness is to be sustained and to remain robust to adverse shocks.

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1.2.1

The construction sector

In a moderate economic recovery, the performance of the construction sector is once again negative. In fact, investment in construction and GVA recorded significant decreases throughout 2016, with a 3.1% fall in the sector’s GVA and a 3.6% drop in GFCF in construction, contrasting with the positive GDP growth of 1.1% in the same period. With the confirmation of this new fall in production in 2016, this will be the 9th consecutive year in which the construction sector did not grow at all. It is estimated that the volume of production in 2016 is less than 45% of production in 2001, when construction peaked. Even so, not all indicators behaved negatively in 2016 when compared to the previous year. With regard to employment, the number of construction workers grew 3.7% year on year, representing an increase of 10 thousand workers on average throughout 2016. On the other hand, the data on transactions involving dwellings confirm the strong momentum that has been characterising the real-estate market, where the number of sales of housing units grew 20% year on year. Estimates point to a total of more than 128 thousand dwellings sold during 2016. Production indicators were very positive, with a 36% increase in the number of new licensed dwellings, +29% in the value of public works promoted and +19% in public works contracts. These increases anticipate a pick-up in the sector in the short term. In turn, the amount of new loans granted for the acquisition of housing amounted to EUR 3.2 billion, a growth of 54% in comparison to the same period of 2015. There were also positive developments in the licensing of new non-residential buildings, with a licensed area of more than 1.6 million m2 during the first eight months of 2016, which translates into a year-on-year increase of 27.5%. The public works market began to show signs of recovery in the last months of 2016, reversing the downward trend witnessed over a long period. The amount of public works contracts put out to tender amounted to EUR 1,756 million, 42% higher than in 2015. This is the best record since 2011 in terms of promotion of public works. In turn, the total volume of contracts awarded and reported in the public works observatory, resulting from public tenders, stood at EUR 718 million in 2016. Despite a 14% growth over the previous year, hiring remains at historically low levels. Contracts entered into as a result of direct awards amounted to EUR 544 million in 2016, 20% higher than in 2015. On the whole, contracts concluded and reported in 2016, which include public tenders, direct awards and other modalities, such as competitions limited by prior qualification, amounted to EUR 1,355 million, 12% more than in 2015. These are the first signs of a potential recovery of the construction activity that the 2017 State budget should help to consolidate due to its direct effects on employment and economic growth. dst - sgps, s.a.

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Consumption of cement in the national territory followed the downward trend in the sector, with a negative change of 4.4% in 2016, conditioned by the sharp drop in public investment in the construction sector. In the State budget for 2017, growth in public investment is once again not foreseen. In a crisis context, this variable is crucial to boost private investment and construction and to kick start the Portuguese economy.

Sector Indicators Concrete sales Building licenses Construction – Works completed: - Buildings - Total - Buildings - Family Housing - Dwellings - Family Housing GFCF (Construction)

2014

2015

2016(e)

-9,5 -5,2

6,9 -3,3

-4,4 2,0

-12,0 -21,2 -24,4 -3,2

-19,2 -21,5 -25,4 4,1

-8,3 -2,8 -2,3 -3,6

Source: Ministry of Finance Percentage variation (e) - estimated

The economic situation in Angola remains unfavourable for the construction sector. Insufficient demand, lack of materials and difficulties in obtaining bank loans were the main constraints. Likewise, the deterioration of sales perspectives, excessive bureaucracy and state regulations have conditioned the activity of Portuguese companies in Angola. The drop in crude oil prices in the period under review has reduced Angolan tax revenues from oil exports, leading the Government to cut public spending, including contracts to the State, thus affecting Portuguese companies oriented towards the Angolan market. Furthermore, construction companies continue to experience delays in payments, a recurrent situation in Angola. The conversion of kwanzas revenues to dollars and their expatriation to Portugal will be a growing problem due to the lack of foreign exchange in the market. Consequently, the Angolan crisis will have a negative impact on the margin of Portuguese companies, as Angola continues to be the largest market for Portuguese construction companies.

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1.2.2

The renewable energy sector

The Climate Conference which took place in 2015 and culminated in the so-called Paris Agreement, valid as from 2020, implies the commitment of all stakeholders in the fight against climate change. The long-term objective of this agreement is to keep global warming below 2°C, as this is the point from which the scientific community believes that the planet will be irreversibly subject to potentially catastrophic effects of climate change In this context, it was also defined that the financing of the measures that need to be taken by developing countries to achieve this objective will be financed by developed countries, in an amount of EUR 100 billion per year. It will be up to each country to voluntarily define its targets for reducing greenhouse gas emissions in order to mitigate the effects of climate change. It became clear that the decarbonisation of the economy is a one-way street, which confirms the commitment made by the group dst some time ago to the Economy of the Environment and, specifically, to the Renewable Energy sector. Agendas such as electric mobility, smart cities and energy storage will be new business opportunities for which the group will be on the lookout, in the sense of continuing to be a benchmark company in the sector. Besides, intent on reducing external energy dependence, increasing energy efficiency and reducing CO 2 emissions, the Government has defined strategic guidelines for the energy sector, approving the National Energy Strategy (ENE 2020), which estimates that by 2020 the external energy dependency will be reduced by 74%. By 2020, renewable energy will therefore have a key role to play, with an installed capacity of 8,500 MW in wind energy, 8,600 MW in hydropower and 1,500 MW in solar energy. In this sense, the renewable energy sector is becoming increasingly important in Portugal. At the end of 2016, total renewable installed capacity reached 13,324 MW, with an annual production based on renewable sources of 32,965 GWh. In 2016, 61.1% of the electricity produced in Portugal was therefore generated by renewable sources, compared to 49.2% in 2015. Worthy of note is the fact that between 7 and 11 May 2016, in a continuous period of 107 hours, electricity consumption in Portugal was fully guaranteed by renewable energy sources. This fact, reported in the media in several countries, was elected by the British newspaper The Guardian as one of the greatest moments of science in 2016. In this context, the Sustainability and Efficiency in the Use of Resources 2014-2020 Operational Program will be a structuring instrument in the development of the activity in the field of energy production based on renewable sources. The main objective is to achieve a path of sustainable growth, supported by a more competitive development model to dst - sgps, s.a.

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mitigate the consumption of natural and energy resources while generating new opportunities for employment and economic development. The fundamental transition to a low carbon economy will have to be supported by the development of energy efficiency and the production of electricity based on renewable sources, topics that are supported by the Operational Program mentioned above. Wind energy In Portugal, the northern and central regions are the ones with the greatest national concentration of wind farms, due to the greater availability of resources. At the end of 2016, wind power installed in Portugal stood at 5,266 MW, with a production of 12,238 GWh. Most of the wind turbines currently in operation were installed in the period between 2005 and 2012. Since 2013, this technology has been responsible for the production of more than 12 TWh. The evolution of this sector will involve the over-equipping of existing parks or the installation of offshore wind farms. Solar energy The publication of Decree-Law No. 153/2014 of 20 October brought about a number of changes to the photovoltaic solar sector through the liberalisation of the market, allowing consumers to produce their own energy. Given the legal framework in force and the advantages associated with the installation of photovoltaic solar power plants, such as production at the place of consumption using a traditionally unused area (roofing), the modularity of the installations and the growing competitiveness of this sector In comparison with the conventional market, namely during the day (corresponding to the peak and flood periods), the photovoltaic solar plant is expected to grow exponentially in terms of installed power. In fact, the current installed capacity (about 463 MW) corresponds to just over 3% of the renewable power installed in Portugal. In this context, the market is expected to grow significantly, as is the associated turnover.

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Hydropower Hydropower is the main source of renewable energy worldwide. It is one of the most attractive renewable energy sources due to its maturity and predictability, as well as its ability to compete economically with other non-renewable energy sources. China is notoriously the largest producer of hydropower in the world, followed by Canada, the United States, Brazil and Russia. In Portugal, the installed capacity is stabilised with a value of approximately 6,835 MW, which corresponds, in an average year, to just over 17% of the electricity consumed in Portugal. In 2007, the hydroelectric sector in Portugal was marked by the launch of the National Program of Dams with High Hydroelectric Potential, currently in execution. This program foresees the execution of the hydroelectric power plants of Padroselos, Daivões, Gouvães, Foz Tua, Pinhosão, Fridão, Girabolhos, Alvito, Almourol and Alto Tâmega. Completion of these projects will result in an increased installed capacity of 1,054 MW. The intention is to reach 7,000 MW of installed capacity by 2020, in accordance with the targets set.

1.2.3

The telecommunications sector

As of the year 2015, the year 2016 marks an important restructuring in the telecommunications sector, both nationally and internationally. In this way, we highlight the following facts and figures that help to characterise the momentum of the sector in the global context:  Although 2016 was not as active as the previous year in the number of mergers and acquisitions, in October the purchase of Time Warner by AT&T was announced, one of the biggest operations in the world in recent years that is estimated to be completed in 2017;  The telecommunications industry continued to grow strongly worldwide in 2016, with a growth of close to 1.5% over the EUR 1.112 billion with which it ended the year 2015. The industry is expected to continue to evolve, revealing an increasing CAGR (Compound Annual Growth Rate) of 2%, reaching EUR 1.195 billion in 2019. This continued growth in the value of the global telecommunications market is directly related to changes in consumption habits in telecommunications and to the increasing use of communication devices;  The number of Internet users in 1995 was 35 million worldwide. Today it is close to 3 billion, which corresponds roughly to 40% of the global population. Another example of the transformation of the sector is the use of mobile services, with more than 7.6 billion connections (belonging to 4.7 billion users). More than 1 billion already have 4G broadband access (technology available in 151 countries worldwide).

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With regard to the European context, the following events are highlighted: 

In January 2016, the European Parliament underlined the importance of private investment in Internet connectivity networks for digital progress as well as a stable and investment-friendly regulatory framework for all stakeholders in all areas, including rural and peripheral regions. Likewise, in June 2016 the European Council called for the guarantee of a very high capacity fixed and wireless broadband connectivity throughout Europe as a prerequisite for future competitiveness and for the reform of the telecommunications regulatory framework with the aim of encouraging substantial investment in networks while promoting effective competition and consumer rights.

During the year 2016, the European Commission was very active in proposing measures to speed up the development of information and communication technologies in the European context. It proposed the creation of a ‘gigabit society’ by 2025, where all European citizens would have access to ultra-broadband services that take advantage of the capabilities of new applications that leverage the digital transformation of society. To this end, it intends to encourage investment in high capacity networks with a new regulatory framework, the European Code of Electronic Communications and a 5G Action Plan;

The acceleration of the decrease in roaming charges was also an important milestone for last year. Vodafone eliminated roaming charges in the European market, anticipating the end of this type of telecommunications tariff scheduled for June 2017, determined by the European Commission.

In the national context, the telecommunications sector was marked by the following events: 

The completion of the acquisition of PT by Altice for a total value of EUR 5,789 billion, of which EUR 4,920 billion was received directly by Oi and the remaining amount (EUR 869 billion) was used to settle PT’s debt. As a result of this transaction, Altice was forced to sell ONI and Cabovisão, which were acquired by the Apax Partners fund;

The launch of new initiatives to increase the country’s fibre optic coverage (PT and Vodafone advertisements);

Heavy investments by operators in the purchase of rights in football. NOS and PT Portugal signed contracts with three of the largest national football clubs. Investment in the television rights of these clubs amounts to around EUR 1.3 billion;

The growing interest of telecommunications operators to acquire media companies. In this sense, Altice’s interest in buying the Media Capital group was widely reported.

With regard to the most relevant operational data, the development of FTTH – Fiber To The Home stands out favourably. The table below shows the number of residential customers in Portugal with high speed networks and services at a fixed location, as well as the number of subscribers in September 2016. dst - sgps, s.a.

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As can be seen from the table below, this ratio has grown considerably. Between the second quarter of 2016 and the third quarter of the same year there was a growth of around 4.2%. This positive variation is even more pronounced when comparing the third quarter of 2016 (3Q16) with the same period in 2015 (increase of 16.1%).

2nd Q16 NUTS II

3rd Q16

Residential

N. of residential customers

customers per 100 households

Variation

Variation

Residential

N. of residential customers

customers per

3rd Q15/

100

2ndQ15

3rd Q15/3rd Q14

households

NORTH

573

42,4

605

44,7

5,5%

19,7%

CENTRE

246

27,2

263

29,1

7,1%

28,3%

LISBON MUNNNICIPALITIES ASSOCIATION

832

71,8

846

73

1,7%

8,7%

ALENTEJO

52

17

59

19,1

12,7%

51,2%

ALGARVE

64

34,6

67

36,5

5,4%

21,5%

AZORES AUTONOMOUS REGION

32

39,2

36

43,9

12,2%

20,9%

51

54,3

53

55,6

2,4%

8,8%

1.850

45

1.929

47.2

4,20%

16,10%

MADEIRA AUTONOMOUS REGION TOTAL Source: IPC - ANACOM

Given the focus of the dst group’s telecommunications companies on the wholesale market, it is important to analyse the evolution of the demand for affordable retail services in their network. According to the indicators published quarterly by the sector regulator (ICP – Anacom), the number of television subscribers (considering not only wireline but also satellite solutions – DTH – Direct to Home) was about 3.6 million at the end of the third quarter of 2016, 44 thousand subscribers more than in the previous quarter. When compared to the same period of the previous year, there was a positive variation of 4.6%, i.e., a further 159 thousand subscribers. The increase in the number of subscribers per technology of the subscription television service in 3Q16 was due to the growth of fiber-supported offers (FTTH/B), which recorded a further 63 thousand subscribers at the end of the quarter. In this period and in the opposite direction, the number of cable TV service subscribers decreased slightly.

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Consolidated Annual Report 2016

Trend in the total number of television services subscribers by technology

Looking at the distribution of subscribers by type of television service, at the end of 3Q16 the cable TV distribution service accounted for 37% of total subscribers, DTH 17%, xDSL 20% and optical fibre (FTTH/B) 27%. In the financial year under analysis and based on 3Q16, the NOS Group had the highest share of pay-TV subscribers with 43.5%, followed by MEO with 39.4% and Vodafone and Cabovisão with 12.2% and 4.7%, respectively. It should be noted that Vodafone was the entity that received the most subscribers in 3Q16. At the end of 3Q16, according to information provided by the Telecommunications Barometer of Marktest-Rede Fixa, about 78.7% of households with pay-TV had more than 80 channels, representing an increase of 6.7 percentage points year on year. On the other hand, access to premium channels decreased in comparison to the previous year, by 1.9 percentage points in relation to the previous quarter (Source: IPC – ANACOM). There was also an increase in the number of Internet access customers at a fixed location. According to data published by ANACOM, there were around 3.32 million physical accesses to the Internet at a fixed location in Portugal in 3Q16. It should also be noted that 6.14 million users used the Internet in mobile broadband.

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Consolidated Annual Report 2016

Developments in the total number of fixed Internet access customers Unlike in 2015, in 2016 the main technology for fixed broadband Internet access was the cable modem, with about 33.1% of total accesses in relation to 3Q16. Next came the Internet access supported by optical fibre (FTTH/B), which increased by 5.3 pp, year on year, the technology that has grown the most. Third is ADSL, which accounts for about 29% of accesses. This technology fell by 5.3 percentage points year on year. The offers supported in LTE at a fixed location are also worthy of note. These offers represent about 7.3% of total accesses, having grown 4.3% in 3Q16 and 28.2% in the last year (Source: IPC – ANACOM). Trend of broadband accesses number (fixed access) 3rd Q16

2n d Q16

3rd Q16

Total accesses of which:

3.072

3.259

Accesses Cable modem

1.052

% of Total fix ed broadband Accesses FTTH/B % of Total fix ed broadband Accesses ADSL % of Total fix ed broadband Accesses LTE at a fixed location % of Total fix ed broadband Others % of Total fix ed broadband

Δ% 3rd Q16/2nd Q16

3rd Q16/3rd Q15

3.322

1,9%

8,1%

1.085

1.100

1,4%

4,6%

34,2%

33,3%

33,1%

774

948

1.014

7,0%

31,0%

25,2%

29,1%

30,5%

1.055

992

964

-2,8%

-8,6%

34,3%

30,4%

29,0%

188

231

241

4,3%

28,2%

6,1%

7,1%

7,3%

107

176

191

9%

79%

3,5%

5,4%

5,7%

So urce: ICP - Anaco m

Unit: Tho usands o f accesses

With regard to fixed broadband customer shares, and as can be seen in the table below, at the end of the third quarter of 2016 MEO’s share of customers stood at 41.7%.

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Consolidated Annual Report 2016

Trend of broadband accesses market share (fixed access) 2015 Operator

3rd Q15

2016 4rd

Q15

1stQ16

2nd Q16

3rd Q16

MEO

45,0%

44,0%

43,1%

42,5%

41,7%

NOS Group

36,0%

36,4%

36,9%

37,0%

37,2%

33,7%

34,10%

34,6%

34,7%

34,9%

NOS Madeira

1,5%

1,5%

1,5%

1,5%

1,5%

NOS Açores

0,7%

0,7%

0,7%

0,7%

0,7%

14,0%

14,8%

15,5%

16,1%

16,7%

4,7%

4,4%

4,3%

4,1%

4,1%

Cabov isão

4,5%

4,3%

4,1%

4,0%

4,0%

ONITELECOM

0,2%

0,2%

0,1%

0,1%

0,1%

0,3%

0,3%

0,2%

0,2%

0,3%

NOS Comunicações

Vodafone Apax Group

Other Services Providers Source: ICP - A naco m

Unit: %

The NOS Group has a 37.2% share of accesses, resulting from the merger of the ZON Group with Optimus in 3Q13. In relation to Vodafone, the growing rate of subscriber penetration per quarter is worth mentioning, reaching a share of 16.7% at the end of 3Q16 (+2.7 percentage points than in 3Q15). In relation to the number of main telephone accesses, there was a positive year-on-year change of 2.3%, with a growth in the number of VoIP/VoB accesses of around 16.1%. This includes FTTH/FTTB accesses, which increased by 28.6%, and cable TV networks (+ 5.5%). At the end of 3Q16, MEO guaranteed a customer share of 47.4% in this segment. The NOS Group is the second largest provider, with a share of 34.2%, followed by Vodafone, with a 14% share. t should also be noted that the NOS Group was the provider that attracted the highest number of subscribers during this period.

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Consolidated Annual Report 2016

Number of accesses of fixed telephone system Variação

Variação

3T16 / 2T16

3T16 / 3T15

4.762

0,6%

2,3%

3T15

2T16

3T16

Acessos Principais Totais

4.655

4.732

Acessos Analógicos

1.840

1.713

1.668

-2,6%

-9,3%

(dos quais) Postos Públicos

22

21

21

-1,3%

-5,2%

Acessos RDIS e Diginet

433

403

393

-2,6%

-9,4%

Básicos

206

182

175

-3,6%

-14,9%

Primários

223

217

215

-1,1%

-3,9%

Fracionados

4

4

2

-41,1%

-39,1%

Outros acessos digitais

1

1

1

-1,4%

-10,4%

GSM / UMTS VoIP / VoB

493

505

509

0,7%

3,2%

1.888

2.111

2.192

3,8%

16,1%

Fo nte: ICP - Anaco m

Unidade: M ilhares de acesso

For the 2017-2018 three-year period, IPC–ANACOM provides a set of strategic priorities that focus on the following points:  Guarantee and protection of citizens’ rights;  Promotion of competition among markets;  Ensuring the efficient management of public resources;  Promotion of institutional and technical cooperation; and  Promotion of internal efficiency and effectiveness.

1.2.4

The real-estate sector

In the year 2016, the activity of the Portuguese real-estate sector continued to improve an important set of indicators that measure developments in demand, production and employment generated. Investment in the promotion of real-estate and data on the sale of real-estate continued to show positive year-on-year changes compared to 2015. In line with economic developments, the housing market remained more dynamic than in the previous two years, when investment incentives and the resumption of housing credit began to have an effect on international and domestic demand. Both markets were active, albeit revealing different behaviours, diversifying the type of product sought and benefiting the central areas of the big cities (Lisbon and Oporto, primarily). According to information provided by APEMIP, the growth of all real-estate transactions in the country was between 20 and 25% in 2016.

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Consolidated Annual Report 2016

In the period from January to September 2016, and in year-on-year terms, the credit granted to individuals for the acquisition of housing saw an increase of around 51%. (Source: Banco de Portugal). Following the growth in transactions and housing loans, in December the average bank valuation of the total country stood at EUR 1,100/m2, a year-on-year increase of 4.8% (Source: INE). Particularly noteworthy in this residential sector were the dynamics in Lisbon and Porto, motivated by the non-habitual resident, Golden Visa and Tourism schemes. In these locations, average demanded values were significantly higher than in the rest of the country, with a 9% growth in Lisbon of around EUR 2,272/m2 (Source: CI SIR data). In residential real-estate, 2016 was another year of excellence for real-estate, with an estimated transaction volume of 1.3 billion. It should be noted that in 2015, the record number of nearly 2 billion was reached. In general the major trends observed in 2015 remained, i.e. a large part of the capital is of foreign origin (USA, France, UK). More than half comes from investment funds and the retail (trade) and office sectors continue to account for much of the traded volume. Still in this segment, yields remained stable throughout the year, standing at 5.25% for offices, 5.25%/5.50% for offices and shopping centres, 6.75% for industrial and 7% for retail parks. Overall, forecasts for 2017 point to continuing high investment volumes above EUR 1 billion.

