ANNUAL REPORT LICO GROUP (CONSOLIDATED) 2. LICO CORPORACIÓN S.A. 3. LICO LEASING E.F.C., S.A.U.

Transcription

1 ANNUAL REPORT 2012

2 ANNUAL REPORT LICO GROUP (CONSOLIDATED) 2. LICO CORPORACIÓN S.A. 3. LICO LEASING E.F.C., S.A.U.

3 LICO GROUP (CONSOLIDATED) AUDITORS REPORT... 5 CONSOLIDATED BALANCE SHEETS AT 31 DECEMBER 2012 AND CONSOLIDATED INCOME STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2012 AND CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE FOR THE YEARS ENDED 31 DECEMBER 2012 AND CONSOLIDATED STATEMENT OF TOTAL CHANGES IN EQUITY FOR THE YEARS ENDED 31 DECEMBER 2012 AND CONSOLIDATED CASH FLOW STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2012 AND NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER CONSOLIDATED DIRECTORS REPORT FOR THE YEAR ENDED 31 DECEMBER

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143 LICO CORPORACIÓN S.A. AUDITORS REPORT BALANCE SHEETS AT 31 DECEMBER 2012 AND INCOME STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2012 AND STATEMENTS OF RECOGNISED INCOME AND EXPENSE FOR THE YEARS ENDED 31 DECEMBER 2012 AND STATEMENTS OF TOTAL CHANGES IN EQUITY FOR THE YEARS ENDED 31 DECEMBER 2012 AND CASH FLOW STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2012 AND NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER DIRECTORS REPORT FOR THE YEAR ENDED 31 DECEMBER

144 Lico Corporación, S.A. Financial Statements and Directors' Report for the year ended 31 December 2012, together with the Auditors' Report Translation of a report originally issued in Spanish based on our work performed in accordance with the audit regulations in force in Spain and of financial statements originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to the Company (see Notes 2 and 19). In the event of a discrepancy, the Spanish-language version prevails.

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147 Translation of financial statements originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to the Company (see Notes 2 and 19). In the event of a discrepancy, the Spanish-language version prevails. LICO CORPORACIÓN, S.A. BALANCE SHEETS AT 31 DECEMBER 2012 AND 2011 (Thousands of euros) ASSETS Note (*) LIABILITIES AND EQUITY Note (*) NON-CURRENT ASSETS EQUITY Intangible assets SHAREHOLDERS EQUITY 9 161, ,906 Computer software Share capital 69,090 69,090 Property, plant and equipment Issued capital 84,090 84,090 Technical installations and other items of property, plant and equipment (Uncalled capital) (15,000) (15,000) Non-current investments in Group companies and associates 6 111, ,941 Share premium 14,417 14,417 Equity instruments 111, ,414 Reserves 149, ,029 Loans to companies - 48,523 Legal and statutory reserves 11,957 11,620 Other financial assets 4 4 Other reserves 137, ,409 Non-current financial assets Profit/(loss) for the year (71,515) 3,370 Equity instruments Total equity 161, ,906 Loans to third parties - 1 Other investments Deferred tax assets 11 1,472 6,397 Total non-current assets 112, ,841 NON-CURRENT LIABILITIES CURRENT ASSETS Non-current provisions 10 4,394 4,494 Trade and other receivables 2,497 2,548 Other provisions 4,394 4,494 Trade receivables from Group companies and associates 16 1,328 1,694 Total non-current liabilities 4,394 4,494 From personnel - 3 Current tax assets 11 1, Other tax receivables Current investments in Group companies and associates 8 and 16 48,716 37,550 Loans to companies 4,174 3,204 Debt securities 44,314 34,188 CURRENT LIABILITIES Other financial assets Current payables - 4 Current financial assets 8 5,152 1,000 Other financial liabilities - 4 Loans to companies 1,150 1,000 Current payables to Group companies and associates 16 3,527 2,019 Other financial assets 4,002 - Trade and other payables 1,105 1,189 Prepayments Sundry payables Cash and cash equivalents 1, Personnel (remuneration payable) Cash 1, Other tax payables Total current assets 57,424 41,771 Total current liabilities 4,632 3,212 TOTAL ASSETS 170, ,612 TOTAL LIABILITIES AND EQUITY 170, ,612 (*) Presented for comparison purposes only. The accompanying Notes 1 to 19 and Appendices I to II are an integral part of the balance sheet at 31 December 2012.

