Annual Report 2018
www.nav.pt
TABLE OF CONTENTS
0MESSAGE FROM THE CHAIRMAN ...... 2
1KEY INDICATORS...... 4
2OVERVIEW OF THE YEAR ...... 5
3COMPLIANCE WITH LEGAL GUIDELINES ...... 16
4STRATEGY ...... 36
5BUSINESS EVOLUTION ...... 41
6INVESTMENTS ...... 47
7HUMAN RESOURCES ...... 51
8ECONOMIC AND FINANCIAL ANALYSIS ...... 59
9RESEARCH AND DEVELOPMENT ...... 71
10OUTLOOK ...... 76
11PROPOSAL FOR THE APPROPRIATION OF PROFITS ...... 80
12FINANCIAL STATEMENTS AND APPENDIX ...... 81
13 REPORT AND OPINION OF THE AUDIT COMMITTEE
14 LEGAL CERTIFICATION OF ACCOUNTS
15 REPORT OF THE EXTERNAL AUDITORS
March/19 1 NAV Portugal, E.P.E. – 2018 Annual Report
0MESSAGE FROM THE CHAIRMAN
The year 2018 was a landmark in the Company's history. Not only because it marked the start of the Company's twentieth year of operations but, above all, because it saw the decision taken to join the COOPANS Consortium, as a result of which this Alliance of ANSPs, as a whole, has become the biggest European air traffic control operator.
The importance of this decision goes beyond the underlying adoption of the TOPSKY system, which will leverage new capacities adequate to the growth in air traffic that the Portuguese network of airport infrastructures will be accommodating. The significance of this decision, along with other investment options in the area of surveillance, communications and air navigation, is essentially due to the fact that it will provide the company with technological instruments that will place it at the cutting edge of the innovation demanded by the changes that will inevitably occur in the architecture of European airspace.
If one believes that the sovereignty of each State will never be in any doubt, the survival of the role of the respective ANSPs may be called into question. This is why it is imperative that NAV Portugal should position itself at the forefront of the European spectrum of air traffic control and management.
But the transformations required are not merely technological in nature. The organisational restructuring, which is ongoing but has yet to be completed, must continue in order to ensure that the company is capable of responding adequately to the challenges it will face as a result of the new regulatory requirements, with regard to safety and efficiency.
A new reference period is about to start and the lessons learned during RP2 must not be ignored if the company's competitiveness and economic sustainability are not to be called into question.
The decisions taken towards the end of the financial year by the Portuguese Government – authorising the implementation of the personnel recruitment plan presented – and by the European Commission – authorising the revision of the performance indicators for the years 2018 and 2019 under the terms proposed by NAV Portugal – lent consistency to the decision to join the COOPANS Alliance and create conditions for a more optimistic future.
March/19 2 NAV Portugal, E.P.E. – 2018 Annual Report
But much still remains to be done, with regard to both technology and human resource management, requiring the updating of the collective labour agreements in order to bring them into line with the new reality in the sector.
A final word about the company's financial performance, especially in comparison to last year. The impact of the evolution of the capital markets led to an increase, in comparison to the previous year, of actuarial liabilities resulting from the expected return on financial assets, as explained in the report, to the tune of 17 million euros; this, in and of itself, completely negated the measures to contain costs and increase income associated with the review of the performance indicators for the financial year.
With the optimism that the Company's performance justifies, reflected in the various indicators revealed throughout this report, it should be noted that this was only possible due to the quality and commitment shown by all the Company's employees and the support that was constantly available from the sectoral and financial oversight authorities, endorsing or authorising decisions or proposed decisions by the Company's Management.
A word of thanks must go to the members of the Supervisory Board for the prompt collaboration and attention always given to the concerns raised by the Management.
Lisbon, 14 March 2019
The Chairman of the Board of Directors
Jorge Manuel da Mota Ponce de Leão
March/19 3 NAV Portugal, E.P.E. – 2018 Annual Report
1KEY INDICATORS
BUSINESS ACTIVITY OF NAV PORTUGAL, E.P.E.
2018 2017 % TRAFFIC Service Units – Portugal Terminal Charging Zone 275 684 258 955 6,5 Service Units – Lisbon En-route Charging Zone 3 855 541 3 777 024 2,1 Service Units – Santa Maria En-route Charging Zone 5 504 172 5 308 501 3,7 Movements Controlled – Lisbon Flight Information Region 632 192 610 704 3,5 Movements Controlled – Santa Maria Flight Information Region 166 490 161 770 2,9 FIR entry permits in the required flight profile (%) 95,94 95,27 0,7 Average Delay in Route per Controlled Movement (minutes) – Lisbon FIR 0,19 0,19 0,0 Average Delay in Route per Controlled Movement (minutes) – Santa Maria FIR 0,000 0,000 s.s. Hours Controlled 865 668 856 264 1,1 STAFF Permanent staff as at 31 Dec. 950 961 (1,1) Staff Costs (thousands of €) 170 316 144 340 18,0 Movements Controlled / Average Staff Headcount 834 795 4,9 Hours Controlled / Average Staff Headcount 904 882 2,5 ECONOMIC AND FINANCIAL Overall En-route Unit Rate – Lisbon Charging Zone (€) 36,97 40,19 (8,0) Overall En-route Unit Rate – Santa Maria Charging Zone (€) 9,52 10,06 (5,4) Terminal Unit Rate – Portugal Terminal Charging Zone (€) 140,65 152,27 (7,6) Turnover (thousands of €) 201 506 181 623 10,9 Comprehensive Income (thousand euros) 208 3 554 (94,1) Operating Cash-Flow – EBITDA (thousand euros) * 12 241 17 189 (28,8) Operating Costs / EBITDA * 17,0 10,8 56,6 Total Costs / Controlled Hour (€) 239,9 217,4 10,3 Staff Costs / EBITDA * 13,9 8,4 65,7 EBITDA / Net Interest * 1771,8 979,6 80,9 Investments (thousand euros) 24 417 20 010 22,0 Net Assets (thousand euros) 349 163 329 118 6,1 Equity (thousand euros) 107 170 106 962 0,2 Return on Equity (%) 0,2 3,3 (94,2) Performance – EBITDA Margin (%) 74,9 84,3 (11,2) Performance – Indebtedness Ratio (%) n/a n/a s.s ROCE (%) 0,0 6,5 (99,7) Debt / Equity (%) 0,0 0,0 s.s
Average Payment Delay (RCM 34/2008 and Ordinance 9870/2009) 39 48 (15,0)
*includes the actuarial and financial gains and losses of the defined benefit pension plans, which, in accordance with accounting and financial reporting standard NCRF 28, were recognised in Equity (2018: €18,993,581 and 2017: €3,612,252).
March/19 4 NAV Portugal, E.P.E. – 2018 Annual Report
2OVERVIEW OF THE YEAR
In 2018, the global economy continued to expand in an environment of continued favourable financial and labour market conditions and relatively high levels of confidence among economic agents in the major advanced economies.
However, the year saw the materialisation of some previously identified risks, among which the increase in trade protectionism and the outbreaks of financial turbulence in certain more vulnerable emerging economies stand out. In this context, the projections of the Bank of Portugal1 estimate that the global GDP should maintain a growth of 3.6% in 2018. In the euro area, activity is expected to slow down more sharply (from 2.5% to 1.9%) reflecting the developments in the area’s four largest economies.
World trade slowed down more sharply than economic activity, but still maintained a relatively strong growth rate (from 5.2% in 2017 to 4.7% in 2018).
The price of oil showed some volatility throughout the year. In the first nine months, the price of Brent showed an upward trend, reaching around 86 USD/barrel in early October. This occurred against a background of continued growth in demand and some supply- side constraints, such as the collapse of production in Venezuela and the expectations of reduced exports from Iran associated with the reintroduction of sanctions on the country. More recently, the continued and very significant growth in US production, the higher level of stocks and the downward revision of the growth prospects of the global economy translated into a fall in the price of oil of more than 20%, placing it at levels close to those observed at the beginning of the year (around 67 USD/barrel).
The monetary and financial context was also favourable, maintaining the accommodative monetary policy in the euro area and the improvement of the economic agents’ financial conditions.
1 BE BoP, December 2018 March/19 5 NAV Portugal, E.P.E. – 2018 Annual Report
This positive external context was also advantageous for the Portuguese economy, allowing for the maintenance of a growth trajectory of the activity, although decelerating, with a 2.1%2 growth in domestic GDP in 2018 (2.8% in 2017), reflecting the performance of the GFCF, which slowed to 3.9% after a very significant growth in 2017 (9.2%), a more negative contribution from net external demand, with a deceleration of Exports of Goods and Services more pronounced than that of Imports of Goods and Services and a less intense positive contribution from domestic demand, reflecting the less marked growth of Investment.
Regarding the aviation sector, the growth in the number of IFR movements in Europe in 2018 (+3.8% versus 2017)3 is worth noting, reaching a new record in traffic volume. The summer months were particularly busy, which heavily penalised en-route delays, despite the mitigation measures put in place by the Network Manager and by the ANSP, in order to use all available network capacity in the most efficient way.
Most European airlines increased not only the load factors but also the number of seats per flight, which has resulted in a record number of passengers, even though the end of 2017 came with the insolvency of some relevant airlines. Instability such as fuel price volatility, geopolitical tensions outside Europe and the weakening of the European economy were felt during the second half of 2018.
As regards the service units (a metric used as a basis for calculating the income of the air navigation service providers), growth was 6.1% for all of Eurocontrol’s participating member states. The faster growth of the service units vis-à-vis the number of movements is due to the prevalence of the weight factor increase observed in recent years, as well as the increase in the average distance travelled, reflecting a growth in long-distance traffic greater than in the short-distance one.
2 Statistics Portugal – Quarterly Domestic Accounts – Quick estimate (14 Feb 2019) 3 EUROCONTROL Seven-Year Forecast, February 2019 March/19 6 NAV Portugal, E.P.E. – 2018 Annual Report
In Portugal, the growth in en-route traffic was slightly lower – 3.5% in the Lisbon Flight Information Region (FIR) and 2.9% in the Santa Maria FIR, comparing the number of IFR (Instruments Flight Rules) movements in 2018 with those of the previous year, while the service units grew 2.1% and 3.7% respectively.
In the Terminal segment, growth was more robust, with the number of movements in 2018 recording an increase of 5.2% compared to 2017, with the service units growing 6.5%.
It should be recalled that on 31 May 2017 (ref. No. 120/CA/2017), NAV Portugal requested the Portuguese National Civil Aviation Authority (ANAC) to communicate to the European Commission the Portuguese Government’s intention to review local objectives in the essential area of cost-efficiency performance (Lisbon Route and Portugal Terminal) for the 2018-2019 biennium, taking into account the exceptional conditions of traffic growth in the Lisbon FIR and the need to incur additional costs to mitigate the effects of such growth on capacity.
This request was submitted by ANAC to REPER (Permanent Representation of Portugal to the European Union) in September 2017 and by the latter to the European Commission on 6 October 2017, followed by the normal process of consultation with users’ representatives and clarification of doubts by the Commission, assisted here by the PRB (Performance Review Body of the Single European Sky).
Via Implementing Decision (EU) 2018/1782 of the Commission of 15 November 2018, the European Commission authorised the Portuguese Government to review these objectives and, on 17 December of the same year, via Implementing Decision (EU) 2018/2021 of the Commission, the European Commission considered that the reviewed unit costs are consistent with European goals in the essential area of cost-efficiency performance for the second reference period (RP2).
Taking into account that this approval only happened at the end of the year, the fees applied during 2018 were based on the plan approved initially: i) in the Lisbon Route Charging Zone, the fee approved by Decision No. 148/2017, of 1 December, of Eurocontrol’s Extended Commission and ii) in the terminal segment, the fee published in Ordinance No. 385-G/2017, of 22 December. The differences between the fees applied
March/19 7 NAV Portugal, E.P.E. – 2018 Annual Report
and the figures resulting from the review are being returned to users in the fees approved for 2019.
The Santa Maria Route Charging Zone, which is not part of the Performance Plan, has not undergone any change in procedures compared to previous years.
As part of the preparation process for the 3rd reference period (2020–2024), and after many amendments to the initially proposed text to reconcile interests that are by nature divergent, the regulation setting out the performance and charging system for this and subsequent periods – Implementing Regulation (EU) 2019/317 of 11 February, of the Commission, published in the Official Journal of the European Union on 25 February 2019 – was adopted at the ad-hoc meeting of the Single Sky Committee in December 2018.
With regard to setting European targets for the 2020–2024 period, it should be noted that the PRB submitted to the European Commission on 30 September 2018 its final report proposing targets for the four key areas of performance – safety, environment, capacity and cost-efficiency – after the consultation process with the various stakeholders.
Both CANSO, as the entity representing the ANSP, and the individual service providers, expressed their disagreement with the level of ambition contained in the proposed targets for the areas of capacity and cost-efficiency. In the most recent workshop promoted by the PRB on this topic, on 16 January 2019, the need to review these proposals in light of the new legislative text approved was recognised, which implies the reassessment not only of the absolute values but also of the trend lines.
NAV Portugal has had and will continue to have an active participation in this process, trying to contribute to the definition of a fairer and more consistent model, through the discussion and exchange of experiences in the multiple work groups where it is represented.
Throughout the year, the Company continued to implement the initiatives required to improve the quality of its services, with a focus on the modernisation and expansion of the capacity of the business support systems, within a framework where regulatory requirements are monitored. These initiatives include:
March/19 8 NAV Portugal, E.P.E. – 2018 Annual Report
NAV Portugal joining the COOPANS Alliance4 on 14 March and the signing of the Agreement on Participation and of the Agreement to Offer Accession to COOPANS, as ATM Member, having signed an agreement with THALES, a technological partner of the COOPANS Alliance, on 27 March, thus gaining the right to use the traffic management system shared by the Alliance’s other partners, as well as a better strategic positioning;
The decision to join the COOPANS Alliance was strategically premised on providing the Company with a better positioning to meet the technological and procedural challenges posed to Air Navigation Service Providers by the directives, requirements and definitions of the Single European Sky, as well as to cope with the substantial increase in traffic forecast for the near future in the Lisbon FIR. After approximately six months, at Eurocontrol Headquarters in Brussels, the final documents officialising NAV Portugal’s entry as the sixth full member of the COOPANS Alliance were signed on 18 September;
The development, along with Eurocontrol, of a PMS – Point Merge System solution that will require a deep restructuring of the entire Lisbon Terminal area, in order to provide the Lisbon airport with the increased capacity needed to meet the continued demand for traffic.
This solution, already designed for the future Lisbon +1 interface, will allow traffic to be directed to Lisbon airport in an expeditious and orderly manner, reducing the controller’s workload in the critical approach phase. This system, scheduled to be implemented in April 2020, will include the necessary tests, simulations and training. This benefit, already tested and implemented in other airports, will, once the current airspace limitations in Lisbon are removed, make it possible, in the medium term, to reach the proposed numbers of 72 movements/hour with the Lisbon +1 solution, but it is conditioned by the availability of airspace used by military structures;
4 The COOPANS (Cooperation between Air Navigation Service Providers) Alliance is an international partnership between air navigation service providers from Austria (Austro Control), Croatia (Croatia Control), Denmark (Naviair), Ireland (Irish Aviation Authority), Sweden (LFV) and now Portugal (NAV Portugal) with the aim of operating and developing a common air traffic management system.
March/19 9 NAV Portugal, E.P.E. – 2018 Annual Report
The replacement of several systems in operation at the Santa Maria Oceanic Control Centre, namely those for air traffic management (ATM), communications and energy, and the provision of services, with the support of the new systems, from a temporary operations room, began in April. The functionalities made available in the new systems allowed, among others, to start providing PBCS (Performance-Based Communications and Surveillance) services in accordance with ICAO’s NAT (North Atlantic) standards;
The improvement in the provision of surveillance services, in the Lisbon FIR, supported by Wide Area Multilateration (WAM) and Automatic Dependent Surveillance – Broadcast (ADS-B) technologies, continued with the MFA (Multilateration of Faro) project, WAM system for the surveillance of aircraft in its area of operation, covering both the movements in the southern sector of the Lisbon Air Traffic Control Centre, and those in Faro’s TMA and also in Faro Airport. This new system has its central processing installed in Faro Airport and, in addition to the installation of new sensors, will also use sensors already installed within the scope of the VISTO (Vigilância do Sul, Tejo e Oeste – Surveillance of the South, Tagus and West) system;
Also the entry into operation of the system, installed in the north of the continent, as part of the NORMAW project, enables improving the provision of the Surveillance services in the north/northeast area of the Lisbon FIR and also in Porto’s Terminal Manoeuvring Area (TMA).
The organic structure of NAV Portugal was revised twice during 2018. In fact, national and international regulations on the provision of air navigation services have been amended, particularly as regards Safety and Security, and subsequently both by the decision to join the COOPANS Alliance and by the preparation of the new RP3 reference period: 2020-2014, justified a redefinition and planning of objectives and strategic guidelines, with the resulting need for clarification of its current organisational model. In this sense, through GS No. 011/2018, of 29 November, the Board of Directors decided to make changes in the organic structure of the Company, in the areas of strategy, planning, external relations, studies and projects, procedures and safety, in order to meet the challenges of the near future.
March/19 10 NAV Portugal, E.P.E. – 2018 Annual Report
In 2018, NAV Portugal participated in several industry-specific initiatives:
It was part of the work of the 4th Portuguese Tourism Summit, which took place in Lisbon on 27 September, promoted by the Confederation of Tourism of Portugal (CTP) as part of the World Tourism Day.
With a panel dedicated to the topic “The urgency of a new airport for Lisbon”, the event began with the intervention of the Minister of Planning and Infrastructure, Pedro Marques, followed by the debate with the participation of ANE’s CEO, the coordinator of the Lisbon Airport Expansion Project, the Chairman of the Board of Directors of NAV Portugal, the Chief Executive Officer of TAP Air Portugal and the Chairman of the Board of Directors of ANAC;
Air Summit 2018, an event hosted in May by TheRace in partnership with the municipality of Ponte de Sor, in which NAV Portugal participated with an institutional stand and several discussion panels that took place over the four days of the event.
During the event, the Company received the visit of the Minister of Planning and Infrastructure, Pedro Marques, and of the Secretary of State of Infrastructure, Guilherme d’Oliveira Martins, at the stand set up for the purpose;
NAV was present at the National Aeronautics Meeting (NAM) hosted by the Association of Aeronautics Engineering Students of the University of Beira Interior (AEROUBI), which took place in Covilhã, between 9 and 12 May. This event included the Covilhã Aeronautical Journeys (CAJ), the Opportunities Fair and the Air Festival at the Castelo Branco Municipal Aerodrome;
NAV participated in the Global AIM 2018 event that took place between 22 and 24 May in Santo Domingo, Dominican Republic, which once again brought together the top experts of International Aeronautical Information.
The event was hosted by IFAIMA – International Federation of Aeronautical Information Management Associations, IDAC, Eurocontrol and ICAO and was attended by over 200 participants, representing 52 countries and five international organisations. March/19 11 NAV Portugal, E.P.E. – 2018 Annual Report
It was part of the 2nd edition of the Technical Days of the Atlantic, held in Luanda on 27 and 28 September. This initiative was hosted by Empresa Nacional de Exploração de Aeroportos e Navegação Aérea E.P. of Angola (ENANA) and was attended by representatives of the ANSP of Portugal (NAV Portugal), Brazil (DECEA), Cape Verde (ASA) and São Tomé and Príncipe (ENASA).
This initiative strengthened the positioning of the Lusophone countries in the Atlantic axis, through a more effective strategic alignment and the improvement of air navigation services within the Lusophone community, having also hosted several institutional visits and international meetings:
On 16 and 17 January, a meeting took place in Lisbon within the ICAO EUR/NAT VOLCEX Steering Group, hosted by NAV Portugal through DOPATL.
VOLCEX SG is ICAO’s international group responsible for planning and executing regular international volcanic ash contingency exercises, implementing the international procedures and contingency plans.
This meeting was attended by representatives of various areas of aviation activity from Denmark, France, Iceland, Italy, Morocco, Norway, Poland, Portugal, Spain, the Netherlands, Sweden, United Kingdom, Romania, the United States, Albania, airlines such as TAP Air Portugal, Sata Air Açores, Air France, American Airlines, Azul Linhas Aéreas Brasileiras, and various international bodies such as the European Commission, ICAO, Eurocontrol, IATA and IFALPA. NAV Portugal was publicly acknowledged for its organisational capacity and for excellence in the event’s hosting, as well as that of the exercise (VOLCEX 17) that motivated it.
A progress meeting of the SESAR 2020 PJ1 4.3.1 took place on 23, 24 and 25 January at FORMA. Coordinated by INDRA NAVIA, the project seeks to improve the Ground-Based Augmentation System (GBAS) as a technical enabler to improve its benefits for airport approaches. These include, for example, increasing capacity in low visibility conditions, and enabling accurate approaches to a runway without ILS.
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The project has the participation of several entities: NAV Portugal, DFS, DSNA, ENAIRE, ENAC, EUROCONTROL, INDRA, Thales Avionics, Honeywell, Airbus Operations, Telespazio, Telespazio VEJA, DLR, NLR and LPS/Uniza.
NAV Portugal was responsible for hosting the SESAR CEF Call 2016 Data Link Services (DLS) Recovery Plan meeting that took place between 23 and 25 January in Lisbon.
Sponsored by the transport sector of the European Commission, and with the support of the SESAR Deployment Manager (SDM), this meeting had as one of its main objectives the conclusion of the first part of the SESAR CEF CALL 2016 DLS RECOVERY Plan, called PATH I.
In the great hall of its headquarters in Lisbon, on 14 March, NAV Portugal signed the Agreement to join the COOPANS Alliance, with the presence of the Minister of Planning and Infrastructure and the Secretary of State of Infrastructure.
Witnessing this event, and in addition to the already mentioned members of the Government, were the members of the BD of NAV Portugal, the BD of ANAC, the Executive Board of ANA and the representatives of the ANSP that integrate the COOPANS Alliance: Austro Control, NAVIAIR, LFV, IAA and Croatia Control, in addition to the Company’s Managers and Leaders from organisations representing the workers.
The 15th National Meeting of CISM PARES was held in Beloura-Cascais from 21 to 23 May, with the participation of the ANSP of the United Kingdom (NATS), Denmark (NAVIAIR), the CISM team of the Portuguese Air Force (FAP) and INEM, who joined NAV Portugal’s CISM team for an annual assessment.
The Secretary General of ICAO, Fang Liu, accompanied by ICAO’s Regional Director for the EUR/NAT zone, Luís Fonseca de Almeida, was received by the Board of Directors of NAV Portugal in Lisbon on 28 August, and in Santa Maria on 1 September, having visited the corresponding control centres.
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The 67th Special Meeting of the General Directors of Civil Aviation of the ECAC (European Civil Aviation Conference) took place between 29 August and 1 September in the Autonomous Region of the Azores, in Ponta Delgada. This meeting enabled making known a region of Portugal with an important geostrategic role, where the Oceanic Control Centre is located, from where NAV Portugal ensures, by proxy of ICAO, the provision of air navigation services in the Santa Maria FIR.
NAV Portugal hosted the 72nd meeting of the APDSG-ATM Procedures Development Sub Group, which took place in Lisbon between 25 and 27 September.
This subgroup of the Network Operations Team (NETOPS) has the role of advising this entity on direct communication between Eurocontrol and stakeholders – National Supervisory Authorities, Air Traffic Service Providers, Operators, etc. – in activities related to the development, revision and validation of ATM procedures, in the pursuit of increased operational safety, capacity and efficiency of the European network, and its interfaces with adjacent ATM structures.
Eurocontrol and NAV Portugal co-hosted a Seminar concerning the presentation of the European Road Safety Plan that took place on 18 October in Lisbon, in which 110 experts representing 14 countries participated.
A working meeting of INMARSAT and representatives of the air traffic services and procedures of the Directorate of Operations of the Atlantic Region took place on 18 October in Lisbon. The meeting’s agenda included two items of interest relevant to operations in the Santa Maria FIR, namely satellite voice communications (SATVOICE) and satellite data services.
The MKT and COM Group of the COOPANS Alliance met in Portugal, on 14 November in Lisbon, and those responsible for the communication area of the various ANSP members of the Alliance participated, having consolidated the methodologies and communication strategies of the Alliance for the near future in order to assert COOPANS among the aeronautical community.
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NAV Portugal promoted the first Airspace Users Meeting, which took place on 29 November, in the amphitheatre of the Lisbon Air Traffic Control Centre, seeking to bring the Company closer to its customers through the sharing, discussion and exchange of opinions that strive for the continuous improvement of the services provided by the Company, with the presence of TAP Air Portugal, TAP Express, Easyjet, Ryanair, Jet2, SATA Internacional – Azores Airlines, SATA Air Açores, NETJets, IATA and RENA, with a total of 17 participants.
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3COMPLIANCE WITH LEGAL GUIDELINES
The following table, according to Appendix 2, Annex I of Circular Notice No. 1115, of the Directorate-General of the Treasury and Finance, of 12 March 2019, summarises the compliance with legal guidelines. A more detailed explanation of each of these items is presented in the subitems below.
Appendix 2 – NFSOC
Quantification/ Justification / Ref. to Report Compliance with Legal Guidelines – 2018 Compliance Identification item Y N N/A Management objectives: see item 3.1 Objective 1 X Objective 2 X Objective 3 X Targets to be met in BBP 2018 Reference Financial Principles X Investment X Staff Costs X Level of implementation of the budget loaded into SIGO/SOE X Financial Risk Management X 0,00% see item 3.2 Limits on the Growth of Indebtedness X see item 3.3 Change in average payment delay – suppliers X -9 see item 3.4 Disclosure of arrears X 8 895 780 € see item 3.4 Shareholder recommendations at last accounts approval: X see item 3.5 Remuneration: see item 3.6 No allocation of management bonuses X BD – reductions in remunerations in effect in 2018 X 13 852,86 € Supervision (AC/CPA/SA) – reductions in remunerations in effect in 2018 (if applicable) X 1 962,94 € External Auditor – reductions in remunerations in effect in 2018 (if applicable) X 0,00 € Articles 32 and 33 of the PMS see item 3.6 No use of credit cards X see item 3.7 No reimbursement of personal representation expenses X see item 3.7 maximum value of the costs with communications X 240 € maximum amount of fuel and tolls allocated monthly to the service vehicles X 1 414 € Non-documented or confidential expenses – paragraph 2 of article 16 of the LRSCS and article 11 of the PMS see item 3.8 Prohibition of non-documented or confidential expenses X Salary parity for men and women – no. 2 of RCM No. 18/2014 see item 3.9 Preparation and publication of a report on the remuneration of men and women X Preparation and disclosure of the annual report on prevention of corruption X see item 3.10 Public Procurement see item 3.11 Application by the company of public procurement standards X Application by holdings of public procurement standards X Contracts submitted to the Court of Auditors for prior approval X 2 Audits by the Court of Auditors X see item 3.15 Vehicle Fleet see item 3.12 No. of Vehicles X 0 Operating Costs of State-owned Companies X see item 3.13 Principle of Joint Treasury (article 28 of DL 133/2013 see item 3.14 Cash at IGCP X 99,99% Available funds and investments in commercial banking X 11 382 € Interest earned through UTE non-compliance and paid to the Treasury. X 0
3.1MANAGEMENT OBJECTIVES AND BUSINESS AND BUDGET PLAN
Under the company’s articles of association, which were approved by Decree-Law no. 404/98, of 18 December, and amended by Decree-Law no. 74/2003, of 16 April, Navegação Aérea de Portugal – NAV Portugal, EPE, known as NAV Portugal, EPE, is a state-owned company that independently manages its administrative and financial affairs and assets.
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The mission of NAV Portugal, E.P.E. is to provide air traffic services in the FIRs controlled by the Portuguese Government, i.e. Lisbon and Santa Maria. This involves ensuring compliance with the applicable national and international regulations and providing first- rate safety conditions, by optimising airspace and airport infrastructure usage capacities, improving the efficiency of the services provided and fostering environmental sustainability.
In this context, NAV Portugal must ensure its customers the provision of air navigation services with high quality, safety and efficiency, creating value for the Country, acting as the holder of the entirety of its statutory capital and ensuring high levels of performance and professional qualification of its employees.
Considering the reality and development prospects of the Company’s internal and external context, NAV Portugal’s Business Plan for 2018–2022 has the following “Strategic Objectives” as its reference:
strengthening the culture of safety in the different areas of activity (Safety); ensuring the levels of efficiency and quality of the services provided, respecting the financial balance of NAV Portugal; developing strategic initiatives aiming to maintain NAV Portugal’s sustainability; ensuring compliance with new regulatory requirements; developing good practices of social and environmental responsibility; ensuring organisational development; improving response capacity in the areas of competitiveness and innovation.
In the development of its activity, NAV Portugal, as it had done in previous years, considered a set of indicators, largely based on international benchmarks – including the ANSP used in Ireland (IAA), Austria (Austrocontrol), Germany (DFS) and Switzerland (Skyguide) –,. to assess and compare the degree of implementation of specific guidelines over this time frame. NAV Portugal’s performance is thus evaluated using the weighted average of objectives established, which concern indicators from the set of selected peers, and also of the objectives established in relation to absolute values of budgetary performance.
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The next table details the results of the benchmarked indicators, the objectives established and the corresponding level of performance of NAV Portugal concerning 2018. The calculations compared the objectives to the peers’ 2017 values, since the 2018 data are not yet published:
Total Costs / Hour Cont. / Real APD / Peers Year ROCE EBITDA Margin % Staff Costs Hour Cont. Employee Budget APD Austrocontrol 2017 15,9% 24,4% 66,0% 638,5 300,2 DFS 2017 5,2% 13,6% 75,4% 606,1 259,1 IAA 2017 30,5% 24,8% 56,1% 373,3 468,0 Skyguide 2017 -3,4% 9,8% 72,6% 684,8 241,2 Média 12,1% 18,2% 67,5% 575,7 317,1 NAV 2018 Actual 0,0% 6,1% 82,0% 239,9 903,6 97,5%
Relative performance (NAV / Average) 0,0% 33,6% 82,3% 240,0% 284,9%
2018 Goal 11,0% 50,0% 113,0% 50,0% 227,0% 100,0%
NAV Target 1,3% 9,1% 76,3% 287,8 719,9 100,0%
Attainment of Objective 0,0% 67,2% 92,5% 116,7% 125,5% 102,5%
Weight of the KPI 10,0% 15,0% 15,0% 20,0% 20,0% 20,0% Score 0,0% 10,1% 13,9% 23,3% 25,1% 20,5%
Final Score 92,90%
The Company has a final score of 93%, reflecting a level of performance that falls within the stipulated limit.
The actual 2018 financial figures for NAV Portugal reflect the negative impact of our legal obligations with regard to exempted flights. These obligations, which amounted to approximately 2.2 million euros, have an impact in expenses but there is no corresponding counterpart in revenues. The result is an overall negative effect on both ROCE and the EBITDA Margin. If these amounts had counted towards income, NAV Portugal’s final score in 2018 would have risen to 111%. As soon as the peers indicators, concerning 2018, are published, they will be made available.
Regarding the execution of the Business and Budget Plan (BBP) for 2018, which in the case of NAV Portugal – and due to the regulatory context in which the company operates – is defined by the Performance Plan presented by the Portuguese Government for the 2nd reference period (2015–2019). The main developments regarding the financial principles of reference, investment, staff and level of indebtedness are presented in the following paragraphs, justifying the deviations presented in the following table:
March/19 18 NAV Portugal, E.P.E. – 2018 Annual Report
Weight of Studies, Expenses / par. and Travels No. of Vehicle IMPLEMENTATION of BBP 2018 EBITDA HR Invest. Funding Turnover consulting and Allowances vehicles expenses (%) proj. Accom. 2018 ACTUAL 12 241 84% 437 694 239 77 626 950 24 417 0
2018 MFI 15 233 89% 387 923 330 77 734 992 38 352 0
2018R/2018B -2 992 4 pp 50 -230 -91 0 -107 -42 -13 935 0 % 2018R/2018B -20% 4% 13% -25% -28% 0% -15% -4% -36% 0%
Actual EBITDA was lower than expected by 20%, reflecting the evolution of staff costs (€21.6M more than budgeted due essentially to the charges with post-employment benefits resulting from the negative profitability of the corresponding funds), with the direct effect of an increase of 4 percentage points in the relative weight of expenses in the Company’s turnover.
Concerning operating costs, the items of travel, accommodation and allowances, and expenses with cars recorded actual values below those budgeted for 2018. Expenses with Allowances and Travel and accommodation showed the most significant positive deviation: -28% and -25% respectively, thanks to savings achieved both in air fares and accommodation, through early booking of the corresponding trips combined with a reduction in the number and duration of trips.
Regarding the Studies, opinions and consulting projects item, the unfavourable deviation of 50 thousand euros reflects the burden borne with the provision of tax consultancy services (ongoing lawsuits).
Regarding the staff, it is important to mention that the actual number of workers at the end of 2018 differs from the budgeted (-42), due to the following factors: i) in the 2018 Management Forecast Instruments (MFI), the admission and return of eight workers and the exit of eight workers were expected, with the corresponding starting point – an estimate of the number of active employees on 2017/12/31 – being 992; ii) due to legal constraints related to the timely obtaining of the respective government authorisation, which only occurred in October 2018, some of the hiring of workers expected to take place in 2017 will only take place in 2019, thus the number of active employees on 2017/12/31 was only 961 (31 fewer than expected);
March/19 19 NAV Portugal, E.P.E. – 2018 Annual Report
iii) at the same time, for 2018, there was a higher number of exits than projected (11 more than expected); iv) the combined effect of these situations: difference in the number of active employees on 2017/12/31 (-31) and difference in exits (+11), resulted in the aforementioned deviation of 42 fewer employees.
With regard to investments, the deviation of about -36% from what was forecast in the budget is mainly due to the postponement of projects in the areas of surveillance, communications and facilities, as well as to the slowness in the processing of some processes related to contracts.
Lastly, regarding the level of indebtedness, the execution amounts fully match those budgeted.
Lastly, it should be noted that NAV Portugal is not part of the consolidation scope of the Public Administrations.