1.2.5

The ventures sector

The venture capital industry in Portugal is currently in a growth phase. Lack of market liquidity has led to a greater demand for venture capital to boost equity. Furthermore, in 2016 financial instruments were launched under the ‘Portugal 2020’ program, co-financed by the European Structural and Investment Funds (FEEI), to support the financing needs of small and medium-sized enterprises, through the opening of lines to finance venture capital funds. As a result, in 2016 new venture capital companies (SCR) were set up and new venture capital funds (FCR) were created, as well as new management companies. According to Market Security Exchange Commission (Comissão do Mercado de Valores Mobiliários - CMVM), there are currently 87 FCRs and 44 SCRs. Venture capital investments in Portugal have revealed atypical behaviour given the nature of the sector. Instead of taking shareholder risks, operators have opted to make capital inflows through paid supplies, which very much resembles a bank loan. The overall risk of operations is thus substantially reduced, since the return on capital ceases to depend solely on profits from the activity or from the sale of holdings.

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Consolidated Annual Report 2016

In order to step up the sector, the COMPETE operational program, under the Innovation Risk Sharing and Financing Support System (SAFPRI) was of significant importance. In 2016, it continued to support 22 FCRs, which are focused on investing in SMEs in the seed and early stages, as well as in phases of expansion of their activity. In the European scenario, as in Portugal, the funds raised by venture capital have been directed mainly at FCR, with private equity characteristics, specialised in buyout operations, which consist of acquiring a majority stake in the share capital of a company with possible recourse to substantial amounts of debt. Following the transposition of Directive 2011/61/EU and Directive 2013/14/EU of the European Parliament and of the Council of 8 June 2011 and 21 May 2013, respectively, through Law No.18/2015 of 4 March, it is important to highlight the main changes to the regulatory framework for investment in venture capital in Portugal: (i) introduction of regulation on investment in social entrepreneurship and specialised alternative investment; (Ii) possibility for fund management regulation to provide for the division of the fund into several autonomous compartments, represented by one or more categories of investment units, each of which has asset autonomy rules; and (iii) a new and more demanding regime to which large management entities are subject. The outlook for 2017 includes the opening of new venture capital financing lines under the European Horizon 2020 Community program, which provides for EUR 2 billion to be made available for seed or early stage projects, in addition to the Financing Line for Venture Capital Funds opened in 2016 through the tender with reference number IFD-FC&QCFCR-01/16. The FC&QC (Equity Fund) is dedicated to the creation or reinforcement of corporate capitalisation financial instruments, in particular in the start-up, seed and early stages, as well as companies with growth projects, organic or through acquisition, and/or reinforcement of business training for internationalisation and for the development of new products and services or with innovations in processes, products, organisation or marketing, among others. The opening of these lines of financing is expected to increase the sector’s activity in 2017, with the emergence of new venture capital funds and consequent increase in investment operations, thus maintaining the trend observed in 2016.

1.2.6

The environment sector

In Portugal there are 385 management companies, of which 269 operate in the public water supply (excluding around 43 micro entities formed by parish councils or users associations), 266 urban waste water sanitation and 280 entities within municipal waste management activities. Within the sector there is a great variety of realities that can be observed by the different business models adopted and the different scale of financial, economic and technical resources in the management entities.

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Consolidated Annual Report 2016

According to Watchdog of Water and Waste Services (Entidade Reguladora dos Serviços de Águas e Resíduos – ERSAR) (RASARP, 2015), as water supply service accessibility in “high” is concerned, the inter-municipal concessions cover the largest number of municipalities (174) and population (5.1 million inhabitants), also being the model with greatest national coverage, about 71%. Comparing to 2015, there are fewer entities due to the restructure process within the sector which culminated in the merge of inter-municipal concessions. The inter-municipal concessions is the most used model, as far as sanitation in “high” is concerned covering 202 municipalities and 7 million inhabitants covering 74% of the country’s area. Comparing to 2015, and likewise the water supply service accessibility in high, there are fewer entities operating in the sector due to the restructure process within the sector which culminated in the merge of inter-municipal concessions. The Aquapor group is highlighted for the fact that detains one of two municipal concession of sanitation oin “high” granted in the sector

Urban

Management Entities in “High "

Water

Sanitation

Inter-municipal Concessions

5

5

12

Municipal Concessions

1

2

-

State Delegations

1

-

-

State / Municipal Partnerships

1

1

-

Municipal or inter-municipal Companies

1

-

8

Parish/ Users’ Association

-

-

-

Municipalities’ Association

-

1

3

Municipalized or Inter-municipalized Services

1

-

-

Municipal services

1

-

-

TOTAL

11

9

23

waste

Fonte: ERSAR, RASARP, 2015

There are 301 management companies in “low” operating in water supply, distributed by eight State / Municipal Partnerships management models and 257 in waste water sanitation, broken down by 5 management models. Regarding water supply services in "low", municipal services are the management model with greater representation, covering 2.9 million inhabitants, followed by the local authority or inter-municipalized services with 2.3 million inhabitants, followed by the municipal concessions with about 2 million inhabitants and by municipal or companies with 1.8 million inhabitants. At the waste water sanitation in “low” level, municipal services have the highest representation, covering about 3.7 million inhabitants and 191 municipalities, followed by municipal concessions (2.3 million inhabitants, in 20 councils), municipal dst - sgps, s.a.

Page 24 of 111


Consolidated Annual Report 2016

or inter-municipal companies (1.8 million inhabitants in 28 council), municipal or inter-municipalized services (1.7 million inhabitants in 23 councils) and finally the state/municipal partnerships (0.6 million inhabitants in 2 councils). Urban

Management Entities in “Low”

Water

Sanitation

Inter-municipal Concessions

1

-

-

Municipal Concessions

28

23

1

State Delegations

1

-

-

State / Municipal Partnerships

2

2

-

Municipal or Inter-municipal Companies

23

23

17

Parish/ Users’ Association

43

-

-

Municipalities’ Association

-

-

2

Municipalized or Inter-municipalized Services

20

18

7

Municipal Services

183

191

231

TOTAL

301

257

258

Waste

Fonte: ERSAR, RASARP, 2015

Regarding the municipal concession in water supply in “low”, Aquapor detains 10 out 28 concessions, representing 36% of the market: Entidades

Gestoras

em

"Baixa"

Nº Entidades

População

Água

Entrada

Água

abrangida

Sistema

facturada

(milhares de hab.)

(milhares m3)

(%)

Grupo Aquapor

10

734

52 737

17,7%

Concessões Municipais

28

1 971

108 600

22,2%

País

258

10 089

813 441

29,8%

não

According to ERSAR (RASARP 2015) the water supply service accessibility in “low” and sanitation accessibility in “low” is good for the mainland with the exception of moderately urban areas where the accessibility is only satisfactory.

Water supply in mainland Portugal

Wastewater treatment in mainland Portugal

“Low” service (for 99% of the entities)

“Low” service (for 89% of the entities)

Predominantly urban areas

100%

Predominantly urban areas

97%

Moderately urban areas

95%

Moderately urban areas

80%

Predominantly rural areas

92%

Predominantly rural areas

70%

Fonte: ERSAR, RASARP, 2015

dst - sgps, s.a.

Page 25 of 111


Consolidated Annual Report 2016

2.

Economic and financial analysis

Global analysis of 2016 period In the period of 2016, dst group demonstrated once again its remarkable ability to maintain positive economic and financial results in a macroeconomic framework of reduced growth of the Portuguese economy.

PROPORTIONAL TURNOVER

CONSOLIDATED EBITDA

280,0 240,0

279,8

40,0

274,3

39,7

269,5

35,0

37,5

30,0

160,0

m€

Mio €

200,0

36,0

25,0

120,0

20,0

80,0

15,0

40,0

10,0

2014

2015

2016

2014

2015

2016

Indeed, the period of 2016 reflects the progressive and successful consolidation that dst group has been recording in the last years and in the several business areas that has a presence, in particular by maintaining a proportional turnover close to € 270M and an operating profitability, measured by EBITDA, € 37.5M. Debt levels remain below € 100M (-2.3% compared to 2015), evidencing a rigorous and sustainable policy of financial management. At this level, the group’s international operations growth and its investment strengthening in human capital had particular relevance, which are two vectors of action involving an immediate and significant investment, but simultaneously prepare the group for the growing challenges of responsiveness and innovation that today’s world demands from the big economic groups. In the period under review, dst group’s consolidated turnover amounted to € 198.2M. The slight decrease in the group’s turnover (-3.9%) was accompanied by a proportional reduction of its operational profitability (-5.5%). However, the group's profitability levels remained very robust values, with consolidated EBITDA to exceed € 37.5M at the end of the 2016 period, equivalent to an EBITDA margin of 18.9%. Evidencing the group’s prudent policy regarding markets and related investments approach associated to the ongoing internationalization process. However, although the group’s EBITDA remained fairly positive, the impact of goodwill depreciation expenses (€ 8.1M) contributed to the net profit for the period, after non-controlling interests, of € 7.8M (€ -7.4M vs. 2015). On the one hand, it is important to highlight the positive effect that the dst group’s diversification entails in terms of maintaining positive levels of operating profitability: the Renewable Energy Business and Environment areas represent 42.5% of the group’s consolidated EBITDA in 2016 and totalize a net income positive for the period of approximately € dst - sgps, s.a.

Page 26 of 111


Consolidated Annual Report 2016

7.5M (after non-controlling interests), on the other hand, it is worth highlighting the business area which was dst group’s genesis, Engineering & Construction, as it maintained a remarkable performance in the period under analysis, whith a turnover of 78.6% of the total consolidated and 42.7% of the corresponding EBITDA.

Volume de Negócios

EBITDA

78,6%

42,7%

-0,3%

1,9% 2,3% 4,9%

Eng&Const

28,6%

Ambiente

Telecomunicações

13,9% 16,5%

-1,4%

12,0%

Ener Ren

Real Estate

Eng&Const

Ambiente

Ener Ren

Real Estate

Telecomunicações

Ventures

dst group’s distinct activity performance in 2016 reflects the strong performance of its core business area, Engineering & Construction, whose turnover for the period amounted to € 155.8M and whose respective net result approached € 5.3M (67.3% of the consolidated net income for the period). In the reporting period, stands out the sustained growth of the Environment business area, whith a contribution of € 11.8M to the group’s operating profitability, i.e. 28.6%. In turn, the consolidated turnover of this business area increased by € 2.8M compared to 2015 (i.e. + 11.7%), reaching € 23.8M. In addition, the Renewable Energy business area turnover increased to € 4.6M (€ 3.9M in 2015). Positive developments in this business area also occurred in terms of its operating profitability, which stood at € 5.8M, with a positive impact on the growth of its contribution to dst group’s consolidated EBITDA in 2016 (13.9% of the total for the period). As well as its contribution to dst group’s consolidated net income, reaching 49.5%, which represents € 3.9 M of the total consolidated. After a major investment period in the Telecommunications business area has been completed, its turnover has recorded a remarkable growth, and in the period under review the increase was above € 5.3M, (+54.3% compared to the same period of 2015). Although this business area does not present yet a relevant turnover to dst group global sphere, this came up, in the period under review, to € 9.8M. It should be noted that this business area had a positive EBITDA amounting to € 6.8M in 2016. Despite the impact of depreciation and amortization from the high investments made by the group in this business implies that its net income for the period is necessarily negative, to the tune of €1.3M.

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Consolidated Annual Report 2016

Also dst group’s presence in Ventures business area is noteworthy, with the implementation and monitoring by 2bpartner – Group’s venture capital company – of a number of analysis processes and due diligence projects, in parallel with the development, led by innovationpoint – investigação e desenvolvimento, s.a., of several innovative projects. In 2016, 2bpartner was present at the most relevant events in the sector, such as the 2015 UP Awards Gala, where 2bpartner received the award of the "Investment Firm of the Year 2015". In this context, naturally, Ventures business area does not yet have a turnover that may be representative of its potential growth, remaining as a big bet vector in the future by dst group. As is to reveal the presence of the dst group in Real Estate, where portfolio current projects portfolio are noteworthy: Villas de Palmeira urbanization, corporate business center of Adaúfe, Urbo Building in Matosinhos and a multipurpose allotment in Barcelinhos .

Economic and financial summary (year 2016) dst group’s consolidated net income in 2016 was over € 7.8M (€ 8.5M after non-controlling interests), representing a decrease of 48.6% YoY. This result is mainly due to the impact of the increase in depreciation and amortization expenses of tangible assets, intangible assets and goodwill (+ €9.9M compared to 2015). However, the group maintained excellent levels of operating profitability in the period under review - EBITDA amounted to € 37.5M at the end of 2016. values in k€

Economical analysis Turnover EBITDA EBIT Financial Results Net Income before Taxes Taxes Consolidated Net I ncome To: Minority Interest dst group

dst - sgps, s.a.

2014

2015

2016

214.646,9 206.290,2 198.200,0 36.027,9 39.682,5 37.503,3 22.308,2 24.348,1 15.355,9 -7.058,1 -6.922,5 -4.706,7 15.250,1 17.425,6 10.649,2 -775,2 -1.653,4 -2.115,6 14.474,9 15.772,2 8.533,6 569,3 13.905,6

589,2 15.183,0

722,0 7.811,6

∆%

-8.090,2

-3,9%

-2.179,1

-5,5%

-8.992,2

-36,9%

2.215,8

-32,0%

-6.776,4

-38,9%

-462,2

28,0%

-7.238,6

-45,9%

132,8

22,5%

-7.371,4

-48,6%

Page 28 of 111


Consolidated Annual Report 2016

On the other hand, it is important to highlight the significant improvement in financial results compared to previous periods (which decreased by around € 2.2M compared to 2015), due to the progressive reduction of dst group’s debt levels and a strict credit risk management policy.

EBITDA

Deprec and amort

Financial Income

Corporate Income Tax

Minority Interests

540

722

Net income 2016

40.000 36.000 32.000 28.000 22.147

mil €

24.000 20.000

37.503

16.000 12.000

4.707

8.000 4.000

7.812

0

During the period of 2016, dst group’s Engineering & Construction business area presented a consolidated net profit of € 5.3M, representing 67.3% of the group’s consolidated net income. Despite the decrease in its consolidated turnover to € 155.8M (-11.2%), the profitability of this business area remained positive, with its EBITDA value stood at € 17.7M at 2016 period end. Notwithstanding, the importance of dst group other business areas, Engineering & Construction business area consolidated its importance in the contributing to the group’s positive consolidated net income for the year, accounting for 67.3% of the 2016 total (€ 5.3M in absolute terms). In turn, the Renewable Energies business area maintained its relevance in the contribution to group’s consolidated net income (49.5% of total which, in absolute terms represent € 3.9M). While the Environment business area reinforced its preponderance in the contribution to dst group’s consolidated net income with more than € 3.6M, equivalent to 46.3% of the group’s global consolidated net income.

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Consolidated Annual Report 2016

NET INCOME

-17,1%

-54,0%

9,7%

46,3%

49,5%

67,4%

-2,5% Holding and Others Environment

Teleco mmunications Ren Energy

Ventures Eng & Const

Real Estate

During the period 2016 the Telecommunications business area continued to focus on the operational use and maintenance of the networks developed in previous years, with the provision of telecommunications infrastructure for national telecommunications retail operators in several Portuguese municipalities. At the end of 2016 period, dst group’s tangible fixed assets remains one of the items with upmost impact on group’s consolidated assets. The value of tangible fixed assets stood at € 82.1M, contributing to a group’s total net assets greater than € 409M at the end of the period under review. In turn, dst group’s equity amounted to € 136.8M at 2016 end, with an ordinary shared capital of € 30M, and a financial autonomy ratio of 33.48% (+ 1.18% compared to 2015). The total liabilities of the group showed a very favorable trend in 2016 course, insofar as it declined € 20M compared to December 2015, standing at € 271.8M at the year’s end.

International activity In pursuit of international expansion that dst group has been promoting, the international activity of the dst group during 2016, continued to be significantly strengthened, in particular by sales and provision of services in different geographic areas. Indeed, in pursuit of international expansion that the group has been promoting, there were operations in 11 countries, either in the demanding African geographies, both in developed and sophisticated European markets, among others. On the other hand, were several commercial initiatives and proposals in 16 other countries, scattered throughout the Americas, Africa, Europe and Asia.

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Also at the international level, the group's focus remains on a strictly selected geographical diversification according to the business opportunities that are underlined, in order to optimize the associated investment and, thus relativize the importance of the Angolan market within the group's international operations given the time of some economic instability plaguing that country. In this sense, so much so that the international dst group projects have been developed in different business areas, namely, Engineering & Construction, Renewable Energy and Environment. INTERNATIONAL OPERATION 50.000 45.000 40.000 35.000

kâ‚Ź

30.000 25.000 20.000 15.000 10.000 5.000 0

2014

2015

2014

dst - sgps, s.a.

2015

2016

2016

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Therefore, due to all the conscious effort and based on a prudent policy regarding markets and related investments approach associated to the ongoing internationalization process, the dst group’s international business turnover at the end of 2016, highlighted the consolidation and sustainability of the growth over the same period of 2014 (+71%), having already surpassed the € 44.8M, a figure that rises to 22.6% of the dst group’s global consolidated turnover.

INTERNATIONAL TURNOVER 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2014

2015

2016

Angola

France

DR Congo

Algeria

Venezuela

Reino Unido

Mozambique

It should be noted that for the group’s excellent international performance during 2016, contributed mainly the operations in France (€ 28.8M) and Angola (€ 11.8M).

Debt levels The progressive consolidation and the success that dst group has been recording in recent years and in several business areas that has a presence, has been reflected in the group’s ability to maintain a low debt level. In 2016, the total net debt remained below € 100M (€ 97.2M in the reporting period, € 99.5M in the same period and € 95.4M in 2014). Although this amount constitute a slight increase of € 1.8M (+ 1.9%) from the end of 2014, to the same period of last year shows a reduction of € 2.3M (-2.3%). For this performance contributed, among other factors, the amortization of medium and long-term debt plans (MLP).

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Net Debt

1,9%

100.000

k€

75.000

50.000

25.000

0

2014

2015

2016

At the end of 2016, the net debt allocated to the Telecommunications business area, amounting to €

DEBT BY BUSINESS AREA 2016

25.3M, essentially contracted to build the Next Generation Networks (NGN), represented 26.1% of

8,8% 24,2% 17,8%

the group’s total consolidated net debt. In turn, the Real Estate area has medium and longterm financing of € 22.3M, which contributed to a

9,8%

sectorial net debt of € 23.5M (24.2% of dst group’s total consolidated net debt). It follows the Environment area with a contribution of 17.8% (€

14,7%

26,1%

Eng&Const Ren Energy

Environment Telecom

holding Real Estate

17.3M in absolute terms). Its highlighting the Engineering & Construction area, whose net debt represented 8.8% of the total consolidated, translating into € 8.6M in a consolidated total of € 97.2M. In 2016 the dst group’s financial capacity increased slightly, with the financial autonomy ratio to settled at 33.48% at the end of the period (32.30% at December 31, 2015). In fact, the stability of the group's debt levels, combined with profitability excellent levels of the dst group in 2016, is reflected in the sustainability of the Net Debt / EBITDA ratio over the last years, which stood at 2.59 at the end of 2016 (2.51 in 2015).

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NET DEBT / EBITDA 3,00 2,65

2,51

2,59

2,50

2,00

1,50

1,00 2014

2015

2016

The next chapter of this report details the analysis of the results and the activity of each one of dst group business areas in 2016.

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Business Areas

ENGINEERING & CONSTRUCTION

PROPORTIONAL TURNOVER

NET INCOME

200,0

15,0 12,0

120,0

208,3

198,7

80,0

m€

m€

160,0

9,0

180,8

14,3 6,0

40,0

12,3

3,0

0,0 2014

2015

2016

5,3

0,0 2014

2015

2016

Engineering & Construction was at the origin of dst group and, despite the successful and progressive diversification process, this business area still maintains its vital relevance in the group sphere, having recorded in the period under review a proportional turnover of € 180.8M. Although in 2016 its turnover has registered a decrease of € 17.9M, the performance of this business area continued to reflect the strength of the group's position in the market for engineering and construction and highlights the extraordinary responsiveness of dst group to the adverse macroeconomic environment, particularly which the industry and its key players are living. For this record achieved in 2016 is worth considering the positive impact of the ongoing internationalization process, whose international operations within this business area exceeded € 44.7M (+11.18% YoY), and the group has consolidated the geographical areas in which it is presence, by focusing investment in commercial relationships and partnership in other jurisdictions with favorable business potential. In order to enable its profitability levels and quality safeguarding of the Engineering & Construction provided services, dst group undertook an optimization exercise of its operational activity in this sector. Thus, the year 2016 was marked by the increase of operating profitability levels, with an EBITDA margin of 11.3% (€ 17.7M) reflecting, among other things, the group's concern on maximizing its operations efficiency. Despite the increase in debt levels in this business area, it should be noted that, in the period under review, net financing expenses were reduced by € 2.3M €, to the total of € 0.7M € registered in 2016 (compared to € 2.6M in 2015), mainly explained by the strong contraction in interest and similar income earned. dst - sgps, s.a.