148 Translation of financial statements originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to the Company (see Notes 2 and 19). In the event of a discrepancy, the Spanish-language version prevails. LICO CORPORACIÓN, S.A. INCOME STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2012 AND 2011 (thousands of Euros) Note (*) CONTINUING OPERATIONS: Revenue 16 7,184 8,664 Income from equity instruments 4,804 5,869 Finance income from Group companies and associates 1,293 1,679 Other Group operating income 1,087 1,116 Other operating income Ancillary and other operating revenue Personnel expenses 14 (1,679) (1,980) Wages, salaries and similar (1,428) (1,790) Employee benefit costs (266) (271) Provisions Other operating expenses 14 (1,353) (1,922) External services (1,347) (1,884) Taxes other than income tax (6) (38) Depreciation and amortisation charge 4 and 5 (15) (17) Overprovisions OPERATING PROFIT 4,256 5,039 Finance income From equity instruments - 10 Of third parties - 10 From marketable securities and other financial instruments From third parties Impairment losses and gains/(losses) on disposal of financial instruments (74,586) (4,495) Impairment losses 6 (74,586) (4,495) NET FINANCE EXPENSE (74,505) (4,416) PROFIT/(LOSS) BEFORE TAX (70,249) 623 Income tax 11 (5,055) 1,963 PROFIT/(LOSS) FROM CONTINUING OPERATIONS (75,304) 2,586 DISCONTINUED OPERATIONS: Profit after tax for the year from discontinued operations 15 3, PROFIT/(LOSS) FOR THE YEAR (71,515) 3,370 (*) Presented for comparison purposes only. The accompanying Notes 1 to 19 and Appendices I to II are an integral part of the income statement for the year ended 31 December 2012.

149 Translation of financial statements originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to the Company (see Notes 2 and 19). In the event of a discrepancy, the Spanish-language version prevails. LICO CORPORACIÓN, S.A. STATEMENTS OF CHANGES IN EQUITY STATEMENTS OF RECOGNISED INCOME AND EXPENSE FOR THE YEARS ENDED 31 DECEMBER 2012 AND 2011 (Thousands of euros) (*) Profit/(loss) for the year (71,515) 3,370 Income and expense recognised directly in equity: From measurement of financial instruments - (76) Available-for-sale financial assets - (76) From cash flow hedges - - Grants, donations and bequests received - - From actuarial gains and losses and other adjustments - - Tax effect - 23 Total income and expense recognised directly in equity - (53) Amounts transferred to the income statement: - - From measurement of financial instruments - - From cash flow hedges - - Grants, donations and bequests received - - Tax effect - - Total amounts transferred to the income statement - - TOTAL RECOGNISED INCOME AND EXPENSE (71,515) 3,317 (*) Presented for comparison purposes only. The accompanying Notes 1 to 19 and Appendices I to II are an integral part of the statement of changes in equity for the year ended 31 December 2012.

150 Translation of financial statements originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to the Company (see Notes 2 and 19). In the event of a discrepancy, the Spanish-language version prevails. LICO CORPORACIÓN, S.A. STATEMENTS OF CHANGES IN EQUITY (continued) STATEMENTS OF TOTAL CHANGES IN EQUITY FOR THE YEARS ENDED 31 DECEMBER 2012 AND 2011 (*) (thousands of Euros) Share capital Issued Uncalled Share premium Reserves Profit/(loss) for the year Valuation adjustments Total BALANCE AT 31 DECEMBER ,090 (15,000) 14, ,733 8, ,316 Adjustments due to changes in accounting principles in 2010 and prior years Adjustments due to errors in 2010 and prior years ADJUSTED BALANCE AT 1 JANUARY ,090 (15,000) 14, ,733 8, ,316 Total recognised income and expense ,370 - (53) 3,317 Transactions with shareholders and owners (1,727) - - (1,727) Distribution of dividends (1,727) - - (1,727) Other changes in equity ,296 (6,296) BALANCE AT 31 DECEMBER ,090 (15,000) 14, ,029 3, ,906 Adjustments due to changes in accounting principles in 2011 and prior years Adjustments due to errors in 2011 and prior years ADJUSTED BALANCE AT 1 JANUARY ,090 (15,000) 14, ,029 3, ,906 Total recognised income and expense (71,515) - - (71,515) Other changes in equity ,370 (3,370) BALANCE AT 31 DECEMBER ,090 (15,000) 14, ,399 (71,515) ,391 Interim dividend (*) Presented for comparison purposes only. The accompanying Notes 1 to 19 and Appendices I to II are an integral part of the statement of changes in equity for the year ended 31 December 2012.

151 Translation of financial statements originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to the Company (see Notes 2 and 19). In the event of a discrepancy, the Spanish-language version prevails. LICO CORPORACIÓN, S.A. CASH FLOW STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2012 AND 2011 (thousands of Euros) (*) CASH FLOWS FROM OPERATING ACTIVITIES: Profit/(loss) before tax (66,169) 1,480 Adjustments to profit/(loss) 65,890 (2,193) Depreciation and amortisation (+) Impairment allowances (+/-) 74,586 4,495 Changes in provisions (+/-) (100) (267) Gains/(losses) on disposals of financial instruments (+/-) (746) - Finance income (-) (81) (79) Other income and expenses (-/+) (7,784) (6,359) Changes in working capital 1,053 (1,623) Trade and other receivables (+/-) (381) 87 Other current assets (+/-) 14 (58) Trade and other payables (+/-) (84) (59) Other current liabilities (+/-) 1,504 (1,593) Other cash flows from operating activities 7,924 6,979 Dividends received (+) 7,844 7,042 Interest received (+) Income tax receipts (payments) (+/-) 11 (142) Other payments (receipts) (-/+) - - Net cash flows from operating activities 8,698 4,643 CASH FLOWS FROM INVESTING ACTIVITIES: Payments on investments (-) (428,716) (575,632) Group companies and associates (61,662) (34,008) Intangible assets - (18) Property, plant and equipment (1) (2) Other financial assets (367,053) (541,604) Proceeds from disposals (+) 420, ,717 Group companies and associates 68,600 8,076 Other financial assets 351, ,641 Net cash flows used in investing activities (8,298) (2,915) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from and payments on equity instruments - - Dividends paid and payments on other equity instruments - (1,727) Net cash flows from/(used in) financing activities - (1,727) EFFECT OF EXCHANGE RATE CHANGES - - INCREASE/DECREASE IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December 1, (*) Presented for comparison purposes only. The accompanying Notes 1 to 19 and Appendices I to II are an integral part of the cash flow statement for the year ended 31 December 2012.