3.2FINANCIAL RISK MANAGEMENT
In complying with Article 4 of the European Commission’s Implementing Regulation (EU) No 391/2013, of 3 May, which establishes a common tariff scheme for air navigation services, the specified costs of air navigation services are to be financed by the en-route and terminal fees charged to users of air navigation services, without prejudice to the financing of exemptions granted to certain users of air navigation services through other sources of funding. In compliance with the provisions of Article 10 of the aforementioned Regulation, the Member States must ensure that the providers of air navigation services be reimbursed for the services they provided to the exempted flights. It should be noted that NAV Portugal, to date, has not been reimbursed for any of the services provided to exempted flights.
The Company, in the development of its activity, has had no need to any use source of external funding since 2002. NAV Portugal was the beneficiary of two bank loans contracted with the European Investment Bank (EIB), whose final payments took place in 2018, with the situation, on 31 December, being as presented in the following table:
March/19 20 NAV Portugal, E.P.E. – 2018 Annual Report
Contract 2018 2017 2016 2015 2014 Date Total funding as at the end of the year 0 1 080 725 2 327 715 4 824 706 7 321 695
EIB – 97 dez/97 0 0 166 266 332 532 498 797
EIB – 98 Batch C1 jun/98 0 41 567 83 133 124 699 166 266
EIB – 98 Batch C2 jun/98 0 1 039 158 2 078 316 3 117 474 4 156 632
EIB / 01 dez/01 0 0 0 1 250 000 2 500 000
Years 2018 2017 2016 2015 2014
Financial expenses (€) 0 0 15 9 152 32 363
Average funding rate (%) 0,00% 0,00% 0,00% 0,14% 0,36%
The previously mentioned loans, which were taken out with prior approval from both the Finance and Transport Ministries, were used to finance the implementation of the Company's forward investment plan. The loans, which are already reimbursed, used an interest rate indexed to the Euribor 3-month rate, plus a spread ranging from 0.1% to 0.13%, and no guarantee was required from either the Government or any other entity. In view of the interest rates, the term and the repayment plan, as well as the absence of any kind of guarantee or restrictive clause under the aforementioned loan agreements, this funding stream has been fully optimised in terms of finance costs. To date, the company has not needed to employ any form of hedging instrument to cover the risk posed by these liabilities.
3.3 LIMIT TO THE GROWTH OF INDEBTEDNESS
NAV Portugal’s balance sheet only used medium and long-term loans. The sum to be repaid to the EIB in the following year is recognised as a current liability. The Company has no other type of outstanding short-term loans or liabilities that result in costs to the Company and that could potentially be transformed into medium or long-term facilities with more advantageous conditions.
March/19 21 NAV Portugal, E.P.E. – 2018 Annual Report
2018 2017 18/17 Interest-bearing Liabilities Amounts (€) Amount % Loans obtained (Current and Non-current) 0 1 080 724 -1 080 724 -100,0% – of which granted by DGTF 0 0 0 0 Capital Increases from Government-alloted funds 0 0 0 0 Capital Increases by conversion of loans 0 0 0 0
11 895 553 New investments
The situation described above reflects the adoption, by NAV Portugal, of a policy seeking to minimise the allocation of borrowed capital to the coverage of annual and multi-annual investments. The analysis of the table above clearly shows that the indebtedness in NAV Portugal has been decreasing over the considered period, having repaid the last instalment in 2018.
3.4EVOLUTION OF THE AVERAGE PAYMENT DELAY TO SUPPLIERS AND PAYMENTS IN ARREARS
In 2018, the Average Payment Delay, calculated in accordance with RCM 34/2008, of 22 February, and Ordinance No. 9870/2009, of 13 April, was 39 days, in cumulative terms, as shown in the table below, representing nine fewer days than the average delay recorded in 2017:
Change 18/17 APD 2018 2017 Amount % Delay (dias) 39 48 -9 -18,6%
The table below details unpaid outstanding debts, or payments in arrears, to Suppliers and Other Creditors as defined in Decree-Law no. 65A/2011, of 17 May:
Amount (€) Debts overdue arrears according to Article 1 DL 65-A/2011 Debts overdue 0-90 days 90-120 days 120-240 days 240-360 days ˃360 days Acquisition of goods and services 8 306 552 1 331 70 829 69 312 447 755 Equity acquisitions 0 0 0 0 0 Total 8 306 552 1 331 70 829 69 312 447 755
It should be noted that 93% of the amount outstanding, with a maturity of more than 360 days, is the result of purchases which are characterised by the fact that the contractual formalities of the suppliers of NAV Portugal, namely factory tests and/or presentation of bank guarantees within the scope of the initially contracted payment conditions, have not been fully met. March/19 22 NAV Portugal, E.P.E. – 2018 Annual Report
3.5RECOMMENDATIONS FROM THE SHAREHOLDER IN THE APPROVAL OF THE ACCOUNTS FROM 2015 TO 2017
The 2015 Annual Report of NAV Portugal E.P.E., prepared and signed by the Board of Directors, was sent to the Assistant Secretary of State of Treasury and Finance and to the Secretary of State of Infrastructure, to the Court of Auditors and to the Inspectorate- General of Finances, on 5 August 2016, through letters 80/81/82/83/CA/2016, respectively, along with the Report of the External Auditors, the Legal Certification of Accounts and the Report and Opinion of the Audit Committee.
The 2016 Annual Report of NAV Portugal E.P.E., prepared and signed by the Board of Directors, was sent to the Secretary of State of Infrastructure, to the Secretary of State of Treasury, to the Inspectorate-General of Finances and to the Court of Auditors, on 28 April 2017, through letters 98/99/100/101/CA/2017, respectively, along with the Report of the External Auditors, the Legal Certification of Accounts and the Report and Opinion of the Audit Committee.
The 2017 Annual Report of NAV Portugal E.P.E., prepared and signed by the Board of Directors, was sent to the Secretary of State of Infrastructure, to the Secretary of State of Treasury, to the Inspectorate-General of Finances and to the Court of Auditors and Directorate-General of Treasury and Finance, on 18 May 2018, through letters 54/55/56/57/53/CA/2018, respectively, along with the Report of the External Auditors, the Legal Certification of Accounts and the Report and Opinion of the Audit Committee.
Suitable approval of accounts of the corresponding periods is being awaited and, as such, currently, the shareholder’s recommendations are unknown.
3.6REMUNERATIONS
Of the governance bodies:
In 2018, no management bonuses were paid to the members of the Board of Directors.
Total gross monthly fixed remuneration of the Members of the Board of Directors and Audit Committee, continued, in 2018, to be exceptionally reduced by 5%, with effect from June 2010, pursuant to Law No.12-A/2010, of 30 June. This information is available in the tables below: Remuneration model for directors and members of the
March/19 23 NAV Portugal, E.P.E. – 2018 Annual Report
Audit Committee, as per Appendix 1 of Annex I to Circular Notice 1115 of the Directorate-General of Treasury and Finance, of 12 March 2019.
Of the External Auditor:
Following the procedure by prior consultation with six entities, NAV contract No. 53/SERV/DAFIN/2018 was signed with the external auditor Alves da Cunha, A. Dias & Associados, Sociedade de Revisores Oficiais de Contas, Lda. – ACAD – (No. 20161408), registered with the Portuguese Securities Market Commission (No. 2699), represented by CPA Managing Partner, Mr. José Luís Areal Alves da Cunha, for the provision of audit services to the annual financial statements, for the 2018–2020 three- year period.
Of the remaining employees:
Employee remunerations were updated since, under the combined terms of the provisions of No. 12 of article 18 and article 23 of Law No. 114/2017 of 29 December (2018 SBL), all remunerations resulting from the application of the Company’s Collective Labour Regulation Instruments, i.e. the different Corporate Agreements in force at NAV Portugal, were reinstated as from 1 January 2018.
Model for Remunerations and other benefits
BOARD OF DIRECTORS
Appointment OPRLO Term No. of Position Name Source Payer Terms Form Date Yes/No Entity Entity (O/D) (Start-End) 2018 Chairman (1) Jorge Manuel da Mota Ponce de Leão Resolution No. 7/2018 2018/01/11 No n/a D 1
2016–2018 Member Egídia Pinto de Queiroz Martins Resolution No. 24/2016 2016/07/14 No n/a D 1
2016–2018 Member Francisco César Ramos Fernandes Gil Resolution No. 24/2016 2016/07/14 No n/a D 1
(1) Took up duties on 12 January 2018.
PMS Gross monthly remuneration (€) Member of BD Fixed Classification Representation Monthly salary Expenses Jorge Manuel da Mota Ponce de Leão Yes A 5 722,75 2 289,09
Egídia Pinto de Queiroz Martins Yes A 4 578,20 1 831,27
Francisco César Ramos Fernandes Gil Yes A 4 578,20 1 831,27
March/19 24 NAV Portugal, E.P.E. – 2018 Annual Report
Annual Remuneration (€) Member of BD Gross Remuneration Final Gross Fixed (1) Variable (2) Amount (a) Amount (3)=(1)+(2) Reductions (4) (5) = (3)-(4) Jorge Manuel da Mota Ponce de Leão 104 917 n/a 104 917 5 246 99 671
Egídia Pinto de Queiroz Martins 86 070 n/a 86 070 4 304 81 767
Francisco César Ramos Fernandes Gil 86 070 n/a 86 070 4 304 81 767 277 057 13 853 263 204 (a) Reduction of 5% under article 12 of Law No. 12-A/2010 Social Benefits (€)
Value of Meal Social Security Life Health Others Allowance Scheme insurance insurance Members of the Board of Directors Annual Annual Annual Annual Annual Daily Cost of Ident. Cost of Cost of the Cost of the Ident. Cost of the entity the entity entity entity the entity Jorge Manuel da Mota Ponce de Leão 10,39 2108 Soc. Sec. 23 943 0 706 Personal Accident Ins./PDS 101 Egídia Pinto de Queiroz Martins 10,39 2027 Soc. Sec. 19 680 0 706 Personal Accident Ins./PDS 84
Francisco César Ramos Fernandes Gil 10,39 1912 Soc. Sec. 19 665 0 706 (A) 655
6047 63 287 0 2 118 840 (A) Personal Accident Insurance / Child Benefit Complement / PDS / School Supply Allow ance
Expenses with Vehicles Monthly Annual Member of BD Vehicle Signing of Vehicle Ref. Start Mod. End Year Payment Amount Remaining allocated contract Value (€) Year instalments (No.) (1) (€) (€) Jorge Manuel da Mota Ponce de Leão Yes No 43 440 Renting fev/18 jan/22 765 9 033 37
Egídia Pinto de Queiroz Martins Yes No 43 440 Renting fev/18 jan/22 765 9 033 37
Francisco César Ramos Fernandes Gil Yes No 43 440 Renting fev/18 jan/22 765 9 033 37 (1) Insurance included. Annual expenses – Travel for work (€) Total Member of BD Travel for Accommodation Others Allowances Travel work expenses Ident. Amount Expenses
Jorge Manuel da Mota Ponce de Leão 3 141 1 017 897 n/a 0 5 056
Egídia Pinto de Queiroz Martins 5 523 2 726 1 539 n/a 0 9 788
Francisco César Ramos Fernandes Gil 7 747 3 208 2 059 n/a 0 13 014 27 857
SUPERVISORY BOARD
Term Appointment Fixed Rem. Position Name (monthly) Fixed No. of Terms (Start-end) Form Date Monthly (€)
2015–2017 Chairwoman Maria Fernanda Joanaz da Silva Martins 1 602 1
2015–2017 Member Maria de Lurdes Moreira Correia de Castro 1 202 1 Joint ordinance 09-07-2015 RCA – Rosa, Correia & Associados, SROC, S.A., 2015–2017 Member 1 639 1 represented by Paulo Fernando da Silva Pereira (1) Luis Francisco Pereira Rosa 2015–2017 Substitute CPA n/a 1 RCA – Rosa, Correia & Associados, SROC, S.A. (1) The CPA sits on the NAV Portugal, E.P.E. Supervisory Board.
Includes VAT at the prevailing rate.
March/19 25 NAV Portugal, E.P.E. – 2018 Annual Report
Annual remuneration 2018 (€) Member of the Supervision Structure Remuneration Final Amount Gross (1) Reduction(a) (2) (3) = (1)-(2)
Maria Fernanda Joanaz da Silva Martins 22 433 1 122 21 312
Maria de Lurdes Moreira Correia de Castro 16 825 841 15 984 RCA – Rosa, Correia & Associados, SROC, S.A., 19 668 n/a 19 668 represented by Paulo Fernando da Silva Pereira(b) 58 926 1 963 56 963
(a) Reduction of 5% under article 12 of Law No. 12-A/2010 (b) Includes VAT at the prevailing rate
Summary table the Audit Firm’s information
Identification of the Statutory Audit Firm / CPA Appointment Term CPA Years of duty Years of duty Position (1) PSMC Reg. Date (Start-End) Name Association Form Date in the group in the entity No. Reg. No. Contracted
RCA – Rosa, Correia & Associados, SROC, S.A., 2015–2017 CPA 143 5946 Ordinance 2015/07/09 2015/07/09 4 represented by Paulo Fernando da Silva Pereira
Alternate Luis Francisco Pereira Rosa 2015–2017 143 5946 Ordinance 2015/07/09 2015/07/09 4 CPA RCA – Rosa, Correia & Associados, SROC, S.A. (1) The CPA sits on the NAV Portugal, E.P.E. Supervisory Board.
Anual Amount of the Service Provision Contract – 2018 (€) Annual Amount of the Additional Services Contract – 2018 (€) Name Final Amount (3) Service Final Amount Amount (1) Reductions (2) Amount (1) Reductions (2) = (1)-(2) identification (3) = (1)-(2)
RCA – Rosa, Correia & Associados, SROC, S.A., represented by Paulo 19 668 n/a 19 668 n/a 0 n/a 0 Fernando da Silva Pereira RCA – Rosa, Correia & Associados, SROC, S.A., represented by Luís Francisco n/a n/a n/a n/a n/a n/a n/a Pereira Rosa (substitute) (a) Includes VAT (at the prevailing rate 23%)
EXTERNAL AUDITOR
Identification of the External Auditor Years of Years of CPA Date Contract duty in the duty in the Duration Name of the External Auditor Association PSMC No. Contracted group entity No.
Alves da Cunha, A Dias & Associados – Sociedade de Revisores Oficiais de Contas, 74 2699 2018/11/13 2018–2020 3 Lda. (1) Contract started, on 2016/01/13, with Alves da Cunha, A. Dias & Associados, Sociedade de Revisores Oficiais de Contas, Lda.
Anual Amount of the Service Provision Contract – 2018 (€) Annual Amount of the Additional Services Contract – 2018 (€) Name of the External Auditor Final Amount (3) Service Final Amount Amount (1) Reductions (2) Amount (1) Reductions (2) = (1)-(2) identification (3) = (1)-(2)
Alves da Cunha, A Dias & Associados – Sociedade de Revisores Oficiais de Contas, 19 373 n/a 19 373 n/a 0 n/a 0 Lda. (1) Contract started, on 2018/11/13, with Alves da Cunha, A. Dias & Associados, Sociedade de Revisores Oficiais de Contas, Lda. (VAT included)
3.7 APPLICATION OF THE PROVISIONS OF ARTICLES 32 AND 33 OF THE PMS
The Members of the Board of Directors of NAV Portugal were not awarded any credit cards or other payment instruments to carry out expenses in service of the Company, nor was there any reimbursement of expenses within the scope of personal representation expenses. In the tables below is the information concerning the value of the costs
March/19 26 NAV Portugal, E.P.E. – 2018 Annual Report
associated with mobile communications (telephone and Internet) and the value of fuel and tolls allocated to service cars:
Communications Expenses (€) Member of BD Defined Monthly Allowance (*) Annual amount Notes
Jorge Manuel da Mota Ponce de Leão 80 161
Egídia Pinto de Queiroz Martins 80 684
Francisco César Ramos Fernandes Gil 80 900 1745 (*) ref. RCM No. 112/2002 of 1 August No. 3 a) and No. 5
Annual expenses with vehicles (€) Monthly Fuel Member of BD and Toll Notes Fuel Tolls Total Allowance
Jorge Manuel da Mota Ponce de Leão 544 4 702 1822 6 524
Egídia Pinto de Queiroz Martins 435 2 862 73 2 936
Francisco César Ramos Fernandes Gil 435 640 30 670 10 130
3.8 APPLICATION OF THE PROVISIONS OF PARAGRAPH 2 OF ARTICLE 16 OF THE LEGAL REGIME OF THE STATE CORPORATE SECTOR AND OF ARTICLE 11 OF THE PUBLIC MANAGER STATUTE, PROHIBITING NON-DOCUMENTED OR CONFIDENTIAL EXPENSES
NAV Portugal complies with the provision of the above-mentioned Decree-Law, not carrying out non-documented or confidential expenses.
3.9 PREPARATION AND DISCLOSURE OF THE REPORT ON REMUNERATIONS PAID TO WOMEN AND MEN, AS ESTABLISHED IN PARAGRAPH 2 OF RESOLUTION OF COUNCIL OF MINISTERS NO. 18/2014, OF 7 MARCH
NAV Portugal E.P.E. conducts its activities in line with social responsibility, gender equality and the harmonisation of the personal, family and professional lives of its employees.
In accordance with the specific management information that has been provided to the Department of Statistics of Public Employment (DEEP), through the completion of the information update sheets for monitoring the implementation of RCM No. 19/2012 of 23 February, and based on the entry into force of Law No. 62/2017 of 1 August and the
March/19 27 NAV Portugal, E.P.E. – 2018 Annual Report
contacts established with the Commission for Citizenship and Gender Equality (CIG), the Plan for Gender Equality of NAV Portugal was drawn up, approved by the Board of Directors on 12 April 2018 and disclosed on the website. This document shows the existence of salary and career management policies without any kind of discrimination on the grounds of gender, which are in fact enshrined in the Company’s various Collective Labour Regulation Instruments.
3.10 PREPARATION AND DISCLOSURE OF THE ANNUAL REPORT ON THE PREVENTION OF CORRUPTION, ACCORDING TO THE PROVISIONS OF PARAGRAPH 1 OF ARTICLE 46 OF DECREE-LAW NO. 133/2013, OF 3 OCTOBER
The Company complies with the provisions of the above-mentioned Decree-Law, preparing the annual report on the monitoring of the Risk Management Plan for Corruption and Related Offences, and disclosing it on its website. The aforementioned report was prepared and disclosed during this year’s first quarter and is available at the following website: www.nav.pt.
3.11PUBLIC PROCUREMENT
PROCEDURES ADOPTED IN THE ACQUISITION OF GOODS AND SERVICES
NAV Portugal, EPE is governed by the Public Procurement Code (PPC), approved by Decree-Law no. 18/2008, of 29 January, for its contracting of contract jobs, leasing and the acquisition of movable property and services. By order of the then Minister of Public Works, Transport and Communications, the company was designated an adjudicating entity for the special transport sector.
Accordingly, concerning the establishment of contract under the community threshold of five million two hundred twenty-five thousand euros and the establishment of leasing or acquisition agreements for movable property and the provision of services with amount below the community threshold of four hundred eighteen thousand euros, concerning, directly and mainly the air navigation activity, the rules of Part II (Public Procurement) of the PPC concerning the procedures provided for in the Code are not applied. In these situations, the ad hoc procedures best suited to the public interest of air navigation and to the corporate interests of NAV Portugal are adopted.
March/19 28 NAV Portugal, E.P.E. – 2018 Annual Report
With regard to contracts that do not directly and mainly relate to air navigation, NAV Portugal, as the contracting entity of article 2, paragraph 2 of the PPC, and except for those cases of direct contract award based on material criteria, may adopt the direct award procedure for job contracts, where these have a contract price below thirty thousand euros, and for the leasing or acquisition of movable property and the provision of services, where the contract price is less than twenty thousand euros.
In turn, prior consultation is adopted for the establishment of works contracts with a value of less than one hundred and fifty thousand euros and for the acquisition or lease of movable property or the acquisition of services with a value of less than seventy-five thousand euros.
NAV Portugal, in its Risk Management Plan for Corruption and Related Offences, available on the Company’s website at www.nav.pt, also establishes a set of rules that seek to discipline and standardise the action of the multiple actors in the different purchasing procedures, noting the following:
All directors, area officers, managers of lower hierarchical level and employees of NAV Portugal who participate in any stage of the purchasing procedures must fill in and deliver to the corresponding Department a statement concerning the absence of any impediments established in article 44 of the Portuguese Administrative Procedures Code (APC), with the corresponding Director being responsible for reading those statements and promoting and maintaining the corresponding archive updated and accessible to any audit;
The roles of legal advice in public procurement, namely in the preparation of documents to be patented in the purchasing procedures, as well as in the preparation, and when the law so allows, in the negotiation of contracts, shall be exercised, in a centralised way and directly or under supervision of the Office of Legal Affairs (GABJUR), in order to avoid dispersion, across other Departments, Offices or Areas, of legal interventions likely to make the aforementioned legal advice services contracts or lacking;
The preparation of the acquisition procedure elements concerning the establishment of agreements:
March/19 29 NAV Portugal, E.P.E. – 2018 Annual Report
o for the lease or acquisition of movable property and purchase of services whose contractual price exceeds €10,000.00, except for those of reduced complexity in which the contractual relationship is terminated with the supply or provision of services, without prejudice to the maintenance of accessory obligations that have been established unequivocally in favour of the contracting entity, such as those of confidentiality or warranty of the acquired goods and services, and
o for contracts whose contractual price exceeds €15,000.00, a multidisciplinary team will be responsible, consisting of at least one element of the concerned Department, Office or Area, an element from the Department of Studies and Projects (DEP) in case it is a contract, an element of the Administrative and Finance Department (DAFIN) and an element of the Office of Legal Affairs (GABJUR), except in duly justified cases that shall necessarily be substantiated in a specific and thorough way by the Director or Head of the Department, Office or Area interested in the acquisition.
In the definition of the entities asking for direct award procedures, whether or not the corresponding contracts concern the air navigation activity, in addition to the Department, Office or Area proposing the acquisition procedures, DAFIN/COAPG may suggest other entities, depending on its market knowledge, including through the public procurement platform in use in the Company, creating a system of rotation of invited entities, especially when acquiring current consumption goods, namely office supplies and,
Whenever only one entity is invited in the direct award, the Head of the organic unit or subunit shall, without exception, support that decision technically, unequivocally, specifically and thoroughly.
In 2018, following the intention of Navegação Aérea de Portugal – NAV Portugal, E.P.E. to join the Alliance of Air Traffic Service Providers named COOPANS and the resulting acquisition and development by its industrial partner of a new solution to replace the existing Air Traffic Management (ATM) System for the Lisbon Flight Information Region, considering the strategic interest of Portugal and of NAV Portugal, E.P.E. and, after evaluation of the qualitative and quantitative advantages of the various solutions, the March/19 30 NAV Portugal, E.P.E. – 2018 Annual Report
“Agreement to Offer Accession to COOPANS as ATM Member” was signed between NAV Portugal, the five ANSP Members of COOPANS and Supplier Thales LAS France, SAS, on 14 March 2018, in which the payment of €15,700,000.00 (fifteen million seven hundred thousand euros) is expected for NAV Portugal’s accession to the COOPANS alliance. Subsequently, NAV Portugal and the supplier Thales LAS France, SAS, signed the contract for the Supply, Installation and Integration of the TopSky Air Traffic Management System on 27 March 2018, for the amount of €26,500,000.00 (twenty-six million five hundred thousand euros).
Under the terms and for the purposes of the provisions of article 44 and following of the Law of Organisation and Procedure of the Court of Auditors (Law No. 98/97, of 26 August, in the current version) and in compliance with the provisions of Resolution No. 14/2011, of 11 July 2011, NAV Portugal submitted both documents for prior inspection by the Court of Auditors, both contracts having been granted prior approval by the Court of Auditors in the context of Prior Inspection processes Nos. 989 and 1613/2018, on 6 June 2018.
3.12 MEMBERSHIP OF THE COMPANY IN THE NATIONAL PUBLIC PROCUREMENT SYSTEM
On 6 February 2013, the Board of Directors approved the membership of NAV Portugal E.P.E. in the National Public Procurement System (SNCP), as a voluntary purchasing entity, whose contract of membership to the Framework Agreement was signed on 8 February 2013.
Every year, the Company submits the annual statistics report of Public Procurement of Goods and Services to the website of the Portuguese National Public Procurement Agency (ANCP). (ANCP) o reporte estatístico Anual de Compras Públicas de Bens e Serviços.
March/19 31 NAV Portugal, E.P.E. – 2018 Annual Report
3.13CONTAINMENT MEASURES ON OPERATING COSTS – ARTICLE 145 OF DECREE- LAW FOR BUDGET IMPLEMENTATION 2018
The 2018 Business and Budget Plan (BBP) of the Company was approved by a joint Ordinance of the Secretaries of State for Treasury and Infrastructure pursuant to the provisions of Ordinance No.810/18 SET of 24 October 2018.
Unit: thousand euros
2018/2017 CRP 2018 2018B 2017 2016 Abs. %
(0) EBITDA 12 387 15 233 17 189 32 946 -4 802 (27,9)
(1) CGSRMC 342 377 358 362 -17 (4,7)
(2) SES 16 268 17 912 14 961 15 081 1 307 8,7
(3) Staff costs corrected for expenses i), ii), iii) 152 295 132 170 134 015 126 463 18 280 13,6
(3.i) Compensation paid for termination 0 0 0 0 0 –
(3.ii) salary valuations under Budget Law 2018 3 099 3 086 1 032 0 2 068 200,4
(3.ii) Impact of the application of article 20 of Law No. 42/2016 of 29 Dec 14 921 13 444 9 293 0 5 628 60,6
(4) Operating Costs=(1)+(2)+(3) 168 905 150 459 149 335 141 905 19 570 13,1
(5) Turnover (Net of Operating Subsidy) 201 506 187 764 181 623 175 393 19 883 10,9
(6) Weight of Expenses / Turnover (%) = (4) / (5) 83,82% 80,13% 82,22% 80,91% – –
(i) Travel Expenses (SES) 360 469 382 362 -22 (5,8)
(ii) Allowance and Accommodation Expenses (SC) 573 784 595 553 -22 (3,7)
(iii) Vehicle costs 626 734 628 646 -2 (0,3)
Total = (i) + (ii) + (iii) 1 559 1 987 1 605 1 561 -46 (2,9)
Headcount (GS+MP+Permanent Staff) 956 998 967 987 -11 (1,1)
No. in Governance Structures (GS) 6 6 6 6 0 0,0
No. of Management positions (MP) 11 9 9 9 2 22,2
Headcount (without GS and without MP) 939 941 952 972 -13 (1,4)
No. Employees / Management positions 85 105 106 108 -20 (19,3)
No. of vehicles 77* 77* 77* 77* 0 0,0 * 3 vehicles are owned by the company, and the others are used in a long term leasing system
The following stands out among the analysis of the evolution of the Company’s expenses:
i. Staff costs in 2018 recorded an increase of 14.5% in relation to the previous year – around €18M – which is essentially explained by the €17.3M increase in charges with post-employment benefits resulting from the negative profitability of the corresponding funds.
March/19 32 NAV Portugal, E.P.E. – 2018 Annual Report
ii. Regarding the sum of expenses recorded under consumption and external supplies and services, we must note the increase of €1.3M (+8.6%) in comparison with 2017 (+7.4% at constant prices, given the 1.2% value of 2018’s HICP).
Also with regard to this type of expenses, the amounts recorded in 2018 under allowances and accommodation (-22 thousand euros) and travel (-22 thousand euros) represent a decrease of 44 thousand euros (-4.5%) as a whole (-5.6% in real terms) vis-à-vis 2017.
With reference to 31 December 2018, out of the total of 77 cars that constitute the Company’s Vehicle Fleet under direct management (the same value as the one in 2017), only three are owned by the Company. In mid 2018, the Company replaced two diesel vehicles with two less polluting vehicles (one hybrid and one electric).
3.14PRINCIPLE OF JOINT TREASURY WITH THE GOVERNMENT
Since January 2006, NAV Portugal has held available funds and financial investments in its account with Agência de Gestão da Tesouraria e da Dívida Pública, E.P.E. (IGCP), having received no income from short-term investments or financial investments outside the Treasury.
On 30 November 2018, the Company requested, under No. 5 of Article 104 of Decree- Law No. 33/2018, 15 May, the waiver of the Principle of Joint Treasury (PJT) regarding the services of Purchase of Foreign Currency, Custody of Securities, with the exception of those representing public debt and collection of funds.
According to IGCP Notice No. SGC – 208/19851, of 12 December, the Company was authorised to be exempt from compliance with the PJT, for the years 2018 and 2019, with regard to amounts related to the custody of securities other than public debt and amounts for the purchase of foreign currency, in situations where the external treasury cannot meet the needs.
It should be noted that, on 31 December 2018, the percentage of available funds and financial investments deposited in the IGCP amounted to 99.99%.
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In the table presented below is the per-quarter information concerning available funds, financial investments and interest earned.
Unit: euros
Commercial Banking 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Caixa Geral de Depósitos 62 971 32 466 15 486 9 784 Available funds 62 971 32 466 15 486 9 784 Financial Investments 0 0 0 0 Santander Totta 13 967 15 278 18 075 479 Available funds 13 967 15 278 18 075 479 Financial Investments 0 0 0 0 Montepio Geral 12 336 22 138 22 120 1 120 Available funds 12 336 22 138 22 120 1 120 Financial Investments 0 0 0 0 Total Available Funds 89 273 69 882 55 681 11 382 Interest Earned 0 0 0 0
3.15RECOMMENDATIONS RESULTING FROM AUDITS CONDUCTED BY THE COURT OF AUDITORS
In the past three years, the Company was not subject to audits by the Court of Auditors (TC – Tribunal de Contas).
3.16 INFORMATION DISCLOSED ON THE STATE BUSINESS SECTOR WEBSITE, AS AT 31 DECEMBER 2018
The table below details the information requested and sent to the services responsible for updating the State Corporate Sector (SEE) website. This information is already available on the Company's website: www.nav.pt. Appendix 2 Disclosure Information to include on the State Business Sector site Comments Y N N/A Update date Articles of Association X 2017/05/08 Description of the company X 2017/05/08 Role of the Shareholder and Oversight Authority X 2017/05/08 Governance Model / Members of the Governance Structures: Identification of the Governance Structures X 2018/08/03 Fixed remuneration policy X 2018/08/03 Disclosure of remuneration of governance structures X 2018/08/03 Identification of the functions and responsibilities of members of the BD X 2018/08/03 Presentation of summary CV of members of the governance structures X 2018/08/03 Public Funding X 2018/08/03 Summary File X 2018/08/03 Historical and current financial Information X 2018/08/03 Principles of good governance Internal and external regulations to which the company is subjected X 2018/08/03 Relevant transactions with related parties X 2018/08/03 Other transactions X 2018/08/03 Analysis of the company’s sustainability in the following domains: Economic X 2018/08/03 Social X 2018/08/03 Environmental X 2018/08/03 Assessment of PGG compliance X 2017/05/08 Code of Ethics X 2019/02/27
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NAV Portugal, in compliance with article 54 of Decree-Law No. 133/2013 of 3 October, prepares the standalone annual report of corporate governance, referred to as “Corporate Governance Report”, containing information on all matters regulated by Chapter II of the aforementioned Decree-Law. Information concerning corporate governance is also made available on the Company’s website at www.nav.pt, as well as on the website of the State Corporate Sector – www.dgtf.pt, and is periodically updated.
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4STRATEGY
Commercial aviation had its start a little over a century ago, with a short journey of 34 kilometres, between Tampa and St. Petersburg in Florida. Today, air transport of passengers and freight involves about 49 billion kilometres travelled each year, the equivalent to 10 times the distance between Earth and Neptune.
With over 1,400 regular airlines, 26,000 aircraft in operation, 3,900 airports and 173 air navigation service providers5, aviation supports a unique global network, which serves people and companies, anywhere on the planet. It is currently the fastest and safest means of transport, going over oceans and borders to connect people and support sustainable economic growth.
Economic activity supported by the aviation sector is equivalent to the gross domestic product of Switzerland – around 660 billion USD (with a total economic impact of 2.7 x 1012 USD), and the 62.7 million jobs it directly and indirectly supports are more than the current population of Italy.
EUROCONTROL’s current forecasts suggest that the volume of air traffic in Europe in 2040 will reach 16 million flights per year, and could even reach almost 20 million in an optimistic scenario. This represents a 53% growth over 2017, or, in the most optimistic scenario, an 84% growth.
Although with slower growth than initially estimated, as a result of an economic slowdown, of the increase in oil prices and of growing airport congestion, it is expected that by 2040 around 1.5 million flights will not be able to be accommodated in airports, which means around 160 million passengers will be unable to fly, with all the resulting economic impacts.
According to the latest EUROCONTROL study titled “EUROPEAN AVIATION IN 2040 – CHALLENGES OF GROWTH”, delays in the summer period could reach 20 minutes per flight in 2040, which poses the main challenge for the future of air transport of ensuring that air traffic growth is accompanied by the necessary increase in capacity, regarding both
5 Aviation Benefits 2017 – Industry High Level Group March/19 36 NAV Portugal, E.P.E. – 2018 Annual Report
airspaces and airports, optimising levels of safety and efficiency, while respecting the sector’s environmental commitments.
The framework for the provision of air navigation services, of which NAV Portugal is a part of, is no exception to the current context of a capacity deficit which generally affects all air navigation service providers in Europe. In this sense, and after a long negotiation process with the European Commission, Portugal was finally authorised to revise its Performance Plan for RP2, regarding 2018 and 2019, thus enabling a set of solutions that allowed the Company to cope with an unprecedented increase in traffic in 2016 and 2017, which currently stands at +25% compared to projections for RP2, according to EUROCONTROL.
Through Commission’s Implementing Decision (EU) 2018/2021 of 17 December 2018, the amendments to the Performance Plan were accepted and the revised targets in the key area of cost-efficiency performance were published.
As regards the regulatory framework for the Single European Sky, 2018 is marked by some important developments. First, and after a long period of discussion, the revision of the new performance and charging regulation, which, replacing Commission’s Implementing Regulations (EU) No. 390/2013 and No. 391/2013, will regulate the activity of air navigation service providers during the third reference period (RP3): 2020–2024). In the first quarter of 2019, the Commission will set performance targets for Europe, which, once broken down at the nationally, will influence the activity of most air navigation providers, enabling NAV Portugal to adjust its strategic plan.