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It is remarkable that the year 2016 was characterized by the contribution that this sector has to dst group’s consolidated net income, whose positive amount of € 5.3M recorded in this business area account for 67.3% of total earnings, even though it contracted € 9M compared to 2015. dst group has a wide scope of strong technical skills that allow it to be perceived by the market as a landmark of rigour and service quality in Engineering & Construction field. Not only this is taken for granted already for many years at the national market level as, increasingly, it is perceived by key international players with which the group works in its international operations. As such, in 2016, dst group made several works of recognised impact and technical complexity, as is the case, among others, the following contracts: Hotel EXE Cascais 4*

Graciosa Energy System

IKEA Allotment

Body - Ed 2b - Construction of the new Logistics Building

Continente Alto do Lumiar

Hydraulic Circuit Caliços – Machados

IKEA Braga

IKEA Matosinhos

RENOVA - Paper Mill VII - Factory expansion

PSA Pier in Sines - Expansion of the NW sector

Northern Line Railroad - Alfarelos

Howa Tramico

Moreover, dst group incorporates in its operations the entire value chain of the business sector, particularly in the award of electrical installations, heating, ventilation and air conditioning (HVAC), hydraulic works and telecommunications through dte – instalações especiais, s.a. (“dte”) - and the construction and assembly of steel structures and roofs and facades coating, such as industrial and commercial buildings, rehabilitation of buildings, art works, housing and offices, through bysteel, s.a. (“bysteel”). During the year 2016, two new companies were set up within the dst group and included in this business area, namely dstrainrail, s.a., which is dedicated to the preparation of studies and projects, execution of public and private rail works and other transport routes, as well as their maintenance; and bysteel fs, s.a., whose corporate purpose is the design, engineering, development, transformation and assembly of façade systems, assembling of coverings and facades, civil construction and public works. Therefore, dst group has significant competitive advantages in relation to its main competitors in the Engineering & Construction area. bysteel is focused on strengthening its position in foreign markets and on the internationalization of its activity by diversifying the geographical areas where it is present (eg in Angola, France and the United Kingdom), consolidating and expanding relations with international reference clients as a result of its rigor, service quality and responsiveness to customer needs.

Industrial production unit turned 6,079 tons of steel in 2016, which shows a decrease of 10.34% year on year, influencing almost at the same proportion the total turnover in the period under review. This reduction is due in large part to the dst - sgps, s.a.

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change in the works typology in which bysteel is involved, where the greatest imposition is undoubtedly the technical capacity and know-how necessary to respond to the exigency and complexity of international projects. Diversification of the customer portfolio continued to be one of the purposes of bysteel in 2016, which resulted in the strengthening of its position in the French market, reaching 71.5% of the total turnover and a consequent decrease in the presence in Angola, which represented, in 2016, only 1.5% of total turnover. Trust is one of bysteel’s brand images and remains a priority, that has been reflected in new partnerships with worldwide reference customers through the celebration of several new contracts for the design, manufacture and implementation of metallic structures and facade cladding with Bouygues and Vinci groups, Graham Construction, Griner and Geocimenta, among other customers, such as the projects of the new “Hippodrome Longchamp” an the “Stade Roland Garros”, the “Trinity Là Défense” Tower or the building “17 Amesterdam” in Paris, the “Vitória” Tower and the “UCAN” – Rector’s Office at the Catholic University in Angola and the Kings Kross Quarter and Addlestone Town Center in United Kingdom.

In addition to the strong focus on the international market and the share of international operations represented 80.3% of its turnover in 2016, the domestic market maintains its strategic importance for bysteel and is marked by the execution of important projects, examples of which are the works of the “Museu de Arte, Arquitetura e Tecnologia“ (Art, Architecture and Technology Museum) in Belém historic, in Lisbon and the new factory pavilion for Auto Europa in Palmela.

In turn, in 2016, dte activity recorded an overall decrease 7.2% compared to 2015, reaching a turnover of € 25.2M. dte activity reflected not only the performance of its core business areas but also two new ones that were created in the course of 2016 - catenary and industrial cold, the latter having started its activity only at the year’s end. In individual terms, the electricity area contributed accounted for 55% of the total turnover, the HVAC (heating, ventilation and air conditioning) business represented 32% (+ 20% YoY), the hydromechanical business represented 9%, the catenary represented 3 %, And telecommunications 1%. During this period, dte participated in major projects in the specialties in which it operates, examples of which are the IKEA’s shops in Braga and in Loulé, the Irrigation Infrastructure – Block of Pias, the Hydraulic Circuit Caliços Machado, the renovation of the Northern Line railroad between Alfarelos and Pampilhosa, Roxo-Sado Block and Graciólica in Azores, among others. Indeed, at the level of this dst group society, it should be noted the growth of its operations in Angola, under which also already present in several projects, mainly through the implementation of electricity works and HVAC.

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For the year 2017, dte will expand to a new activity – HVAC and electrical installations maintenance of industrial and commercial facilities. The entity aims to reach a turnover of € 30M in Portugal, € 9M in Angola and € 4M in France, the latter being a new international market where dte wants to be present.

RENEWABLE ENERGIES PROPORTIONAL TURNOVER

NET INCOME 8,0

30,0 25,0

6,0

m€

m€

20,0 15,0

4,0

27,6 23,9

10,0

7,5

22,2 2,0

3,9

3,9

2015

2016

5,0 0,0 2014

2015

2016

0,0 2014

dst group's participation in the Renewable Energies business area is developed through a set of businesses diversified in technological terms, namely, wind, solar photovoltaic, solar thermal, hydro and from the oceans. In parallel, the group develops various activities and operations related to energy efficiency. Therefore, and as a corollary of the activity’s consolidation, the proportional turnover of Renewable Energy business area reached € 22.2M in 2016, although reflecting a decrease of 6.8% compared to the same period of 2015. It should be noted that this business area recorded a positive EBITDA that reached € 5.8M in 2016, which represents an increase of €1.3M (+29.34%) year-on-year and corresponding to 13.9% of dst group’s consolidated total in the year, and the period contribution to net income amounted to € 3.9M (i.e., 49.5 % of the year’s consolidated net profit). In wind energy, the activity started in the mid-90s, making dst group one of the pioneers betting in this technology in Portugal. In 2008, came into operation the Wind Farm of Alto Minho I, with an installed capacity of 240 MW, thus expanding the group associated companies’ capacity up to 294.40 MW. With further investment, dst group installed power overpassed 68.41 MW.

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The dst group’s wind portfolio is displayed as shown below:

dst group also intends to extend its investments and to strengthen its position in the wind energy sector, both nationally and internationally, and it currently has ongoing wind projects evaluation processes. Regarding to photovoltaics, the year 2014 was marked by the completion of a photovoltaic module new model certification, which has enhanced the competitiveness of global sun, s.a., which resulted in a significant increase in its orders and turnover. Therefore, the year 2016 was characterized by the commercial activity strengthening of global sun, s.a., focusing the stock sale of photovoltaic modules. The year 2015 was marked by the entry into force of Law- Decree No. 153/2014 of 20 October, that establishes the legal framework for self-consumption, which liberalized the sector giving each consumer the opportunity to produce its own energy, and its consolidation occurred during the year 2016. Thus, dst solar, s.a. diversified its activity, directing it to other areas, namely energy efficiency projects implementation, both in the private sector and the public sector, notably through the implementation of energy efficiency measures in pools, pavilions and other social facilities. Thereby, in the photovoltaic sector in Portugal, the installed and certified power in 2016 corresponded to a total of 12 MW, as the published statistics by the General Directorate of Geology and Energy, .and over the same period, approximately 45 MW of power were registered. dst solar installed several photovoltaic power plants, totaling approximately 4 MW of installed power capacity, mainly self-consumption projects in industrial units. In 2016, dst solar main customers were Woodone (Paços de Ferreira), Carvitin (Braga), Aviário do Resouro (Ourém), O Feliz Painel (Braga), Intermolde (Marinha Grande) and Polopiqué (Vizela), that stands out among other companies that invested in photovoltaic plats for self-consumption.

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In the hydropower area, dst hydro s.a. continues to carry out a constant activity of developing "greenfield" project as well as analyzing partnership proposals for building and managing hydroelectric exploitations, waiting the creation of a possible new legal framework, aiming its hydraulic projects portfolio increase.

ENVIRONMENT

PROPORTIONAL TURNOVER

4,5

36,0

4,0

32,0

3,5

28,0

3,0

20,0

33,2

36,6

38,0

m€

m€

24,0 16,0

NET INCOME

5,0

40,0

2,5

4,4

2,0

12,0

1,5

8,0

1,0

4,0

0,5

3,6 2,9

0,0

0,0 2014

2015

2016

2014

2015

2016

During the year 2016, Environment activities remained stable and, as such, it kept the unavoidable relevance it gathered in dst group since the acquisition by the company Criar Vantagens, Lda. – dst group’s associated company – of the entire share capital of Aquapor – Serviços, S.A. (“Aquapor”) in late 2008. The proportional turnover of this business area amounted to € 38M in 2016 (+3.9% over the same period), and its contribution to dst group’s consolidated net income reached € 3.6M, corresponding to 46.3% of its total and representing a decrease of € 515k (- 17.44%) compared to 2015. The main dst group’s objectives of the Environment business area undergo the strengthening of its presence in the sector, either by organic or via acquisition and for the moment there is an ongoing process leading to an increase of its capital share in Aquapor. Regarding this associated company, several challenges have been posed during 2016. Therefore, due to its relevance to this business sector evolution, it shall be pointed out the restructuring reversal in the water sector, through the merger of the multi-municipal water and sanitation systems, undergone during the previous legislature. There is also a trend towards the horizontalisation of water supply and wastewater services, seeking, in a joint management frame, economies of scale and the systems’ sustainability.

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Aquapor’s most immediate goals are focused on organic growth in the national market, both by strengthening its participation in the existent concessions and by raising new ones and continuing to focus on internationalization, particularly in the Maghreb countries, the Portuguese Speaking African Countries (PALOP), Brazil and Saudi Arabia, either by identifying potential local partners to develop operations in this activity sector, or through the consolidation of existing businesses and the development of opportunities that may arise in the markets where it is already present.

TELECOMMUNICATIONS

20,0

NET INCOME

PROPORTIONAL TURNOVER

0,0

-0,5

16,0

-1,3

m€

18,9

8,0

4,0

-2,1

-2,2

2014

2015

m€

-1,0

12,0

-1,5

11,8 8,5

-2,0

-2,5

0,0 2014

2015

2016

2016

The telecommunications sector, one of the largest global industries, and the main engine of the information society has significantly evolved in recent years, in Portugal, despite all the setbacks that the global economic crisis caused in Portugal in various areas. Next Generation Networks (NGN) optical fiber was considered as a strategic priority in the electronic communications sector, in which dstelecom focused its investment. The targets set in the Digital Agenda 2015 included the national coverage of fixed NGNs, particularly in rural areas by the end of 2012, and mobile by the end of 2015, placing Portugal at the forefront of development of this sector and ensuring thus a positive cross-impact on the economy, for which the dstelecom Norte and dstelecom Alentejo and Algarve contributed with a significant impact to the coverage of rural areas. Despite the sector's uncertainty from the date of its constitution, in 2008 and the following years, dstelecom, s.a. (dstelecom) has to must assume a position in the domestic high-value market. The goal is to foster the development of the Digital Society and allow access to technologically innovative products and services for all consumers, with significant impacts on the functioning of businesses and in citizens’ lives.

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The year 2016 represents the expression of the group’s strategic focus success, in so far as this business area recorded a very sharp global growth of its operating activities, reaching a turnover proportional of € 18.9M, reflecting an increase of € 7.2M or 60.93% over the same period. It should be noted that this business area had a positive EBITDA that amounted to € 6.8M in 2016, (i.e., 16.5% of the year consolidated net profit), and which evidences an increase that exceeded 3.2M € over the homologous period. To this evolution has contributed a more aggressive commercial strategy and a broader portfolio of services offered to customers and potential customers, which was consolidated in the exponential growth levels registered by dstelecom, derivadas e segmentos, s.a., blu, s.a. and v partner, s.a. companies. As in 2015, in 2016, dstelecom's activity continued to be focused on the operational exploration and network maintenance associated with the "Installation, Management, Operation and Maintenance of a High Speed Electronic Communication Network ("Network") of the Northern Zone and the Alentejo and Algarve Zones” project, developed in previous years by dstelecom subsidiaries, dstelecom Norte, s.a. (“dstelecom norte”) and dstelecom Alentejo and Algarve, s.a. (“dstelecom alentejo and algarve"). This was an investment that amounted to about € 80M, which started in 2011 and by the end of 2013 was completed. This was an extremely important period for both dstelecom and the domestic market, and regarding the former it was marked by the trade negotiations consolidation with the main national operators. During this period, one of the three largest national communications operators started its services, using the Next Generation Networks provided by dstelecom. Additionally, negotiations were concluded with another national operator, and a commercial agreement was reached by the end of the second half of 2016. Therefore, it is expected that in 2017 dstelecom will provide services to all major national communications operators. Thus, dstelecom strengthened the provision of services to external customers, especially, the rental Fiber Dark Optics (FSO), DROP, Bitstream Access and rental of infrastructure to telecommunications operators such as Vodafone, ONI, NOS and MEO, among others, which had an exponential growth over the year. Indeed, dstelecom has been investing in expanding its skills within the installation, implementation, management and operating of the Next Generation Networks, currently having as a differentiating factor a strong know-how and expertise in this niche of the telecommunications sector. During the year 2016, because of the fund raising already begun in previous years, it solidified its skills by maintaining its staff, training and experience.

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Considering the Northern and Alentejo and Algarve areas, the coverage of the fiber optic network managed by dstelecom and its subsidiaries, assumes the configuration shown in the figure on the right side. dstelecom skills combined with the fact that presents itself to the market with a truly differentiating product of the currently existing in the Portuguese market, i.e. a model of "operator of operators" which is based on the concept of networks open to all operators “equal access network”, increases exponentially its potential for market success and in foreign markets by exporting the model developed in Portugal. In the year under review there was an overall increase in the activity

of

minhocom,

gestão

de

infraestruturas

de

telecomunicações, eim (“minhocom”) and valicom, gestão de infraestruturas

de

telecomunicações,

eim

(“valicom”)

subsidiaries, due to more aggressive commercial strategy and extending the portfolio of services, with constant growth in terms of attracting new customers, and most notably that for the second consecutive year these companies had positive results. As a final note, it should be pinpointed that optical fiber became the second main form of access to fixed broadband, after the cable network, having outpaced ADSL.

REAL ESTATE In 2015 dst group has carried out a corporate reorganization, aiming to formalize the different business areas in which it operates, with the last and main purpose of the preparation - or rather, the anticipation - the future. Thereby, the dst group different business areas were formalizes, namely Real Estate, whose activity was already in development, although scattered by the remaining five business areas previously existing (especially in the field of Engineering & Construction).

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Consolidated Annual Report 2016

5,0

PROPORTIONAL TURNOVER

NET INCOME

1,0 0,5

4,0

1,0

0,8

0,0 -0,5

4,1

2,0 1,0

2,0

m€

m€

3,0

-1,0 -1,5

-3,0

-2,0

1,3

-2,5

0,0

-3,0 2014

2015

2016

2014

2015

2016

dst group decided at the start of 2015 to formalize this new business area as a natural consequence of an activity that has been developing over the past few years, and more than that, due to the combination of two factors that generate undeniable competitive advantages of the group against the market: (i) its long experience in urban rehabilitation work and (ii) its high financial capacity. The combination of these two factors allows the dst group to address high-impact projects in the context of urban renewal with flexible value propositions to their customers or partners, about the various methods of financing of investments to be made. The evolution shown by the Real Estate turnover does not reflect at all, the conviction that the dst group has in its potential growth and it leading to its autonomy as a new business area within the group, initiating significant real estate promotional investments. However, in conjunctural terms, the year 2016 sets the beginning of the economic recovery in an important set of indicators that measure the evolution of demand, production and employment, and the investment in construction and the gross value added of the sector continuously to growth. Therefore, and as corollary of the activity expansion, the proportional turnover of the Real Estate business area amounted to € 4.1M in 2016, which shows a sharp increase of € 2.77M compared to 2015 (i.e., + 207.97%). It should be noted that, in 2016, the net result of this business area amounted to € 0.8M, which represents an increase of € 3.8M (+ 125.22%) year-on-year, corresponding to 9.8% of dst group’s consolidated total in the year. This value is strongly conditioned by the reversal recognition of impairment losses, which had been considered in 2015, reflecting the value loss experienced by the Real Estate because of the crisis that this industry has passed.

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VENTURES The conviction with which dst group embraces innovation, entrepreneurship and creativity is already a trademark since long years ago, always with a business imprint widely recognised, particularly regarding the economic rationale that it addresses the investment opportunities in this business area. In 2016, Ventures business area had a turnover amounting to € 0.1M, which does not reflect at all, its potential growth, notably through 2bpartner, the management company of Minho Innovation and Internationalization Fund ("MII"), and through innovationpoint The main activity of 2bpartner is the carrying out of venture capital investments and the management of venture capital funds, through purchasing shares and units of venture capital funds, respectively. After having carried out several steps necessary for the effective start of its activity - including some changes in its shareholder structure, culminating in the acquisition of its share capital majority by dst group - 2bpartner effectively started their operations in 2013. In 2016, 2bpartner’s activity focused on close monitoring of investments made, at strategy and operation level, working together to prepare new rounds of capital. In addition, it prepared the launch of a new fund - 2bstartup - taking advantage of the opening of the competition managed by the Financial Institution for Development (FID) to a Line of Financing to Venture Capital Funds. It is expected that the 2bstartup is made and released in the third quarter of 2017. Innovation point – investigação e desenvolvimento, s.a., hereinafter referred to innovation point or entity, is a dst group company geared to enhance, evaluate, produce and commercialize innovative ideas by creating new products, services or business models categories that challenge established paradigms and generate significant added value for consumers, for customers and for dst group itself. The dynamism of innovation point is the basis of many innovative projects, examples of which are the following projects: 

dst living lab – dst group campus has been transformed into a living lab to experiment and demonstrate monitoring and intelligent data analysis solutions that enable greater knowledge of the surrounding area and a more efficient use of resources. This involves the development of a computer platform that aggregates all this information and allows to add layers of intelligence to the collected data, as well as the respective sensorization of the surrounding environment. The components to be initially implemented are environmental monitoring, smart metering, smart parking and analysis of concentration and people movements;

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River Monitor –a probe was developed to continuously monitoring the river state through the analysis of several parameters, including pH, dissolved oxygen, conductivity, ORP and temperature. The probes together with the respective information system allow monitoring the river state along its route and know in real time what its status is, as well as receive alerts when anomalous situations are detected and consult reports that show their evolution over of time;

Shair – a platform for art and emerging artist dissemination and marketing. The platform concept provides an opportunity given to artists to exhibit their works subjecting them to public scrutiny, and an expert invited by dst group, and the most voted ones will then be publicly exhibited at the Emerging dst Gallery. The platform was developed in the beginning of the year 2014 and after its release has had more than a million visits, thousands of registered users and thousands of works available for sale;

Powertracker – a monitoring platform for energy production from mini powers plants and micro generation. It allows you to track automatic production of each season form, receive alerts categorized by its gravity center if it does not have production or is below expectations for the period in question, as well as have access to other information provided by the counter for diagnostic purposes. The platform currently operates exclusively in a web environment, properly adjusted for desktop and tablet environments, but has the possibility of expansion to mobile platforms. The platform monitors the daily production of hundreds of stations that dst solar has in operation, to have expertise faster when there is a problem and can intervene more rapidly, ensuring that the production of the core is as estimated. The access to the platform is also marketed to customers of dst solar, to monitor and have knowledge the state of their plants;

MyPick – an application for smartphones that assists users in making simple decisions of their day-to-day life, and the result does not have major consequences and allowing the user to be released from the choice burden. The application already contains several lists for standard situations and allows the user to create their own lists, share them and get from the community. It was developed at the end of the year 2014 and is aimed at younger audiences, previously identified as the one that consumes this type of applications. The application follows the freemium model, allowing to generate revenue through advertising presentation in the free version which, in turn, is more limited in terms of features, and a premium version, which is paid by the user for a symbolic value, removing this way advertising and unlock additional features. The application is available in the Apple and Google app stores;

Embedded systems. – during the second semester the innovation point started exploring this area with the development of terminals that incorporate the electronic design component, with the software and product design, to offer solutions "turnkey" that best meet customer needs. Among the experiences developed in the dst group it

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was set up a terminal to record the consumption made in the group’s restaurant, as well as terminals for access control to specific areas and for employees’ access time record; 

Vocation – software for mobile devices developed in partnership with the multinational SHL human resources that enables simple and fairly accurate, that the user performs a battery of tests to determine their skills and interests to determine their real vocation. Vocation is available in the three major domestic carriers and around the world, in the Apple Store and Google Play (formerly Android Market) and Windows Phone Marketplace;

Rayleague.com – social networking football scouting that aims to democratize the process of selection of players worldwide, helping their promotion and opportunity to live her dream. The Rayleague.com has visits distributed by 178 countries and has athletes from 136 countries, clearly assuming itself as an international product.

