Financial Statements
Ecorodovias Infraestrutura e Logística S.A.
December 31, 2017 and 2016 with Independent Auditor’s Report Ecorodovias Infraestrutura e Logística S.A.
Financial statements
December 31, 2017 and 2016
Contents
Independent auditor’s report on financial statements ...... 1
Financial statements
Statements of financial position ...... 9 Statements of profit or loss ...... 11 Statements of comprehensive income (loss) ...... 12 Statements of changes in equity ...... 13 Statements of cash flows ...... 14 Statements of value added ...... 16 Notes to financial statements ...... 17 A free translation from Portuguese into English of independent auditor’s report on individual and consolidated financial statements prepared in Brazilian currency in accordance with accounting practices adopted in Brazil and the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB)
Independent auditor’s report on individual and consolidated financial statements
The Shareholders, Board of Directors and Officers Ecorodovias Infraestrutura e Logística S.A. São Paulo - SP
Opinion
We have audited the individual and consolidated financial statements of Ecorodovias Infraestrutura e Logística S.A. (“Company”), identified as Company and Consolidated, respectively, which comprise the statement of financial position as at December 31, 2017 and the statements of profit or loss, of comprehensive income (loss), of changes in equity, and of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting practices.
In our opinion, the accompanying financial statements referred to above present fairly, in all material respects, the individual and consolidated financial position of Ecorodovias Infraestrutura e Logística S.A. as at December 31, 2017, its individual and consolidated financial performance and its individual and consolidated cash flows for the year then ended, in accordance with accounting practices adopted in Brazil and the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB).
Basis for opinion
We conducted our audit in accordance with Brazilian and International standards on auditing. Our responsibilities, under those standards, are further described in the “Auditor’s responsibilities for the audit of individual and consolidated financial statements" section of our report. We are independent of the Company and its subsidiaries and comply with the relevant ethical principles set forth in the Code of Professional Ethics for Accountants, the professional standards issued by the Brazil’s National Association of State Boards of Accountancy (CFC) and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to support our opinion.
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Uma empresa-membro da Ernst & Young Global Limited Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current year. Those matters were addressed in the context of our audit of the overall individual and consolidated financial statements, and to form our opinion on these individual and consolidated financial statements. Therefore, we do not express a separate opinion on those matters. For each issue below, a description of how our audit addressed the matter, including any comments on the results of our procedures, is presented in the context of the overall financial statements.
We fulfilled the responsibilities described in "Auditor's responsibilities for the audit of the individual and consolidated financial statements", including those relating to these significant audit issues. As such, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our procedures, including those performed to address the issues below, provide the basis for our audit opinion on the Company's financial statements.
Realization of deferred income and social contribution tax assets of Ecoporto Santos S.A.
Ecoporto Santos S.A. (“Ecoporto”) recognizes amounts related to income and social contribution taxes on (i) income and social contribution tax losses carryforward, and (ii) temporary differences arising from differences between the tax bases of assets and liabilities and their corresponding carrying amounts. At December 31, 2017, the amount of deferred tax assets presented in the financial statements is R$233,739 thousand (R$206,689 thousand at December 31, 2016), net of the provision for impairment recorded of R$244,010 thousand as of December 31, 2016. For 2017, the Company performed impairment tests and did not identify any adjustments.
Ecoporto supports the recoverability of deferred taxes through projections of future taxable profits for the following ten years, discounted to present value. These projections are based on the review of subsidiary's business plan and on assumptions for the generation of future taxable profits of the port segment, subject to legal limitations. Such projections include uncertainties and professional judgment that may not materialize in the future, which can change the realization term and plan.
This matter was considered a key audit matter given the materiality of amounts involved and the uncertainty inherent in this type of estimate and in the judgment necessary exercised by management in determining the assumptions and projecting future profits.
How our audit has addressed this matter:
Our audit procedures included, among others: (i) involvement of specialists to help us evaluate Ecoporto business plans; (ii) evaluation of assumptions and methodologies used by management in relation to estimated future taxable profits, and discounts rate applied; (iii) evaluation of projections for realization of referred to tax credits considering Ecoporto business plan; and (iv) evaluation of whether the business plan considered by the Company to prepare the projections was duly approved by the
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Uma empresa-membro da Ernst & Young Global Limited Board of Directors. In addition, we evaluated the respective disclosures in the financial statements, included in the Notes.
Based on the result of the audit procedures performed on the recoverability of the asset, which is consistent with management's assessment, we consider that the recoverable amount criteria and assumptions for the respective Ecoporto's assets, as well as the respective disclosures in Notes 7 and 15, are acceptable in the context of the overall financial statements.
Revenue recognition in the port and logistics segments
Service rendering for certain agreements in the port and logistics segments involve multiple-element agreements, such as port operation, storage and logistics, and imply a more complex segregation and measurement of fair value of these services. The Company also estimates and records revenues on an accrual basis. However those estimates consider the past three months of billing, multiplied by the average volume (time of service rendered), which involve management judgment and are based on historical or contractual data. The revenue recognition criteria and amounts recognized (total revenue) in the port segment are disclosed in Note 25. The logistics segment is presented as assets held for sale.
This matter was considered a key audit matter given the materiality of amounts involved, and the complexity of the process necessary to determine and record revenues from logistics and port services, which involves professional judgment by management, accounting estimates and appropriate evaluation of contractual conditions.
How our audit has addressed this matter:
In order to confirm whether revenues were properly recognized, our audit procedures included, among others: (i) evaluation of the adequacy of agreements and their multiple elements within the revenue recognition accounting policies of the Company and its subsidiaries, and adequacy thereof in relation to current accounting standards; (ii) evaluation of the design and operations of internal controls implemented by the Company for the revenue recognition process; (iii) documental test, on a sample basis, of service transactions conducted before and after year end, in order to check whether revenue was recognized for the appropriate reference period and whether revenues recorded were accurate. In addition, we evaluated the respective disclosures in the financial statements.
Based on the audit procedures performed in the revenue recognition test in the port and logistics segments, which is consistent with management's assessment, we believe that the revenue recognition criteria and assumptions of the Company, as well as the respective disclosures, are acceptable, in the context of the overall financial statements.
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Uma empresa-membro da Ernst & Young Global Limited Capitalization of expenditures in concession intangible assets
Road service concession arrangements represent the right to use the infrastructure, based on accounting standard ICPC 01 (R1) – Service Concession Arrangements, which provides for the obligation to build and/or operate the infrastructure (concession intangible asset) to render utility services on behalf of the grantor, under the conditions set forth in the arrangement. The criteria to recognize these amounts, and amounts invested in the infrastructure, are disclosed in Notes 4, 14 and 21.
This was considered a key audit matter, as capitalization in concession intangible assets involves the use of assumptions, judgment and maintenance of controls by road service concession managements, as such capitalization may not be in compliance with the obligations set forth in the service concession arrangement and, if it is, may be recorded at inappropriate amounts or be unduly capitalized.
How our audit has addressed this matter:
To confirm whether these assets were appropriately recorded and controlled, our audit procedures included, among others: (i) evaluation of adequacy of capitalization policies of investees’ concession intangible assets, including those related to the percentage-of-completion of work method; (ii) documental tests on additions to concession intangible assets, including validations with the engineering area of measurements made in accordance with the percentage of completion, crosschecking against service agreements and/or related invoices; (iii) evaluation of the nature of expenditures capitalized as concession intangible assets, considering the criteria and requirements established in the service concession arrangement, and (iv) physical inspection, on a sample basis, of work performed. In addition, we evaluated the respective disclosures in the financial statements.
Based on the result of the audit procedures carried out on the expense capitalization test in concession intangible assets, which is consistent with management's assessment, we consider acceptable the expense capitalization policies considering the criteria and requirements established in the concession arrangement to support the judgments, estimates and information included in the context of the overall financial statements.
Transactions with related parties
The Company and its subsidiaries conduct transactions with related parties of different kinds, which include intercompany loan agreements, future capital contribution, and operational transactions, such as construction and road maintenance services, among others. Significant transactions, balances and contractual conditions are disclosed in Note 18.
This was considered a key audit matter as these transactions are important, may be agreed or recorded for inappropriate amounts with relation to those established by the Company, outside the reference period, or not approved by the Company’s governance bodies, particularly in asset construction services.
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Uma empresa-membro da Ernst & Young Global Limited How our audit has addressed this matter:
To confirm whether these transactions were appropriately recorded and controlled, our audit procedures included, among others: (i) evaluation of the Company’s related-party transaction policy and its application in significant transactions conducted for the year; (ii) analysis of supporting documentation for material transactions, including inspection of agreements and calculations prepared by management; (iii) checking of transaction approval by the Board of Directors, in accordance with the policy established by the Company; and (iv) confirmation letter procedures with the counterparties of the operations on the balances and agreements in force for the year ended December 31, 2017.
Based on the result of the audit procedures carried out on the transactions with related parties, which is consistent with management's assessment, we consider acceptable the recognition and measurement policies for transactions with related parties of the Company to support the judgments, estimates and information included in the context of the overall financial statements.
Other matters
Statements of value added
The individual and consolidated statements of value added (SVA) for year ended December 31, 2017, prepared under the responsibility of Company management, and presented as supplementary information for purposes of IFRS, were submitted to audit procedures conducted together with the audit of the Company’s financial statements. To issue our opinion, we evaluated if these statements are reconciled to the financial statements and accounting records, as applicable, and if their form and content comply with the criteria defined by CPC 09 – Statement of Value Added. In our opinion, these statements of value added were prepared fairly, in all material respects, in accordance with the criteria defined in above mentioned technical pronouncement, and are consistent in relation to the overall individual and consolidated financial statements. Other information accompanying the individual and consolidated financial statements and auditor’s report
Company management is responsible for such other information that is included in the Management Report.
Our opinion on the individual and consolidated financial statements does not included the management’s report and we do not express any audit conclusion on this report.
In connection with the audit of the individual and consolidated financial statements, our responsibility is to read the management’s report and consider whether it is significantly consistent with the financial statements or, based on our understanding of the audit, presents any material misstatement. If, based on the work performed, we conclude that there is any material misstatement in management’s report, we are required to report this fact. We have nothing to report in this regard.
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Uma empresa-membro da Ernst & Young Global Limited Management and governance’s responsibility for the individual and consolidated financial statements
Management is responsible for the preparation and fair presentation of the individual and consolidated financial statements in accordance with accounting practices adopted in Brazil, and International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the individual and consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no other realistic alternative but to do so.
Those in charge of the Company’s and its subsidiaries’ governance are responsible for overseeing the process of preparation of the financial statements.
Auditor’s responsibilities for the individual and consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the individual and consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Brazilian and International standards on auditing will always detect material misstatements when they exist. Misstatements may derive from fraud or error and are deemed material, individually or taken as a whole, whenever they can influence, within a reasonable perspective, the economic decisions of users made on the basis of referred to financial statements.
As part of an audit in accordance with the Brazilian and International Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
· Identify and assess risks of material misstatements of the individual and consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than one resulting from error, as fraud may involve override of internal controls, collusion, forgery, intentional omissions or misrepresentations. · We obtain an understanding of the internal controls relevant to the audit to plan audit procedures appropriate to the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s and its subsidiaries’ internal controls. · Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
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Uma empresa-membro da Ernst & Young Global Limited · Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast substantial doubt as to the Companies’ and its subsidiaries’ ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the individual and consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company and its subsidiaries to cease to continue as a going concern. · Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the individual and consolidated financial statements represent the corresponding transactions and events in a manner that achieves fair presentation. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal controls that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
Of the matters communicated to those in charge of governance, we determine those that are considered most significant in the audit of the financial statements for the current year and, therefore, constitute key audit matters. We describe these matters in our audit report unless the law or regulation has prohibited their public disclosure or when, in extremely rare circumstances, we determine that the issue should not be included in our report because the adverse consequences of such disclosure may, within a reasonable perspective, overcome the benefits of communication to the public interest.
São Paulo, February 22, 2018.
ERNST & YOUNG Auditores Independentes S.S. CRC-2SP034519/O-6
Luiz C. Passetti Accountant CRC-1SP144343/O-3
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Uma empresa-membro da Ernst & Young Global Limited A free translation from Portuguese into English of individual and consolidated financial statements prepared in Brazilian currency in accordance with accounting practices adopted in Brazil and the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB)
Ecorodovias Infraestrutura e Logística S.A.
Statements of financial position December 31, 2017 and 2016 (In thousands of reais - R$)
Company Consolidated Note 12/31/2017 12/31/2016 12/31/2017 12/31/2016 Assets Current assets Cash and cash equivalents 8 8,188 3,096 1,607,979 589,504 Marketable securities 9 - - 60,234 61,748 Trade accounts receivable 10 - - 148,954 154,790 Taxes recoverable 27,176 33,337 55,686 60,882 Dividends and interest on equity receivable 8,801 34,397 - - Prepaid expenses 22 25 7,977 18,194 Related parties 18 1,324 38,805 583 - Other receivables 3,438 124 26,064 12,351 Assets held for sale 6.b 42,118 - 231,916 253,248 Total current assets 91,067 109,784 2,139,393 1,150,717
Noncurrent assets Marketable securities 9 - - 9,602 7,371 Deferred taxes 15.a - - 356,491 368,784 Judicial deposits 11 2,299 2,148 188,470 174,013 Related parties 18 38,681 - - - Other receivables - - 7,598 8,322 Prepaid expenses - - 13,801 140 Investments: In subsidiaries and affiliates 12.a 1,294,690 983,056 1,071 1,017 Goodwill 12.a 382,396 399,751 - - Property and equipment 13 2,975 3,332 559,605 614,182 Intangible assets 14 320 456 4,539,727 4,278,861 Total noncurrent assets 1,721,361 1,388,743 5,676,365 5,452,690
Total assets 1,812,428 1,498,527 7,815,758 6,603,407
8 Company Consolidated Note 12/31/2017 12/31/2016 12/31/2017 12/31/2016 Liabilities and equity Current liabilities Trade accounts payable 520 1,784 89,544 76,626 Loans and financing 16 - - 74,658 339,401 Debentures 17 - - 1,074,858 680,535 Taxes, charges and contributions payable 229 3,000 36,075 35,244 Social and labor liabilities 10,880 10,873 67,677 59,143 Tax Recovery Program – REFIS - - 4,076 672 Related parties 18 414,666 82,440 15,594 6,747 Concession rights payable 21 - - 13,488 25,014 Income and social contribution taxes payable - - 24,551 32,516 Provision for maintenance 19 - - 90,503 87,531 Provision for future construction works 20 - - 57,568 38,124 Dividends payable 7 - 7 - Other accounts payable 2,346 2,062 21,177 11,572 Liabilities held for sale 6 b. - 6,714 189,798 263,576 Total current liabilities 428,648 106,873 1,759,574 1,656,701
Noncurrent liabilities Loans and financing 16 - - 508,710 484,231 Debentures 17 84,053 - 4,340,390 3,426,093 Tax Recovery Program – REFIS - - - - Related parties 18 640,347 891,354 - - Deferred taxes 15.a - - 16,767 20,136 Provision for losses due to tax, labor and civil - - 197,208 182,368 contingencies 23 Provision for maintenance 19 - - 179,121 180,541 Provision for future construction works 20 - - 7,698 33,768 Concession rights payable 21 - - - 7,427 Other accounts payable 757 336 49,720 39,595 Total noncurrent liabilities 725,157 891,690 5,299,614 4,374,159
Equity Capital 24.a 360,900 360,900 360,900 360,900 Income reserve – legal 24.c 27,415 7,791 27,415 7,791 Income reserve - additional dividends proposed 242,862 105,014 242,862 105,014 Capital reserve - stock option plan 51,472 50,285 51,472 50,285 Capital reserve – disposal of noncontrolling shareholder interest 5,441 5,441 5,441 5,441 Treasury shares 24.e (29,467) (29,467) (29,467) (29,467) Allocated to controlling shareholders 658,623 499,964 658,623 499,964 Interest of noncontrolling shareholders in equity of subsidiaries 24.f - - 97,947 72,583 Total equity 658,623 499,964 756,570 572,547
Total liabilities and equity 1,812,428 1,498,527 7,815,758 6,603,407
See accompanying notes.
9 Ecorodovias Infraestrutura e Logística S.A.
Statements of profit or loss Years ended December 31, 2017 and 2016 (In thousands of reais - R$, except basic/diluted earnings per share)
Company Consolidated Note 12/31/2017 12/31/2016 12/31/2017 12/31/2016
Net revenue 25 - - 3,200,704 2,828,996
Cost of services rendered 26 - - (1,643,157) (1,545,436)
Gross profit - - 1,557,547 1,283,560
Operating income (expenses) Selling expenses 27 - - (134,345) (120,241) General and administrative expenses 26 (28,132) (25,289) (225,131) (90,520) Equity pickup 12.a 533,026 166,874 54 (8) Interest on equity received 12.a 10,136 21,559 - - Amortization of goodwill – investments 12.a (17,353) (21,983) - - Impairment – investment Ecoporto - (300,997) - (300,997) Other income (expenses), net 600 562 13,558 2,678
Operating income (loss) before finance income (costs) 498,277 (159,274) 1,211,683 774,472
Finance income (costs) Finance income 28 13,269 13,945 122,877 138,537 Finance costs 28 (114,702) (130,287) (578,311) (692,897) (101,433) (116,342) (455,434) (554,360)
Operating income (loss) for the year before income and social contribution taxes 396,844 (275,616) 756,249 220,112
Income and social contribution taxes Current 15.b 3,295 - (327,341) (278,924) Deferred 15.b - 295 (8,924) (201,021) 3,295 295 (336,265) (479,945)
Income (loss) for the year from continuing operations 400,139 (275,321) 419,984 (259,833) Loss for the year resulting from discontinued operations 6 (7,653) (689,301) (7,653) (689,301)
Net income (loss) for the year 392,486 (964,622) 412,331 (949,134)
Attributable to: Controlling shareholders 392,486 (964,622) 392,486 (964,622) Noncontrolling interests - - 19,845 15,488 392,486 (964,622) 412,331 (949,134)
Earnings (loss) per share Basic – income (loss) for the year attributable to controlling common shareholders 29 0.71 (1.73) Diluted – income (loss) for the year attributable to controlling common shareholders 29 0.70 (1.71)
Earnings (loss) per share resulting from continuing operations Basic – income (loss) for the year attributable to controlling common shareholders 29 0.75 (0.47) Diluted – income (loss) for the year attributable to controlling common shareholders 29 0.75 (0.46)
See accompanying notes.
10 Ecorodovias Infraestrutura e Logística S.A.
Statements of comprehensive income (loss) Years ended December 31, 2017 and 2016 (In thousands of reais - R$)
Company Consolidated 12/31/2017 12/31/2016 12/31/2017 12/31/2016
Net income (loss) for the year 392,486 (964,622) 412,331 (949,134)
Other comprehensive income (loss) - - - -
Comprehensive income (loss) for the year 392,486 (964,622) 412,331 (949,134)
Attributable to: Controlling shareholder 392,486 (964,622) Noncontrolling shareholder 19,845 15,488
See accompanying notes.
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Ecorodovias Infraestrutura e Logística S.A.
Statements of cash flows Years ended December 31, 2017 and 2016 (In thousands of reais - R$)
Company Consolidated 12/31/2017 12/31/2016 12/31/2017 12/31/2016 Cash flow from operating activities Net income (loss) for the year from continuing operations 400,139 (275,321) 419,984 (259,833)
Discontinued operations net of cash (54,551) (99,449) (65,813) (119,584)
Adjustments to reconcile net income (used in) generated by operating activities: Depreciation and amortization 674 658 418,506 339,966 Goodwill amortization 17,355 21,983 - - Capitalization of interest - - (18,472) (6,628) Premium - stock option plan 728 1,671 1,187 2,768 Stock option premium – non-controlling shareholders - - 21 42 Loss/disposal of property and equipment and intangible assets - 2 7,924 2,472 Financial charges and monetary restatement on loans, financing and debentures 4,108 55,539 474,074 602,765 Monetary variation on concession rights - - (1,220) 4,497 Provision for losses due to tax, labor and civil contingencies - - 9,928 15,416 Monetary restatement on provision for civil, labor and tax contingencies - - 20,850 5,967 Provision for maintenance and provision for construction works - - 118,627 104,729 Monetary restatement of provision for maintenance and provision for construction works - - 34,770 30,135 Income from marketable securities - - (6,723) (7,290) Allowance for doubtful accounts (ADA) - - 143 (2,177) Equity pickup and interest on equity received (543,162) (188,433) (54) 8 Withdrawal of judicial deposits (55) 5,401 4,719 Monetary restatement on judicial deposits (124) (144) (10,580) (3,329) Deferred taxes (295) 8,924 201,022 Interest on intercompany loans receivable (4,787) - - - Interest on intercompany loans payable 40,877 (35,756) - - Impairment – goodwill – investment Ecoporto 300,997 - 300,997 Concession rights payable - - 54,177 53,079 Provision for income and social contribution taxes - - 327,341 278,924
(Increase) decrease in operating assets: Trade accounts receivable - - 5,693 4,002 Related parties – customers 3,587 (38,578) (582) (111) Taxes recoverable 6,161 1,906 5,196 3,153 Prepaid expenses 3 4 (3,444) (9,619) Judicial deposits paid (27) - (9,278) (10,041) Other receivables (3,314) 578 (12,990) 12,283
13 Ecorodovias Infraestrutura e Logística S.A.
Statements of cash flows (Continued) Years ended December 31, 2017 and 2016 (In thousands of reais - R$)
Company Consolidated 12/31/2017 12/31/2016 12/31/2017 12/31/2016
Increase (decrease) in operating liabilities: Trade accounts payable (1,264) 725 12,918 647 Social and labor liabilities 7 (3,079) 8,534 (4,195) Taxes, charges and contributions payable (2,771) 2,111 831 3,709 Related parties – suppliers - 82,351 8,847 1,408 Payment of provision for civil, labor and tax contingencies - - (15,938) (11,353) Maintenance payments - - (147,017) (100,072) Payments of construction works - - (11,454) (25,139) Other accounts payable 705 506 7,321 1,503 Concession rights payable - - (26,541) (26,515) Income and social contribution taxes - - (335,306) (261,731) Net cash (used in) generated by operating activities (135,656) (172,079) 1,285,785 1,126,594
Cash flow from investing activities Dividends and interest on equity received 509,142 445,855 - - Capital contribution from noncontrolling shareholder - - 18,060 4,200 Payment of dividends to noncontrolling shareholders (7,647) - (12,562) (3,126) Acquisition of property and equipment and intangible assets (181) (356) (596,117) (492,193) Related parties – intercompany loans - 30,942 - - Investment in subsidiaries – capital contribution (245,839) (210,985) - - Net cash (used in) generated by investing activities 255,475 265,456 (590,619) (491,119)
Cash flow from financing activities Related parties – intercompany loans 40,342 664,036 - - Concession rights payable - - (45,369) (42,110) Marketable securities - - 6,006 (18,769) Loans, financing and debentures raised – third parties 79,945 - 1,595,190 471,331 Payment of loans, financing and debentures - (625,782) (537,998) (615,461) Related parties - - - - Tax Recovery Program – REFIS - - 3,404 (8,146) Payment of dividends and interest on equity (235,014) (146,538) (235,014) (146,538) Interest paid - (44,870) (462,910) (459,181) Net cash (used in) financing activities (114,727) (153,154) 323,309 (818,874)
Net increase (decrease) in cash and cash equivalents 5,092 (59,777) 1,018,475 (183,399)
Cash and cash equivalents at beginning of year 3,096 62,873 589,504 772,903 Cash and cash equivalents at end of year 8,188 3,096 1,607,979 589,504
Net increase (decrease) in cash and cash equivalents 5,092 (59,777) 1,018,475 (183,399)
See accompanying notes.
