1720 - :: geroa pentsioak epsv · 2018-05-23 · annual report 1720. lugaritz pasealekua, 27 20018...

ANNUALREPORT

1720

Lugaritz Pasealekua, 2720018 Donostia (Gipuzkoa)

GEROA PENTSIOAK, EMPLOYMENT EPSV

www.geroa.eus

Winter:

• From 08.30 am to 2.30 pm• From 3.30 to 6.00 pmFriday:• 08:30 am to 2:30 pm

Summer:

(From 6/1 to 9/14)• 08.00 am to 2.30 pm

[email protected]@[email protected]

Call Center: 943 317 022Contributions Dpt.: 943 317 279Benefits Dpt.: 943 317 296Accountancy: 943 317 281Investments: 943 317 278

3

ACTUARY`S REPORT

AUDITOR`S REPORT

ANNUAL ACCOUNTS

27

32

40

Page

6

4

10

16

18

20

GENERAL INFORMATION

GEROA: 2017 IN FIGURES

2017 MILESTONES

GOVERNING BODIES

OUR TEAM

MARKETS REPORT

4

GENERAL INFORMATION 1

5

Independence Parity Closenessto Members

SocialCommitment and

Responsibility

Professionalapproach to the

commitmentsacquired

OUR VALUES

GEROA PENTSIOAK, EMPLOYMENT EPSV, with Tax ID Number V20.548.244, began its activity in 1996 and is registered in the Official Euskadi E.P.S.V. Register with the number 178-G.

VISIONTo be an Organisation in which our members feel they play a part and where they value the comparative advantage that it offers them in being able to maintain their quality of life during their retirement, as well as protecting them against situations such as disability and death.

MISSIONGEROA PENTSIOAK is an employment EPSV comprised, in equal parts, of ADEGI (Gipuzkoa Companies Association) and Trade Unions, the objective of which is to supplement the state pension of the workers from the companies of the member sectors. With this objective, the contributions, made in the same way during the working life of the workers, are managed by a technical team charged with the duty of managing them in an independent, efficient and sustainable manner in the long term, with the aim of reducing the loss of purchasing power of the pensioners.

The sponsoring members are:ADEGI, with registered address at Paseo Mikeletegi 52, 20009 Donostia-San Sebastián, Gipuzkoa.

And the trade unions:ELA, with registered address at Calle Consulado 8, 20011 San Sebastián, Gipuzkoa.LAB, with registered address at Calle Pokopandegi 9, 20018 San Sebastián, Gipuzkoa.CC.OO., with registered address at Calle Carlos I 1, 20011 San Sebastián, Gipuzkoa.UGT, with registered address at Calle Catalina de Erauso 7, Donostia-San Sebastián, Gipuzkoa.

The Organisation’s Governing Bodies are composed equally of employers and trade unions.

Signatory of:

Paseo de Lugaritz, 27 Bajo • 20018 San Sebastián, Gipuzkoa (Spain)• T. +34 943 317022 • F. +34 943 317280 • www.geroa.eus