Innovation point is a certified entity in NP4457 standard (SGIDI), in line with dst group’s innovation commitment, which has also been translated in support several group companies searching for innovative solutions for the daily challenges faced by them.

JOINT VENTURES During the second half of 2015, dst group has embarked on a corporate restructuring to formalize the various business areas in which it operates, with the last and main purpose of the preparation - or rather, the anticipation - the future. Thus, within the dst group the Joint Venture business area emerged, whose operations were already under development, although dispersed by the remaining five areas of previously existing business, especially in the field of Engineering & Construction. dst group is used to working with partners to develop projects and investments in its various business areas and geographies in Joint Venture relationships based on a win-win optical, that are good examples, among others, the longtime holdings the dst group has with other shareholders (public or private) in the business area of Engineering & Construction (e.g., Caminhaequi, Barcelos Futuro) and other in which it operates. dst group has the firm conviction that the focus on partnership relations can function as approach leverages national and international projects in various business areas, with special focus on their business area Engineering & Construction. dst - sgps, s.a.

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Consolidated Annual Report 2016

CORPORATE SERVICES The year 2016 marks the dst group Corporate Services consolidation, which had been created in 2015 within the corporate reorganization scope, with the ultimate and main purpose of the preparation - or rather, the anticipation - the future. Indeed, the business area of Corporate Services, which was already in development, although scattered by the remaining five previously existing business areas, mainly in the Engineering & Construction, and its object of activity includes:

Environment;

Quality;

Safety;

Purchases;

Financial;

Communication;

Heritage, insurance and facilities;

Strategic planning;

Human Resources;

Information systems

Innovation and development;

Internal audit; and

Risk Control.

dst - sgps, s.a.

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Consolidated Annual Report 2016

3.

Material events occurring after the end of the period

After the period end, and to date, there were no events that may have a significant impact on the financial statements at December 31, 2016

4.

Future perspectives

dst group’s essence is guided by excellence and it is believed that the future needs innovation, responsibility

and efficiency, fundamental characteristics so that dst group continues to be chosen as the partner of choice in the various business areas in which it operates. In this way, the strategy for 2017 is to maintain a solid commitment with the client portfolio internationalization and diversification, through the strengthening of the existing business relations and strategic partners’ loyalty, without dissociating the objective of expanding its presence to other international markets.

At the economic level, dst group aims to maintain the strategic focus of its sustained growth, balanced by risk

control, geared to cash-flow creation and supported by the group’s organisational strengthening. Withal, the continuous improvement of its profitability is also the group’s objective, through very tight and conscious control of its indebtedness levels, to achieve greater business and investment flexibility than the other market players. Thus, it is expected that, in 2017, the dst group will focus on an optimized and cash-flow generator working capital management, as well as a strict investment policy. dst group believes that the future is built through solidity and therefore it maintains a strong innovation commitment in straight compliance with competence, modernity and rigor with which it executes its projects. For 2017 the group aims to strengthen its recognition as a reference player in the markets in which it operates, creating high added value customer tailored solutions. At the human resources level, the objective is to maintain a growth in line with 2016, with a clear focus on training and retaining motivated talent for the creation of long-term sustainable value.

dst - sgps, s.a.

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Consolidated Annual Report 2016

5.

Financial risk management objectives and policies

Within the economic and financial context in which the entity operates is essential to have a risk management strategy fully integrated into the overall strategy of the organization that increase its degree of resilience and gradually become immune to unforeseen and adverse effects. Therefore, risk analysis is ensured by the group’s different business units in which the entity operates. A prior identification study of the risks classified as the most critical is being developed, and risk management strategies are defined for control procedures implementation that reduce them to an acceptable level. Through the control procedures implementation the entity seeks to ensure the efficiency and effectiveness of its operations, as well as assets safeguarding, financial reporting reliability and compliance with laws and regulations. The ultimate goal will be the trade-off maximization between risks and business margins, in order to achieve, in a sustained way, the group’s strategic objectives in which it operates.

6.

Information required by legislation

The Board of Directors advises that the entity does not have debts in arrears to the State, in compliance with the terms of Law-decree number 534/80 of November 7. In compliance with the provisions of the Article 210th of the Contributory Code, published by the Law number 110/2016 of September 16, the Board advises that the situation of the entity before the Social Security is regularized within the legally stipulated deadlines. Pursuant to the requirements of the Article 66º of the Code of Commercial Companies, the entity informs that the Statutory Auditor’s charged fees (Chartered Accountant) amounted to 103,524.95 Euros, which solely cover the statutory audit services.

7.

Authorized disclosure date for issue the financial statements

The financial statements for the period ended December 31, 2016 were approved by the Management Board for issue on April 18, 2017.

dst - sgps, s.a.

Page 50 of 111


Consolidated Annual Report 2016

8.

Final note

The Management Board expresses a word of recognition to all employees and of gratitude to everyone who in one way or another cooperated with the entity. Special gratitude is hereby expressed to the Sole Fiscal Auditor, trade creditors and banking entities that very much honor us with valuable relationship.

Braga, April 18, 2017

The Board of Directors,

José Gonçalves Teixeira; Executive Chairman

Avelino Gonçalves Teixeira; Executive Vice-Chairman

Joaquim Gonçalves Teixeira; Non-Executive Vice-Chairman

Hernâni José Gonçalves Teixeira; Non-Executive Member of the Board of Directors

João Martins Negrais de Matos; Executive Member of the Board of Directors

dst - sgps, s.a.

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Consolidated Annual Report 2016

B)

Annex to the Board of Directors Consolidated Report

In compliance with the terms and for the effects of the number 5 of article 447th and number 4 of article 448th of the Trading Companies Code (“CSC – Código das Sociedades Comerciais”), approved by Law-decree number 262/86 of September 2, hereby is presented the list of shares regulated by such diplomas:

1. The members of the Board of Directors covered by paragraph 5 of article 447th of CSC were holders on December 31, 2016 of the following shares:

José Gonçalves Teixeira held: 1.230.000 shares with a nominal value of six Euros each;

Joaquim Gonçalves Teixeira held: 1.230.000 shares with a nominal value of six Euros each;

Avelino Gonçalves Teixeira held: 1.230.000 shares with a nominal value of six Euros each;

Hernâni José Gonçalves Teixeira held: 1.230.000 shares with a nominal value of six Euros each.

2. The Statutory Auditor and the Deputy Statutory Auditor did not have any company’s shares, neither from companies with which the company is in a relationship of control or group, at December 31, 2016, or at the present date.

dst - sgps, s.a.

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3. The following shareholders covered by paragraph 4 of article 448th of the CSC, were the holders, a on December 31, 2016, at least one-tenth of the capital 

José Gonçalves Teixeira, with 24,60% of the capital;

Joaquim Gonçalves Teixeira, with 24,60% of the capital;

Avelino Gonçalves Teixeira, with 24,60% of the capital;

Hernâni José Gonçalves Teixeira, with 24,60% of the capital.

Braga, April 18, 2017 The Board of Directors,

José Gonçalves Teixeira; Executive Chairman

Avelino Gonçalves Teixeira; Executive Vice-Chairman

Joaquim Gonçalves Teixeira; Non-Executive Vice-Chairman

João Martins Negrais de Matos; Executive Member of the Board of Directors

Hernâni José Gonçalves Teixeira; Non-Executive Member of the Board of Directors

dst - sgps, s.a.

Page 53 of 111


Consolidated Annual Report 2016

C)

Consolidated Financial Information

Consolidated Balance sheet For the year ended December 31, 2016 Translation of financial statements originally issued in Portuguese. In case of discrepancy the Portuguese version prevails. Amounts expressed in euros DATES

NOTES

31/12/2016

31/12/2015

ASSETS Non-current assets Tangible fixed assets Investment properties Goodwill Intangible fixed assets Financial investments - equity method valuation Other financial investments Deferred tax assets

6 and 7 8 6 and 9 10 11 12 24

82.112.080,99 16.316.648,45 80.252.471,06 30.274.454,11 50.672.379,05 2.219.046,46 1.108.427,28 262.955.507,40

86.013.937,64 16.736.382,35 96.605.722,29 34.596.435,06 47.869.125,56 1.896.246,19 1.169.396,87 284.887.245,95

13 14 17 16 and 24 18 4

26.698.152,22 55.563.566,51 4.903.666,92 26.637.621,15 1.201.289,91 30.637.989,53 145.642.286,24 408.597.793,64

27.043.172,62 51.047.468,45 4.523.394,91 32.922.550,56 1.090.417,65 29.553.298,05 146.180.302,22 431.067.548,17

19 19

30.000.000,00 23.700.000,00 6.560.755,55 85.968,00 22.137.932,86 44.677.526,82 7.811.593,00 1.838.742,31 136.812.518,54

30.000.000,00 23.700.000,00 8.012.875,97 165.440,00 15.821.458,95 44.708.467,82 15.182.955,40 1.643.955,10 139.235.153,24

Liabilities Non-current liabilities Provisions Loans Deferred tax liabilities Financial instruments Other payables

20 7 and 21 24 15 23

5.400.895,52 93.885.066,39 663.789,67 21.849.361,78 121.799.113,36

5.156.787,57 95.601.828,88 9.988.788,10 742.748,42 14.652.204,16 126.142.357,13

Current liabilities Trade creditors Prepayments Taxation payable Loans due within 1 year Other payables Deferrals

22 14 17 7 and 21 23 and 24 18

46.697.788,63 3.018.358,44 36.020.770,91 51.278.018,89 12.971.224,87 149.986.161,74 271.785.275,10 408.597.793,64

56.631.672,95 127.434,63 2.138.703,56 35.170.215,23 54.085.327,21 17.536.684,24 165.690.037,81 291.832.394,94 431.067.548,17

Current assets Stocks Trade debtors Taxation receivable Other receivables Deferrals Cash in hand, at bank and bank term deposits Total assets EQUITY AND LIABILITIES Equity Ordinary share capital Share premiuns Legal Reserve Other reserves Retained profit Adjustments / other changes in equity Net profit/(loss) for the period Non-controlling interests Total equity

Total liabilities Total equity and liabilities

Braga, April 18, 2017 the Board of Directors,

dst - sgps, s.a.

the Certified Accountant number 55854,

Page 54 of 111


Consolidated Annual Report 2016

Consolidated Income Statement For the year ended December 31, 2016 Translation of financial statements originally issued in Portuguese. In case of discrepancy the Portuguese version prevails. Amounts expressed in euros PERIODS NOTES

30/06/2016

30/06/2015

Turnover Subsidies

25

198.176.169,28 988,90

206.222.477,80 494,83

Gains/(losses) on subsidiary, associates companies and joint ventures

11

7.505.013,06

7.706.913,63

Changes in production stocks and work in progress Capitalization of own costs Cost of sales Other external charges Staff costs Impairment of inventory net of reversals Trade debtors impairment (losses/written off) Provisions (incresase/decrease) Increase/decrease in fair value Other operating income Other operating charges Net operating profit/(loss) before depreciation and amortization, interests and taxes Depreciation, amortization and other amounts written off tangible and intangible fixed Net operating profit/(loss) before interets and taxes Income from interests Interest payable and similar charges Net Profit/(loss) before taxes Corporation tax Net Profit/(loss) for the period

13 26 13 27 28 13 14 20 12 29 30

(591.001,90) 23.787,26 (48.894.725,03) (92.142.997,14) (31.014.326,76) 2.634.088,67 (2.575.974,24) 439.123,10 (88.518,14) 10.222.316,23 (5.781.890,69) 37.912.052,60 (22.556.126,24) 15.355.926,36 784.344,29 (5.491.091,91) 10.649.178,74 (2.115.614,29) 8.533.564,45

1.369.061,39 67.696,63 (62.816.984,57) (94.259.690,19) (28.055.897,40) (3.102.462,05) 1.422.446,41 (731.734,29) (266.139,32) 17.724.257,79 (8.275.864,95) 37.004.575,71 (12.656.481,74) 24.348.093,97 1.052.111,46 (7.974.612,41) 17.425.593,02 (1.653.441,84) 15.772.151,18

7.811.593,00 721.971,45 8.533.564,45

15.182.955,40 589.195,78 15.772.151,18

1,71

3,15

Net profit/(loss) for the period attributable to: Shareholders Non-controlling interests

Earnings per share

6 31 32 33

Braga, April 18, 2017 the Board of Directors,

dst - sgps, s.a.

the Certified Accountant number 55854,

Page 55 of 111


Consolidated Annual Report 2016

Consolidated Statement of Equity Changes in 2016 Translation of financial statements originally issued in Portuguese. In case of discrepancy the Portuguese version prevails. Amounts expressed in euros Notes

On January 1, 2016 Changes during the year First adoption of new accounting system Application of 2015 result Changes in other Equity variations: Equity method Investment subsidy Differences from financial statements convertion Adjustments for deferred taxes Other variations recognized in equity

Share capital

Share premiuns Legal Reserve

Other Reserves

Retained Earnings

Other changes Net Profit / Loss in equity of the period

On December 31, 2016

Total

30.000.000,00

23.700.000,00

8.012.875,97

165.440,00

15.821.458,95

44.708.467,82

15.182.955,40

1.643.955,10

-

-

217.865,55 -

-

14.965.089,85 -

(1.585.535,55) -

(15.182.955,40) -

-

(1.585.535,55) -

-

- (1.669.985,97) - (1.452.120,42)

(79.472,00) (79.472,00)

(7.263.999,72) 7.701.090,13

108.785,40 61.192,92 (1.415.557,23)

7.089,64 (15.182.955,40) 7.089,64 7.811.593,00 721.971,45 7.811.593,00 2.373.016,19

108.785,40 (8.945.175,13) (10.421.925,28) 8.533.564,45 10.184.609,19

85.968,00

(1.384.616,23) (1.384.616,23) 22.137.932,86

1.384.616,23 1.384.616,23 44.677.526,82

Net Profit / Loss for the period Comprehensive income for the year Operations with Shareholders Retained profits from subsidiaries Distributions

Minority interests

30.000.000,00

23.700.000,00

6.560.755,55

7.811.593,00

(534.273,88) (534.273,88) 1.838.742,31

139.235.153,24

-

(534.273,88) (534.273,88) 136.812.518,54

Braga, April 18, 2017 the Board of Directors,

dst - sgps, s.a.

the Certified Accountant number 55854,

Page 56 of 111


Consolidated Annual Report 2016

Consolidated Statement of Equity Changes in 2015 Translation of financial statements originally issued in Portuguese. In case of discrepancy the Portuguese version prevails. Amounts expressed in euros Notes

On January 1, 2015 Changes during the year Application of 2014 result Changes in other Equity variations: Equity method Investment subsidy Differences from financial statements convertion Adjustments for deferred taxes Other variations recognized in equity

Share capital

Share premiuns Legal Reserve

Other Reserves

Retained Earnings

Other changes Net Profit / Loss in equity of the period

On December 31, 2015

Total

30.000.000,00

23.700.000,00

6.602.827,72

165.440,00

25.690.927,43

53.139.528,93

13.905.620,15

1.557.633,96

154.761.978,19

-

-

1.416.175,33 -

-

12.489.444,82

(13.905.620,15) -

-

0,00

(4.470.872,93) -

(3.589.507,32) (1.179.554,63)

(8.060.380,25) (1.179.554,63)

-

-

-

-

-

(86.925,89)

-

-

(86.925,89)

-

-

(6.225,08) 1.409.950,25

- (19.513.180,76) - (11.494.608,86)

(901.952,91) (1.047.979,98) (6.805.920,73)

103.515,48 (13.905.620,15) 103.515,48 15.182.955,40 589.195,78 13.905.620,15 2.156.611,06

(901.952,91) (20.463.870,33) (30.692.684,00) 15.772.151,18 16.062.231,21

30.000.000,00

23.700.000,00

98,00 98,00 8.012.875,97

Net Profit / Loss for the period Comprehensive income for the year Operations with Shareholders Retained profits from subsidiaries Distributions Others operations

Minority interests

165.440,00

1.625.140,39 1.625.140,39 15.821.458,95

(1.625.140,39) (1.625.140,39) 44.708.467,82

15.182.955,40

(606.390,12) (606.390,12) 1.643.955,10

(606.390,12) 98,00 (606.292,12) 139.235.153,24

Braga, April 18, 2017 the Board of Directors,

dst - sgps, s.a.

the Certified Accountant number 55854,

Page 57 of 111


Consolidated Annual Report 2016

Consolidated Cash Flows Statement For the year ended December 31, 2016 Translation of financial statements originally issued in Portuguese. In case of discrepancy the Portuguese version prevails. Description

Notes

Amounts express ed in euros PERIODS 2016

2015

Operating activities - direct method Received from trade debtors Payments to trade creditors Payments to and on behalf of employees Cash fl ow from operations Corporate Tax payments/receivables Outros recebimentos/pagamentos Operati ng cash fl ow (1)

197.583.080,80

220.646.734,24

(159.066.810,12)

(169.789.907,00)

(29.656.102,68)

(30.028.998,92)

8.860.168,00

20.827.828,33

(1.036.999,63)

(1.346.728,81)

(2.058.725,94)

-

5.764.442,43

19.481.099,52

Investment activities Payments for: Tangi bl e fi xed assets

(4.986.686,41)

(4.435.306,49)

Intangible assets

(398.620,92)

(393.184,99)

Financi al investments

(513.337,78)

(83.185,19)

(609,00)

(532.400,00)

(5.899.254,11)

(5.444.076,66)

Loans

Revenues from: Tangi bl e fi xed assets

105.328,26

1.332.843,79

1.119.814,06

229.646,66

Other assets

705.895,43

-

Investment subsi di es

317.317,41

-

Interes ts

1.436.079,40

1.052.111,46

Divi dends

4.544.564,56

4.030.807,46

8.228.999,12

6.645.409,37

2.329.745,01

1.201.332,71

41.451.013,11

-

24.999,98

-

41.476.013,09

-

(42.482.869,56)

(20.626.541,34)

(5.515.576,00)

(8.994.850,00)

Depreciati on of fi nancial l ease contracts

(268.801,40)

-

Other financing operati ons

(145.480,19)

-

(48.412.727,15)

(29.621.391,34)

(6.936.714,06)

(29.621.391,34)

1.157.473,38

(8.938.959,11)

29.553.298,05

38.492.257,16

Financi al investments

Investment cash fl ow (2)

Financing activities Revenues from: Loans obtained Reali zations of share capital and other equi ty instruments

Payments for: Loans granted Interes ts

Financing cash fl ow (3)

(Decrease)/ Increase in cash in the year (1) + (2) + (3) cash and cash equivalents at the begining of the period

4

changes in the perimeter cash and cash equivalents at the end of the period

4

(72.781,89)

-

30.637.989,53

29.553.298,05

Braga, April 18, 2017 the Board of Directors, dst - sgps, s.a.

the Certified Accountant number 55854, Page 58 of 111


Consolidated Annual Report 2016

Annex at December 31, 2016 Translation of financial statements originally issued in Portuguese. In case of discrepancy the Portuguese version prevails.

1.

Entity Identification

dst group was constituted in 1999, its registered office is in Palmeira – Braga, being the shareholder company DST – SGPS, S.A., which object is the management of shareholdings from other entities as an indirect form of exercises the economic activities in engineering and construction sector, water and sanitation, renewable energies, telecommunications and other services.

These financial statements are the Entity's individual financial statements. All the amounts presented in these notes are expressed in Euros, unless otherwise stated.

2.

Accounting referential for the financial statements preparation

2.1.

Accounting Normalization System (“SNC – Sistema de Normalização Contabilística”)

The financial statements herewith were prepared according with all standards of SNC, approved by the law-decree nº158/2009, of 13th July, republished by the law-decree nº 98/2015, of 2nd of June which includes the Accounting and Financial Reporting Standards (NCRF) adapted by the Accounting Normalization Committee (CNC) based on the International Financial Reporting Standards (IFRS) settled by the Accounting Standards Board (IASB) and adopted by the European Union (EU). In order to ensure the proper and true expression of the financial position and the entity’s performance, were used the standards that integrate the SNC, referred to above, in all aspects pertaining to the recognition, measurement and disclosure. However where the NCRF do not respond to particular aspects of transactions or situations are complementarily applied in the following order, the International Accounting Standards, as adopted pursuant to Regulation (EC) number 1606/2002 of the European Parliament and Council of July 19, the International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) as issued by the IASB, and respective SIC-IFRIC interpretations.

dst - sgps, s.a.

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Consolidated Annual Report 2016

Complying with the regulation that become effective on the 1st o January of 2016, we relive that the most significant impact on the financial statements of the entity that occurred in “Adjustments / other changes in equity” and in Other current liabilities, resulting in a raise in the adjustments/other changes in equity and a decrease in Other current liabilities in the amount of 9.988.788,10 euros, by virtue of the recognition, with prospective effects, of “Subsidies adjustments”, provided by the framework note for account “593 – allowance”.

3.