Driven by the Strategy for Aviation presented by the EC in 2016, which can be broadly summarised by the leveraging of the European economy, by strengthening its industrial basis and thus strengthening the EU’s leading position on a global scale in the aviation sector, the Company has been following developments in the various topics and initiatives that are underway, namely the future regulations concerning the operation/integration of RPAS (Drones) and the digitisation of the ATM.
Regarding the air navigation services, the Strategy for Aviation also seeks to remedy the limits on growth in the air and on the ground in Europe, promoting all kinds of actions that
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enable optimising the use of the airports and of the airspace. In line with this design, and taking as a reference the vision and the technical/operational projects of the ATM Master Plan of the SESAR programme, the European Parliament asked the European Commission to launch an initiative to create a new airspace architecture, geared towards a more efficient and resilient service provision, independent of land borders, making use of new technologies and enabling service provision anywhere from any location.
In this sense, and in order to position itself for the great transformations in the sector, NAV Portugal joined the COOPANS Alliance on 18 September 2018. This membership will allow NAV Portugal to share the same air traffic management system, developed by THALES, the technological partner of COOPANS Alliance, thus providing the right to use the traffic management system (TOPSKY) shared by the other five Alliance partners, as well as a better strategic positioning and thus responding to the constant technological and procedural challenges posed to Air Navigation Service Providers by the Directives, requirements and definitions of the Single European Sky, as well as to cope with the strong and unforeseen increase in traffic over recent years in the Lisbon FIR.
As regards Capacity, NAV Portugal will continue to develop a number of initiatives aimed at responding to the limitations on the ground and in the air, including participation in the studies of the complementary airport of Lisbon and the respective restructuring of the airspace surrounding the Lisbon Terminal Area (TMA) with the introduction of the Point Merge System operational concept, which will enable increasing capacity in line with the increase in traffic expected for the Lisbon region, although this will be conditioned by the availability of airspace used by the military structures.
From a perspective of the efficiency of the airspace structure, NAV Portugal pioneered the implementation of the free-route concept in May 2009, and since then has positioned itself as a promoter of the expansion of this concept to its neighbouring spaces, promoting the expansion of the largest free-route space in the European airspace.
Also internally, the strategic axes were reinforced to respond positively to the Mission of NAV Portugal – “Ensuring the Safe and Efficient provision of Air Navigation Services, contributing to the creation of value and to society’s well-being, thus playing a vital role in the aviation sector” – and to the fulfilment of its strategic objectives:
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Additionally, and given that the NAT Region is, at present, the one that imposes the most advanced technological requirements on the aviation sector, NAV Portugal is well positioned to benefit from this competitive advantage. This is because we operate simultaneously in both regions and can continue to develop initiatives that contribute to improved operator performance, environmental efficiency and the highest possible safety standards, through our fulfilment of the technological requirements defined for this region. The introduction of SAT-ADS-B is vital for NAV Portugal to continue this successful path in the NAT region.
The challenges that are systematically placed on the providers of air navigation services require a policy of alliances and demand for synergies. These are not limited only to the European space and include multiple geographies. In 2018, the Company, recognizing the growing importance of the Atlantic as a strategic axis of affirmation of NAV Portugal, participated in the second edition of the Technical Days of the Atlantic in Luanda, with the attendance of the Air Navigation Service Providers of Brazil, Angola, Cape Verde and São Tomé and Príncipe, with the motto “Strengthening Bonds, Broadening Horizons”. This initiative seeks to identify a set of opportunities for collaboration between NAV Portugal and its Portuguese-speaking peers, in the technical, operational and training areas.
In addition to ensuring close coordination with the main national stakeholders – Government, Portuguese National Civil Aviation Authorities (ANAC), Portuguese Air Force, ANA (Portuguese airports managing company) and Portuguese Institute for Sea and Atmosphere (IPMA) – the Company identified the need to have a sharing space where it could listen to its clients (airspace users), recording suggestions and
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opportunities for continuous improvement of the services we provide. In this sense, in November 2018, the Airspace Users Meeting was “born” with the participation of about a dozen of the main users of the national airspace, from both national FIRs. This event, which will take place annually, was especially interesting due to the contributions received, as well as due to the extremely positive feedback from the participants.
In a further regard, NAV Portugal has maintained an active participation in the main international discussion forums, namely ICAO, EUROCONTROL, EU, CANSO, SW FAB and AEFMP, which it will continue to promote in the future, as part of the continuous improvement of our services, ensuring the fundamental involvement of our clients (airspace users).
As the air navigation service provider, NAV Portugal is entirely committed to fulfilling the mission with which it has been entrusted in the medium term. Our overarching aim is to help the country have a full national integration, given the importance of civil aviation to both the economy and to society in general.
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5BUSINESS EVOLUTION
5.1NUMBER OF CONTROLLED MOVEMENTS
Throughout 2018, air traffic, measured as the total number of Instrument Flight Rules movements, increased vis-à-vis the previous year in the two Flight Information Regions (FIR) controlled by Portugal, reaching 3.5% in the Lisbon FIR and 2.9% in the Santa Maria FIR, which represents an average variation of approximately 3.4% in the number of controlled movements (on average, over 72 daily flights), as shown in the following table:
LISBON FIR SANTA MARIA FIR TRAFFIC (IFR) 2018 % 18/17 2018 % 18/17 Entries / Exits 336 144 6.9 17 183 4.0 Overflights 258 075 0.1 134 275 3.0 Domestic 37 973 (0.9) 15 032 0.8 TOTAL 632 192 3.5 166 490 2.9
Although the observed annual growth was similar, the IFR traffic’s monthly behaviour was different for each Flight Information Region:
in the Lisbon FIR there were positive variations in traffic during all months of the year, with the largest being in the 1st and 4th quarters, +5.5% and +4.5% respectively. In absolute terms, with the exception of January, February and November, every month totalled more than 50,000 flights, with July and August exceeding 59,000 movements. These growths are mainly due to Portugal’s attractiveness as a touristic destination.
in the Santa Maria FIR there were positive variations in traffic during all months of the year, except in March and April when traffic decreased. The 3rd and 4th quarters showed the highest growth, +5.0% and +5.3% respectively. In absolute terms, the months of July and August were the busiest, with over 16,300 flights. This growth partly stems from the activity of the low-cost companies and from the continued increase of tourism demand.
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The average delay per movement controlled by NAV Portugal was 0.88 minutes. Regarding the average delay per en-route controlled movement, the value in 2018 in the Lisbon FIR remains at 0.19 minutes, identical to that recorded in 2017.
LISBON FIR
In the Lisbon FIR, IFR Civil traffic, which grew by 3.6%, accounted for 99.2% of all IFR traffic. Military IFR traffic, with a weight of only 0.8%, recorded a decrease of 8.5%. Regarding IFR traffic, the most significant flows are shown in the following charts, representing 59% of the total Entry/Exits flows and 80% of the Overflights:
Main Entry/Exit and Overflight Flows in the Lisbon FIR – Changes 18/17
SANTA MARIA FIR
In the Santa Maria FIR, Civil IFR traffic accounted for 98% of the total IFR traffic, with an increase of 3.1%. Military IFR traffic, with a weight of approximately 2%, decreased 5.7%. Regarding the Civil IFR traffic, the most significant overflight flows (97% of the total overflights) are shown in the following chart:
March/19 42 NAV Portugal, E.P.E. – 2018 Annual Report
Main Overflight Flows for the SMA FIR – 18/17 changes
5.2NUMBER OF SERVICE UNITS
5.2.1EN-ROUTE
The en-route service unit is calculated by multiplying the distance factor by the weight factor for the aircraft in question, as per annex IV of Implementation Regulation (EU) No. 391/2013, of 3 May.
The distance factor is obtained by dividing the number of kilometres travelled in the great circle distance between the entry and exit points of the tariff zones by one hundred, according to the latest known flight plan registered by the aircraft in question, for the purposes of traffic flow.
The weight factor, expressed as a value up to two decimal places, is the square root of the quotient obtained by dividing the number of metric tons in the maximum certified take- off mass of the aircraft by fifty, as described in the certificate of airworthiness or any equivalent official document provided by the aircraft’s operator.
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The following table shows the 2018/2017 change in the number of service units for the Lisbon and Santa Maria Charging Zones (CZ):
Lisbon CZ Santa Maria CZ Service Units 2018 % 18/17 2018 % 18/17 Chargeable 3 827 092 2.3 5 426 658 4.1 Exempt 28 449 (20.0) 77 515 (20.4) TOTAL 3 855 541 2.1 5 504 172 3.7
(*) Change 2018/17
5.2.2TERMINAL
The Terminal service unit is equal to the weight factor of the aircraft in question, with that weight factor, written as a value with up to two decimal places, being the quotient obtained by dividing the number of metric tons in the maximum certified take-off mass of the aircraft by fifty, as described in the certificate of airworthiness or any equivalent official document provided by the aircraft’s operator, to the power of 0.7, as established in annex V of the Implementing Regulation (EU) No. 391/2013 of the Commission, of 3 May.
The following table shows the 2018/2017 evolution in the number of service units in the Portugal Terminal Charging Zone:
Portugal Terminal CZ Service Units 2018 2017 % 18/17 Chargeable 272 372 256 061 6.4 Exempt 3 312 2 894 14.4 TOTAL 275 684 258 955 6.5
5.3SAFETY
Safety is the main concern in the provision of Air Traffic Services, depending on the training of its operators, the procedures in place and the systems that support the activity, thus contributing in a fundamental way to accident reduction or to a minimum risk of accidents.
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With the increase in traffic at the Lisbon FIR and with the prospect of scenarios of increased complexity, NAV Portugal, in due course, anticipated the need to invest in a modern system capable of effectively supporting the actions necessary to provide Air Traffic Services.
In this sense, 2018 saw the accession to the COOPANS Alliance consortium, which will enable the Company to be equipped with the TOPSKY ATC and TOPSKY TWR systems, featuring new functionalities, which, from the perspective of operational safety, will make it possible to respond to the increases in traffic expected in the coming years.
As in the previous year, NAV Portugal continued to adopt mitigating measures that included optimised human resources management and increased allocations and sector development, which enabled it to respond to the demands arising from the growth in existing traffic and in line with the Company’s safety culture.
This result reflects a proactive prevention policy implemented in all locations – TWR and ACC – which are periodically monitored, evaluating possible risk factors and adopting measures aimed at the mitigation/solution of particular and specific traffic situations of each ATC agency. In 2018, the disclosure and dissemination of good practices locally was continued, in the strengthening of safety levels, training in the area of Safety in specific actions – ATC 7 and 10, air traffic controller refreshment courses, with a special mention of the continuation of the Team Resource Management (TRM) and Critical Incident Stress Management (CISM) programmes.
The preparation of the internal regulatory documents concerning the Just Culture policy – Fair Culture and Operational Procedures Policy – was finalised, having been the subject of a prior hearing by the professional associations, seeking to formalise them at the beginning of 2019, thus complying with the European legal requirements, while maintaining a high level, comparable to the best practices at the European level.
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The dissemination of good practices and learnings found, both domestically and internationally, and later disclosed to the multiple national players, along with an active participation in several groups and forums from the Safety area (EUROCONTROL, EASA, ICAO, ANAC, EU, CANSO and others) have proven to be a determining factor, with a decisive contribution to the good results reached in the Prevention of Incidents and Accidents.
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6INVESTMENTS
NAV Portugal’s investment policy in its operational areas is framed by the international plans for harmonisation of air navigation. Thus, the investments of the Lisbon FIR are planned taking into account the harmonisation and the goals (safety, capacity, efficiency and environment) established in the European plans (Single European Sky – SES; Pilot Common Project – PCP; European Single Sky ImPlementation – ESSIP), as well as in the performance plan of the SWFAB 2015–2019, and the Santa Maria Oceanic FIR in the plans of the NAT (North Atlantic) region of the International Civil Aviation Organisation (ICAO).
The capacity objectives of the ATS (Air Traffic Services) entities of NAV Portugal, namely, the control centre of the Lisbon FIR, and the terminal control entities of the airports are defined in the Performance Plan of SWFAB 2015–2019 (PP), established in accordance with the medium-term forecasts for traffic evolution. The investment plan for new support systems considers the capacity objectives, the provision of new technologies, and the necessary replacement of systems at the end of their operating service life.
In 2018, the total value of NAV Portugal’s investments amounted to €24.4M, of which €23.9M went to operational entities (control centres, airport control towers and outer stations) and approximately €0.5M to the Company’s central structure, as shown in the following table:
INVESTMENTS (structure)
2% 16% DOPLIS €19.920M
DOPATL €3.987M
CENTRAL STRUCTURE €0.51M 82%
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Among the investments carried out in 2018, the following are noteworthy:
completion of the installation of the new audio and screen capture recorder/player system, in accordance with international standards, namely those published by ICAO and EUROCONTROL, in Madeira Airport’s Control Tower, with the corresponding provisional acceptance of the aforementioned system. This project seeks to provide the Lisbon Air Traffic Control Centre (Lisbon ATCC) and the Control Towers of Lisbon FIR’s airports with the means to record and playback all communications between the Company’s operating communication systems and their external counterparts, via phone or radio; project start-up for the supply and installation of a Voice Communication System (VCS) for use in the Lisbon Air Traffic Control Centre. This project was the object of an international public tender, and seeks to replace the current system, which has reached the limit of its service life; at the same time, it enables the option of using systems with VoIP technology (Voice over Internet Protocol);
upgrade of the wireless beam connecting Madeira to Porto Santo through Picos do Facho, in each of the islands, due to the fact that the previous system no longer has technical support by the manufacturer for the hardware/software of the multiplexer component;
completion of the installation of the equipment and accesses of the new communications infrastructure of the Santa Maria FIR. The new network, based on IP/MPLS technology, will increase the availability and redundancy of all critical services of the Atlantic FIR. The migration of services to the new network is scheduled for the first quarter of 2019;
launch of the project for the supply and installation of the new audio and screen capture recorder/player systems, according to international standards, namely those published by ICAO and EUROCONTROL, for the Oceanic Control Centre of Santa Maria and for the Control Towers of Santa Maria, Ponta Delgada, Horta and Flores airports. This project seeks to provide the aforementioned agencies with the means to record and play back all communications between the Company’s operational communication systems and their external counterparts, via telephone or radio; launch of the project for the supply and installation of VCS systems for the control towers of Ponta Delgada and Flores airports. This project seeks to replace the
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current system, which has reached the limit of its service life, and, at the same time, enables the option of using systems with VoIP technology (Voice over Internet Protocol);
completion of the VINIPOR project with the installation and execution of the corresponding provisional acceptance of the new DVOR/DME of Porto. The DVOR/DME stations are intended to support the air navigation of aircraft, providing azimuth and distance guidance at Lisbon FIR;
completion of the installation and execution of the corresponding provisional acceptances of the new DME systems of Marão, Arouca and Muro, within the scope of the RNAVPOR project, which aims to create a ground infrastructure based on DME equipment to support the establishment of RNAV procedures at Porto’s Terminal Manoeuvring Area (TMA), constituting an alternative to GNSS in the event of its failure. The installation of the fourth DME system planned under this project was not carried out in 2018, and its execution is expected to be possible in the 1st quarter of 2019;
completion of the replacement of the antennas and wiring of the LOCALIZER of the Precision Approach and Landing System on runway 28 (ILS28) of Faro Airport; completion of the installation and corresponding provisional acceptance of the new DME at the station of Horta’s Locator. This project’s goal is the creation of operating procedures based on radio aids; launch of the UPLIS project seeking to improve the coverage of the current Multilateration system at Lisbon Airport while maintaining its performance in the Lisbon vectorisation area; Start of the second phase of the replacement of the radar installed in Porto Santo; the need for replacement also arises from the fact that the equipment is at the end of its service life. The change to an S-Mode RADAR is being carried out in two phases. In the first phase, which is already completed, the processing, remote control and technical display systems were replaced. A check and replacement of deteriorated antenna components has also been carried out. In the second phase, which is in its completion stage, the RADAR extractors were replaced and the base of the antenna and of the motors were replaced; the projects for the remodelling of the operations room and for the adaptation of Lisbon Air Traffic Control Centre’s equipment room, arising from new operational
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needs, and which include electricity, telecommunications and air conditioning infrastructure, were initiated; execution of rehabilitation works at the facilities of Lisbon Airport’s Control Tower; replacement of Lisbon radar’s emergency groups, which were at the end of the service life, adapting them to current needs; construction of the necessary infrastructure for the installation of VOR/DME in Porto, as well as for VGS stations in Montejunto and Fóia; completion of the rehabilitation work at Cercal station; replacement of the Porto Santo radar tower UPS, which were at the end of the service life; completion of the contract for the rehabilitation of the roof of the Oceanic Control Centre on the island of Santa Maria; beginning of the remodelling of the operations room of the Oceanic Control Centre, on the island of Santa Maria, in response to new operational needs and; start of the project for the rehabilitation of the technical services building of Horta Airport’s Control Tower.
The European Union, through the European CEF (Connecting European Facilities) fund, managed by the Innovation and Networks Executive Agency (INEA), opens annual tenders for application to co-funding of ATM implementations. NAV Portugal, under this programme, has signed several co-financing contracts. In 2018, a new co-financing contract was signed, which includes NAV Portugal’s participation in a project to install a network of surveillance systems (ADS-B) in Portugal and Spain. The maximum total amount of co-financing by INEA to NAV Portugal for this contract is €0.866M.
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7HUMAN RESOURCES
The Company’s Human Resources Policy, developed in 2018, followed objectives and guidelines contained in the "NAV Portugal’s Business Plan for 2018–2022" document in which, in line with the defined strategic objectives, the continuous need for qualitative and quantitative adaptation of the human capital took on special relevance in the Management of Human Resources, through the adoption of organisational resizing and skill profile adjustment measures.
In fact, the European regulations resulting from the implementation of the various phases of the “Single European Sky”, along with the competitiveness requirements for the provision of air navigation services in the Santa Maria FIR, as well as the recent decision to join the COOPANS Alliance, have presented NAV Portugal, in general, and the human resources management in particular with a number of related challenges, based on the search for organisational excellence, supported by continuous optimisation of the relationship between the quality and safety of the services provided to airspace users and of its economic efficiency.
In this context, the valuation and competitive adaptation of the Company’s labour has been a crucial concern, through the pursuit of the following actions:
streamlining and adapting the workforce to new demands and challenges by adjusting the qualitative and quantitative composition of the human resources, seeking to improve the levels of productivity and service quality; improvement and development of systems for assessing the technical and operational proficiency of the human resources involved in the provision services of air traffic, aeronautical information and maintenance of air navigation support equipment and systems; updating of the provisional human resources plan and, promotion of the organisational alignment, through the redefinition of the employees’ skills.
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7.1WORKFORCE DESCRIPTION AND MOBILITY
As at the end of 2018, the active workforce comprised 950 employees.
In practice, the workers allocated to the areas of the provision of services of Air Traffic, Aeronautical and Quality Information and Procedures, and Strategy, represent around 79% of that universe and the area of Studies and Projects represents 8%, with the remaining 13% allocated to the central services.
The company is also responsible for a further 25 workers, so the total number of people with an employment contract with NAV Portugal comes to 975.
Workforce on 2018/12/31 950 Labour market 941 State employed 9 At cost to NAV PORTUGAL E.P.E. 25 Contract terminations 10 Pre-retirement 15 Total no. of contracted employees 975
Six workers are in other situations, detailed in the following table:
With contract suspended 6 Appointment to governance structures 1 Secondment 2 Leave without pay 3
During 2018, there was a reduction in the active labour force, due to the combined effect of 13 hires and 24 exits, resulting from admissions and retirement processes.
Permanent Staff 2018 % 2017 Beginning of the year 961 100 981 Hires 13 1.4 12 Exits 24 2.5 32 End of the year 950 961
It should be noted that, of the 24 recorded exits, six came from the legal inhibition to perform operating roles by air traffic controllers, which are awaiting the granting of their corresponding retirements. The 18 remaining exits are predominantly motivated by pre-
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retirement processes and by contractual suspension, revocation and extinction, stemming from situation of unpaid leaves, retirement processes and contract termination processes.
The 13 entries in 2018 arose from the need to replace air traffic controllers as a result of their cessation of operational duties, as well as the re-entry of workers on unpaid leave.
7.2PROFESSIONAL QUALIFICATIONS
The Professional Qualifications structure shows, in comparison with the previous year, a slight increase in higher-level professional skills, a situation that reflects the Company’s growing functional and organisational demands.
The analysis of the overall profile of certified competences shows that approximately 71% of the Company’s workforce comprises university graduates (Senior Staff and Middle Management). Around 27% of the Company’s employees have competences acquired through intermediate academic training (highly qualified), as shown in the following diagram:
Professional Qualifications 5 19 169
253 Senior Staff Middle Management Highly qualified Qualified Semi-qualified
504
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The evolution of the aggregate profile of certified competences that has been observed in the Company, as well as of its high levels of demand, stems predominantly from the effort developed in the characterisation of the organisational needs of the functional missions that are critical to the provision of air navigation services.
7.3AGE STRUCTURE
As regards age distribution, the Company’s workforce composition has its modal value between 55 and 59 years, with the average age structure at 48 years.
No. of employees
25–29 36 30–34 89 35–39 89 40–44 122 45–49 132
50–54 129 Age groups Age 55–59 198 60–61 71 62–64 57 > 65 27
This situation shows, on the one hand, a reduced level of staff renovation as a consequence of the fact that the recruitment organisational needs are mostly restricted to the air traffic control area, which accounts for a third of the workforce, and on the other hand, a natural loyalty by the workers, due to the benefits and comparative advantages provided by the Company.
7.4ABSENTEEISM
The Company’s global absenteeism, in 2018, was 5.1%, showing a slight decrease of 0.3 percentage points vis-à-vis the previous year. The situations of absence motivated by sickness or temporary disability of the workers and the social protection of family assistance and maternity/paternity, which accounted for around 73.2% of the total absences were relevant contributory factors for the recorded job inactivity.
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7.5TRAINING
Building up the skills of our human resources, so they can do their jobs better and ensure the effectiveness of our service outcomes, was, again, a key strategic objective for NAV Portugal in 2018.
In pursuit of that goal, one of the guidelines manifests itself in the training activity carried out by the Company in 2018, a clear result of its desire to materialise a training policy that it has been pursuing and which has sought to provide the workers with actual development possibilities, while keeping them capable of adapting to a highly dynamic and demanding reality regarding requirements. This enables the Company to permanently ensure the provision of services at the high level of quality for which it is renowned among its peers.
The training provided was predominantly of three types:
initial/qualifying: its goal is to prepare new admissions of operational staff, namely in the area of air traffic control; recycling/update: designed to provide workers with the conditions that enable them to develop their skills and to keep them permanently updated, fulfilling the stipulations in the regulations applicable to the air navigation sector, namely in what is established for “refreshment courses” for the operational areas and, development/specialisation: intended for the transmission of new knowledge, needed for the operation and maintenance of equipment and systems resulting from the implementation of new projects.
In fact, the contribution made by training over time has proved to be of critical importance to NAV Portugal’s ability to demonstrate its credentials as an ANSP to its counterparts. In 2018, the Company made a significant number of internal training courses, as summarised in the table below, noting increases of 8.2% and 6.9% in the number of actions and participants, respectively.
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INTERNAL TRAINING TRAINING HOURS OF HOURS OF TRAINING AREAS PARTICIPANTS ACTIONS TRAINING PRODUCTION Operational/OJT 475 2 006 11 499 49 791 General training 60 693 432 4 411 Technical/Project 84 399 973 3 573
TOTAL 619 3 098 12 903 57 775
In 2018, of the 57,715 hours of training/trainee carried out internally, 77.7% were under the direct responsibility of the Training Centre. The operational area involved in the provision of air traffic services is of especial note, given its importance and the resources involved. This package included initial training for new air traffic controllers (28,768 HP).
Also noteworthy are the number of participants from the operating areas, the refreshment events throughout the year using simulators and the on-the-job training (OTJ) for the operating departments, namely to obtain new skills in the multiple Air Traffic Control entities, which, due to the impact of their activity, take on special relevance (5,295 HP).
In the training associated with the development of new projects, the number of participants was 391, with 3,477 HP, while in general training, the environmental awareness, manual movement of loads, ergonomic prevention while at work, air law of unmanned aircraft, as well as actions in the context of civil aviation safety, involving 693 participants, for a total of 4,411 HP. Also noteworthy is the training in the behavioural area (included in General Training), considered relevant for its positive effects on professional performance, involving participation of 39 trainees, totalling 416 HP.
The Company also offered a significant number of external training courses, both in Portugal and abroad, as shown in the following table:
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EXTERNAL TRAINING TRAINING HOURS OF HOURS OF TRAINING LOCATIONS PARTICIPANTS ACTIONS TRAINING PRODUCTION Country 112 304 2 377 4 795 Abroad 68 121 1 285 2 595
TOTAL 180 425 3 662 7 390
In the training, provided by external entities (both domestic and foreign), the plan carried out in 2018 was one of continuity and targeting the permanent update of knowledge, as well as the acquisition of new skills, mostly in the areas of safety, security, organisational health and safety, data protection, new technologies, management and new processes.
Regarding training abroad, the main partner continues to be the Institute of Air Navigation Services (Instilux), representing 58% (745 HP) of the training hours received abroad.
In the provision of services to foreign entities, 2018 took on special relevance due to the multiple actions carried out, both nationally and internationally.
TRAINING EXTERNAL ENTITIES
TRAINING HOURS OF HOURS OF TRAINING LOCATIONS PARTICIPANTS ACTIONS TRAINING PRODUCTION Portuguese SATA 2 9 70 315 City Councils* 2 17 8 368
Foreign CAPE VERDE 6 64 135 1 428
TOTAL 10 90 213 2 111 * Training courses in collaboration with SATA. In this context, of the actions carried out for different national entities we highlight the training given to SATA, as well as to the Municipalities of Viseu, Portimão, Bragança, and NORTÁVIA – AITA Refreshment Course – Aerodrome Traffic Information Agents – AFIS- 02 and AFIS-03.
Internationally, and within the scope of the cooperation, at the request of ASA – Aeroportos e Segurança Aérea – S.A. of Cape Verde, five actions took place in the area of VOR/DME/ILS/SUR for Aeronautical Telecommunications Technicians, from 8 January
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to 1 February, and one action of Basic TRM – TRM-02 for Air Traffic Controllers, in Sal Island from 4 to 7 December. NAV Portugal’s training mission is of critical importance and considerable complexity given the context of its business area. That intent requires all suitable resources, both technical and educational, to be available. Thus, complying with some of those needs, resources were mobilised to carry out actions in the workplaces. Some projects are in development phase, among which we highlight the development of new features for the radar control simulator, its integration with the aerodrome simulator, promoting a culture that focuses, when possible, on the satisfaction of the recommendations and suggestions that are cyclically presented in the reports of the different training courses.
In 2018, the project to install 10 simulation positions for the new TOPSKY/BEST system of the COOPANS Alliance was completed. In this scope of implementation of the new system, and due to the dissemination of simulation capabilities across the multiple entities, new pseudo-piloting positions have been accommodated in FORMA assisting and enabling training capacity in any of the entities.
A space was also created for the self-preparation of the students of the Initial Training Course for Air Traffic Controllers. This is deemed to be important in a context of optimised use of the training capacity, taking an important step in the use of new technologies, namely e-learning. In 2019, we will be paying more specific attention to the use of this tool, as our intention is to widen its application to include other training areas.
In 2018, the development of a training management platform, FORINSIA, took place, enabling greater flexibility and profitability of the administrative load in the preparation and tracking of training courses, coming into full operation during 2019.
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8ECONOMIC AND FINANCIAL ANALYSIS
8.1PRICING POLICY – AIR NAVIGATION CHARGES
As a member state of the International Civil Aviation Organisation (ICAO), of the European Union (EU), of the European Organisation for the Safety of Air Navigation (EUROCONTROL) and as a signatory state to the Multilateral Agreement for En-Route Charges, Portugal is bound by the prevailing laws and regulations, as these apply to the pricing of en-route and terminal air navigation services, namely:
European Commission Implementing Regulation (EU) No. 390/2013, of 3 May, which establishes a performance system for the air navigation services and the network functions, with effect from 1 January 2015; Implementing Regulation (EU) No. 391/2013 of the Commission, of 3 May, laying down a common tariff scheme for the air navigation services, for the second reference period (2015–2019) and, Principles for establishing the cost base for en-route charges and the calculation of unit rates, as approved by EUROCONTROL Document No. 18.60.01, of January 2018, which transposes the abovementioned regulations, as these pertain to en- route charges, into the Organisation’s legal framework.
The exemption policy, as defined by the Portuguese State, is established in the following domestic legislation:
En-route charges: Ordinance No. 1467-B/2001, of 31 December and, Terminal Charges: Regulatory Decree No. 12/99, of 30 July (of which, article 5 is still in force, despite having been revoked by Regulatory Decree No. 24/2009, of 4 September, due to the provisions of No. 1 of article 82 of Decree-Law No. 254/2012, of 28 November, and until the publication of specific legislation on this matter).
Additionally, rules stipulating the possibility of air navigation service providers refusing the provision of their services to debtors of en-route and/or terminal charges, as set out in Decree-Law No. 163/2015, of 17 August. This law transposes to the national legal framework the provisions of paragraph 3 of article 18 of Implementing Regulation (EU) No. 391/2013, which provides, in the event of non-payment of charges due for the provision of air navigation services, the duty of the member states of the European Union to ensure the application of effective coercive measures. These measures may include March/19 59 NAV Portugal, E.P.E. – 2018 Annual Report
refusal of services, aircraft arrest or other enforcement measures provided for by the applicable legislation.
8.1.1 EN-ROUTE AIR NAVIGATION SERVICES
The charges for the provision of en-route services to airspace users of the flight information regions under Portugal’s control are determined in strict compliance with the principles described above, for both of Portugal’s En-Route Charging Zones (CZ):
Lisbon En-Route Charging Zone, comprising the airspace of the Upper Region of the Flight Information of Lisbon and of the Lisbon Flight Information Region and, Santa Maria En-Route Charging Zone, comprising the airspace of the Santa Maria Flight Information Region.
According to the above-mentioned Regulations (EU) and Principles defined by EUROCONTROL, the national en-route unit rate for year n is determined by the algebraic sum of the cost set for that year at the beginning of the reference period (with this second period being established for the 2015–2019 timeframe). The adjustments stemming from the difference between the predicted inflation and the real inflation, and the mechanism for traffic risk sharing concerning period n-2, with that sum being divided by the expected number of en-route service units, for year n, in each Charging Zone.
This unit rate is designed to ensure the recovery of the costs incurred by NAV Portugal, and by the other Portuguese entities involved (ANAC, IPMA, FAP and MARINHA), in the provision of en-route services plus the proportion of EUROCONTROL costs that are attributable to Portugal.
In this context, 2018 is characterised by a few specificities arising from the request for a review of the targets for the cost-efficiency area, with regard to the Lisbon En-route Charging Zone. As stated in paragraph 2 of this Report, the overall en-route unit rates, approved by Decision No. 148 of the EUROCONTROL Extended Commission, of 1 December 2017, and published in national legislation by Ordinance No. 11482-B/2017, of 22 December, to be in force in 2018, were the following: €36.97 for the Lisbon Charging Zone and €9.52 for the Santa Maria Charging Zone, including, in both cases, €0.13 as a regional administrative unit rate, which is intended to recover the costs incurred by
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EUROCONTROL’s Central Route Charges Service with invoicing and collecting route charges on behalf of the Countries Participating in the Multilateral Agreement.
Following the approval of the above-mentioned request for review, the national unit rate (overall unit rate less the regional administrative unit rate), which should have been applied in 2018 in the Lisbon Route Charging Zone, is €32.10, as a result of the update not only of the determined costs but also of the expected service units.
The following table compares these national unit rates and their change from those applied in the previous year.
LISBON CZ ROUTE SANTA MARIA CZ ROUTE
Charges 2018 2018 2018 (REV) / 2018 (REV) / 2018 (APL) / 2017 2018 2017 % (REVIEWED) (APPLIED) 2018 (APL) 2017 2017 National units 32.10 € 36.84 € 40.12 € -12.9% -20.0% -8.2% 9.39 € 9.99 € -6.0%
As mentioned above, the excess between the applied and the revised charges will be returned to the users over the course of 2019, as the overall unit rate in force this year already has this difference deducted.
If the rate applied in 2018 in the Lisbon Route Charging Zone had been the revised one, the overall unit value would have been €32.23, which is substantially lower than the weighted average of the overall unit rates applied by the Countries Participating in the
Route Charges System (€51.49), as illustrated in the chart below:
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8.1.2 TERMINAL AIR NAVIGATION SERVICES
Since 1 January 2015, and as required by the abovementioned regulations, terminal activity has been subject to the same tariff scheme and performance system as the en- route activity, specifically as pertains to the mechanisms for sharing traffic and cost risks.
This way, the cost base for purposes of calculating the Terminal Unit Rate, in force since 1 January 2018, was established in accordance with the provisions of Implementing Regulation (EU) No. 391/2013, including only the costs borne by NAV Portugal with the provision of terminal services in the national airports and aerodromes served by the Company (Lisbon, Porto, Faro, Cascais, Madeira, Porto Santo, Santa Maria, Ponta Delgada, Horta and Flores).
Thus, and taking into account the forecast of service units, included in the original performance plan, for all the national airports and aerodromes during the period, the 2018 Terminal Unit Rate was set at €140.65, a value determined according to the calculation
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formula for the service units defined in item 1 of Annex V to the mentioned Regulation, considering the weight factor to the power of 0.7.
However, considering that the request for review of the performance plan also covered this segment, the rate in force in 2018 was substantially higher than the revised rate, resulting from the updating both of the costs determined for the year and of the planned service units, and, had it been approved in due course, it would have been €112.46. As in the Lisbon En-route Charging Zone, this difference will be returned to the users during the course of 2019 by deduction from the rate applicable in that year.
8.1.3CONSULTATION WITH USERS’ REPRESENTATIVE ORGANISATIONS
With the Portuguese National Civil Aviation Authorities (ANAC), NAV Portugal represented the Portuguese Government in the two Multilateral Consultation Meetings of the Extended Committee for the En-route Charges, with the Organisations that Represent the Users. The meetings were hosted at the headquarters of EUROCONTROL, in Brussels, in July and November 2017, where the preliminary and definitive estimates of the en-route unit rates for 2018 were presented.