152 Translation of financial statements originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to the Company (see Notes 2 and 19). In the event of a discrepancy, the Spanish-language version prevails. Lico Corporación, S.A. Notes to the Financial Statements for the Year Ended 31 December Company description Lico Corporación, S.A. (hereinafter the Company) was incorporated in Madrid on 20 May Its statutory activity comprises the promotion, acquisition, ownership and disposal of companies and assets and the provision of management support and technical assistance services to its investees. Its revenue is obtained from the dividends it receives for its share in the profits of its subsidiaries, from the services charged to these companies and from interest received. The Company s registered offices are at calle Miguel Ángel 23, Madrid. The Company, which is not listed on the stock exchange, is the Parent of a group of companies, the Lico Group (hereinafter the Group), which engages in the following activities: finance leasing, factoring, financing, full-service leasing, insurance brokerage, debt recovery, real-estate services and care for the elderly. The Company operates in Spain, although its Group also renders financial services from a branch office in Portugal. In view of the business activity carried out by the Company, it does not have any environmental liabilities, expenses, assets, provisions or contingencies that might be material with respect to its equity, financial position or results. Therefore, no specific disclosures relating to environmental issues are included in these notes to the financial statements. 2. Basis of presentation of the financial statements, accounting policies and measurement bases Regulatory framework of financial reporting applicable to Company These financial statements were authorised for issue by the directors in accordance with the regulatory framework of financial reporting applicable to the Company, as laid down in: - The Spanish Code of Commerce and other corporate and commercial law. - The Spanish General Chart of Accounts as established in Royal Decree 1514/2007 and its sector-specific adaptations. - The mandatory rules approved by the Instituto de Contabilidad y Auditoría de Cuentas (Spanish Accounting and Auditing Institute, ICAC) implementing the Spanish General Chart of Accounts and its complementary rules. - The rest of Spanish accounting rules that are applicable to the Company.

153 Basis of presentation of the financial statements Fair presentation The accompanying financial statements, which were obtained from the Company s accounting records, are presented in accordance with the financial reporting regulatory framework applicable to the Company and in particular, to the principles and accounting criteria contained therein. Accordingly, these financial statements present fairly the Company s equity, financial position, results of operations, changes in equity and cash flows for The accompanying financial statements, which were authorised for issue by the Company s directors, will be submitted for approval by the shareholders at the Annual General Meeting, and it is considered that they will be approved without any changes. The financial statements for 2011 were approved by the shareholders at the Annual General Meeting held on 27 June 2012 and filed with the Madrid Companies Register. Key issues in relation to the measurement and estimation of uncertainty In preparing the accompanying financial statements, estimates were made by the Company s directors in order to measure certain assets, liabilities, income, expenses and obligations reported herein. These estimates relate primarily to the following: - The assessment of impairment losses on certain assets (Notes 2-e, 6, 7 and 8). - The assumptions used in the actuarial calculation of pension liabilities and other commitments with employees (Notes 2-h and 14). - The useful life of property, plant and equipment and intangible assets (Notes 2-b, 2-c, 4 and 5). - The calculation of provisions (Notes 2.I and 10). Although these estimates were made on the basis of the best information available at 2012 year end, events that take place in the future might make it necessary to change these estimates (upwards or downwards) in coming years. Changes in accounting estimates would be applied prospectively. Going concern The Directors of the Company have authorised these financial statements for issue in accordance with the goingconcern accounting principle, considering that the Company will continue its activity as the holding company of a group of financial and service companies in the future. Consequently, the principles, accounting policies and measurement criteria applied have not sought to calculate the value of the Company for the purposes of its full or partial transfer or to determine the hypothetical cash value of its net assets. In evaluating its application of the going-concern principle, the Directors consider that certain risk factors are causing uncertainty about the continued operations of the Company and that certain factors are mitigating the same. The most significant risk factors related to the continuity of company operations are as follows: - The process of restructuring and ordering of the banking sector in Spain has resulted in a concentration of entities, many of which were also shareholders of the Company, leading to a significant reduction in the number of bank operators with which the Company's various investees continue to have collaboration agreements for the retailing of specialised financial products and provision of a variety of other services. This has modified the strategies of these companies and therefore, that of the Company, whereby its 2