6

GEROA: 2017 IN FIGURES2

7

86.75Million €

CONTRIBUTIONS

9,319COMPANIES

20SECTORS

35OUTGOING

MOVEMENTS

252,267€OUTGOING

MOVEMENTS AMOUNT

4,495€INCOMING

MOVEMENTS AMOUNT

BENEFITS WITH ADDITIONAL

CAPITAL

11,547,690 €of wich

4,245,363 € isadditional capital

381

49.54MILLION €

39.68 IN CAPITAL9.86 IN ANNUITY

1,979 Retirement340 Total Permanent Disability

173 Absolute Permanent Disability8 Severe Invalidity

149 Death

PAYMENTS

TO 2,649 PARTNERS

MINIMUMAMOUNT OF ANNUITY

AVERAGE AMOUNT OF RETIREMENT ANNUITY 2017

YEAR 2017: 168€YEAR 2018 : 173€

177€

PAYMENTS

CONTRIBUTIONS

2INCOMING

MOVEMENTS

ASSETS UNDER MANAGEMENT

2,077MILLIONS €

8

3.61%LIFETIME ANNUITY

1.50%TEMPORARY ANNUITY

1.20%CPI

0,25%STATE PENSION

ANNUITIESREVALUATION

0.12%ADMINISTRATION COSTS

0.03%INTERMEDIATION COSTS

0.28%THIRD PARTY FEES

77.29%

1 DAY

TURNOVER RATIO

SUPPLIER PAYMENT PERIOD

COSTS

BREAKDOWN FUND 1 BREAKDOWN FUND 2

10.07%

49.37%34.59%

5.97%

SHORT-TERM

FIXED INCOMEEQUITY

OTHER

FIXED INCOME100%

12.64%

INVESTMENTS IN BASQUE COUNTRY

INVESTMENTS

1 YEAR 10 YEARS Since 1996

CPI 1.20% 1.25% 2.08%

GEROA 9.95% 6.03% 6.63%AVERAGE Fixed MixedIncome (Data from INVERCO) 1.21% 1.76% 3.26%

YIELD

92

NEW JOBSAT INVESTEDCOMPANIES

IN 2017

6,3TOTAL

AMOUNT DIRECT INVESTMENT 2017

MILLIONS €

11.56%

2,015FUND 1

MILLIONS €

65%

46RESERVES

MILLIONS €

141.11%

16FUND 2

MILLIONS €

RETURN AND COSTS

90%

9

20TEAM

5MEN

15WOMEN

WORKERSWHO WISH

TO CONTINUE CONTRIBUTING

88%

SERVICE IN BASQUE LANGUAGE

85%

COLLECTIVE

OUR MANAGEMENT

(36% of totalworkers in

GIPUZKOA)

2.97%108,365

MEMBERS WITH CONTRIBUTIONS

IN 2017

153,010

MEMBERSWITHOUT

CONTRIBUTIONSIN 2017

1,913

MEMBERSWHO ARE

RECEIVING ANNUITIES

543

BENEFICIARIESWHO ARE

RECEIVING ANNUITIES

42.86AVERAGE

AGE

67%MEN

33%WOMEN

47%17,360€

PROFITS

53%19,775€CONTRIBUTIONS

37,135€

AVERAGESAVINGS OFA WORKERSINCE 1996

COMPANIESWHO AGREE WITH

THEIR CONTRIBUTIONS OR WISH TO

CONTRIBUTE MORE

10

2017 MILESTONES3

2017

11

TOWARDS A BETTER ORGANISATION2017 was a year wherein, thanks to the work of everyone at GEROA, many of the new pathways taken in the prior fiscal year were solidified. Once again this year, return was much higher than average, and the investments made in our industrial network created new jobs. On the other hand, communication was one of the central issues throughout the entire fiscal year, in an attempt not only to contribute to financial and welfare education for society, but also to bring the Entity closer to members.

Some of GEROA’s most remarkable ac-tions over the past fiscal year bore on different regulatory adaptations under-taken, so as to offer better service.

In this regard, 2017 saw Development of Good Governance Policies, required by the Regulation of Law 5/2012 on EPSV, compe-lling entities to have written policies on their Good Governance before 1/1/2018, requiring the appointment and definition of responsi-ble parties, whose key duties were: Internal Auditing, Risk Management and Actuarial Management.

GEROA began this process in 2016, to get ahead of the regulation. It was in 2017 that this documentation was drawn up and ap-proved at the December Board Meeting on the Entity’s Good Governance Manual.

On the other hand, we also addressed Se-paration of Portfolios at GEROA, approved after the amendment to Statutes in 2016. At that time, we decided to separate the Entity’s Reserves and the Members’ assets portfolios, whose benefit collection was an annuity as of 01/01/2017, assigning them di-fferent risk profiles in comparison with mem-bers who are still accumulating savings. This process was successfully completed in 2017, with IT and investment implementation.

Further information:

http://www.euskadi.eus/decreto/decreto-2032015-de-27-de-octubre-por-el-que-se-aprueba-el-reglamento-de-la-ley-52012-de-23-de-febrero-sobre-entidades-de-prevision-social-voluntaria/web01-ejeduki/es/

REGULATORY ADAPTATIONS

Moreover, the Entity’s Declaration of Invest- ment Principles was amended, adapting it to the current reality of financial markets with new kinds of assets, in an environment with very low rates.