14 Ecorodovias Infraestrutura e Logística S.A.
Statements of value added Years ended December 31, 2017 and 2016 (In thousands of reais - R$)
Company Consolidated 12/31/2017 12/31/2016 12/31/2017 12/31/2016 Turnover From toll collection - - 2,533,994 2,261,451 From construction works - - 586,536 451,408 Port-related - - 276,632 290,502 Ancillary - - 95,746 83,525
Bought-in inputs Cost of services - - (1,141,324) (974,943) Materials, energy, third-party services and other (6,484) (8,931) (78,851) (78,531)
Gross value added (used) (6,484) (8,931) 2,272,733 2,033,412
Depreciation and amortization (674) (658) (418,506) (339,966) Amortization of investments (17,355) (21,983) - -
Net value added produced (used) by the Company (24,513) (31,572) 1,854,227 1,693,446
Value added received in transfer Finance income 13,269 13,945 122,877 138,537 Equity pickup 543,162 188,433 54 (8) Other 602 (300,435) 2,225 (298,320) 557,033 (98,057) 125,156 (159,791)
Total value added payable 532,520 (129,629) 1,979,383 1,533,655
Payment of value added 532,520 (129,629) 1,979,383 1,533,655
Personnel 20,073 14,475 330,675 332,643 Direct compensation 17,735 13,297 259,709 263,189 Benefits 1,650 738 53,870 51,252 Unemployment Compensation Fund (FGTS) 688 440 17,096 18,202
Taxes, charges and contributions (3,295) (295) 617,136 737,834 Federal (3,295) (295) 475,576 609,335 State - - 1 197 Local - - 141,559 128,302
Debt remuneration 115,603 131,512 611,588 723,011 Interest 71,625 54,932 387,736 466,426 Lease 901 1,225 33,277 30,114 Other financial charges 43,077 75,355 190,575 226,471
Equity remuneration 400,139 (275,321) 419,984 (259,833) Mandatory minimum dividends - - - - Noncontrolling interests - - 19,845 15,488 Legal reserve 19,464 7,791 19,624 7,791 Profit or loss from discontinued operations 7,653 689,301 7,653 689,301 Absorption of loss through legal reserve - (160,791) - (160,791) Absorption of loss through capital - (959,649) - (959,649) Interim dividends paid 130,000 43,013 130,000 43,013 Dividends paid (payable) for the following year 242,862 105,014 242,862 105,014
See accompanying notes.
15 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
1. Operations
EcoRodovias Infraestrutura e Logística S.A. (“EcoRodovias”, “EcoRodovias Infraestrutura” or “Company”) is a joint-stock corporation listed on B3 S.A. - Brasil, Bolsa, Balcão, and the Company shares are traded under the ticker “ECOR3”. The Company is mainly engaged in operating road, port, and logistics service concession assets, and companies rendering services related to such activities. EcoRodovias current portfolio includes seven road service concession arrangements, one logistics platform (Ecopátio Cubatão) and one port asset (Ecoporto) in six states, located in the main commercial roads of Southern and Southeastern Brazil. The Company is headquartered at Rua Gomes de Carvalho, 1.510 - conjuntos 31 e 32, in the City and State of São Paulo (SP).
The Company’s direct and indirect subsidiaries (“EcoRodovias Group”) are listed in Note 2.
Conclusion and issue of these financial statements were approved by the Company’s Executive Board on February 19, 2018.
2. Presentation of financial statements
2.1. Statement of compliance and basis of preparation
The Company’s financial statements comprise:
a) Consolidated financial statements
The Company’s consolidated financial statements were prepared in accordance with the International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB), and interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC), implemented in Brazil through the Brazilian FASB (CPC) and its technical interpretations (ICPC) and guidance (OCPC), approved by the Brazilian Securities and Exchange Commission (CVM).
b) Individual financial statements - Company
The Company’s individual financial statements were prepared in accordance with accounting practices adopted in Brazil, which comprise provisions set forth in the Brazilian Corporation Law (Law No. 6406/76), as amended by Laws No.11638/07 and No.11941/09, and accounting pronouncements, interpretations and guidance issued by the Brazilian Financial Accounting Standards Board (CPC), approved by the Brazilian Securities and Exchange Commission (CVM).
16 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
2. Presentation of financial statements (Continued)
2.1. Statement of compliance and basis of preparation (Continued)
The financial statements were prepared based on historical cost, except for certain financial instruments measured at fair value.
Significant accounting practices adopted by the Group are described in specific notes that relate to the items presented, and the ones that generally apply to different aspects in the financial statements are described below:
The Company's financial statements present comparative information for the prior year.
In addition, the Company considered the guidance issued by Technical Guidance OCPC07, issued by CPC in November 2014, in the preparation of its financial statements. As such, the relevant information specific to the financial statements is being evidenced and corresponds to that used by management in its management.
2.2. Basis of consolidation and investments in subsidiaries
An affiliate is an entity on which the Company exercises significant influence. Significant influence is the power of participating in the decisions on the investees’ operating policies; however, it does not mean to control or have joint control on these policies.
Joint venture is a joint business on which the parties that hold common control on the business have rights on the business’ net assets. Common control is the contractually agreed sharing of the business control that exists only when decisions on the significant activities require the unanimous consent from the parties that share the control.
The Company’s investment in its affiliate and joint venture is recorded under the equity method.
The financial statements of the affiliates are prepared for the same reporting year as that of the Company. Whenever necessary, adjustments are made so that accounting practices are in line with those adopted by the Company.
17 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
2. Presentation of financial statements (Continued)
2.2. Basis of consolidation and investments in subsidiaries (Continued)
The interest held in subsidiaries and jointly-controlled entities, all of which are domiciled in Brazil, is as follows:
12/31/2017 12/31/2016 Core business activity Direct subsidiaries: Ecorodovias Concessões e Serviços S.A. 100.00% 100.00% Interest in other companies, either as an owner or shareholder, in addition to providing administrative, financial, human resources, information technology, engineering, and corporate purchases services.
EIL01 Participações Ltda. 100.00% 100.00% Interest in other companies, either as an owner or shareholder.
Ecoporto Santos S.A. 100.00% 100.00% Port operations, handling and storage of import and export cargo in the port of Santos. Termares - Terminais Marítimos 100.00% 100.00% Handling and storage of import and export cargo under Especializados Ltda. customs control.
ELG-01 Participações Ltda. 100.00% 100.00% Interest in other companies, either as an owner or shareholder.
12/31/2016 Core business activity Jointly-controlled entities: Consórcio Rota do Horizonte S.A. 20.00% 20.00% Exploration of the Northern Beltway in the metropolitan region of Belo Horizonte
12/31/2017 12/31/2016 Core business activity Indirect subsidiaries: Subsidiaries via Ecorodovias Concessões e Serviços S.A. Concessionária Ecovias dos Imigrantes S.A. 100.00% 100.00% Operation under concession of the highway system consisting of the Anchieta-Imigrantes System. Concessionária das Rodovias Ayrton Senna 100.00% 100.00% Operation through collection of tolls and subsidiary e Carvalho Pinto S.A. - Ecopistas revenues under the terms and limits of the service concession arrangement. Concessionária Ecovia Caminho do Mar 100.00% 100.00% Operation under concession of Lot 006 of the Highway S.A. Concession Program of the State of Paraná. Rodovia das Cataratas S.A. - Ecocataratas 100.00% 100.00% Operation under concession of Lot 003 of the Highway Concession Program of the State of Paraná. Empresa Concessionária de Rodovias do 90.00% 90.00% Operation under concession of certain highway stretches Sul S.A. - Ecosul comprising of the so-called Pelotas Hub.
58.00% 58.00% Operation of BR-101 ES/BA Highway System under ECO101 Concessionária de Rodovias S.A. concession
Concessionária Ponte Rio-Niterói S.A. 100.00% 100.00% Operation of BR-101/RJ Highway System under Ecoponte concession – access road to Ponte Presidente Costa e Silva (Niterói) - - access to RJ-071 (Linha Vermelha), “Ponte Rio-Niterói”.
18 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
2. Presentation of financial statements (Continued)
2.3. Service concession arrangements
The Company’s main service concession arrangements presented by entity are as follows:
I) Concessionária Ecovias dos Imigrantes S.A.
Runs the Anchieta-Imigrantes highway system, which is 176.8 km long, which consists basically of the following highways: (a) Anchieta highway (SP-150 - from km 9.7 to km 65.6); (b) Imigrantes highway (SP-160 - from km 11.5 to km 70.0); (c) Planalto road link (SP-041 - 8-km long); (d) Baixada road link (SP-059 - 1.8-km long); (e) Padre Manoel da Nóbrega highway (SP-055/170) - from km 270.6 to km 292.2); and (f) Cônego Domênico Rangoni highway (SP-055/248 - from km 0 to km 8.4 and km 248.0 to km 270.6. This service concession arrangement was recorded as an intangible asset and will be effective through October 2025.
II) Concessionária das Rodovias Ayrton Senna e Carvalho Pinto S.A. - Ecopistas
Ecopistas operates a set of highway lanes of Ayrton Senna-Carvalho Pinto corridor, related rights of way and buildings, facilities and equipment therein, which is 134.9 km long. This arrangement was recorded as an intangible asset and will be effective through June 2039.
III) Concessionária Ecovia Caminho do Mar S.A.
Operates a highway totaling 136.7 km, comprising: (a) BR-277 highway stretch between the City of Curitiba and the Port of Paranaguá, which is 85.7 km long; b) PR- 508 highway stretch linking BR-277 highway and the City of Matinhos, which is 32 km long; and c) PR-407 highway stretch linking BR-277 Highway and Praia de Leste, which is 19 km long. This arrangement was recorded as an intangible asset and will be effective through 2021.
IV) Rodovia das Cataratas S.A. - Ecocataratas
Operates a highway totaling 387.1 km, located between the cities of Guarapuava and Foz do Iguaçu, both in the State of Paraná. This arrangement was classified as intangible assets and is effective for 24 years (the concession expires on November 13, 2021).
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Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
2. Presentation of financial statements (Continued)
2.3. Service concession arrangements (Continued)
V) Empresa Concessionária de Rodovias do Sul S.A. - Ecosul
Operates the following highways and stretches:
Highway Stretch Length (km)
BR-116 Pelotas/Camaquã 123.4 BR-116 Pelotas/Jaguarão 137.1 BR-392 Pelotas/Rio Grande 125.6 BR-392 Pelotas/Santana da Boa Vista 123.0
The service concession arrangement term classified as intangible asset is estimated for March 2026. Upon concession termination, all reversible assets, rights and rewards related to the operation of the highway system shall return to the Granting Authority. The Company will be entitled to indemnification corresponding to the balance not amortized or depreciated of assets or investments, whose acquisition or execution, duly authorized by the Granting Authority, occurred in the last five years of the concession period.
VI) ECO101 Concessionária de Rodovias S.A.
Operates, under concession, BR-101 ES/BA Federal Highway System, between BA- 698 highway (access to the city of Mucuri, State of Bahia - BA) up to the border of Espírito Santo (ES) and Rio de Janeiro (RJ) States. The 25-year concession (from the date of assumption and transfer of assets on May 10, 2013) comprises the operation of the infrastructure and provision of recovery, public operation, maintenance, monitoring and upkeeping services, implementation of improvements and extension of the capacity of BR101/EX/BA highway systems, between BA-698 (access to Mucuri-BA) until the border of ES/RJ, remunerated by the toll collection and other sources of ancillary revenue. In the event that the concession is terminated, in May 2038, all reversible assets, rights and rewards related to the operation of the highway system shall return to the Granting Authority.
On December 22, 2015, the Company's Board of Directors approved the transfer, through sale, of all of its 87,000,058 shares representing 58% of the capital of ECO101 Concessionária de Rodovias S.A. to its direct subsidiary Companhia Ecorodovias Concessões e Serviços S.A.
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Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
2. Presentation of financial statements (Continued)
2.3. Service concession arrangements (Continued)
VII) Ecoporto Santos S.A.
The lease agreement entered into between Companhia Docas do Estado de São Paulo - CODESP and Ecoporto Santos S.A. is a 25-year agreement. Five addenda to the agreement were entered into, however; such terms do not change the term of the agreement, which shall mainly expire on June 12, 2023. The Sixteenth Clause to the agreement provides for its extension duly requested up to 12 months prior to the expiration date. The Granting Authority may grant such extension to the extent that Ecoporto Santos has met all legal and contractual obligations. After the establishment of the new sector regulatory framework, the Granting Authority will become the Special Secretariat of Ports (SEP), recently merged into the Brazilian Department of Transportation, Ports and Civil Aviation (MTPAC), and the National Water Transportation Agency (ANTAQ) will be responsible for the inspection and regulation of the sector. Additionally, concerning the agreement extension, compliance with provisions of SEP Ordinance No. 349/2014 and ANTAQ Resolution No. 3220/2014 is deemed necessary, which require that Ecoporto Santos request be accompanied by an Investment Plan, and Environmental, Technical and Economic Feasibility Study (EVTEA), as well as by information required to evaluate compliance with existing contractual obligations. Ecoporto Santos requested contract extension, and instructed the process with relevant documentation. The investment plan was preliminarily approved by the MTPAC through Administrative Rule No. 702, of December 8, 2016, and submitted to ANTAQ for analysis and deliberation. Pursuant to current legislation, and MTPAC Administrative Ruling No. 702, management considers that the changes to recognize the right to extend the lease agreement are high, provided that Ecoporto performance is maintained, and considering ANTAQ Resolution No. 3220/2014 and SEP Administrative Ruling No. 349/2014, particularly the feasibility study for the new agreement period. Therefore, the public interest in the continuance of the activities will be maintained and Ecoporto Santos will rely on it. It should be noted that two class actions 0010874-75.2002.403.6104 and 0002925-92.2005.4.03.6104 (1st Federal Court of Santos Subsection), now at the 3rd Region Federal Regional Court, challenging the validity of the agreement and its addenda.
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Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
2. Presentation of financial statements (Continued)
2.3. Service concession arrangements (Continued)
VII) Ecoporto Santos S.A. (Continued)
In 2015, the Federal Regional Court of the 3rd Region dismissed the appeal filed by the Company. The proceeding has been suspended for 180 days. After this period, there are appeals requesting clarification of decisions pending judgment by the 3rd Region Federal Regional Court. Those decisions, if sustained, shall be appealed in higher courts. Company management maintains its belief in the end result of the proceedings based on opinions of renowned attorneys and the results of administrative proceedings on the same issue.
Decisions were handed down under Representation No. 012194/2002-1 of the Court of Federal Auditors and ANTAQ Administrative Litigation Proceeding No. 50300.000155/2013-62 on the same issue, recognizing the possibility of an extension of the lease agreement. The amortization and depreciation term considers the extension of the concession for more than 25 years (up to 2048) and management assesses this scenario on an annual basis.
VIII) Concessionária Ponte Rio-Niterói S.A. Ecoponte
On May 18, 2015, the Company, through its subsidiary Concessionária Ponte Rio- Niterói S.A. – Ecoponte, entered into a service concession arrangement for the operation of the infrastructure and provision of public operation, maintenance, monitoring and upkeeping services and implementation of improvements of the highway system of BR-101/RJ, remunerated by the toll collection within 30 years beginning June 1, 2015: an access road leading to Ponte Presidente Costa e Silva (in the city of Niterói) - access to RJ-071 (Linha Vermelha), “Ponte Rio-Niterói”.
On December 22, 2015, the Company's Board of Directors approved the transfer, through sale, of all of its 120,000,000 shares representing 100% of the capital of Concessionária Ponte Rio-Niterói S.A. - Ecoponte to its direct subsidiary Companhia Ecorodovias Concessões e Serviços S.A. 2.4. Functional and reporting currency
The financial statements of the parent company and its subsidiaries, included in the consolidated financial statements, are stated in Reais, currency of the principal economic environment in which the Companies operate (“functional currency”).
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Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
3. Summary of significant accounting practices
Significant accounting practices described below were applied consistently for the years presented and for the individual financial statements of Company and Consolidated:
a) Transactions and balances denominated in foreign currency
Foreign currency-denominated transactions are translated into the Company’s functional currency (the Real) by the exchange rate prevailing on the transaction dates. Account balances in the statement of financial position denominated in foreign currency are converted at the exchange rate prevailing at the dates of the statements of financial position. Exchange gains and losses arising from the settlement of these transactions and from the conversion of monetary assets and liabilities denominated in foreign currency are recognized in profit or loss for the year.
b) Financial instruments
i) Financial assets
Financial assets are classified as: (i) financial assets at fair value through profit or loss; (ii) loans and receivables; (iii) investments held to maturity; or (iv) financial assets available for sale. The Company determines the classification of its financial assets upon initial recognition, when they become a party to the contractual provisions of the instrument.
The Company’s financial assets include cash and cash equivalents, trade accounts receivable, other receivables and financial instruments.
Subsequent measurement
Measurement of financial liabilities depends on their classification:
· Loans and receivables
Loans and receivables include cash and cash equivalents, accounts receivable and other receivables. Loans and receivables are measured at amortized cost, using the effective interest rate method, less any impairment loss. Amortization of the effective interest method or finance costs (impairment loss) is presented under finance income (costs) in the statement of profit or loss.
23 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
3. Summary of significant accounting practices (Continued)
b) Financial instruments (Continued)
i) Financial assets (Continued)
Subsequent measurement (Continued)
· Financial assets measured at fair value through profit or loss
Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if acquired to be sold within short term.
Financial assets at fair value through profit or loss are stated in the statement of financial position at fair value, and their corresponding gains or losses are recognized in the statement of profit or loss.
Derecognition
A financial asset is mainly derecognized when:
· The rights to receive cash flows from the asset have expired; · The Company has transferred its rights to receive cash flows of the asset or has assumed an obligation to fully pay the cash flows received, without significant delay to a third party under a pass-through arrangement, and (a) the Company transferred substantially all risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all risks and rewards related to the asset, but has transferred control over the asset. At December 31, 2017, except for the share-based payment plan (phantom stock/restricted stock), there are no financial assets at fair value.
Impairment of financial assets
The Company assesses, at the dates of the statements of financial position, whether there is any objective evidence of impairment of the financial asset or of a group of financial assets, based on one or more events that have occurred after the initial recognition of the asset with impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.
24 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
3. Summary of significant accounting practices (Continued)
b) Financial instruments (Continued)
ii) Financial liabilities
Financial liabilities are initially recognized at fair value plus, in the case of loans and financing, debentures and accounts payable, transaction cost directly attributable thereto.
The Company's financial liabilities include trade accounts payable, other accounts payable, loans and financing, debentures and financial guarantee agreements.
Subsequent measurement
Subsequent measurement of financial liabilities depends on their classification, which can be as follows:
· Loans and financing
After initial recognition, loans and financing subject to interest are subsequently measured at amortized cost, using the effective interest rate method. Gains and losses are recognized in the statement of profit or loss when liabilities are derecognized, and through the amortization process by the effective interest method.
· Financial guarantee agreements
Financial guarantee agreements issued by the Company refer to agreements requiring the payment for purposes of reimbursement of the holder due to losses incurred when specified debtor fails to perform the due payment under the terms provided for in the debt instrument. Financial guarantee agreements are initially recognized as a liability at fair value, adjusted by transaction costs directly related to the guarantee issuance. Subsequently, the liability is measured based on the best estimate of expense required to settle the obligation existing at the statement of financial position date or in the amount recognized less amortization, whichever is higher.
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Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
3. Summary of significant accounting practices (Continued)
b) Financial instruments (Continued)
ii) Financial liabilities (Continued)
Derecognition
A financial liability is derecognized when the liability has been revoked, cancelled or has expired. When an existing financial liability is replaced by another of the same lender with substantially different terms, or the terms of an existing liability are significantly changed, this replacement or change is treated as derecognition of the original liability with recognition of a new liability, the difference in the respective carrying amount being recognized in the statement of profit or loss.
iii) Financial instruments, net
Financial assets and liabilities are stated net in the statement of financial position if, and only if, there is a current enforceable legal right to set off the amounts recognized and if there is the intention to offset or realize the asset and settle the liability simultaneously.
Through December 31, 2017, there were no significant indemnities.
c) Impairment of non-financial assets
Management annually tests the net carrying amount of assets in order to determine whether there are any events or changes in economic, operating or technological circumstances that may indicate deterioration or impairment loss. When such evidence is identified and the net carrying amount exceeds the recoverable amount, a provision for impairment is set up to adjust the net carrying amount to the recoverable amount.
The following criteria are applied to assess the impairment loss of specific assets:
Goodwill paid on expected future profitability
Impairment testing of goodwill is performed at least once a year (at December 31) or when circumstances indicate impairment loss due to devaluation of carrying amount.
26 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
3. Summary of significant accounting practices (Continued)
c) Impairment of non-financial assets (Continued)
Intangible assets
Intangible assets with indefinite useful lives are tested for impairment on an annual basis at December 31, either individually or at the cash generating unit level, as applicable or when circumstances indicate impairment of the carrying amount.
d) General provisions
Provisions are recorded when the Company has a present (legal or constructive) obligation arising from past events, the settlement of which is expected to result in an outflow of economic benefits, in an amount that can be reliably estimated. When the Company expects that the amount of a provision will be reimbursed, whether in full or in part, the reimbursement is recognized as a separate asset, but only when the amount is more likely than not to be reimbursed. The expense related to any provision is presented in the statement of profit or loss.
e) Business combination
Business combinations are recorded under the acquisition method. The cost of an acquisition is measured by the sum of the consideration transferred based on fair value on the acquisition date and the value of any equity held by noncontrolling members in the acquired party. For each business combination the acquirer shall measure noncontrolling interest in the acquiree at fair value or based on its interest in net assets identified in the acquiree. Costs directly attributable to the acquisition shall be recorded as expenses when incurred.
Goodwill is initially measured as that which exceeds the consideration transferred in relation to net assets acquired (identifiable acquired net assets and liabilities assumed).
If the consideration is lower than fair value of acquired net assets, the difference shall be recognized as gain in the statement of profit or loss.
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Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
3. Summary of significant accounting practices (Continued)
f) Present value adjustment of assets and liabilities
Long-term monetary assets and liabilities were stated at present value on the transaction dates due to its terms, using the average rate of financial charges incurred when they were raised, both for customers and for suppliers. The present value adjustment of current monetary assets and liabilities is calculated and only recorded when the effect is considered significant in relation to the overall financial statements. For purposes of recording and determining significance, present value adjustment is calculated taking into consideration the contractual cash flows and the explicit, and in certain circumstances implicit, interest rate of the respective assets and liabilities.
g) Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the underlying asset cost. All other borrowing costs are expensed in the year they are incurred.
h) Assets and liabilities held for sale
An operation is classified as discontinued at the earlier of its disposal or when it meets the criteria do be classified as held for sale. When an operation is classified as a discontinued operation, the comparative statements of profit or loss and cash flows are presented as if the operation had been discontinued since the beginning of the comparative year. Therefore, the “reclassified” observation was included in the comparative statements.
These assets are measured at the lower of the carrying amount or fair value less costs to sell.
When classified as held for sale, intangible assets and property and equipment are not amortized or depreciated.
Profit or loss of the discontinued operation is presented in a single amount in the statement of profit or loss, including total profit or loss after income and social contribution taxes of those operations.
28 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
3. Summary of significant accounting practices (Continued)
i) Standards, amendments and interpretations to standards
(i) Standards and interpretations issued but not yet adopted until the date of issue of the Company’s financial statements are disclosed as follows: The Company expects to adopt these standards, if applicable, when they become effective.
Impact on financial Standard Requirement statements
IFRS 9 - Financial Instruments Company management has The objective of IFRS 9 is ultimately to replace IAS 39. Main assessed IFRS 9 impacts and changes estimated are: (i) all financial assets shall be understands that its adoption initially recognized at fair value; (ii) the standard divides all will anticipate no material financial assets into: amortized cost and fair value; and (iii) impact on its financial the concept of embedded derivatives was extinguished. statements.
IFRS 15 – Revenue from IFRS 15 (CPC 47 - Revenue from Contracts with Customers) To this date, the Company has Contracts with Customers was issued in May 2014, amended in April 2016, and not identified significant establishes a five-step model for accounting for revenue impacts compared to current from contracts with customers. In accordance with IFRS 15, revenue standards in relation revenue is recognized in an amount that reflects the to revenue recognition consideration that an entity expects to be entitled in required by IFRS 15 referring exchange for the transfer of goods or services to a to services in the highway, customer. The new revenue standard will replace all current port and logistics concession revenue recognition requirements under the IFRS. Full segments. The Company retrospective application or modified retrospective identified new presentation application will be required for annual periods beginning on requirements for the or after January 1, 2018. The Group plans to adopt the new reclassifications of variable standard on the effective date required based on the full consideration, volume rebate, retrospective method. and there is no expectation that the effect of these changes in amounts will be material for these segments, except for reclassification in the port segment under IFRS 15, and adjustments to the current year will reduce sales revenue by approximately R$134,345.
IFRS 16 – Lease agreements The new standard sets out the principles for both the Company management has (Effective from 01/01/2019) customer (lessee) and the supplier (lessor) on the provision assessed IFRS 16 impacts of relevant information about leases so that lease and understands that its transactions are clearly stated in the financial statements. adoption will anticipate no To achieve this objective, the lessee must recognize the material impact on its financial assets and liabilities resulting from a lease agreement. statements.