154 shareholders have decided to divest its businesses either by selling the Company s shares or selling off the businesses in which the Company holds a stake. This decision involves the risk that the Company's strategy as a holding company of financial and service companies will no longer make sense, and means that its ability to generate profits depends on the new shareholders devising a new business strategy or, where applicable, the success of the aforementioned divestments. - Furthermore, the profound crisis in Spain in the principal areas of economic activity and, very especially among small and medium-sized enterprises the segment in which a majority of the finance activity of some of the Company's investees (primarily Lico Leasing) is targeted has given rise to Lico Leasing incurring significant losses in 2012, which also led to significant losses for the Company because of a large reduction in this subsidiary's recoverable amount (see Note 6). Serious problems of liquidity and the general freezing up of lending across the entire banking system, in addition to the shutdown of wholesale funding markets, have hindered the renewal of financing lines by a number of investees throughout the year. Hence, practically all the Company's present financing is that arranged by its shareholders. Given the current situation in the financial markets, the cash flows these companies expect to generate in the next year in the normal course of activity may not be sufficient to cover their maturing financial liabilities on time. The most significant factors mitigating the risks mentioned above related to the continuity of company operations are as follows: - The shareholders' decision to the sell the Company seeks to enable Spanish or international investors to acquire a stake in the Company as a holding company of financial and service companies, for which the Board of Directors issued the pertinent sale mandate to a reputable international investment bank appointed to select and present potential investors. In the event an agreement cannot be reached on a sale to a third party, work would focus on restructuring the balance sheets of the financial investees, with the objective of using the cash flows from their maturing assets to discharge their financial liabilities. To the same end, the value of the stakes in the Group's service companies would also be unlocked through the sale thereof on an individual basis, thereby allowing the Company's activity to continue. - In spite of the aforementioned adverse conditions and risks and the losses incurred during the year, the Company remains sufficiently solvent to continue to fund the activity of the various Group companies. - Lastly, the Directors consider that the investees will have the financial support of the shareholders of Lico Corporación, S.A. to ensure they can continue their normal activity, fulfil their financial obligations and maintain the minimum capital requirements, with the objective of successfully completing the divestment process. Specifically, the Company s Directors are working on reaching agreement with its shareholders to adapt the maturity of the investees' financial liabilities to the maturity of their financial assets to allow the Company and these investees to continue operating normally and for divestment to be completed successfully. Comparative information As explained in Note 15, during 2012 the Company sold its stake in the associate Gestión Tributaria Territorial, S.A. ( GTT ), a company providing tax management services to the official tax authorities, which the Company considered to be a significant line of business. Pursuant to prevailing accounting standards, the Company has amended the comparative information in the 2011 income statement, recognising the post-tax profit of this discontinued operation as a single amount under Profit after tax for the year from discontinued operations". The 2011 income statement, presented for comparative purposes only in the accompanying financial statements, therefore differs from that presented in the financial statements for that year approved by the Company's shareholders at their Annual General Meeting on 27 June

155 Accounting policies and measurement bases As indicated in Note 1, the Company is the Parent of a group of companies (details of which are included in the Appendix to these notes to the financial statements). As head of a group and as it meets certain requirements, the Company is obliged under current legislation to prepare separate consolidated financial statements under International Financial Reporting Standards as adopted by the European Union (EU-IFRSs). Accordingly, on 22 March 2013, the Company s directors authorised for issue the Group s consolidated financial statements, which are presented separately from the Company s individual financial statements. Therefore, the bases of consolidation contained in the Group s consolidated financial statements were not applied in the preparation of the individual financial statements. Based on the content of the consolidated financial statements prepared under EU-IFRSs, the Lico Group s total consolidated assets and equity amounted to EUR 932,232 thousand and EUR 167,046 thousand, respectively, at the 2012 year end, while the 2012 consolidated net loss attributable to the Parent amounted to EUR 69,206 thousand. The Lico Group s consolidated financial statements for 2011 were authorised for issue by the Directors of Lico Corporación, S.A. at the meeting held on 27 March 2012 and approved at the Annual General Meeting of 27 June The financial statements were subsequently filed with the Madrid Companies Register. In the preparation of the accompanying financial statements, the following generally accepted accounting policies and measurement bases were used. All obligatory accounting policies and measurement bases with a significant effect on these financial statements were applied in their preparation. a) Income and expense recognition Revenue and expenses are recognised on an accrual basis, i.e. when the actual flow of the related goods and services occurs, regardless of when the resulting monetary or financial flow arises. Revenue is measured at the fair value of the consideration received, net of discounts and taxes. Revenue from the rendering of services is recognised by reference to the stage of completion of the transaction at the balance sheet date provided the result of the transaction can be estimated reliably. Interest income from financial assets is recognised using the effective interest method and dividend income is recognised when the right to receive the payment is established. Interest and dividends from financial assets accrued after the date of acquisition are recognised as revenue in the income statement. b) Intangible assets As a general rule, intangible assets are recognised initially at acquisition price or production cost and are subsequently measured at cost less any accumulated amortisation and impairment losses. These assets are amortised over their useful lives. The balance of Intangible assets includes the costs incurred in the acquisition and development of computer applications. Maintenance costs of computer applications are recognised with a charge to the income statement for the year in which they are incurred. Computer applications are amortised on a straight-line bases over four years (the estimated useful life of the computer applications). At the end of each reporting period or whenever there are indicators of impairment, the Company tests its intangible assets to determine whether their recoverable amount has fallen below their carrying amount. Recoverable amount is the higher of fair value less costs to sell and value in use. 4