Main accounting policies

The main accounting policies used for the preparation of the financial statements are stated below. 3.1. Presentation basis The accompanying financial statements have been prepared assuming the business continuity, based on the historical cost convention and prepared from the dst group’s accounting records, kept in accordance with IFRS in force at the date of the financial statements preparation. The group adopted the provisions of IFRIC 12 - Service Concession Arrangements and SIC 29 - Disclosure - Service Concession Arrangements. The IFRIC 12 defines the rules to be followed in the concession arrangements, given the services provided and its control power over the concession assets. Under the concession activity, the Group recognised an intangible asset that represents the right to the infrastructure use and exploitation provided by the Grantor. Although it is the group responsibility to finance the infrastructure construction, since all goods are to integrate the concession and automatically will be subject to the non-transferability terms and assets reversal, are not considered as assets controlled by the Group, and therefore not recognised as tangible fixed assets. Through the analysis performed to the economic and financial rebalancing conditions provided on the concession agreement, it is founded that certain rebalancing conditions are directly associated with the demand risk, while others are on the Grantor’s dependence or other associated entities, and from the interest rates fluctuations in financial markets. And based on this analysis it was concluded that the rebalancing conditions act as a Grantor’s guarantee, limiting the margin earned by the Group and by placing a ceiling on the grant return. But that does not constitute a right to receive from the Grantor or his behalf, whereby the values invested in the concession were recognised as an intangible asset. Based on the IFRS provisions and complementarily on the IFRIC 12, the accounting policies adopted by the group were as follows:

dst - sgps, s.a.

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Consolidated Annual Report 2016

3.1.1. Continuity assumption Under the continuity assumption, the dst group has evaluated the information available and its future expectations, taking into account the entity's ability to continue with your business. Of the evaluation resulted that the business is able to proceed assuming its continuity.

3.1.2. Accruals assumption (or economic periodization) The dst group records its income and expenses in accordance with the rules of the increase, by which income and expenses are recognised as they are generated, regardless of when they are received or paid. The differences between the amounts received and paid and the corresponding income and expenses are recognised under "Deferrals" or "Other receivables� or “Other payables".

3.1.3. Consistency of presentation The items presentation and classification in the financial statements are consistent from one period to another.

3.1.4. Materiality and aggregation The materiality depends on the size and nature of the error or omission, sober in the circumstances that surround it. It is considered that the omissions or incorrect statements are materially relevant items if they can, individually or collectively, influence the economic decisions taken by users of financial statements. An item that is not materially relevant to justify its separate presentation on the face of the financial statements can however be relevant material to be presented separately in the notes to this annex.

3.1.5. Compensation The assets and liabilities, income and costs are reported separately in the respective items of the balance sheet and the income statement, so that no assets were compensated for any liability or any expense for any income, both vice-versa. Gains and losses arising from a group of similar transactions are reported on a net basis, ie, gains and losses from exchange rate differences and gains or losses arising on financial instruments held for trading. These gains and losses are reported separately if they are materially relevant.

dst - sgps, s.a.

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3.1.6. Comparative Information The accounting policies and measurement bases adopted at December 31, 2016 are comparable with those used in preparing the financial statements for December 31, 2015, with the exception of “Deferred tax liabilities” and “Other payables”, in so far as reflect the adjustments described in Note 2. The comparability of the information between periods is continuously improvement object in order to be increasingly an instrument of help to users allowing them to take economic decisions and assessing the trends in financial information for forecasting purposes.

3.2. Recognition and measurement policies used in the preparation of financial statements

3.2.1.

Transactions in foreign currency

The dst group’s financial statements are presented in euros; the euro is the functional and presentation currency. The transactions in foreign currency (currency other than the functional currency of the dst group) are recognised at exchange rates of the dates of the transactions. At each reporting date, the carrying amounts of monetary items denominated in foreign currency are updated at the exchange rates that date. The carrying amounts of non-monetary items are recognised at fair value denominated in a foreign currency are updated to the exchange rates of the dates on which the respective fair values were determined. The carrying amounts of non-monetary items are recognised at historical cost, denominated in a foreign currency are not upgraded. Positive or negative exchange differences driven out from differences between the exchange rates in force at the transaction dates and at the dates of collection, payment or of balance sheet are recognised as income and/or expenses in the period’s income statement as foreign exchange gains and/or losses. 3.2.2.

Tangible fixed assets

Tangible fixed assets are recognised at acquisition cost, net of related depreciation and any impairment losses. The acquisition cost includes all expenditure directly attributable to the acquisition of such assets and to their availability in local and operational conditions required. Subsequent charges are included in the acquisition cost of the asset or recognised as separate assets, as appropriate, when it is probable that future economic benefits will flow to the dst group through its use and its cost can be reliably measured.

dst - sgps, s.a.

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Tangible assets in progress, fixed assets still under construction or completion, are accounted for at acquisition cost deducted of eventual impairment losses. The depreciation of these assets starts at the moment that they are available for use. Depreciation are calculated from the straight-line method, applied annually under duodecimal attribution since the date the assets are ready for use and in the required conditions in terms of quality and technical, to operate according to intended by the dst group, considering the most appropriate economic rates to allow the full reintegration of the assets during their estimated useful lives. The estimated useful lives is determined taking into account the expected use of the asset by the dst group, the natural wear expected, the subjection to technical obsolescence and salvage value attributable. Provided that the dst group does not have a reliable estimate of the residual value of its assets it was considered null value for depreciation of tangible fixed assets purposes. Whenever there is evidence that a significant change occurred in the useful life or in the residual amount of an asset, its depreciation is reviewed on a prospective basis in order to reflect such new expectations. The average annual depreciation rates and the useful lives were considered as follows: Useful live

Annual Rate (%)

10 to 50

2 to 10

2 to 25

4 to 50

2 to 8

12.5 to 50

Office equipment

2 to 10

6.25 to 50

Artistic patrimony

8

12.5

4 to 20

5 to 25

Buildings and other structures Basic equipment Transport equipment

Other tangible fixed assets

The depreciation method and useful lives of the various assets are reviewed annually. The effect of any changes to these estimates will be recognised prospectively in the income statement. Repairs and maintenance expenses that do not increase the useful life of the assets and do not results in significant improvements in the elements of tangible fixed assets are recognised as an expense in the period in which they are incurred. The major repairs relating to the replacement of equipment are recorded in tangible fixed assets and depreciated at rates corresponding to the residual life of the respective assets. dst - sgps, s.a.

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The gains or losses resulting from the write-off or sale of tangible fixed assets are determined by the difference between the amount received from the sale and the assets' carrying amount and are recognised in the income statement as "Other revenues and income" or "Other losses and expenses", respectively.

3.2.3.

Intangible assets

Intangible assets are accounted for at acquisition cost deducted from amortizations and any accumulated impairment losses. Intangible assets only are recognised if it is probable that they will produce future economic benefits to the dst group and if they are controllable and can be reliably measured. Most intangible assets consist of software and are amortized in accordance with the straight-line method with duodecimal attribution since the date the assets are ready for use, considering the most appropriate economic rates to allow the full reintegration of the assets during their estimated useful lives. No residual value is considered. The average annual depreciation rates and the useful lives were considered as follows: Useful live

Annual Rate (%)

2 to 41

2.46 to 54.12

3

33.33

Industrial property

3 to 48

2.08 to 33.33

Others intangible assets

3 to 42

2.36 to 33.33

Granting rights Software

The gains or losses resulting from the write-off or sale of intangible fixed assets are determined by the difference between the sale price and the assets' carrying amount and are recognised in the income statement as "Other operating income" or "Other operating charges", respectively. The amortization cost of intangible assets with finite useful lives is recognised in the income statement under the heading "Depreciation and amortization net of reversals".

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There are some details below regarding the concession rights:

Concession rights related to the concession activity For the goods (which arise in infrastructure usage rights – IFRIC 12) with useful lives above the concession period, the amortization of initial investment or which may be subsequently adopted or imposed by the Grantor and that materialize in expansion or modernization of initial obligations, should normally be for a period of the concession. However, additional investments, modernization or expansion whose lifetime extends beyond the term of the concession, and that present residual value shall give rise to compensation equivalent to the amount not yet amortized at the date of the end of the concession. Depreciation is calculated by the sum of units, i.e. by depreciation of contractual investment in economic and financial feasibility study used, based on effluent flow rates charged during this period and the effluent to invoice until the end of the concession provided for in the feasibility study.

3.2.4.

Investment properties

Investment properties consist of land and buildings and other constructions whose purposes are to obtain rents and equity valorization and not for administrative purposes nor for sale in the course of the entity’s current activity. Investment properties are measured at cost less any accumulated impairment losses. The costs incurred with investment properties in use, such as maintenance, repairs, insurance and property taxes are recognised in the income statement of the period to which they relate. The improvements in respect of which it is estimated that generate future additional economic benefits are capitalized under investment properties. The average annual depreciation rates and the useful lives were considered as follows: Useful live

Annual Rate (%)

Land natural resources

5

20

Buildings and other constructions

20 to 50

2 to 5

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3.2.5.

Goodwill

The Goodwill corresponds to future economic benefits arising from assets which are not able to be individually identified and separately recognised. The Goodwill on Subsidiaries encompassed in the consolidation is reflected in their individualized heading in the balance sheet. The Goodwill on Subsidiaries not encompassed in the consolidation, the Associates and joint ventures is reflected in the value of the corresponding financial participation are presented in the balance sheet under the heading Financial investments – the equity method or Financial investments – other methods, as the case may be.

Where the acquirer's interest in the fair value of the assets, liabilities and contingent liabilities identifiable exceeds the cost of the business combination, the difference is immediately recognised in the results of the period after reevaluation of the identification and measurement of assets, liabilities and contingent liabilities identifiable from the acquired and the measurement of the cost of the concentration. When Goodwill is part of a cash-generating unit and part of an operation within that unit is disposed, the Goodwill associated with the alienated operation is included in the book value of the transaction to determine the gain or loss of operation. Goodwill derecognised under these circumstances is measured on the basis of relative values between the alienated operation and portion of the cash-generating unit maintained. Depreciation Under paragraph 46 of NCRF 14, Goodwill is amortized by the straight-line method, since it is an intangible asset with an indefinite useful life. The average annual depreciation rates and the useful lives for Goodwill were considered as follows:

Goodwill

Useful live

Annual Rate (%)

10 to 15.25

6.557 to 10

Impairment Impairment of Goodwill is tested at least annually. If events or changes in circumstances indicate that it might be impaired according to the NCRF 12 — impairment of assets, impairment of Goodwill is tested more frequently, i.e., whenever conditions so determine. Impairment losses of Goodwill cannot be reversed. dst - sgps, s.a.

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3.2.6.

Financial investments

a)

Financial investments - equity method

Investments in subsidiaries and associates are valued according to the equity method, defining themselves as such entities over which the Group exercises control or significant influence, generally investments representing more than 20% of the capital of a company, and they are not Joint Ventures. For the determination of control or significant influence are taken into consideration the interests existing at the present date in accordance with potential voting rights. According to the equity method, the financial investments are recognised at their acquisition cost, adjusted by the amount corresponding to the company participation in the net results of associates and subsidiaries, against profit or loss for the period, and by the dividends received, net of accumulated impairment losses. Any excess of the acquisition cost over the value of the equity percentage held is considered "Goodwill", being presented on an autonomous line in the balance sheet and its recovery analyzed annually as part of the investment, and if the difference is negative ("Badwill"), after reassessment of the valuation process and if it remains in the income statement, as it is realized. Is performed an assessment of investments in subsidiaries and associated companies or other when there are indications that the asset may be impaired, and recognised a loss in the income statement whenever it is confirmed. When the proportion of the entity in accumulated losses of associated company or subsidiary exceeds the value of the investment is recognised, the investment is reported at nil value while the equity of the associated company is not positive, except when the entity has made commitments to the associated our subsidiary company, registering such cases a provision under the liability item 'Provisions' to meet these obligations. The unrealized gains on transactions with associated companies are eliminated in proportion to the interest of the company in the associated company against the investment in these companies. The unrealized losses are similarly disposed, but only to the extent that the loss does not evidence that the asset transferred is in impaired. Subsequent to the date of acquisition, the carrying amount of investments: 

Was increased or decreased to recognise the part on the results of the investee after the date of the acquisition;



Was reduced by distributions of received results;



Was increased or decreased to reflect, by contrast, changes in the equity of the group in the reported interest in

dst - sgps, s.a.

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proportion resulting from these changes in equity that are not recognised in their results. In the measurement of these investments it was still respected the following provisions concerning the application of this method: 

The financial statements of joint ventures were already prepared, or were adjusted extra accounting, in order to match the Group's accounting policies before they can be used in the determination of equity effects;

The financial statements of joint ventures used in determining the equity effects consist of the same date of the Group;

The results arising from transactions ' ascendants ' and ' descendants ' are recognised only insofar as they correspond to the interests of other investors in associated, not related to the investor.

When the value of the investment is reduced to zero, additional losses are taken into account by the recognition of a liability when the company incurs legal obligations or constructive. When later the joint ventures report profits, the Group invested resumes its recognition only after its share of the profits equals the share of losses not recognised.

b)

Other financial investments

The entity uses the cost model in relation to investments in other entities in which the equity or proportional consolidation methods are not mandatory and in which it is unable to reliably determine their fair value, namely investments in companies with securities out of a regulated market. According to the cost model investments are initially recognised at acquisition cost, which includes transaction costs, and subsequently its value is decreased by eventual impairment losses. The entity uses the fair value model in financial investments in companies listed on a regulated market, whose fair value can be obtained and reliably determined.

Impairment The company evaluated the impairment of these assets at the end of the year. Whenever there was an objective evidence of impairment, the company recognised an impairment loss in the income statement. Objective evidence of impairment took into account observable data that called the attention about the following loss events: 

Significant financial difficulty of the issuer;

The disappearance of an active market for financial asset due to financial difficulties of the debtor;

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

Observable data indicating that there is a decrease in the measurement of the estimated future cash flows of a financial group assets since its initial recognition; and



Significant changes with an adverse effect occurring in the technological environment, market, economic or legal under which the issuer operates.

The company uses the fair value model in financial investments in companies listed on a regulated market and whose fair value can be obtained and reliably determined.

3.2.7. Inventories Goods, raw materials, subsidiary and consumable materials are valued at the lower of their average acquisition cost and net realizable value (estimated sales price net of costs to be incurred for their disposal), using the FIFO as cost formula. The finished and semi-finished products, by-products and products and work in progress are valued at production cost or net realizable value (if this is lower). The production costs include the cost of raw materials, direct labor and manufacturing overheads. If the net realizable value is lower, in particular due to the decrease in the market price, deterioration or obsolescence, rising of finishing or necessary costs to perform the sale, or of the recoverable value by using the conversion into finished products whose market price has been reduced, it is justified the recognition of impairments in the periods that the adjustment needs are found, using replacement cost as a reference. The reversal of impairment losses recognised in prior periods is recorded when there is evidence that impairment losses are no longer justified or decreased, being expressed in the income statement as "Impairment of inventory net of reversals". However, the reversal is only done up to the amount of the accumulated impairment losses. The expenses related to inventory sold are recorded in the same reporting period in which revenue is recognised.

3.2.8.

Leases

The classification as operating or financial leases depends on the respective contract’s substance and not on its form. Lease contracts are classified as finance leases, if through them are substantially transferred all the risks and rewards of ownership of the asset leased or otherwise as operating leases.

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Financial leases Tangible fixed assets acquired through financial lease contracts and their correspondent liabilities are recognised in accordance with the provisions of NCRF 9 - Leases. According to this method the cost of the asset is recorded as tangible fixed asset, the correspondent responsibility is accounted for as a liability and the financial charges included in the rent and the depreciations of the leased assets are recognised as expenses in the income statement in the period to which they relate. Operating leases In leases considered operational, the rents payable are recognised as expense in the income statement over the period of the lease and in accordance with the obligations inherent to these. 3.2.9.

Contingent assets and liabilities

Contingent assets are possible assets arising from past events and whose existence will only be confirmed if occurs, or not, one or more uncertain future events not wholly within the entity’s control. If it is probable the existence of future economic benefits, the entity does not recognise this contingent asset in its financial statements but promotes its disclosure. Contingent liabilities are defined as: (i) possible obligations arising from past events and whose existence will only be confirmed if occurs, or not, one or more uncertain future events not wholly within the entity’s control; or (ii) current obligations arising from past events that are not recognised because it is unlikely that resources flows affecting economic benefits are required to offset the obligation or because the amount of the obligation cannot be measured with enough reliability. Contingent liabilities are not recognised in the entity's financial statements but are disclosed unless the possibility of a funds outflow affecting future economic benefits is remote, in which case they are not even disclosed.

3.2.10. Provisions Provisions are recognised in accordance with the effectively required amounts to cover estimated losses, are revised at each balance sheet date and are adjusted to reflect the best estimate at that date. Provisions are recognised if and only if the entity has a present liability (legal or constructive) resulting from a past event and if it is probable that for the resolution of such obligation a resources outflow occurs and that the amount of the obligation can be reasonably estimated.

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Provisions for future operating losses are not recognised.

3.2.11.

Employee benefits

Short-term benefits The employees’ short-term benefits include wages, salaries, Social Security contributions, food allowances, holidays and Christmas subsidies and any other retribution eventually decided by the Board of Directors. Obligations resulting from short-term benefits are accounted for as expenses in the period in which the employee has provided services on an undiscounted basis against a liability that is extinguished with the payment. According to applicable labor legislation, the right to vacation and holiday allowance for the period, for this match the calendar year expires on 31 December of each year, being paid only during the following period, the corresponding expenses are recognised as short-term benefits and treated in accordance with the mentioned above. The benefits resulting from the employment’s cessation, either by unilateral decision of the entity, or by mutual agreement, are recognised as an expense in the period in which they occurred.

Long-term benefits The long-term benefits include a health insurance that covers all employees.

3.2.12.

Financial assets and liabilities

The financial assets and liabilities are accounted for in accordance with the following criterions:

Trade debtors and other receivables Trade debtors and other receivables balances are accounted for at their nominal value and disclosed in the balance sheet, deducted from any accumulated impairment losses, recognised under “Impairment on trade receivables net of reversals”, so as to reflect their net realizable value. These items when current do not include interest because they would be immaterial for the impact of discounting. At the end of each reporting period trade debtors balances are analyzed in order to assess whether there is any objective evidence that they are not recoverable.

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Impairment losses are recognised after events that indicate, objectively and in a quantifiable manner, that all or part of the balance will not be received. For this purpose, the entity takes into consideration market information that demonstrates that the trade debtor is in breach of its responsibilities, as well as historical information of overdue and not received balances. Objective evidence of impairment for a portfolio of receivables could include past experience of collecting payments, an increase in the number of delayed payments in, as well as changes in national or local economic conditions that correlate with default on receivables. The impairment loss is recognised as an expense in the income statement. Whenever defined / agreed with a client the settlement of respective debt into several installments, the dst group opted to value this same debt at amortized cost, satisfying all the conditions set out in IAS 27, namely that: - have a defined maturity; - returns to the holder are fixed amount, variable interest rate during the instrument life, with a typical index for financial market (Euribor) and plus a spread (5%); - does not contain any contractual clause that may result to the holder in loss of par value and accrued interest (excluding the typical cases of credit risk). Thus the difference between the nominal value and the initial fair value is recognised in the income statement over the period specified, using the effective interest method. Trade creditors and other payables Debts to suppliers or other third parties are accounted for at nominal value as they do not bear interest and the effect of discounting is immaterial. Its non- recognition only occurs when they cease their obligations under the contracts, particularly when there has been a liquidation, cancellation or expiration.

Advances from customers The Advances from customers are stated at nominal value. Discounted bills The entity writes-off financial assets from its financial statements only when it substantially transfers all the risks and benefits inherent to the ownership of such assets to a third party. If the entity substantially retains the risks and benefits inherent to the ownership of those assets, it continues recognizing them in its financial statements as liabilities related to obtained loans correspondent to the monetary counter-entry for the transferred assets. dst - sgps, s.a.

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State and others public entities The balance assets and liabilities under this heading are established on the basis of existing legislation. With regard to assets was not recognised any impairment by if it considers that this is not applicable given the specific nature of the relationship. Loans and other non-current payables Loans and other non-current payables are accounted for at cost as liabilities, net of transaction costs that are directly attributable to the issuance of these liabilities, being expressed in the balance in current or non-current liabilities depending on their maturity occurs within or more than one year, respectively. Its non- recognition only occurs when they cease their obligations under the contracts, particularly when there has been a liquidation, cancellation or expiration. The interest and other costs incurred in financings are calculated according to the effective interest rate and recognised in the income statement for the period in accordance with the increase presupposition. The “non-asset-related financial charges” are recognised as expenses of the period being registered in the income statement under “Interest payable and similar charges”. Financial assets The entity uses the fair value model in the valuation of shares held in companies listed on a regulated market, whose fair value can be obtained and determined viably. Cash and cash equivalents The cash and cash equivalents balance includes cash, bank deposits and other short-term investments that can be immediately mobilized without significant risk of value fluctuations. Financial liabilities and equity instruments Financial liabilities and equity instruments are classified according to the substance of the contractual transaction, regardless of their legal form.