The en-route national unit rates proposals for 2018, for the Lisbon and Santa Maria Charging Zones, were presented, analysed and accepted by the Extended Committee for En-route Charges in its 109th meeting with the Organisations Representing the Users, held at EUROCONTROL’s headquarters on 22 and 23 November 2017. The proposals were submitted to the Provisional Council at its 48th meeting and approved, on 1 December 2017, by the Extended Commission of the European Organisation for Safety of Air Navigation (Decision No. 148).
The national unit rates set for 2018 correspond to the value of the unit costs calculated by dividing the total national costs set for the 2nd Reference Period – 2015–2019 timeframe – and the service units expected for that period, adjusted by inflation and traffic risk sharing, concerning 2016, and by the cost risk sharing concerning the previous reference period, in accordance with the provisions of Implementing Regulation (EU) No. 391/2013.
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Regarding the Terminal Unit Rate, NAV Portugal submitted to the Portuguese National Civil Aviation Authorities (ANAC) the information concerning costs, investments, traffic and unit rate proposed for 2018, in June (preliminary estimate) and October of 2017 (final estimate), which were subsequently submitted by ANAC to the European Commission and to EUROCONTROL.
What was said above about the impact of the revision of the cost-efficiency targets for 2018 on the Lisbon and Portugal Terminal En-route unit rates should be remembered. The consultation process with the organisations representing users on this matter took place in the second half of 2017, bilaterally, and in November 2018, multilaterally, where its effect on the charges to be applied in 2019 was assessed within the framework of the 111th meeting of the Extended Committee on En-route Charges.
8.2INCOME
In accordance with the regulations in force, the value of the provision of en-route and terminal air navigation services, corresponding to the funding obtained via air navigation charges, set for 2018 and charged of the users of the corresponding services, is operating income of NAV Portugal.
Income for the year includes, in addition to the determined costs, adjustments resulting from changes in traffic and inflation rates in relation to the values initially forecast and any costs exempt from risk sharing.
It should be noted that in 2018, the costs determined and the reference service units, for the Lisbon En-route and Portugal Terminal Charging Zones, are those included in the revised Performance Plan, approved by the European Commission at the end of the year. For the Santa Maria Route Charging Zone, the reference values have not changed.
The income from the provision of en-route and terminal air navigation services obtained in 2018 stems from the product of the service units chargeable by the determined unit cost (revised for the Lisbon En-route and Portugal Terminal Charging Zones), corrected for adjustments resulting from:
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i) the accumulated difference between the real and the forecast inflation rates; ii) the traffic risk sharing, determined using the mechanism stipulated in paragraphs 2 to 5 of article 13 of Implementing Regulation (EU) No. 391/2013, and iii) of costs exempted from cost sharing under Article 14(2)(a)(i) of Implementing Regulation (EU) No. 391/2013.
The en-route revenues in 2018 recorded an increase of 10.4% compared to the previous year, resulting mainly from the following factors:
Lisbon En-route (+11.9%)
price and volume difference taking into account the combined effect of the upward revision of the determined costs and of the service units, unit cost fell from €35.18 in 2017 to €31.32 in 2018, while the revised service units contributed a further 18% to income, corresponding to a combined positive variation of +€6.7M;
inflation adjustment via the update of the deflator index, the inflation adjustment was €2.1M more favourable than in 2017;
costs exempt from cost sharing difference of €4.2M from additional costs with defined-benefit pensions, resulting from unforeseen conditions in the financial markets, namely regarding the profitability of the assets allocated to the respective funds.
Santa Maria En-route (+6.5%)
price and volume difference and inflation adjustment in 2018, the unit cost grew by 2.6% and the service units contributing to the income by 1.5%, which combined with a small increase in the inflation adjustment, resulted in a positive variation of +€1.7M;
costs exempt from cost sharing difference of +€0.6M related to additional costs with defined-benefit pensions, for the reasons mentioned above.
The 13.3% growth in terminal income in 2018 is also exceptional in that it reflects the revision of cost-efficiency targets for this segment, and is due predominantly to:
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price and volume difference taking into account the combined effect of the upward revision of the determined costs and of the service units, the terminal unit cost fell from €156.14 in 2017 to €126.17 in 2018, while the revised service units contributed a further 31% to the income, corresponding to an integrated positive variation of +€2.0M;
inflation adjustment via the update of the deflator index, the inflation adjustment was €0.6M more favourable than in 2017;
costs exempt from cost sharing difference of +€1.6M from additional costs with defined-benefit pensions, resulting from unforeseen conditions in the financial markets, namely regarding the profitability of the assets allocated to the respective funds.
It should be noted that the income from the provision of services are subtracted from the amount of €2.2M, corresponding to the costs with flights exempted from en-route and terminal rates, in accordance with the rate exemption policy defined by the Portuguese Government, translating recurrently into a revenue decrease for NAV Portugal.
In accordance with Article 10 of Implementing Regulation (EU) No. 391/2013, as well as with the principles of EUROCONTROL, the costs of exempted flights must be reimbursed by the Government to the Service Providers, something which, until now, has not happened.
The following table shows the breakdown of Income and Gains in their different items and the comparison with the previous period:
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Unit: thousand euros
Items 2018 2017 18/17 Amount % Amount % Amount % SERVICE PROVISION 201 506 97.0 181 623 97.6 19 883 10.9 . EN-ROUTE 165 634 79.8 149 963 80.6 15 671 10.4 . LISBON 123 224 59.3 110 140 59.2 13 084 11.9 . SANTA MARIA 42 410 20.4 39 823 21.4 2 587 6.5 . TERMINAL 35 872 17.3 31 660 17.0 4 212 13.3 PROVISIONS (REDUCTION) 89 0.0 0 0.0 89 – OTHER INCOME AND GAINS 3 245 1.6 2 639 1.4 606 23.0 OPERATIONAL SUBSIDIES 175 0.1 153 0.1 22 14.6 OWN WORK CAPITALISED 2 657 1.3 1 747 0.9 910 52.1
TOTAL INCOME AND GAINS 207 672 100.0 186 163 100.0 21 509 11.6
Finally, it should be noted that income and gains not directly related to the provision of services are slightly more significant this year (3.0% of the total), following the non- recurring receipt of compensatory interest relating to processes from 2008, 2010 and 2011 and the 52% increase in Own Work Capitalised, resulting from the operational work associated with ongoing projects, namely the new ATM system.
8.3EXPENSES
A prior note to point out that the staff costs item includes, for purposes of analysis and for reasons of consistency, namely with the assumptions considered when the Performance Plan was prepared, in 2014, the amount concerning the actuarial and financial gains and losses of the defined benefit pension plans, which, in accordance with accounting and financial reporting standard NCRF 28, were recognised in Equity.
In this perspective, the Expenses and Losses supported by NAV Portugal in 2018 amounted to €207.7M, exceeding the previous year by €28.2M, of which 82% concerns staff costs, as shown in the analysis of the table below:
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Unit: thousand euros
2018 2017 18/17 Items Amount % Amount % Amount % STAFF COSTS* 170 316 82.0 144 340 80.4 25 975 18.0 CONSUMPTION AND SUPPLIES AND EXTERNAL SERVICES 16 609 8.0 15 320 8.5 1 290 8.4 EXPENSES/REVERSALS OF AMORTISATIONS 12 221 5.9 10 510 5.9 1 711 16.3 OTHER EXPENSES AND LOSSES 8 320 4.0 8 104 4.5 216 2.7 IMPAIRMENTS 186 0.1 965 0.5 (779) – PROVISIONS 0 0.0 243 0.1 (243) – TOTAL EXPENSES AND LOSSES 207 652 100.0 179 483 100.0 28 169 15.7 *includes the actuarial and financial gains and losses of the defined benefit pension plans, which, in accordance with accounting and financial reporting standard NCRF 28, were recognised in Equity (2018: €18,993,581 and
2017: €3,612,252).
The increase in staff costs was already expected and was in fact the factor that led to the request for a revision of the Performance Plan, in the area of cost-efficiency, with the aim of mitigating the pressure exerted by the strong increase in traffic, registered in the two previous years, on capacity in the Lisbon FIR.
The increase considered in the costs defined in the revised PP covered three key factors of an operational nature: i) recruitment of new air traffic controllers; ii) overtime resulting from the reinforcement of shifts, in order to enable the opening of new sectors according to traffic demand; iii) unfreezing the payment of compensation buffers in order to increase flexibility and reduce fatigue.
As a result of these measures, but also of unpredictable external factors, staff costs increased by 18% compared to the previous year, which is mainly explained by the following variations: i) an overall increase of €7.0M in the remuneration component, resulting from salary updates and progressions (+€2.7M) and the increase in overtime, compensation leaves and work performed on public holidays (+€4.3M), ii) the impact of these increases on the corresponding charges (+€1.8M); and iii) an increase of €17.3M in the charges with post-employment benefits, resulting, namely, from the negative profitability of the corresponding funds.
Regarding the items of Consumption and External Supplies and Services, there was an increase of 8.4% (+€1.3M), with a note for their relevance to the increases in March/19 68 NAV Portugal, E.P.E. – 2018 Annual Report
EUROCONTROL’s administrative costs (+€0.6M), also reflected in income for taxable service units, and those inherent to specialised work (+€0.6M).
The increase of €1.7M (+16.3%) in the Amortisations item reflects the level of completion of the investment programme in 2017 and 2018, with the annual impact of expenses related to projects that started operating only at the end of 2017, enabling the recovery of the delay that had occurred in the first two years of the reference period.
Of note is the reduction of €0.8M in impairments resulting from debts receivable from customers, while the other expenses and losses and provisions recorded marginal variations.
8.4RESULTS
The Comprehensive Income, amounting to around 208 thousand euros, includes the actuarial and financial gains and losses of the defined benefit pension plans, which according to accounting and financial reporting standard NCRF 28 are recorded in Equity (€19.0M). The detail of the results obtained in 2018 and the comparison with the figures for the previous year are shown in the following table:
Unit: thousand euros
2018 2017 18/17 Items Amount % Amount % Amount % INCOME 207 672 100,0 186 163 100,0 21 509 11,6
EXPENSES (-) 207 652 100,0 179 483 96,4 28 169 15,7
EARNINGS BEFORE INTEREST AND TAXES (EBIT) 20 0,0 6 680 3,6 (6 659) (99,7)
INTEREST PAID (-) 0 0,0 0 0,0 0 0,0
EARNINGS BEFORE TAXES (EBT) 20 0,0 6 680 3,6 (6 659) (99,7)
INCOME TAX (-) 1 669 0,8 644 0,3 1 025 159,1
DEFERRED TAXES (-) 2 686 1,3 3 275 1,8 589 (18,0)
ADJUSTMENTS TO EQUITY (+) 4 544 2,2 794 0,4 3 749 472,1
COMPREHENSIVE INCOME 208 0,1 3 554 1,9 (3 346) (94,1)
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The Operating Income, amounting to 20 thousand euros, represents a decrease of €6.7M from the previous year, resulting from the combined effect of the increase of €21.5M in Income and Gains and an increase of €28.2M in Expenses and Losses, as explained in the previous paragraphs.
Net Profit of 2018 records a positive result of €14.7M, which according to accounting and financial reporting standard NCRF 28, records the amount concerning actuarial and financial gains and losses of the defined benefit pension plans in Equity.
8.5EQUITY STRUCTURE
Equity, at the end of 2018, is approximately €107M, contributing to a coverage of Total Assets of 30.7%. On 31 December, Net Assets amounted to €349.2M, of which around 40% concern elements from Non-Current Assets. The evolution of the asset situation continues to show a prudent financing structure, as can be seen in the following chart:
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9RESEARCH AND DEVELOPMENT
The management of airspace is a dynamic process that seeks to accommodate the traffic’s evolution. Aware of this problem and attentive to the needs of its clients, NAV Portugal has been proactively adapting the airspace structures to the growth of demand and to the international regulations in effect.
Operationalisation, in April, of several systems resulting from the project of technological renovation of the Atlantic System (SATL) of the Santa Maria Control Centre, which had started operations in 2001. This project underwent a total equipment renewal (HW), as well as the migration of the operating system to Linux. The investments guarantee the extension of the system’s service life for several years, as well as achieving the objectives of increasing the efficiency, flexibility, and operational capacity of SATL, and of the ATS bodies supported by the system (the Oceanic Control Centre and the Control Towers of the Azores Airports) in air traffic management. Examples of the flexibility provided by the new system include both the implementation of multi-purpose working positions (air traffic controllers and aeronautical information technicians) enabling better adjustment of the working positions configuration to requirements, and the easy transition of the operations room positions to a temporary one, during the period in which the thorough overhaul of the operations room will be carried out.
Taking advantage of the capabilities of the new SATL system, a significant set of new functionalities were introduced allowing the provision of PBCS-type (Performance Based Communications and Surveillance) services to aircraft in accordance with ICAO’s NAT (North Atlantic) standards. These functionalities promote increasing capacity in aircraft accommodation, without penalties, in the requested routes and flights.
The evolution of the LISATM system enabled receiving from the regulator the statement of systems verification that certifies compliance with regulation (EC) IR 1032/2006 concerning the exchange of flight plans. In addition, and during the same period, it was possible to add to the system the Area Proximity Warning (APW) Safety Net, the support to the centralised management of SSRCODE (CCAMS) codes and the operationalisation of the Airport-Collaborative Decision Making (A-CDM) with Humberto Delgado Airport (AHD).
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In parallel with the evolution of Lisbon FIR’s current ATM system, in March 2018, the contract for a new Lisbon FIR ATM system was signed with Thales, with the start-up meeting taking place in October 2018. The planning foresees its operation in the Lisbon Air Traffic Control Centre in the last quarter of 2020, in the approaches to Porto, Faro and Madeira in the first quarter of 2021 and in the Control Towers until the first half of 2022.
This new system, called TOPSKY, already incorporates new concepts of system architecture, as well as new technologies, having a processing capacity far above the current one, and includes all required operational tools required, both by regulation, such as data link services, and to satisfy requirements arising from operational procedures.
It represents an important technological leap and will provide the company with a system capable of responding to the most demanding operational situations, including unexpected traffic increases.
The system will also have approach positions distributed among the towers of Porto, Faro and Madeira, with entries into service until the first quarter of 2021. At the same time, new operations room benches will be introduced, such as new displays, with larger sizes than the current ones, such as the 4K.
The project’s milestones are its corresponding factory acceptance, planned for June 2020, and the entry into operation in November of the same year. The contract included the acquisition of systems for Lisbon FIR’s control towers, which were developed by EDISOFT, in partnership with THALES, and with a schedule of successive installations until the end of 2022.
It should be noted that these investments, both in the en-route system and in the tower systems, are an imperative in light of the future demand for traffic and the company’s need to make a new technological leap, enabling it to maintain the high standards of safety and performance it has ensured up to now, while continuing to ensure top-level performance within an increasingly competitive and demanding framework within the scope of the Single European Sky. However, in order to be able to accommodate the current traffic pressure immediately, while maintaining the required safety levels, a number of improvements to the current
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system have been developed as the only way to ensure continuity of service without disrupting the European air traffic network.
In addition to these developments with greater relevance, other improvements were made to accommodate the growing traffic demand with the required security levels.
Three sets of R&D activity, which took place throughout 2018, are noteworthy, namely:
. Those seeking to ensure high safety levels: . LISATM system (ACC and Lisbon Control Tower) the versions/features were installed in the following time sequence: FPL Track functionality to enable improving surveillance means in regions with low radar coverage and to mitigate radar faults; LISATM System support for military exercises (Real Thaw); CCAMS (Centralised Code Assignment and Management System) functionality in all of Lisbon FIR connected to the European air network manager – NMOC; A-CDM functionality at AHD with connection to NMOC; New A-SMGCS requirements for AHD; Implementation of new flight coordination links (OLDI) with the new Agadir Control Centre in Morocco; Implementation of new OLDI interface with Madrid and Canary Islands (eCOS), with the Control Centre in Seville integrated in the connection with Madrid; Accommodate a new interface in LISATM (Lisbon Airport Control Tower) for surveillance of vehicles equipped with Transponder Mode S; Regular system updates to enable aligning to the increased capacity given the high traffic growth.
. TWRATM System New version of the ATM System developed for Porto Airport’s Control Tower, TWRATM version 2.3, with the main features previously implemented in the LISATM system: TTW – Track Termination Warning; Management of reserved areas;
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OLDI via FMTP CLAM (Cleared Level Adherence Monitor) and; Minimum separation in the area of the Terminal Manoeuvring Area (TMA) vectorisation. . Installation of a version of the CWP in Ponte de Sor Tower as an extension of the CWP central LISATM system, constituting the first version of the system “As a Service” and which can be applied to other towers of the Lisbon FIR. . Preparation and installation of an ATM Stand at the Air Summit Fair in Ponte Sor.
. Those related to compliance with regulatory requirements: Statistical evaluation and monitoring tools of the Data Link communication; Update of the ATM system interface so it conforms to the FMTP (Flight Message Transfer Protocol), as per the prevailing standard established in IR (Implementing Rule) 633/2007 of the EC, for IPV6. New functionality in the EID (Electronic Information Display) system and, Adaptation of the LISATM and TWRATM system to enable the activation of the centralised management of SSR codes in accordance with the requirements of IR 1206/2011.
. Those related to improving the performance standards and ensuring the quality of the provided service: New features in SIMATM V4.0 in the pre-OJT of the Lisbon ACC; Development of the functionalities required for the PMS (Point Merge System) in SIMATM and LISATM to support the simulation exercises that allowed confirming the new airspace configuration of the Lisbon terminal area, and Installation of visualisation for the CWP of NAV’s aerodrome simulator for air traffic controller training purposes with sector skills for the control tower.
In this context, it should be noted that the Single European Sky ATM Research (SESAR) Research and Development programme is one of the pillars of the Single European Sky (SES) Initiative.
NAV Portugal has been contributing to this programme in two ways: i) Through association agreements with ENAIRE: NAV Portugal agreed with ENAIRE, for the purposes of SESAR2020, an effort of €0.6M.
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ii) Through direct contracts with the programme’s managing entity, SJU: NAV is presently participating in a SESAR2020 project, and in exploratory research, on ADS-B by Satellite with multiple partners (e.g., Airbus, DLR, RSS).
It should also be noted that all R&D expenditure was funded by current and ongoing NAV Portugal projects.
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10OUTLOOK
According to the latest forecasts by the International Monetary Fund6, there are increasingly clear signs that the world economy, especially the European economy, is slowing down. The economies started to slow down at the end of 2018 and this more negative trend is expected to continue throughout 2019 and 2020, with global growth forecasts revised downwards to 3.5 and 3.6 percent respectively (0.2 and 0.1 percentage points below the previous IMF estimate – October 2018).
This downward revision is largely supported by the performance of developed economies, where growth is expected to be no more than 2%, reflecting the uncertainty factors in the performance of the German economy and the evolution of several events, such as Brexit, the protests of the yellow vests in France and the trade negotiations between the United States and China.
The growth rates of several euro area economies have also been revised downwards by the IMF, notably those of Germany, Italy and France, reflecting these same factors of uncertainty.
The improvement of economic estimates for 2019–2020 covers only the Japanese economy: the economic growth forecast in Japan is now 0.2 percentage points higher than previously forecast for 2019 and 2020, reflecting the fiscal stimulus measures for the economy in 2018.
All of these signs are being closely followed by the markets, which are facing a scenario of a turn in the economic cycle, and have been reacting with losses in the stock markets (anticipating weaker results for companies) and decreases in the price of raw materials, such as oil.
The Portuguese economy’s profile is also expected7 to follow a trajectory of decelerating activity. The projections for GDP growth in Portugal published by the Bank of Portugal (BoP) are broadly in line with those projected for the euro area as a whole by the European Central Bank (ECB). For 2019, the growth forecast in October went from 1.9%
6 World Economic Outlook Update: A Weakening Global Expansion, January 2019 7 Banco de Portugal: Economic Bulletin, December 2018 March/19 76 NAV Portugal, E.P.E. – 2018 Annual Report
to 1.8% and, for 2020 and 2021, the BoP forecasts GDP variations of 1.7% and 1.6% respectively.
The main explanation for these revisions is the anticipation of less positive results in external trade relations: the impact of the deceleration in Germany (the 3rd main destination of Portuguese exports) will always be very significant, the effect of the deceleration in the Chinese economy on the behaviour of the world economy and the volatility of markets (the reduction in consumption levels in the US economy directly affects Portugal, since the US is the main destination of Portuguese products outside the European Union). The effects of Brexit on tourism and of the pressure from Brussels to reduce the deficit of the Spanish economy (the main purchaser of Portuguese services and products) have direct repercussions on the performance of Portuguese exports, in addition to the uncertainty of the United Kingdom’s economy and the instability of the Italian economy, with negative influences on the performance of the domestic economy.
However, this forecast behaviour of external demand for the Portuguese economy is offset by the prospect of a recovery in investment in 2019, the positive contribution of productivity, and an acceleration in wages that will sustain consumption.
In the coming years, no significant changes are expected in the Portuguese economy’s funding capacity, but the surplus of the current and capital account, as a percentage of the GDP, are expected to decrease slightly in the 2019–2020 period.
This pessimism directly affects the prospects for the aviation sector, whose constraints are more economic in nature than activity-specific. The traffic forecast for Europe points to long-term growth rates slightly lower than the previous forecast (October 2018). This downward revision mainly concerns 2019, whose uncertainty interval was extended to ±1.5 pp, with the pessimistic scenario reflecting the strong downside risks associated with the possibility of a hard Brexit or more airline insolvencies. The expected growth rate of IFR movements in 2019 for all of the countries in the ECAC (European Civil Aviation Conference) is 2.8% (±1.5 pp), representing about 11.3 million flights.
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Regarding Western Europe, the STATFOR report points to an upward revision in most countries, a direct consequence of the strong growth observed at the end of 2018, after a more contained summer, which indicates a change in seasonality, namely in Spain, Italy and Portugal.
For en-route service units, a growth of 4.2% is expected for 2019, reaching 169.3 million units in all of EUROCONTROL’s participating member states. Overall, service units are growing faster than flights due to the increase in the weight factor observed in recent years and to the relative stability in the average distance travelled.
For the regions controlled by Portugal, the growth forecast for 2019 is 4.1% for the Lisbon FIR and 3.6% for the Santa Maria FIR for IFR movements, and 2.8% and 3.2% respectively for en-route service units.
In the terminal segment, STATFOR’s forecasts for 2019 are a little more optimistic, pointing to a 4.7% growth of the total service units in the Portugal Terminal charging zone.
In the context of the Single European Sky, work on the preparation of the third reporting period (2020–2024) is still ongoing and the latest PRB report proposing European targets for the four performance areas has recently been published and will be in consultation with stakeholders until 25 March 2019.
Also noteworthy in this respect is the planning agreed with the regulator (ANAC) for the submission of the determined costs, expected for that period, which should take place by next mid-April, in order to enable the timely submission of the Performance Plan, nationally, to the European Commission, whose deadline is 1 October 2019.
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NAV Portugal will continue to participate in this process, contributing to the establishment of a fairer and more coherent model, by participating actively in the various working groups where it is represented and in close coordination with the remaining involved national entities. Furthermore, we will continue our ongoing adaptation to the new requirements for our sector, embracing new challenges, creating value for our clients and safeguarding the business position that we hold both domestically and internationally.
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11PROPOSAL FOR THE APPROPRIATION OF PROFITS
The profit subject to distribution amounts to the comprehensive income and not to the net profit, since it does not include a cost item that, due to the effect of the change in accounting and financial reporting standard NCRF 28 is recognised directly in equity, as described in notes 3.12 and 40.
Thus, the Board of Directors proposes that the following application by given to the Comprehensive Income of the Year, amounting to €208,321.14, as mentioned in paragraph 8.4:
GENERAL RESERVE ………………………….……………………………….………....20 832.11 € Article 22 of the Articles of Association (10% of the Comprehensive Income)
FUND FOR SOCIAL PURPOSES ……………….……………….……………...………….2 083.21 € Article 22 of the Articles of Association (1% of the Comprehensive Income)
RETURN ON INVESTED CAPITAL………………….……………….....… 104 160.57 € (50% of the Comprehensive Income)
RESERVES FOR INVESTMENTS.. ….………..……………………………..……81 245.25 € Article 22 of the Articles of Association (remainder)
Lisbon, 14 March 2019
THE BOARD OF DIRECTORS
Jorge Manuel da Mota Ponce de Leão Chairman
Egídia Pinto de Queiroz Martins Member
Francisco Cézar Ramos Fernandes Gil Member
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12FINANCIAL STATEMENTS AND APPENDIX
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Table of Contents of the Financial Statements and Appendix
Table of Contents of the Financial Statements and Appendix ...... 82 Balance sheet as at 31 December 2018 ...... 83 Profit and loss statement by nature ...... 84 Statement of changes in equity ...... 85 Statement of cash flows ...... 86 1. Introduction ...... 88 2. Accounting system used in preparing the financial statements ...... 89 3. Main accounting policies ...... 90 4. Statement of cash flows ...... 109 5. Financial Risk Management Policies ...... 110 6. Information by segments ...... 113 7. Tangible fixed assets ...... 113 8. Intangible Assets ...... 116 9. Other Financial Investments ...... 117 10. Deferred tax assets and liabilities ...... 119 11. Inventories ...... 121 12. Customers ...... 121 13. Advances to suppliers ...... 122 14. State and other public entities ...... 122 15. Other accounts receivable ...... 123 16. Deferrals ...... 126 17. Paid-up capital ...... 127 18. Reserves ...... 127 19. Retained earnings ...... 128 20. Revaluation surpluses ...... 129 21. Adjustments to financial assets and Other variations in equity ...... 129 22. Provisions ...... 130 23. Loans obtained ...... 131 24. Responsibilities for post-employment benefits ...... 132 25. Suppliers ...... 138 26. Advances from customers ...... 138 27. Other debts payable ...... 138 28. Remuneration of the Governing Bodies ...... 138 29. Sales and Service provision ...... 139 30. Operational subsidies...... 139 31. Supply and external services ...... 140 32. Staff costs ...... 140 33. Other income ...... 141 34. Other expenses ...... 141 35. Interest and similar income obtained ...... 141 36. Tax on earnings for the year ...... 141 37. Commitments ...... 142 38. Contingencies ...... 143 39. Comprehensive income...... 143 40. Subsequent events ...... 143
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Balance sheet as at 31 December 2018 DATES ITEMS NOTES 31/12/2018 31/12/2017
Assets Non-current Tangible fixed assets 7 88 486 147 80 658 127 Intangible assets 8 7 931 180 3 742 452 Other financial investments 9 344 684 344 684 Deferred tax assets 10 20 661 940 19 323 814 Other accounts receivable 15 5 378 825 7 631 073 Deferrals 16 17 633 718 19 587 101 140 436 494 131 287 250 Current Inventories 11 384 136 352 376 Customers 12 39 636 415 42 024 107 Advances to suppliers 13 32 331 34 731 State and other public entities 14 - 3 782 210 Other accounts receivable 15 15 190 995 20 100 715 Deferrals 16 3 804 326 3 194 393 Cash and bank deposits 4 149 678 314 128 342 471
208 726 516 197 831 004
Total Assets 349 163 010 329 118 253
Equity
Equity and reserves attributable to equity holders Subscribed capital 17 25 000 000 25 000 000 Legal reserves 18 19 012 333 19 012 333 Other reserves 18 24 269 610 24 269 610 Retained earnings 19 49 595 909 43 151 922 Revaluation Surplus 20 1 137 014 1 185 778 Adjustments to financial assets 21 (766 379) (766 379) Other variations in equity 21 (25 736 349) (11 263 712) 92 512 138 100 589 552 Net earnings for the year 40 14 658 279 6 372 544 107 170 417 106 962 097 Total equity 107 170 417 106 962 097
Liabilities
Non-current Provisions 22 1 202 857 2 035 475 Responsibilities for post-employment benefits 24 102 864 215 96 887 231 Deferred tax liabilities 10 564 140 1 001 787 Deferrals 16 11 057 717 41 200 637 115 688 930 141 125 130 Current Suppliers 25 5 383 847 3 322 012 Advances from customers 26 134 168 101 001 State and other public entities 14 9 088 789 6 301 307 Loans obtained 23 - 1 080 724 Other accounts payable 27 45 873 614 45 055 802 Deferrals 16 65 823 244 25 170 180 126 303 662 81 031 027
Total liabilities 241 992 593 222 156 157 Total equity and liabilities 349 163 009 329 118 254
Board of Directors Certified Accountant
Jorge Manuel da Mota Ponce de Leão Ana Paula Fernandes Gomes
Egídia Pinto de Queiroz Martins
Francisco Cézar Ramos Fernandes Gil
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Profit and loss statement by nature Period ending on 31 December 2018
PERIODS INCOME AND EXPENSES NOTES 2018 2017
Sales and services provided 29 201 505 943 181 623 278 Operational subsidies 30 174 986 152 626 Gains/losses attributed to subsidiaries, associated companies and joint ventures 9 226 082 184 474 Ow n w ork capitalised 8 2 657 082 1 747 381 Cost of materials consumed 11 (341 538) (358 340) Supplies and external services 31 (16 267 847) (14 961 291) Staff costs 32 (151 322 102) (140 728 220) Impairment of inventories (losses/reversals) 11 (381) (52 155) Impairment on debts receivable (losses/reversals) 12 (185 510) (913 164) Provisions (increases/reductions) 22 88 645 (243 405) Other income 33 3 019 238 2 454 901 Other expenses 34 (8 319 934) (8 104 414)
Earnings before interest, taxes, depreciations and amortisations 31 234 666 20 801 670
Expenses/reversals of depreciations and amortisations 7 and 8 (12 220 617) (10 509 516)
Operating profit/loss (before funding costs and taxes) 19 014 049 10 292 155
Interest and similar income obtained 35 - - Interest and similar expenses paid - - -
Earnings before taxes 19 014 049 10 292 155
Tax on earnings for the year 36 (4 355 770) (3 919 611)
Net earnings for the year 14 658 279 6 372 543
Board of Directors Certified Accountant
Jorge Manuel da Mota Ponce de Leão Ana Paula Fernandes Gomes
Egídia Pinto de Queiroz Martins
Francisco Cézar Ramos Fernandes Gil
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Statement of changes in equity Period ending on 31 December 2018
Attributable to shareholders
Other Net DESCRIPTION Adjustments variations earnings Total Equity Paid-up Legal Other Retained to financial Revaluation in for the capital reserves reserves earnings assets Surplus equity year
Balance at the beginning of the 2017 period 1 25 000 000 19 012 333 24 269 610 18 142 591 (766 379) 1 250 296 (11 539 104) 28 038 316 103 407 663
Changes during the period Realisation of the revaluation surplus - - 71 443 (71 443) - Deferred tax adjustments - - (3 100 428) 6 924 4 022 099 928 595 Other changes in equity (Subsidies and actuarial gains/losses) - - (3 746 706) (3 746 706) Other changes in equity (Net Profit N-1 and N-2) - 28 038 316 (28 038 316) 0
2 - - - 25 009 331 - (64 518) 275 392 (28 038 316) (2 818 111)
Net earnings for the year 3 6 372 545 6 372 544
Comprehensive income 4 = 2 + 3 3 554 432 3 554 432
Transactions w ith equity holders in the period Distributions - -
5 ------
Balance at the end of the 2017 period 6 = 1 + 2 + 3 + 5 25 000 000 19 012 333 24 269 610 43 151 922 (766 379) 1 185 778 (11 263 712) 6 372 545 106 962 095
Balance at the beginning of the 2018 period 6 25 000 000 19 012 333 24 269 610 43 151 922 (766 379) 1 185 778 (11 263 712) 6 372 545 106 962 095
Changes during the period Realisation of the revaluation surplus 71 443 (71 443) 0 Deferred tax adjustments - - 22 679 4 439 395 4 462 074 Other changes in equity (Subsidies and actuarial gains/losses) - - (18 912 032) (18 912 032) Other changes in equity (Net Profit N-1 and N-2) - 6 372 544 (6 372 544) -
7 - - - 6 443 987 - (48 763) (14 472 637) (6 372 544) (14 449 958)
Net earnings for the year 8 14 658 279 14 658 279
Comprehensive income 9 = 7 + 8 208 321 208 321
Transactions w ith equity holders in the period Distributions - -
10 ------
Balance at the end of the 2018 period 11 = 6 + 7 + 8 + 10 25 000 000 19 012 333 24 269 610 49 595 909 (766 379) 1 137 014 (25 736 349) 14 658 279 107 170 417
Board of Directors Certified Accountant
Jorge Manuel da Mota Ponce de Leão Ana Paula Fernandes Gomes
Egídia Pinto de Queiroz Martins
Francisco Cézar Ramos Fernandes Gil
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Statement of cash flows Period ending on 31 December 2018
ITEMS NOTES PERIODS 2018 2017 Cash flow from operating activities
Receipts from customers 13 225 047 938 236 262 874 Payments to suppliers 25 (15 815 377) (24 509 735) Payments to staff 31 (158 882 243) (141 819 737) Cash generated by operations 50 350 319 69 933 402
Payment/receipt of income tax 36 (274 922) (6 945 956) Other receipts/payments 16.27 (7 034 719) (19 302 911) Net cash flow from operating activities 43 040 677 43 684 535 Cash flow s from investment activities
Payments regarding: Tangible fixed assets 7 (20 856 394) (15 991 702) Financial investments 9, 10
Receipts from: Fixed assets 7 7 120 4 179 Financial investments 9, 10 Interest and similar income 34 2 477 16 157 Dividends 222 687 182 626 Net cash flow from investment activities (20 624 110) (15 788 739) Cash flow from financing activities Payments regarding: Loans obtained 22 (1 080 724) (1 246 990) Interest and similar costs 35 - Dividends 10 (5 823 460) Net cash flow from financing activities (1 080 724) (7 070 451) Change in cash and cash equivalents 21 335 843 20 825 345 Cash and cash equivalents at the beginning of the period 4 128 342 471 107 517 126
Cash and cash equivalents at the end of the period 4 149 678 314 128 342 471
Board of Directors Certified Accountant
Jorge Manuel da Mota Ponce de Leão Ana Paula Fernandes Gomes
Egídia Pinto de Queiroz Martins
Francisco Cézar Ramos Fernandes Gil
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Appendix to the financial statements
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1. Introduction
Navegação Aérea de Portugal – NAV Portugal, E.P.E. (referred to in this annex as “NAV Portugal” or “Company”), with headquarters in Lisbon, Rua D, Building 121, Lisbon Airport, Lisbon – Portugal, was established in 18 December 1998, with the entry into force of Decree-Law No. 404/98, of which resulted the separation of the airport and air navigation operational activities, until that time ensured by the entity now called ANA – Aeroportos de Portugal, S.A., which still manages the former operations. The new Company was renamed to Empresa Pública Navegação Aérea de Portugal, NAV, E.P., a name that was changed to Entidade Pública Empresarial Navegação Aérea de Portugal – NAV Portugal, E.P.E. via Decree-Law No. 74/2003, of 16 April. In parallel, this document increased the Statutory Capital by €60,160, via capitalisation of reserves, to €25,000,000.