29 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
3. Summary of significant accounting practices (Continued)
i) New standards, amendments and interpretations to standards (Continued)
Impact on financial Standard Requirement statements
Amendment to IFRS 10 and The amendments address the conflict between IFRS 10 and Company management has IAS 28 - Sale or Contribution IAS 28 in the treatment of loss of control of a subsidiary that assessed IFRS 10 and IAS 28 of Assets between an is sold or contributed to an associate or joint venture. The impacts and understands that Investor and its Associate or amendments clarify that the gain or loss resulting from the their adoption will anticipate Joint Venture sale or contribution of assets of a business, as defined in no material impact on its IFRS 3, between an investor and its associate or joint financial statements. venture, are recognized in full. Any gain or loss resulting from the sale or contribution of assets that do not constitute a business, however, are recognized only in the extent of the interests of unrelated investors in the associate or joint venture.
IFRS 2 - Classification and The IASB issued amendments to IFRS 2 Share-based Company management has Measurement of Share-based Payments, which address three main areas: the effects of assessed IFRS 2 impacts and Payment Transactions - vesting conditions on the measurement of a cash-settled understands that its adoption Amendments to IFRS 2 share-based payment transaction; the classification of a will anticipate no material share-based payment transaction with settlement impact on its financial characteristics by the net amount for withholding tax statements. obligations; and accounting treatment when a change in the terms and conditions of a share-based payment transaction changes its cash settlement classification to share settlement.
IFRIC 23 - Uncertainty over The Interpretation addresses the recognition of income taxes Company management has Income Tax Treatments when the tax treatment involves uncertainty that affects the assessed IFRS 23 impacts application of IAS 12 and does not apply to taxes or and understands that its charges other than the scope of IAS 12, nor does it adoption will anticipate no specifically include the requirements relating to interest and material impact on its financial fines associated with uncertainties in the treatment statements. applicable to taxes.
4. Main uses of estimates and judgments
Management of the Company and its subsidiaries makes estimates and assumptions regarding future events. Estimates and assumptions that present a significant risk, likely to cause a significant adjustment to carrying amounts of assets and liabilities for the next financial year are as follows:
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Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
4. Main uses of estimates and judgments (Continued)
· Discount rate: determination of discount rates to present value used in the measurement of certain current and noncurrent assets and liabilities; · Amortization rate: determination of amortization rates of intangible assets obtained through economic studies of traffic projection; and · Provisions: determination of provisions for maintenance, determination of provisions for future investments arising from service concession arrangements whose economic benefits are diluted in current toll fees, provisions for tax, labor and civil losses, losses on accounts receivable and preparation of projections to realize deferred income and social contribution taxes.
Service concession arrangement accounting
Upon recording the Service Concession Arrangement, the Company conducts analyses involving management judgment, substantially regarding the application of the Service Concession Arrangement interpretation, determination and classification of improvement and construction expenses as intangible assets, and assessment of future economic benefits for the purpose of determining the time to recognize intangible assets generated in the Service Concession Arrangement. Disclosures for each Company's service concession arrangement and their characteristics are described in Note 2.3.
Recognition of intangible assets
Company management assesses the moment intangible assets are to be recognized, based on economic characteristics of each service concession arrangement. Accounting for subsequent additions to intangible assets will only occur upon related services rendered representing potential generation of additional revenue. For these cases, for example, the construction liability is not recognized upon execution of the contract, but it will constitute a liability by the time the construction is carried out, matched against intangible asset.
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Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
4. Main uses of estimates and judgments (Continued)
Determining annual amortization of intangible assets arising from service concession arrangements
The Company recognizes the effect of amortizing intangible assets arising from the service concession arrangement limited to the respective concession term, except for direct subsidiary Ecoporto Santos S.A., for which the Company already considers the service concession arrangement assuming renewal. This is calculated according to the consumption standard of the economic benefit generated, usually based on the traffic curve. Thus, the amortization rate is determined through economic studies intended to reflect projected growth of highway traffic and the generation of future economic benefits arising from the service concession arrangement. The Company uses models to study and project traffic on highways under its concession.
Determining construction revenues
Construction revenue is recognized at its fair value, as well as related costs changed into expenses related to the construction service provided. In accordance with the Application of Accounting Interpretation (ICPC) 01, where a public service concessionaire performs construction works, even if contractually provided for, it performs construction services. The rendering of these services originate two types of compensation: either by receiving values from the Granting Authority (financial asset) or through payment of toll fees (intangible asset). For this last type, which is the case for all highway concession operators administered by the Company, the construction revenue shall be recognized at its fair value, and the costs changed into expenses for the construction service provided. Upon recording construction margins, Company management evaluates issues related to the primary responsibility for providing construction services, even in cases where there is outsourcing of services, management costs and/or monitoring of the work and EcoRodovias Group that carries out the construction services. Company management believes that the hiring of construction services are carried out at market value; therefore, the Company recognizes no profit margin on construction activities.
Company management assesses and recognizes the effects of present value adjustment, taking into consideration the time value of money and uncertainties related thereto. At December 31, 2017 and 2016, assets and liabilities subject to present value adjustment and significant assumptions adopted by management to measure and recognize them are as follows:
32 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
4. Main uses of estimates and judgments (Continued)
Determining construction revenues (Continued)
(a) Provision for maintenance and future works arising from estimated expenses to comply with contractual obligations of the concession whose economic benefits are already being earned by the Company, and provision for maintenance stemming from estimated costs to meet the contractual obligations of the concession related to the use and maintenance of roads at predetermined levels of use. Measurement of present values of these provisions was calculated using cash flow projection method on the dates outflow of resources are estimated, to meet their respective obligations (estimated for the full concession period), and discounted by applying the discount rate, which varies between 9.50% and 11.85% p.a. Determination of the discount rate used by management is based on the weighted average of funding. Measurement and criteria of the respective values are detailed in Notes 19 and 20. (b) Concession rights payable arising from obligations incurred by the Company related to grant deed. Measurement and criteria of the respective values are described in Note 21.
5. Reclassifications made by management
Commission expenses related to sales of storage services in direct investees Ecoporto Santos and Termares were segregated and reclassified from "General and administrative expenses" to "selling expenses" in the statements of profit or loss for the year ended December 31, 2016 at R$120,241. Such reclassification is intended to allow comparability and better presentation of the book balances. Management of indirect subsidiary Ecovia Caminho do Mar reclassified R$2,581 between "Property and equipment" and "Intangible assets" for the year ended December 31, 2016, thus reflecting on Company's Consolidated. The purpose of such reclassification is to adjust the presentation of "Buildings".
Originally disclosed Reclassification Restated
Property and equipment 616,763 (2,581) 614,182 Intangible assets 4,276,280 2,581 4,278,861 4,893,043 - 4,893,043
Company management reclassified (R$26,515) in the statement of cash flows for the year ended 2016. Such reclassification is intended to adjust the presentation of “Concession rights payable”.
33 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
5. Reclassifications made by management (Continued)
Originally disclosed Reclassification Restated
Cash flow from operating activities Concession rights payable - (26,515) (26,515)
Cash flow from financing activities Concession rights payable (26,515) 26,515 - (26,515) - (26,515)
6. Discontinued operations
a) Sale of equity interest
According to the material fact notices published to the market on July 4, 2016, the Company through its subsidiary Elog S.A., entered into an Agreement for Purchase and Sale of Units of Interest on July 2, 2016, whereby the terms and conditions for disposal of 100% of Elog Logística Sul Ltda., Maringá Serviços Auxiliares de Transporte Aéreo Ltda and Maringá Armazéns Gerais Ltda. (jointly, “Elog Sul Units”) capital to Multilog S.A. Completion of the disposal was subject to certain conditions precedent, which include communication and/or approval by the Brazilian IRS, and approval by the Administrative Council for Economic Defense (CADE), which was approved with no restrictions on July 29, 2016. The operation was completed on October 6, 2016, with effective transfer of units of interest and settlement for R$115,000. On February 1, 2017, as provided for in the purchase and sale agreement clauses, price was adjusted with payment of R$1,172 to the Company. The sale totaled R$116,172.
The amount of loss on investment sale amounting to R$12,080 is carried under “Net income from assets and liabilities held for sale”, in the statement of profit or loss for the year ended December 31, 2016.
Disposal of Elog Sul Units is in line with the EcoRodovias Group strategy to focus on road concession assets.
34 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
6. Discontinued operations (Continued)
a) Sale of equity interest (Continued)
The effects arising from the sale of these interests are as follows:
Elog Goodwill Sul Maringás Total Assets Current assets Cash and cash equivalents 3,470 1,619 - 5,089 Trade accounts receivable 12,070 412 - 12,482 Related parties 120 161 - 281 Taxes recoverable 531 14 - 545 Prepaid expenses 74 - - 74 Other receivables 590 10 - 600 Total current assets 16,855 2,216 - 19,071
Noncurrent assets Judicial deposits 9,803 1,095 - 10,898 Deferred taxes 3,389 163 - 3,552 Other receivables 963 - - 963 Goodwill recorded in Company - - 88,282 88,282 Property and equipment and intangible assets 33,188 1,173 - 34,361 Total noncurrent assets 47,343 2,431 88,282 138,056
Total assets 64,198 4,647 88,282 157,127
Liabilities and equity
Current liabilities Trade accounts payable 4,247 121 - 4,368 Taxes payable 1,666 1,150 - 2,816 Social liabilities 2,564 33 - 2,597 Dividends and interest on equity payable 5,978 - - 5,978 Related parties 1,602 81 - 1,683 Provision for income and social contribution taxes 588 - - 588 Other accounts payable 940 299 - 1,239 Total current liabilities 17,585 1,684 - 19,269
Noncurrent liabilities Provision for labor, tax and civil contingencies 9,566 - - 9,566 Other accounts payable 40 - - 40 Total noncurrent liabilities 9,606 - - 9,606
Equity 37,007 2,963 88,282 128,252
Total liabilities and equity 64,198 4,647 88,282 157,127
Total sale amount - - - 116,172 Loss on investment disposal (total equity – sale amount) - - - (12,080)
35 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
6. Discontinued operations (Continued)
a) Sale of equity interest (Continued)
The purchase and sale agreement has an indemnity clause, which provides for the Company’s responsibility to indemnify the purchaser in the event of losses incurred, events after the sale closing date, including and litigations related to existing contingent liability. The agreement provides for the following limitations:
(i) Indemnity obligation is limited to the minimum of R$10 per individual loss and maximum of 25% (twenty-five percent) of the acquisition price, only in certain hypotheses. In other cases, the amount is limited to 50% (fifty percent) of the acquisition price; (ii) The indemnity payment term is 10 (ten) working days from receipt of notification informing the indemnity; (iii) The time limit may be 3 (three), 5 (five), 6 (six) or 10 (ten) years, according to the nature of the respective loss.
At December 31, 2017, no events that could lead to indemnity payment to purchasers were identified and, therefore no amount was provisioned.
b) Assets and liabilities held for sale
Based on the EcoRodovias Group strategy to focus upon road concession assets, in June 2016, the Company also classified as discontinued operations its investments in the logistics segment through companies Elog S.A. and Ecopátio Logística Cubatão Ltda. According to the material fact notices published to the market on December 13, 2017, the Company entered into an Agreement for Purchase and Sale of Shares, whereby the terms and conditions for disposal of 100% of Elog S.A. capital to Multilog S.A. were established. Disposal completion is subject to the analysis of certain conditions precedent, which include: (i) prior approval of the Brazilian IRS; (ii) approval of the Administrative Council for Economic Defense (CADE), which was carried out without restriction on December 27, 2017; (iii) transfer of the units of interest from Ecopátio Logística Cubatão Ltda. to the Company; and (iv) payment of the entire debt of Elog S.A. The total amount of the disposal is R$90,000 thousand and will be settled in 84 equal and successive monthly installments, restated by the CDI adjustment as of the closing date. The effects of the sale of this interest will be disclosed in a timely manner, upon fulfillment of all conditions precedent and consequent transfer of shares to Multilog S.A.
36 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
6. Discontinued operations (Continued)
b) Assets and liabilities held for sale (Continued)
In compliance with item 9 of CPC 31 - Noncurrent Assets Held for Sale and Discontinued Operations, the Company informs that it remains firmly committed to its plan to sell Ecopátio Logística Cubatão Ltda.
Pursuant to CVM Rule No. 598/09, which approved accounting pronouncement CPC 31 – Noncurrent Assets held for sale and Discontinued Operation, assets and liabilities of these units were classified under “Assets and Liabilities from discontinued operations”, and information thereon is no longer an integral part of the Company's consolidated information.
These related assets and liabilities shall be measured at the lower of their carrying amounts and fair value less costs to sell.
At December 31, 2017, assets and liabilities held for sale comprised:
Combine Combined Combined Combined d (*) (*) (*) (*) 12/31/201 Assets 12/31/2017 12/31/2016 Liabilities 12/31/2017 6
Cash and cash equivalents 7,691 15,647 Trade accounts payable 12,341 11,460 Trade accounts receivable 33,018 33,100 Loans and financing 668 2,187 Related parties 17 2,774 Debentures 124,905 183,788 Taxes recoverable 1,184 1,693 Taxes payable 2,273 2,902 Prepaid expenses 674 496 Social and labor liabilities 6,932 6,502 Other receivables 9,564 5,185 Related parties 509 458 Deferred taxes 59,278 123,738 Other accounts payable 6,890 22,719 Provision for labor, tax and civil Judicial deposits 48,407 43,909 contingencies 35,280 33,560 Provision for income and social Property and equipment 66,477 12,109 contribution taxes - - Intangible assets 5,606 14,597 Total assets held for sale 231,916 253,248 Total liabilities held for sale 189,798 263,576
(*) These amounts refer to combined assets and liabilities of companies Elog S.A. and Ecopátio Logística Cubatão Ltda., already adjusted to fair value.
After classification, an impairment loss amounting to R$689,301 was recognized for the carrying amount of these assets to be reduced to fair value less costs to sell. This amount was recognized in profit or loss under "Loss for the year of discontinued operations". An evaluation was conducted to determine the fair values of companies Elog S.A. and Ecopátio Logística Cubatão Ltda, based on multiple recent transactions involving similar assets in the same market segment, and on the very transaction of Elog Sul with Multilog S.A.
37 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
6. Discontinued operations (Continued)
The result of the fair value evaluation as a result of the classification as assets and liabilities held for sale is as follows:
12/31/2017 12/31/2016
Selling amount (a) 160,000 160,000 Net debt (b) (117,882) (170,328) Amount in the statement of financial position of assets and liabilities held for sale (c) 42,118 (10,328)
(a) Estimated cost of disposal for companies Elog S.A. and Ecopátio Logística Cubatão Ltda., totaling R$160,000.
(b) Refers to net debt at December 31, 2017 of subsidiaries classified as discontinued operations.
(c) Refers to net value between assets and liabilities measured at the lower of carrying amounts and fair value less costs to sell.
Profit or loss for the years ended December 31, 2017 and 2016 related to assets and liabilities held for sale is as follows:
12/31/2017 12/31/2016 Profit or loss from discontinued operations
Net revenue 197,520 292,533 Cost of services rendered (182,679) (262,906) Gross profit 14,841 29,627
Operating and finance income (costs) (24,243) (41,038) Finance income (costs) (17,593) (42,826) Operating income (expenses) (26,995) (54,237) Income and social contribution taxes (573) 51,218 Profit or loss from assets and liabilities held for sale (27,568) (3,019)
Fair value measurement effect of assets and liabilities held for sale (*) 19,915 (686,282) Net loss from assets and liabilities held for sale (7,653) (689,301)
(*) Statement of fair value adjustment of assets and liabilities held for sale:
38 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
6. Discontinued operations (Continued)
12/31/2017 12/31/2016
Fair value adjustment of intangible assets and property and equipment 5,715 (572,502) Fair value adjustment of dividends and IOE - (12,336) Capital contributions (January to December) (62,200) (88,097) Fair value adjustment (Sale price x Net debt) (13,368) - Fair value adjustment of other assets and liabilities 89,768 (3,019) Fair value effect of assets and liabilities held for sale 19,915 (675,954) Expected contribution amounts necessary for maintenance of net working capital - (10,328) Fair value adjustment of assets and liabilities held for sale 19,915 (686,282)
Cash flow from assets and liabilities held for sale 12/31/2017 12/31/2016
Profit or loss for the year (27,568) (3,019) Items that do not affect cash 41,963 (92,650) Items that do not affect cash – expected contribution (1,599) 3,614 Resulting from changes in financial position (4,488) (16,231) Used in investing activities (74,121) 211,308 Used in financing activities (65,813) (222,606)
On December 13, 2017, the Company, through material fact notices, communicated to the market that it entered into a Share Purchase Agreement with Multilog S.A. relating to the sale by the Company of 100% of the capital of Elog. The total amount of the disposal is R$90,000 thousand and will be settled in 84 equal and successive monthly installments, restated by the CDI adjustment as of the closing date. Sale completion is subject to the analysis of certain conditions precedent, which include the prior approval of the Brazilian IRS, the Administrative Council for Economic Defense (CADE), received on December 27, 2017, transfer of units of interest from Ecopátio Logística Cubatão Ltda. ("Ecopátio") to the Company, on February 8, 2018, and payment of the entire debt of Elog.
39 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
7. Impairment of assets
Consolidated 06/30/2016 Net impairment adjustment to Net carrying Net recoverable profit or loss for amount amount the year
Goodwill – port segment (a) 666,668 365,671 300,997 Deferred taxes – port segment (b) 450,699 206,689 244,010 Assets and liabilities held for sale, net of cash 1,117,367 572,360 545,007
Since the beginning of 2015, a fall in the volume of business in the port segment was noticed, as a result of the economic downturn that directly impacted the activities of the Company and its subsidiaries. During the second quarter of 2016, given the continuing fall in volume and prices, and the non-confirmation of a new shipowner, and considering the projections for the following periods, the Company recognized a R$545,007 impairment in its non-financial assets.
(a) Value in use of goodwill was restated to reflect management’s best estimates in relation to its business in Santos Port. The evaluation is still sensitive to changes, if any, in long-term expectations that may lead to future adjustments to the amount recognized. The discount rate applied in the future cash flow projection represents the WACC of the Company’s port segment. The statutory rate used was 13.1% p.a., and the Company considered market sources to define inflation and foreign exchange rates used in future flow projections.
(b) Tax credits arising from: (a) income and social contribution tax losses; and (b) downstream merger goodwill were reviewed based on the expected future taxable profit generation in the port segment, in light of legal limitations. Future taxable profit projections were prepared based on the review of the subsidiary’s business plan. The review generated a R$244,010 write-off (see Deferred Taxes, in Note 15) (R$40,191 tax loss in 2016; R$140,808 tax losses prior to 2016, and R$63,011 downstream merger goodwill). The Company will physically keep amounts for future use. At December 31, 2017, the Company carried out impairment tests and did not identify any adjustments.
40 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
8. Cash and cash equivalents
Accounting practice
The Company considers cash equivalents a short-term investment readily convertible into a known cash amount and subject to insignificant risk of change in value.
Company Consolidated 12/31/2017 12/31/2016 12/31/2017 12/31/2016
Cash and banks 14 13 38,078 32,806 Short-term investments: Investment fund (a) 8,032 638 1,528,089 517,844 Repurchase agreements (b) - 2,226 18,030 25,018 Automatic investments (c) 142 219 23,782 13,836 8,188 3,096 1,607,979 589,504
Accounting practice
(a) Fund organized as an investment fund, classified as “private fixed income fund”, pursuant to the prevailing regulation, whose investment policy’s main risk factor is the variation in the domestic interest rate or price index, or both, and whose goal is to seek the appreciation of its shares through the investment of funds in a conservative portfolio, and may be redeemed at any time without significant loss of value. The Fund cannot invest in speculative transactions or transactions that expose it to liabilities higher than its net assets. The Fund cannot be exposed to certain assets, such as shares, share indices and derivatives indexed thereto.
At December 31, 2017, the marketable securities Fund portfolio comprised 59.7% in Bank Deposit Certificate (CDB), 23.3% in Repurchase Agreements, 1.3% in Financial Bills (LF), 15.7% in Financial Treasury Bills (LFT). At December 31, 2016, the marketable securities Fund portfolio comprised 30.3% in Bank Deposit Certificate (CDB), 60.8% in Repurchase Agreements, 3.9% in Financial Bills (LF) and 5.0% in Government Bonds.
The financial investments linked thereto bear interest at 98.9% (100.7% at December 31, 2016) of the Interbank Deposit Certificate (CDI), and reflect the market conditions at the statements of financial position dates.
(b) The funds related to consolidated repurchase agreements bear interest at weighted average rate of 79.9% of CDI (89.9% at December 31, 2016), without risk of material change in value. This investment has immediate liquidity and a very short term, being used before 30 days, and IOF is not levied thereon. (c) The Company holds a short-term investment in Itaú Unibanco, in which the funds available in current accounts are automatically invested and bear interest pursuant to the period they remain invested and may vary from 2% to 100% of the CDI. The group maintains only a minimum balance in this type of investment and the exceeding volume is allocated to more profitable short-term investments, and this type is maintained at an average rate of 2% of CDI (short-term investments stay between one and 29 days), without the risk of significant change in value. The referred to investment is highly liquid.
41 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
9. Marketable securities
Marketable securities consist of temporary high liquidity short-term investments:
12/31/2017 12/31/2016
Investment fund (a) 69,068 66,430 Savings account (b) 768 2,689 69,836 69,119
Current 60,234 61,748 Noncurrent 9,602 7,371
(a) Investment funds bear interest of 97.9% of CDI (97.8% at December 31, 2016) and reflect market conditions at the statement of financial position dates. Although these investments are highly convertible to cash, they were classified as marketable securities since they are related to the Company’s financing agreement with the Brazilian Development Bank (BNDES) and Debentures as a guarantee for part of the payment of interest and principal of indirect subsidiaries Concessionária de Rodovias Ayrton Senna e Carvalho Pinto S.A. and Eco101 Concessionária de Rodovias S.A. (b) This refers to the Environmental Compensation Commitment Instrument entered into by direct subsidiary Ecoporto Santos and indirect subsidiary Concessionaria de Rodovias Ayrton Senna e Carvalho Pinto S/A - Ecopistas and Companhia Ambiental do Estado de São Paulo (CETESB), which will use the funds as environmental compensation with respect to lawsuits to be determined and approved by the Environmental Compensation Chamber (CCA). On May 22, 2017, indirect subsidiary Concessionária de Rodovias Ayrton Senna e Carvalho Pinto S/A - Ecopistas transferred total balance in accordance with the agreement with CETESB.
10. Trade accounts receivable - Consolidated
Breakdown of trade accounts receivable is as follows:
12/31/2017 12/31/2016
Electronic toll (a) 123,216 127,792 Ancillary revenues (b) 5,849 3,145 Receivables from ports (c) 16,339 21,164 Other accounts receivable 5,061 4,057 Allowance for doubtful accounts (ADA) (d) (1,511) (1,368) 148,954 154,790
(a) Represented by services provided to users related to toll fees that will be passed on to the concessionaires and credits receivable arising from toll vouchers. (b) Represented substantially by lease of land along the highways, lease of billboards and other services provided for in the concession arrangements. (c) Represented by invoices receivable from customers for warehouse handling and empty container repairs. (d) Refers to the recognition of the allowance for doubtful accounts mainly for port operations, and the Company’s policy credit determines that doubtful accounts relate to notes overdue for more than 120 days.
42 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
10. Trade accounts receivable - Consolidated (Continued)
The aging list of receivables is as follows:
12/31/2017 12/31/2016
Falling due 144,614 149,784 Past due: Within 30 days 1,727 2,389 From 31 to 90 days 789 1,060 From 90 to 120 days 1,824 1,557 Above 120 days 1,511 1,368 150,465 156,158
Changes in allowance for doubtful accounts
12/31/2017 12/31/2016
Balance at beginning of year 1,368 9,799 Discontinued operation - Elog (*) - (6,254) Amounts recovered and written off for the year (1,328) (2,919) Setup of allowance for doubtful accounts for the year 1,471 742 Balance at end of year 1,511 1,368
(*) As mentioned in Note 6, the Company classified company Elog S.A. and some of its subsidiaries as assets and liabilities held for sale.
43 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
11. Judicial deposits
Judicial deposits representing the Company’s restricted assets refer to amounts deposited in escrow and held in courts until the related litigation is resolved.
Company Consolidated 12/31/2017 12/31/2016 12/31/2017 12/31/2016
Balance at beginning of year 2,148 1,949 174,013 211,119 Assets and liabilities held for sale (*) - - - (45,757) Additions 58 55 9,278 10,041 Write-offs (31) - (5,401) (4,719) Monetary restatement 124 144 10,580 3,329 Balance at end of year 2,299 2,148 188,470 174,013
(*) As mentioned in Note 6.b, the Company classified company Elog S.A. and some of its subsidiaries as assets and liabilities held for sale.