12

INVESTMENTIn 2017, we continued with Direct Investment locally. In fact, we directly invested in 6 new com-panies, with over 1,100,000€. Additionally, 3 new micro loans were granted. Thanks to GEROA’s di-rect investment, beneficiary companies created 15 additional jobs.

Investments made through ORZA were for 10.5 million euros, and helped to create 77 new jobs at the invested companies.

As far as the year’s return is concerned, it was 9.95%, much greater than the CPI, which is 1.20%, and above the average 1.21% for other Entities. This means that since GEROA’s be-ginnings in 1996, average annual return has been 6.63%.

Regarding annuity revaluation, temporary annuities were revalued at 1.50%, and lifeti-me annuities at 3.61%, much greater than the state pension’s 0.25% and the CPI’s 1.20%, thus mitigating GEROA’s members loss of purchasing power, thanks to their pension supplement.

9.95%

1.20%10.5 77 0.25%

6.63%

YEAR 2017

CPIYEAR 2017

MILLIONS € NEW JOBS

STATEPENSION

SINCE THE BEGINNING

1.50%TEMPORARY

ANNUITY

3.61%LIFETIMEANNUITY

I THINK IT’S APPROPRIATE

I DON’T THINKIT’S APPROPRIATE

• Virginia Oregui, manager of GEROA Pentsioak, spoke in February at the Toledo Pact Committee, held at the Congress, to explain our management model+ info: http://www.noticiasdegipuzkoa.eus/2017/02/23/economia/la-gerente-de-geroa-expone-la-epsv-en-el-pacto-de-toledo

• Virgina Oregui also attended the 9th Meeting of the Spanish Mutual Insurance Confederation with the Toledo Pact Committee.

• GEROA also attended a congress organised by ICEA (statistics and industry studies service in Spain), called Congress on the State of Welfare.

• Along with Lagun Aro and Congressman Iñigo Barandiarán, GEROA gave a Talk on Pensions for citizens in the town of Azpeitia.

• Once again, the Novia Salcedo Foundation welcomed GEROA’s participation in the Pegasus Programme, giving talks on pensions to youth who are beneficiaries of the Programme.

• Moreover, Diego Valero, a Doctor in Economy, Actuary, Professor at the University of Barcelona and pension expert spoke at the GEROA Assembly, with a talk on Socially Responsible Investment.

13

GEROA, aware of how important it is for society to understand its work and the work of volun-tary welfare entities in general, has contributed to financial education throughout the entire fis-cal year, as well as to spreading a culture of wel-fare by participating in different forums.

SOCIETYOn the other hand, proof of our success in the way we do this is the fact that GEROA was taken as a benchmark in the Sector. In 2017, several of its members participated as speakers at the fo-llowing conferences:

Toledo Pact Committee

Congress on the State of Welfare(ICEA)

Talk on Pensions

Bilbao Youth Employment Forum 17Pegasus Programme

Diego Valero in GEROA’S GAM

9th Meeting of the Spanish Mutual Insurance Confederation

14

We are also highly satisfied that the presti-gious magazine IPE, a leader in Europe on Pension Funds, granted us the award for “Best Multi-Company Pension Fund in Spain” award. The event was held in Prague, where the jury highlighted GEROA’s “very great financial effort” with a “long trajec-tory,” and its “impressive sectorial coverage and integration of environmental, social and good-governance criteria.”

We were also finalists in the “Best European Pension Fund Investment Strategy” category, where we competed with funds that manage up to 10 times greater equity, with an even longer trajectory.

However, beyond public acknowledgements, what makes us proudest, are the Results from the Satisfaction Survey conducted with both Members and Companies. Some of the most remarkable results include the fact that 88% of the workers would like to continue con-tributing if they change jobs and work at a company that does not have GEROA. With companies, the most noteworthy aspect is that, despite the hard crisis we have suffe-red through, 90% of them agree with contri-butions or would like to increase them, which proves the social responsibility they have with respect to their workers.