NAV Portugal is a public company wholly owned by the Portuguese Government, which exercises oversight responsibility for its business activity.
NAV Portugal’s main business purpose is the provision of public air navigation services in civil aviation support. The company is responsible for the management, operation and development of air navigation systems, including air traffic management services and all related and inherent activities, in compliance with the rules of the international conventions to which Portugal is a signatory or of the international civil aviation organisations of which it is a member state.
The company manages the Portuguese Government’s public interest assets in its business area. NAV Portugal’s assets include those that the company acquires as part, and for the purposes, of its business activity. The company is free to manage these assets as it sees fit. The assets are of the following nature:
Public domain assets: i) Land used directly in the provision of public air navigation services; ii) Buildings and structures located in these buildings, and iii) Basic equipment installed on the land described in i) and in the buildings and constructions described in ii).
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Capital Assets:
Lands, buildings, basic equipment and all remaining equipment necessary for the regular operation of the Company’s activity and suitable provision of services.
These financial statements have been approved by the Board of Directors on 14 March 2019. Its parts are presented to the Government, in accordance with subparagraph 2d) of article 6 and item III of subparagraph d) of article 14 of the Company’s Articles of Association, and in accordance with article 26, subparagraph 1h) of article 44 and paragraphs 1 and 3 of article 45, all in Decree-Law No. 133/2013. It is the opinion of the Board of Directors that these financial statements present a true and fair picture of NAV Portugal’s business activity, its financial position and performance and its cash flows.
2. Accounting system used in preparing the financial statements
2.1. Basis of Preparation
The presented financial statements were prepared in accordance with the provisions of the SNC, applicable to the period ended 31 December 2018, following, as a general rule, as the basis of measurement, the historical cost.
Preparing financial statements under the SNC requires NAV Portugal to make use of estimates, assumptions and critical judgements in determining which accounting policies are to be applied. These estimates may have a significant impact on the book value of the assets and liabilities and the income and expenses reported for the period.
Although these estimates are based on the best experience of the Board of Directors and on its best expectations regarding current and future events and actions, the actual current and future results may differ from these estimates. The areas involving a higher degree of judgment or complexity, or the areas in which assumptions and estimates are significant to the individual financial statements, are presented in note 3.22.
Financial assets and liabilities are only offset and net balances are only reported on the balance sheet when there is a binding legal right to offset the same and there is also the intention to settle the net balance or when the assets and passives in question are constituted and settled at the same time.
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2.2. Comparability of the financial statements
The elements contained in these Financial Statements are, in general, comparable with those of the previous period.
2.3. Accounting and Financial Reporting Standards
During the periods ended in December 2018 and 2017, there were no changes to the accounting policies or significant estimate changes. No material errors were identified that warranted correction, nor was any provision in the applicable rules revoked.
2.4. Business Continuity
The accompanying financial statements were prepared assuming continuity of operation, from the Company’s accounting books and records, maintained in accordance with the Financial Reporting Accounting Rules of the Accounting Standardisation System.
3. Main accounting policies
The main accounting policies applied in the preparation of the financial statements are the ones described below. These policies were consistently applied to the presented periods, unless otherwise stated.
3.1. Currency conversion
Functional and reporting currency
The items included in the Company’s financial statements are measured in the currency of the economic environment in which it operates (functional currency), the euro. NAV Portugal’s financial statements and corresponding notes of this annex are presented in euros, unless expressly stated otherwise.
Transactions and balances
Transactions in currencies other than the euro are converted into the functional currency using the exchange rates at the transaction date. Foreign exchange gains or losses resulting from the payment / receipt of transactions or from the conversion, at the exchange rate on the balance sheet date, of monetary assets and liabilities, where these are denominated in a foreign currency, are recognised in the profit and loss statement as Interest and similar income earned or Interest and similar expenses incurred, where
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related to loans, or Other income and gains or Other expenses and losses, for all other balances / transactions.
Exchange rates used
The foreign exchange rates used for converting balances expressed in a foreign currency were as follows:
Currency 2018 2017 USD 1.1450 1.1993 CAD 1.5605 1.5039 GBP 0.8945 0.8872 Source: Bank of Portugal’s exchange rates as at 31 December 2018 and 2017.
3.2. Tangible fixed assets
The company’s tangible fixed assets comprise:
• Assigned public domain assets – these include the assets assigned by the state without compensation, namely, land and buildings and other constructions on this land. • Acquired public domain assets – these include the assets purchased by the Company that are installed/stationed on/in public domain assets. • Capital Assets – these include all the other assets recorded as tangible fixed assets that have been purchased by the Company.
The public domain assets have been assigned to the Company for the purposes of its business activity. The Company is free to manage them as it sees fit, but may not dispose of them, given that they are public property.
The tangible fixed assets, including the public domain ones, are carried at deemed cost, less accumulated depreciations and impairments. These assets are depreciated on a systematic basis over their estimated service life. Some of these assets have been revalued, in accordance with the appropriate legislation. The most recent revaluation was made pursuant to Decree-Law No. 31/98, of 11 February.
The acquisition cost includes the purchase price of the asset plus the expenses directly attributable to the acquisition and any other charges incurred in ensuring the asset is located as required and in full working order. Such expenses include the cost of initial
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training in the project phase, specifically given to enable operators to work with the equipment, and employee benefit costs (e.g. salaries) directly related to such activities, provided that these can be reliably measured.
The direct costs incurred by the technical areas involved in the development of the company’s assets are capitalised, in the tangible asset, on the basis of the internal resources used and the time spent, with a contra entry in the item of works for the Entity itself.
Subsequent costs incurred with renovations and major repairs that increase the service life or the productive capacity of the assets are added to their cost. The charges with current repairs and maintenance are recognised as an expense in the period in which they are incurred, under the External supplies and services item of the profit and loss statement.
The estimated cost of dismantling or removing assets installed on third-party property is recognised as part of the initial cost of the asset in question, wherever such costs are significant.
The estimated service life of the major classes of tangible fixed assets are as follows:
Nature Years
Buildings and other constructions Betw een 25 and 50 years Basic equipment Betw een 3 and 10 years Transport equipment Betw een 4 and 6 years Tools Betw een 4 and 10 years Office equipment Betw een 3 and 10 years Other tangible assets Betw een 3 and 15 years
The outstanding service life of assets are reviewed at each financial reporting date, to ensure that the depreciations remain in line with the consumption pattern of the assets.
Changes to service life are treated as changes to the accounting estimate, so any impact is recognised prospectively, that is, in the reporting period itself and also in subsequent periods.
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Gains or losses on the disposal of tangible fixed assets that are to be recorded in the profit and loss statement are calculated as the difference between the disposal value of the asset and its carrying amount.
3.3. Intangible Assets
The cost of intangible assets acquired separately includes their purchase price, plus any costs directly attributable to preparing the asset for its intended use, less any discounts.
Internally generated intangible assets are recognised at their cost, whenever it is likely that their use may lead to future economic benefits to NAV Portugal and that their cost can be reliably measured.
In the case of NAV Portugal, the assets that fall within this scope are mostly internal software developments, which are subject to capitalisation when, cumulatively, the following conditions are met: i) The relevant services deem that this completion of the project is technically feasible; ii) The Company’s management has the express intention of using the software resulting from the project and there are demonstrable internal competences capable of implementing this use; iii) The use of the product can be shown to be of benefit to NAV Portugal’s operational performance; iv) The financing and technical resources required to complete the project have been put in place; v) NAV Portugal is able to measure the expenditure on the intangible asset during its development phase with sufficient reliability.
Whenever an ongoing project does not meet the above criteria, the associated costs are immediately recognised in earnings for the reporting period.
After initial recognition, by the cost method, NAV Portugal measures its intangible assets in accordance with accounting and financial reporting standard NCRFF 6 – Intangible Assets. This standard stipulates that an intangible asset should be carried at its initial cost less any accumulated amortisations or impairments.
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Intangible assets with a set service life are amortised on a systematic basis during this estimated service life, which starts from the date on which they enter service. Service life is determined based on the best estimate for the consumption of the economic benefits associated with the asset. Intangible assets carried on NAV Portugal’s balance sheet essentially comprise software programmes and licences for software programmes. Depending on the technical specifications for the asset, these are amortised using an estimated service life of between three and five years.
3.4. Impairment of assets
NAV Portugal carries out impairment tests whenever events or changes in the surrounding conditions indicate that the amount by which the assets are recorded in the financial statements is not recoverable.
Whenever the calculated recoverable value is less than the book value of the assets, the Company recognises the resulting impairment loss in the profit and loss statement. The recoverable amount is the greater of the fair value of the asset, less the cost of selling it, and its usage value.
Where appropriate, the possibility of reversing impairment losses considered in previous periods is analysed. When an impairment is recorded or reversed, the amortisation and depreciation of the assets are recalculated for the future.
3.5. Financial Investments
For recognition of its financial holdings in associated companies, NAV Portugal uses the equity method. Regarding the remaining financial investments, the Company considers, for measurement purposes, the cost of acquisition net of impairments.
When the company’s proportion of the accumulated losses of an associated company exceeds the value at which the investment has been recognised, the investment is recognised as having zero value, except when the Company has made commitments to cover the associated company’s losses. In these cases, the additional losses will require a liability to be recognised in the provisions item.
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3.6. Financial assets The Company classifies financial assets on the date of initial recognition according to their acquisition purpose. This classification is reassessed at each reporting date.
Financial assets may be classified as: i) Financial assets at fair value through profit or loss – these include non-derivative short-term investment assets held for trading and assets measured at fair value through profit or loss on initial recognition; ii) Loans made and accounts receivable – these include non-derivative financial assets with fixed or determinable payments that are not listed on an active market; iii) Investments held to maturity – these include the non-derivative financial assets with fixed or determinable payments and fixed maturities that the company has both the intention and is able to hold until maturity and, iv) Financial assets available for sale – these include the non-derivative financial assets that are designated as being available for sale at the time of their initial recognition or those that do not fit into any of the other classifications above. These are recognised as non-current assets, unless the company intends to dispose of them in the 12-month period following the balance sheet date.
Financial assets are recognised at the time that the company becomes contractually engaged with the financial instrument. This recognition complies with the stipulations of accounting and financial reporting standard NCRF 27 - Financial Instruments.
Financial assets at fair value via profit and loss are initially recognised at fair value, with the transaction costs being recognised in profit and loss. These assets are subsequently measured at fair value and any gains or losses resulting from the change in fair value are recognised in the reporting period in which they occur, in the Net financial costs item. Any interest or dividends earned by the asset are also recognised in this item.
Loans granted and accounts receivable are classified in the balance sheet as Customers and Other accounts receivable (notes 12 and 15) and are recognised at amortised cost using the effective interest rate, less any impairment loss. The adjustment for impairment of Accounts receivable is carried out when there is objective evidence that NAV Portugal
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will not receive the amounts owed, according to the original terms of the transactions which gave rise to them.
Financial assets available for sale, where they exist, are initially recognised at fair value plus transaction costs. In subsequent periods, they are measured at fair value and the change in fair value recognised in the fair value reserve in equity. Dividends and interest earned from financial assets available for sale are recognised in the profit and loss of the period in which they occur, in the Other operational gains item, once the right to receive them is established. If there is no active market, shareholdings in other companies are always maintained at historical cost.
Financial assets are derecognised when the rights to receive the monetary flows from these investments expire or are transferred, along with all the risks and benefits associated with their ownership.
Regulated activity
NAV Portugal falls in the context of a regulated activity that cumulatively fulfils the following criteria: Regulated service rates are set or approved by an independent regulatory authority; The rates are set to enable the Company to recover the costs of providing the regulated service; Given the estimated demand and competition, it is reasonable to assume that the rates are set at a sufficient level to cover costs and that they will be charged to the customers.
The costs that are accepted by the regulator in the cost base are recognised in Other accounts receivable, in the reporting period in which they are incurred, whenever it is likely that: i) the revenue, which should at least cover the costs, will be included in the rates, and ii) future revenue will be used to reimburse costs incurred in the past and not future costs of a similar nature.
Any differences in the calculated rates, whether payable or receivable, are recognised at their present value in Other accounts receivable and/or Deferrals, respectively.
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The rates charged by NAV Portugal are set on the basis of the fixed costs for year N, as a constituent part of the reference period (RP1: 2012–2014 and RP2: 2015–2019). The adjustment mechanism is used to calculate any adjustments arising from fluctuations in demand, inflation or non-controllable real expenses. Such adjustments are then reflected in the rates applied in year N+2, for the first two factors, and in the remaining and subsequent years in the third reference period (RP3 2020–2024), in the case of the third factor. Under-invoicing is recognised as a revenue accrual (Regulatory assets) and is offset by a contra entry in Other accounts receivable – Debtors through revenue accrual. Over-invoicing is recognised as counter-revenue (Regulatory liabilities) and is offset by a contra entry in Deferrals – Income to be recognised.
A significant or prolonged decrease in the fair value of investments in shares categorised as available for sale, to a value below their cost, also serves as evidence that the assets are impaired. If there is any comparable evidence for financial assets available for sale, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss for that same asset that has previously been recognised in gains or losses – is subtracted from Equity and recognised in the profit and loss statement.
Impairment losses recognised in the profit and loss statement concerning equity instruments are not reversed through the profit and loss statement. If, in a subsequent reporting period, the fair value of a debt instrument classified as being available for sale increases, and this increase can be objectively attributed to an event that occurs after the facts that gave rise to the recognition of the impairment loss in the profit and loss statement, the impairment loss is reversed in the profit and loss statement.
The Customers and Other accounts receivable items are initially recognised at fair value and are subsequently measured at amortised cost less any impairment adjustments.
Impairment losses on customers and Accounts receivable are always recognised when there is objective evidence that these are not recoverable at a level equivalent to the initial terms of the transaction. Impairment losses are recognised in the profit and loss statement in Impairment on debts receivable and are then reversed in earnings if the impairment indicators decrease or disappear.
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Cash and cash equivalents includes cash, bank deposits, other short-term investments with high liquidity and initial maturities of up to three months and bank overdrafts.
Bank overdrafts are presented on the balance sheet in current liabilities, in the Loans obtained item, and are considered to be Cash and cash equivalents for the purposes of preparing the cash flow statement.
3.7. Impairment of financial assets
At the end of the reporting period, NAV Portugal determines whether or not there is any objective evidence for the impairment of a financial asset or a group of financial assets.
A financial asset, or a group of financial assets, is only deemed to be impaired, and the company will only carry a resulting impairment loss, when there is objective evidence of impairment. This evidence must be linked to one or more events that occurred after the initial recognition of the financial asset, or group of financial assets, and this loss event (or events) must produce effects on the cash flows of the financial asset, or group of financial assets, that can be estimated with sufficient reliability.
The criteria used by NAV Portugal to determine the existence of objective evidence of impairment losses include: i) The debtor experiencing significant financial difficulties; ii) Breach of contract due to insolvency or a failure to pay interest or to service the debt.
The loss is measured as the difference between the asset’s book value and the present value of the estimated future cash flows (excluding future credit losses that were not incurred) discounted at the original effective interest rate for the financial asset. The asset’s book value is reduced and the loss is recognised in the profit and loss statement.
If the impairment loss decreases in a subsequent reporting period, and this decrease can be attributed objectively to an event that has occurred after the recognition of the impairment (for example, an improvement in the debtor’s credit rating), the reversal of the previously recognised impairment loss should be recognised in the profit and loss statement.
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3.8. Inventories
Inventories are valued at the lower of acquisition cost and net realisable value. This item predominantly comprises materials used in the internal maintenance and upkeep activities. Inventories are initially recognised at acquisition cost, which includes all the expenses incurred with the purchase.
Inventories are measured using the method of average weighted cost.
3.9. Statutory capital
The statutory capital is fully paid up. Only the Minister of Finance and the supervising Minister may decide on any increase or decrease in the statutory capital. This capital may only be increased by means of government allocations, new assets or the incorporation of reserves.
3.10. Financial liabilities
Financial Liabilities are recognised on the balance sheet at the time that the Company becomes a part of the corresponding contractual provisions. This recognition complies with the stipulations of accounting and financial reporting standard NCRF 27 – Financial Instruments.
Financial liabilities may be classified into one of two categories: i) Financial liabilities at fair value through profit or loss; ii) Other financial liabilities.
Other financial liabilities include Loans obtained, Suppliers and Other debts payable. Suppliers and Other debts payable are initially recognised at fair value and are subsequently measured at amortised cost in accordance with the effective interest rate.
Financial liabilities are derecognised when the underlying responsibilities are set aside through payment, cancellation or expiration.
Loans obtained are initially recognised at their fair value, net of incurred transaction costs. Loans are subsequently presented at amortised cost and the difference between the
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nominal value and the initial fair value is recognised in the profit and loss statement over the term of the loan, using the effective interest rate method.
Loans obtained are classified as current liabilities, except where the company has an unconditional right to defer the payment of the liability for at least 12 months after the balance sheet date. In such situations, the liabilities are classified as non-current liabilities.
3.11. Income tax
The income tax for the reporting period comprises current tax and deferred taxes. Income tax is recorded in the profit and loss statement, except when it concerns items that are recognised directly in the equity. The value of current tax payable is determined based on the earnings before tax, adjusted in accordance with the tax rules in force.
Deferred taxes are recognised using the liability method based on the balance sheet, which considers the time differences resulting from the difference between the tax base of assets and liabilities and their values in the financial statements. According to the rules defined by the Portuguese Commission for Accounting Standardisation, deferred taxes are recognised on investment subsidies, and recorded in equity. Deferred taxes on actuarial and financial gains and losses are also recognised in equity according to the new wording of accounting and financial reporting standard NCRF 28, in force since 1 January 2016.
Deferred taxes are calculated on the basis of the prevailing tax rate or the rate that is officially published at the balance sheet date, and that is expected to be applicable on the date on which the deferred tax assets are realised or the deferred tax liabilities are paid.
Deferred tax assets are recognised insofar as it is likely that there are future taxable profits available to use the time difference.
Deferred tax liabilities are recognised for all taxable temporary differences. The exceptions provided for in the standard are not applicable to NAV Portugal.
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3.12. Employee benefits
The Company provides supplementary retirement and survivor pension benefits, through pension funds. Some of these occur in defined-benefit pension funds and others in defined-contribution plans. It also offers health insurance to all employees and pensioners.
It also supports 60% of the liabilities with pensions paid by Social Security concerning the period of advancement of the old-age pension of some employees in the air-traffic- controller career.
Pension funds – Defined-benefit plan
Supplementary retirement and survival pension benefits with an independent fund. All the responsibilities and corresponding allocations pertaining to each period are transferred to this fund.
The liabilities from the payment of those benefits are estimated annually by an independent actuary, using the projected unit credit method. The present value of these responsibilities is determined by discounting future benefit payments, using the interest rate of high-rating bonds in the same currency in which the benefits will be paid and with a maturity that is broadly similar to that of the pension liability.
The Liability recognised on the balance sheet for retirement benefit responsibilities equates to the present value of the benefit’s responsibilities, as determined at the balance sheet date, less the fair value of the plan’s assets, along with the adjustments made for the costs of past services.
The actuarial and financial gains and losses for the period are recognised in Equity.
The remaining expenses of the period, namely, current service cost, interest cost and expected return on assets, are recognised in the Profit and loss statement.
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Pension funds – Defined-contribution plan The Company’s contributions to defined contribution plans are recognised as expenses in the period to which they pertain, that is, the period during which the employees render the services that entitle them to the Company’s contributions.
Health insurance The liabilities incurred with the health insurance are a defined-benefit plan that is not funded. The liabilities are covered by a specific provision.
The measurement and recognition of the liabilities with the health insurance are identical to those mentioned for the retirement complements benefit presented above, except regarding the plan’s assets.
Pension charges – Advancement of the old-age pension According to Decree-Law No. 155/2009, of 9 July, amended by Decree-Law No. 50/2017, of 24 May, pensions paid for the early retirement of the air traffic controllers for old-age pensions, where the employees are members of the public social security system, are borne jointly by NAV Portugal and the Social Security services, in shares of 60% and 40%, respectively.
From an accounting point of view, the company has been recognising these responsibilities to current and retired employees since 2004. The cost of the assets involved was initially deferred, until the publication of the relevant legislation in 2008 and 2009. When the legislation first came into force, in 2008, the Company began amortising the cost, reported as at 31 December 2007, of the liabilities for past services rendered by those current employees covered by the scheme, as a function of past service. This amortisation is included in the cost base used to calculate the en-route and terminal charges.
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3.13. Provisions
Provisions are recognised when the company has a legal or constructive present responsibility arising from past events and where it is more than likely that a disbursement of internal resources will be required in order to settle this responsibility and the amount involved in such disbursement can be realistically estimated. Provisions are not made to cover future operational losses.
Whenever one of the criteria is not met or the existence of the responsibility is dependent on the occurrence (or non-occurrence) of a given future event, the company discloses this in the form of a contingent liability, except where the likelihood of having to disburse resources to settle the responsibility is assessed as being remote. Provisions are measured at the estimated present value of the disbursement required to settle the liability, using a pre-tax discount rate that reflects the market assessment for the discount period and for the risk of the provision in question.
When there is a number of similar liabilities, the likelihood of it being necessary to have a disbursement to settle the liability is determined by considering the class of liabilities as a whole. A provision is recognised even if the likelihood of a disbursement being required for a particular item in the same class of liabilities is deemed to be remote.
3.14. Subsidies
NAV Portugal recognises subsidies at their fair value at the time when there is reasonable certainty that the subsidy will be received and not based on actual receipt.
Investment subsidies are initially recognised in the Other changes to equity item in Equity. These subsidies are subsequently credited on a pro rata basis to the Investment subsidies item in the profit and loss statement, as a function of the depreciation of the assets with which they are associated. Thus, investment subsidies are recognised as earnings in the profit and loss statement in the same reporting period in which the associated expenses are incurred and recognised.
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3.15. Leases
Leases of tangible fixed assets, for which NAV Portugal substantially retains all risks and benefits associated with the ownership of the asset, are classified as finance leases. The agreements in which the analysis of one or more specific conditions of the contract suggest this nature are also classified as finance leases. All other leases are classified as operating leases.
Finance leases are capitalised at the beginning of the lease at the lowest between the fair value of the leased asset and the present value of the minimum lease payments, each determined on the date when the lease contract begins. The debt resulting from a finance lease agreement is recorded net of financial charges, under the Loans item. Financial charges included in income and the depreciation of the leased assets are recognised in the profit and loss statement in the period to which they relate.
The tangible fixed assets acquired through finance leases are depreciated at the lowest between the time of the asset’s service life and the lease period when NAV Portugal does not have the option of purchase at the end of the contract, or for the period of estimated service life when NAV Portugal intends to acquire the assets at the end of the contract.
In operating leases, rents to be paid are recognised on a straight-line basis as a cost in the profit and loss statement during its period.
3.16. Revenue
The Company’s provision of services concern en-route and terminal air navigation services, whose costs are funded by en-route and terminal charges, collected from the users of the corresponding air navigation services. Thus, these charges constitute the remuneration that the company receives in return for the provision of the aforementioned services.
The en-route unit rate is due for each flight performed, in accordance with the procedures stemming from the application of the Community regulations, from the EUROCONTROL Principles and from the Rules and Recommendations of the International Civil Aviation Organisation (ICAO), in the airspace of Portugal’s Flight Information Regions (Lisbon FIR and Santa Maria FIR). This charging rate was unanimously approved by
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EUROCONTROL’s Extended Commission and published in an ordinance issued by the minister responsible for the transport sector.
The new common tariff scheme for the provision of air navigation services was applied to en-route services for the first time in 2012. The scheme, which includes a mechanism to ensure ANSP and users share traffic and cost risks, was established by means of European Commission Regulation (EU) No. 1191/2010, as amended by Regulation (EC) No. 1794/2006, and applicable to the first reference period (2012–2014).
For the second reporting period (2015–2019), the Commission established Implementing Regulation (EU) No 391/2013, which, like the previous one, establishes that, each year, en-route income is determined by the product between the real chargeable service units real and the unit cost established for the respective year, adjusted by the following factors:
. the difference between the expected and the real inflation; . traffic risk sharing, determined using the mechanism stipulated in article 13 of Implementing Regulation (EU) No. 391/2013; . cost risk sharing, applied exclusively to certain natures of costs deemed to be non- controllable, as per article 14 of Implementing Regulation (EU) No. 391/2013.
The adjustment for the first two factors will be reflected in the calculation of the en-route unit rate for year n + 2 (adjustment mechanism). The adjustment for the third factor will be reflected, if it exists, in the calculation of the en-route unit rates of the subsequent reference period.
The fixed costs base includes the pertinent operational costs for the other entities involved in the provision of air navigation services in the airspace under Portugal’s control. These are the Portuguese Air Force, the Portuguese Navy, Portuguese National Civil Aviation Authority and the Portuguese Institute for Sea and Atmosphere.
Pursuant to article 8 of Decree-Law no. 404/98, of 18 December, the Company only recognises the portion of the unit rate that corresponds to the remuneration of its costs as revenue. This means that the remaining portion (which is actually intended to remunerate third parties) is neither a component of its revenue nor of the cost of providing services.
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The terminal unit rate pertains to approach and aerodrome air traffic operations, including the use of radio aids for landing and take-off. This rate is set in an ordinance issued by the minister responsible for the transport sector and the charge is paid for each landing operation in the airports where NAV Portugal provides terminal air navigation services, i.e., Lisbon, Porto, Faro, Funchal, Porto Santo, Ponta Delgada, Santa Maria, Horta and Flores airports, and also in Cascais Aerodrome, which integrates the terminal charging zone since 1 January 2016 according to Ordinance No. 7467/2015, of 30 June, by the Secretary of State for Infrastructure, Transport and Communication.
Although the way that en-route rates are calculated was changed in 2012, the new common tariff scheme for the provision of air navigation services was only applied to the provision of terminal services from 2015 onwards. This new scheme introduces the mechanism for the sharing of air traffic and cost risks by the ANSP and the users, as required by the European Commission’s Implementing Regulation (EU) No. 391/2013.
Thus, the terminal income began to be determined similarly to en-route’s. Deviations stemming from the following factors were recognised in year N: . the difference between the expected and the real inflation; . traffic risk sharing, determined using the mechanism stipulated in article 13 of Implementing Regulation (EU) No. 391/2013 ; . cost risk sharing, applied exclusively to certain natures of costs deemed to be non- controllable, as per article 14 of Implementing Regulation (EU) No. 391/2013.
The result of this adjustment mechanism is recognised in either the Other accounts receivable or the Deferrals item, depending on the nature of its balance (Regulatory assets or liabilities).
3.17. Reporting by segment
An operating segment is a component of an entity: (i) Developing business activities from which revenues can are obtained and expenses are incurred (including revenues and expenses concerning transactions with other components of the same entity);
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(ii) Whose operating results are regularly reviewed by the main agent in charge of the Company’s operating decisions for purposes of making decisions on the allocation of resources to the segment and on the evaluation of its performance; (iii) About which separate financial information is available.
NAV Portugal has two operational segments: En-Route and Terminal activity.
3.18. Accrual accounting
The expenses and income are recorded in the period they concern, regardless of their payment or receipt, in accordance with the accrual basis of accounting. The differences between the amounts received and paid and the corresponding income and expenses are recognised as assets or liabilities, if they qualify as such.
3.19. Distribution of dividends / Remuneration of statutory capital
Any remuneration of the statutory capital is recognised in the period following that in which it originated, as required by the applicable legislation.
3.20. Financial expenses on loans
Financial expenses arising from the funding arrangements pertaining to loans obtained for the acquisition, construction or production of a qualifiable asset are recognised as expenses in the period in which they occur.
3.21. Subsequent events
Events occurring between the balance sheet date and the date of approval of the financial statements that affect the value of the company’s assets and liabilities are taken into account in the preparation of the financial statements, when deemed significant. According to their nature, they may give rise to adjustments to reported amounts on the balance sheet date or disclosed in the notes to the financial statements.
3.22. Accounting estimates
The accounting estimates and judgements, which are continuously under review, are based on historical experience and other factors, including expectations regarding future events that are deemed likely, given the circumstances involved.
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Main used estimates and judgements
Estimates and judgments with an impact on the Company’s financial statements are continuously evaluated, representing on the date of each report the best estimate of the Board of Directors, taking into account the historical performance, the accumulated experience and the expectations about future events, which, in the circumstances in question, are believed to be reasonable.
The intrinsic nature of the estimates can lead the materialisation of the estimated situations, for purposes of financial reporting, to differ from the estimated amounts. The estimates and judgments presenting a significant risk of giving rise to material adjustment of the carrying amount of assets and liabilities during the following period are the following:
Actuarial assumptions
The calculation of the company’s liabilities regarding retirement pensions, the remuneration of inactive air traffic controllers and health insurance require the application of estimates and assumptions of both demographic and financial nature. These estimates and assumptions may have a significant impact on the liabilities calculated at each reporting date. The most sensitive variables concern the expected increase in salaries, the update rate of the liabilities, the rate of return estimated for the assets and the mortality tables.
Changes to the actuarial assumptions have impacts on the net accounting value of the liabilities.
Tangible fixed assets and intangible assets
The determination of the service life of assets and the depreciation rate to be applied are both critical factors in the calculation of the depreciations and amortisations to be recorded in the profit and loss statement of each reporting period.
These two parameters are defined according to the Company’s best judgement regarding the asset and businesses in question, also considering the practices adopted by other companies in the sector at the global level.
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Provisions and impairments
The Company periodically analyses possible liabilities resulting from past events and which should be the subject of recognition or disclosure.
The subjectivity inherent to the determination of the probability and amount of internal resources necessary for the payment of the liabilities may lead to significant adjustments, either by variation in the assumptions used or by the future recognition of provisions previously disclosed as contingent liabilities.
Where appropriate, the Company supports its judgment based on the opinion of the lawyers to determine the need to recognise the possible provision to cover those contingencies, as well as its value.
The adjustments for Accounts receivable are calculated predominantly based on their age, the customers’ risk profile and their financial situation.
Adjustment mechanism
At each reporting date n, the Company estimates the adjustment mechanism for the variances that result from the adjustments designed to account for the difference between expected and actual inflation, the sharing of traffic risks, which is carried over to the calculation of the unit rate to be applied in year n+2, and the sharing of costs risks, which is carried over to the calculation of the unit rate to be applied in the following reference period. The adjustment mechanism is recognised at the discounted value, for which the Company uses the discount rate that is most in line with the market’s reality.
4. Statement of cash flows
The statement of cash flows is prepared using the direct method.
Cash flows are classified on the cash flow statement, depending on their nature, as: i) operational activities, ii) investment activities or iii) financing activities.
Operational activities essentially comprise receipts from customers, payments to suppliers and to staff, retirement benefits, income tax and net indirect taxes.
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The cash flows classified as investment activities include investment purchases and disposals, dividends received from associated companies and also the remuneration of cash equivalents and their settlement on maturity or on their disposal.
The cash flows in the financing activities category include payments on loans obtained, the payment of lease instalments and of interest and expenses relating to the same and the payment of dividends.
The Cash and cash equivalents item includes special short-term debt certificates issued by the Portuguese Government (CEDIC). For the purposes of the statement of cash flows statement, the Cash and cash equivalents item also includes any bank overdrafts included on the balance sheet in the Debts to third parties – short-term item.
Details of the Cash and bank deposits item:
2018 2017 Cash 6 250 6 250 Bank deposits – demand deposits 3 672 064 94 636 221 Bank deposits – others 146 000 000 33 700 000 Total Cash and bank deposits 149 678 314 128 342 471
The amount stated above is also used as the closing balance of the Cash and cash equivalents item in the preparation of the statement of cash flows for the reporting period ending 31 December.
5. Financial Risk Management Policies
5.1. Financial risk
NAV Portugal’s activities are exposed to a variety of financial risk factors, including the effects of changes in market prices: credit risk, liquidity risk and cash flow risk associated with interest rate, among others.
This note contains information on the company’s exposure to each of these types of risk as well as the objectives, policies and practices employed in measuring and managing them. Further quantitative disclosures are presented throughout these financial statements.
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The Board of Directors establishes both overarching principles for the management of risk and principles designed to cover more specific areas, such as exchange rate risk, interest rate risk, credit risk, any use of derivative or non-derivative financial instruments and also any investment of surplus liquidity.
Exchange rate risk
The Company has no significant operations in foreign currencies.
Credit risk
The Company’s credit risk exists for both segments of its main business activity (en-route and terminal), since the provision of the services is (mostly) reflected in the billing from national and international airlines. The credit risk is weighed by the crucial nature of the provided service (vital support to the organisation and management of airspace), by the legal mechanisms available to persuade payment, as well as by its customers’ economic and financial situation. The credit risk of the customers is not considered relevant.
Liquidity risk
Liquidity risk stems from the potential inability to finance the Company’s assets or meet the contracted responsibilities on the expiration dates. Liquidity management is centralised in the Financial Department.
This management seeks to maintain a satisfactory level of liquid assets to meet its financial needs in the short, medium and long term. To evaluate global exposure to this type of risk, reports are created enabling not only the identification of sporadic treasury problems but also adding the mechanisms to cover them.
Liquidity risk can occur when the sources of funds, such as operating, disposal and credit line cash flows, as well as cash flows from financing operations, do not meet funding needs, such as outflows for operating and financing activities, investments, shareholder compensation and debt repayment.
The Company’s financial liabilities are non-discounted contractual cash flows. Liquidity risk is considered to not be materially relevant.
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Interest rate risk
Interest rate risk has the following different impacts on the Company’s accounts: the effect of the financial discount arising from the application of the en-route and terminal charge adjustment mechanism from n to n+X (with X depending on the reference period), the effect of the discount on the Cost Performance Index (CPI) provision and the remuneration of special short-term debt certificates.