156 When an impairment loss is reversed, the carrying amount of the asset is increased to the revised estimate of its recoverable amount; however, the increased carrying amount may not exceed the carrying amount that would have been determined had no impairment loss be recognised in prior years. Such reversal is recognised as income. c) Property, plant and equipment Property, plant and equipment are initially measured at acquisition or production cost, and are subsequently carried net of accumulated depreciation and any impairment losses, in keeping with the criteria set forth in paragraph b) of this note. The Company depreciates its property, plant and equipment using the straight-line method at the following annual rates based on the estimated useful lives of the assets: Furniture and other items of property,plant and equipment 10 Computer hardware 25 % Upkeep and maintenance costs relating to property, plant and equipment are taken to the income statement for the period in which they are incurred. However, the costs of improvements leading to increased capacity or efficiency or to a lengthening of the useful lives of the assets are capitalised. d) Operating leases Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards incidental to ownership of the leased asset to the lessee. All other leases are classified as operating leases. Operating lease costs are recognised with a charge to the income statement for the year in which they are incurred. Any collection or payment that might be made when arranging an operating lease will be treated as a prepaid lease collection or payment, which will be allocated to profit or loss over the lease term in accordance with the time pattern in which the benefits of the leased asset are provided or received. e) Financial instruments Financial assets: Classification The financial assets held by the Company are classified into the following categories: 5

157 - Loans and receivables: financial assets arising from the sale of goods or the rendering of services in the ordinary course of the Company's business, or financial assets which, not having commercial substance, are not equity instruments or derivatives, have fixed or determinable payments and are not traded in an active market. - Equity investments in Group companies and associates: Group companies are deemed to be those related to the Company as a result of a control relationship and associates are companies over which the Company exercises significant influence. - Held-to-maturity investments: debt securities with fixed or determinable payments traded in an active market which the Company intends and is able to hold to maturity. - Available-for-sale financial assets: these include debt securities and equity instruments of other companies that are not classified in any of the preceding categories. Initial recognition Financial assets are initially recognised at the fair value of the consideration given plus directly attributable transaction costs. In the event that a controlling interest in a Group company is acquired, the fees paid to legal advisors and other professionals involved in the acquisition of said interest are charged directly to the income statement Subsequent measurement Loans and receivables and held-to-maturity investments are measured at amortised cost. Investments in Group companies and associates are measured at cost less any accumulated impairment losses. These losses are calculated as the difference between the carrying amount of the investments and their recoverable amount. Recoverable amount is the higher of fair value less costs to sell and the present value of the future cash flows from the investment. Unless there is better evidence of the recoverable amount, it is based on the value of the equity of the investee, adjusted by the amount of unrealised gains existing at the date of measurement (including any goodwill). At the 2012 year end, the Company estimated impairment losses on investments in Group companies and associates as a function of their net equity, as no estimate is available of the recoverable amount of these investments determined as the higher of their fair value less costs to sell and the present value of future cash flows. As a result, the amounts recognised in the Company's balance sheet at 31 December 2012 for these investments could therefore differ from the amounts received by the Company if the sale of these investments described in Note 2 "Key issues in relation to the measurement and estimation of uncertainty Going concern" is completed. Available-for-sale financial assets are measured at fair value, with any fair value changes recognised in equity until the asset is derecognised or determined to be impaired (permanently), at which time the cumulative gain or loss recognised in equity is recognised in the income statement. The asset is considered to be impaired (on a permanent basis) when its value has decreased over 18 months or by 40% of its initial quoted price, without having recovered its initial value. 6

158 The Company tests its financial assets not measured at fair value for impairment at least at each balance sheet date. Objective evidence of impairment is considered to exist when the recoverable amount of the financial asset is lower than its carrying amount. The Company calculates impairment losses on trade and other receivables based on an individual assessment of the recoverable amount of the receivables. Impairment allowances and, where applicable, reversal thereof, are recognised as an expense or as income, respectively, in the income statement. When the impairment loss actually occurs, it is recognised in the income statement. In the event the fair value of equity instruments considered to be available-for-sale financial assets increases in subsequent years, the impairment allowances recognised in prior years would not revert with a charge to the income statement. Rather, the increase in fair value would be recognised directly in equity. Derecognition of financial assets The Company derecognises financial assets when the rights to receive the asset s cash flows have expired or are sold and substantially all the risks and rewards of ownership have been transferred, such as the outright sale of assets, the assignment of trade loans in factoring operations in which the Company does not retain any credit or interest rate risk, sales of financial assets under repurchase agreements at fair value or securitisations of financial assets in which the selling company does not retain subordinated financing or grant any type of guarantee or assume any type of risk. The Company does not derecognise financial assets and recognises a financial liability for an amount equal to the consideration received in the transfer of financial assets in which it retains substantially all the risks and rewards of ownership, such as the discounting of bills, recourse factoring, sales of financial assets under repurchase agreements at a fixed price or at a price plus interest, and the securitisation of financial assets where the selling company retains subordinated financing or another type of guarantee that potentially absorbs all of the expected losses. Financial liabilities: Financial liabilities include loans and payables by the Company that have arisen from the purchase of goods or services in the normal course of the Company's business and those which, while not having commercial substance, cannot be classed as derivative financial instruments. Loans and payables are initially recognised at the fair value of the consideration received, adjusted for directly attributable transaction costs, and subsequently measured at amortised cost. The Company derecognises financial liabilities when the obligations they generate have been extinguished. Equity instruments: An equity instrument is a contract that evidences a residual interest in the assets of a company after deducting all of its liabilities. Capital instruments issued by the Company are recognised in equity at the proceeds received, net of issue costs. 7