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A financial instrument is classified as a financial liability when there is a contractual obligation to their settlement to be effected by delivering cash or another financial asset. Financial liabilities are initially recorded at cost, net of transaction costs incurred. An equity instrument is classified as such when there is not a contractual obligation to their settlement to be effected by delivering cash or another financial asset, evidences a residual interest in the assets of an entity after deducting all of its liabilities. Costs directly attributable to issue of equity instruments are recognised in equity as a deduction of issue. Amounts paid or received for purchases and sales of equity instruments are recognised in equity, net of transaction costs.

Other financial liabilities This heading includes derivative financial instruments for which there is actual coverage under the NCRF 27. Are only considered financial instruments to hedge the effective portion of derivatives that are designated as such and that the entity expects that the changes in fair value or cash flows attributable to the hedged item, that risk is being covered, will compensate for virtually any changes in fair value or cash flows of the hedging instrument. Changes in the fair value of derivative instruments risk coverage of interest rate variability are recognised in equity in the rubric "Financial assets adjustments " in its effective component and in results, under the heading "Increase/decrease in fair value", in its actual not component. The values recorded under the heading "Financial assets adjustments" are transferred to results for the heading "Increase/decrease in fair value" in the period in which the hedged item has no effect on results. Hedge accounting is discontinued when the hedging instrument reaches maturity, when it is sold or exercised or when the relationship ceases to meet the coverage requirements on NCRF 27 - Financial Instruments. The effective portion of the hedge derivative instruments are presented in the balance sheet under "Other financial assets" or "Other financial liabilities" depending on their nature is, respectively, a debtor or creditor and as non-current or current depending on the heading where as their instruments covered are presented in the balance sheet.

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3.2.13. Equity items Financial assets adjustments This account includes the adjustments related to the application of the equity method, namely the ownership of changes in equity of the subsidiaries and unassigned profits. Non-controlling interests Non-controlling interests are part of the results and of the net assets of subsidiaries attributable to equity interests which are not owned, directly or indirectly through subsidiaries, by the shareholder company. This heading includes: 

Capital;



Results for the period;



Other items of capital whose variations of the year, together with the results of the period, make up the full result

3.2.14.

Revenue

Revenue comprehends income associated with sales and services rendered. Revenue is recognised on sales when the buyer takes the risks and benefits inherent to the ownership of the goods sold and as what concerns to services revenue is recognised in the income statement when such services are rendered, taking into consideration the proportion of services rendered in the period and the total services agreed. Revenue is not recognised when it is related to situations of uncertainty of acceptance or payment of those services. Whereas invoiced services are higher than the services rendered, the difference is recorded as income to be recognised and is accounted for in the income statement at the time such services are rendered and the correspondent expenses are incurred.

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3.2.15.

Construction contracts

The entity recognises the construction works’ results contract per contract in accordance with the completion percentage method, which is understood to be as the relationship between the expenses incurred on each work at a determined date and the sum of those expenses with the expenses estimated to be incurred for its completion. The differences between the amounts resulting from the application of the completion percentage method with the estimated income and invoiced amounts are accounted for as non-invoiced production or advanced invoicing, which are included within as "Other receivables - Receivables from accrued income " (Asset) or "Deferred - Income to recognise" (Liability). Changes in work from the amount of revenue settled in the correspondent contract are recognised in the period’s results when it is probable that the customer accepts the revenue amount arising from the variation and that this can be reliably measured. Claims for costs reimbursement not included in the contract price are included in the contract’s revenue when negotiations are at such an advanced stage that it is probable that the customer accepts the complaint and that it is possible to measure it reliably. When it is probable that the construction contract’s total expenses exceed the income defined therein, the expected loss is immediately recognised in the period’s income statement.

3.2.16.

Subsidies and other support from public entities

The subsidies are recognised at their fair value when there is sure to be received and that the entity will comply with the conditions of the grant. Operational subsidies are intended to cover expenses incurred and recorded, particularly with the development of vocational training actions, and they are recognised as income as the expenses are incurred, regardless of the time of receipt of the grant. The non-refundable subsidies for financing tangible fixed assets and intangible fixed assets are recognised in the balance sheet under "Adjustments / Other changes in equity", net of the associated tax amount (as set out in the note to the account "593 - subsidies "), by the amount of the incentive corresponding to investment subsidies. In liabilities, under "Other payables" (account 28 - "Income to be recognised"), the part corresponding to operating subsidies (income related subsidies) is recognised.

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3.2.17.

Impairment of assets

At each reporting date, and whenever are disclosed an event or changes in circumstances indicating that the asset’s recorded amount may not be recoverable an impairment of assets evaluation is assessed. Whenever the amount by which the asset is recorded is higher than its recoverable amount, is recognised as an impairment loss recorded in the income statement as "'Impairment of investments depreciables/amortizables net of reversals� or as "Impairment on trade receivables net of reversals", if it respects the non-depreciable assets. The recoverable amount is the higher of the net selling price and value in use. The net selling price is the amount obtainable from the sale of the asset in a transaction between independent entities, less the costs directly attributable to the sale. The value in use is the present value of estimated future cash flows that are expected to arise from the continued use of the asset and from its sale at the end of its useful life. The recoverable amount is estimated for each asset individually or, if not possible, to the unit generating cash flows to which the asset belongs. After the recognition of an impairment loss, the expense related to the amortization/depreciation of the asset is adjusted in future periods to allocate the asset's revised carrying amount, less its residual value (if any) on a systematic basis over the useful life remaining. Whenever events or changes in circumstances indicate that the carrying amount of an asset is recorded can not be retrieved, it made a new assessment of impairment. Reversal of impairment losses recognised in previous years is registered when it is concluded that previously recognised impairment losses no longer exist or have decreased. A reversal of an impairment loss is recognised in the income statement under aforementioned. The reversal of the impairment loss is made up to the amount that would be recognised (net of amortization or depreciation) if the impairment loss had not been recorded in previous periods.

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3.2.18.

Income tax

The expense relating to period’s income tax corresponds to the sum of current and deferred taxes. Current income tax is based on the entity’s taxable profits in accordance with the enforceable tax regulations, whilst deferred taxes result from temporary differences between accounting and tax assets and liabilities. The taxable profit is different from the accounting result, provided that it excludes expenses and revenues that are taxable or deductible in other periods. The taxable profit also excludes expenses and revenues that will never be taxed or deducted. The entity shall record deferred taxes related to temporary differences between the carrying amount of assets and liabilities and the corresponding tax base as provided in NCRF 25 - Deferred income taxes, whenever it is probable that future taxable profits will be generated against which the differences temporary and can be used based on the standard rate of corporation tax to the balance sheet date. Deferred taxes assets and liabilities are calculated and annually evaluated based under the tax rates in force or announced to be in force at the time of the expected reversal of temporary differences. The deferred tax assets are recognised only when there is a reasonable expectation of future taxable profits to be deducted from such assets, or in situations where there are taxable temporary differences to offset the deductible temporary differences in the period of its reversal. At each reporting date a review of those deferred tax assets is carried out and such are adjusted in accordance with the expectations concerning their future use. Current and deferred taxes are accounted for in the income statement except when are related to items directly recognised as equity. In these cases, the correspondent deferred taxes are also recognised as equity. Tax returns may be subject to review and possible corrections by the tax authorities for a period of four years (five years for Social Security). So corrections may be made for the years 2013 and following, not being expected, however, that the possible course corrections will significantly affect the financial statements. The above time limit may be extended or suspended provided that tax benefits have been obtained, there are inspections, claims or contestations ongoing, or has been tax losses, in which, over a period of six years after its occurrence, relatively to previous periods to 2010, four years for the period from 2010 to 2014 and five years for subsequent periods, these are susceptible of deduction to the taxable income that may be generated.

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The taxes are not paid, relating to the current period or the previous are recognised as a liability at the amount that is estimated to be paid based on the rates and tax laws applicable to the balance sheet date. However, if the amounts already paid in respect of such periods exceed the amounts due, are recognised as assets to the extent of the excess. Current tax is also conditioned by the adjustments, positive or negative, which are to be recognised in the period for current tax of previous periods. The tax effects of the transition adjustments resulting from the succession of accounting standards are regulated by article 5 of the Law-decree number 159/2009 of July 13, which provides that such adjustments contribute to the formation of profit taxable in a 5 year period, in equal parts, beginning in 2010 and ending in 2016. 3.3.

Other significant accounting policies:

Basis of consolidation The consolidated financial statements include, as at December 31, 2016 and 2015, the assets, liabilities and results of group companies, understood as a set of dst group and its subsidiaries, which are presented in note 5.

As described in no. 6 of Law-Decree no. 158/2009 of July 13, with the amendments resulting from Law-Decree no. 98/2015 of July 2, approving the SNC, the entity presents the consolidated accounts of the group constituted by itself and by all subsidiaries on which: a)

Regardless of the ownership of capital, it is found that, in alternative:

Is able to exercise, or actually exercises, dominant influence or control;

Pursuing the management as if the two constitute a single entity;

b)

Being holder of capital, when one of the following situations occurs:

Has a majority of the voting rights, unless it is demonstrated that such rights do not confer the respective control;

Has the right to appoint or remove a majority of the members of the management board of an entity with the power to govern the financial and operating policies of that entity;

Exercises a dominant influence over an entity, pursuant to a contract celebrated with this entity or from another clause of this social contract;

Holds at least 20% of the voting rights and the majority of the holders of the management board of an entity empowered to govern the financial and operating policies of that entity, reports during the financial year to which the consolidated financial statements, as well as, in the preceding financial year and up to the moment they are prepared, have been appointed solely as a result of the exercise of its voting rights;

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

Available, by itself or by virtue of an agreement with other holders of the capital of this entity, a majority of its voting rights of capital holders.

Subsidiaries are companies controlled by the dst group and are consolidated by the full consolidation method since the date of acquisition, which is the date on which the group gets control, and continue to be consolidated until the date that control ceases to exist. In the consolidation process, transactions, balances and unrealised profits on intragroup transactions and dividends between group companies are eliminated. Unrealised losses are also eliminated, unless the transaction reveals evidence of the existence of impairment in assets transferred and not alienated. The jointly controlled financial investments are included in the consolidation by the proportional consolidation method, from the date that joint control is acquired until the date on which it actually ends. Under this method, assets, liabilities, income and expenses of these businesses were incorporated in consolidated financial statements, line by line, in proportion to the assigned control of dst group. Associated companies are entities over which the investor has significant influence and which are not considered subsidiaries or joint ventures. The financial participations in associated companies are consolidated by the equity method, that is, the financial statements include the Group's interest in the total of income and expense recognised of the associate, from the date that significant influence begins until the date on which it actually ends. The dividends received from these companies are recorded as a reduction in the value of financial holdings. The shares, in relation to which the group does not carry significant influence over their activity, are recognised at the lower value between the purchase cost and the value of achievement. The amounts of equity of consolidated subsidiaries by integral method, attributable to the shares held by third parties unrelated to the companies included in the consolidation are included in the consolidated balance sheet under the heading of Non-controlling interests. Non-controlling interests on the net income of consolidated subsidiaries are identified and adjusted against the results of the Group and included in the consolidated income statement under the heading of non-controlling interests.

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3.4. Judgments and estimates (assumptions and uncertainties) The preparation of financial statements in conformity with NCRF standards requires the consideration of certain accounting estimates and assumptions that affect the reported assets and liabilities or revenues and expenses amounts. When necessary, all estimates and assumptions considered by the Board of Directors were made based under its best knowledge of events and transactions in progress at the date of the approval of the financial statements. Changes to these estimates, which occur after the date of the financial statements, will be recognised in the income statement prospectively.

3.5. Main assumptions concerning the future The financial statements were prepared on a going concern basis from the books and accounting records of the entity.

4.

Cash flow

The cash flow statement is prepared in accordance with the direct method, disclosing receipts and cash payments by operating, investing and financing activities. The cash and bank deposits present the following composition:

Cash in hand Cash at bank Term deposits Total cash in hand, at bank and term deposits

31.12.2016

31.12.2015

94.555,97 17.005.969,44 13.537.464,12 30.637.989,53

84.307,47 14.242.428,96 15.226.561,62 29.553.298,05

There are no amounts of cash and cash equivalents unavailable for use.

dst - sgps, s.a.

Page 81 of 111


Consolidated Annual Report 2016

5.

Related parties

a)

Group companies included in consolidation by the full consolidation method

The companies included in consolidation in December 31, 2016 and 2015, their registered offices and proportion of capital held directly and indirectly are as follows COMPANIES

Headquarters

% Participation 31.12.2016 31.12.2015

2bpartner, sociedade capital de risco, s.a. blu, s.a. bysteel uk limited bysteel, s.a. bysteel FS, s.a. derivadas e segmentos, s.a. despertavantagem, s.a. domingos da silva teixeira - angola, s.a. domingos da silva teixeira - imobiliária, s.a. domingos da silva teixeira, s.a. dst - wind, s.a. dst 2gether II - s.a. dst 2gether, sgps, s.a. dst ambiente, sgps, s.a. dst center, s.a. dst energias renováveis, sgps, s.a. dst engenharia & construção, sgps, s.a. dst hydro,s.a. dst internacional II, sgps, s.a. dst Internacional III, sgps, s.a. dst internacional, sgps, s.a. dst moçambique, lda. dst real estate, sgps, s.a. dst solar, s.a. dst telecomunicações, sgps, s.a. dstrainrail, s.a. dst ventures, sgps, s.a. dstelecom, alentejo e algarve, s.a. dstelecom, norte, s.a. dstelecom, s.a. dte, instalações especiais, s.a. global sun, s.a. innovation point - investigação e desenvolvimento, s.a. investhome - construção e imobiliária, s.a. ipplus, s.a. perfil dinamico, lda tagregados, s.a. tconcrete, s.a. tgeotecnia, s.a. v partner, s.a.

dst - sgps, s.a.

Braga Braga London, United Kingdom Braga Braga Braga Braga Luanda, Angola Braga Braga Braga Braga Braga Braga Braga Braga Braga Braga Braga Braga Braga Maputo, Mozambique Braga Braga Braga Braga Braga Braga Braga Braga Braga Braga Braga Braga Braga Braga Braga Braga Braga Braga

85,81% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 70% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

85,81% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

Page 82 of 111


Consolidated Annual Report 2016

b)

Associated companies

The associated companies valued by the equity method, their registered offices and proportion of capital held directly, less than 50%, are as follows: COMPANIES

Headquarters

Barcelos Futuro, S.A. Caminhaequi , S.A. dst áfrica, l da. EOL Verde - Energia Eólica, S.A. Geswater - Águas e Resíduos, S.A. MINHOCOM Gestão de Infraestruturas de telecomuni cações, EIM Parque Eóli co Al to Vaca, Lda. VALICOM Gestão de Infraestruturas de tel ecomunicações, EIM VentoMinho - Energi as Renováveis, S.A. WAY2B, SGPS, S.A.

c)

Companies consolidated by proportional method COMPANIES Agonia Parque Construção, ACE Assoc - Obras Públicas, ACE Assoc/Soares da Costa, ACE Construtores Águas da Linha, ACE Criar Vantagens - Águas e Resíduos, Lda. DST Visabeira, ACE Parque Emp. de Tavira, ACE Steelgreen, S.A. Teatro Circo, ACE Way2B, ACE

d)

Barcel os Caminha Maputo, Mozambique Esposende Braga Val ença Porto Arcos de Valdevez Esposende Braga

% Participation 31.12.2016 31.12.2015 25,50% 25,50% 51% 51% 49% 49% 25% 25% 33,33% 33,33% 48,49% 48,49% 25% 25% 48,49% 48,49% 25,63% 25,63% 20% 20%

Headquarters Viana do Castelo Braga Braga Braga Braga Lisbon Tavira Braga Braga Braga

% Participation 31.12.2016 31.12.2015 33,33% 33,33% 14,29% 14,29% 14,29% 14,29% 12,50% 12,50% 33,33% 33,33% 50% 50% 50% 50% 50% 25% 25% 20% 20%

Other indirectly subsidiaries, which percentage of participation is less than 20%, and the investment is registered by the cost method are as follows: COMPANIES Conceito Original, S.A.

dst - sgps, s.a.

Headquarters Braga

% Participation 31.12.2016 31.12.2015 20% 20%

Page 83 of 111


Consolidated Annual Report 2016 e)

Remuneration of Corporate Bodies

The Corporate Bodies’ remuneration of the dst group in the exercise of their duties in the periods of 2w15 and 2015 was as follows:

Board of directors Auditors

6.

2016

2015

1.215.420,17 103.524,95 1.318.945,12

1.096.559,82 110.196,96 1.206.756,78

Tangible fixed assets

Information relating to the carrying amounts of tangible fixed assets with reference to 2016 period may be analyzed as follows: Description 1 Initial gros s book value 2 Initial accumulated depreciations 3 Initial accumulated impairment loss es 4 Initial net carrying amount (4 = 1 - 2 - 3) 5 Movements of the period:(5 = 5.1 - 5.2 + 5.3 + 5.4) 5.1

5.2

5.3 5.5 5.6 6

dst - sgps, s.a.

Total additions New acquisitions Changes of perimeter Other acquisitions Others Total disposals Depreciations Changes of perimeter Sales Reductions Transferences of TFA under construction Transferences of/for financial as sets available for sale Other transferences Final net book value (6 = 4 + 5)

Land and other resources

Buildings and other structures

Basic equipment

Transport equipment

Administrative equipment

1.405.016,40 72.436.113,53 39.428.254,48 13.367.992,18 1.049.321,13 7.474.375,31 26.388.920,50 11.543.521,73 355.695,27 64.961.738,22 13.039.333,98 1.824.470,45

Artistic patrimony

TFA under construction

Others

Total

6.156.896,31 5.561.644,64 595.251,67

7.500,00 5.781,25 1.718,75

7.281.407,18 2.977.639,22 4.303.767,96

765.708,14 1.609.151,61 1.407.874,46 24.108,02 174.898,37 2.270,76 843.443,47 805.968,94 37.071,86 402,67 -

(127.695,73) 197.036,52 176.895,98 18.287,68 283,32 1.569,54 324.732,25 301.529,22 23.203,03 -

(937,50) 937,50 937,50 -

(681.129,48) 274.763,52 132.886,58 140.412,84 1.464,10 955.021,33 738.289,27 218.376,05 (1.643,99) -

-

-

-

-

-

-

-

5.796,99 355.695,27 63.372.506,23 11.372.298,62

2.590.178,59

467.555,94

781,25

(871,67) 3.622.638,48

(137.409,10) 237.975,26

(132.483,78) 82.112.080,99

- (1.589.231,99) (1.667.035,36) 3.272.352,17 1.915.474,95 3.091.267,97 1.364.453,33 180.705,52 541.385,07 558,00 378,68 9.078,55 5.605.831,95 3.597.718,42 5.095.588,36 2.923.523,96 509.937,07 670.446,34 306,52 1.426,95 2.321,17 744.247,79 9.411,12 -

-

931.961,34 141.015.141,41 55.001.203,77 931.961,34 86.013.937,64 (693.986,08) 289.594,87 289.550,52 44,35 61,59 61,59 (846.110,26)

(3.901.856,65) 7.558.373,63 6.462.928,84 904.899,12 175.739,69 14.805,98 11.327.746,50 9.865.837,25 1.459.095,93 1.733,47 1.079,85 -

Page 84 of 111


Annual Report 2016 Information relating to the carrying amounts of tangible fixed assets with reference to 2015 period may be analyzed as follows: Description 1 Initi al gross book val ue 2 Initi al accumul ated depreci ati ons 3 Initi al accumul ated impai rment losses 4 Initi al net carryi ng amount (4 = 1 - 2 - 3) 5 Movements of the period:(5 = 5.1 - 5.2 + 5.3 + 5.4) 5.1

5.2

5.3 5.4 5.5 5.6 6

Land and other resources

Buildings and other structures

Basic equipment

Transport equipment

Administrative equipment

2.357.256,92 70.732.081,44 37.632.161,00 12.437.686,32 1.049.321,13 3.868.380,59 23.412.660,81 10.738.203,83 1.307.935,79 66.863.700,85 14.219.500,19 1.699.482,49

(952.240,52) (1.901.962,63) (1.180.166,21) Total additions 324.554,78 2.426.226,00 1.881.973,67 New acquisi ti ons - 1.990.468,88 1.481.842,88 Changes of perimeter 363.438,57 Other acquisi tions 324.554,78 435.445,17 8.317,14 Esti mativa de custos de desmantelamento e remoção Trabalhos para a própria enti dade Acrésci mo por revalorização Others 311,95 28.375,08 Total disposals 1.276.795,30 4.335.062,58 3.399.444,12 Depreciations - 3.605.994,72 2.976.259,69 Changes of perimeter 267.427,92 Sal es 1.276.795,30 724.292,96 151.784,95 Reductions 4.774,90 3.971,56 Others Reversals of impai rment losses Trans ferences of TFA under construction 6.873,95 337.304,24 Trans ferences of/for fi nancial assets avail abl e for sale Other transferences Final net book value (6 = 4 + 5) 355.695,27 64.961.738,22 13.039.333,98

Artistic patrimony

TFA under construction

Others

Total

5.915.747,73 5.288.375,98 627.371,76

7.500,00 4.843,75 2.656,25

7.164.488,12 2.203.764,28 4.960.723,85

1.376.877,14 137.623.798,66 - 46.565.550,36 1.376.877,14 91.058.248,31

124.987,96 1.251.188,75 847.891,81 8.467,90 363.763,92 31.065,12 1.126.200,79 805.317,90 8.064,73 285.055,57 27.762,59 -

(32.120,08) 281.511,17 227.252,60 45.471,38 6.906,94 1.880,25 315.168,90 273.268,67 36.719,72 5.742,39 (561,88) 1.537,64

(937,50) 937,50 937,50 -

(656.955,89) 161.638,63 158.031,64 2.171,82 580,00 855,17 819.249,92 773.874,95 1.393,70 44.372,92 (391,65) -

(444.915,80) 903.856,73 903.856,73 (345.715,83)

(5.044.310,67) 7.230.949,73 5.609.344,54 419.549,67 1.139.567,95 62.487,57 11.272.859,10 8.435.653,42 313.606,07 2.488.044,09 35.555,52 -

-

-

-

-

-

-

1.824.470,45

595.251,67

1.718,75

655,40 4.303.767,96

(1.003.056,70) 931.961,34

(1.002.401,30) 86.013.937,64

In the periods of 2016 and 2015, the “Costs and reversals of depreciation and amortization” had the following composition: 2016 Description

Tangible fixed assets Investment properties Intangible assets Goodwill

Depreciation and Reversals of amortization depreciation and costs amortization

Total

Depreciation and Reversals of amortization depreciation and costs amortization

Total

(9.865.837,25)

-

(9.865.837,25)

(8.435.653,42)

-

(282.898,13)

-

(282.898,13)

(265.828,84)

-

(265.828,84)

(4.279.509,28)

-

(4.279.509,28)

(3.954.999,49)

-

(3.954.999,49)

(8.127.881,58)

-

(8.127.881,58)

-

-

-

- (22.556.126,24)

(12.656.481,74)

(22.556.126,24)

dst - sgps, s.a.