Photo: https://ipe.swoogo.com/ipeawards2018/testimonials2017

+ info: https://www.geroa.eus/Geroa-Pentsioak/es/Noticias/

MANAGEMENT and ONGOING IMPROVEMENT

Given how important ongoing improvement is to GEROA, this year the Entity made huge progress in this regard.

On one hand, we obtained certification with the new ISO 9001:2015 standard, with no “Failures to comply.” On the other, we re-newed our commitment to excellence in Ma-nagement, and were Contrasted by Euskalit, who granted us a Diploma of Commitment to Advanced Management.

The percentage of contributions

is appropriate

It should be possible to contribute more

It should be possible to contribute less

15

GEROA’s commitment to its members in 2017 led it to take several steps forward in the field of communication.

Since transparency is one of our main pur-poses, as well as correctly explaining our model to Society, we created a Commu-nication Committee, which periodically meets to undertake these duties with the greatest commitment possible.

Following this path, we have also renewed our image, changing our logotype and minting a new slogan (1+1=3), which we think properly explains our objective: with the COMPANY and the WORKER’S contri-butions, along with GEROA’s good mana-gement, we achieve a GREAT RESULT.

On the other hand, in order to facilitate access for our partners to our web page, we changed the registration method, making it easier for all users.

1+1=3

Additionally, we created a private area for or-ganisations (ADEGI and Trade Unions) so they can look up any information related to GEROA online.

Lastly, the GEROA team, committed to offe-ring quality service, has continued training all throughout 2017.

This is why training was encouraged for all employees, in areas such as leadership, managing emotions and teamwork, to improve relationships both between employees and public customer service. Additionally, members of Governing Bodies also participated, along with team members, in training workshops to keep up-to-date with new regulations.Good news and new tasks that encourage us to keep working toward transparency and yield for partners, creating compa-nies and jobs... in short, to contribute our small part to make Basque society a bet-ter society.

TEAMCOMMUNICATION

GOVERNING BODIES

16

4

17

The Governing bodies are the Ge-neral Assembly and the Governing Board and they are composed equally of the Adegi Employers’ As-sociation and the ELA, LAB, CC.OO. (Workers’ Commissions) and UGT trade unions.

These were the various positions in 2017:

President:

Joseba Villarreal Olaizola(ELA representative)

Vice Presidenta:

Nerea Zamacola(ADEGI representative)

Secretary:

Oihan Ostolaza(LAB representative)

Treasurer:

Patxi Sasigain(ADEGI representative)

None of the members of the Governing Bodies receive remuneration for their representation in the Organisation.

GENERAL ASSEMBLY

UGT 4

CC.OO. 8

ELA 25

LAB 16

ADEGI 53

BOARD OF DIRECTORS

UGT 1

LAB 4

CC.OO. 2

ELA 6

ADEGI 13

OUR TEAM

18

5

19

One of the basic pillars of GEROA is its human team.

At GEROA, the knowledge, skills and abi-lities of its people are a differentiating element and it therefore seeks to offer its employees the possibility to train and to develop a professional career within the Organisation.

The objective is to have an established and qualified team to perform the services that the Organisation offers its members. The proof of this is that training is the factor most valued by the staff themselves.

On one hand, training this year was a result of new regulations entering into force, and on the other, to work on leadership and teamwork at the Entity.

20

25%

75%

42.05 years

100%

40%

85%

80%

879

40%

20

25%

75%

43.05 years

100%

40%

85%

100%

1,124.50

40%

2016 2017

TEAM

% MEN

% WOMEN

AVERAGE AGE

% INDEFINITE CONTRACTS

% WITH HIGHER DEGREE

% BILINGUAL STAFF

% STAFF WHO HAVE PARTICIPATED IN TRAINING SESSIONS

NO. OF HOURS OF TRAINING

% PART-TIME STAFF

20

MARKETS REPORT6

21

Economic evolution over 2017 was frankly positive, and not just because economic data was strong, but because the huge un-certainties in the political realm were overco-me, mainly in Europe. This meant that work

undertaken by central banks, specifically in Europe, con-tinues to bear fruit, and eco-nomic growth was surprising, especially in the Euro zone.