The Company is exposed to interest rate risk because of its portfolio of special short-term debt certificates issued by the Portuguese Government. These floating-rate assets expose the Company to the risk associated with the cash flows stemming from interest rate changes.
The profitability level of operational assets, generated by the en-route and terminal air navigation services provided to airlines, as well as the safety cushion that the adjustment mechanism provides for earnings in the period, enable the Company to robustly deal with any fluctuations in market interest rates.
The Company assesses its exposure to interest rate risk dynamically. It does this by running a number of scenarios through which the Company calculates the effect that fluctuations in the interest rate would have on both earnings and expenses.
As of 31 December 2018, the credit lines that the Company had contracted with the European Investment Bank were terminated (2017 €1,080,724), as per note 23.
5.2. Regulated activity risk
The income recognised by the company in each reporting period is a direct result of the assumptions made by EUROCONTROL’s Extended Commission (en-route) and by the oversight Ministry (terminal) in their setting of the en-route and terminal rates (see paragraph 3.6).
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6. Information by segments
2018 En-route Terminal NAV Total
Service provision 165 633 685 35 872 259 201 505 944 Income and gains in addition to service provision 5 871 710 320 532 6 192 242 Expenses (146 224 441) (30 239 080) (176 463 521)
Earnings before interest, taxes, depreciations and amortisations 25 280 954 5 953 711 31 234 665 Depreciations and Amortisations (9 520 473) (2 700 143) (12 220 616) Operating profit/loss (before funding costs and taxes) 15 760 481 3 253 568 19 014 049 Interest and similar expenses paid - Earnings before taxes 15 760 481 3 253 568 19 014 049 Tax on earnings for the year - - (4 355 770) Net earnings for the year 15 760 481 3 253 568 14 658 279
2017 En-route Terminal NAV Total
Service provision 149 962 952 31 660 327 181 623 278 Income and gains in addition to service provision 4 396 018 143 365 4 539 383 Expenses (136 901 766) (28 459 224) (165 360 990)
Earnings before interest, taxes, depreciations and amortisations 17 457 204 3 344 468 20 801 671 Depreciations and Amortisations (8 067 226) (2 442 290) (10 509 516) Operating profit/loss (before funding costs and taxes) 9 389 978 902 178 10 292 155 Interest and similar expenses paid - Earnings before taxes 9 389 978 902 178 10 292 155 Tax on earnings for the year - - (3 919 611) Net earnings for the year 9 389 978 902 178 6 372 544
7. Tangible fixed assets
Changes in tangible fixed assets in 2018:
Buildings and other Basic Office Assets in Other tangible Land constructions equipment equipment progress assets Total
1 January 2018
Acquisition cost 1 193 360 69 311 417 202 343 162 27 356 485 22 307 685 9 958 161 332 470 270 Accumulated depreciation - (44 148 842) (173 822 660) (25 556 781) - (8 283 861) (251 812 143) Net value 1 193 360 25 162 575 28 520 502 1 799 704 22 307 685 1 674 300 80 658 127
changes during the period Additions - 795 458 4 356 436 451 678 16 611 916 267 530 22 483 017 Disposals - (6 125) (178 433) (28 519) (42 458) (255 535) Transfers and w rite-offs - 1 396 496 5 365 038 (30 599) (14 109 675) (124 908) (7 503 648) Depreciations – year - (1 921 955) (7 354 102) (535 214) (395 608) (10 206 879) Depreciation – disposals - 6 125 178 433 28 519 42 458 255 535 Depreciation – transfers and w rite-offs - - 2 900 525 30 098 124 908 3 055 530 Net value 1 193 360 25 432 573 33 788 399 1 715 667 24 809 926 1 546 222 88 486 147
31 December 2018 - Acquisition cost 1 193 360 71 597 245 211 886 203 27 749 045 24 809 927 9 958 324 347 194 105 Accumulated depreciation (46 164 672) (178 097 804) (26 033 378) - (8 412 103) (258 707 957) Net value 1 193 360 25 432 573 33 788 399 1 715 667 24 809 927 1 546 222 88 486 147
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Changes in tangible fixed assets in 2017:
Buildings and other Basic Office Assets in Other tangible Land constructions equipment equipment progress assets Total 1 January 2017
Acquisition cost 1 193 360 67 265 866 193 791 570 26 912 333 16 685 626 9 731 322 315 580 077 Accumulated depreciation - (42 492 087) (167 452 513) (25 110 663) - (7 772 662) (242 827 924) Net value 1 193 360 24 773 779 26 339 058 1 801 671 16 685 626 1 958 660 72 752 153
changes during the period Additions - 1 736 950 3 811 606 537 586 12 267 747 144 641 18 498 530 Disposals - - (58 965) (94 300) - (7 169) (160 433) Transfers and w rite-offs - 408 602 4 787 904 865 (6 645 688) 414 (1 447 904) Depreciations – year - (1 756 755) (6 421 568) (540 332) - (429 415) (9 148 071) Depreciation – disposals - 58 965 94 213 7 169 160 348 Depreciation – transfers and w rite-offs - 3 504 3 504 Net value 1 193 360 25 162 575 28 520 503 1 799 704 22 307 685 1 674 300 80 658 127
31 December 2017 - Acquisition cost 1 193 360 69 311 417 202 343 162 27 356 485 22 307 685 9 958 161 332 470 270 Accumulated depreciation - (44 148 842) (173 822 660) (25 556 781) (8 283 861) (251 812 143) Net value 1 193 360 25 162 575 28 520 502 1 799 704 22 307 685 1 674 300 80 658 127
The investment value of 2018 mostly came from the projects for the improvement of the operational services provided by the Company, with a highlight to the TOPLIS programme to replace the ATM systems in operation at the Lisbon Control Centre and in the Control Towers at the airports of mainland Portugal and Madeira, the installations of radio navigation aids in the Porto area and on the island of Faial, and new functionalities in the LISATM system, as well as the installation of new surveillance systems (WAM in the south of mainland Portugal and replacement of Porto Santo’s radar).
At the balance sheet date, the net value of the items classified as Tangible fixed assets funded by financial leasing contracts is as follows:
2018 2017 Office equipment Administrative netw ork telephone exchange 32 959 62 214 32 959 62 214
Assets in progress
The amounts included in the “Assets in Progress” item concern the following projects:
March/19 114 NAV Portugal, E.P.E. – 2018 Annual Report
Projects underway 2018 Projects underway 2017 TOPSKY-ATC 11 895 553 SATL – NATSMA v7 (Linux) 3 173 736 MFA Project 1 884 381 SMA – TX/RX HF Replacement 2 713 293 LISATM 1 858 282 Lisbon ATCC and TWRs recorders replacement 2 235 710 VISTO 1 618 273 SATL – NATSMA v8 1 878 182 TOPSKY-TWR 1 606 988 Project VISTO 1 576 602 RNAVPOR 649 687 NORMAW – North and Madeira WAM 1 315 027 SATL – NATSMA v9 545 951 LISATM V9.2 1 073 464 RINAS 497 140 TOPLIS 767 856 MSSR Porto Santo 465 580 LISATM V10.0 761 567 OCC SO 350 962 MFA Project 720 498 SATL-FSR 305 534 OCC rehabilitation 371 338 Others 3 131 596 Others 5 720 412 Total 24 809 927 Total 22 307 685
The beginning of operations of the following investments stands out in 2018:
Temporary operations room of the Santa Maria Control Centre, including new ATM (SATLv7 and v8) and communications (VCS and HF) support systems; Version of the LISATM 9.2 system in the Lisbon Control Centre; Recorder/player and screen capture systems for the Lisbon Control Centre and for the Lisbon, Porto, Faro, Porto Santo and Madeira Airport Towers; Replacement of the radio-assistance to air navigation of Porto’s DVOR/DME; New WAM surveillance systems for the north of the mainland.
The tangible fixed assets carried on the Company’s balance sheet include a net amount of €27,829,323 pertaining to public domain assets (2017: €28,375,076). The (transferred and acquired) public domain assets are identified as being reversible in the following table, whereas the capital assets are not reversible.
2018 2017 Description Reversible Non-reversible Total Reversible Non-reversible Total Tangible fixed assets 26 653 222 37 022 999 63 676 220 26 393 949 31 956 492 58 350 441 Tangible fixed assets in progress 1 176 101 23 633 826 24 809 927 1 981 126 20 326 559 22 307 685 27 829 323 60 656 824 88 486 147 28 375 076 52 283 051 80 658 127
The public domain assets carried as Tangible fixed assets break down as follows: i) €100,048 in Land, which is being depreciated, ii) €1,968,790 for the gross value of Buildings and other constructions, and iii) €516,946 for the gross value of Basic equipment. The assets referred to in points ii) and iii) are fully depreciated in both of the periods reported on the balance sheet.
March/19 115 NAV Portugal, E.P.E. – 2018 Annual Report
8. Intangible Assets
Changes in intangible assets:
2018 2017 1 January Acquisition cost 39 977 808 37 241 087 Accumulated amortisations (36 235 356) (35 092 114)
Net value 3 742 452 2 148 973 Additions 1 937 971 1 511 557 Disposals (218 203) Transfers and w rite-offs 3 127 591 1 443 367 Amortisations – year (2 013 737) (1 361 445) Depreciation – transfers and w rite-offs 1 136 903 218 203 Net value 7 931 180 3 742 452 31 December Acquisition cost 45 043 370 39 977 808 Accumulated amortisations (37 112 190) (36 235 356)
Net value 7 931 180 3 742 452
The Intangible assets item largely comprises software that is acquired or developed internally to support the Company’s business operations. The amortisation period for these assets varies between three and five years.
Amortisations of these assets are recognised in full, in the expenses/depreciation and amortisation reversals item in the profit and loss statement.
Own work capitalised The capitalised staff costs, or those designated as own work capitalised (OWC), included in the cost of work in progress were allocated to the following projects:
Projects underway 2018 Projects underway 2017
LISATM 1 209 314 LISATM V9.1 365 011 TOPSKY-ATC 663 027 LISATM V9.2 395 281 SDTATM 166 720 Lisbon ATCC TOPLIS Implementation 130 806 RNAVPOR 56 152 SATL – NATSMA v7 59 480 SATLv7 52 018 STSATM – FIRLIS – Phase 3 44 216 SATLv9 45 713 PREOJT Lisbon ATCC 40 397 OCC SO 39 403 NORMAW – North and Madeira WAM 35 719 Lisbon ATCC SO Prov 37 724 Project VISTO 32 781 VINIPOR 33 734 LISATM V10 32 085 TWR AHR 20 447 WP5 – Implementation 27 438 OTHER 332 832 OTHER 584 166 Total 2 657 082 Total 1 747 381
March/19 116 NAV Portugal, E.P.E. – 2018 Annual Report
These OWC projects in progress will mainly take the form of intangible fixed assets.
9. Other Financial Investments
The assets recognised in this item pertain to the capital holdings in the following companies:
Futuro – Edisoft – Empresa Sociedade de Serviços de Gestora de European Satellite Desenvolvimento Fundos de Services Provider, de Softw are, S.A. Pensões, S.A. SAS Total
1 January 2018 175 000 86 351 83 333 344 684 - Acquisitions - - - - Capital increases - - - - Impairments - - - - Disposals - - - -
31 December 2018 175 000 86 351 83 333 344 684
1 January 2017 175 000 86 351 83 333 344 684 - Acquisitions - - - - Capital increases - - - - Impairments - - - - Disposals - - - -
31 December 2017 175 000 86 351 83 333 344 684
The business purpose of EDISOFT – Empresa de Serviços e Desenvolvimento de Software, SA is the provision of IT consultancy, technical assistance and maintenance services, the production, development, marketing and supply of information systems, multimedia production and aerospace technologies in both the civil and military fields.
EDISOFT is 65% owned by THALES, 17.5% by EMPORDEF and 17.5% by NAV Portugal.
FUTURO – Sociedade Gestora de Fundos de Pensões, S.A. is a Montepio Group company, incorporated on 14 January 1988, specialising in the management of Pension Funds. This company was set up to engage in pension fund management and investment operations. Over the intervening 25 years, FUTURO has built up a considerable amount of expertise in this business area and is a pioneer in the market for diversified pension products. The capitalisation schemes embedded in its products are fully capable of following the growth and sophistication of the capital market.
March/19 117 NAV Portugal, E.P.E. – 2018 Annual Report
In 2018, NAV Portugal earned the same amount in dividends as in the year before, €13,582. Of this total, €3,396 were deducted as tax withholding, with the net amount actually received being €10,186.
European Satellite Services Provider, SAS (ESSP) was founded in 2001 and initially set up as a European Economic Interest Group (EEIG). This was the appropriate legal form for that stage of the company’s development. In 2008, ESSP was converted into a limited liability company, ESSP-SAS, and its registered office moved to Toulouse. ESSP’s main business purpose is to implement the contract signed with the European Commission in 2009, under which the company is authorised to act as the operator of the EGNOS system and EGNOS Safety of Life (SoL) service provider, particularly for civil aviation.
In 2018, NAV Portugal earned the same amount in dividends as in the year before, €212,500 (2017: €208,250) for the ESSP. Of this total, €31,875 was deducted as a tax withholding, leaving a net amount earned of €180,625.
The assets and liabilities and the earnings and expenses generated, as recognised in the financial statements of these companies, are as follows:
% capital Earnings for Assets Liabilities Equity held the year
Edisoft-Emp.Serv. Desenv. SW, S.A. 17,5% 9 482 149 7 452 147 2 030 002 1 605 106 Futuro – Soc. Gestora de F. Pensões, S.A. 3,89% 11 938 662 4 419 674 7 518 988 831 255 European Satellite Services Provider, SAS 8,33% 36 503 486 21 954 321 12 724 174 3 647 359
31 December 2018 57 924 297 33 826 142 22 273 164 6 083 720
% capital Earnings for Assets Liabilities Equity held the year
Edisoft-Emp.Serv. Desenv. SW, S.A. 17,5% 7 811 900 6 508 847 1 303 053 593 339 Futuro – Soc. Gestora de F. Pensões, S.A. 3,89% 12 478 691 5 362 099 7 116 592 1 101 603 European Satellite Services Provider, SAS 8,33% 34 259 471 20 630 907 12 076 815 3 329 051
31 December 2017 54 904 065 32 855 855 20 496 461 5 023 993
March/19 118 NAV Portugal, E.P.E. – 2018 Annual Report
10. Deferred tax assets and liabilities
Changes in the deferred tax assets and liabilities item:
Deferred tax assets
Discounts on Social Costs with Costs with Pension Costs accounts Provisions Security remunerated Health Total Fund with CPI receivable/ Pensions inactivity Insurance payable At 1 January 2018 27 927 9 192 689 8 404 448 726 173 406 511 456 479 109 587 19 323 814
Movement for the period - Constitution/reversal through equity - Constitution through earnings 120 187 973 254 141 856 - 311 141 1 546 438 Reversal through earnings (7 649) - (4 569) (196 094) - (208 312)
Transactions in the period (7 649) 120 187 973 254 141 856 (4 569) (196 094) 311 141 1 338 126
At 31 December 2018 20 278 9 312 876 9 377 702 868 029 401 942 260 385 420 728 20 661 940
At 1 January 2017 173 453 11 737 186 8 252 120 258 171 359 402 457 001 226 606 21 463 938
Movement for the period - Constitution/reversal through equity - Constitution through earnings 152 328 468 002 47 109 667 439 Reversal through earnings (145 526) (2 544 497) (522) (117 019) (2 807 564)
Transactions in the period (145 526) (2 544 497) 152 328 468 002 47 109 (522) (117 019) (2 140 125) As at 31 December 2017 27 927 9 192 689 8 404 448 726 173 406 511 456 479 109 587 19 323 814
Deferred tax assets pertaining to the pension funds are calculated on the assumption that future contribution would remain within the fiscal limits provided in article 43 of the IRC Code (the Portuguese Corporate Income Tax Code).
March/19 119 NAV Portugal, E.P.E. – 2018 Annual Report
Deferred tax liabilities
Discounts on Investment Legal accounts CPI Total subsidies Revaluation receivable/ payable
At 1 January 2018 307 710 129 682 25 209 539 186 1 001 787- Movement for the period Constitution/reversal through equity 8 805 (22 679) (13 874) Constitution through earnings 11 649 - 11 649 Reversal through earnings (7 432) (427 990) (435 422) Movement for the period 8 805 (11 030) (7 432) (427 990) (437 647) At 31 December 2018 316 515 118 652 17 777 111 196 564 140
At 1 January 2017 354 131 142 164 8 792 290 258 795 345- Movement for the period Constitution/reversal through equity (46 421) (12 482) (58 903) Constitution through earnings 16 417 248 928 265 345 Reversal through earnings - Movement for the period (46 421) (12 482) 16 417 248 928 206 442 As at 31 December 2017 307 710 129 682 25 209 539 186 1 001 787
The fiscal revaluations result from the updating of asset values under domestic accounting rules. These revaluations are based on government ordinances that establish the coefficients to be used in the monetary devaluation of the assets. The effect of these deferred taxes reflects the absence of tax deduction on 40% of the revaluation carried out. The effect of these revaluations on the net position is recorded under retained earnings.
As at 31 December 2018 and 2017, the deferred tax balances are carried on the balance sheet at their gross value.
Summary of the impact of the changes of deferred taxes:
2018 2017 Impact on the income statement Deferred tax assets (3 110 075) (3 061 795) Deferred tax liabilities 423 772 (213 366) (2 686 302) (3 275 161)
Impacts on equity Deferred tax assets 4 448 200 875 249 Deferred tax liabilities 13 874 53 346 4 462 074 928 595 Net impact of deferred taxes 1 775 772 (2 346 566)
March/19 120 NAV Portugal, E.P.E. – 2018 Annual Report
11. Inventories
Details 2018 2017 Initial stocks 409 120 397 694 Purchases 370 614 369 766 Adjustment to stocks - Final stocks 438 196 409 120 Cost of materials consumed 341 538 358 340
Net final stocks 384 136 352 376
Impairment of inventories 2018 2017 Raw materials 438 196 409 120 Impairment of inventories 54 060 56 744 Total inventories 384 136 352 376
Impairment adjustments 2018 2017 As at 1 January 56 744 4 589 Increases 381 52 155 Uses (3 064) - Reversals As at 31 December 54 060 56 744
12. Customers Breakdown of the Customers item:
2018 2017 Breakdown Current Total Current Total
Customers 39 636 415 39 636 415 42 024 106 42 024 106 Bad debts 1 747 373 1 747 373 2 110 149 2 110 149
41 383 788 41 383 788 44 134 255 44 134 255
Customers – impairment (1 747 373) (1 747 373) (2 110 148) (2 110 148) Total Customers 39 636 415 39 636 415 42 024 107 42 024 107
This item covers the balances receivable from customers for the provision of en-route and terminal air navigation services.
Customer impairment:
2018 2017 Transaction Current Total Current Total As at 1 January 2 110 148 2 110 148 1 468 953 1 468 953 Increases 185 510 185 510 943 957 943 957 Uses (548 285) (548 285) (302 762) (302 762) Reversals - - - - As at 31 December 1 747 373 1 747 373 2 110 148 2 110 148
March/19 121 NAV Portugal, E.P.E. – 2018 Annual Report
The increase of €185,510 (2017: €943,957) was due to a rise in the level of bad debt recognised for both en-route (€129,550) and terminal (€55,960) customers. These amounts are carried in the Impairment on debts receivable (losses/reversals) item in the profit and loss statement. Regarding other clients, there was judged to be no risk of non- collection of the amounts due on all other outstanding invoices.
The use of €548,285 (2017: €302,762) results from the recording of uncollectable debts from en-route customers in the amount of €509,960, receipts from debts considered uncollectable in previous years amounting to €22,914 and the recording of uncollectable debts from terminal customers in the amount of €61,239.
13. Advances to suppliers
Balances 2018 2017 Advances to suppliers 32 331 34 731 Total Advances to suppliers 32 331 34 731
14. State and other public entities
2018 2017 Breakdown of balances Debtor Creditor Debtor Creditor
Corporate income tax – IRC 1 413 859 3 782 210 Personal income tax – IRS 3 214 352 2 997 521 Value added tax (VAT) 1 578 901 617 682 Social security contributions 2 857 313 2 656 579 Other taxes 24 365 29 525 - 9 088 789 3 782 210 6 301 307
Breakdown of the corporate income tax (IRC) balance 2018 2017 Payments on account 274 922 4 310 460 Withholdings 9 936 13 496 Estimated IRC (1 669 468) (439 042) Adjustment to current tax for the previous year (29 249) (102 704) Total (1 413 859) 3 782 210
March/19 122 NAV Portugal, E.P.E. – 2018 Annual Report
15. Other accounts receivable
Breakdown of the Other debtors item:
2018 2017 Breakdown Current Non-current Total Current Non-current Total Regulatory assets Debtors through revenue accrual i) ------NAV adjustment mechanism – Terminal - 1 536 014 1 536 014 - - - NAV adjustment mechanism – En-Route 7 587 611 3 741 894 11 329 505 7 513 223 7 513 223 15 026 445 External entity adj. mechanism – En-Route - - - - Other debtors - - Other debtors ii) 7 928 510 7 928 510 12 950 762 12 950 762
Staff 73 927 73 927- 50 404 50 404- Debtors through revenue accrual - - Interest receivable 4 467 4 467 1 880 1 880 Others 96 450 96 450 115 971 115 971
Impairments (399 053) - (399 053) (413 673) - (413 673) Other accounts receivable 15 190 995 5 378 825 20 569 820 20 100 715 7 631 073 27 731 787
Impairment of Other Debtors:
2018 2017 Transaction Current Non-current Total Current Non-current Total
As at 1 January 413 674 - 413 674 444 467 444 467 Increases ------Uses (14 620) - (14 620) - - - Reversals - - (30 793) - (30 793) As at 31 December 399 054 - 399 054 413 674 - 413 674
Regulatory Assets:
i) Debtors through revenue accrual
The current en-route adjustment mechanism (NAV and External Entities) will be recovered from the users of the air navigation services during 2019. Details: . 2012 current en-route adjustment mechanism (non-controllable expenses), €4,889,255; . 2013 current en-route adjustment mechanism (non-controllable expenses), €1,820,536; . 2014 current en-route adjustment mechanism (non-controllable expenses), €877,820;
The non-current en-route and terminal adjustment mechanism, arising from costs considered non-controllable, will be recovered from the users of air navigation services in 2021. Details: . 2018 non-current en-route adjustment mechanism (non-controllable expenses), €3,741,894; March/19 123 NAV Portugal, E.P.E. – 2018 Annual Report
. 2018 non-current terminal adjustment mechanism (non-controllable expenses), €1,536,014;
Regulatory assets are discounted at a rate of 2%.
The assessment of the adjustment mechanism in 2018, calculated in accordance with the common tariff scheme for en-route air navigation services and resulting from expenses considered controllable as regulatory liabilities, are shown in note 16.
ii) Other debtors
This item includes an amount of €6,960,584 (2017: €12,161,017), generated by voluntary payments of additional corporate income tax settlements that resulted from tax inspections of the taxation periods of 2005, 2006, 2008, 2009, 2010, 2011, 2012, 2013 and 2014. In the opinion of NAV Portugal, these additional taxes are not owed as they largely pertain to increases in taxable profits accruing from the provision of services to flights that are exempt from en-route and terminal charges. This revenue cannot be recognised as such recognition would contradict the assumptions underpinning accounting and financial reporting standard NCRF 20 (Revenue) and the application of No. 2 of article 43 of the IRC Code, which pertains to contributions made to the Company’s Pension Funds.
The company is responsible for providing services to flights that are exempt from paying en-route and terminal charges, on behalf of the Portuguese Government. The Government decided that these flights should be exempt from paying en-route and terminal charges and, in compliance with Item 5 of Article 10 of Implementing Regulation (EU) No. 391/2013, the cost of such services should not be taken into account when calculating the unit rates. The regulation specifically stipulates that “member states should ensure that air navigation service providers are reimbursed for the services that they provide to exempt flights”.
With respect to the application of No. 2 of Article 43 of the IRC Code, regarding contributions made to pension funds, the Portuguese Tax Authority understands that the calculation of the limit on the payroll must be made individually per pension fund. However, No. 2 of Article 43 of the IRC Code does not refer to any such procedure, nor has the tax authority issued any administrative guidance that precludes NAV Portugal
March/19 124 NAV Portugal, E.P.E. – 2018 Annual Report
from acting in the manner that it did. Naturally, from its reading of No. 2 of Article 43 of the IRC Code, the company is unable to infer, in any way, that, for the purposes of the 15% limit of the payroll that is to be taken into account, it must make this calculation individually for each of the pension funds.
The Portuguese Tax Authority also understands that the remunerations, salaries or wages that form the basis on which to calculate the 15% that is deductible from taxable profit can only be those on which social security deductions are also made. However, NAV Portugal in its interpretation of the standard in question (Article 43 of the IRC Code) cannot find any reason as to why the remunerations considered for the 15% limit can only be those that are subject to mandatory discounts for social security, when the legislative body itself expressly provided for the application of a more favourable scheme, in paragraph 3 of that same article, applicable to situations in which workers are not covered by Social Security.
It should be noted that NAV has challenged in court the decisions of the Tax Authority of rejecting the Complaints filed by the Company in the Hierarchical Appeal, concerning corrections made to the taxable income for the financial years from 2005 to 2013.
In 2018, the competent Courts ruled in favour of NAV in respect of the additional corporate income tax assessments for the 2008, 2010 and 2011, and the Company was reimbursed the settled additional tax, including compensatory interest and added the corresponding indemnity interest.
In this context, the Company maintains the conviction that the amounts related to the settlements made for the tax periods of 2009, 2012, 2013 and 2014 will also be recovered in the future, therefore the recognition of these additional taxes as receivables from the Government is maintained.
The proceedings for the tax periods of 2009, 2012 and 2013 are in the phase of counter- allegations taking into account the appeals submitted by the Tax Authority and for the 2014 period, the judicial challenge will be presented until April 2019.
March/19 125 NAV Portugal, E.P.E. – 2018 Annual Report
Furthermore, in 2018, the Tax Authority initiated a tax audit concerning the corporate income tax on the 2015 taxation period, and did not make any correction to the taxable amount on issues related to flights exempted from en-route and terminal charges, nor to the tax deduction assessed by the company regarding contributions to pension funds.
16. Deferrals
2018 2017 Breakdown Current Non-current Current Non-current Regulatory Assets 17 633 718 19 587 101 Eurocontrol financial contribution 2 024 075 1 851 362 Technical support 138 972 158 258 Air Traffic Controllers (ACT) bonuses 4 988 9 976 Insurance 776 004 724 104 Other expenses to recognise 860 288 450 694 Expenses to be recognised 3 804 326 17 633 718 3 194 393 19 587 101
Regulatory Liabilities NAV adjustment mechanism – En-Route 44 120 287 9 333 914 18 688 851 29 458 781 External entity adjustment mechanism – En-Route 6 290 321 1 548 266 2 809 957 3 945 405 NAV adjustment mechanism – TERMINAL 15 412 636 175 537 3 640 214 7 796 451 Other deferred income - - 31 158 Income to be recognised 65 823 244 11 057 717 25 170 180 41 200 637
The regulatory assets pertain to the deferral of the cost borne by the Company, totalling €17,633,718 (2017: €19,587,101), for the 60% of the pension paid to retirees aged between 57 and 66. This amount is calculated by dividing the initial liabilities for employees who are still working by the average life expectancy up to the retirement age. This amount will be recognised and then recovered by 2038 (situation described in note 3.12).
The remaining expenses recognised here pertain to the pre-payment of services that have been contracted but not yet received.
In each reporting period, Portugal’s financial contribution to the budget of EUROCONTROL is calculated according to the apportionment formula set out in article 19 of the agency’s articles of association. This amount is deducted from en-route charges collected by EUROCONTROL, which constitute NAV Portugal revenue, as stipulated in Article 8 of Decree-Law No. 404/98, of 18 December.
With regard to regulatory liabilities, the current en-route and terminal adjustment mechanism (NAV and External Entities) will be returned to the users of air navigation services during 2019, while the non-current will be returned to the users of air navigation
March/19 126 NAV Portugal, E.P.E. – 2018 Annual Report
services in the period from 2019 to 2020, resulting from expenses considered controllable, and in 2021 that resulting from expenses considered non-controllable.
Regulatory liabilities pertain to:
2014 current en-route adjustment mechanism, €420,583; 2017 current en-route adjustment mechanism, €28,213,804; 2017 current en-route adjustment mechanism for external entities, €4,024,313; 2017 current terminal adjustment mechanism: €7,952,381; 2018 current en-route adjustment mechanism, €15,485,900; 2018 current terminal adjustment mechanism: €7,460,255; 2018 current en-route adjustment mechanism for external entities, €2,266,008; 2017 non-current en-route adjustment mechanism, €1,600,098; 2018 non-current en-route adjustment mechanism, €7,733,816; 2018 non-current en-route adjustment mechanism for external entities, €1,548,266; 2018 non-current terminal adjustment mechanism, €175,537.
Adjustment mechanisms are discounted at a rate of 2%.
17. Paid-up capital
As at 31 December 2018, NAV Portugal’s fully paid-up and subscribed statutory share capital stood at €25,000,000.
18. Reserves
Legal Statutory Transactions Total reserves reserves
1 January 2018 19 012 333 24 269 610 43 281 943 - As at 31 December 2018 19 012 333 24 269 610 43 281 943
1 January 2017 19 012 333 24 269 610 43 281 943
- At 31 December 2017 19 012 333 24 269 610 43 281 943
March/19 127 NAV Portugal, E.P.E. – 2018 Annual Report
Given that no such statement of approval has been issued by the fiscal and sector authorities with regard to the 2015, 2016 and 2017 accounts, no amounts have been set aside as reserves, as per the proposals made by the Company’s Board of Directors in the years’ annual reports. The corresponding net profits were transferred to retained earnings, as stated in note 19.
Legal Reserves (General)
Under article 22 of NAV Portugal’s articles of association, no less than 10% of the profit for the reporting period should be allocated to this reserve, which can only be used to cover losses or increase the company’s share capital.
The Legal Reserves item also includes a reserve for the remuneration of invested capital, which was established in accordance with the terms of Decree-Law No. 300/80, of 16 August.
Statutory Reserves
The Statutory reserves item includes the Investment reserve (€23,362,216) and the Reserve for social purposes (€907,394), both established under article 22 of NAV Portugal’s articles of association.
19. Retained earnings
Retained Breakdown earnings 1 January 2018 43 151 922 Realisation of the revaluation surplus 71 443 Deferred tax adjustments - Net profit 2017 6 372 544 31 December 2018 49 595 909
1 January 2017 18 142 591 Realisation of the revaluation surplus 71 443 Deferred tax adjustments (3 100 428) 2016 reserves 28 038 316 31 December 2017 43 151 922
In 2018, there was an increase in retained earnings in the amount of €6,372,544 concerning the net profit of 2017 since approval of those reports, as well as of those pertaining to 2015 and 2016, by the oversight is being awaited.
March/19 128 NAV Portugal, E.P.E. – 2018 Annual Report
The net effect of the legal revaluations of the company’s assets, in the amount of €2,239,092, cannot be distributed. When the company adopted the SNC, this amount was transferred to Retained earnings, in accordance with the adoption choices made by the company.
20. Revaluation surpluses of tangible fixed and intangible assets resulting from the application of legislation
Revaluation Breakdown surplus
1 January 2018 1 185 778 Realisation of the revaluation surplus (71 443) Deferred tax adjustments 22 679
31 December 2018 1 137 014
1 January 2017 1 250 296 Realisation of the revaluation surplus (71 443) Deferred tax adjustments 6 924
31 December 2017 1 185 778
21. Adjustments to financial assets and Other variations in equity
Types of movement Pension Fund Subsidies Deferred tax Total 1 January 2018 (16 434 463) 1 370 001 3 800 750 (11 263 712) Additions (18 993 581) 4 448 200 (14 545 381) Adjustments through earnings 81 549 (8 805) 72 744 Disposals - 31 December 2018 (35 428 044) 1 451 551 8 240 145 (25 736 349) 1 January 2017 (12 822 211) 1 504 456 (221 349) (11 539 104) Additions (3 612 252) 3 975 677 363 425 Adjustments through earnings (134 454) 46 422 (88 033) Disposals - 31 December 2017 (16 434 463) 1 370 001 3 800 750 (11 263 712)
The period’s change in Other changes to equity reflects the recognition of the investment subsidies item in the Profit and loss statement proportionally to the annual depreciations of the corresponding subsidised assets. It also reflects the actuarial and financial gains and losses from the defined-benefit plan Pension Funds and corresponding deferred taxes.
Concerning Adjustments to financial assets, there were no changes vis-à-vis the previous year.
March/19 129 NAV Portugal, E.P.E. – 2018 Annual Report
22. Provisions Costs with Details ongoing legal Costs with CPI Total proceedings At 1 January 2018 255 579 1 779 896 2 035 475 Increase - Usage (772 108) (772 108) Update of the discount effect 28 136 28 136 Reversal (88 645) (88 645) At 31 December 2018 166 934 1 035 924 1 202 857 Current balance Non-current balance 166 934 1 035 924 1 202 857 166 934 1 035 924 1 202 857 At 1 January 2017 12 175 1 777 500 1 789 675 Increase 243 405 - 243 405 Usage (69 177) (69 177) Update of the discount effect 71 572 71 572 Reversal - As at 31 December 2017 255 579 1 779 896 2 035 475 Current balance - - - Non-current balance 255 579 1 779 896 2 035 475 255 579 1 779 896 2 035 475
Costs with ongoing legal proceedings
Provision constituted as a result of NAV Portugal’s assessment of its exposure to legal contingencies, namely suits related to employment, taxes and others, in which the Company is respondent.
The reversal of €88,645 recorded in 2018 concerns a value rectification of an ongoing labour lawsuit.
CPI Costs
Air traffic controllers employed on or before 31 December 2004 have an acquired right to stop working at the age of 52, although they do have the possibility of continuing to work until 55. Any employee who retires early for this reason is entitled to receive compensation.
For the remaining air traffic controllers, the age limit to remain employed in operational roles is 57 years, in accordance with Law No. 5/2009, of 29 January.