44
EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
15. Income and social contribution taxes
Accounting practice
Deferred income and social contribution taxes ("deferred taxes”) are recognized on temporary differences at the end of each statement of financial position date between the recognized asset and liability balances in the financial statements and the corresponding tax bases used in the computation of taxable profit , including tax loss carryforwards, when applicable. Deferred tax liabilities are generally recognized on all taxable temporary differences, and deferred tax assets are recognized on all deductible temporary differences only when the Company is likely to recognize future taxable profit at an amount sufficient for such deductible temporary differences to be used. Deferred tax assets and liabilities are measured at the tax rate expected to be applied in the year in which the asset or liability will be realized or settled, based on the tax rates (and tax law) in force as at the statement of financial position date.
a) Deferred taxes
The recovery of deferred tax assets balance is reviewed at the end of each reporting year and adjusted by the amount expected to be recovered.
Deferred income and social contribution taxes are recognized as expense or income in P&L for the year, unless they relate to items recorded in other comprehensive income, where applicable.
Deferred income and social contribution taxes were recorded using the effective rate of 34% (income and social contribution taxes), presented changes for the year, and are broken down as follows:
Statement of financial position P&L Additions Write- 12/31/2016 offs 12/31/2017 12/31/2017
Goodwill realization on merger 215,424 - (9,582) 205,842 (9,582) Provision for losses due to tax, labor and civil contingencies 44,056 10,468 (7,081) 47,443 3,387 Income and social contribution tax losses (i) 51,663 4,407 (6,479) 49,591 (2,072) Provision for maintenance 95,177 19,103 (18,881) 95,399 222 Present value adjustment (PVA) burden – concession 3,325 - (1,359) 1,966 (1,359) Allowance for doubtful accounts (ADA) 110 353 (380) 83 (27) Accrual for vacation pay – Executive Board 3,449 2,894 (128) 6,215 2,766 Effect of Law No. 12973/14 - Transition Tax Regime (RTT) ceased to exist (51,771) - 3,341 (48,430) 3,341 Corporate depreciation (9,808) 37 242 (9,529) 279 Capitalized interest (2,977) (5,982) 103 (8,856) (5,879) Deferred income and social contribution taxes - 31,280 (40,204) assets/(liabilities) (ii) 348,648 339,724 (8,924)
(i) Refers to indirect subsidiaries’ tax loss: ECO101 and Ecopistas.(ii) In compliance with CPC 32, item 73, the Company recorded R$356,491 under noncurrent assets and R$16,767 under noncurrent liabilities.
57 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
15. Income and social contribution taxes (Continued)
Accounting practice (Continued)
a) Deferred taxes (Continued)
Based on the projections prepared by Company management, the deferred income and social contribution taxes are expected to be realized in the following years:
Consolidated 12/31/2017 12/31/2016
2017 - 69,187 2018 34,279 68,386 2019 33,086 60,943 2020 26,459 60,943 2021 24,856 49,683 From 2022 onwards 221,044 39,506 339,724 348,648
Management prepared a study on the future realization of deferred tax assets, taking into consideration the probable capacity to generate future taxable profit, in the context of the main business variables, which may, therefore, suffer changes.
Studies and projections conducted by the Company indicate that tax losses and goodwill on mergers of investees will be realized within 10 years. Company management believes that the assumptions utilized in the business plans are robust, feasible and in line with the current economic scenario.
b) Reconciliation of income and social contribution tax income (expense)
The following current and deferred income and social contribution taxes were recognized in P&L for the years:
58 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
15. Income and social contribution taxes (Continued)
Accounting practice (Continued)
b) Reconciliation of income and social contribution tax income (expense) (Continued)
Company Consolidated 12/31/2017 12/31/2016 12/31/2017 12/31/2016
Income (loss) for the year before income and social contribution taxes 396,844 (275,616) 756,249 220,112 Statutory rate 34% 34% 34% 34% Income and social contribution taxes at combined rate (134,927) 93,709 (257,125) (74,838) Adjustments to effective rate calculation: Bonuses – chief officers (1,454) (2,370) (4,175) (6,106) Equity pickup 181,229 56,737 18 (3) Nondeductible expenses (28) (13) (349) (624) Goodwill amortization (5,900) (7,474) 22,893 (76,985) Tax incentives (Workers’ Meal Program - PAT) - - 1,574 1,700 Tax credits not established by the tax authorities (39,464) (38,250) (98,593) (79,851) PERT ECOSUL tax credit 3,295 - 3,295 - Other 544 295 (1,201) (26) Write-off of prior-year tax credit (*) - - - (140,873) Impairment of Ecoporto (CPC 01) – not established (**) - (102,339) (2,602) (102,339) Income and social contribution tax expenses 3,295 295 (336,265) (479,945)
Current income and social contribution taxes 3,295 - (327,341) (278,924) Deferred taxes - 295 (8,924) (201,021) Effective rate - - 44.5% n.m.
(*) This refers to Company tax losses (Company) for which there is no expectation of realization in the next five years. (**) See Note 7.
c) Income and social contribution taxes paid
Consolidated 12/31/2017 12/31/2016
Balance at beginning of year - income and social contribution tax provision 32,516 15,911 Assets and liabilities held for sale - (588) IRPJ/CSLL expense – statement of profit or loss 327,341 278,924 Total IRPJ/CSLL paid for the year (335,306) (261,731) Balance at end of year - income and social contribution tax provision 24,551 32,516
59 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
16. Loans and financing - Consolidated
Final Average Type Company maturity interest rate 12/31/2017 12/31/2016
In local currency: Promissory note (j) Ecocataratas 05/2017 CDI + 2.65% p.a. - 213,631 Finame (i) Ecosul 11/2020 6% p.a. 148 198 Finame (b) Ecocataratas 05/2017 TJLP + 3.21% p.a. - 89 Finame (b) Ecocataratas 04/2017 TJLP + 2.99% p.a. - 63 Finame (e) Ecocataratas 10/2022 2.5% p.a. 212 256 Finame (b) Ecocataratas 06/2018 3% p.a. 27 82 Finem (f) Ecocataratas 07/2018 TJLP + 2.1% p.a. 3,920 10,509 Finame (h) Ecocataratas 07/2020 6 % p.a. 494 694 Finem (a) Ecopistas 07/2025 IPCA + 2.45% p.a. 34,597 33,497 Finem (a) Ecopistas 06/2025 TJLP + 2.45% p.a. 117,012 148,819 Finame (d) Ecoporto Santos 06/2017 7.7% p.a. - 871 Finame (g) Ecoporto Santos 10/2020 6% p.a. 4,715 6,509 UMSELIC + 4.87% Finem (c) ECO101 07/2017 p.a. - 55,402 Finem (m) ECO101 12/2028 TJLP + 3.84% p.a. 178,071 185,271 Finem (m) ECO101 06/2030 TJLP + 3.84% p.a. 67,761 66,020 Financing (l) ECO101 12/2019 21.27% p.a. 203 278 Financing (m) ECO101 06/2030 TJLP + 3.84% p.a. 39,261 - Finem (n) Ecoponte 06/2032 TJLP + 3.48% p.a. 49,275 - Lease Ecosul 03/2018 25.13% p.a. 28 127 In foreign currency: Finimp (d) Ecoporto Santos 05/2017 Libor 6M + 5.2% p.a. - 46 Finimp (d) Ecoporto Santos 01/2023 Libor 6M + 2% p.a. 87,644 101,270 583,368 823,632
Current 74,658 339,401 Noncurrent 508,710 484,231
The aging list of noncurrent installments is as follows:
12/31/2017 12/31/2016
2018 - 66,199 2019 68,524 63,970 2020 69,476 64,555 2021 57,116 54,135 2021 onwards 313,594 235,372 508,710 484,231
60 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
16. Loans and financing – Consolidated (Continued)
Changes in loans, financing and promissory notes are as follows:
12/31/2017 12/31/2016
Balance at beginning of year 823,632 986,707 Assets and liabilities held for sale (*) - (3,637) Additions 91,301 256,592 Financial charges (see Note 28) 67,751 83,923 Payment of principal (307,713) (426,313) Payment of interest (91,603) (73,640) Balance at end of year 583,368 823,632
(*) See Note 6.b.
61 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
16. Loans and financing – Consolidated (Continued)
Main bank loan and financing agreements in effect are as follows:
Financial Item Company institution Required financial ratios Guarantees
(a) Ecopistas BNDES (i) Equity-to-total liabilities ratio shall be Assignment of credit rights of toll higher than 20%; (ii) the debt service receivables as well as ancillary coverage ratio shall be 1.20 or higher; revenue arising from the and (iii) net debt-to-adjusted EBITDA ratio concession, and any and all shall be lower than 4.00. The required indemnities to be received under financial ratios were complied with at the terms of guarantees and December 31, 2017. insurance policies for loss of profit contracted under the service concession arrangement terms.
(b) Ecocataratas Banco do Brasil/ Maintenance of ratios is not required. Disposal of the asset. Bradesco
(c) ECO101 BNDES Maintenance of ratios is not required Guarantee - EcoRodovias Infraestrutura.
(d) Ecoporto Santos Deutsche Bank AS (i) Equity shall be higher than 20,000; (ii) Disposal of EcoRodovias equity to total assets ratio of the Company Infraestrutura. shall be higher than 20%.
(e) Ecocataratas Banco Itaú Maintenance of ratios is not required. Disposal of the asset.
(f) Ecocataratas BNDES Maintenance of ratios is not required. Letter of guarantee.
(g) Ecoporto Santos Banco Itaú Maintenance of ratios is not required. No guarantee.
(h) Ecocataratas Itaú Maintenance of ratios is not required. Disposal of the asset.
(i) Ecosul Itaú Maintenance of ratios is not required. Disposal of the asset.
(j) Ecocataratas Bradesco Maintenance of ratios is not required No guarantee.
(l) ECO101 Banco Volkswagen Maintenance of ratios is not required No guarantee.
(m) ECO101 BNDES Maintenance of ratios is not required Assignment of credit rights.
(n) Ecoponte BNDES (i) Equity-to-total liabilities ratio shall be Pledge of EcoRodovias shares. higher than 20%; (ii) the debt service Assignment in trust of credit rights coverage ratio shall be 1.30 or higher; and held by Ecoponte, arising from the (iii) net debt-to-adjusted EBITDA ratio concession agreements, the shall be lower than 4.00. emerging concession rights arising from the concession, including those related to any indemnifications. Guarantee by EcoRodovias.
62 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
16. Loans and financing – Consolidated (Continued)
Financial ratios at December 31, 2017 are summarized as follows: Required Measured (*) Financial ratios – Ecopistas (a) (i) Equity/total liabilities > 20% 33.92% (ii) Debt coverage 1.20 1.21 (iii) Net debt/adjusted EBTIDA < 4.00 3.78
Required Measured (*) Financial ratios - Ecoporto (d) (i) Tangible equity (Ecoporto) > 20,000 169,335 (ii) Equity/total assets (Company) > 20% 9.7% (***)
Required Measured (*) Financial ratios - Ecoponte (n) (i) Equity/total liabilities > 20% 54.8 (ii) Debt coverage > 1.30 n.m. (**) (iii) Net debt/adjusted EBTIDA < 4.00 0.11
(*) Ratio not examined by independent auditors. (**) ICSD not determined, pursuant to paragraph 6 c) – It will be calculated one year after beginning of amortization (January 2019). (***) The ratio is backed by Waiver.
Sub-loans and releases for the indirect subsidiary Eco101 are as follows: Amount Sub-loan Total Amortization Installments released
A 188,473 188,473 (12,776) 150 installments B1 66,237 66,237 - 150 installments B2 52,483 28,514 - 150 installments B3 117,799 11,137 - 150 installments B4 28,388 - - 150 installments B5 22,493 - - 150 installments B6 50,485 - - 150 installments C1 54,165 - - 150 installments C2 28,231 - - 150 installments C3 99,159 - - 150 installments C4 50,671 - - 150 installments C5 26,409 - - 150 installments C6 92,762 - - 150 installments C-SOCIAL 4,389 - - 150 installments Total 882,144 294,361 (12,776)
Amount Sub-loan Total Amortization Installments released
C 50,878 50,878 (50,878) Lump sum Total 50,878 50,878 (50,878)
63 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
16. Loans and financing – Consolidated (Continued)
Sub-loans and releases for the indirect subsidiary Ecopistas are as follows:
Amount Sub-loan Total Amortization Installments released
a 99,200 99,200 (62,653) 114 monthly b 85,528 85,528 (47,216) 114 monthly c - - - 0 d 27,999 27,999 (11,789) 114 monthly e 21,769 21,769 (5,442) 10 annual f 21,769 - - 10 annual g 21,769 - - 10 annual h 22,218 - - 114 monthly i 4,848 - - 10 annual j 11,281 11,281 (2,375) 114 monthly k 29,846 22,438 (4,723) 114 monthly l 9,169 9,169 (1,834) 10 annual Total 355,396 277,384 (136,032)
Sub-loans and releases for the indirect subsidiary Ecoponte are as follows:
Amount Sub-loan Total Amortization Installments released
a 107,466 51,719 - 177 monthly b 177,920 - - 157 monthly c 118,915 - - 163 monthly d 10,625 - - 177 monthly e 2,074 - - 157 monthly Total 417,000 51,719 -
The Company has a financial plan to settle short-term debts through raising of new debentures and use of own resources to pay amortization installments maturing in 2017. Management is confident that its financial plan will be implemented in 2017 and understands that there will be no breach or default of the effective agreements.
64 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
17. Debentures
Debentures are summarized as follows:
Company Consolidated Description Maturity Average interest rate 12/31/2017 12/31/2017 12/31/2016
1st issue - Ecovia Caminho do Mar May/2019 106.5% CDI p.a. - 151,294 161,998 1st issue - Ecosul May/2020 107.0% CDI p.a. - 156,626 167,661 2nd issue - Ecosul June/2018 107.5% do CDI p.a. - 50,073 - 3rd issue - Ecosul June/2020 107.0% do CDI p.a. - 52,443 - IPCA + 3.8% p.a./ 2nd issue - Ecovias dos Imigrantes April/2024 IPCA+ 4.28% p.a. - 1,194,291 1,158,134 1st issue - Ecocataratas May/2019 106.5% CDI - 195,228 - 1st issue - Ecopistas Jan/2023 IPCA + 8.25% p.a. - 447,317 476,838 1st issue - Eco101 Dec/2018 CDI + 1.80% p.a. - 24,847 - 2nd issue - EcoRodovias Infraestrutura June/2020 105.5% CDI p.a. 84,053 - - 1st issue - Ecorodovias Concessões CDI + 1.18% a.a./ CDI + 1.42% (Assignment) April/2020 p.a. - 608,943 615,422 2nd issue - Ecorodovias Concessões (1st series) Oct/2018 CDI + 0.79% p.a. - 80,850 163,239 2nd issue - Ecorodovias Concessões IPCA + 5.0% p.a./ (2nd and 3rd series) Oct/2022 IPCA + 5.35% p.a. - 778,926 755,359 3rd issue - Ecorodovias Concessões Feb/2018 114% do CDI p.a. - 216,840 218,554 5th issue - Ecorodovias Concessões Dec/2018 109.0% do CDI p.a. - 104,574 - Nov/2020 6th issue - Ecorodovias Concessões and (1st and 2nd series) Nov/2022 106.00% and 110.25% of the CDI - 1,070,399 - 6th issue - Ecorodovias Concessões (3rd series) Nov/2024 IPCA + 6.0% p.a. - 30,038 - 1st issue - Ecoporto Santos June/2019 CDI + 1.85% p.a. - 252,559 389,423 84,053 5,415,248 4,106,628
Current - 1,074,858 680,535 Noncurrent 84,053 4,340,390 3,426,093
Changes in debentures are as follows:
Company Consolidated 12/31/2017 12/31/2016 12/31/2017 12/31/2016
Balance at beginning of year - 615,113 4,106,628 4,293,504 Assets and liabilities held for sale (*) - - - (345,768) Addition 79,945 - 1,503,889 214,739 Debt assignment (**) - (625,782) - - Financial charges (see Note 28) 4,108 55,539 406,323 518,842 Payment of principal - - (230,285) (189,148) Payment of interest - (44,870) (371,307) (385,541) Balance at end of year 84,053 - 5,415,248 4,106,628
(*) As described in Note 6.b, the Company classified its logistics assets as Assets and liabilities held for sale. The amount of R$345,769 refers to the debenture balance at January 1, 2016 of assets and liabilities held for sale.
(**) By virtue of the assignment, as from August 10, 2016, first-issue debenture holders of Ecorodovias Infraestrutura are now first-issue debenture holders of Ecorodovias Concessões (due to the assignment and assumption of debt of Ecorodovias Infraestrutura);
65 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
17. Debentures (Continued)
Concessionária Ecovias dos Imigrantes S.A.
The second issue of simple, registered, book-entry, non-convertible, non-privileged debentures occurred on April 15, 2013, in two series, in the total nominal amount of R$881 million, monetarily restated by the IPCA variation plus interest, as follows: (i) 1st series - R$200 million, bearing interest of 3.80% p.a., paid annually from the issue date, every April 15 beginning April 15, 2014, and last payment upon maturity on April 15, 2020, with repayment in two annual and successive installments, on April 15 of 2019 and 2020; (ii) 2nd series - R$681 million, bearing interest of 4.28% p.a., paid annually from the issue date, every April 15 beginning April 15, 2014, and last payment upon maturity on April 15, 2024, with repayment in three annual and successive installments, on April 15 of 2022, 2023 and 2024.
The issue does not have guarantees of any nature, and is not subject to scheduled renegotiation.
The Issuer has complied with all obligations set forth in the issue deed, on a regular and timely basis.
Concessionária das Rodovias Ayrton Senna e Carvalho Pinto S.A. - Ecopistas
1st issue
The 1st issue of simple, registered, book-entry, non-convertible debentures occurred on January 15, 2011, with security interest represented by pledge of shares and assignment in trust of credit rights in four series, in the total nominal amount of R$370 million, monetarily restated by the IPCA variation plus interest, as follows:
(i) 1st series - R$92,500 million, bearing interest of 8.25% p.a., paid annually from the issue date, every January 15 beginning April 15, 2013, and last payment upon maturity on January 15, 2023, with repayment in 11 annual and successive installments, from January 15, 2013 through 2023;
66 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
17. Debentures (Continued)
Concessionária das Rodovias Ayrton Senna e Carvalho Pinto S.A.– Ecopistas (Continued)
1st issue (Continued)
(ii) 2nd series - R$92,500 million, bearing interest of 8.25% p.a., paid annually from the issue date, every April 15 beginning April 15, 2012, and last payment upon maturity on April 15, 2022, with repayment in 11 annual and successive installments, from April 15, 2012 through 2022. (iii) 3rd series - R$92,500 million, bearing interest of 8.25% p.a., paid annually from the issue date, every July 15 beginning July 15, 2012, and last payment upon maturity on July 15, 2022, with repayment in 11 annual and successive installments, from July 15, 2012 through 2022. (iv) 3rd series - R$92,500 million, bearing interest of 8.25% p.a., paid annually from the issue date, every October 15 beginning October 15, 2012, and last payment upon maturity on October 15, 2022, with repayment in 11 annual and successive installments, from October 15, 2012 through 2022.
The issue is secured by pledge of 100% of the shares and assignment in trust of 100% of the receivables, shared with BNDES.
The Issuer has complied with all obligations set forth in the issue deed, on a regular and timely basis.
2nd issue
The second issue of simple, registered, book-entry, non-convertible debentures occurred on July 12, 2017, in five series, in the total amount of R$300,000, for private placement. The direct controlling company Ecorodovias Concessões e Serviços S.A. acquired the totality of the debentures and settlement of the series will occur in accordance with the Company's cash requirements. Debentures will be remunerated as follows: 1st series: 105.0% of the CDI; 2nd, 3rd, 4th and 5th series: 105.5% of the CDI. Principal and interest will be paid in full, on the maturity dates: 1st series: July 14, 2025; 2nd series: October 14, 2025; 3rd series: January 14, 2026; 4th series: April 14, 2026; and 5th series: July 14, 2026. Settlements took place as follows:
67 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
17. Debentures (Continued)
Concessionária das Rodovias Ayrton Senna e Carvalho Pinto S.A.– Ecopistas (Continued)
2nd issue (Continued)
· On July 14, 2017, the amount of R$100 thousand related to the first series was settled and compliance with financial indices is not required. · On December 14, 2017, the amounts of R$70 thousand referring to the second series, R$40 thousand referring to the third series, and R$40 thousand relating to the fourth series were settled and compliance with financial indices is not required.
The issue has no guarantee of any nature.
The Issuer has complied with all obligations set forth in the issue deed, on a regular and timely basis.
Concessionária Ecovia Caminho do Mar S.A.
The 1st issue of simple, registered, book-entry, non-convertible, non-privileged debentures occurred on November 4, 2014, in a single series, in the total nominal amount of R$143 million, not subject to monetary restatement. Interest on the nominal unit value of debentures is as follows: (i) from the issue date to 03/04/16: 105.7% of the CDI – settled; (ii) from 03/04/2016 to 5/15/2017: 115.0% of the CDI – settled; (iii) from 5/15/2017 to 5/15/2019: 106.5% of the CDI, and lump sum amortization on the maturity date of May 15, 2019.
The issue does not have guarantees of any nature, and is not subject to scheduled renegotiation.
The Issuer has complied with all obligations set forth in the issue deed, on a regular and timely basis.
Empresa Concessionária de Rodovias do Sul S.A. - Ecosul
1st issue
The 1st issue of simple, registered, book-entry, non-convertible, non-privileged debentures occurred on November 17, 2014, in a single series, in the total nominal amount of R$148 million, not subject to monetary restatement. Interest on the nominal unit value of debentures is as follows: (i) from the issue date to 03/04/16: 105.7% of the CDI over – settled; (ii) from 03/04/2016 to 5/15/2017: 115.0% of the CDI over – settled; (iii) from 5/15/2017 to 5/15/2020: 107% of the CDI over, and lump sum amortization on the maturity date of May 15, 2020.
68 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
17. Debentures (Continued)
Empresa Concessionária de Rodovias do Sul S.A. - Ecosul (Continued)
1st issue (Continued)
The issue does not have guarantees of any nature, and is not subject to scheduled renegotiation.
The Issuer has complied with all obligations set forth in the issue deed, on a regular and timely basis.
2nd issue
The 2nd issue of simple, registered, book-entry, non-convertible, non-privileged debentures occurred on January 17, 2017, in a single series, in the total nominal amount of R$50 million, not subject to monetary restatement. The unit value of the debentures will bear interest of 107.5% of the CDI over, payable semiannually as from the issue date, every June 17 and December 17, beginning June 17, 2017 and ending on the maturity date, together with the amortization, on June 17, 2018.
The issue does not have guarantees of any nature, and is not subject to scheduled renegotiation.
3rd issue
The 3rd issue of simple, registered, book-entry, non-convertible, non-privileged debentures occurred on June 2, 2017, in a single series, in the total nominal amount of R$50 million, not subject to monetary restatement. The unit value of the debentures will bear interest of 107% of the CDI over, with lump sum payment of interest and amortization on the maturity date of June 2, 2020.
The issue does not have guarantees of any nature, and is not subject to scheduled renegotiation.
The Issuer has complied with all obligations set forth in the issue deed, on a regular and timely basis.
69 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
17. Debentures (Continued)
Rodovias das Cataratas S.A. - Ecocataratas
The 1st issue of simple, registered, book-entry, non-convertible, non-privileged debentures occurred on May 17, 2017, in a single series, in the total nominal amount of R$185 million, not subject to monetary restatement. The unit value of the debentures will bear interest of 106.50% of the CDI over, with lump sum payment of interest and amortization on the maturity date of May 17, 2019.
The issue does not have guarantees of any nature, and is not subject to scheduled renegotiation.
The Issuer has complied with all obligations set forth in the issue deed, on a regular and timely basis.
ECO101 Concessionária de Rodovias S.A.
The 1st issue of simple, registered, book-entry, non-convertible, non-privileged debentures occurred on June 29, 2017, in a single series, with additional personal guarantee, in the total nominal amount of R$25 million, not subject to monetary restatement. The unit value of the debentures will bear interest of 100% of the CDI over, plus 1.80% p.a., payable semiannually every June 29 and December 29, beginning December 29, 2017 and ending on the maturity date, together with the amortization, on December 29, 2018.
The issue is backed by security interest and additional personal guarantee in the form of guarantee by Ecorodovias Concessões e Serviços S.A., not subject to scheduled renegotiation.
The Issuer has complied with all obligations set forth in the issue deed, on a regular and timely basis.
EcoRodovias Concessões e Serviços S.A.
1st issue (EcoRodovias Infraestrutura – Debt assignment)
The 1st issue of non-convertible, non-privileged debentures occurred on April 24, 2015, with additional personal guarantee, in two series, in the total nominal amount of R$600 million.