2015

(8.435.653,42)

- (12.656.481,74)

Page 85 of 111


Consolidated Annual Report 2016 Tangible fixed assets are recognised in accordance with the accounting policy described in Note 3 above. The net tangible fixed assets are in their entirety affects to the only activity of the entity and there are no assets held by third parties. In the period were not recorded any impairment losses, due to be convinced of the Administration that the recoverable amount of the asset exceeds its carrying amount.

7.

Leases

The information concerning leases as of December 31, 2016 is as follows: Financial Leases Description

1 Initial gross book value 2 Accumulated amortizations / depreciations 4 Final net book value (4 = 1 - 2 - 3) 5 Total future minimum lease payments at balance sheet date: 5.1 Up to one year 5.2 From one to five years

Tangible fixed Investment assets properties 5.887.533,08 1.795.309,44 4.092.223,64 4.175.819,70 1.309.219,63 2.866.600,07

549.501,33 95.334,21 454.167,12 417.383,19 62.640,09 354.743,10

Total

6.437.034,41 1.890.643,65 4.546.390,76 4.593.202,89 1.371.859,72 3.221.343,17

The information concerning leases as of December 31, 2015 is as follows: Financial Leases Description

1 Initial gross book value 2 Accumulated amortizations / depreciations 4 Final net book value (4 = 1 - 2 - 3) 5 Total future minimum lease payments at balance sheet date: 5.1 Up to one year 5.2 From one to five years

dst - sgps, s.a.

Tangible fixed assets 4.346.666,93 1.714.824,71 2.631.842,22 3.032.684,82 866.531,50 2.166.153,32

Investment properties 549.501,33 78.998,77 470.502,56 473.162,80 62.640,09 410.522,71

Total

4.896.168,26 1.793.823,48 3.102.344,78 3.505.847,62 929.171,59 2.576.676,03

Page 86 of 111


Consolidated Annual Report 2016

8.

Investment properties

The information related to the carrying amounts of investment properties, with reference to the 2016 period can be analyzed as follows: Cost model Description

1 2 3 4 5 5.1 5.2

6

Initial gross book value Initial accumul ated depreciations Initial accumul ated impairment l osses Initial gross carrying amount (4 = 1 - 2 - 3) Movements of the period:(5 = 5.1 - 5.2) Total additions Total disposals Depreciations Sales Final net book val ue(6 = 4 + 5)

Land and other Buildings and resources other structures

Total

5.054.840,84 10.462,68 5.044.378,16

12.302.619,94 610.615,75 11.692.004,19

17.357.460,78 621.078,43

(75.096,10) 75.096,10 25.110,43 49.985,67 4.969.282,06

(344.637,80) 344.637,80 257.787,70 86.850,10 11.347.366,39

(419.733,90) 419.733,90 282.898,13 136.835,77 16.316.648,45

16.736.382,35

The information related to the carrying amounts of investment properties, with reference to the 2015 period can be analyzed as follows: Cost model Description

1 2 3 4 5

Initial gross book value Initial accumulated depreciations Initial accumulated impairment losses Initial gross carrying amount (4 = 1 - 2 - 3) Movements of the peri od:(5 = 5.1 - 5.2) + 5.3 + 5.9) 5.1 ..‌+ Total additions Outras 5.2 Total disposals Depreciations Sales 6 Final net book value(6 = 4 + 5)

dst - sgps, s.a.

Land and other Buildings and resources other structures

Total

4.674.468,70 4.674.468,70

12.150.592,08 355.249,59 11.795.342,49

16.825.060,78 355.249,59

369.909,46 380.372,14 380.372,14 10.462,68 10.462,68 5.044.378,16

(103.338,30) 152.027,86 152.027,86 255.366,16 255.366,16 11.692.004,19

266.571,16 532.400,00 532.400,00 265.828,84 265.828,84 16.736.382,35

16.469.811,19

Page 87 of 111


Consolidated Annual Report 2016

9.

Goodwill

The consolidation differences ("Goodwill") are the result of positive differences between the acquisition cost of the shares and the proportion of their capital at the time of purchase. In December 31, 2016 and 2015 this item displays the following composition: Consolidation Differences 31.12.2016 31.12.2015

COMPANIES Domingos da Silva Teixeira, S.A. VentoMinho - Energi as Renováveis, S.A. Criar Vantagens - Águas e Resíduos, Lda. - consolidated Total

47.366.215 18.681.516 14.204.739 80.252.471

61.436.723 19.992.500 15.176.499 96.605.722

The movement occurred in Goodwill in the period is indicated in the following table: COMPANIES

Opening Balance

domingos da silva teixei ra, s.a. VentoMinho - Energias Renováveis, S.A. Criar Vantagens - Águas e Resíduos, Lda. - consolidated Total

Acquisitions

61.436.723 19.992.500 15.176.499 96.605.722

Other variations

-

(14.070.508) (1.310.984) (971.760) (16.353.251)

Final balance

47.366.215 18.681.516 14.204.739 80.252.471

10. Intangible assets Information related to the carrying amount of intangible assets with reference to the 2016 period may be analyzed as follows:

Description

Concession rights

Software

With finite useful economic life: 4 Initial gross book value 60.739.974,73 4.152.699,12 5 Initial accumulated depreciations 28.139.687,25 3.086.209,15 6 Initial accumulated impairment losses 7 Initial net carrying amount (7 = 4 - 5 - 6) 32.600.287,48 1.066.489,98 Movements of the period:(8 = 8.1 - 8.2 + 8.3 + 8.4 + 8 8.5 + 8.6) (3.509.993,96) (691.204,29) 8.1 Total additions 138.728,86 310.556,29 New acquisitions 138.728,86 264.957,67 Changes of perimeter 45.598,62 8.2 Total disposals 3.780.922,69 1.048.476,58 Depreciations 3.206.432,93 1.002.807,95 Changes of perimeter 45.668,63 Reductions 574.489,76 8.3 Reversals of impairment losses 8.4 Transferences of Intangible assets under construction 132.199,87 8.5 Transfers to and from non-current assets held for sale 8.6 Other transferences 46.716,00 9 Final net book value (9 = 7 + 8) 29.090.293,52 375.285,69

dst - sgps, s.a.

Industrial Property

Others

355.205,61 932.985,44 214.949,16 427.354,40 140.256,46 505.631,05

Intangible assets under construction

Total

283.770,10 66.464.635,00 - 31.868.199,95 283.770,10 34.596.435,06

(52.562,11) (25.934,60) (42.285,99) (4.321.980,95) 23.194,81 32.224,97 97.434,04 602.138,97 13.402,99 32.224,97 97.434,04 546.748,53 9.791,82 55.390,44 75.756,91 59.882,57 - 4.965.038,75 11.284,91 58.983,49 - 4.279.509,28 64.472,00 110.140,63 899,08 575.388,84 1.723,00 (133.922,87) (5.797,16) 40.918,84 87.694,35 479.696,45 241.484,11 30.274.454,11

Page 88 of 111


Consolidated Annual Report 2016

Information related to the carrying amount of intangible assets with reference to the 2015 period may be analyzed as follows:

Description

With finite useful economic life: 4 Initial gross book value 5 Initial accumulated depreciations 6 Initial accumulated impairment losses 7 Initial net carrying amount (7 = 4 - 5 - 6) Movements of the period:(8 = 8.1 - 8.2 + 8.3 + 8.4 + 8.5 + 8 8.6) 8.1 Total additions New acquisitions

8.2

8.3 8.4 8.5 8.6 9

Changes of perimeter Others Total disposals Depreciations Changes of perimeter Sales Reductions Reversals of impairment losses Transferences of Intangible assets under construction Transfers to and from non-current assets held for sale Other transferences Final net book value (9 = 7 + 8)

Concession rights

Software

Industrial Property

Intangible assets under construction

Others

Total

50.662.734,20 3.942.570,02 352.738,38 892.588,10 21.079.112,69 2.079.094,02 202.192,77 386.142,63 29.583.621,51 1.863.476,01 150.545,62 506.445,47

252.465,46 56.103.096,16 - 23.746.542,10 252.465,46 32.356.554,06

3.016.665,97 (796.986,03) (10.289,16) 10.009.896,28 118.149,10 2.467,23 101.605,12 118.149,10 2.118,06

(814,43) 40.045,56 36.846,93

31.304,64 2.239.881,00 132.053,77 10.302.611,94 131.273,15 389.992,36

9.908.291,16 349,17 3.198,63 7.090.129,57 1.007.115,13 12.756,39 41.216,66 2.894.169,94 1.007.115,13 12.502,65 41.211,77 4.166.404,62 253,74 29.555,01 4,89 96.899,26 356,67 91.980,00 32.600.287,48 1.066.489,98 140.256,46 505.631,05

780,62 9.909.420,95 3.198,63 3.493,20 8.154.710,95 - 3.954.999,49 - 4.166.658,36 3.493,20 3.493,20 29.559,90 (97.255,93) 91.980,00 283.770,10 34.596.435,06

11. Financial investments - equity method Variations in “Financial investments – equity method”, with reference to the 2016 period are as follows: Investments in associated companies Equity method: Initial gross book val ue Initial net carrying amount Movements of the period Share of associates' profits Dividends received from associates Changes of investee's equity not recognised in the i ncome statement Other movements of the period Final net book value

dst - sgps, s.a.

Total

47.869.125,56 47.869.125,56 47.869.125,56 47.869.125,56 2.803.253,50 2.803.253,50 7.426.536,88 7.426.536,88 4.544.564,56 4.544.564,56 968.334,71

968.334,71

(1.047.053,53) (1.047.053,53) 50.672.379,05 50.672.379,05

Page 89 of 111


Consolidated Annual Report 2016

Variations in “Financial investments – equity method”, with reference to the 2015 period are as follows: Investments in associated companies Equity method: Initial gross book value Initial net carrying amount Movements of the period Other acquisi tions Share of associates' profits Divi dends received from associates Changes of investee's equity not recognised in the income statement Sales Other movements of the period Fi nal net book val ue

Total

45.089.861,82 45.089.861,82 45.089.861,82 45.089.861,82 2.779.263,74 2.779.263,74 12.750,00 12.750,00 7.709.894,86 7.709.894,86 4.030.807,46 4.030.807,46 724.192,56

724.192,56

8.028,82 8.028,82 (1.628.737,40) (1.628.737,40) 47.869.125,56 47.869.125,56

In the periods of 2016 and 2015, the “Gains/losses charged to subsidiaries, associates and joint-ventures” had the following composition:

Description

Losses and expenses Revenues and income

2016

2015

(63.554,90)

(103.057.580,72)

7.568.567,96

110.764.494,35

7.505.013,06

7.706.913,63

12. Other financial investments Variations in “Other financial investments” in reference to the 2016 period are as follows: Investments Other financial in others investments companies Other methods: Ini tial gross book value Ini tial net carrying amount Movements of the period: Other acquisitions Sales Other movements of the period Final net book value

dst - sgps, s.a.

1.732.801,42 1.732.801,42 (93.081,76) 11.717,13 (104.798,89) 1.639.719,66

163.444,77 163.444,77 415.882,03 496.919,99 66.224,85 (14.813,11) 579.326,80

Total

1.896.246,19 1.896.246,19 322.800,27 508.637,12 66.224,85 (119.612,00) 2.219.046,46

Page 90 of 111


Consolidated Annual Report 2016

Variations in “Other financial investments” in reference to the 2015 period are as follows: Investments Other financial in others investments companies Other methods: Ini tial gross book value Ini tial net carrying amount Movements of the period: Other acquisitions Sales Other movements of the period Final net book value

2.168.717,68 2.168.717,68 (435.916,26) 1.544,26 41.612,56 (395.847,96) 1.732.801,42

266.200,22 266.200,22 (102.755,45) 69.140,93 163.468,84 (8.427,54) 163.444,77

Total

2.434.917,91 2.434.917,91 (538.671,71) 70.685,19 205.081,40 (404.275,50) 1.896.246,19

In the periods of 2016 and 2015, the “Increase/decrease in fair value” decomposed as follows: 2016 Description

Financial investments

Reductions

2015

Increases

Total

Reductions

Increases

Total

(88.518,14)

-

(88.518,14)

(266.528,95)

389,63 (266.139,32)

(88.518,14)

-

(88.518,14)

(266.528,95)

389,63 (266.139,32)

13. Inventories As of December 31, 2016 and 2015, inventories’ balance was as follows:

Description

31.12.2016

31.12.2015

15.188.589,45

15.686.521,38

6.575.030,92

5.623.272,96

28.058,02

1.339.575,13

Products and work in progress

3.594.935,52

3.082.264,83

Prepayments

1.311.538,31

1.311.538,32

26.698.152,22

27.043.172,62

Goods Raw, subsidi ary and consumable materials Fini shed goods

dst - sgps, s.a.

Page 91 of 111


Consolidated Annual Report 2016

During 2016 period, the “Changes in production stocks and work in progress” was as follows:

Description 1 2 3 4

Closi ng stocks Stocks reclassification and regularization Opening stock Changes in stocks (4 = 1 + 2 - 3)

Finished goods

Products and work in progress

Total

28.058,02 (207.844,52) 1.339.575,13

3.594.935,52 3.082.264,83

3.622.993,54 (207.844,52) 4.421.839,96

(1.103.672,59)

512.670,69

(591.001,90)

During 2015 period, the “Changes in production stocks and work in progress” was as follows:

Description 1 2 3 4

Closing stocks Stocks reclassifi cati on and regularizati on Opening stock Changes in stocks (4 = 1 + 2 - 3)

Finished goods

Products and work in progress

Total

1.339.575,13 3.082.264,83 4.421.839,96 889.727,69 (2.347.533,33) (1.457.805,64) 89.925,15 4.420.659,07 4.510.584,22 359.922,30 1.009.139,09 1.369.061,39

The movements occurred in the “Cost of goods sold” balance in 2016 was as follows:

Description 1 2 3 4 5

Opening stocks Purchases Stocks reclassificati on and regul arization Closing stoks Cost of goods sol d (5 = 1+ 2 + 3 - 4)

Goods 15.683.413,27 4.090.421,00 15.184.842,84 4.588.991,43

Raw, subsidiary and consumable materials 5.626.381,07 45.258.130,06 6.578.777,53 44.305.733,60

Total 21.309.794,34 49.348.551,06 21.763.620,37 48.894.725,03

The movements occurred in the “Cost of goods sold” balance in 2015 was as follows:

1 2 3 4 5

Description

Goods

Opening stocks Purchases Stocks reclassification and regularization Closing stoks Cost of goods sold (5 = 1+ 2 + 3 - 4)

17.197.713,15 (699.461,94) 15.683.413,27 814.837,94

dst - sgps, s.a.

Raw, subsidiary and consumable materials 8.017.336,48 59.611.191,22 5.626.381,07 62.002.146,63

Total 25.215.049,63 58.911.729,28 21.309.794,34 62.816.984,57

Page 92 of 111


Consolidated Annual Report 2016

In the periods of 2016 and 2015, the “Impairment of inventory net of reversals” in receivable accounts balance was as follows:

Description

Goods

2016 Reversals of impairment losses

Impairment losses

-

2.634.088,67 2.634.088,67

2015 Reversals of impairment losses

Impairment losses

Total

2.634.088,67 2.634.088,67

(3.102.462,05) (3.102.462,05)

Total

- (3.102.462,05) - (3.102.462,05)

14. Trade debtors As of December 31, 2016 and 2015, the balance of “Trade debtors” was as follows:

Description

31.12.2016

31.12.2015

Trade debtors - current accounts

52.402.400,43

47.566.266,93

Trade debtors - bills of exchange

228.061,52

594.905,95

2.933.104,56

2.886.295,58

11.210.487,04

8.862.469,84

66.774.053,55

59.909.938,29

(11.210.487,04)

(8.862.469,84)

55.563.566,51

51.047.468,45

Trade debtors - with guarantee Trade debtors - doubtful accounts

Accumulated impairment losses

As of December 31, 2016 and 2015, the balance of trade debtors’ doubtful debts was as follows: 31.12.2016 Relating to insolvency and business recovery or enforcement proceedings

31.12.2015

231.171,57

416.253,71

Litigation claims

4.897.405,53

5.400.148,69

Delayed receivables

6.081.909,94

3.046.067,44

11.210.487,04

8.862.469,84

As of December 31, 2016 and 2015, the balance of prepayments was as follows: Description

Trade debtors - current accounts

dst - sgps, s.a.

31.12.2016

31.12.2015

-

127.434,63 127.434,63 Page 93 of 111


Consolidated Annual Report 2016

In the periods of 2016 and 2015, the “Impairment losses” in receivable accounts balance was as follows:

Description

Trade debtors

Impairment losses

(2.611.479,57) (2.611.479,57)

2016 Reversals of impairment losses 35.505,33 35.505,33

2015 Reversals of impairment losses

Impairment losses

Total

(2.575.974,24) (2.575.974,24)

(372.425,58) (372.425,58)

1.794.871,99 1.794.871,99

Total

1.422.446,41 1.422.446,41

15. Financial assets As of December 31, 2016 and 2015, the balance of “Financial assets” was as follows: Description

31.12.2016

31.12.2015

663.789,67

742.748,42

663.789,67

742.748,42

Non-current liabilities Derivatives with effective coverage Variable interest rate swaps

16. Other receivables As of December 31, 2016 and 2015, the balance of “Other receivables” was as follows:

Description

31.12.2016

31.12.2015

Interests Works in progress

1.074.981,20

1.737.519,11

2.954.209,33

2.082.801,53

Services

1.028.354,64

1.548.290,66

413.839,53

442.292,49

1.254.772,44

1.234.391,68

6.726.157,14

7.045.295,47

2.910.197,42

2.916.671,84

17.001.266,59

22.960.583,25

26.637.621,15

32.922.550,56

Debtors for income accruals

Water sales Others Other investment debtors Other debtors

dst - sgps, s.a.

Page 94 of 111


Consolidated Annual Report 2016

17. State and other entities As of December 31, 2016 and 2015, the “State and other entities’” balance was as follows:

Description

31.12.2016

31.12.2015

Assets 491.737,73

371.294,30

3.703.246,62

3.734.676,38

708.682,57

417.424,23

4.903.666,92

4.523.394,91

Corporate tax

539.812,17

594.480,95

Income tax withholding

398.201,38

367.846,89

Value added tax

938.136,19

83.570,81

Social Security contributions

830.814,74

762.906,60

Others

311.393,96

329.898,32

3.018.358,44

2.138.703,56

Corporate tax Value added tax Others Liabilities

18. Deferrals As of December 31, 2016 and 2015, the deferrals’ balance was as follows:

Description

31.12.2016

31.12.2015

Deferred costs Future services al ready invoiced

811.221,77

557.871,04

-

18.000,00

Advertisi ng Insurance Rents Interest payable Bank charges Other cos ts

76.696,79

69.851,98

148.974,39

136.140,72

55.460,35

41.444,54

108.081,90

104.074,75

854,71 1.201.289,91

163.034,62 1.090.417,65

Deferred income Future services al ready invoiced Construction contracts Rents

1.186.865,12

541.358,87

11.722.429,71

16.933.967,97

61.930,04

61.357,40

12.971.224,87

17.536.684,24

19. Share capital The entity's share capital remained unchanged in the period, consisting of 5.000,000 shares, registered and nominative, with a nominal value of six euros. The share capital is totally realized. dst - sgps, s.a.