159 f) Termination, early retirement and dismissal benefits Under current Spanish legislation, the Company is required to pay termination benefits to employees whose employment is terminated under certain conditions. Therefore, termination benefits that can be reasonably quantified are recognised as an expense in the year in which the decision to terminate the employment relationship is taken. No provision in this connection has been recorded in the accompanying financial statements. g) Income tax Income tax expense (income) comprises the current tax expense (current tax income) and deferred tax expense (deferred tax income). Current income tax expense is the amount payable by the Company as a result of income tax settlements for a given year. Tax credits and other tax benefits, excluding tax withholdings and pre-payments, and tax loss carryforwards from prior years effectively offset in the current year reduce the current income tax expense. Deferred tax expense or income relates to the recognition and derecognition of deferred tax assets and liabilities. These include temporary differences measured at the amount expected to be payable or recoverable arising from differences between the carrying amounts of assets and liabilities and their tax bases, and tax loss carryforwards and unused tax credits. These amounts are measured by multiplying the temporary difference or tax credit by the tax rates that are expected to apply in the period when the asset is realised or the liability is settled. Deferred tax liabilities are recognised for all taxable temporary differences, except for those arising from the initial recognition of goodwill or of other assets and liabilities in a transaction that is not a business combination and affects neither accounting profit/(loss) nor taxable profit/(tax loss). Deferred tax assets are recognised to the extent that it is considered probable that the Company will have taxable profit in the future against which the deferred tax assets can be utilised. Deferred tax assets and liabilities arising from transactions charged or credited directly to equity are also recognised in equity. The deferred tax assets recognised are reassessed at the end of each reporting period and the appropriate adjustments are made to the extent that there are doubts as to their future recoverability. Unrecognised deferred tax assets are also reassessed at the end of each reporting period and are recognised to the extent that it has become probable that they will be recovered through future taxable income. Since 1993, the Company has filed consolidated tax returns with other companies in the consolidated tax group. Under the tax group s policy, income tax is allocated to the various companies on the basis of the individual tax bases generated by them, net of the possible tax credits taken at individual or consolidated level in the year. The positive or negative effect of tax consolidation on the consolidated income tax payable is attributed in full to the Company as the Parent of the consolidated tax group, except for the tax losses offset by Group entities other than those which generated them, whose effect on the net tax payable is settled accordingly. 8

160 h) Pension obligations Defined benefit plans The Company recognises under Provisions Non-current provisions for employee benefits on the liability side of the balance sheet (or under Non-current financial assets Other investments on the asset side, as appropriate) the present value of its defined benefit pension obligations, net of the fair value of the assets that qualify as plan assets and of the unrecognised past service cost, as explained below. Plan assets are the assets linked to a certain defined benefit obligation that will be directly used to settle these obligations and that meet the following conditions: they are not owned by the consolidated entities but by a separate and unrelated third party; they are only available to pay or fund post-employment benefits; and they cannot be returned to the consolidated entities unless the assets remaining in the plan are sufficient to meet all obligations of the plan and of the entity relating to current or former employee benefits, or to reimburse employee benefits already paid by the Company. The past service cost, which arises from changes to existing post-employment benefits or from the introduction of new benefits, is recognised on a straight-line basis on the income statement over the period from the time at which the new obligations arise to the date on which the employee has an irrevocable right to receive the new benefits. Changes in the balances are recognised in the income statement for the year in which they occur, except for actuarial gains and losses (differences between the previous actuarial assumptions and what has actually occurred and changes in actuarial assumptions), which are recognised directly in equity under Reserves. Defined benefit obligations outstanding at 31 December 2012 relate to a voluntary retirement bonus approved by the Board of Directors in 2005 for certain employees. This obligation is funded by an insurance policy taken out with Caja de Seguros Reunidos, Compañía de Seguros y Reaseguros, S.A. - CASER. Note 14 shows the amount of the accrued defined benefit obligations and the assets funding these obligations. i) Provisions, contingent liabilities and contingent assets When preparing the financial statements, the Company s directors make a distinction between: 1. Provisions: creditor balances covering present obligations arising from past events with respect to which it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, which is uncertain as to its amount and/or timing; 2. Contingent liabilities: possible obligations that arise from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more future events not wholly within the control of the Company. The financial statements include all the material provisions with respect to which it is considered that it is more likely than not that the obligation will have to be settled. Contingent liabilities are not recognised in the financial statements, but rather are disclosed, unless the possibility of an outflow in settlement is considered to be remote. Provisions are measured at the present value of the best possible estimate of the amount required to settle or transfer the obligation, taking into account the information available on the event and its consequences. Where discounting is used, adjustments made to provisions are recognised as interest cost on an accrual basis. 9