70 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
17. Debentures (Continued)
EcoRodovias Concessões e Serviços S.A. (Continued)
1st issue (EcoRodovias Infraestrutura – Debt assignment) (Continued)
On August 10, 2016, the 2nd amendment to the Deed was signed, whereby the Issuer (EcoRodovias Infraestrutura e Logística S.A.) assigned all the Debenture-related rights acquired and obligations assumed to the Guarantor (Ecorodovias Concessões e Serviços S.A.), with substitution of the Issuer's contractual position for the Guarantor and assumption of the Debt represented by the Debentures by the Guarantor ("assignment"). As a result of the Assignment, the Guarantor became the new Debenture issuer and, as such, the Issue (after the Assignment) is no longer backed by the personal guarantee from the Guarantor or third parties.
(i) 1st series - R$232 million, not subject to monetary restatement; the nominal unit value of the debentures will bear interest of 100% of the CDI over, plus 1.18% p.a., paid semiannually from the issue date, every April 15 and October 15, beginning October 15, 2015 and ending April 15, 2018, with lump sum payment of amortization on April 15, 2018; (ii) 2nd series - R$368 million, not subject to monetary restatement; the nominal unit value of the debentures will bear interest of 100% of the CDI over, plus 1.42% p.a., paid semiannually from the issue date, every April 15 and October 15, beginning October 15, 2015 and ending April 15, 2020, with payment of amortization in two installments, on April 15, 2019 and 2020;
The issue does not have guarantees of any nature, and is not subject to scheduled renegotiation.
The Issuer has complied with all obligations set forth in the issue deed, on a regular and timely basis.
2nd issue
The 2nd issue of simple, registered, book-entry, non-convertible, non-privileged debentures occurred on May 17, 2017, in three series, in the total nominal amount of R$800 million, as follows:
71 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
17. Debentures (Continued)
EcoRodovias Concessões e Serviços S.A. (Continued)
2nd issue (Continued)
(i) 1st series - R$240 million, not subject to monetary restatement; the nominal unit value of the debentures will bear interest of 100% of the CDI over, plus 0.79% p.a., paid semiannually from the issue date, every April 15 and October 15, beginning April 15, 2013 and ending October 15, 2018, with payment of amortization in three annual installments, on October 15, 2016 through 2018; (ii) 2nd series - R$160 million, monetarily restated based on IPCA variation, plus interest, on the restated amount of 5.0% p.a., paid annually from the issue date, every October 15, beginning October 15, 2013 and ending October 15, 2019, with payment of amortization in two annual and successive installments, on October 15, 2018 and 2019; (iii) 3rd series - R$400 million, monetarily restated based on IPCA variation, plus interest, on the restated amount of 5.35% p.a., paid annually from the issue date, every October 15, beginning October 15, 2013 and ending October 15, 2022, with payment of amortization in three annual and successive installments, on October 15, 2020 to 2022;
The issue does not have guarantees of any nature, and is not subject to scheduled renegotiation.
The Issuer has complied with all obligations set forth in the issue deed, on a regular and timely basis.
3rd issue
The 3rd issue of simple, registered, book-entry, non-convertible, non-privileged debentures occurred on November 18, 2016, in a single series, in the total nominal amount of R$215 million, not subject to monetary restatement. The unit value of debentures will bear interest of 114.0% of the CDI over, paid in two semiannual installments and a quarterly installment, beginning May 18, 2017 and ending on the maturity date, together with amortization, on February 19, 2018.
The issue does not have guarantees of any nature, and is not subject to scheduled renegotiation.
72 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
17. Debentures (Continued)
EcoRodovias Concessões e Serviços S.A. (Continued)
3rd issue (Continued)
The Issuer has complied with all obligations set forth in the issue deed, on a regular and timely basis.
4th issue
The 4th issue of non-convertible, non-privileged debentures occurred on April 12 2017, for private placement, in a single series, in the total nominal amount of R$300 million, not subject to monetary restatement. The unit value of the debentures will bear interest of 105.5% of the CDI over, with lump sum payment of interest and amortization on the maturity date of April 12, 2025.
The issue does not have guarantees of any nature, and is not subject to scheduled renegotiation.
The Issuer has complied with all obligations set forth in the issue deed, on a regular and timely basis.
5th issue
The 5th issue of simple, registered, book-entry, non-convertible, non-privileged debentures occurred on June 22, 2017, in a single series, in the total nominal amount of R$100 million, not subject to monetary restatement. The unit value of the debentures will bear interest of 109.0% of the CDI over, with lump sum payment of interest and amortization on the maturity date of December 22, 2018.
The issue does not have guarantees of any nature, and is not subject to scheduled renegotiation.
The Issuer has complied with all obligations set forth in the issue deed, on a regular and timely basis.
73 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
17. Debentures (Continued)
EcoRodovias Concessões e Serviços S.A. (Continued)
6th issue
The 6th issue of simple, registered, book-entry, non-convertible, non-privileged debentures occurred on December 14, 2017, in three series, in the total nominal amount of R$1.100 million, as follows:
(i) 1st series - R$319,550 million, not subject to monetary restatement; the nominal unit value of the debentures will bear interest of 106% of the CDI p.a., paid semiannually from the issue date, every May 15 and November 15, beginning May 15, 2018 and ending November 15, 2020, with lump sum payment of amortization on the maturity date; (ii) 2nd series - R$750,450 million, not subject to monetary restatement; the nominal unit value of the debentures will bear interest of 110.25% of the CDI p.a., paid semiannually from the issue date, every May 15 and November 15, beginning May 15, 2018 and ending November 15, 2022, with payment of amortization in two annual installments, on November 15, 2021 and 2022; (iii) 3rd series - R$30,000 million, monetarily restated based on IPCA variation, plus interest, on the restated amount of 6% p.a., paid annually from the issue date, every November 15, beginning October 15, 2018 and ending October 15, 2024, with payment of amortization in two annual and successive installments, on October 15, 2023 and 2024;
The issue does not have guarantees of any nature, and is not subject to scheduled renegotiation.
The Issuer has complied with all obligations set forth in the issue deed, on a regular and timely basis.
EcoRodovias Infraestrutura e Logística S.A.
The 2nd issue of non-convertible, non-privileged debentures occurred on June 2, 2017, for private placement, in a single series, in the total nominal amount of R$80 million, not subject to monetary restatement. The unit value of the debentures will bear interest of 105.50% of the CDI over, with lump sum payment of interest and amortization on the maturity date of June 2, 2020.
74 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
17. Debentures (Continued)
EcoRodovias Infraestrutura e Logística S.A. (Continued)
The issue does not have guarantees of any nature, and is not subject to scheduled renegotiation.
The Issuer has complied with all obligations set forth in the issue deed, on a regular and timely basis.
The issue does not require the maintenance of financial indices (covenants).
Ecoporto Santos S.A.
The 1st issue of simple, registered, book-entry, non-convertible, non-privileged debentures occurred on June 15, 2012, in a single series, with security interest and additional personal guarantee, in the total nominal amount of R$600 million, not subject to monetary restatement. The unit value of the debentures will bear interest of 100% of the CDI over, plus 1.85% p.a., payable annually every June 15, from 2013 to 2019. Principal is amortized in six annual installments, on June 15, from 2014 to 2019.
The issue is backed by security interest and additional personal guarantee in the form of guarantee by EcoRodovias Infraestrutura e Logística S.A., not subject to scheduled renegotiation.
The Issuer has complied with all obligations set forth in the issue deed, on a regular and timely basis.
The aging list of noncurrent installments is as follows:
Consolidated 12/31/2017 12/31/2016 Installment Cost Total Installment Cost Total
2018 - (296) (296) 808,151 (8,570) 799,581 2019 967,249 (7,583) 959,666 611,639 (6,223) 605,416 2020 1,122,409 (6,138) 1,116,271 582,307 (4,981) 577,326 2021 678,645 (5,231) 673,414 295,019 (4,416) 290,603 2022 943,362 (2,954) 940,408 526,741 (2,574) 524,167 2023 onwards 652,227 (1,300) 650,927 630,626 (1,626) 629,000 4,363,892 (23,502) 4,340,390 3,454,483 (28,390) 3,426,093
75 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
17. Debentures (Continued)
The Company´s agreements provide for covenants linked to financial ratios, as follows:
Ratio Company Issue Description of covenant required Met
Ecocataratas 1ª Net debt/Adjusted Ebitda < 3.5x 0.69x
Ecovias 2ª Net debt/Adjusted Ebitda < 3.5x 1.35x Adjusted Ebitda/Net finance cost > 2.0x 13.15x
Ecopistas 1ª Equity/Total liabilities > 20% 33.95% ICSD - Debt service coverage ratio 1.20x 1.21x Net debt/Adjusted Ebitda < 4x 3.78x
Ecosul 1ª Net debt/Adjusted Ebitda < 3.5x 1.19x 2ª Net debt/Adjusted Ebitda < 3.0x 1.19x 3ª Net debt/Adjusted Ebitda < 3.5x 1.19x
Ecorodovias Concessões 1ª Net debt/Ebitda 3.75x 2.24x
2ª Net debt/Ebitda < 3.5x 2.40x Adjusted Ebitda/Net finance cost > 2.0x 5.56x
3ª Net debt/Adjusted Ebitda 3.75x 2.24x Ebitda/Net finance cost 2.0x 5.96x
4ª Net debt/Adjusted Ebitda 3.75x 2.24x Ebitda/Net finance cost 2.5x 5.96x
5ª Net debt/Adjusted Ebitda 3.5x 2.24x Ebitda/Net finance cost 2.0x 5.96x
6ª Net debt/Adjusted Ebitda 3.75x 2.24x Ebitda/Net finance cost 2.0x 5.96x
Ecoporto (*) 1ª Net debt/Ebitda < 3.5x (-)81.02x Ebitda/Net finance cost > 2.5x (-)0.08x
Ecovia 1ª Net debt/Adjusted Ebitda < 3.5x 0.47x
(*) Ratio backed by the Company´s letter of guarantee.
76 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
17. Debentures (Continued)
The Internal Return Rate (IRR) of transactions is as follows:
Nominal Interest Issuer Series Date value rate IRR
Debentures – 1st series 10/15/2012 240,000 CDI + 0.79% 11.57% Debentures – 2nd series 10/15/2012 160,000 5.00% + IPCA 11.17% Debentures – 3rd series 10/15/2012 400,000 5.35% + IPCA 10.79% CDI + 1.18% Debentures - 1st series 05/24/2015 232,000 11.52% p.a. CDI + 1.42% Debentures - 2 nd series 05/24/2015 368,000 13.43% p.a. EcoRodovias Concessões e Debentures – Single Serviços series 11/18/2016 215,000 114.0% CDI 12.19% Debentures - Single series 04/12/2017 300,000 105.5% CDI 7.44% Debentures - Single series 06/22/2017 100,000 109.0% CDI 8.06% Debentures - 1st series 12/14/2017 319,550 106.0% CDI 7.26% Debentures - 2 nd series 12/14/2017 750,450 110.25% CDI 7.57% Debentures - 3rd series 12/14/2017 30,000 IPCA + 6.0% 8.99% EcoRodovias Infraestrutura e Single series 06/02/2017 80,000 105.5% CDI 7.57% Logística
IPCA + 3.80% Debentures - 1st series 04/15/2013 200,000 9.48% Ecovias dos Imigrantes p.a. IPCA + 4.28% Debentures - 2 nd series 04/15/2013 681,000 9.14% p.a. Debentures - 1st series 01/15/2011 92,500 IPCA + 8.25% 14.42% Debentures - 2 nd series 01/15/2011 92,500 IPCA + 8.25% 14.61% Ecopistas Debentures - 3rd series 01/15/2011 92,500 IPCA + 8.25% 14.54% Debentures – 4th series 01/15/2011 92,500 IPCA + 8.25% 14.44% Debentures Private - 1st series 17/14/2017 100,000 105.0% CDI 7.28% Debentures Private - 2 nd series 12/14/2017 70,000 105.5% CDI 7.25% Debentures Private - 3rd series 12/14/2017 40,000 105.5% CDI 7.25% Debentures Private – 4 th series 12/14/2017 40,000 105.5% CDI 7.25% CDI + 1.80% Eco101 Single series 06/30/2017 25,000 9.23% p.a. CDI + 1.85% Ecoporto Santos Single series 06/15/2012 600,000 12.14% p.a. Ecocataratas Single series 05/17/2017 185,000 106.5% CDI 7.92% Ecosul Single series 11/17/2014 148,000 107.0% CDI 11.31% Ecosul Single series 01/17/2017 50,000 107.5% CDI 9.55% Ecosul Single series 06/02/2017 50,000 107.0% CDI 7.68% Ecovia Single series 11/04/2014 143,000 106.5% CDI 12.05% 5,897,000
77 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
18. Transactions with related parties
The Company and its subsidiaries contract services from their shareholders or from related companies, both directly or through consortiums, for the performance of upkeep, improvement and expansion services in the highway system and administrative and financial services.
According to the Company’s articles of incorporation, the Board of Directors is responsible for approving contracts between the Company and any shareholder of Company or parent company of its shareholders, or companies that are subsidiaries or affiliates of the Company shareholders or of their controlling shareholders, and any member of the Board of Directors may request, previously and timely, the preparation of an independent assessment conducted by a specialized company that will review the terms and conditions of the proposed contract and analyze its adequacy to market conditions and practices (arm’s length basis).
The balances of related-party transactions at December 31, 2017 are as follows:
78
EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
18. Transactions with related parties (Continued)
Related-party transactions break down as follows:
(a) Refers to the rental of the property where the head office of Ecosul is located. Balance matures within 30 days. (b) SBS Engenharia e Construções Ltda. holds 10% interest in subsidiary Ecosul and provides machining services and supply of materials for pothole repairs in the Ecosul road system, in addition to provision of civil construction pavement services in the Pelotas road system. The overall price agreed to deliver the services contracted between Ecosul and SBS Engenharia e Construções Ltda. is R$126,399. The term for completion of these services expires in July 2020. At December 31, 2017, the balance of services to be rendered amounts to R$62,164. The outstanding balance payable of R$3,469 (on services already rendered) falls due within 45 days and is not subject to financial charges, and no collaterals were pledged to creditors. (c) CR Almeida S.A. Engenharia de Obras holds interest in Primav Infraestrutura S.A., a Company subsidiary. The objective of the agreement is the provision of civil construction works of Lots 02 and 03 of the Carvalho Pinto Highway Extension to the indirect subsidiary Ecopistas, execution of underground passage services (Mergulhão), two pedestrian walkways and road system improvements for the indirect subsidiary Ecoponte, execution of works on the highway and stretches of the SAI-Sistema Anchieta- Imigrantes, works for the recovery of flexible pavement, and machining for the indirect subsidiary Ecovias. These agreements total R$185,542. At December 31, 2017, the outstanding balance payable is of R$2,580, and the deadline for execution is March 2018. (d) CBB Indústria e Comércio de Asfaltos e Engenharia Ltda. and TB Transportadora de Betumes Ltda. belong to the shareholders of C.R. Almeida Engenharia e Obras S.A., the Company´s controlling shareholder, and provide services involving supply and transport of asphalt material to: Concessionária Ecovia Caminho do Mar S.A. Concessionária das Rodovias Ayrton Senna e Carvalho Pinto S.A. - Ecopistas, Rodovias das Cataratas S.A. - Ecocataratas, ECO101 Concessionária de Rodovias S.A, Concessionária Ecovias dos Imigrantes S.A. and Concessionária de Rodovias do Sul - Ecosul. The overall price agreed to deliver the services contracted between the Company, CBB Indústria e Comércio de Asfaltos e Engenharia Ltda. and TB Transportadora de Betumes Ltda. is R$313,642, including the contractual amendment. The term for completion of these services expires in June 2018. At December 31, 2017, the balance of services to be incurred totals R$155,632. The outstanding balance payable at December 31, 2017 of R$3,624 (on services already delivered) falls due within 45 days and is not subject to financial charges, and no collateral was pledged to the creditors. (e) The balance refers to transfers of employees between companies (accrued vacation pay and 13 th salary). (f) Contek Engenharia S.A. is a related party of Centaurus Participações, which holds 27.5% of Eco101's equity interest. The purpose of the agreement between Contek and Eco101 is provision of machining services of asphalt material for Eco101, effective until June 2018. At December 31, 2017 the balance payable totals R$1,658 (g) Unimar Transportes Ltda. is a related party of Centaurus Participações, which holds 27.5% of Eco101's equity interest. The objective of the agreement between Unimar and Eco101 is mechanical rescue and support of vehicles in the roadway system administered by the concessionaire and lease of vehicles for this service. The agreement totals R$23,749 and is effective until November 2018. At December 31, 2017, R$21,856 had been incurred, with an outstanding balance of R$402 falling due within 45 days.
(h) Vix Logística S.A. is a related party of Centaurus Participações, which holds 27.5% of Eco101's equity interest. The objective of the agreement between Unimar and Eco101 is mechanical rescue and support of vehicles in the roadway system administered by the concessionaire and lease of vehicles for this service. The total agreement amount is R$25,461 and is effective up to November 2018. At December 31, 2017, R$23,657 had been incurred, with an outstanding balance of R$438 falling due within 45 days. (i) Incospal Construções Pré-fabricadas S.A. is a related party of Centaurus Participações, which holds 27.5% of Eco101 Concessionária de Rodovias S.A.’s equity interest. The objective of the agreement between Incospal and Eco101 is the provision of services in connection with supply and implementation, transportation and assembly of prefabricated parts for toll plazas along the BR-101/ES highway. The overall price agreed to deliver the services contracted is R$7,373. The term for completion of these services expired in 2016. At December 31, the balance payable is R$156. (j) This refers to a loan agreement with subsidiary Ecoporto Santos S.A. as borrower. The loan is restated at the fixed interest rate of 14.14% p.a. maturing on December 29, 2018.
80 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
18. Transactions with related parties (Continued)
(k) This refers to a loan agreement with the direct subsidiary Ecorodovias Concessões e Serviços S.A. as lender. The loan classified as noncurrent is restated at 13.64% p.a. with maturity on 06/12/2018. The current portion is restated at 100% of the CDI, maturing on November 11, 2017. (l) A. Madeiras Indústria e Comércio Ltda. is a related party of Centaurus Participações, which holds 27.5% of Eco101's equity interest. The objective of the agreement is widening of lots 1 and 3 of the BR101/ES highway. The total agreement amount is R$42,745 and is effective up to March 2018, of which R$12,329 has already. At December 31, 2017, the balance payable totals R$1,637. (m) This refers to a loan agreement with Temares as borrower. The loan is restated at the fixed interest rate of 14.14% p.a. maturing on December 29, 2018. (n) Engenharia e Construtora Araribóia Ltda. is a related party of Centaurus Participações, which holds 27.5% of Eco101's equity interest. The objective of the agreement between Araribóia and Eco101 is widening of BR101/ES highway. The deadline for execution of these services is June 2018. The total agreement amount is R$189,862 and, at December 31, 2017, the amount had already incurred. At December 31, 2017, the balance payable totals R$1,628. (o) On August 10, 2016, the Company entered into an agreement for assignment and assumption of obligations and other covenants with Ecorodovias Concessões e Serviços S.A., which will be adjusted under the same terms provided for in the deed, through which it assigned the debt amounting to R$600,000 in debentures in two series: - 1 st series CDI+1.18% p.a. maturing on 04/15/2018 and – 2nd series CDI 1.42% p.a. maturing on 04/15/2020.
(p) Itínera Construções Ltda. entered into an agreement with Ecorodovias Concessões e Serviços S.A., through which it undertakes to provide accounting, tax, and human resources services, according to the “Service Catalogue”. The agreement totals R$15 and is effective up to December 2017.
(q) The Baixada Santista Consortium, formed by the companies CR Almeida Engenharia de Obras S.A. and Itinera Construções, was contracted to carry out works for implementation of the 3rd track of the Padre Manoel da Nobrega Highway from Km 274 to Km 292 of the western lane. The overall price agreed to deliver the services contracted is R$27,869. The deadline for completion of these services is January 2018 and, until December 31, 2017, R$27,345 had been realized. At December 31, there is no outstanding balance payable for services already incurred. Balances of intercompany loan agreements between subsidiaries at December 31, 2017 are not stated in the financial statement as these do not include the parent company and are eliminated in the consolidated financial statements. The balances are as follows:
Lender Borrower 12/31/2017 12/31/2016 Maturity Rate
Ecorodovias Concessões Ecopistas 133,627 122,037 03/31/2025 100% CDI + 1.20% p.a. EcoRodovias Ecorodovias Concessões Infraestrutura 326,441 293,176 06/12/2018 13.64% p.a. EcoRodovias Ecorodovias Concessões Infraestrutura - 19,594 11/11/2017 100% CDI Ecorodovias Infra Ecoporto Santos 34,158 30,564 12/29/2018 14.14% p.a. Ecorodovias Infra Termares 4,522 4,047 12/29/2018 14.14% p.a. Termares Ecoporto Santos 5,748 5,144 09/29/2018 14.13% p.a. Termares Ecoporto Santos - 2,332 10/07/2018 (*) 14.13% p.a. Termares Ecoporto Santos 1,947 1,742 10/22/2018 14.13% p.a. 506,443 478,636
(*) Settled on March 10, 2017.
81 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
18. Transactions with related parties (Continued)
Other intercompany agreements
EcoRodovias Concessões e Serviços S.A., a direct subsidiary of EcoRodovias Infraestrutura, provides administrative, financial, human resources, information technology, and engineering and corporate procurement services for other companies of the EcoRodovias Group. The annual amount of the agreements entered into between the service companies is R$207,336, effective for 12 months from January to December of each year.
Key management personnel compensation
Management members are the persons with authority and responsibility for the planning, management and control of the Company’s activities.
For the year ended December 31, 2017, management received short-term benefits (salaries, profit sharing, private pension plan and stock option plan) accounted for under “General and administrative expenses”.
No amounts were paid in the period relating to: (a) post-employment benefits (pension, other retirement benefits, post-employment life insurance and post-employment health care plan); (b) long-term benefits (for length of service and long-term disability benefits); and (c) severance benefits.
At the Annual General Meeting, management’s annual overall compensation for the year ending December 31, 2017, was set at R$19,176 (R$28,486 for 2016), and part of the proposed amount for compensation of certain management members may be apportioned between the Company and its subsidiaries in accordance with a cost sharing agreement.
Compensation accrued to management for the year is as follows:
12/31/2017 12/31/2016
(Fixed/ variable) compensation 3,321 6,637 Bonuses - 8,345 Retention plan 4,307 624 Stock option plan 727 1,671 Share-based compensation (Phantom Stock Option/Restricted Stock) 2,877 1,255 Life insurance 8 - Health care 179 - Private pension plan 345 347 Social Security Tax (INSS) (on salaries, retention plan and ILP (PSO +PRS)) 2,629 - 14,393 18,879
82 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
19. Provision for maintenance - Consolidated
The amounts recorded as provision for maintenance refer to the estimated future expenses for upkeep of the highway infrastructure at an operational readiness level, as provided for in contract, adjusted to present value based at rates from 6.58% to 11.85% p.a., on average, corresponding to average funding rates. The amounts are accrued by highway stretch, and interventions occur, on average, every four years, as follows:
Addition Financial 12/31/2016 (cost) Payment effect 12/31/2017
Recognition of provision for maintenance 1,002,111 140,257 - - 1,142,368 Present value effect on provision (210,773) (21,630) - - (232,403) Performance of maintenance (662,515) - (147,017) - (809,532) Present value adjustment – realizations (see Note 28) 139,249 - - 29,942 169,191 268,072 118,627 (147,017) 29,942 269,624
Current 87,531 90,503 Noncurrent 180,541 179,121
Addition Financial 12/31/2015 (cost) Payment effect 12/31/2016
Recognition of provision for maintenance 869,824 132,287 - - 1,002,111 Present value effect on provision (183,215) (27,558) - - (210,773) Performance of maintenance (562,443) - (100,072) - (662,515) Present value adjustment – realizations 111,277 - - 27,972 139,249 235,443 104,729 (100,072) 27,972 268,072
Current 55,869 87,531 Noncurrent 179,574 180,541
83 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
20. Provision for future construction works - Consolidated
The provision for future construction works matched against intangible assets arises from the amounts to be disbursed to comply with the contractual concession obligations, whose economic benefits have already been recognized by the Company matched against intangible assets. The amounts are adjusted to present value at rates from 9.50% to 10.73% p.a., on average, corresponding to weighted average rates for funding.
