7. SEGMENT REPORTING

The REN Group is organised in two main business segments, Electricity and Gas and one secondary segment. The electricity segment includes the transmission of electricity in very high voltage, overall management of the public electricity system, management of the power purchase agreements (PPA) not terminated at 30 June 2007 and the pilot zone for electricity production from sea waves. The gas segment includes high pressure gas transmission and overall management of the national natural gas supply system, as well as the operation of regasification at the LNG Terminal and the underground storage of natural gas.

Although the activities of the LNG Terminal and underground storage can be seen as separate from the transport of gas and overall management of the national natural gas supply system, since these operations provide services to the same users and they are complementary services, it was considered that it is subject to the same risks and benefits.

The telecommunications segment is presented separately although it does not qualify for disclosure.

Management of external loans are centrally managed by REN SGPS, S.A. for which the Company choose to present the assets and liabilities separate from its eliminations that are undertaken in the consolidation process, as used by the main responsible operating decision maker.

The results by segment for the year ended 31 December 2014 were as follows:

December 2014

Electricity

Gas

Telecommunications

Others

Eliminations

Consolidated

Sales and services provided

397,051

168,700

5,519

41,078

(41,498)

570,850

Inter-segments

904

409

61

40,125

(41,498)

-

Revenues from external customers

396,147

168,291

5,458

953

-

570,850

Revenue from construction of concession assets 

137,410

25,776

-

-

-

163,186

Cost with construction of concession assets 

(120,574)

(22,220)

-

-

-

(142,794)

Gains/(losses) from associates and joint ventures

-

-

-

421

-

421

External supplies and services

(47,497)

(24,272)

(1,713)

(19,833)

52,778

(40,537)

Employee compensation and benefit expense

(24,055)

(7,718)

(225)

(21,051)

-

(53,049)

Other expenses and operating income

18,061

1,902

(319)

626

(11,280)

8,989

Operating cash flow 

360,396

142,166

3,262

1,240

-

507,065

Investment income - dividends

-

-

-

8,569

-

8,569

Non reimbursursable expenses

Depreciation and amortizations

(146,794)

(55,567)

(12)

(255)

-

(202,628)

Provisions 

(940)

(397)

-

(112)

-

(1,449)

Impairment

(22)

(5)

-

-

-

(28)

Financial results

Financial income

1,287

15,277

106

174,035

(181,704)

9,001

Financial costs

(76,702)

(37,018)

(2)

(199,717)

181,704

(131,735)

Profit before income tax 

137,226

64,456

3,355

(16,241)

-

188,795

Income tax expense

(40,077)

(17,332)

(872)

7,329

-

(50,953)

Energy sector extraordinary contribution (ESEC)

(17,940)

(7,125)

-

-

-

(25,065)

Profit for the year

79,208

39,999

2,483

(8,913)

-

112,777

Results by segment for the year ended 31 December 2013 were as follows:

December 2013

Electricity

Gas

Telecommunications

Others

Eliminations

Consolidated

Sales and services provided

399,175

172,043

5,575

42,024

(42,819)

575,998

Inter-segments

944

125

157

41,593

(42,819)

-

Revenues from external customers

398,231

171,918

5,418

432

-

575,998

Revenue from construction of concession assets 

157,581

29,883

-

-

-

187,464

Cost with construction of concession assets 

(137,210)

(24,969)

-

-

-

(162,179)

Gains/(losses) from associates and joint ventures

-

-

-

(361)

-

(361)

External supplies and services

(48,678)

(26,057)

(1,789)

(20,905)

53,402

(44,028)

Employee compensation and benefit expense

(23,729)

(8,212)

(256)

(21,401)

-

(53,599)

Other expenses and operating income

18,974

2,983

(18)

1,334

(10,583)

12,691

Operating cash flow 

366,233

145,670

3,513

961

-

515,986

Investment income - dividends

-

-

-

7,558

-

7,558

Non reimbursursable expenses

Depreciation and amortizations

(141,974)

(59,013)

(20)

(235)

-

(201,242)

(Provisions) / Reversals

439

(76)

-

(150)

-

212

Reversal of Impairment of trade receivables

5,296

-

-

-

-

5,296

Financial results

Financial income

578

16,061

141

149,945

(153,807)

12,917

Financial costs

(72,940)

(36,923)

(1)

(206,645)

153,807

(162,703)

Profit before income tax 

157,511

65,718

3,633

(48,837)

-

178,024

Income tax expense

(48,317)

(19,455)

(1,030)

12,081

-

(56,721)

Profit for the year

109,194

46,263

2,602

(36,756)

-

121,303

Inter-segment transactions are carried out under normal market conditions, equivalent to transactions with third parties.

Revenue included in the segment “Others” is essentially related to the services provided by the management and back office to Group entities as well as third parties.

Assets and liabilities by segment at 31 December 2014 as well as investments on intangible assets and property, plant and equipment were as follows:

December 2014

Segment assets

Electricity

Gas

Telecommunications

Others

Eliminations

Consolidated

Group investments held

-

533,578

-

1,474,138

(2,007,716)

-

Property, plant and equipment and intangible assets

2,650,718

1,187,541

13

638

-

3,838,910

Other assets

511,054

441,173

6,357

4,001,118

(3,873,857)

1,085,844

Total assets 

3,161,773

2,162,292

6,370

5,475,894

(5,881,573)

4,924,755

Total liabilities 

2,559,108

959,718

2,655

4,141,563

(3,873,857)

3,789,188

Capital expenditure - total

137,411

25,776

-

64

-

163,251

Capital expenditure - property, plant and equipment (note 8)

1

-

-

64

-

65

Capital expenditure - intangible assets (note 8)

137,410

25,776

-

-

-

163,186

Investments in associates

-

-

-

10,828

-

10,828

Investments in joint ventures

-

-

-

1,747

-

1,747

Assets and liabilities by segment at 31 December 2013 as well as investments on intangible assets and property, plant and equipment were as follows:

December 2013

Segment assets

Electricity

Gas

Telecommunications

Others

Eliminations

Consolidated

Group investments held

-

541,564

-

1,456,412

(1,997,976)

-

Property, plant and equipment and intangible assets

2,660,102

1,217,353

24

875

-

3,878,354

Other assets

621,027

448,016

5,505

3,931,271

(3,822,824)

1,182,994

Total assets 

3,281,129

2,206,933

5,529

5,388,558

(5,820,800)

5,061,349

Total liabilities 

2,656,583

995,035

1,825

4,151,164

(3,822,824)

3,981,783

Capital expenditure - total

157,584

29,883

-

374

-

187,841

Capital expenditure - property, plant and equipment (note 8)

3

-

-

374

-

377

Capital expenditure - intangible assets (note 8)

157,581

29,883

-

-

-

187,464

Investments in associates

-

-

-

10,610

-

10,610

Investments in joint ventures

-

-

-

1,545

-

1,545

The liabilities included in the segment “Others” are essentially related to external borrowings obtained directly by REN SGPS, S.A. and REN Finance, BV for financing the several activities of the Group.

The captions of the statement of financial position and profit and loss for each segment result of the amounts considered directly in the individual financial statements of each company that belongs to the Group included in the perimeter of each segment, corrected with the eliminations of the inter-segment transactions.