161 The compensation to be received from a third party on settlement of the obligation is recognised as an asset, provided that there are no doubts that the reimbursement will take place, unless there is a legal relationship whereby a portion of the risk has been externalised as a result of which the Company is not liable. In this situation, the compensation will be taken into account for the purpose of estimating the amount of the related provision that should be recognised. Contingent assets arise from past events whose existence will be confirmed only by the occurrence or nonoccurrence of one or more uncertain future events not wholly within the control of the Company. Contingent assets are not recognised in either the balance sheet or the income statement. Rather, they are disclosed when an inflow of economic benefits is probable. j) Non-current assets held for sale Non-current assets are classified as held for sale when the decision to sell the assets has been made and it is estimated that the sale will be completed within the subsequent 12 months. These assets or disposal groups are measured at the lower of their carrying amount or fair value less costs to sell. Due to the fact that the Directors' initial strategy regarding the decision to divest the Company's businesses (see Note 2) is for the Company to remain as the Parent of a group of financial and service companies, the Directors have considered that these investments in Group companies and associates do not fulfil the conditions to be classified as available-for-sale non-current assets and therefore, they continue to be recognised under "Non-current investments in Group companies and associates" on the accompanying balance sheet at 31 December k) Discontinued operations A discontinued operation is any component of the Company that has either been sold or disposed of by another means, or is classified as held for sale and, among other conditions, represents a major line of business or area that can be considered separate from the other business lines or areas. When accounting for discontinued operations, the Company includes the sum of the profit or loss after tax of the discontinued operations and the profit or loss after tax recognised on measuring the discontinued operations at fair value less costs to sell, or from the disposal of the assets and liabilities comprising the discontinued operation as a single amount under Profit after tax for the year from discontinued operations. In addition, when operations are classified as discontinued, the above-mentioned caption also includes the prior year s figure for activities considered discontinued at the reporting date of the financial statements. 3. Proposed application of losses The Board of Directors will propose for approval by the shareholders at the Annual General Meeting that the Company's losses for 2012 be allocated as follows: 10

162 Thousands of euros Applicable loss: Loss for the year (71,515) Application: Prior year's losses (71,515) 4. Intangible assets Details of Intangible assets at 31 December 2012 and 2011 and of the changes therein in the years then ended is as follows: Thousands of euros Balance at Balance at 1/1/12 Increases 31/12/12 Computer software (-) Accumulated amortisation (316) (9) (325) Intangible assets, net 25 (8) 17 Thousands of euros Balance at Balance at 1/1/11 Increases 31/12/11 Computer software (-) Accumulated amortisation (308) (8) (316) Intangible assets, net At 31 December 2012 and 2011, fully amortised intangible assets amounted to EUR 306 thousand and EUR 300 thousand, respectively. 5. Property, plant and equipment Details of Property, plant and equipment at 31 December 2012 and 2011 and of the changes therein in the years then ended is as follows: 11

163 Property, plant and equipment: Furniture and other items of property, plant and equipment Thousands of euros Balance at Decreases Balance at 1/1/12 Increases and transfers 31/12/ Computer hardware Accumulated depreciation: Furniture and other items of property, plant and equipment (24) (4) 40 - (28) Computer hardware (98) (2) - (100) (122) (6) - (128) Property, plant and equipment, net 22 (6) - 16 Property, plant and equipment: Furniture and other items of property, plant and equipment Thousands of euros Balance at Decreases Balance at 1/1/11 Increases and transfers 31/12/ Computer hardware Accumulated depreciation: Furniture and other items of property, plant and equipment (20) (4) 40 - (24) Computer hardware (94) (4) - (98) (114) (8) (122) Property, plant and equipment, net 28 (6) - 22 At 31 December 2012 and 2011, fully depreciated items of property, plant and equipment amounted to EUR 96 thousand and EUR 94 thousand, respectively. 6. Non-current investments in Group companies and associates Details of this heading in the balance sheets at 31 December 2012 and 2011 and of the changes therein in the years then ended are as follows: 12

164 Thousands of euros Balance at Balance at 1/1/12 Increases Decreases 31/12/12 Equity instruments: Equity investments in Group companies and associates 146,302 54,119 (7,938) 192,483 (-) Unpaid portion of shares of Group companies and associates (421) (3) 43 (381) (-) Impairment allowances (2,467) (78,790) 314 (80,943) Subtotal 143,414 (24,674) (7,581) 111,159 Guarantees (*) Loans to Group companies (*) 52,413 7,500 (59,913) - (-) Impairment allowances (3,890) - 3,890 - (*) Classified as Loans and receivables for measurement purposes 191,941 (17,174) (63,604) 111,163 Thousands of euros Balance at Balance at 1/1/11 Increases Decreases 31/12/11 Equity instruments: Equity investments in Group companies and associates 142,315 4,007 (20) 146,302 (-) Unpaid portion of shares of Group companies and associates (442) (1) 22 (421) (-) Impairment allowances (2,247) (257) 37 (2,467) Subtotal 139,626 3, ,414 Guarantees (*) Loans to Group companies (*) 30,489 30,000 (8,076) 52,413 (-) Impairment allowances - (3,890) - (3,890) 170,119 29,859 (8,037) 191,941 (*) Classified as Loans and receivables for measurement purposes Equity instruments Details of equity investments in Group companies and associates, none of which are listed on the stock exchange, including the percentage ownership and other relevant information at 31 December 2012 and 2011, are as follows: 13