A highly positive synchronisation took place in all economies, with low inflation and inter-est rates with lax monetary policies. Volatility levels that measure risk were minimum, and the cost for not investing was high.The doubts closing in on Europe, Japan and Emerging countries were overcome, and growth was higher than initially predicted. Frankly, it was a good year for financial mar-kets.

However, the year kicked off with huge poli-tical uncertainty: the arrival of Trump and the American administration, Brexit negotiations, and especially the elections in certain Euro-pean countries with anti-European parties: Holland, France and Germany. In March, the extreme right Dutch Party was clearly defea-ted by the incumbent party, giving relief to the entire European project. Macron’s presi-dency in the French Republic gave a boost to the euro zone and the market, since he is considered to be a reformist, fairly inclined toward eliminating hurdles in the business world. Elections in Germany were conduc-ted as predicted, with a coalition government between Merkel’s party and the SPD.

Brexit negotiations overcame their first ba-rrier, and the date of the United Kingdom’s exit from the EU was decided: March 2020.

On the other hand, North American adminis-tration was more erratic, withdrawing from important economic and environmental fo-rums. Only during the last part of the year was the tax reform approved. The effects may give a new boost to American growth, but beginning in 2018, which does not pre-vent equity markets from anticipating.

Chinese economy is moving toward stable growth, where the long-term is prioritised, along with containing financial risks, inno-vation, consumption costs and environmen-tal respect. One of the few political hiccups over the year was North Korea and its missi-le launches.

Over the course of the year, all entities have improved estimates, in the USA and mainly Europe and Japan. In Spain, however, esti-mates fell, as a result of the situation in Ca-talonia. This situation, and the bankruptcy of Banco Popular were the main reasons why, despite greater growth in Spain than in other European countries, the country-risk penalised Spanish company shares. Market evolution in emerging countries was very positive.

MARKETS REPORT©

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22

EQUITY

EurostoxxGermany

FranceSpainItalia

UKUSA

JapanEmerg. Countr.

Global

6.49%12.51%9.26%7.40%13.61%7.63%

19.42%19.10%

34.34%20.11%

PERFORMANCE OF THE INDICES

FIXED INCOME

German BondFrench BondSpanish BondItalian Bond

Portuguese BondUK BondUS Bond

Japanese BondEU Credit

-0.80%1.35%2.12%1.61%

19.87%1.78%2.59%0.28%2.41%

CURRENCIES against €

DollarYen

Sterling

-12.39%-9.08%-4.07%

RAW MATERIALS

OilGold

AgricultureMetals

21%12%-11%29%

In this fiscal year 2017, we decided to separa-te the portfolio between what is called Fund1, Fund2 and Net equity.

In the Fund 1 portfolio, we find the assets of the Technical Provisions where the Partner assumes the Investment risk, and the Mathe-matical Provisions of the members and bene-ficiaries with actuarial annuities. In Fund 2’s portfolio, the assets containing the equity of partners who are receiving their benefits as temporary annuities. The Net Equity contains the Entity’s Reserves.

Fund 2’s equity is materialised as liquidity and Fixed-Income to maturity securities used to match the benefits paid out every month. Equity in Fund 2 is 16.3 million euros, and the yield was 2.59%. All of the assets assigned to the Reserves are liquid, with 45.9 million-euro equity.

What truly represents the entity’s inves-tment policy is Fund 1. Its performance was as follows.

The policy followed by central banks was a de-termining factor behind such a positive evo-lution for financial markets. Notwithstanding, in 2017, these policies began to diverge: while the American Federal Reserve raised the in-terest rate by 0.75 basis points, and the Bank of England 0.25, the European Central Bank only announced at its October meeting that it was extending bond purchase to 2018, but reducing the size of acquisitions. The Bank of Japan is moving forward with its expan-sive measures, and no short-term change is expected. Since inflation rates are relatively low, these generalised expansive policies keep

long-term rates, risk premiums and volatilities at unusually low levels. For example, the North American interest rate curve has very low slo-pes, since even though this country’s Federal Reserve is currently in a cycle of raising rates, it is not expected that there will be many rai-ses. All of this lax policy bears an appetite for risk, and shying away from assets with greater expected return.