This provision is in accordance with the guidance from the Brazilian FASB - (CPC) - OCPC-05, items 31 to 33, which address construction services not representing potential generation of additional revenue, by which the Company must estimate the amounts referring to these construction works and recognize liabilities against intangible assets at the inception of the contract. Changes and balances of provisions are as follows:
Financial 12/31/2016 Payment effect 12/31/2017
Recognition of provision for future construction works 117,975 - - 117,975 Present value effect on provision (21,327) - - (21,327) Performance of construction (35,867) (11,454) - (47,321) Present value adjustment – realizations (see Note 28) 11,111 - 4,828 15,939 71,892 (11,454) 4,828 65,266
Current 38,124 57,568 Noncurrent 33,768 7,698
Financial 12/31/2015 Payment effect 12/31/2016
Recognition of provision for future construction works 117,975 - - 117,975 Present value effect on provision (21,327) - - (21,327) Performance of construction (10,727) (25,140) - (35,867) Present value adjustment – realizations 8,947 - 2,164 11,111 94,868 (25,140) 2,164 71,892
Current 43,227 38,124 Noncurrent 51,641 33,768
84 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
21. Concession rights payable
I) Fixed and variable fees
12/31/2017 12/31/2016 Installments: Fixed – Ecovias (a) 6,330 26,249 Variable – Ecovias (b) 1,500 1,448 Variable – Ecopistas (b) 412 380 Variable - Ecosul (e) 214 196 Inspection fee - Eco101 (i) 518 496 Inspection fee - Ecoponte (h) 269 258 Other – Ecovia – Inspection fee (c) (g) 257 248 Other – Ecovia – Highway Patrol fee (d) 466 355 Other – Ecocataratas – Inspection fee (f) (g) 302 294 Other - Ecocataratas - PRE/PRF (k) 2,794 1,522 Other – Ecoporto – CODESP fees (j) 426 995 13,488 32,441
Current 13,488 25,014 Noncurrent - 7,427
(a) The highway service concession arrangement of subsidiary Ecovias dos Imigrantes, dated May 27, 1998, subdivides fixed fees into 240 fixed consecutive monthly installments, maturing from the first month of collection, adjustable annually based on IGP-M variation disclosed by Fundação Getulio Vargas (FGV). At December 31, 2017, four installments remain unpaid and payments made correspond to 98.33% of total amount (93.33% at December 31, 2016). (b) In Ecovias and Ecopistas, the variable installment is calculated and paid monthly at 1.5% of revenue collection. (c) Payment of an annual inspection fee in monthly installments during the term of the agreement, which is R$60 per month from the beginning to the 11th year, and R$66 per month from the 12th year to the end of the agreement. At December 31, 2017, the monthly restated amount is R$257 (R$248 at December 31, 2016). (d) Payment of a fee to equip the Highway Patrol of subsidiary Ecovia. (e) The variable installment is calculated and paid monthly at 1% of the revenue from toll collection. (f) Payment of an annual inspection fee in 12 monthly installments of R$77 during the term of the arrangement, adjusted proportionally to the toll fee adjustment indices. At December 31, 2017, the adjusted installment is R$302 (R$294 at December 31, 2016). (g) Subsidiaries Ecovia and Ecocataratas charge a monthly inspection fee from the Regulatory Agency of the state of Paraná (AGEPAR – Agência Reguladora do Paraná), corresponding to 0.5% of toll collection revenue. (h) According to the arrangement entered into on May 18, 2015, the amount of R$210 shall be paid as inspection fees up to the end of the concession period under the same terms and indices as the highway toll fees. At December 31, 2017, the restated amount is R$269. (i) The annual inspection fee of Eco 101 shall be R$3,722 divided into 12 installments to be paid to ANTT up to the 5 th business day of the month following the due date. This amount will be adjusted on an annual basis, on the same date and at the same percentages of toll fee adjustments.
85 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
21. Concession rights payable (Continued)
I) Fixed and variable fees (Continued)
(j) These refer to payments of fees to Companhia de Docas do Estado de São Paulo – CODESP of subsidiary Ecoporto Santos for releases and handling of containers, berth zone infrastructure and declaration of customs transit. (k) Payment of fee to equip the Highway Patrol. This fee is intended to acquire equipment used by the Highway Patrol.
Indirect subsidiaries Ecovias dos Imigrantes and Ecopistas have insurance coverage against risks incidental to the development of all activities involved in the concession. The insurance coverage shall be effective until the agreement for the definitive return of the highway system is executed.
The maturity of noncurrent installments is as follows:
12/31/2017 12/31/2016
2018 - 7,427 - 7,427
Changes in concession rights payable are as follows:
12/31/2017 12/31/2016
Balance at beginning of year 32,441 43,490 Cost (Note 26) 54,177 53,079 Monetary variation on concession rights payable (see Note 28) (1,220) 4,497 Payment of principal (71,910) (68,625) Balance at end of year 13,488 32,441
II) Other concession-related commitments
Concessionária Ecovia Caminho do Mar S.A.
The subsidiary assumed the responsibility for repair, routine maintenance and upkeep of pavement in access roads leading to the highways, as follows (except operation):
· 2.6 km of the PR-804 Highway stretch between BR-277 and PR-408; · 13.2 km of the PR-408 Highway stretch between Morretes and BR-277; · 9.6 km of the PR-408 Highway stretch between PR-340 and Morretes; · 13 km of the PR-411 Highway stretch between PR-410 (São João da Graciosa) and Morretes.
86 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
21. Concession rights payable (Continued)
II) Other concession-related commitments (Continued)
Concessionária Ecovia Caminho do Mar S.A. (Continued)
Under the concession agreement, the toll fees are adjusted annually on the base date December 1, based on basket of indices.
Concessionária Ecovias dos Imigrantes S.A.
The subsidiary assumed the responsibility for widening of Imigrantes Highway between km 41.0 and km 58.0 (downward lane), initially estimated to be completed in the first half of 2003. This commitment was fulfilled in advance on December 17, 2002, upon delivery of the construction work.
Under the concession agreement, the toll fees are adjusted annually on the base date July 1, based on the lower of IGP-M and IPCA.
Empresa Concessionária das Rodovias do Sul S.A. - Ecosul
The concession operator assumed the following commitments arising from the concession: Repair, routine maintenance and upkeep of pavement of the five highway stretches that form the system, totaling a length of 509.1 km, as estimated in the operating costs and investment schedule of the operation program.
Under the concession agreement, the toll fees are adjusted annually on the base date January 1, based on basket of indices.
Rodovia das Cataratas S.A. - Ecocataratas
Ecocataratas assumed the following commitments arising from the concession:
Repair, routine maintenance and upkeep of pavement in access roads leading to the highways, as follows (except operation):
· 7.64 km of the PR-474 Highway access road between BR-277 and the city of Campo Bonito, state of Paraná. · 37.03 km of the PR-180 Highway access road between BR-277 and the Juvinópolis district in the city of Cascavel, state of Paraná.
87 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
21. Concession rights payable (Continued)
II) Other concession-related commitments (Continued)
Rodovia das Cataratas S.A. – Ecocataratas (Continued)
· 13.58 km of the PR-590 Highway access road between BR-277 and the city of Ramilândia, state of Paraná. · 13.59 km of the PR-874 Highway access road to tourist resort in the city of Santa Terezinha de Itaipu, state of Paraná.
Under the concession agreement, the toll fees are adjusted annually on the base date December 1, based on basket of indices.
Concessionária das Rodovias Ayrton Senna e Carvalho Pinto S.A. - Ecopistas
Ecopistas assumed the following commitments arising from the concession:
In January 2017, the São Paulo State Official Gazette published an administrative denial referring to the contractual unbalance arising from changes in the project intended to extend Rodovia Carvalho Pinto, which is under the concession of indirect subsidiary Ecopistas by Artesp, in an additional amount of R$221 million, of which R$63 million have already been realized until December 31, 2017. The Company understands that the additional amount of R$284 million would restore the contractual balance. The indirect subsidiary filed an appeal for the right to contractual balance.
Under the concession agreement, the toll fees are adjusted annually on the base date July 1, based on the IPCA.
ECO101 Concessionária de Rodovias S.A.
The concession operator assumed the following commitments arising from the concession:
· Technological development funds: during the concession period, the concession operator shall allocate R$620 p.a. to projects and studies intended for technological development, according to ANTT regulation.
88 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
21. Concession rights payable (Continued)
II) Other concession-related commitments (Continued)
ECO101 Concessionária de Rodovias S.A. (Continued)
Under the concession agreement, the toll fees are adjusted annually on the base date May 18, based on the IPCA.
Concessionária Ponte Rio-Niterói S.A. - Ecoponte
The concession operator assumed the following commitments arising from the concession:
· Payment of ANTT inspection fee in the initial amount of R$2,524, adjusted on an annual basis by the highway toll fee adjustment index. Technological development funds: during the concession period, the concession operator shall allocate R$421 p.a. to projects and studies intended for technological development, according to ANTT regulation.
Under the concession agreement, the toll fees are adjusted annually on the base date June 1, based on the IPCA.
The concession operators estimate the amounts listed below, at December 31, 2017, to meet investment obligations, repairs and maintenance until the end of the service concession agreement terms. These amounts may be undergo changes due to contractual adjustments and periodic reviews of cost estimates during the concession period, and are checked at least annually:
89 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
21. Concession rights payable (Continued)
12/31/2017 Forecast at the end of the concession term
Ecovia Ecosul Ecovias Ecocataratas Ecopistas Eco101 Ecoponte Total Nature of costs Improvements in 229,0 infrastructure 64,373 19 89,439 72,787 63,522 1,657,807 611,686 2,788,633 Special upkeep (maintenance) 44,384 66,950 223,586 194,627 385,860 562,604 417,870 1,895,881 Equipment 11,090 37,114 53,000 8,747 225,202 343,021 86,332 764,506 Total 119,847 333,083 366,025 276,161 674,584 2,563,432 1,115,888 5,449,020
12/31/2016 Forecast at the end of the concession term
Ecovia Ecosul Ecovias Ecocataratas Ecopistas Eco101 Ecoponte Total Nature of costs Improvements in infrastructure 74,129 239,332 115,064 129,623 66,274 1,698,843 725,679 3,048,944 Special upkeep (maintenance) 48,232 66,320 228,847 263,317 404,445 546,496 439,444 1,997,101 Equipment 11,265 12,816 43,057 8,496 220,238 334,482 93,520 723,874 Total 133,626 318,468 386,968 401,436 690,957 2,579,821 1,258,643 5,769,919
22. Information on the service concession arrangements of Ecovia, Ecocataratas and Ecoporto Santos
Additional information on the concession arrangement
Ecocataratas
Rodovia das Cataratas S.A. - Ecocataratas is part of the Paraná state concession program, duly tendered and contracted in 1997, together with five other concession operators. The concession expires in November 2021.
The concession operator and the Granting Authority – the Parana State Department of Roads (DER/PR) entered into an Amendment to the Concession Arrangement 073/97 on October 27, 2016, through which both parties promoted the economic and financial balance of the agreement and ended any legal claims relating to this matter.
90 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
22. Information on the service concession arrangements of Ecovia, Ecocataratas and Ecoporto Santos (Continued)
Additional information on the concession arrangement (Continued)
Ecocataratas (Continued)
In November 2016, the decision of the Federal Audit Court deriving from the appraisal of the review requests submitted by the Concessionaires in April 2012, in response to a request from the National Congress to audit the highway concession arrangements of the state of Paraná. This decision determines that the Granting Authority analyze the existence of any economic and financial unbalance in the contracts and adopt the tariff periodic review provision.
Also in December 2016, the decision of the Paraná State Audit Court referring to the preliminary audit report of Ecocataratas’ concession arrangement was ruled down. The referred to judgment partially included the audit report recommendation for implementation of an appropriate audit structure by the Regulatory Bodies, as well as converted this procedure into an extraordinary accountability assessment. The Concessionaire, the Granting Authority and the Regulatory Agency filed appeals on the referred to decision. There is still no final decision. Management analyzed these matters in detail and concluded that, although there are associated risks, the likelihood of these events significantly affecting the Company’s financial position and operations is not probable.
Any decision from the Audit Court may still be subject to analysis before the Judiciary.
Ecovia
Concessionária Ecovia Caminho do Mar S.A. is part of the Paraná state concession program, duly tendered and contracted in 1997, together with five other concession operators. The concession expires in November 2021.
The concession operator and the Granting Authority – the Parana State Department of Roads (DER/PR) entered into the 5th Amendment to the Concession Arrangement 076/97 on September 6, 2017, through which both parties promoted the economic and financial balance of the agreement and ended any legal claims relating to this matter.
In November 2016, the decision of the Federal Audit Court was handed down, deriving from the appraisal of the review requests submitted by the Concessionaires in April 2012, in response to a request from the National Congress to audit the highway concession arrangements of the state of Paraná. This decision determines that the Granting Authority analyze the existence of any economic and financial unbalance in the contracts and adopt the tariff periodic review provision.
91 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
22. Information on the service concession arrangements of Ecovia, Ecocataratas and Ecoporto Santos (Continued)
Additional information on the concession arrangement (Continued)
Ecosul (Continued)
Management analyzed these matters in detail and concluded that, although there are associated risks, the likelihood of these events significantly affecting the Company’s financial position and operations is not probable.
Ecoporto Santos S.A.
The lease agreement entered into between Companhia Docas do Estado de São Paulo - CODESP and Ecoporto Santos S.A. has an estimated term of 25 years. Five amendments to the agreement were entered into, which, however, do not change the term of the agreement, expiring on June 12, 2023, in principle. The Sixteenth Clause to the agreement provides for its extension duly requested up to 12 months prior to the expiration date. The Granting Authority may grant such extension to the extent that Ecoporto Santos has met all legal and contractual obligations. After the establishment of the new regulatory framework of the sector, the Granting Authority is now the Ministry of Transportation, Ports and Civil Aviation (MTPAC), and the National Water Transportation Agency (ANTAQ) will be responsible for the inspection and regulation of the sector. Ecoporto Santos requested the extension of the contract in advance, supporting the process with the applicable documentation, and the administrative process should continue to progress in the respective bodies. With regard to the agreement extension, it is necessary to comply with provisions of legislation and sector regulation (article 57 of Law No. 12815/2013, Decree No. 8033/2013, as amended, SEP Ordinance No. 349/2014, and ANTAQ Resolution No. 3220/2014), which require that Ecoporto Santos´ request be accompanied by an Investment Plan, and Environmental, Technical and Economic Feasibility Study (EVTEA), as well as by information necessary to evaluate compliance with existing contractual obligations. Under prevailing legislation, management believes that the likelihood of acknowledgment of the right to extension of the Lease Agreement is high, provided Ecoporto Santos´ current performance is maintained and the provisions set out in the sector regulations, particularly the feasibility study for the new contractual term, are observed. Consequently, the public interest in maintaining the activities will be sustained, and this will be the line of action that Ecoporto Santos will adopt. It should be noted that two class actions 0010874-75.2002.403.6104 and 0002925-92.2005.4.03.6104 are in progress at the 1st Civil Court of Santos, challenging the validity of the agreement and its amendments.
92 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
22. Information on the service concession arrangements of Ecovia, Ecocataratas and Ecoporto Santos (Continued)
Additional information on the concession arrangement (Continued)
Ecoporto Santos S.A. (Continued)
In March 2015, the Federal Regional Court (TRF) of the 3rd Chapter denied the appeals filed by the Company. The Company is expecting judgment of the motions for clarification by the TRF of the 3rd Chapter, after which, if upheld, will be subject to appeal to the Higher Courts. The processes are currently suspended. TRF´s decision does not alter management's belief in the outcome of the proceedings, based on opinions of renowned attorneys and outcomes of administrative proceedings on the same issue, which support the expectation of a favorable outcome on these lawsuits. Decisions have been handed down within the scope of Complaint No. 012.194/2002-1 of the Federal Audit Court and of Administrative Proceeding No. 50300.000155/2013-62 of ANTAQ, on the same matter, recognizing the possibility of extending the lease arrangement. The amortization and depreciation term considers the extension of the concession arrangement for another 25 years (until 2048) and management will assess this scenario on an annual basis.
Accrued payroll and related charges were recognized in the Company’s P&L under ‘Cost of services’ and ‘General and administrative expenses’, according to the employee’s assignment.
23. Provision for losses on civil, labor, and tax contingencies
Accounting policy
EcoRodovias Group is party to various legal and administrative proceedings. Provisions are recorded for all contingencies related to legal proceedings for which the outflow of funds to settle the contingency/obligation is considered probable and a reasonable estimate may be made.
An unfavorable outcome for such proceedings, either individually or in the aggregate, could lead to a significant adverse effect on the Company’s financial position or business.
93 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
23. Provision for losses on civil, labor, and tax contingencies (Continued)
Accounting policy (Continued)
Changes in the provision for the year are as follows:
Civil (a) Labor (b) Tax (c) Total
Balances at January 1, 2017 146,521 26,623 9,224 182,368 (+/-) Supplement (reversal) of provision 545 9,996 (256) 10,285 (-) Payments (9,022) (7,273) - (16,295) (+) Monetary restatement 15,285 4,349 1,216 20,850 Balances at December 31, 2017 153,329 33,695 10,184 197,208
Civil (a) Labor (b) Tax (c) Total
Balances at January 1, 2016 154,974 40,581 19,506 215,061 Assets and liabilities held for sale (*) (5,616) (21,019) (16,088) (42,723) (+/-) Supplement (reversal) of provision 6,862 7,796 758 15,416 (-) Payments (2,712) (8,444) (197) (11,353) (+) Monetary restatement (747) 5,138 1,576 5,967 (+/-) Reclassifications (6,240) 2,571 3,669 - Balances at December 31, 2016 146,521 26,623 9,224 182,368
(*) As mentioned in Note 6.b, the Company classified Elog S.A. and some of its subsidiaries as assets and liabilities held for sale. The amount of R$42,723 refers to balances of provisions for losses on tax, labor, and civil contingencies written off on January 1, 2016 from discontinued operations.
(a) Civil proceedings
The amount provisioned mainly refers to claims for compensation for damages and losses due to highway accidents. The Company and its subsidiaries recorded other provisions for civil contingencies, which at December 31, 2017 totaled R$530,826 (R$394,851 at December 31, 2016), for which the likelihood of loss was assessed by the Company’s legal counsel and management as possible; accordingly, no provision was recognized.
The main proceedings assessed as probable losses, i.e., for which a provision was recorded, are as follows:
94 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
23. Provision for losses on civil, labor, and tax contingencies (Continued)
Accounting policy (Continued)
(a) Civil proceedings (Continued)
(i) Indirect subsidiary Ecovias is party to a civil class action brought by the Public Prosecution Office of the state of São Paulo, based on its interpretation that the Concessionaire did not pay part of the amount relating to environmental compensation upon construction of the descending lane of Imigrantes highway. The claims made by the Public Prosecution Office as advanced relief were dismissed and the interlocutory appeal filed to reverse the decision was denied. In April 2013, a reconciliation hearing was held as requested by the Company, in order to attempt a legal agreement, which was unsuccessful. In August 2017, a partially favorable decision was handed down, sentencing Ecovias to pay R$36,917. The appeals filed by CDHU and by the Public Prosecution Office are awaiting judgment. Once the likelihood of loss was assessed as probable, a provision of R$30,920 was recorded on September 30, 2013 (R$49,405 restated at December 31, 2017), matched against intangible assets, under “Service concession arrangements”. The assumption used to record under “Service Concession Agreement” was made by the Company management, considering that this amount will be subject to claim for economic and financial balance of the concession arrangement with the Granting Authority. On September 29, 2014, a judicial deposit amounting to R$38,828 was made and, at December 31, 2017, the restated amount totals R$49,405 (R$46,064 at December 31, 2016). (ii) Direct subsidiary Ecoporto Santos filed a precautionary action with a motion for a preliminary injunction to suspend the effects of the administrative decision handed down by CADE, which found the collection of the Segregation and Delivery of Containers service offensive to the economic order. The collection was made up to August 2012, through a legal authorization by means of deposit available to the trial court. Upon the issue of an adverse judgment in August 2012, the Company decided to suspend such collection, safeguarding the right of collection in due time. On December 7, 2017, by majority vote, the appeals filed by the Federal Government and Ecoporto Santos were dismissed. Publication of the decision that will subject matter of appeals to the Higher Courts is currently being expected. At December 31, 2017, the contingency amounts to R$76,719 (R$72,025 at December 31, 2016), for which judicial deposits were made, and these restated amounts are equivalent to the provision recorded.
95 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
23. Provision for losses on civil, labor, and tax contingencies (Continued)
Accounting policy (Continued)
(a) Civil proceedings (Continued)
The main proceeding assessed as possible loss, i.e., for which no provision was recorded, is as follows:
(i) Washington Barbeito de Vasconcellos, Zardust Empreendimentos Marítimos Ltda. Agnes Dagmar Bullentini Barbeito de Vasconcellos, and Yuri Bullentini Barbeito de Vasconcellos (“Plaintiffs”) filed a lawsuit against the Company and its subsidiaries Ecoporto Transporte Ltda. (“Ecoporto Transporte”), Ecoporto Santos S.A. (“Ecoporto Santos”), and Termares Terminais Marítimos Especializados Ltda. (“Termares”). Aba Infra-Estrutura e Logística Ltda. (“Aba”) and FCA Comércio Exterior e Logística Ltda. (FCA”) are also defendants in the lawsuit. The plaintiffs claim that the defendants be sentenced to pay approximately R$164,670, restated at December 31, 2017, as a "premium for the sale of equity interest of COMPLEXO TECONDI”, which supposedly corresponds to 50% overprice that their former Aba and FCA shareholders received from the Company for the sale of Ecoporto Santos. . The plaintiffs claim that the defendants be required to release part of the sale price already paid and maintained in an escrow account, at the restated amount of R$86,352 as of December 31, 2017, on the alleged grounds that this retention would have no legal basis, in addition to a contractual fine of R$6,045. On July 27, 2015, the Company challenged the claim together with its subsidiaries. A reply and rejoinders were filed thereafter. There was no reconciliation at the designated hearing and the expert accounting evidence is currently being awaited. Based on the opinion of the lawyers engaged in the case, the Company is confident that the outcome will be favorable, the loss of which is assessed as possible pursuant to the applicable accounting standards. At December 31, 2017, the restated amount is R$334,877.
(b) Labor claims The amount provisioned mainly refers to claims for compensation for occupational injuries and overtime pay. There are no proceedings involving an individual significant amount. At December 31, 2017, there are also other lawsuits of the same nature totaling R$115,828 (R$105,125 at December 31, 2016), which were assessed as possible losses by legal counsel and management. The main labor claim refers to recognition of employment relationship of a service provider, which awaits hearing, but the indirect subsidiary Ecovia Caminho do Mar assessed the likelihood of loss as possible classification, therefore no provision was recorded.
96 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
23. Provision for losses on civil, labor, and tax contingencies (Continued)
Accounting policy (Continued)
(b) Labor claims (Continued)
In August, a decision of the Labor Court of Appeals (TST) altered the restatement rate for labor claims. The Daily Reference Rate (TR) previously used was replaced by the Special Extended Consumer Price Index (IPCA-E), plus 12% interest p.a., to be used for the restatement of labor claims retroactively from June 30, 2009. In a recent decision, the Higher Court of Justice granted an injunction to a class entity for the suspension of restatements by the IPCA-E as determined by the Labor Court of Appeals, upholding grounds for discussion on the appropriateness of applying that restatement.
The Company’s legal counsel believes that there are good grounds for defense that determine that the Company will succeed in not applying the IPCA-E restatement index, and in its understanding, this process is likely to have a favorable outcome.
(c) Tax proceedings
The provision corresponds mainly to rate and tax base differences of taxes paid on ancillary revenue. At December 31, 2017, there are also other tax proceedings totaling R$158,746 (R$147,276 at December 31, 2016), which were assessed as possible losses by the Company’s legal counsel and management and, therefore, no provision was recorded.
The main tax proceedings are as follows:
Tax proceedings challenging the tax notice served by the Brazilian IRS in Pelotas, state of Rio Grande do Sul, for the non-payment of income and social contribution taxes on profit sharing paid to management of the indirect subsidiary Ecosul, and challenging of the depreciation rate of improvements made in concession properties, for which the likelihood of loss was assessed by the legal counsel as possible. The total amount at December 31, 2016 was of R$9,045 and, as of December 31, 2017, the case was closed as the Company joined the Tax Recovery Program (REFIS).
97 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
23. Provision for losses on civil, labor, and tax contingencies (Continued)
Accounting policy (Continued)
(c) Tax proceedings (Continued)
The process involving the indirect subsidiary Ecocataratas classified as possible, i.e., for which no provision was recorded, refers to the requirement to pay IRPJ and CSLL on goodwill amortization expenses generated upon acquisition of equity interest deducted by the Company between calendar years 2010 and 2015. On November 14, 2016, a challenge was filed against the AIIM, still pending judgment by the Brazilian IRS Office. The amount at issue at December 31, 2017 is R$121,739 (R$110,838 at December 31, 2016).