165 2012 % Ownership Thousands of euros Profit/(loss) Carrying amount Impairme nt in the year (*) The full corporate name, location and line of business of each company are provided in the Appendix Supplementary information, attached to these notes to the financial statements. (**) Net of uncalled share payments, which totalled EUR 381 thousand for all the above companies at 31 December Accumulate d impairment Paid-in Other Total Company (*) Direct Indirect capital Operating Net equity equity Cost Lico Leasing ,000 (89,908) ( (101,055) 71,892 92, ,503 (78,666) (78,666) Lico Renting , (739) 2,170 7,441 6, Lico Seguros (475) (316) (**) (53) (53) Decanos (141) 374 2, (1,828) Lico , (156) 1,738 11,680 10, Inmuebles Debt recovery companies: Geslico (280) Aicosa (37) Aseinsa (73) Augasa (43) (**) - - Aurasa ,836 1,285 (563) Auseco (**) 22 - Cogesa (126) (90) (71) (116) Geasa (137) (**) - - Gescosa (178) (**) - - Geseco Sercresa ,058 1,441 (738) Servico , (440) (**) - - Seteco (100) Valacar Total debt recovery 2, (396) companies Total 192,102 (**) (78,476) (80,943) 14

166 2011 % Ownership Thousands of euros Profit/(loss) Carrying amount Impairme Paid-in Other Total nt in the Accumulated Company Direct Indirect capital Operating Net equity equity Cost year impairment Lico Leasing , (2,499) 71, , , Lico Renting , (798) 2,967 8,179 6, Lico Seguros (*) - - Decanos (261) (189) ,122 (149) (1,845) Lico Inmuebles , ,714 10,458 8, GTT (consolidated ,938 4,950 4,097 5,968 21,003 7, ) Debt recovery companies: Geslico (93) (555) Acinsa , (674) Aicosa (11) Aseinsa Asinco (22) Aucasa (48) (*) - - Augasa (148) (*) - - Augespa (158) Aurasa (139) Auseco (*) - - Ausema (280) Cogesa (15) (45) Geasa (227) (*) - - Gescosa (291) (*) - - Geseco Incosa (101) Serco (*) - - Sercresa ,283 2,058 (1,188) Servico (19) (*) - - Seteco (280) Valacar Total debt recovery 2,123 (71) (622) companies Total 145,881 (*) (220) (2,467) (*) Net of uncalled share payments, which totalled EUR 421 thousand for all the above companies at 31 December The main transactions involving equity instruments of Group companies and associates in 2012 and 2011 are as follows: 15

167 At the annual general meetings of Aurasa, Incosa and Ausema, held on 16 February 2012, their respective shareholders approved the merger by absorption of these three companies, with Aurasa the absorbing company. On 26 March 2012, the deed laying down the merger by absorption of Ausema and Incosa by Aurasa was signed. On 4 May 2012, this merger was filed in the Companies Register, along with the corresponding bylaw amendments. This merger has had no impact on the Company's financial statements. 2. At their meeting on 27 March 2012, the Company's Board of Directors (as Lico Leasing's Sole Shareholder) resolved to make a contribution to this company to offset its 2011 losses of EUR 2,499 thousand. Furthermore, on 26 December 2012, the Company decided to increase Lico Leasing's share capital by EUR 50,000 thousand. This share capital increase (fully subscribed and paid up by the Company) was executed by public deed on 27 December 2012, and filed in the Companies Register on 10 January At the annual general meetings of Servico, Serco and Augespa, held on 21 February 2012, their respective shareholders approved the merger by absorption of these three companies, with Servicio the absorbing company. The merger deed was signed on 29 June 2012, and filed with the respective Companies Registers on 5 September This merger has had no impact on the Company's financial statements. 4. At the annual general meetings of Auseco, Acinsa and Asinco, held on 18 and 19 September 2012, their respective shareholders approved the merger by absorption of these three companies, with Auseco the absorbing company. On 30 October 2012, the deed laying down the merger by absorption of Acinsa and Asinco by Auseco was signed. On 11 December 2012, this merger was filed in the Companies Register, along with the corresponding bylaw amendments. This merger has had no impact on the Company's financial statements. 5. On 16 May 2012, the Company acquired 600 shares in the subsidiary Aicosa from Banco Mare Nostrum S.A., representing 6% of this company's share capital, for EUR 5 thousand. Subsequent to the acquisition of these shares, the Company's ownership percentage in this company increased to 87.40% (from 81.40% in 2011). 6. On 17 May 2012, the subsidiary Lico Inmuebles increased its capital by EUR 1,600 thousand through the issue of 160,000 new shares with a par value of EUR 10 each. This share capital increase was fully subscribed and paid up by the Company, and the respective public deed was signed on 7 June In 2012, the Company acquired shares in the subsidiary Aucasa from Unnim Banc, S.A., Catalunya Banc, S.A. and Banco Mare Nostrum, S.A. for a total of EUR 15 thousand. As a result, the Company's ownership percentage in this company increased to 100% (from 82% at 31 December 2011), whereby this company is now solely owned. At the annual general meetings of Geslico and Aucasa, held on 11 September 2012, their respective shareholders approved the merger by absorption of these two companies, with Geslico the absorbing company. The merger deed was signed on 30 October 2012, and subsequently filed with the respective Companies Registers. This merger has had no impact on the Company's financial statements. 8. The Company has also divested its stake in the associate GTT, a company providing tax management services to public entities, in which it held a stake of 42.24% (see Note 15). 16