The result of all the aforementioned is that cer-tain valuations are at historical highs.

OUR PORTFOLIO

The performance of the investment portfolio has been positive, 9.95%.The Entity’s total yield since the beginning is 6.63%, a revaluation of 307% since the beginning.

The main yield factor was equity, which contributed 6.37%. The second was marked-priced fixed income, whose contribution was 2.98%. This above-average value is not only due to weighting by asset types, but also due to selecting geographical areas and securities both from equity and fixed incomes.

Weighted and unweighted yields are as follows:

If we compare return with the risk incurred, the figures are as follows:

The volatility of net asset value during the fiscal year 2017 was 2.49%. The Sharpe ratio, a measure which calculates risk-adjusted return, is 4. In a model portfolio with similar characteristics, yield was 4.40%, with volatility at 2.75% and Sharpe at 1.64.

23

EQUITYOTHERS

DIRECT I.MK TO MKT F.I.

SHORT TERM F.I.F.I. TO MATURITY

34.59%2.46%3.03%

40.89%10,07%8.96%

100.00%

18.42%4.07%6.60%7.29%0.10%4.69%

6.37%0.10%0.20%2.98%0.01%0.42%

GROSS YIELDCOSTS

NET YIELD

10.08%-0.13%9.95%

ASSET TYPE WEIGHTING UNWEIGHTEDYIELD

YIELD WEIGHTEDBY ASSET TYPE

Contributions to returns on asset class is as follows:

12.00%

10.00%

8.00%

6.00%

4.00%

2.00%

0.00%SHORT

TERM F.I.F.I. TO

MATURITYMARK TO

MARKET F.I. FEESOTHEREQUITY DIRECT I. TOTAL

6.37% 0.10% 0.20%

2.98% 0.01% 0.42% -0.13% 9.95%

WEIGHTED RETURN PER ASSET TYPE IN 2017

PROFITABILITY

10.00%

8.00%

6.00%

4.00%

0.00%

2.00%

-2.00%31/12/16 28/02/17 30/04/17 30/06/17 31/08/17 31/10/17 31/12/17

• Some uncertainty before the European elections.

• Coverage has acted in a very positive way to control

volatility.

• Very positive scenario for the risk with a constant reduction of volatility.

• Some uncertainties such as North Korea,

Catalonia, …

• But coverage and diversification

have acted very positively.

GEROA9.95%

BENCHMARK4.40%

The year begins with some political uncertainty in Europe.

GEROA remains covered.

Decrease in risks and volatility andbet on risk assets with hedges.

Appearance of some uncertainties

24

Active management minimised risks, and generated a 6% Alpha. Equity management was focused on countries, sectors and secu-rities with potential, that could have good revaluation. This provided for 18.42% return with this asset type. The entity prudently ro-tated actions in order to maintain a portfolio with properly valued shares. What is more, and due to low volatility and to avoid sur-prises, a 50% coverage on variable income was kept all year long. Fixed Income ma-nagement followed the same pattern as in 2016, gradually reducing duration, exposure to ultra-long bonds and governments, so as to have normalised interest rates.

PORTFOLIO BREAKDOWN

With geographical exposure, investment in emerging countries was slightly increased, based on greater expected returns. The in-vestment is still mainly materialised in euros, 84%, and to a lesser extent, US dollars, 12%.

The investment portfolio stood at 2,056,000,000 euros at the end of the finan-cial year, including liquidity and the amount committed in Futures and excluding accrued and uncollected interest. Investment in Bas-que Country securities amounted to 12.64%.

The criterion used for the valuation of the Entity’s Investment Portfolio is that of fair value or market value, except for a per-centage of fixed income that amounted to 8.96% at year-end.

Like during the last year, much im-portance is placed on Socia-lly Responsible policies in Geroa’s investments. This is why we are using exclusion strategies, “Best in Class,” and minimum requirements for en-vironmental, social and good-government criteria. All of these points were borne in mind when ma-king decisions.