March/19 130 NAV Portugal, E.P.E. – 2018 Annual Report
Following the review process of the Air Traffic Controllers Company Agreement for the 2015–2018 period, NAV and the Air Traffic Controllers Union (SINCTA) agreed to a new extension on the age limit to remain employed in operational roles from 57 to 58 years of age. This implied an associated legislative change, inscribed in Decree-Law No. 50/2017, of 24 May, with the establishment of a compensation, provided for in Clause 11 of the aforementioned Air Traffic Controllers Company Agreement, for all air traffic controllers who joined the job extension from 57 to 58 years of age, with the associated postponement of the termination of their contracts, either at 52 (for air traffic controllers who joined by 31 December 2004) or at 58 (for air traffic controllers who joined after 31 December 2004).
The monetary compensation for contract termination is paid all at once, on the employment termination date. Air traffic controllers may request quarterly advances on this compensation, which will then be discounted against the settlement on the contract termination date.
As at 31 December of each year, the balance for this item reflects the Company’s present obligations in this regard. This provision may be updated, given the time effect of the compensation period for these obligations.
CPI costs are recognised at value, less 2%. Allocations for the year were recognised in the Staff costs – Compensations item.
23. Loans obtained
Details of the loans by term (current and non-current) and by nature:
2018 2017 Current Non-current Total Current Non-current Total Bank loans 1 080 724 - 1 080 724 0 - 0 1 080 724 0 1 080 724
As of 31 December 2018, loans from the European Investment Bank have been fully repaid and the Company has no other lines of credit available.
March/19 131 NAV Portugal, E.P.E. – 2018 Annual Report
24. Responsibilities for post-employment benefits
An independent actuary uses the projected unit credit method to determine the responsibilities for post-employment benefits and the corresponding annual expenses. These actuarial calculations are based on assumptions that reflect the demographic composition of the population covered by the plans and the wider economic and financial conditions at the time of calculation.
NAV Portugal has the following post-employment obligations, amongst others:
i) Allocation of retirement and survivors' pensions to all pensioners belonging to the professional category of air traffic controllers who were contracted by the company on or before 30 September 2007, as well as to other pensioners belonging to the other professional categories who had already met the retirement requirements on the date of the constitution of the new defined contribution pension plan, where such former employees were contracted as beneficiaries of the respective defined benefit pension fund/plan. These benefits are allocated as supplements to the state pensions awarded by the Social Security organisation and by the Civil Servants Pension Fund (Caixa Geral de Aposentações). The aim of the supplements is to ensure pensioners enjoy a net income that is always equivalent to the amount they earned at the time of their retirement. The liabilities associated with these benefits and the financing of the same, are managed and met by pension funds. The company is responsible for bearing the annual charges and making the financial contributions involved. ii) Award of retirement and survivors' pensions to all pensioners belonging to the professional category of air traffic controller who were contracted by the company after 30 September 2007, as well as to other pensioners belonging to the other professional categories who had not met the retirement legal requirements on the date of the constitution of the new defined contribution pension plan. The liabilities associated with these benefits are managed and met by the defined contribution pension funds/plans, whose articles of incorporation date from 15 March 2012. The allocation of the benefits in question is underpinned by “individual accounts” financed by mandatory contributions from the company and by any voluntary contributions made by the employees. The company’s mandatory contributions to the defined contribution pension fund/plan for the air traffic controllers amount to 8.17% of their monthly salary. The fees have been accrued for the period between the date on which March/19 132 NAV Portugal, E.P.E. – 2018 Annual Report
the plan came into effect and the date on which the respective articles of incorporation were signed. The Company’s mandatory contributions to the defined contribution pension plan for the remaining employees amount to 5.0% of each employee’s monthly salary. The fees have also been accrued for the period between the date on which the plan came into effect, 1 January 2011, and the date on which the amendment to the respective articles of incorporation was signed. iii) Liabilities arising from the payment of 60% of the old-age retirement pensions of air traffic controllers enrolled in the Social Security system, as per Decree-Law No. 155/2009, of 9 July, amended by Decree-Law No. 50/2017, of 24 May. Thus, and as stipulated in this law, the Company is responsible for paying 60% of the costs incurred as a result of the early retirement of air traffic controllers and their early access to their old-age pensions. The company makes this payment throughout the period between an employee’s early retirement, at the age of 58, and the normal age at which this pension can be accessed, which is 66 years and 4 months in 2018. iv) Liabilities for the period of remunerated inactivity of some air traffic controllers arising from non-compliance with the legal requirements pertaining to the termination of their employment contract as they reach the age of retirement, as at the date on which they reach the age limit to remain employed in operational roles and the consequent expiry of their aeronautic licence, which, under Decree-Law No. 50/2017, of 24 May, is at 58 years of age. v) Allocation of a health insurance plan to retired employees and pensioners that is valid until they reach the age of 75. The liabilities involved are not funded but they are duly provisioned.
March/19 133 NAV Portugal, E.P.E. – 2018 Annual Report
In overall terms, the impact of these plans on the financial statements is as follows:
2018 2017 Responsibilities on the balance sheet Pension plans – defined benefit 39 765 492 37 939 287 Air traffic controllers Social Security Pensions 57 676 015 54 273 225 Inactivity period 3 706 438 2 997 001 Health insurance 1 716 270 1 677 718
102 864 215 96 887 231
2018 2017 Expenses on the profit and loss statement Pension plans – defined benefit 6 601 141 7 036 065 Pension plans – defined contribution 2 738 949 2 565 339 Air traffic controllers Social Security Pensions 6 860 752 3 550 150 Inactivity period 1 637 626 2 792 224 Health insurance 119 580 338 887
17 958 048 16 282 664
Pension Funds – Defined-benefit plan
The main assumptions used in the actuarial calculations are those shown in the table below:
NAV COMPLEMENTS 2018 2017 Annual discount rate 1,70% 1,50% Annual w age grow th rate 2,20% 2,20% Annual pension grow th rate 1,70% 1,70% Annual social security pension grow th rate 1,50% 1,50% Annual CGA pension grow th rate 1,50% 1,50% Inflation rate 1,50% 1,50% Yield rate 1,75% 1,75% Disability table EVK 80 EVK 80 Mortality table TV 88/90 TV 88/90 NAV/SINCTA COMPLEMENTS 2018 2017
Annual discount rate 2,20% 2,00% Annual w age grow th rate 2,40% 2,40% Annual pension grow th rate 1,90% 1,90% Annual social security pension grow th rate 1,50% 1,50% Annual CGA pension grow th rate 1,50% 1,50% Inflation rate 1,50% 1,50% Yield rate 2,00% 2,00% Disability table EVK 80 EVK 80 Mortality table TV 88/90 TV 88/90
These actuarial and financial assumptions take into account expectations for the long- term development of the macroeconomic variables and the actuarial sensitivity of the demographic analysis.
March/19 134 NAV Portugal, E.P.E. – 2018 Annual Report
Regarding the previous year, the discount rate for the air traffic controllers’ Defined- Benefit Pension Plan/Fund changed from 2% to 2.2%, and the discount rate for the Defined-Benefit Pension Plan/Fund of the remaining professional categories (NAV Complements) changed from 1.5% to 1.7%.
This change in the discount rates occurred in accordance with information provided by specialised analysts, namely HEUBECK AG and MERCER, which has already served as the basis for the choice of discount rate used in previous years, as it is the most suitable according to the duration of the liabilities of NAV’s defined-benefit pension plan.
Compared to the previous year, the assumed growth rate for the salaries remained at 2.4% (NAV/SINCTA) and 2.2% (NAV Complements), based on the reference inflation rate of 1.5%.
Moreover, and despite the wage instability in recent years, the assumption regarding wage growth is indexed to a long-term rate. This means that forecasts for wage growth should take into account a twenty-year horizon, on average. In this specific case, the actuary’s understanding is that, given the history of successive actuarial losses caused by wage growth that has turned out to be higher than expected, it would be prudent to maintain a differential of 0.9 percentage points between the expected inflation rate and wage growth rate for FP NAV/SINCTA and a differential of 0.7 percentage points for FP NAV.
The liability recognised on the balance sheet is determined in the following manner:
2018 2017 NAV NAV Complements NAV Sincta Total Complements NAV Sincta Total
Present value of funded responsibilities 9 986 578 304 751 486 314 738 064 9 621 515 301 658 977 311 280 492 Fair value of the plan’s assets (12 726 640) (262 245 933) (274 972 573) (13 774 984) (259 566 224) (273 341 208) (2 740 062) 42 505 553 39 765 491 (4 153 469) 42 092 753 37 939 284 Present value of the non-funded responsibility (60% of social security pensions) 57 676 015 54 273 225 Liability on the balance sheet 9757 441676 506015 9254 212273 509225 2018 2017 NAV NAV Complements NAV Sincta Total Complements NAV Sincta Total Actuarial and financial gains / losses 1 475 708 17 517 873 18 993 581 1 094 749 2 517 503 3 612 252 Total 1 475 708 17 517 873 18 993 581 1 094 749 2 517 503 3 612 252
March/19 135 NAV Portugal, E.P.E. – 2018 Annual Report
The change in the present value of the obligation underlying the calculation of the retirement pension amount was as follows:
2018 2017 NAV NAV Complements NAV Sincta Total Complements NAV Sincta Total Funded responsibilities
As at 1 January 9 621 514 301 658 978 311 280 492 8 407 916 285 005 832 293 413 748- Current services cost - 6 170 330 6 170 330 - 6 423 503 6 423 503 Interest cost 144 323 6 033 180 6 177 503 126 119 5 700 117 5 826 236 Payment of benefits (609 089) (10 378 076) (10 987 165) (559 548) (9 242 174) (9 801 722) Effect of changes to assumptions ------Actuarial gains / losses 829 829 1 267 075 2 096 904 1 647 027 13 771 700 15 418 727 As at 31 December 9 986 577 304 751 487 314 738 064 9 621 514 301 658 978 311 280 492
Non-funded responsibilities As at 1 January 54 273 225 54 382 030 Provision increase - 4 907 370 - 1 481 340 Provision use - (1 504 580) - (1 590 145) Provision reversal - - - - As at 31 December 57 676 015 54 273 223
The changes in the funds assigned to this plan were as follows:
2018 2017 NAV NAV Complements NAV Sincta Total Complements NAV Sincta Total
As at 1 January 13 774 984 259 566 225 273 341 209 13 578 576 233 288 039 246 866 615 Contributions paid - 24 117 259 24 117 259 19 600 402 19 600 402 Benefits paid (609 089) (10 378 076) (10 987 165) (559 548) (9 242 174) (9 801 722) Expected yield on the fund’s assets (439 255) (11 059 473) (11 498 728) 755 956 15 919 958 16 675 914 As at 31 December 12 726 640 262 245 935 274 972 575 13 774 984 259 566 225 273 341 209
The impacts of the plan on the profit and loss statement and on equity are as follows:
On the profit and loss statement
2018 2017 NAV NAV Complements NAV Sincta Total Complements NAV Sincta Total
Current services cost - 5 821 587 5 821 587 6 079 269 6 079 269 Interest cost 144 323 6 033 180 6 177 503 126 119 5 700 117 5 826 236 Actuarial (gains) / losses - - Expected yield on the plan’s assets (206 625) (5 191 324) (5 397 949) (203 679) (4 665 761) (4 869 440) Total included in staff costs (62 302) 6 663 443 6 601 141 (77 560) 7 113 625 7 036 065
On equity
2018 2017 NAV NAV Complements NAV Sincta Total Complements NAV Sincta Total Actuarial and financial gains / losses 1 475 708 17 517 873 18 993 581 1 094 749 2 517 503 3 612 252 Total 1 475 708 17 517 873 18 993 581 1 094 749 2 517 503 3 612 252
March/19 136 NAV Portugal, E.P.E. – 2018 Annual Report
Details of the natures of asset constituting the funds underpinning the supplementary pension plans:
NAV COMPLEMENTS 2018 2017 Amount % Amount % Bonds 9 451 898 74% 9 160 224 66% Short-term deposits 82 664 1% 123 840 1% Shares 2 455 819 19% 3 214 281 23% Investment Funds 736 260 6% 1 276 638 9%
As at 31 December 12 726 640 100% 13 774 983 100%
NAV/SINCTA COMPLEMENTS 2018 2017 Amount % Amount % Bonds 157 701 136 60% 144 285 937 56% Short-term deposits 26 169 969 10% 21 148 611 8% Shares 60 053 439 23% 71 665 042 28% Investment Funds 18 321 389 7% 22 466 634 9%
As at 31 December 262 245 933 100% 259 566 224 100%
Period of remunerated inactivity
The changes in the liabilities for remunerated inactivity were as follows:
2018 2017 As at 1 January 2 997 001 1 023 852
Provision increase 1 637 626 2 792 224 Provision use (928 189) (819 074) Provision reversal
As at 31 December 3 706 438 2 997 001
The figure of €928,189 (2017: €819,074) pertains to the amount paid by NAV Portugal. The Company's liabilities for past services were quantified through an actuarial study conducted by FUTURO, using a rate of return on capital of 2% (2017: 2%) and a premium growth rate of 2% (2017: 2%). As mentioned above, the discount rate was based on studies carried out by specialist analysts at HEUBECK AG and MERCER.
Health insurance
The changes in the liabilities for medical benefits were as follows:
2018 2017 As at 1 January 1 677 719 1 425 310 Provision increase 119 580 338 887 Provision use (81 029) (86 478) Provision reversal , As at 31 December 1 716 270 1 677 719
March/19 137 NAV Portugal, E.P.E. – 2018 Annual Report
The figure of €81,028 (2017: €86,478) pertains to the amount paid by NAV Portugal. NAV Portugal’s liabilities for past services were quantified through an actuarial study conducted by FUTURO, using a rate of return on capital of 2% (2017: 2%) and a premium growth rate of 2% (2017: 2%).As mentioned above, the discount rate was based on studies carried out by specialist analysts at HEUBECK AG and MERCER.
25. Suppliers
Breakdown 2018 2017 General suppliers 4 892 662 3 223 378 Suppliers w ith invoices being processed 491 184 98 635 Total current suppliers balance 5 383 847 3 322 012
26. Advances from customers
Breakdown 2018 2017
Third-party Countries 2 215 3 393 European Community 19 067 56 178 Portuguese 112 887 41 429 Total advances from Customers 134 168 101 001
27. Other debts payable
2018 2017 Breakdown Current Non-current Total Current Non-current Total Investment suppliers 5 493 539 5 493 539 6 699 217 - 6 699 217 Sundry creditors Portuguese National Civil Aviation Authorities (ANAC) 1 167 964 1 167 964 1 136 064 - 1 136 064 Portuguese Institute for Sea and Atmosphere (IPMA) 7 802 242 7 802 242 7 460 723 - 7 460 723 Portuguese Air Force (FAP) 6 436 589 6 436 589 6 329 260 - 6 329 260 Navy 2 346 976 2 346 976 2 253 689 - 2 253 689 Other sundry creditors 1 665 259 1 665 259 1 705 644 - 1 705 644 Creditors by accrued costs Remuneration payments pending 20 216 441 20 216 441 19 034 359 - 19 034 359 Other creditors by accrued costs 744 602 744 602 436 846 - 436 846 Total Other accounts payable 45 873 614 - 45 873 614 45 055 802 - 45 055 802
28. Remuneration of the Governing Bodies
Board of Directors 2018 2017 Remuneration 245 165 212 332 Funds for representation 69 632 58 842
314 797 271 174
Audit Committee Remuneration 37 295 37 307 Statutory auditor’s fee 19 668 19 668 56 963 56 975
Total annual remuneration for Governing Bodies 371 760 328 149
March/19 138 NAV Portugal, E.P.E. – 2018 Annual Report
The statutory auditor’s fee include VAT at the prevailing rate.
The Board of Directors comprises a Chairperson and two Members, appointed via RCM No. 24/2016, of 14 July.
According to Resolution of Council of Ministers No. 7/2018, published in the Portuguese Official Gazette, 1st Series, No. 10, of 15 January 2018, Jorge Manuel da Mota Ponce Leão was appointed as Chairman of the Board of Directors, with effect from 12 January 2018, replacing Albano Manuel Carvalho Coutinho, who resigned from office on 30 September 2017.
The Audit Committee comprises a chair, one permanent member, a statutory auditor and an alternate. The appointments to this committee were made by means of a joint Ordinance issued on 9 July 2015 by the Secretary of State for the Treasury and the Secretary of State for Infrastructures, Transports and Communications.
29. Sales and Service provision
Details 2018 2017 Service Provision – Internal Market En-route charges 165 633 685 149 962 951 Terminal charges 35 872 259 31 660 327 Sales and services provided 201 505 943 181 623 278
30. Operational subsidies
2018 2017 Operational Subsidies SESAR 2020 142 412 - Call CEF 2015 HPESS 23 562 - Call CEF 2015 SDM Cluster 2 9 011 - Call CEF 2014 - 12 334 Call CEF 2016 - 140 292 Total 174 986 152 626
March/19 139 NAV Portugal, E.P.E. – 2018 Annual Report
31. Supply and external services
Details 2018 2017 Subcontracts 1 333 732 759 599 Electricity 1 669 479 1 682 517 Fuel 120 875 116 428 Water 83 425 118 314 Rents and Rentals 2 295 100 2 177 930 Representation expenses 11 949 8 994 Communication 350 789 341 884 Insurance 798 858 799 161 Transport of Goods 31 894 33 829 Travel and Accommodation 693 854 717 973 Fees 468 605 314 629 Maintenance and Repairs 1 498 567 1 484 938 Publicity and Advertising 154 189 285 109 Cleaning, Hygiene and Comfort 533 403 513 079 Security 1 146 004 1 041 841 Specialised Work 4 099 736 3 494 337 Verification of Radio Aids 648 725 748 980 Other Supplies and Services 328 664 321 748 Supplies and external services 16 267 847 14 961 291
32. Staff costs
Details 2018 2017 Remuneration Governing bodies 325 893 284 272 Staff 103 615 396 96 660 448
103 941 290 96 944 720 Social expenses Retirement benefit premiums 17 958 048 16 282 664 Pensions paid 616 470 400 925 Charges on remunerations 23 873 231 22 026 895 Insurance 1 229 549 1 165 717 Compensations 2 894 831 2 864 263 Others 808 682 1 043 037
Sub-total 47 380 812 43 783 500
Staff costs 151 322 102 140 728 220
As described in note 3.12, staff costs were not affected by the actuarial and financial gains and losses related to the benefit plan Pension Funds, amounting to €18,993,581 (2017: €3,612,252), recorded directly in Equity, as per accounting and financial reporting standard NCRF 28.
In 2018, NAV had an average of 968 employees (2017: 980 employees).
March/19 140 NAV Portugal, E.P.E. – 2018 Annual Report
33. Other income
Details 2018 2017
Exchange rate differences 48 141 63 734 Arrears interest 72 335 58 329 Interest on financial investments 6 909 21 264 Supplementary earnings 306 807 248 843 Corrections from previous years 2 196 75 602 Annuities 239 157 220 188 Social Services - - Training/Reprography/AIP/Material provided 85 955 81 703 Disposals / incidents 46 323 9 391 Compensatory Interest – IT 2008, 2009, 2010 1 006 672 - Surplus in Tax Estimate 1 129 827 - Financial Adjustment - 1 589 712 Others 74 917 86 135 3 019 238 2 454 901
34. Other expenses
Details 2018 2017 Eurocontrol contribution 7 235 920 7 129 354 Unfavourable exchange rate differences 24 166 42 103 Corrections from previous years 79 328 654 002 Inventory losses - - Deficit in Tax Estimate 85 504 - Financial discount on regulatory assets 479 446 - Others 415 570 278 956 8 319 934 8 104 414
35. Interest and similar income obtained
The interest obtained arising from investments in term deposits, as well as the income from shareholdings and other income related to changes occurring in the discount rates, are recorded in the profit and loss statement under Other income, insofar as they do not come from funding obtained by the Company.
36. Tax on earnings for the year
Breakdown 2018 2017 Equity Deferred tax 4 462 074 928 595 4 462 074 928 595 Income Statement Deferred tax (note 10) (2 686 302) (3 275 161) Current Tax (1 669 468) (644 450) (4 355 770) (3 919 611)
March/19 141 NAV Portugal, E.P.E. – 2018 Annual Report
The tax rate used for the valuation of the tax differences at the balance sheet date for the reporting period ending 31 December 2018 was 23.42% (2017: 24.23%), as follows:
2018 2017 Tax rate 19,99% 19,95% Surtax 1,23% 1,28% State Surtax* 2,20% 3,00% 23,42% 24,23%
The state surtax provided for in Article 87-A of the IRC Code is levied on taxable profits that are greater than €1,500,000. A rate of 3% is applied to profits of between €1,500,000 and €7,500,000, a rate of 5% is applied to profits of between €7,500,000 and €35,000,000 and a rate of 7% is applied to profits greater than €35,000,000.
The reconciliation of the tax amount for the period is as follows:
2018 2017 Earnings before tax 19 014 049 10 292 155 Permanent differences: Non-deductible expenses 195 243 797 468 Reimbursement of corporate income tax from previous years (1 159 075) - Tax benefits (245 646) (456 831) Payment of retirement benefits beyond the legal limit - - Others 62 122 56 366 (1 147 357) 397 003 Temporary differences: Responsibilities for post-employment benefits (11 062 214) (8 034 423) Provisions (660 451) 430 712 Revaluations 28 577 28 577 Discounts on accounts receivable and payable 333 000 (1 520 536) (11 361 088) (9 095 670)
Earnings for tax purposes 6 505 604 1 593 488 Current tax 1 262 681 264 500 Adjustment to current tax for previous years (29 249) 102 704 Surtax 84 857 18 958 State Surtax 147 138 44 472 Autonomous taxation 204 041 213 816 Estimated current tax for the year 1 669 468 644 450 Effect of changes in tax rates - - Tax for the year 2 686 302 3 275 161 2 686 302 3 275 161 Total tax for the year 4 355 770 3 919 611
37. Commitments
Investments contracted but not yet fulfilled:
2018 2017 Equipment 54 127 450 14 029 568
54 127 450 14 029 568
March/19 142 NAV Portugal, E.P.E. – 2018 Annual Report
38. Contingencies
Ongoing legal proceedings:
2018 2017 In which NAV Portugal is a defendant: Proceedings brought by the TWA bankruptcy administrator 12 174 12 174 Administrative proceedings relating to customs duty 11 492 11 492
Administrative proceedings initiated by ANAC 15 000 15 000 38 666 38 666
39. Comprehensive income
PERIODS NOTES 2018 2017
Net earnings for the year 14 658 279 6 372 544
Actuarial and financial gains and losses related to the benefit plan Pension Funds recorded in Equity 21 (18 993 581) (3 612 252)
Investment Grants 21 81 549 (134 454)
Deferred tax adjustments 10 4 462 074 928 595 Comprehensive Income 208 321 3 554 432
40. Subsequent events
Until the date of approval of these financial statements, there are no subsequent events that occurred after 1 January 2019 that are known to the Board of Directors and that should be recorded or disclosed in these financial statements.
Board of Directors Certified Accountant
Jorge Manuel da Mota Ponce de Leão Ana Paula Fernandes Gomes
Egídia Pinto de Queiroz Martins
Francisco Cézar Ramos Fernandes Gil
March/19 143 NAV Portugal, E.P.E. – 2018 Annual Report
13 REPORT AND OPINION OF THE AUDIT COMMITTEE
(Document originally issued in Portuguese)
March/19 144 NAV Portugal, E.P.E. – 2018 Annual Report
AUDIT COMMITTEE
Report and Opinion of the Audit Committee – Accounts concerning the 2018 financial year
1. Introduction
The powers of the Audit Committee (AC) result (i) from the joint provisions of Article 12 of the Articles of Association1 of Navegação Aérea de Portugal, NAV, E.P.E., hereinafter NAV Portugal, Articles of Association and Article 420, No. 1, of the Portuguese Commercial Companies Code (CSC), by virtue of Art 60, No. 2, of the Legal Regime of the State Corporate Sector (LRSCS), approved by Decree-Law No. 133/2013, of 3 October, amended by Law No. 75-A/2014, of 30 September, and ii) from the provisions of Article 54, No. 2, of the LRSCS regarding the verification of the compliance of reports on good corporate governance practices.
According to the guidelines of the Government partner, namely those present in Circular Notice of the Directorate-General of the Treasury and Finance (DGTF) No. 1115, of 12 March 2019, the AC is also responsible for compliance with the legal guidelines in force for the State Corporate Sector, namely those concerning the remuneration in force in 2018.
The current Audit Committee members were appointed by Ordinance of 9 July 2015 of the Secretary of State for the Treasury and the Secretary of State for Infrastructure, Transport and Communications, for the 2015–2017 term. As no new AC was appointed, the same members remain in office.
This report describes the main activities carried out in 2018 by the AC within the scope of its supervisory responsibility, and its review of the documents for the presentation of accounts for the annual period ending on 2018/12/31, received on 2019/03/19.
2. Activity carried out
In the performance of its duties regarding the 2018 financial year, the AC held meetings and oversaw the aspects it deemed to be most relevant. The committee carried out the following specific activities:
(a) It prepared analysis and quarterly report was prepared on the controls performed, anomalies detected, budgetary differences and compliance with the guidelines of the holder of the shareholder function; (b) It took note of the actions carried out in the internal audit and the reports issued, and it oversaw the performance of the external audit; (c) It also took note of the additional Corporate Income Tax (IRC) payments related to non-taxable services (exempted flights) and to contributions for pension funds; (d) It issued an opinion on the documents for the presentation of accounts for the 2017 financial year;
1 Approved by Decree-Law No. 404/98, of 18 December, amended by Decree-Law No. 74/2003, of 16 April. 1/10
AUDIT COMMITTEE
(e) It analysed the Management Forecast Instruments for 2019 and issued the corresponding opinion on 1 February 2019; (f) It oversaw the preparation of the financial statements and the audit work carried out by the external auditors and by the Certified Public Accountant regarding the 2018 financial year; (g) It obtained from the Board of Directors (BD) all the clarifications it deemed necessary regarding the day-to-day management of the Company; (h) It met with the actuary to discuss the assumptions used as the basis for the evaluations of the pension funds’ liabilities. Later, it verified the compliance of the information present in the reports issued by the actuary with the accounting records;
The accounting checks were predominantly carried out by committee member RCA – Rosa, Correia & Associados, Sociedade de Revisores Oficiais de Contas. The AC reviewed the firm’s reports and the Legal Certification of Accounts (CLC), with which it agreed.
The AC highlights the close cooperation between the various company structures in the perception, understanding and correctness of the procedures adopted and, especially, the good relationship with the directors.
3. Review of the Management Report
NAV Portugal is a corporate public entity, a public legal person, with administrative, financial and patrimonial autonomy, subject, according to its articles of association, to the Legal Regime of the State Corporate Sector (LRSCS), to the sectoral and financial oversight under the purview of the Ministry for Planning and Infrastructure22 and of the Ministry of Finance, respectively, as well as to the financial control of the Court of Auditors and of the Inspectorate-General of Finance.
NAV’s mission is to provide air traffic services in the Flight Information Regions controlled by the Portuguese Government (Lisbon and Santa Maria), ensuring compliance with the applicable Portuguese national and international regulations and providing the best safety conditions, optimising airspace and airport infrastructure usage capacities.
Through Decree-Law No. 404/98, of 18 December, amended by Decree-Law no. 74/203, of 16 April, NAV Portugal was entrusted with the provision of the public service of air navigation for civil aviation support. However, there is no contract between NAV Portugal and the Government regulating the provision of the service, in accordance with the provisions of article 48 of the Legal Regime of the State Corporate Sector (LRSCS).
The Management Report for NAV Portugal contains all the matters provided for in Articles 66, 66-A and 66-B of the Portuguese Commercial Companies Code (CSC), as well as all the aspects required by the specific legislation applicable to the state-owned business sector, in particular, the Legal Regime of the State Corporate Sector (LRSCS). The report discloses:
(a) the activity carried out in the accounting period, showing the progress of the business, the economic
2 Current Ministry for Infrastructure and Housing 2/10
AUDIT COMMITTEE
and financial performance, the execution of investments, the research and development activities, a description of the human resources, and the outlook for the future, within the guidelines set by the CSC; and
(b) the relevant aspects of governance and compliance with the legal guidelines, in accordance with the aforementioned instructions from the Directorate-General of the Treasury and Finance (DGTF), transmitted through Circular Notice No. 1115, of 12 March 2019.
Thus, the AC believes that the Report meets, in general terms, the legal requirements and the aforementioned instructions issued by the DGTF and concludes that the analyses carried out are consistent with the financial position, economic performance and cash flows shown on the financial statements.
4. Review of the Report on Good Corporate Governance Practices
In accordance with Article 54, No. 1, of the LRSCS, the Company presents the Report on Good Corporate Governance Practices independently and in line with the model made available on the site of the Technical Unit for the Oversight and Monitoring of the State-Owned Corporate Sector (UTAM). Under these terms, the presented report discloses: i) the mission, objectives and policies of the company, showing a set of indicators based on international benchmarking (Germany, Austria, Ireland and Switzerland Air Navigation Service Providers) with whose weighted average NAV Portugal’s performance is benchmarked; ii) references to the company’s capital structure; iii) information on shareholdings, including identification of the mechanisms adopted for the prevention of conflicts of interest; iv) detailed information on the governance structures and adopted governance model, as well as on the functional structure and the external auditors; v) the presentation of the company’s internal organisation and of the crucial internal control and risk management aspects, as well as the Portuguese, EU and international legislation governing it, and also the code of ethics approved and in force in NAV Portugal; vi) information about remuneration; vii) information about transactions with related parties and others; viii) analysis of the company’s sustainability; ix) information on the evaluation of the corporate governance, namely acknowledging that there are no known shareholder recommendations given that the approval of the accounts of the three previous financial years is awaited.
In accordance with article 5 of the Articles of Association, NAV Portugal’s governance structure is composed of a BD with five elements (a Chairperson, and four Members) and an AC. However, the BD, following the publication of Resolution No. 24/2016, of 14 July 2016, is currently operating with only three elements (a Chairperson and two Members)3.
3 It should be noted that according to Article 31 of the LRSCS, the boards of directors of the companies subject to the aforementioned regime have, as a rule, three members. Thus, and without prejudice to the fact that the relevant statutory amendment provided for in Article 73 of said regime was not carried out in time, the understanding is that this rule is already applicable to NAV. 3/10
AUDIT COMMITTEE
Notwithstanding the expiry of the term applicable to the AC in 2017, it shall remain in office as no appointment has taken place. This body is composed of three people, a Chairperson and two Members, one of whom is a Certified Public Accountant. In this regard, it should be noted that the application of the rules on this matter provided both in the Portuguese Commercial Companies Code and in the Legal Regime of Audit Supervision, approved by Law No. 148/2015, of 9 September, leads companies with NAV’s dimension to have a supervision model composed of an Audit Committee and a CPA.
The AC believes that the report on the good corporate governance practices complies, in general terms, with the established legal requirements, including the required structure and disclosures, including in these a non-financial statement with information concerning, namely, the performance and evolution of the company regarding environmental and social matters, and regarding the workers, gender equality, non-discrimination, respect for human rights, the fight against corruption and bribery attempts, as provided in article 66-B of the Portuguese Commercial Companies Code.
5. Review of the financial statements
The financial statements presented include: (i) the balance sheet; (ii) the profit and loss statement by type; (iii) the statement of changes in equity; (iv) the cash flow statement and (v) the annex to the financial statements.
The external auditors and the Certified Public Accountant had been issuing an opinion on the accounts under reservation due to a limitation of scope related to the recovery of amounts paid as a result of additional Corporate Income Tax settlements made following tax inspections, which the company had been protesting and challenging. The judgments on the cases already decided upheld the judicial challenges, which is why this reservation was removed in the opinion about the accounts of 2018.
They have maintained the emphases regarding the effects on Assets, under the Deferrals item, of liabilities related to post-employment benefits, and under Other accounts receivable (liabilities), regarding the effects of the en-route and terminal adjustment mechanism including the recovery of costs classified as non-controllable.
The AC deems the documents presented by the BD to meet the formal requirements for the financial report defined for companies in general and they provide the information specifically required by Article 23 of the Articles of Association regarding the breakdown of holdings in the capital of companies and the separation between patrimonial and proprietary assets.
In accordance with the references made throughout the period in which its inspection activities took place, the AC calls special attention to the need for permanent monitoring of investments, in order to reduce deviations between realisation and scheduling and to ensure, with regard to ongoing projects, that they are depreciated from the moment they become available for use and generate future economic benefits.
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6. Economic and financial situation of the company
NAV Portugal’s 2018 net profit amounts to €14.7M4, vis-à-vis the profit of €6.4M obtained in 2017. The improvement of the Staff costs / Service provisions ratio is the main contributor to this variation.
Operational income and gains totalled €207.7M (€186.2M in 2017), whilst the total operational expenses and losses borne by NAV5 amounted to €188.6M (€175.9M in 2017).
Operating income, amounting to €19M, recorded an increase of €8.7M vis-à-vis 2017.
With regard to assets, the final values for equity (€107.2M) and net assets (€349.2M) for 2018 are worthy of note, as they are evidence of a prudent financing structure.
7. Review of the proposal for the appropriation of profit
The proposal for the appropriation of profit for the financial year included in section 11 of the Management Report complies with the provisions of Article 22 of the Articles of Association, with 10% going to the general reserve, 1% to the fund for social purposes, 50% to remuneration of invested capital and the remainder to investment reserve. It should be noted that the net profit less the amounts that directly affected the equity, namely the actuarial gains related to the pension funds, due to the effect of the change in the accounting and financial reporting standard NCRF 28, the investment subsidies and the corresponding deferred taxes, were considered as profit subject to distribution. This seeks to apply a criterion of prudence to the profit distribution, purging the effect of unrealised gains and losses, since if the actuarial gains are not purged from the amount to be distributed, we will be facing a distribution of unrealised profits and, consequently, a decapitalisation of the company.
8. Performance
Since there were no management contracts for 2018, the AC is unable to assess the performance of the managers for the financial year although in section 3.1 of the Management Report, NAV Portugal refers to the results of the strategic goals established in the Company Business Plan for 2018–2022. Similarly to the procedure adopted in the previous years, NAV Portugal considered a set of indicators (mostly based on international benchmarking), enabling an evaluation using the weighted average of goals set regarding indicators from the set of selected peers6 and goals established based on absolute numbers of budgetary performance.