24. Equity – Consolidated
a) Capital
At December 31, 2017, fully subscribed and paid-in capital of R$360,900 was divided into 558,699,080 registered common shares with no par value.
The Extraordinary General Meeting held on September 12, 2016 decided to absorb the Company’s accumulated loss, reducing the Company capital from R$1,320,549 to R$360,900.
b) Authorized capital
In accordance with the Articles of Incorporation, the Company is authorized to increase capital to up to R$2,000,000, upon Board of Directors’ resolution, subject to the statutory terms and conditions for issue and exercise of preemptive rights.
c) Income reserve – legal
Legal reserve is set up based on 5% of the adjusted net income for the year up to a limit of 20% of capital.
d) Proposed dividends
Shareholders are entitled to dividends and/or interest on capital of at least 25% of the adjusted net income for the year, calculated in conformity with article 202 of Law No. 6404/76.
98 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
24. Equity – Consolidated (Continued)
d) Proposed dividends (Continued)
Dividends and interest on equity was not paid in the year ended December 31, 2017. On April 28, 2016, the balance of remaining dividends for 2015 was approved at the Annual General Meeting, reclassified to current liabilities and to be distributed through December 31, 2016, as resolved by the board of directors.
12/31/2017 12/31/2016
Income/(loss) for the year 392,486 (964,622) Absorption of loss through legal reserve - 160,791 Absorption of loss through capital - 959,649 392,486 155,818 Legal reserve (19,624) (7,791) Dividend calculation base 372,862 148,027
Interim dividends paid (130,000) (43,013) Proposed additional dividends (*) (242,862) (105,014)
(*) Proposed additional dividends on common shares are subject to approval at the Annual General Meeting and are not recognized as a liability as of December 31, 2017.
e) Treasury shares
The Board of Directors approved four Share Buyback Programs that would take place without capital reduction and with the use of reserves, for cancellation or holding in treasury, as well as for resale, placement in the market, or as collateral for the Company’s stock option plans, as follows:
1st Program 2nd Program 3rd Program 4th Program
Date 08/31/2010 05/30/2012 06/05/2013 06/06/2014 Term 365 days 365 days 365 days 365 days Number of outstanding common shares in the market 144,003,000 143,737,879 200,669,081 199,611,859 Maximum number of common shares to be acquired 4,000,000 1,500,000 1,700,000 2,400,000
99 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
24. Equity – Consolidated (Continued)
e) Treasury shares (Continued)
The Company holds 2,232,992 common shares held in treasury calculated based on their average quotation on the last trading session at December 30, 2017, of R$27,467. Total amount of these shares, based on the trading session average quotation at December 30, 2017, is R$12.30 (R$8.24 at December 31, 2016).
The Company recognized a reserve for future purchase of shares under the stock option plan in the amount of R$30,825, which was transferred to ‘Capital reserve’, as determined in the articles of incorporation.
f) Noncontrolling interests
12/31/2017 12/31/2016
Balance at beginning of year 72,583 55,979 Profit sharing 19,845 15,488 Recognized options granted 21 42 Capital increase 18,060 4,200 Payment of dividends to noncontrolling interest holders (12,562) (3,126) Balance at end of year 97,947 72,583
25. Net revenue – Consolidated
Accounting policy
Revenue
Revenue is measured at fair value of the consideration received or receivable, less any estimates of cancellations, and income from operations is determined in accordance with the accrual basis of accounting, as follows:
(a) Revenue from tolls, recognized when users pass through the toll plaza.
Revenue from advance sales of toll coupons is recorded as "Deferred income" in noncurrent liabilities, under “Other accounts payable”, and is allocated as income to P&L for the year as users pass through the toll plaza.
100 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
25. Net revenue – Consolidated (Continued)
(b) Revenue related to construction or improvement services under the service concession agreement is recognized based on the stage of work completion. Revenue from operations or construction is recognized for the year in which the services are rendered by the Company. When the Company renders more than one service under a service concession arrangement, revenue received is allocated in reference to fair value related to services delivered.
(c) Port revenue arises from port operations, in addition to handling and storage of import and export cargo with a specific terminal in the port of Santos.
Revenue earned by direct subsidiaries operating in Santos Port: Ecoporto Santos and Termares.
(d) Ancillary revenue refers to other revenues of highway concessionaires, such as the lease of area for fiber optics, use of land along the highway, sales of advertising, implementation and concession of access ways, among others.
(e) Intercompany revenue refers to revenue from the rendering of administrative, financial, human resources, information technology, engineering, and corporate procurement services for EcoRodovias Group companies.
Breakdown of operating revenue is shown below:
12/31/2017 12/31/2016
Revenue from toll collection (a) 2,533,994 2,261,451 Construction revenue (b) 586,536 451,408 Port revenue (c) 276,632 290,501 Ancillary revenue (d) 92,006 75,746 Revenue from services rendered – intercompany (e) 3,740 7,779
Total gross revenue 3,492,908 3,086,885
Revenue deductions (292,204) (257,889) Net revenue 3,200,704 2,828,996
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Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
25. Net revenue – Consolidated (Continued)
12/31/2017 12/31/2016 Tax base Revenue from toll collection 2,533,994 2,261,451 Port revenue 276,632 290,501 Ancillary and intercompany revenue 95,746 83,525 2,906,372 2,635,477 Deductions COFINS (i) (114,503) (106,298) PIS (ii) (24,808) (23,087) ISS (iii) (141,559) (128,302) Other - ICMS (1) (202) Rebates (11,333) - (292,204) (257,889)
(i) Rate: for concessionaires 3% and ports and logistics 7.6%.
(ii) Rate: for concessionaires 0.65% and ports and logistics 1.65%.
(iii) Rate average of 4.8%.
26. Operating costs and expenses – by nature
Company Consolidated 12/31/2017 12/31/2016 12/31/2017 12/31/2016
Personnel 20,073 14,475 330,675 332,643 Maintenance, upkeep and other 275 223 81,665 82,305 Third-party services (*) 4,648 7,470 172,642 152,263 Insurance 371 190 16,383 19,750 Depreciation and amortization (Notes 13 and 14) 674 658 418,506 339,966 Granting authority (Note 21) - - 54,177 53,079 Lease of real estate, machinery and forklifts 901 1,225 33,277 30,114 Provision for maintenance (Note 19) - - 118,627 104,729 Cost of construction work - - 586,536 451,408 Other operating costs and expenses 1,190 1,048 55,800 69,699 28,132 25,289 1,868,288 1,635,956 Classified as: Cost of services rendered - - 1,643,157 1,545,436 General and administrative expenses 28,132 25,289 225,131 90,520 28,132 25,289 1,868,288 1,635,956
(*) Third-party services are basically composed of assurance and advisory, freight, cleaning, surveillance, ambulances, rescues and removals.
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Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
27. Selling expenses – Consolidated
Selling expenses refer to commissions and sea freight forwading services of direct subsidiaries Ecoporto Santos and Termares. In the year ended December 31, 2017, these expenses totaled R$134,345 (R$120,241 as of December 31, 2016).
28. Finance income (costs)
Company Consolidated 12/31/2017 12/31/2016 12/31/2017 12/31/2016
Finance income: Short-term investment yield 6,077 5,834 66,214 101,875 Interest on intercompany loans 4,787 4,317 - - Capitalized interest - - 18,472 6,628 Monetary gain or loss on debentures - - 11,571 6 Monetary gain or loss on granting right (Note 21) - - 1,220 - Monetary restatement of tax credits 2,405 3,793 14,409 14,652 Exchange/monetary gain or loss on loans - - 10,460 19,954 Other - 1 531 2,056 13,269 13,945 122,877 145,171 Finance costs: Interest on debentures/debt assignment and assumption (71,625) (90,204) (329,512) (364,312) Interest on loans and financing - - (58,224) (102,085) Monetary gain or loss on debentures/debt assignment and assumption - - (78,166) (145,418) Monetary gain or loss on granting right (Note 21) - - - (4,497) Amortization of debenture issue costs/ debt assignment and assumption (31) (607) (10,216) (9,118) Present value adjustment – provision for maintenance and construction works - - (34,770) (30,136) Bank expenses (8) (10) (363) (240) Exchange/monetary gain or loss on loans and financing - - (19,987) (1,792) Interest on intercompany loans (40,877) (35,756) - - PIS and COFINS on finance income (1,611) (2,695) (17,821) (17,591) Monetary restatement of tax obligations (191) (408) (20,262) (13,564) Other (359) (607) (8,990) (10,778) (114,702) (130,287) (578,311) (699,531)
Finance income (costs), net (101,433) (116,342) (455,434) (554,360)
103 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
29. Earnings/(loss) per share – Consolidated
12/31/2017 12/31/2016
Basic earnings/(loss) – P&L for the year 0.71 (1.73) Diluted earnings/(loss) – P&L for the year 0.70 (1.71)
Basic earnings/(loss) – P&L from continuing operations 0.75 (0.47) Diluted earnings/(loss) – P&L from continuing operations 0.75 (0.46)
a) Basic earnings/(loss) per share
12/31/2017 12/31/2016
Income/(loss) attributable to controlling shareholders 392,486 (964,622) Income/(loss) attributable to controlling shareholders of continuing operations 419,984 (259,833) Weighted average number of common shares issued 558,699 558,699 Weighted average of treasury shares (2,233) (2,233) Weighted average number of outstanding common shares 556,466 556,466
Basic earnings/(loss) per share – R$ 0.71 (1.73) Basic earnings/(loss) per share from continuing operations - R$ 0.75 (0.47)
b) Diluted earnings/(loss)
12/31/2017 12/31/2016
Income/(loss) attributable to controlling shareholders 392,486 (964,622) Income/(loss) attributable to controlling shareholders of continuing operations 419,984 (259,833) Weighted average number of outstanding common shares 556,466 556,466 Executive plan for stock option plan 6,472 6,987 Weighted average number of common shares for earnings/(loss) 562,938 563,453
Diluted earnings/(loss) per share – R$ 0.70 (1.71) Diluted earnings/(loss) per share from continuing operations - R$ 0.75 (0.46)
104 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
30. Risk management and financial instruments – Consolidated
Capital management
EcoRodovias Group manages capital to ensure that its companies are able to continue as going concerns while maximizing returns of all interested or involved parties, by optimizing debt and equity balances.
The Company’s capital structure consists of net debt and equity.
The Company reviews the capital structure on a half-yearly basis. As part of this review, the cost of capital and risks inherent in each capital class are considered.
Debt-to-equity ratio
Company Consolidated 12/31/2017 12/31/2016 12/31/2017 12/31/2016
Debt (a) 84,053 - 6,012,104 4,962,701 Cash and cash equivalents and marketable securities - restricted (8,188) (3,096) (1,677,815) (658,623) Net debt 75,865 (3,096) 4,334,289 4,304,078 Equity (b) 658,623 499,964 756,570 572,547 Gearing ratio - % 0.12 (0.01) 5.73 7.52
(a) Debt is defined as current and noncurrent loans and financing, debentures and obligations with the Granting Authority, as detailed in Notes 16,17 and 21. (b) Equity includes all the Company’s capital and reserves, managed as capital.
General considerations:
· Management of the Company and its subsidiaries selects the financial institutions in which short-term investments can be made and sets the limits of the fund allocation percentages and amounts to be invested in each financial institution. Short-term investments are defined as loans and receivables. · Short-term investments and marketable securities – restricted: consisting of fixed income investment funds and repurchase agreements, bearing interest at weighted average rates of 98.6% of the CDI (99.8% at December 31, 2016), which reflect the market conditions at the statement of financial position dates. · Trade accounts receivable: arise directly from the Company’s operations, classified as loans and receivables and recorded at original amounts, subject to provision for losses and present value adjustment, when applicable.
105 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
30. Risk management and financial instruments – Consolidated (Continued)
Capital management (Continued)
General considerations (Continued)
· Loans, financing, debentures and concession rights payable: classified as other financial liabilities; therefore, not measured at fair value, and accounted for based on the contractual amounts established for each transaction, as shown in Notes 16, 17 and 21.
Fair value of financial assets and liabilities
The book and market values of the main consolidated financial instruments of the Company and its subsidiaries at December 31, 2017, are as follows:
Book Classification balance Fair value Assets: Cash and banks Loans and receivables 38,078 38,078 Trade accounts receivable (a) Loans and receivables 150,359 150,359 Short-term investments and marketable securities (b) Loans and receivables 1,639,737 1,639,737
Liabilities: Trade accounts payable (a) Other financial liabilities 89,544 89,544 Loans and financing (c) Other financial liabilities 583,368 583,368 Debentures (c) Other financial liabilities 5,415,248 5,415,248 Concession rights payable (d) Other financial liabilities 13,488 13,488 Phantom Stock Option (e) Other financial liabilities 11,409 11,409
(a) The balances of ‘Trade accounts receivable’ and ‘Trade accounts payable’ mature substantially within 45 days; therefore, they approximate the fair value expected by the Company. (b) The balances of short-term investments and marketable securities approximate fair value at the statement of financial position date. (c) Loans, financing, debentures and Phantom Stock Option approximate fair value at the statement of financial position date. (d) Calculated excluding the adjustment to present value of the fixed installments of “Concession rights payable”. (e) The phantom stock option amount is recorded under social and labor obligations.
106 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
30. Risk management and financial instruments – Consolidated (Continued)
Risk management
The Company is exposed to market risk, credit risk, and liquidity risk. Company management oversees the management of these risks, which are as follows:
a) Market risk
Market risk is the risk that the fair value of future cash flows from a financial instrument will fluctuate due to market price changes. For the Company, market prices comprise currency risk and interest rate risk.
i) Currency risk
The currency risk arises from the possible fluctuation of the exchange rates of foreign currencies used by certain Company subsidiaries, with which foreign currency- denominated equipment financing contracts are entered into.
At December 31, 2017, debt balance in foreign currency – Finimp, is as follows:
12/31/2017 12/31/2016
Ecoporto Santos S.A. - US$ 27,047 32,215
ii) Interest rate risk
The interest rate risk of the Company and its subsidiaries arises from short-term investments and loans bearing interest according to floating interest rates, which may be pegged to fluctuations in inflation rates. This risk is managed by the Company through maintenance of loans at fixed and floating interest rates.
EcoRodovias Group’s exposure to the interest rates of financial assets and liabilities is described in item ‘Liquidity risk management’ hereunder.
Pursuant to financial policies, the Company and its subsidiaries have been investing its funds in first-tier financial institutions and have not entered into transactions with financial instruments for speculative purposes.
107 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
30. Risk management and financial instruments – Consolidated (Continued)
Risk management (Continued)
b) Credit risk
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and banks, short-term investments, and trade accounts receivable.
The Company holds bank checking accounts and short-term investments with first-class financial institutions, approved by management, in accordance with objective criteria for credit risk diversification.
At December 31, 2017, the Company recorded receivables from Serviços de Tecnologia de Pagamentos S.A. - STP of R$102,928 (R$110,214 at December 31, 2016), arising from toll revenue collected by the electronic payment system (“Sem Parar”), recognized under “Trade accounts receivable”.
c) Liquidity risk
Liquidity risk arises from the Company's choice between equity capital (retention of profits and/or capital contributions) and third-party capital to finance its operations. Liquidity risk is managed by the Company by means of an appropriate model of risk and liquidity management to control fund raising needs and management of liquidity in the short, mid and long-term. The Company manages liquidity risk, maintaining adequate reserves, bank credit lines and credit lines for raising loans it may judge appropriate through the continuous monitoring of forecasted and actual cash flows, and also by combining the maturity profile of financial assets and liabilities.
108 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
30. Risk management and financial instruments – Consolidated (Continued)
Risk management (Continued)
c) Liquidity risk (Continued)
Contractual maturity is based on the most recent date on which the Company and its subsidiaries should settle the related obligations:
Between 13 Effective interest rate and 24 Between 25 and 36 More than 37 Type (weighted average) - % p.a. Next 12 months months months months
Debentures - ECOVIA 106.5% CDI 19,328 147,260 - Debentures - ECOSUL 107.0% CDI 20,104 12,473 152,762 Debentures - ECOSUL 107.5% CDI 51,779 - - Debentures - ECOSUL 107.0% CDI 6,439 4,188 51,810 Debentures - EIL CDI + 0.79% 10,149 6,592 82,848 Debentures - ECS CDI + 1.18% 241,259 - - Debentures - ECS CDI + 1.42% 36,470 203,584 188,367 Debentures - ECS CDI + 0.79% 86,090 - - Debentures - ECS 114.0% CDI 219,050 - - Debentures - ECS 105.5% CDI 43,176 25,094 26,709 438,264 Debentures - ECS 109.0% CDI 112,391 - - Debentures - ECS 106.0% CDI 23,637 23,065 339,546 Debentures - ECS 110.25% CDI 57,770 56,380 55,913 827,191 Debentures - Ecopistas 105.0% CDI 11,316 8,100 8,618 147,521 Debentures - Ecopistas 105.5% CDI 11,283 11,794 12,552 227,722 Debentures - Ecoporto Santos CDI + 1.85% 148,736 124,967 - Debentures - Eco101 CDI + 1.8% 27,140 - - Debentures - Cataratas 106.5% 24,818 190,628 - BNDES - Ecopistas TJLP + 2.45% 37,648 35,211 32,868 39,208 BNDES - Cataratas TJLP + 2.10% 4,014 - - BNDES – Eco101 TJLP + 3.84% 40,924 40,946 40,946 349,565 BNDES – Ecoponte TJLP + 3.48% 6,412 6,399 6,399 74,658 Debentures - ECS IPCA + 5.00% 125,901 121,395 - Debentures - Ecopistas IPCA + 8.25% 109,860 104,446 120,339 257,283 Debentures - ECS IPCA + 5.35% 36,172 31,517 229,889 445,740 Debentures - ECS IPCA + 6.0% 1,901 1,918 1,955 42,982 Debentures - Ecovias IPCA + 3.80% 17,394 145,326 143,867 Debentures - Ecovias IPCA + 4.28% 66,687 41,293 42,122 1,154,477 BNDES - Ecopistas IPCA + 2.45% 7,220 6,818 6,433 19,655 Lease - Ecosul 25.13% 29 - - Lease - Eco101 21.27% 122 122 - Finame - Ecosul 6.00% 58 55 48 Finame - Cataratas 2.50% 49 47 46 Finame - Cataratas 3.00% 28 - - Finame - Cataratas 6.00% 224 212 92 Finame - Ecoporto Santos 6.00% 2,018 1,912 1,147 Finimp - Ecoporto Santos Libor6M + VC + 2.0% 19,460 18,850 18,226 42,799 1,627,056 1,370,592 1,563,502 4,067,147
109 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
30. Risk management and financial instruments – Consolidated (Continued)
Sensitivity analysis
Risk of changes in interest rates
The sensitivity analysis was determined based on the exposure to interest rates of non-derivative financial instruments at year-end. For floating rate liabilities, the analysis is prepared assuming that the amount of the liability outstanding at year-end was outstanding during the entire year.
The sensitivity analysis was developed considering exposure to the variation in CDI, TJLP, IPCA and IGP-M and Libor, the main indices of debentures and loans and financing contracted by the Company and its subsidiaries:
Interest to be incurred Scenario I - Scenario II - Scenario II - Transaction Risk probable 25% 50%
Interest income (f) CDI decrease 82,974 62,231 41,487 Interest on debentures (a) CDI increase (326,078) (379,625) (432,915) Interest on debentures (c) IPCA increase (184,431) (187,190) (189,967) Loans and financing (d) TJLP increase (40,112) (50,140) (60,168) Loans and financing (c) IPCA increase (2,485) (3,107) (3,728) Loans and financing (e) US$ increase (3,367) (4,713) (6,260) Interest on concession rights payable (b) IGP-M increase (66) (82) (99) Interest to be incurred, net (473,565) (562,626) (651,650)
Loans in foreign currency outstanding at December 31, 2017 are subject to fixed interest rate and were measured at amortized cost.
The rates considered (projected for 12 months, except Libor, projected for six months) are as follows:
Scenario I - Scenario II - Scenario III - Index probable 25% 50%
CDI (a) 6.80% 8.50% 10.20% IGP-M (b) 4.18% 5.23% 6.27% IPCA (c) 3.86% 4.83% 5.79% TJLP (d) 7.00% 8.75% 10.50% Libor6M (e) 1.84% 2.30% 2.76% US$ (e) 3.3900 4.2375 5.0850 CDI (f) 6.80% 5.10% 3.40%
110 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
30. Risk management and financial instruments – Consolidated (Continued)
Sensitivity analysis (Continued)
Risk of changes in interest rates (Continued)
Gains and losses on these transactions are consistent with the policies and strategies established by management of the Company and its subsidiaries.
31. Segment reporting – Consolidated
The Company’s operating segments are reported in line with the internal reports provided to the Chief Operating Decision-Maker (CODM).
For purposes of performance evaluation, the set of information on the segments and fund allocation is analyzed.
The main segmentation by line of business is based on:
a) Concessions
Highways are the longest and most developed modes of transport in Brazil. The highway concessions connect major industrial, production, consumption, tourist centers, and Brazil’s three largest ports (Santos, Paranaguá and Rio Grande), in addition to providing access to other Mercosur countries. This segment includes the following companies: Concessionária Ecovias dos Imigrantes S.A., Concessionária Ecovia Caminho do Mar S.A., Empresa Concessionária de Rodovias do Sul S.A. - Ecosul, Concessionária das Rodovias Ayrton Senna e Carvalho Pinto S.A. - Ecopistas, Rodovia das Cataratas S.A. - Ecocataratas, ECO101 Concessionária de Rodovias S.A., and Concessionária Ponte Rio-Niterói S.A.– Ecoponte.
b) Holding and services
This segment includes EIL01, EIL02, EIL03, EIL04, and EcoRodovias Concessões e Serviços S.A., as holding companies in the concessionaire segment, and the parent company EcoRodovias Infraestrutura e Logística S.A. A.
111 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
31. Segment reporting – Consolidated (Continued)
c) Ports
This segment comprises port operations, as well as import and export cargo handling and warehousing activities, in its own terminal in the Port of Santos. Therefore, the following companies are included in this segment: Ecoporto Santos S.A. and Termares – Terminais Marítimos Especializados Ltda.
Net revenue by segment is broken down as follows:
12/31/2017 12/31/2016
Concessions 87.7% 86.0% Holding and services 5.1% 8.5% Ports 7.2% 5.5%
The performance of the Company’s segments was assessed based on the net operating revenue, profit for the year, and noncurrent assets. This measurement base excludes the effects of interest, income and social contribution taxes, and depreciation and amortization.
The tables below include summarized financial information relating to the segments as of December 31, 2017 and 2016. The amounts of P&L and total assets provided to the Executive Committee are consistent with the balances recorded in the financial statements and with accounting practices adopted:
12/31/2017 Accounts Concessions Ports Holding and services
Current assets 661,509 54,280 1,708,689 Noncurrent assets 4,739,489 705,519 4,517,703 Total assets 5,400,998 759,799 6,226,392
Current liabilities 614,324 192,378 1,237,957 Noncurrent liabilities 3,234,938 346,361 3,188,761 Equity 1,551,736 221,060 1,799,674 Total liabilities and equity 5,400,998 759,799 6,226,392
112 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
31. Segment reporting – Consolidated (Continued)
12/31/2017 Holding and Accounts Concessions Ports services
Net revenue 2,968,685 242,848 172,487 Cost of services rendered (1,549,465) (104,053) (87,759) Gross profit 1,419,220 138,795 84,728 Selling expenses - (134,345) - General and administrative expenses (137,552) (46,123) (105,471) Amortization of investments - - (21,841) Other revenue 214 13,357 595 Equity pickup - - 1,223,230 Operating income (loss) before finance income (costs) 1,281,882 (28,316) 1,181,241 Finance income (costs) (233,513) (53,630) (168,292) Operating income/loss before taxes 1,048,369 (81,946) 1,012,949 Income and social contribution taxes (345,813) 4,772 4,776 Net income (loss) for the year 702,556 (77,174) 1,017,725 P&L from discontinued operations - - (7,653) Net income from continuing operations - - 1,010,072
12/31/2016 Holding and Accounts Concessions Ports services
Current assets 744,240 44,415 338,089 Noncurrent assets 4,189,787 693,763 4,000,048 Total assets 4,934,027 738,178 4,338,137
Current liabilities 1,093,572 251,156 288,000 Noncurrent liabilities 2,406,292 431,859 2,549,400 Equity 1,434,163 55,163 1,500,737 Total liabilities and equity 4,934,027 738,178 4,338,137 Net revenue 2,584,514 254,392 163,842 Cost of services rendered (1,286,609) (123,987) (91,764) Gross profit 1,297,905 130,405 72,078 Selling expenses - (120,241) - General and administrative expenses (144,125) (67,025) (70,678) Amortization of investments - (26,472) Operating income (expenses) 57 2,663 (300,466) Equity pickup - 748,605 Operating income (loss) before finance income (costs) 1,153,837 (54,198) 423,067 Finance income (costs) (298,181) (57,271) (198,908) Operating income/loss before taxes 855,656 (111,469) 224,159 Income and social contribution taxes (277,782) (206,569) 4,406 Net income (loss) for the year 577,874 (318,038) 228,565 P&L from discontinued operations - - (689,301) Net income from continuing operations - - 460,736
113 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
32. Statement of cash flows
The effects on this statement did not affect cash in the year ended December 31, 2017.