Page 95 of 111


Consolidated Annual Report 2016

20. Provisions As of December 31, 2016 and 2015, the “Provisions” balance was as follows:

Description

31.12.2016

31.12.2015

Provis ions for investments replacement

641.056,99

764.926,37

Sludges provisions

333.333,00

333.333,00

49.596,62

49.596,62

2.564.915,83

2.344.028,18

Current litigation

665.325,75

666.774,22

Provis ions work in progress - NCRF 19

889.981,56

786.920,52

Other provisions

256.685,77

211.208,66

5.400.895,52

5.156.787,57

Taxes provisions Provis ions for guarantees to trade debtors

The increase / decrease in the “Provisions” balance during the 2016 and 2015 periods, were as follows: 2016 Description

Reinforcement

Current litigation Provisions for investments replacement Other provisions

2015

Reversal

Final Balance

Reinforcement

Reversal

Final Balance

(18.445,47)

-

(18.445,47)

(41.955,00)

-

(4.400,30)

128.269,79

123.869,49

(677,98)

73.150,55

(41.955,00) 72.472,57

(772.601,19) 1.106.300,27

333.699,08

(989.689,01)

227.437,15

(762.251,86)

(795.446,96) 1.234.570,06

439.123,10

(1.032.321,99)

300.587,70

(731.734,29)

21. Loans obtained As of December 31, 2016 and 2015, the balance of “Loans obtained” was as follows: Description

31.12.2016

31.12.2015

Long term loans

84.669.783,58

86.072.642,27

Financial leases

3.221.343,17

2.576.676,03

Commercial paper

3.875.000,00

3.875.000,00

Investment projects

1.878.206,52

2.836.777,46

Non-current liabilities

240.733,13

240.733,13

93.885.066,39

95.601.828,88

Short-term loans

21.815.927,81

13.940.538,28

Revolving credit

8.749.835,34

16.954.928,67

Overdrafts

3.311.612,35

3.092.015,93

Financial leases

1.371.859,72

929.171,59

771.535,68

253.560,77

36.020.770,91

35.170.215,23

Others Current liabilities

Investment projects

dst - sgps, s.a.

Page 96 of 111


Consolidated Annual Report 2016

22. Trade creditors As of December 31, 2016 and 2015, the balance of “Trade creditors” was as follows: Description

31.12.2016

31.12.2015

34.499.944,03

42.271.740,25

Trade creditors - bil ls of exchange

2.641.384,67

4.235.987,97

Trade creditors - invoices in conference

2.282.714,69

3.063.356,59

Trade creditors - with guarantee

6.944.010,28

6.718.658,74

329.734,96

341.929,40

46.697.788,63

56.631.672,95

Trade creditors

Others

23. Other payables As of December 31, 2016 and 2015, the balance of “Other payables” was as follows: Description

31.12.2016

31.12.2015

12.485.435,18

14.652.204,16

Non-current liabilities Concession revenue

9.363.926,60

-

21.849.361,78

14.652.204,16

Staff costs

1.310.760,52

1.153.590,58

Investment trade creditors

1.209.333,75

1.274.504,71

Prepayments

1.125.721,00

1.092.221,00

113.847,16

140.506,82

3.555.479,19

3.277.007,60

346.143,28

321.672,41

General and administrative expenses

2.172.159,64

2.771.066,72

Other costs accruals

3.728.610,52

3.109.002,32

9.916.239,79-

9.619.255,86-

616.865,64

-

Subsidies adjustments to investment Current liabilities

Creditors for costs acrruals Insurances Staff costs Interests

Subsidies adjustments to investment

-

710.899,13

3.124.851,31

3.110.290,79

22.666.234,41

18.215.044,65

Concession revenue

1.897.097,60

2.149.337,02

Loans obtained

4.230.013,93

4.237.191,67

Others

5.180.900,94

12.522.991,80

51.278.018,89

54.085.327,21

Deferred tax liabilities Factoring Confirming

dst - sgps, s.a.

Page 97 of 111


Consolidated Annual Report 2016 24. Deferred tax assets and liabilities The changes in the balance of “Deferred tax assets and liabilities�, with reference to the 2016 period was as follows: 01.01.2016 Balance Tax Deferred tax assets Trade debtors impairments Reportable tax losses NCRF 19 - Provisions Provisions for other risks and charges Swaps' fair value recognition Depreciated cost Others

Non-current Current Deferred tax liabilities Investment subsi dy

Non-current Current

dst - sgps, s.a.

1.947.420,30 395.870,73 235.386,67 1.234.220,59 630.635,77 162.668,37 4.606.202,43

488.665,14 93.504,67 54.228,76 321.180,60 167.118,48 44.699,22 1.169.396,87

Variation Balance 74.875,33 (73.384,71) (177.734,42) (67.040,60) (8.066,63) 28.042,75 (223.308,27)

Tax 15.062,69 (16.511,56) (47.099,62) (17.765,76) (2.086,66) 7.431,33 (60.969,59)

31.12.2016 Balance Tax 2.022.295,64 395.870,73 162.001,96 1.056.486,17 563.595,17 154.601,74 28.042,75 4.382.894,16

1.169.396,87 -

50.954.415,97 10.699.687,24 50.954.415,97 10.699.687,24 9.988.788,11 710.899,13

503.727,82 93.504,67 37.717,20 274.080,98 149.352,72 42.612,56 7.431,33 1.108.427,28 1.108.427,28 -

(50.954.415,97) (10.699.687,24) (50.954.415,97) (10.699.687,24)

-

-

Page 98 of 111


Consolidated Annual Report 2016 The changes in the balance of “Deferred tax assets and liabilities�, with reference to the 2015 period was as follows: 01.01.2015 Balance Tax Deferred tax assets Trade debtors i mpai rments Reportable tax losses NCRF 19 - Provisions Provisions for other risks and charges Swaps' fair value recognition Depreciated cost

Non-current Current Deferred tax liabilities Investment subsidy

Non-current Current

dst - sgps, s.a.

3.341.134,37 562.255,81 63.337,87 1.186.298,66 748.991,43 165.933,40 6.067.951,55

813.421,39 140.957,71 15.517,78 308.481,29 198.482,73 45.527,97 1.522.388,87

Variation Balance Tax (1.393.714,06) (166.385,08) 172.048,80 47.921,92 (118.355,66) (3.265,03) (1.461.749,11)

(324.756,25) (47.453,04) 38.710,98 12.699,31 (31.364,25) (828,75) (352.992,00)

1.522.388,87 52.414.317,56 11.006.266,65 52.414.317,56 11.006.266,65 10.299.229,12 707.037,53

31.12.2015 Balance Tax 1.947.420,30 395.870,73 235.386,67 1.234.220,59 630.635,77 162.668,37 4.606.202,43

488.665,14 93.504,67 54.228,76 321.180,60 167.118,48 44.699,22 1.169.396,87 1.169.396,87 -

(1.459.901,59) (1.459.901,59)

(306.579,41) (306.579,41)

50.954.415,97 10.699.687,24 50.954.415,97 10.699.687,24 9.988.788,11 710.899,13

Page 99 of 111


Consolidated Annual Report 2016 25. Sales and services rendered In the periods of 2016 and 2015, the balance of “Sales and services rendered� was as follows: 2016 Description

Real estate sal es Goods sales Products sales Servi ces

National market

2015

Foreign market

Total

National market

Foreign market

Total

405.500,00

-

405.500,00

128.000,00

-

128.000,00

13.627.172,29 4.353.728,19

59.986,29 262.234,21

13.687.158,58 4.615.962,40

10.353.671,87 5.986.992,59

56.438,55 8.529.719,35

10.410.110,42 14.516.711,94

155.685.828,00 23.781.720,30 179.467.548,30

154.946.476,26

26.221.179,18 181.167.655,44

174.072.228,48 24.103.940,80 198.176.169,28

171.415.140,72

34.807.337,08 206.222.477,80

26. Own work In the periods of 2016 and 2015, this balance was as follows:

Description

Tangibl e fixed

dst - sgps, s.a.

2016

2015

23.787,26

67.696,63

23.787,26

67.696,63

Page 100 of 111


Consolidated Annual Report 2016

27. Other external charges In the periods of 2016 and 2015, this balance was as follows:

Description

2015

54.991.690,08

57.378.459,35

Electricity

2.757.515,13

2.737.134,21

Fuels

3.556.845,49

4.442.942,63

Water and other fluids

699.989,56

743.835,16

Tools

634.001,35

610.307,46

Office stationeri es

131.085,34

78.661,35

12.940.078,21

12.196.144,14

76.549,72

59.404,35

Communicati on

497.221,37

501.419,17

Insurance

994.508,28

818.735,75

Transport of goods

1.079.665,21

450.738,99

Travel and accommodation

2.036.945,46

1.987.281,37

55.085,74

86.781,29

Fees

285.769,33

474.983,58

Legal expenses

142.975,42

202.320,29

2.612.255,82

3.272.265,63

Adverti si ng and promotion

210.646,67

165.946,28

Cleaning and hygiene

233.720,70

142.265,37

Security

864.938,43

795.257,92

5.089.562,72

4.999.692,26

Software licenses

694.351,86

588.780,01

Tolls

680.727,49

717.277,14

Others

876.867,76

809.056,52

92.142.997,14

94.259.690,19

Subcontractors

Rents and rental s Representation expenses

Comissions

Mai ntenance and repai rs

Specialised labour

dst - sgps, s.a.

2016

Page 101 of 111


Consolidated Annual Report 2016

28.

Employees benefits, number of employees and staff costs

28.1. Number of employees Companies

31.12.2016

31.12.2015

dst - sgps, s.a.

5

5

2bpartner, scr, s.a.

2

2

blu, s.a.

3

1

bysteel uk li mited bysteel, s.a. bysteel, s.a. - França

177

23

23

747

734

derivadas e segmentos, s.a.

-

-

despertavantagem, s.a.

-

-

98

73

cri ar vantagens - águas e resíduos, l da.

domingos da sil va tei xeira - angol a, s.a. domingos da sil va tei xeira, s.a.

414

469

dst - wind, s.a.

1

1

dst 2gether II - s.a.

-

-

dst 2gether, sgps, s.a.

-

-

dst ambiente, sgps, s.a.

-

-

dst energi as renováveis, sgps, s.a.

-

-

dst engenhari a & construção, sgps, s.a.

-

-

dst hydro, s.a.

1

1

dst i nternacional II, sgps, s.a.

-

-

dst i nternacional , sgps, s.a.

-

-

dst moçambique, lda.

-

3

dst real estate, sgps, s.a.

-

-

dst sol ar, s.a.

16

9

dst tel ecomunicações, sgps, s.a.

-

-

dst ventures, sgps, s.a.

-

-

dstel ecom, alentejo e algarve, s.a.

-

-

dstel ecom, norte, s.a.

-

-

dstel ecom, s.a.

44

42

dstrainrai l, s.a.

6

-

155

125

global sun, s.a.

7

23

i nnovati on point - i nvesti gação e desenvolvimento, s.a.

6

4

i nvesthome - construção e imobi li ária, s.a.

-

16

i nvesthome - sgps, s.a.

-

-

i pplus, s.a.

-

-

perfi l di namico, l da.

-

-

steel green, s.a.

-

17

tagregados, s.a.

6

5

tconcrete, s.a.

4

4

tgeotecnia, s.a.

-

-

vpartner, s.a.

4

-

way2b, ace

-

-

1.817

1.833

dte, i nstal ações especiai s, s.a.

Total

dst - sgps, s.a.

166

Page 102 of 111


Consolidated Annual Report 2016

28.2. Staff costs In the periods of 2016 and 2015, this balance was as follows:

Description

Board of directors remmunerati ons Salari es

2016

2015

1.215.420,17

1.096.559,82

23.512.015,22

21.111.872,89

143.554,04

190.600,00

4.991.811,65

4.485.921,97

Working and professional illness insurance

412.099,12

412.804,25

Social action costs

346.708,28

350.554,32

80.635,97

88.842,93

Health and life insurance

110.008,66

148.665,47

Other staff costs

202.073,65

170.075,77

31.014.326,76

28.055.897,40

2016

2015

Compensations Social charges

Formation

29. Other operating income In the periods of 2016 and 2015, this balance was as follows:

Description

Other operating income

3.786.755,43

2.708.091,07

-

4.450.000,00

Sal e of non-financial investments

128.063,52

479.327,52

Exchange gains

458.001,02

1.428.717,85

Cash di scounts

181.139,89

137.566,44

Financi al investments

Prior years adjustments Overestimated tax provision Other subsidies Investment subsidies Tax refunds Contractual penali ties Gains in stocks Other extraordinary income

dst - sgps, s.a.

-

748,61

667.039,41

2.510.097,28

6.295,88

11.675,53

3.723.118,45

4.266.016,25

1.000,00

-

200.073,62

186.038,68

2.880,43

3.999,29

1.067.948,58

1.541.979,28

10.222.316,23

17.724.257,79

Page 103 of 111


Consolidated Annual Report 2016

30. Other operating charges In the periods of 2016 and 2015, this balance was as follows:

Description

2016

Taxes and charges Cash discounts Bad Debts Financial investments Sale of non-financial i nvestments Prior years adjustments

2015

704.842,12

790.551,13

1.366,56

25.243,21

266.450,12

1.346.988,15

-

42.791,78

40.834,46

838.974,78

3.445,23

21.394,65

Donations

72.588,50

156.431,17

Contributi ons

23.664,41

21.823,25

5.761,44

4.158,38

2.527.854,59

1.917.141,71

814.612,35

1.219.001,95

Underestimated tax provision Exchange losses Bank guarantees costs Bi ll of exchange costs Factoring costs Confirming costs

340,18

631,66

53.618,39

141.833,57

104.087,39

104.490,53

Self-confirming costs

28.078,76

245,21

Fines and penal ties

91.234,36

711.650,99

Damages on third parties

8.592,68

28.947,76

Compensations

2.787,62

3.672,08

Losses in stoks

3.797,19

3.451,91

Banking services

725.150,08

635.775,92

Other losses and expenses

302.784,26

260.665,19

5.781.890,69

8.275.864,95

31. Interest and other similar revenues In the periods of 2016 and 2015, this balance was as follows:

Description

Contractual interests and interests for delayed recei vables Current loans interest Bank deposits interest

dst - sgps, s.a.

2016

2015

85.862,47

280.445,42

211.595,03

263.683,71

46.236,07

157.716,86

Other short-term investments interest

237.859,47

193.692,08

Other financial i ncome

202.791,25

156.573,39

784.344,29

1.052.111,46 Page 104 of 111


Consolidated Annual Report 2016

32. Interest and other similar expenses In the periods of 2016 and 2015, this balance was as follows:

Description

2016

Bank l oans interest

2015

3.749.744,46

4.194.787,40

Factoring interest

21.635,28

147.481,43

Lease i nterest

72.846,99

75.556,74

Confirming interest

47.214,29

46.889,63

-

9.411,90

Self-confirmi ng interest Penalty interests and interests for delayed Other loans payments interest

152.267,68

26.229,63

116.647,51

409.953,13

Bill of exchange interest

4.092,06

9.224,77

965.299,28

2.689.605,07

Banking services

108.785,21

102.312,56

Guarantees commi ssions

170.858,98

196.803,99

81.700,17

66.356,16

5.491.091,91

7.974.612,41

Other interest Other financial costs

Others

33. Income tax The current tax expense (income) is indicated in the following table:

Description

Taxes Corporati on tax Deferred taxes

dst - sgps, s.a.

2016

2015

2.153.062,92

2.358.510,00

(37.448,63)

(705.068,16)

2.115.614,29

1.653.441,84

Page 105 of 111


Consolidated Annual Report 2016

34. Commitments related to obtained guarantees As of December 31, 2016 the entity had bank guarantees to replace bidders’ bails amounting to 78,772,721.66 Euros, 190,142,000 kwanzas, 163.750 GBP and 8.480.100,08 cape verde escudo as follows: International

National Euros

AKZ

GBP

CVE

Banco BIC

4.720.891,49

-

-

-

BANCO POPULAR

1.295.352,31

-

-

-

BARCLAYS

201.721,15

-

-

-

BBVA

492.796,72

-

-

-

BCP

1.664.000,44

-

-

-

BPI

14.035.105,92

-

-

-

CGD

26.396.350,48

190.142.000

Novo Banco

12.905.619,70

-

-

-

SANTANDER

5.288.005,79

-

-

-

10.078.886,92

-

-

-

Grantors entities Others BARCLAYS

1.693.990,74

-

TOTAL 78.772.721,66

190.142.000

163.750,00 8.480.100,08

163.750,00 8.480.100,08-

As of December 31, 2015 the entity had bank guarantees to replace bidders’ bails amounting to 71,926,149.08 Euros, 1,147,500 USD, 190,142,000 kwanzas, 500.000 meticais and 8.480.100,08 cape verde escudo as follows: International

National Euros SANTANDER

USD

AKZ

MZN

CVE

5.925.784,48

997.500,00

-

-

-

BCP

2.930.710,91

-

-

-

-

BPI

14.625.225,90

-

- 500.000,00

-

648.350,02

-

-

-

-

BBVA BARCLAYS

209.316,14

-

-

-

-

Novo banco

10.056.958,09

-

-

-

-

CGD

18.173.201,44

BANIF

150.000,00 190.142.000,00

- 8.480.100,08

923.927,52

-

-

-

-

BANCO POPULAR

1.520.470,17

-

-

-

-

Banco BIC

5.164.042,04

-

-

-

-

10.078.886,82

-

-

-

-

1.669.275,54

-

-

-

-

Grantors entities Others BARCLAYS

TOTAL 71.926.149,08

dst - sgps, s.a.

1.147.500,00 190.142.000,00 500.000,00 8.480.100,08

Page 106 of 111


Consolidated Annual Report 2016

35. Events after the balance sheet date Between the reporting date of the Financial Statements (December 31, 2016) and the clearance date for its disclosure (April 18, 2017), there were no material facts warranting disclosures or changes to the Financial Statements for the period.

36. Disclosures required by law The Management Board reports that the entity has no debts to the State in arrears in accordance with Law-decree number 534/80 of November 7. Pursuant the requirements of the Article 210 of the Contributory Code, published by the Law number 110/2009 of September 16, the Management Board informs that the situation of the entity with respect to Social Security is regularized within the legally stipulated deadlines. Pursuant to the requirements of the Article 66º of the Code of Commercial Companies, the entity informs that the Statutory Auditor’s charged fees (Chartered Accountant) amounted to 103,524.95 Euros, which solely cover the statutory audit services. During the period ended December 31, 2016, the dst group in research and development (“R&D”) expanses amounting 1.105.057,95 euros considered eligible for the use of the Tax Incentive System in Business Research and Development (“SIFIDE II”), pursuant to article 6 of Law no. 40/2005, in the wording given by Law No. 162/2014, whereby the Tax Incentives Certification Commission for Business R&D awarded to the dst group a tax credit amount of 808,597.75 euros. As in the 2015 taxation period, the dst group’s companies taxed under the Special Taxation Regime of Companies’ Groups (“RETGS”) in which it is inserted, did not obtain a sufficient Corporate Income Tax (IRC) collection to deduct that tax credit, the amount of 133,221.76 euros will be used by the dst group in the 2016 taxation period. In 2016, the dst group also incurred R&D expenses of 1.504.625,14 euros that could be eligible for the use of SIFIDE II. In this sense, the dst group is preparing a candidacy to address the Tax Incentives Certifying Committee for Business R&D, to obtain a declaration proving that the activities carried out effectively correspond to R&D activities. If such request is granted by the competent authorities, the dst group will be able to benefit from a corporate income tax (IRC) deduction of 898,015.17 euros. Pursuant to the requirements of paragraphs 1 and 2 of Article 23 of Investment Tax Code (ITC), dst group considered an tax benefit related to the Tax Regime of Investment Support (TRIS) relative to 2016 of 43,181.44 euros, corresponding to 25% of this year eligible investment (172,725.74 euros). dst - sgps, s.a.

Page 107 of 111


Consolidated Annual Report 2016

37. Clearance date to financial statements disclosure The financial statements for the period ended December 31, 2016 were approved by the Board of Directors and authorized to disclosure on April 18, 2017.

Braga, April 18, 2017

The Board of Directors,

The Certified Accountant number 55854,

José Gonçalves Teixeira; Executive Chairman

Susana Maria Macedo Queirós

Avelino Gonçalves Teixeira; Executive Vice-Chairman

Joaquim Gonçalves Teixeira; Non-Executive Vice-Chairman

João Martins Negrais de Matos; Executive Member of the Board of Directors

Hernâni José Gonçalves Teixeira; Non-Executive Member of the Board of Directors

dst - sgps, s.a.

Page 108 of 111


Consolidated Annual Report 2016

D)

Legal Certification of Consolidated Accounts

dst - sgps, s.a.

Page 109 of 111


Consolidated Annual Report 2016

dst - sgps, s.a.

Page 110 of 111


Consolidated Annual Report 2016

E)

Report and Opinion of the Sole Fiscal Auditor

dst - sgps, s.a.

Page 111 of 111

r&c consolidado dst sgps 2016 en  

r&c consolidado dst sgps 2016 en