______4 This result, according to accounting and financial reporting standard NCRF 28, recognises in Equity the amount concerning actuarial and financial gains and losses of the defined-benefit pension plans (…). 5 Not including actuarial and financial gains and losses of the defined benefit pension plans, which, in accordance with accounting and financial reporting standard NCRF 28, were recognised in Equity. 6 Ireland, Austria, Germany and Switzerland.
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AUDIT COMMITTEE
Regarding the reference indicators arising from the comparison with the set of selected peers, a final score of 92.9% was obtained.
The AC considers the analysis of the aforementioned section 3.1 of the Management Report on the achievement of objectives to be a general indicator of performance at the business level.
9. Compliance with the legal guidelines and with the instructions from the holder of the shareholder function
Management objectives
Although NAV Portugal has guided its activities according to the proposed 2018 Business and Budget Plan, it was only approved at the end of the year to which it refers. The AC tracked the budgetary implementation and submitted comments to the main observed variations.
With no goals set for 2018, the Company used as reference the indicators presented to the holder of the shareholder function within the scope of the aforementioned Plan, justifying the deviations, namely in EBITDA, operating costs, staff and investments.
Financial risk management
The use of financial risk management instruments is not significant, taking into account the regulated nature of the company’s activities, its capacity for self-financing and the amounts and conditions of the financing contracted with the EIB (see section 3.2 of the Management Report)7.
Indebtedness
The Company settled its bank loans in 2018.
Average payment delay to suppliers
NAV reduced the average payment delay (APD) to suppliers, determined in accordance with Resolution of Council of Ministers No. 34/2008, with the amendment introduced by Ordinance No. 9870/2009, from 48 days in 2017 to 39 days in 2018. It should be noted that, according to NAV Portugal, 93% of the debt to suppliers with a term of more than 360 days (around €450,000) concerns acquisitions whose contractual conditions are not fully met, legitimising payment within the time limits set out in each contract.
Disclosure of payment delays
Late payments are disclosed in section 3.4 of the Management Report.
______7 On the more general approach to internal control and risk management, see section VI-B of the Report on Good Corporate Governance Practices.
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Recommendations from the holder of the shareholder function in the approval of the 2015, 2016 and 2017 accounts
As mentioned in section 3.5 of the Management Report, the 2015, 2016 and 2017 Annual Reports were sent to the competent authorities and are pending approval. Thus, to date, there are no known recommendations by the holder of the shareholder function.
Reduction of remunerations
The reduction of 5% established by Law No. 12-A/2010, of 30 June, continued to be enacted for the members of the BD and to the members of the AC.
The workers’ remunerations were updated in accordance with the provisions of No. 12 of articles 18 and 23 of Law No. 114/2017 of 29 December (State Budget Law for 2018), which defined the reinstatement, from 1 January 2018, of all remuneration increases resulting from the application of the Company’s Collective Labour Regulation Instruments.
Public Manager Statute – Application of articles 32 and 33
Credit cards were not given to the members of NAV Portugal’s BD, nor were any other instruments for the payment of expenses incurred in the service of the Company, neither were there repayments made for expenses that fell under the classification of personal representation expenses (see section 3.7 of the Management Report).
Prohibition regarding the execution of undocumented or confidential expenses – Application of No. 2 of article 16 of the Legal Regime of the State Corporate Sector and of article 11 of the PMS
No undocumented or confidential expenses were carried out (see section 3.8 of the Management Report).
Disclosure of the report on remuneration paid to women and men – Application of No. 2 of RCM 18/2014, of 7 March
As mentioned in section 3.9 of the Management Report, NAV Portugal prepared the Plan for Gender Equality, which is published on the website.
Prevention of corruption and Code of Ethics
As mentioned in section 3.10 of the Management Report, NAV Portugal prepared and disclosed the annual monitoring report of the Risk Management Plan for Corruption and Related Offences, as provided for in No. 1 of Article 46 of the LRSCS.
It should also be noted that NAV’s BD approved, during 2018, the revised version of the Code of Ethics, which complies with Portuguese standards NP4460-1:2007 and NP4460-2:2010.
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Public Procurement
Procurement follows the rules of the Public Procurement Code, as, by government ordinance, the Company is considered to be a contracting entity for the special sector of transports (see section 3.11 of the Management Report).
National system of public procurement
NAV joined the National System of Public Procurement as a voluntary purchasing entity, and the contract to join the Framework Agreement was signed on 8 February 2013 (see section 3.12 of the Management Report).
Vehicle fleet
According to Resolution of Council of Ministers No. 121/2005, of 23 June, NAV Portugal favours the operating leasing of vehicles. On 31 December 2018, the vehicle fleet numbered 77 (the same number as at the end of the previous year), only three of which were company property (the same as at the end of the previous year) (see section 3.13 of the Management Report).It should be noted that two diesel vehicles were replaced by an electric and a hybrid during the 2018 financial year.
Cost reduction plan
As part of the cost reduction plan, NAV Portugal, as a company with positive EBITDA, is responsible for maintaining or reducing the weight of operating costs, corrected for charges resulting from the provisions of the applicable collective labour regulation instruments and severance payments, vis-à-vis the turnover in 2017. Staff costs adjusted for severance payments, the application of salary restitutions and salary increases, travel, allowances and accommodation costs and costs associated with the vehicle fleet, and all costs related to the contracting of research, opinions, projects and consultancy shall be equal to or less than the amounts recorded in 2017.
The calculations show that the weight of said cost aggregate recorded a year-on-year 1.6 percentage point increase over 2017, increasing from 82.22% in 2017 to 83.82% in 20188.
As presented in the Profit and loss statement by type, the total costs with staff are higher than those recorded in 2017 by €10.6M (7.5%). This increase is mainly due to the increase in remunerations, more specifically in Additional work (€4.3M) and Operating remuneration of air traffic controllers (€1.2M).
Supplies and external services recorded an increase of €1.3M (8.7%) compared to 2017, mostly due to the increase in subcontracting (€0.6M) and specialised works (€0.6M).
Expenses with travel, allowances and accommodation and with the vehicle fleet are 2.7% lower than in 2017.
______8 Section 3.13 of the Management Report.
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Expenses with research, opinions, projects and consultancy are approximately €0.2M higher than in 2017, mostly due to the legal support obtained in tax litigation.
It should be added that the expenses attributable to exempted flights continue to be borne by NAV Portugal, representing around €2.2M in 2018.
Reduction in permanent staff and management positions
The total number of permanent staff and management positions was 956 in 2018, 967 in 2017 and 987 in 2016. The number of managers, excluding governance structures, was 11 in 2018, nine in 2017 and the same number in 2016. The Permanent Staff/Management Positions ratio was 85 in 2018, 106 in 2017 and 108 in 2016.
Treasury Single Account
NAV Portugal maintained, in commercial banking, small balances deposited in current accounts, for a total of only about €12,000, representing 0.01% of the available funds. (see section 3.14 of the Management Report). These bank accounts are intended for the safekeeping of securities and the replenishing of fixed funds. A waiver on the full concentration of available funds in the Agency for the Management of Treasury and Public Debt (IGCP) was requested for 2018. This was approved by Notice of IGCP No. SGC-208/19851, of 12 December, applicable to the 2018 and 2019 accounting periods for amounts related to the custody of securities other than public debt and for amounts intended for the purchase of foreign currency, in situations where external treasury cannot meet the needs.
Recommendations from Court of Auditors’ audits
According to section 3.15 of the Management Report, the Company was not subjected to an audit by the Court of Auditors in the last three periods.
Special reporting requirements
The management forecast instruments and the quarterly execution reports are sent to the holder of the shareholder function and input into the System for Gathering Economic and Financial Information. As noted in section 3.16 of the Management Report and in section VI-D-1 of the Report on Good Corporate Governance Practices, all the relevant information of public interest is posted on the company site and sent to the services in charge of updating the site of the State Corporate Sector.
10. Conclusion and opinion
The AC is of the opinion that the Management Report satisfies the disclosures required by the statutory and legal standards and the guidelines of the holder of the shareholder function, and that the financial statements are prepared in accordance with the Accounting Standardisation System.
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Therefore, and with this understanding in mind, the AC issues a favourable opinion:
i) to the approval of the documents for the presentation of the accounts for 2018; and ii) to the proposal for the appropriation of profits.
Lisbon, 24 June 2019
The Audit Committee,
[signature]
Maria Fernanda Martins, Chairwoman
[signature]
Maria de Lurdes Correia de Castro, Member
[signature]
RCA – Rosa, Correia & Associados, SROC, S.A., Member and Audit Firm represented by Paulo Fernando da Silva Pereira (CPA)
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14 LEGAL CERTIFICATION OF ACCOUNTS
(Document originally issued in Portuguese)
March/19 155 NAV Portugal, E.P.E. – 2018 Annual Report
NAVEGAÇÃO AÉREA DE PORTUGAL – NAV PORTUGAL, E.P.E.
LEGAL CERTIFICATION OF ACCOUNTS
2018 FINANCIAL YEAR
WWW.RCA.AC
LISBON AV. DUQUE D’ÁVILA, 185, 5º 1050-082 LISBOA PORTUGAL
PORTO AV. DA BOAVISTA 1167, 5.º, SALA 5.3 4100-130 PORTO PORTUGAL
T (+351) 217 520 250 F (+351) 217 520 259 E [email protected]
LEGAL CERTIFICATION OF ACCOUNTS
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
Opinion
We examined the attached financial statements of NAVEGAÇÃO AÉREA DE PORTUGAL – NAV PORTUGAL, E.P.E., which include the balance sheet on 31 December 2018 (showing a total of 349,163,010 euros and a total equity of 107,170,417 euros, including a net profit of 14,658,279 euros), the profit and loss statement by type, the statement of changes in equity and the cash flow statement for the year ended on that date, together with the corresponding notes attached to the financial statements that include a summary of the significant accounting policies.
In our opinion, the accompanying financial statements present, in a true and fair view, in all material aspects, the financial position of NAVEGAÇÃO AÉREA DE PORTUGAL – NAV PORTUGAL, E.P.E. on 31 December 2018 and its financial performance and cash flows for the year ended on that date in accordance with the Accounting and Financial Reporting Standards adopted in Portugal through the Accounting Standardisation System.
Bases for the opinion
Our audit was prepared in accordance with the International Auditing Standards (IAS) and other standards and technical and ethical guidelines of the Portuguese Institute of Certified Public Accountants (Ordem dos Revisores Oficiais de Contas). Our responsibilities, under the terms of these standards, are described in the section “Responsibilities of the auditor for the audit of financial statements” below. We are independent of the Entity under the terms of the law and meet all the other ethical requirements under the terms of the code of ethics of the Portuguese Institute of Certified Public Accountants.
We believe that the audit evidence that we have obtained is sufficient and appropriate to provide the basis for our opinion.
Emphases
– In accordance with the applicable law (Law No. 5/2009, of 29 January and Ordinance No. 496/2008, of 23 June), and as mentioned in Note 24 of the Annex to the financial statements, the Company is obligated to bear 60% of the charges corresponding to the period of early retirement of the air traffic controllers (from age 58 to the normal retirement age) covered by the public Social Security system, which is responsible for the remaining 40%. Of the liabilities recognised by the Company arising from this early retirement, which total €57.7M (€54.3M as at 2017/12/31), the “Non-current Assets – Deferrals – Regulatory assets” item (Note 16 of the Annex to the financial statements) includes the amount of €17.6M (€19.6M as at 2017/12/31) related to the initial recognition in 2004 of said liabilities, which is being amortised in a systematic manner during the remaining working lives of the employees covered, by the inclusion of these charges in the base for the calculation of the corresponding fees.
NAVEGAÇÃO AÉREA DE PORTUGAL – NAV PORTUGAL, E.P.E. Legal Certification of Accounts of the 2018 financial year
– As disclosed in Note 15 of the Annex, the “Other accounts receivable” item includes the amount of €12.9M (€15M in 2017) (discounted amounts) concerning the terminal adjustment mechanism for the 2018 financial year (€1.5M) and the en-route adjustment mechanism for the 2018 financial year (€3.8M), 2014 (€0.9M), 2013 (€1.8M) and 2012 (€4.9M), which will be recovered from users of air navigation services in 2019 (€7.6M) and 2021 (€5.3M). On the other hand, as disclosed in note 16 of the aforementioned Annex, the “Deferrals – Regulatory liabilities” item includes the payable amounts of €34.5M and €41.8M, both discounted amounts, concerning the en-route and terminal adjustment mechanism for 2018 and 2017, respectively, and €0.4M concerning the en-route adjustment mechanism for 2014. These amounts will be subject to settlement for the users during the period from 2019 to 2021.
– The legal certification of the 2017 accounts presented a reserve for limitation of the scope related to the recovery of amounts paid as a result of additional Corporate Income Tax settlements made within the scope of tax inspections, which the Company had been protesting and challenging. The judgments on the cases already decided upheld the judicial challenges, which is why this reservation was removed in the opinion about the accounts of 2018.
Our opinion is not altered in respect to these matters.
Relevant audit matters
The relevant matters of the audit are those which, in our professional judgment, had the greatest importance in the audit of the financial statements of the current year. There matters were considered in the context of the audit of the financial statements as a whole and in the formation of the opinion, and we will not issue a separate opinion on them.
In addition to the matters mentioned in section “Bases for the opinion”, we considered the following relevant matters in the audit:
Most significant risks of material Auditor’s response to those risks misstatement
1) Revenue recognition
NAV discloses in note 3.16 of the Annex the The audit strategy was based on validating the bases used in the recognition of the revenue, completeness of the income accounted in 2018 in the which is determined in line with the European provision of en-route and terminal services, having Union’s legislation, providing for adjustments to carried out the following procedures: the amounts invoiced based on the designated risk-sharing mechanism. Their calculation is – estimation of the income amount from the provision somewhat complex and, there, implies an of en-route and terminal services by taking the increase in the risk of material misstatement. invoicing value resulting from the number of service units for the year and the national rates, and adjusting this value by considering, for this purpose, adjustments related to the income of external entities, the 2016– adjustment mechanism, and those resulting from the sharing mechanism of inflation, traffic and cost risks, as
3 NAVEGAÇÃO AÉREA DE PORTUGAL – NAV PORTUGAL, E.P.E. Legal Certification of Accounts of the 2018 financial year
laid down in Articles 13 and 14 of Implementing Regulation (EU) No. 391/2013 and therefore determining the value of the expected income from the provision of services; - validation (by recalculating) the traffic inflation and non-controllable cost adjustments; - confirmation of the adjustment to income of 2018 derived from traffic deviations observed in 2016; - confirmation through the circulation of balances procedure that there is no claimed billing, complementing this analysis with the verification of the issue of credit notes in 2019 correcting billing from 2018.
2) Liabilities for post-employment benefits
As disclosed in note 24 of the Annex, NAV has a The audit strategy considered the work developed set of liabilities with post-employment benefits, by the actuary through the assessment of the among which stand out, due to their values, the information present in the issued reports, namely so-called NAV/SINCTA Complements and NAV regarding: Complements, both defined benefit pension plans. The liabilities are determined annually by an - Confirmation that the entity managing the actuary and describe, among other information, pension fund is duly licenced by the Insurance the assumptions used and the changes that took and Pension Funds Supervisory Authority for place in 2018. the exercise of the activity; This is a matter, as set out in note 3.22 of the Annex, where the quantification of the liabilities is - assumptions used, predominantly regarding the based on sensitive estimates of demographic and discount rate; financial nature, which may influence the values of - tests on the valuation of the portfolio, the liabilities at each reporting date. assessment of its composition and of the sensitivity analysis of the value of the liabilities to changes in the actuarial and financial assumptions; - verification of the adequate accounting of the liabilities and of the spending vis-à-vis the information prepared by the actuary; - verification of the accounting of the actuarial expenses and losses according to accounting and financial reporting standard NCRF 28; - verification of the disclosures present in the Annex.
3 NAVEGAÇÃO AÉREA DE PORTUGAL – NAV PORTUGAL, E.P.E. Legal Certification of Accounts of the 2018 financial year
Other matters
As disclosed in notes 18 and 19 of the Annex, the annual reports of 2015, 2016 and 2017 have not yet been the object of a joint approval ordinance by the Sector and Finance oversight authorities.
Responsibilities of the governing body for the financial statements
The governing body is responsible for:
- preparing financial statements that truthfully and fairly represent the financial position, financial performance and cash flows of the Entity, in compliance with the Accounting and Financial Reporting Standards (NCRF) adopted in Portugal through the Accounting Standardisation System; - preparing the management report, including the corporate governance report, under the applicable legal and regulatory terms;
- creating and maintaining a suitable internal control system to enable the preparation of financial statements free of material misstatement due to fraud or error; - adopting accounting criteria and policies suitable for the circumstances; and - evaluating the Entity’s ability to continue operating, disclosing, when applicable, matters that may give rise to substantial doubts about continued operation.
Responsibilities of the auditor in the audit of financial statements
Our responsibility consists of obtaining reasonable assurance as to whether the financial statements as a whole are free of material misstatements due to fraud or error, and issuing a report containing our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit carried out in accordance with the IAS will always detect a material misstatement when one exists. Misstatements may originate from fraud or error and are considered material if, isolated or jointly, can be reasonably expected to influence economic decisions taken by users on the basis of these financial statements.
As part of an audit in accordance with the IAS, we make professional judgements and maintain professional scepticism during the audit and also:
- we identify and assess the risks of material misstatements of financial statements due to fraud or error, devise and execute audit procedures that respond to these risks, and we obtain auditing evidence that is adequate and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement due to fraud is greater than the risk of detecting a material misstatement due to error, as fraud may involve collusion, falsification, intentional omission, false declarations or overriding of internal controls; - we gain an understanding of the internal controls relevant to the audit with the aim of devising audit proceedings that are appropriate for the circumstances, but not to express an opinion on the effectiveness of the Entity’s internal controls; - we assess the adequacy of the accounting policies used and the reasonableness of the accounting estimates and respective disclosures made by the governing body;
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NAVEGAÇÃO AÉREA DE PORTUGAL – NAV PORTUGAL, E.P.E. Legal Certification of Accounts of the 2018 financial year
- we decide on the governing body’s adequacy of use of the going concern assumption and, based on the audit evidence obtained, if there is any material uncertainty related to events or conditions that may give rise to substantial doubts about the capacity of the Entity to continue operating. If we find that there is a material uncertainty, we must call attention in our report to the related disclosures included in the financial statements or, if these disclosures are inadequate, modify our opinion. Our conclusions are based on the audit evidence obtained until the date of our report. However, future events or conditions may lead to the Entity ceasing its operations; - we evaluate the presentation, structure and overall content of the financial statements, including the disclosures, and whether these financial statements represent the underlying events and transactions in order to reach a suitable presentation; - we communicate with the governing bodies, including the supervisory body, among other matters, the planned scope and timetable of the audit, and the meaningful conclusions of the audit, including any significant deficiency in internal controls identified during the audit; - of the matters we communicate to the governing bodies, including the supervisory body, we determine those that were the most important in the audit of the financial statements for the current year and that are the audit’s relevant matters. We describe these matters in our report, except when the law, or a regulation, prohibits their public disclosure; - we state our compliance with the relevant ethical requirements concerning our independence to the supervisory body and we communicate all relationships and other matters that may be perceived as threats to our independence as well as, when applicable, the corresponding safeguards.
Our responsibilities also include verifying the consistency between the information contained in the management report and in the financial statements, as well as verifying that the non-financial statement was presented.
REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS
About the management report
In compliance with article 451(3)(e) of the Portuguese Commercial Companies Code, it is our opinion that the management report was prepared in accordance with the legal and regulatory requirements in force, the information contained in it is consistent with the financial statements and, taking into account our knowledge and appraisal of the Entity, we have not identified any material misstatements.
About the non-financial statement provided for in article 66-B of the Portuguese Commercial Companies Code
In compliance with paragraph 6 of article 451 of the Portuguese Commercial Companies Code, we disclose that the Entity included the non-financial statement provided for in article 66-B of the Portuguese Commercial Companies Code in its corporate governance report.
Concerning the additional elements present in article 10 of Regulation (EU) No. 537/2014
In compliance with article 10 of Regulation (EU) No. 537/2014 of the European Parliament and of the Council of 16 April 2014, and in addition to the relevant audit matters listed above, we also report the following:
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NAVEGAÇÃO AÉREA DE PORTUGAL – NAV PORTUGAL, E.P.E. Legal Certification of Accounts of the 2018 financial year
– We were appointed Certified Public Accountant of NAV’s Audit Committee via Ordinance No. 9213/2008, of 13 March, of the Secretaries of State of Treasury and Finance and Deputy Secretary of Public Works and Communications for the three-year period from 2008 to 2010. In the absence of an appointment in 2011, we remained in office until new appointment. In view of the provisions of paragraph 2 of article 54 of Decree-Law No. 224/2008, of 20 November, in April 2015 we rotated the partner responsible for the statutory audit. On 9 July 2015, by Ordinance of the ministries of finance and economy, we were appointed CPA member for the 2015–2017 term. As there was no appointment of the Audit Committee for the new term, we remained in office. - The governing body informed us that it had no knowledge of any fraud or suspected fraud with a material effect on the financial statements. In the planning and execution of our audit in accordance with the IAS, we kept the professional scepticism and devised audit procedures to respond to the possibility of material misstatement in the financial statements due to fraud. As a result of our work, we did not identify any material misstatement in the financial statements due to fraud. - We attest that the audit opinion we are issuing is consistent with the additional report we prepared and delivered to the Entity’s supervisory body on 26 March 2019. - We declare that we did not provide any services prohibited under the provisions of article 77, paragraph 8, of the Portuguese Institute of Certified Public Accountants and that we maintained our independence from the Entity during the execution of the audit. - Other than the audit, we provided no services to the Entity.
Lisbon, 26 March 2019
[signature]
RCA – Rosa, Correia & Associados, SROC, S.A. Registered Auditor Portuguese Securities Market Commission (CMVM) No. 20161455 represented by Paulo Fernando da Silva Pereira, CPA
6
15 REPORT OF THE EXTERNAL AUDITORS
(Document originally issued in Portuguese)
March/19 163 NAV Portugal, E.P.E. – 2018 Annual Report
AUDIT REPORT
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
Opinion
We audited the attached financial statements of Navegação Aérea de Portugal – NAV Portugal, E.P.E. (“Entity” or NAV), which comprise the balance sheet on 2018/12/31 (showing a total of 349,163,010 euros and an equity of 107,170,417 euros, including a net profit of 14,658,279 euros), profit and loss statement by type, the statement of changes in equity and the cash flow statement concerning the year ended on that date, and the Annex to the financial statements that includes a summary of the significant accounting policies.
In our opinion, the accompanying financial statements present, in a true and fair view, in all material aspects, the financial position of Navegação Aérea de Portugal – NAV Portugal, E.P.E. on 2018/12/31 and its financial performance and cash flows for the year ended on that date in accordance with the Accounting and Financial Reporting Standards adopted in Portugal through the Accounting Standardisation System.
Bases for the opinion
Our audit was prepared in accordance with the International Auditing Standards (IAS) and other standards and technical and ethical guidelines of the Portuguese Institute of Certified Public Accountants (Ordem dos Revisores Oficiais de Contas). Our responsibilities, under the terms of these standards, are described in the section “Responsibilities of the auditor for the audit of financial statements” below. We are independent of the Entity under the terms of the law and meet all the other ethical requirements under the terms of the code of ethics of the Portuguese Institute of Certified Public Accountants.
We believe that the audit evidence that we have obtained is sufficient and appropriate to provide the basis for our opinion.
Emphases
– As mentioned in notes 16 and 24 of the Annex to the financial statements, at 31 December 2018, in Non- current assets, the balance of “Deferred income”, amounting to 17,633,718 euros (19,587,101 euros at 31 December 2017), relating to “Regulatory assets”, concerns specific liabilities with pensions that have been considered in the annual determination of the en-route and terminal unit rates, and consequently are recovered through revenue. These liabilities, taken in 2004 by NAV, in the proportion of 60% of the benefits, in advance of the old-age pension assigned to air traffic controllers covered by the State social security system, are being recorded annually in the profit and loss statement, considering the number of remaining active life years of the covered workers;
Civil law company with a commercial form • Share Capital: 25,000 euros • Registered at the Commercial Registry Office of Lisbon under No. 502 289 740 Registered in the list of Certified Public Accountants with No. 74 • Registered in the Auditor Registry of the Portuguese Securities Market Commission with No. 20161408 Rua Américo Durão, 6-8º Esq. – 1900-064 LISBOA - PORTUGAL • TEL.: 21 829 28 80 – FAX: 21 847 07 80 • [email protected] • www.acad.pt
- The balance sheet at 31 December 2018, includes under “Other accounts receivable” the amounts of 11,329,505 euros (en-route regulatory assets) and 1,536,014 euros (terminal regulatory assets), and under “Deferrals”, the amounts of 61,292,788 euros (en-route regulatory liabilities) and 15,588,173 euros (terminal regulatory liabilities), both related to the en-route and terminal adjustment mechanism for the years 2012 to 2018, recorded at discounted amounts, which will be recovered or returned between 2019 and 2021, as described in notes 15 and 16 of the Annex to the financial statements. - The Audit Report for the 2017 accounts, which we issued on 3 April 2018, included a reserve for limitation of the scope regarding the recovery of an asset recorded under “Other accounts receivable” in the amount of 12,161,017 euros related to the payments made by NAV of additional Corporate Income Tax settlements arising from tax inspections for the periods from 2005 to 2014, even though it was understood that they were not due and, as a result, the means of defence available to the Entity were triggered. As mentioned in note 15 of the Annex to the financial statements, in 2018, judgements favourable to the judicial challenges filed by NAV for the years 2008, 2010 and 2011 were handed down, and the Entity was refunded the additional tax settled, including compensatory and indemnifying interest. For this reason, the reserve was eliminated in the opinion on the 2018 accounts.
Our opinion is not altered in respect to these matters.
Relevant audit matters
The relevant matters of the audit are those which, in our professional judgment, had the greatest importance in the audit of the financial statements of the current period. These matters must considered in the context of the audit of the financial statements as a whole and in the formation of the opinion, and we will not issue a separate opinion on them.
a) Revenue Recognition
The en-route and terminal adjustment mechanism (regulatory Assets and Liabilities) affects NAV’s revenue recognition and stems from deviations in practiced rates, payable or receivable, at present value, as a result of deviations in demand, inflation, traffic risk sharing, cost risk sharing, namely regarding the costs considered to be non-controllable (i.e., charges accepted by the regulator in the cost base of the period in which they are incurred, when it is likely that: i) the revenue, at least identical to the cost amount, becomes included in the rate; and ii) the future revenue is intended to reimburse costs incurred in the past and not future costs of a similar nature).
We believe this to be a relevant audit matter given the materiality of the amounts in question, the subjectivity of the applied assumptions (e.g., regarding deviations in demand, inflation, traffic risk sharing, cost risk sharing, changes in the discount rates) and the technical knowledge required to determine these values.
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Most significant risks of material misstatement: Summary of the response to the most significant risks of that the revenue from the provided services is material misstatement: overvalued or undervalued by undue regulatory adjustments and, as a consequence, that the Our audit procedures with this purpose included, among corresponding regulatory assets and liabilities are as others: well. • conducting inquiries with the people responsible for the governance concerning the assumptions used in the calculation of the en-route and terminal services revenue adjustments; • recalculation of the adjustments stemming from the regulatory framework in force for the services rendered in 2018; • verification, in case there are non-controllable costs, of whether NAV had a confirmation by the Portuguese National Civil Aviation Authorities (ANAC) that the costs considered as non-controllable concerned the regulatory provisions in force; • discussion with the people in charge of governance about the existence of evidence that any of the regulatory assets could be in impairment; • evaluation of the adequacy of the disclosures concerning the Revenue and the Adjustment mechanism (Regulatory Assets and Liabilities) – notes 15, 16 and 29 of the Annex to the financial statements. b) Liabilities for post-employment benefits – Pension Funds
NAV has a set of liabilities with post-employment benefits awarded to its workers. These liabilities are evaluated by an actuary every year and, among them, due to their amounts, stand out the defined benefit pension plans (“NAV/SINCTA Complements” and “NAV Complements”).
We consider this to be a relevant audit matter due to the materiality of the amounts in question, to the subjectivity of the applied assumptions (e.g., salary growth rate, inflation, discount rates and mortality tables) and to the specialised knowledge needed to determine these values.
Most significant material misstatement risks: that the Summary of the response to the most significant risks of value of the liabilities for post-employment benefits material misstatement: (defined benefit pension plans) is not properly Our audit procedures with this purpose included, among calculated and recorded and that the relationship others: between the assets and the liabilities of the fund is not • confirmation that the entity managing the NAV Pension balanced. Fund (Futuro – Sociedade Gestora de Fundos de Pensões, SA) is duly licensed by ASF – Autoridade de Supervisão de Seguros e Fundos de Pensões (Insurance and Pension Funds Supervisory Authority);
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• verification of the independence of the responsible actuary and that it is duly licenced for the purpose; • verification of the contributions to fund the pension plans; • verification of the adequacy of the level of funding and/or equity of the entity that manages NAV’s Pension Fund; • control over the evolution of the fund regarding its assets and liabilities; • verification of the liabilities and situation of the pension funds at the end of the period based on the amounts calculated by the actuary; • validation of the performed accounting records, based on the values shown in the actuarial report; • evaluation and discussion with the actuary, concerning the fairness of the main assumptions and estimates adopted, namely the discount rate and the mortality table; • discussion with the people in charge of governance and with the actuary of Futuro – Sociedade Gestora de Fundos de Pensões, SA about the multiple components used in the calculation of the liabilities at the balance sheet date: discount rate, rate of salary growth, calculation methods used (projected unit credit method); • reading and analysis of the final report issued by the actuary and verification of the consistency of the assumptions in relation to the previous period and/or to the management decisions; • evaluation of the adequacy of the disclosures concerning the post-employment benefits – notes 15, 24 and 32 of the Annex to the financial statements.
Other matters
As mentioned in notes 18 and 19 of the Annex to the financial statements, the annual reports of 2015, 2016 and 2017 have not yet been the object of a joint approval ordinance by the sector and Finance oversight authorities.
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Responsibilities of the governing body and of the supervisory body for the financial statements
The governing body is responsible for: - preparing financial statements that truthfully and fairly represent the financial position, financial performance and cash flows of the Entity, in compliance with the accounting and financial reporting standards NCRF adopted in Portugal through the Accounting Standardisation System; - preparing the management report, including the corporate governance report, under the applicable legal and regulatory terms; - creating and maintaining a suitable internal control system to allow the preparation of financial statements free of material misstatement due to fraud or error; - adopting accounting criteria and policies suitable for the circumstances; and - evaluating the Entity’s ability to continue operating, disclosing, when applicable, matters that may give rise to substantial doubts about continued operation.
The supervisory body is responsible for supervising the preparation and disclosure process of the Entity’s financial information.
Responsibilities of the auditor in the audit of financial statements
Our responsibility consists of obtaining reasonable assurance as to whether the financial statements as a whole are free of material misstatements due to fraud or error, and issuing a report containing our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit carried out in accordance with the IAS will always detect a material misstatement when one exists. Misstatements may originate from fraud or error and are considered material if, isolated or jointly, can be reasonably expected to influence economic decisions taken by users on the basis of these financial statements.
As part of an audit in accordance with the IAS, we make professional judgements and maintain professional scepticism during the audit and also:
- we identify and assess the risks of material misstatements of financial statements due to fraud or error, devise and execute audit procedures that respond to these risks, and we obtain auditing evidence that is adequate and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement due to fraud is greater than the risk of detecting a material misstatement due to error, as fraud may involve collusion, falsification, intentional omission, false declarations or overriding of internal controls;
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- we gain an understanding of the internal controls relevant to the audit with the aim of devising audit proceedings that are appropriate for the circumstances, but not to express an opinion on the effectiveness of the Entity’s internal controls; - we assess the adequacy of the accounting policies used and the reasonableness of the accounting estimates and respective disclosures made by the governing body; - we decide on the governing body’s adequacy of use of the going concern assumption and, based on the audit evidence obtained, if there is any material uncertainty related to events or conditions that may give rise to substantial doubts about the capacity of the Entity to continue operating. If we find that there is a material uncertainty, we must call attention in our report to the related disclosures included in the financial statements or, if these disclosures are inadequate, modify our opinion. Our conclusions are based on the audit evidence obtained at the date of our report. However, future events or conditions may lead to the Entity ceasing its operations. - we evaluate the presentation, structure and overall content of the financial statements, including the disclosures, and whether these financial statements represent the underlying events and transactions in order to reach a suitable presentation; - we communicate with the governing bodies, including the supervisory body, among other matters, the planned scope and timetable of the audit, and the meaningful conclusions of the audit, including any significant deficiency in internal controls identified during the audit; - of the matters we communicate to the governing bodies, including the supervisory body, we determine those that were the most important in the audit of the financial statements for the current year and that are the audit’s relevant matters. We describe these matters in our report, except when the law, or a regulation, prohibits their public disclosure.
Our responsibilities also include verifying the consistency between the financial information contained in the management report and the financial statements.
REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS
About the management report
In compliance with article 45, paragraph 2, of Decree-Law No. 5 133/2013, of 3 October, we believe that the financial information present in the management report is consistent with the audited financial statements and, taking into account the knowledge and opinion on the Entity, we identified no material misstatements.
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Concerning the additional elements present in article 10 of Regulation (EU) No. 537/2014
In compliance with article 10 of Regulation (EU) No. 537/2014 of the European Parliament and of the Council, of 16 April 2014, and in addition to the relevant audit matters listed above, we also report the following:
- We were hired as NAV external auditors for the first time on 2016/01/13 for a one-year term (2015), which was renewed for two more annual periods. On 2018/11/13, a new contract was signed for a period of one year, which can be automatically renewed for two more annual periods. - The governing body informed us that it had no knowledge of any fraud or suspected fraud with a material effect on the financial statements. In the planning and execution of our audit in accordance with the IAS, we kept the professional scepticism and devised audit procedures to respond to the possibility of material misstatement in the financial statements due to fraud. As a result of our work, we did not identify any material misstatement in the financial statements due to fraud. - We declare that we did not provide any services prohibited under the provisions of article 77, paragraph 8, of the Statute of the Portuguese Institute of Certified Public Accountants and that we maintained our independence from NAV during the execution of the audit.
Lisbon, 22 March 2019
[signature]
Alves da Cunha, A. Dias & Associados, SROC, Lda. represented by José Luís Areal Alves da Cunha (CPA No. 585)
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