Had the operation affected cash, they would be presented in the cash flow below:
Other accounts payable 12,416 Cash from operating activities 12,416
Acquisition of property and equipment and intangible assets (12,416) Net cash (used in) from investing activities (12,416)
33. Subsequent events
On January 10, 2018, Ecorodovias Infraestrutura e Logística S.A. ("Company") was ranked first in the International Bid No. 01/2017 for the concession of public services for the operation, maintenance and realization of investments, such as implementation of traffic equipment and customer service of the North stretch of Rodoanel Mário Covas for a period of 30 years from execution of the contract. The classification is due to the higher value of the goodwill offered, corresponding to R$883 million.
On February 1, 2018, Ecorodovias Infraestrutura e Logística SA ("Company") and its direct subsidiary Ecorodovias Concessões e Serviços SA ("ECS"), through Material Fact Notice, informed the market that a Share Purchase and Sale Agreement was entered into between ECS and the shareholders of Minas Gerais Goiás SA ("MGO"), in connection with the acquisition by ECS of 100% of the share capital of MGO, through the holding of Argovias Investments, on the closing date. The acquisition value totals R$600 million and will be settled on the closing date. The completion of the acquisition is subject to certain conditions precedent, including prior approval by ANTT, CADE, BNDES, and other creditors, as well as authorization of the Company shareholders at an Extraordinary Shareholders' Meeting. MGO is responsible for the administration, recovery, upkeep, maintenance, expansion, and operation of BR-050 (GO/MG), in the 436.6 km stretch starting at the BR-040 junction, in Cristalina (GO), extending to the border of Minas Gerais and São Paulo, in the municipality of Delta (MG). The contract was signed on 12/5/2013 and expires on 1/8/2044.
114 EcoRodovias Infraestrutura e Logística S.A.
Notes to financial statements (Continued) December 31, 2017 and 2016 (In thousands of reais - R$, unless otherwise stated)
33. Subsequent events (Continued)
On February 6, 2018, Ecorodovias Infraestrutura e Logística SA ("Company") through its direct subsidiary Ecorodovias Concessões e Serviços SA ("ECS") were ranked first in the International Public Bidding 006/2017, through the State Transportation and Public Works Office of Minas Gerais ("SETOP"), for operation of the lot of highways of the Minas Gerais state, over 30 years, composed of the following stretches: (i) BR-135, with extension of 301.20 km; (ii) MG-231, with extension of 22.65 km; and (iii) LMG-754, with extension of 40.10 km, totaling 363.95 km according to public notice. The classification was due to the higher offer for granting of the concession, which will be paid in 348 monthly installments of R$5.9 million, adjusted by the IPCA, as from the 1st month of the 2nd year of the concession agreement, corresponding to a total of R$2.06 billion.
On February 8, 2018, Ecorodovias Concessões e Serviços SA (Company's direct subsidiary) approved the amendment to the Debenture Deed for the third issue simple, non-convertible, non- privileged debentures, in a single series, for public distribution, with restricted distribution efforts, of the Issuer ("Deed"), in order to (i) change the debenture maturity date; (ii) include a new accounting period and new interest rate for calculation of the remuneration (as defined in the Deed); and (iii) to provide for the payment of interest in six stages, beginning May 18, 2017, followed by November 18, 2017, February 19, 2018, August 20 of 2018, February 19, 2019, and the sixth on the debenture maturity date, with a premium of 0.2321% flat in case of approval of the submitted matters.
EcoRodovias Infraestrutura e Logística SA and its direct subsidiary ELOG SA informed their shareholders and the market in general that, in order to comply with the conditions precedent established in Elog Share Purchase and Sale Agreement, the totality of the units of interest held by Elog in Ecopátio Logística Cubatão Ltda. was transferred to Ecorodovias Infrastructure on February 8.
115 MANAGEMENT REPORT 2017
MESSAGE FROM MANAGEMENT
Looking back at 2017, we can affirm that it was a positive year for EcoRodovias. The Management’s strategy of focusing on the highways sector, the continuous pursuit of operational efficiency, coupled with the privileged location and quality of our highways portfolio, enabled us to announce healthy operating and financial results to the market every quarter, notably the 3.8% growth in consolidated traffic in equivalent paying vehicles at the concessionaires and the double-digit increase in consolidated net revenue and EBITDA, which totaled R$2.6 billion and R$1.7 billion, respectively.
Aware of the macroeconomic scenario in recent years and to protect its capital structure, the Company implemented cost reduction programs, defined priorities in its business portfolio, maintained its focus on liquidity and reduced leverage.
We concentrated investments in highway concessions, the segment in which the company has expertise, while significantly reducing the focus on logistics operations. The concessions sector is marked by the constant need for investments. In 2017, we invested over R$770 million and the Company is in compliance with the contractual obligations established by the grant authority. Here, the highlights of the year are the investments of around R$113 million made at Ecovias dos Imigrantes, to conclude a series of construction works in the Baixada Santista region. At Ecopistas, we continued the extension work on the Carvalho Pinto Highway, investing R$200 million. At Ecoponte (Rio-Niterói bridge) we carried out construction works that eased traffic flow, especially with the inauguration of the Mergulhão underpass in Niterói. And at Ecosul, we accelerated the highway paving and restoration program. ECO101 continues with its contractual investments plan and Ecocataratas continued construction work on duplication of the BR-277 highway.
The resilience shown by the group at a time when the country’s economy is struggling to recover is related to the periodical review of its strategies, which enables it to allocate resources more efficiently and anticipate its responses to challenges that may arise. Our Strategic Plan results in concrete advances, such as the setting up of social and environmental targets, the preparation of specific plans for each unit and the analysis of financial and non-financial risks and opportunities –topics that we will discuss with highlights in this report.
One of the major achievements in 2017 was the development of the Business Continuity Plan, ranging from operational aspects to technological issues that extend to transactions as well as traffic and service monitoring. Another significant initiative was the diagnosis of risks and improvement of our internal controls.
The Company’s sustainability agenda continues to be strongly aligned with top leadership’s commitments. Over the years, we have been recognized by the market, proof of which is the inclusion – for the seventh year in a row - of EcoRodovias shares in B3’s Corporate Sustainability Index (ISE), which lists Brazilian publicly held companies committed to improving their practices. We also comply with the requirements of the most important management certificates, such as the ISO 14001 and ISO 26000 standards, and we operate in alignment with the UN Sustainable Development Goals (SDG) in order to ensure the economic, social and environmental balance in our operations.
We are also proud to see EcoRodovias actively involved in efforts to mature the infrastructure sector in terms of sustainability. In 2017, we were among the main driving forces behind the creation of the working group on sustainability at the Brazilian Association of Highway Companies (ABCR), which includes several industry peers. These are examples of our involvement in a positive agenda that involves the Company and its peers in the domestic market.
Projects, construction works and initiatives to engage and raise awareness among light and heavy vehicle drivers, employees, outsourced workers and local communities also received our attention during the year, receiving investments of R$10.2 million. The purpose is to improve safety and welfare standards in the communities surrounding the highways.
Despite the slow economic recovery, our ambition continues to be to evaluate opportunities in the market and participate in auctions in a conscious manner, as we have always done, backed by a clear strategy, shareholders with recognized expertise in the sector and executives driven by efficiency.
The operating and financial results and the constant pursuit of efficiency in technological innovation and processes are the foundation for our strategy of extending the duration of our highway concessions portfolio to be sustainable in the long term, while creating value for our shareholders.
Finally, we remain committed to offering professional growth opportunities to our employees. No company delivers healthy results or celebrates 20 years of its first concession, as was the case with Ecovia Caminho do Mar at the end of 2017, without having on its side the best professionals in the market.
To our employees and users, shareholders and investors, partners and suppliers, our heartfelt thanks for their trust in us.
In this report, you will learn about the Company’s performance during 2017 and the lessons we learned for the coming years!
Happy reading!
Marcelino Rafart de Seras
CEO PROFILE
The EcoRodovias Group is one of the largest highway concession groups in Brazil, managing, since 2018, 10 concessions totaling about 2,640 kilometers of highways. In 2017, approximately 295 million vehicles passed through our highway concessions. The Group also controls Ecoporto Santos, located in the largest port in Latin America. Around 44% of Brazil’s import and export cargo passes through the assets of EcoRodovias, whose strategy is to operate synergistically in the country’s main import, export and tourism corridors.
OWNERSHIP STRUCTURE
EcoRodovias is controlled by Primav Infraestrutura, whose shareholders are the Gavio Group, one of Italy’s largest infrastructure conglomerates, managing over 1,400 km of highways, and the CR Almeida Group, which has been operating in the heavy construction sector for 50 years and is responsible for important infrastructure projects in Brazil.
The Gavio and CR Almeida groups have a strategic vision that is aligned with the Company’s vision, which will enable EcoRodovias and its subsidiaries to benefit from a strategic long-term vision and commitment to Brazil’s infrastructure sector, especially highway concessions.
OPERATING PERFORMANCE
Highway Concessions
Consolidated traffic volume based on equivalent paying vehicles at the concessionaires increased by 3.8% in 2017 compared to 2016. The main reasons for this variation were:
Heavy vehicle traffic – up 4.6% in 2017. Traffic at Ecovias dos Imigrantes, Ecovia Caminho do Mar and Ecosul was positively impacted by higher exports of agricultural commodities through the ports of Santos, Paranaguá and Rio Grande. Ecopistas and ECO101 registered an increase in traffic due to the recovery of industrial production in the regions. Ecocataratas registered traffic growth due to the flow of grain exports in the region. Ecoponte registered lower traffic due to the construction works along Avenida Brasil, which led to the migration of commercial vehicles to the Metropolitan Beltway.
Light vehicle traffic – up 3.0% in 2017. Traffic at Ecovias dos Imigrantes, Ecopistas and Ecovia Caminho do Mar was impacted by the higher flow of tourists and by favorable weather. Ecocataratas registered traffic growth due to the increase in shopping tourism in Paraguay. Ecosul registered traffic growth due to the improvement in the economy and to favorable weather. Traffic at ECO101 declined, mainly due to the strike by the Military Police in the state of Espírito Santo in February. Ecoponte registered traffic growth with the start of operations of the Cafubá Charitas Tunnel in Niterói in May 2017, which improved access to the bridge.
Consolidated average tariff per equivalent paying vehicle increased 8.0% in 2017, mainly due to the tariff increases at the highway concessions and the higher share of vehicle traffic at barrier toll plazas with higher tariffs.
ECONOMIC AND FINANCIAL RESULTS
GROSS REVENUE
Consolidated gross revenue reached R$3,492.9 million in 2017, increasing 13.2% from 2016. Excluding construction revenue, gross revenue amounted to R$2,906.4 million, increasing 10.3% from 2016, due to higher revenue from highway concessions (+12.2%), mainly due to traffic growth and contractual adjustments to toll tariffs. On the other hand, Ecoporto registered a decline in revenue due to the drop-off in operations caused by competition from other terminals.
OPERATING COSTS AND ADMINISTRATIVE EXPENSES In 2017, operating costs and administrative expenses totaled R$1,868.3 million, up 14.2% from 2016. Cash costs, excluding depreciation and amortization, provision for maintenance and construction costs, increased 0.6% from 2016, despite the inflation of 2.9% in the period, which reflects dedicated and disciplined operating management. (Details of costs on a comparable basis are available in the 2017 Earnings Release at www.ecorodovias.com.br/ri.)
EBITDA AND EBITDA MARGIN
EBITDA in 2017 was R$1,630.1 million. Comparable pro-forma EBITDA, excluding construction revenue and costs and provision for maintenance, totaled R$1,748.8 million, up 15.0%, and EBITDA margin of 66.9% (+3.0 p.p.).
FINANCIAL RESULT
Net financial result was an expense of R$455.4 million in 2017, down 17.8% compared to 2016, mainly due to the reduction in the IPCA, to which 41% of the debt is indexed and in the CDI, to which 50% of the debt is indexed, compared to the previous year.
NET INCOME
In 2017, EcoRodovias recorded comparable net income, excluding the effects of assets held for sale (Elog) of R$400.1 million, an increase of 48.4%.
CASH AND CASH EQUIVALENTS AND CONSOLIDATED DEBT
At the end of December 2017, EcoRodovias recorded a balance of cash, cash equivalents and marketable securities of R$1,677.8 million and gross debt of R$5,998.6 million, with 81% in long-term maturities. Debt with the government totaled R$13.5 million.
Net debt ended the year at R$4,334.3 million, with Net Debt/Adjusted EBITDA ratio standing at 2.5 times.
For further information on the Company’s debt, see the notes to the financial statements.
CAPEX
Capex, which consists of intangible assets/fixed assets and maintenance costs, was R$773.1 million in 2017. Following were the main investments: (i) Ecovias dos Imigrantes: construction of 3 rd lane on Padre Manoel da Nobrega Highway and conservation works; (ii) Ecopistas: extension of Carvalho Pinto Highway and conservation works; (iii) Ecovia and Ecosul: maintenance and pavement conservation works; (iv) Ecocataratas: addition of lanes and pavement maintenance; (v) ECO101: addition of lanes, construction of Iconha beltway and recovery of highway; (vi) Ecoponte: investments in the construction of the Mergulhão underpass in Niterói and expropriations; and (vii) Ecoporto: investments in technology and maintenance.
DIVIDENDS
EcoRodovias has a dividend distribution policy approved by the Board of Directors. In 2017, EcoRodovias distributed dividends totaling R$235.0 million, with R$105.0 million related to fiscal year 2016 and R$130.0 million related to the results up to June 30, 2017.
CAPITAL MARKETS
EcoRodovias stock, which is listed on the Novo Mercado segment of B3 under the ticker ECOR3, ended the year quoted at R$12.30, gaining 55.5%. Average daily financial trading volume in the stock in 2017 was R$28.4 million, 14.1% higher than in 2016. The total number of common shares is 558,699,080 and market capitalization on December 31, 2017 was R$6.9 billion.
EcoRodovias stock is a component of Brazil’s leading stock market indexes (Ibovespa, IBRX-100, IGC, ITAG and ISE).
CORPORATE GOVERNANCE EcoRodovias is recognized in the market for having adopted a series of corporate governance good practices such as transparency, accountability and corporate responsibility, which are fundamental for ensuring respect to both majority and minority shareholders, employees, the environment and society.
The Company constantly seeks to adopt the best practices to ensure its healthy performance and longevity. In this regard, the highlight of 2017 was the Integrity Program of the Company, launched two campaigns during the year, which included several actions to disseminate the values in the Code of Conduct among employees and provide training on putting them into practice.
The “Caminho de Valores” campaign, which addresses ethics and integrity issues, permeated the organization during the year. Apart from training sessions, which covered employees at all levels, including members of the Board of Directors, several actions were taken, such as notices and articles in the Company magazines, as well as games, to encourage compliance with the standards applicable to the EcoRodovias Group’s operations.
At the end of 2017, the Company launched the “Você Faz a Diferença” campaign, in which it validated over 8,000 vouchers containing indications by employees of other employees who practice and disseminate the values of the EcoRodovias Group’s Code of Conduct. The winners were honored and rewarded for their good examples.
All these efforts give us the confidence that we are on the right track, which is exactly why we will continue to follow the best practices: the Corporate Code of Conduct, updated and supported by the top management of the EcoRodovias Group; an active Ethics Committee; transparency in financial reporting; the positions of chairman of the Board and CEO are held by different people; engagement of an independent audit firm to analyze the balance sheets and financial statements; use of the arbitration chamber to resolve shareholder disputes and policies on use of information and disclosure of material facts or events and trading on securities; advisory committees to the Board coordinated by independent directors; use of a modern Governance Portal that enables rapid and secure flow of information to directors and executives, and an Ethics and Integrity Portal for employees and the general public, containing all the material on the subject.
PEOPLE MANAGEMENT
Our main objective is to contribute to the achievement of the desired results by the Ecorodovias Group, to leverage the engagement and development of employees and to create a working environment that encourages innovative ideas and best management practices.
Just like 2016, the year 2017 was quite challenging for the Brazilian economy and for most business sectors. Major challenges moved the People Management department, which used structured programs and management tools to create an environment of continuous development, preparing trained teams for the current and future scenarios.
The EcoRodovias Group permanently invests in the development of leaders and professionals. We held the Engagement survey for all employees, in which a remarkable 98% of the employees participated and 77% provided positive feedback. Based on these findings, we created working groups involving senior leaders and employees to work on the points highlighted.
To reinforce EcoRodovias’ culture and strengthen the behaviors expected from our professionals, new skill sets were implemented: “Liderança que Inspira ”, “Faz Acontecer ”, “Constrói Junto ”, and “Age como Dono ”.
In terms of succession planning, we carried out an assessment of the Executive Officers with support from a specialized consulting firm, prepared an internal list of professionals ready to take up new positions, conducted training programs for leaders and held the trainee program to attract young talent.
The platform for monitoring operational productivity was extended to all concessionaires. All operating and people management indicators improved, leveraging productivity and performance.
With the welfare and health of our employees in our mind, we implemented the “Conte Comigo ” employee support program, which offers legal, psychological, financial and social guidance through an exclusive 24/7 channel. In 2017, the changes in organizational structure that started in 2016 were consolidated. The pursuit of operational efficiency remained one of the goals of the Group, which has constantly been conducting studies and benchmarks in order to reinforce and improve our operations. The Company ended 2017 with 4,201 employees distributed across the states of São Paulo, Rio de Janeiro, Espírito Santo, Paraná and Rio Grande do Sul.
SOCIAL AND ENVIRONMENTAL RESPONSIBILITY
With ECO in its name and its corporate DNA, the EcoRodovias Group’s mission is to operate sustainably by launching initiatives that effectively contribute to the social and cultural development of its diverse stakeholder groups, especially local communities, users and employees.
In 2017, the Ecorodovias Group once again neutralized a sizeable portion of emissions from its operations. A total of 10,580 tons of CO2 was neutralized, which represents 100% of the direct and indirect emissions of the highway concessionaires (indirect emissions estimated) and 100% of the direct emissions of Ecoporto. The Company continued in the select group of companies participating in the “Amigo do Clima” Program, a voluntary environmental program aimed at ensuring transparency and traceability of climate responsibility activities.
Another important highlight in 2017 was the continuation of the Energy Efficiency Program at the EcoRodovias Group, which aims to reduce electricity consumption and improve energy efficiency in its operations and business units. These actions, implemented by the highway concessionaires, are part of our commitment to practices designed to mitigate climate change. Note that all these actions followed the Sustainability Guidelines, corporate strategies and other standards related to the sound performance of the Integrated Management System, the including IS0 9001 (Quality Management), ISO 14001 (Environmental Management) and OHSAS 18001 (Occupational Health and Safety Management) certifications of the Group.
Still on sustainability, EcoRodovias stock remains for the seventh straight year in the ISE/B3 index portfolio, which is an important recognition for the Company.
Various other projects that we have implemented over our history at all companies of the Group and which honor our commitment to the name ECO are described below:
- “Ecoviver ”: engages professors, students and the community in educational and cultural activities and sponsors environmental education in schools located near the highways. In 2017, the project served 20 municipalities, with approximately 882 teachers and 17,734 students from 215 schools participating.
- “De Bem com a Via ”: launched by the EcoRodovias Group in 2008, the “De Bem com a Via” project organizes activities that are aligned with the UN Decade of Action for Road Safety 2011-2020. These include providing access to traffic education, especially to more vulnerable stakeholders, namely children, youth and inhabitants of socially vulnerable communities, by involving schools and communities located around the highways managed by our concessionaires.
- “Voluntários do Bem ”: a volunteer program in which employees teach children from public schools on the value of natural resources, the use of highways and the basic concepts involved in managing a company.
- “Saúde do Caminhoneiro ”: several times a year, the concessionaires organize medical exams for truck drivers and lectures on health.
- “Virando o Jogo ”: project that encourages the practice of sports among children from age six to ten in communities located in Diadema, São Paulo. The project sponsors sports, dance lessons and traffic education, among other activities. The goal is to keep kids away from the highways and to offer recreational and educational activities.
- “Preservação da Fauna ”: organizes various projects focused on wildlife preservation, such as “Respeito à Vida ” at Ecocataratas, which offers environmental education in partnership with PNI and the Chico Mendes Institute. The goal is to raise awareness among the local communities and users of Highway BR-277 on respecting the fauna, flora and speed limits in conservation areas. The Group also helps to maintain the parks and preservation areas located near the highways and conducts campaigns to combat the illegal trafficking of plants and wildlife.
- Emissions: prioritizes the use of renewable fuels (ethanol) in the vehicle fleet, the use of more energy efficient equipment and the chartering of vehicles for employee commutes.
- “Papai Noel Existe ”: the Company’s stakeholders write letters as if they were Santa Claus and EcoRodovias distributes presents in the region’s underprivileged communities.
The EcoRodovias Group also continued to participate in the “Decade of Action for Road Safety” campaign launched by the United Nations, which seeks to reduce the number of traffic accidents.
In 2017, as a result of our commitment to mitigate various environmental impacts, EcoRodovias invested over R$11 million in projects and initiatives targeted at the environment. The priority topics included water, energy, solid waste and emissions.
In recognition of the sustainability projects and actions it carried out in 2017, the Group won the following awards:
“Guia Exame de Sustentabilidade ” – for the sixth straight year, EcoRodovias was featured in the publication, recognized in 2017 as the BEST company in the INFRASTRUCTURE segment for its social and environmental practices. EcoRodovias’ strengths included its traffic safety campaigns and projects, such as the “De Bem com a Via” program, which is conducted by Ecovias, Ecopistas, ECO101 and Ecoponte, as well as valuing ecosystem services and the use of five electric cars on highways, an unprecedented initiative in Brazil in the highway concession segment.
Top in Sustainability – for the second time, EcoRodovias was elected the best company in environmental and sustainability management category, an award granted by the Brazilian Sales and Marketing Managers Association (ADVB). The award honors companies that promote social and environmental welfare as part of their business development strategy.
“Na Mão Certa ”– in the program’s 11 th meeting, which was organized by the NGO Childhood Brasil, in which EcoRodovias has participated since 2014, the Group was recognized for its comprehensiveness efforts to protect kids and youth on highway margins.
Abrasca Annual Report Awards – the Group was one of the winners at the 19 th edition of the awards, which are sponsored by the Brazilian Association of Publicly Held Companies (Abrasca) to recognize the financial reporting documents of Brazilian companies, being among the top ten in the Publicly Held Company category in the 2016 edition.
Carbon Disclosure Project (CDP) – EcoRodovias was included in the A- List of the CDP, an organization that connects thousands of companies and some 850 institutional investors from around the world to foster the transition to a low-carbon economy.
RELATIONSHIP WITH INDEPENDENT AUDITORS
Pursuant to CVM Instruction 381/2003, we inform that Ernst & Young Auditores Independentes S.S. was engaged to provide the following services in 2017: audit of the financial statements in accordance with the generally accepted accounting practices in Brazil and with the International Financial Reporting Standards (IFRS);review of the Interim Quarterly Financial Information in accordance with Brazilian and international standards for the review of interim information (NBC TR 2410 – Revisão de Informações Intermediárias Executadas pelo Auditor da Entidade and ISRE2410 – Review of Interim Financial Information Performed by the Independent Auditor of the Entity). The total fees for fiscal year 2017 were R$129,300. The Company did not engage the Independent Auditors for work other than that related to independent audit. STATEMENT FROM THE BOARD OF EXECUTIVE OFFICERS
The Executive Board of EcoRodovias Infraestrutura e Logística S.A. declares that, pursuant to article 25 of CVM Instruction 480 of December 7, 2009, it has reviewed, discussed and agreed (i) with the contents and opinion expressed in the report from Ernst & Young Auditores Independentes S.S.; and (ii) with the financial statements for the fiscal year ended December 31, 2017.
São Paulo, February 28, 2018
The Management