Regarding Direct Investment, the Entity has invested 2.25% of the portfolio in ORZA AIE. It holds 50% of the entity, which was established to invest in companies in the Basque business network.

During 2017, Orza made investments to a value of: 10.51 million euros.

The company Orza AIE is valued at cost, less the provisions for valuation adjustments, plus realised and unrealised capital gains.

Pursuant to its commitment to Gipuzkoa’s society, GEROA created a specific line of direct investment in fiscal 2016 for start-up companies with Elkargi’s collaboration. In 2017, this initiative took shape via investment in different companies: MissBabySitter, Metal 78, Nesplora, Kookite, Irisbond,

BuntPlanet and Beseif.

EQUITYOTHER

MKT TO MKT F.I.F.I. AT MATURITY

PRIVATE EQUITYTOTAL FIXED INCOMESHORT TERM F.I.

59.92%8.96%

10.07%40.89%34.59%

2.46%3.03%

The amount invested in 2017 was 1.1 million euros

25

The stock market is mainly going to depend on evolution of business profits and losses. For the American stock market, 10% growth is expected, and the European stock market is expected to grow 9%.

The expected return for the year is around 4%, with 8% volatility. The yield-risk ratio is not very attractive, since the fixed income is at a level nearing 0. Practically speaking, equity is what can create value.

FORECASTS FOR 2018

The year 2018 began with a positive tone. Forecasts for economic growth are positive and affect the worldwide environment. It is predicted that economies, especially in Europe, will be moredynamic.

The tax reform approved at the end of 2017 in USA means that strategists can venture that the US economy will see additional im-provement, which implies potential repatria-t i o n of equity and promises of in-

vestment. Moreover, the approval of

new duties, in an attempt to protect domes-

tic production, may make things

more dynamic short-term, but could also lead to a rise in inflation.

As a result of this, stocks have risen. In this regard, technology is of note. Some analysts consider that the North American market trades with excessively expensive multiples, and that the volatility level is abnormally low. Emerging markets have received record investment amounts, both in fixed incomes and in variable incomes during this first part of the year.

Recent comments on dollar exchange rates led to this currency having one of the worst beginnings of the year in comparison with the rest. Authorities in this country would appear to be comfortable with a weak cu-rrency. Currencies will perhaps be one of the factors that increase volatility.

With fixed incomes, central banks will be a determining factor in the future of bonds. Moderate upticks are expected in the United States, around 3, but in Europe there is more uncertainty. The European Central Bank is going to standardise its monetary policy and cease purchasing bonds. Implications for long-term interest rates could be huge. In any event, inflation rates do not appear elevated, so a debacle with this type of asset is not expected. Only if salary raises are high and this were transferred to prices could this be a factor that would increase inflation. A table with 10-year rates in different coun-tries is attached.

COUNTRY

GERMANY

FRANCE

SPAIN

ITALY

PORTUGAL

USA

UNITED KINGDOM

JAPAN

10-year rateon 31-12-2017

0.43%

0.79%

1.57%

2.02%

1.94%

2.41%

1.19%

0.05%

26

SOCIALLY RESPONSIBLE INVESTMENT (GEROA PENTSIOAK EPSV data at 31st December 2017)

UNPRI COMMITMENTS1. To incorporate ESG issues into our analysis and decision-making processes as far as investments are concerned.

2. Being pioneers as active owners by incorporating ESG issues into our practises and policies.

3. Seeking transparent communication of ESG issues with the entities in which we invest.

4. Promoting acceptance and application of Principles into the investment sector.

5. Working together to improve our efficacy in the application of Principles.

6. Reporting our activity and progress in the application of Principles.

BOARD OF SHAREHOLDER VOTEDirect vote at 18 shareholder board meetings at companies where we invest.Our partners’ interests were represented, always ensuring the company’s long-term sustainability and following environmental, social and good-governance criteria.

10 GLOBAL COMPACT PRINCIPLESHuman RightsPrinciple 1. Support and respect the protection of Human Rights.Principle 2. Not be complicit in human rights abuses.LabourPrinciple 3. Uphold the freedom of association and the effective recognition of the right to collective bargaining.Principle 4. Elimination of all forms of forced and compulsory labour.Principle 5. Abolition of child labour.Principle 6. Elimination of discrimination in respect of employment and occupationEnvironmentPrinciple 7. Businesses should support a precautionary approach to environmental challengesPrinciple 8. Businesses must undertake initiatives to promote greater environmental responsibility.Principle 9. Business must encourage the development and diffusion of environmentally friendly technologies.Anti-CorruptionPrinciple 10. Businesses and institutions should work against corruption in all its forms, including extortion and bribery.

DEPOSITS, CURRENT ACCOUNTS, SAVINGS ACCOUNTS, FIXED-TERM DEPOSITS, CURRENCY AND SIMILAROver 92% of the cash has a rating above 70 in Sustainalytics and RobecoSAM rankings.(We do not have data for the 12.06%)

PUBLIC DEBT BONDS ANDGOVERNMENT BONDS100% issued by countries with a high or very high Human Development Index (HDI) according to the United Nations.

CORPORATE, CONVERTIBLE BONDS AND SHARES:100% in countries with a high or very high Human Development Index (HDI) according to the United Nations. Over 83% of the investment has a rating above 70 in Sustainalytics and RobecoSAM rankings.(We do not have data for the 24,69%)

Analysis of company controversies and compliance with the 10 principles of the Global Compact: No positions with companies with serious controversies have increased. 7 companies have declared themselves unsuitable for investment until they pass negative filters.

ENTREPRENEURSHIP AND INNOVATIONWe directly invested in 6 local start-ups with over 1,100,000€ 3 new micro loans were granted. Thanks to GEROA’s direct investment, beneficiary companies created 15 additional jobs.

STRUCTURE PRODUCTS AND DERIVATIVES:Structured: Over 89% has a rating above 70 in Sustainalytics and RobecoSAM rankings.(We do not have data for 5,13%)

Futures and options. 100% has a rating above 90 in Sustainalytics and RobecoSAM rankings.

FUNDS (FI, VI, THEMATIC, ETC.) ETF AND INVESTMENT THROUGH PRIVATE EQUITYOver 96% is invested through managers that include environmental, social and good-governance aspects in their investment and management policies.Over 91% is invested through management entities that have signed the United Nations Principles of Responsible Investment (UNPRI).Analysis of Management Entity controversies and compliance with the 10 principles of the Global Compact: No management entity was excluded due to its behaviour.ORZA: investments in business network mainly in Gipuzkoa, Biscay, Araba and Navarre. Investment in innovation, biotechnology, energy efficiency companies, etc. Investments made through ORZA were for 10.5 million euros, and helped to create 77 new jobs at the invested companies.

INITIATIVES• Collaboration with UNPRI in the initiative “PRI statement on ESG in Credit rating” to ask main rating agencies to incorporate environmental, social and good governance criteria in their ratings. • Signing the G7 and G20 investment charter on climate action, granting our support to the Paris Agreement and asking governments to continue to fully support and apply the agreement.• We expressed our concern to PRI regarding certain practises on the financial market that Geroa Pentsioak does not consider to be ethical. We asked PRI if actions could be taken against the securities loan to make short sales for merely speculative purposes, and not for protective purposes.

Fuente: Ranking de Sustainalytics o RobecoSAM: miden y comparan los criterios medio ambientales, sociales y de buen gobierno de las compañías.Puntua de 0-100 (siendo 100 la mejor puntuación)

Signatary of:

ACTUARY’S REPORT

27

32

AUDITOR’S REPORT

PricewaterhouseCoopers Auditores, S.L., Pº de Colón, 2, 20002 San Sebastián, España

Tel.: +34 943 323 900 / +34 902 021 111, Fax: +34 943 288 177, www.pwc.es 1 R. M. Madrid, hoja 87.250-1, folio 75, tomo 9.267, libro 8.054, sección 3ª Inscrita en el R.O.A.C. con el número S0242 - CIF: B-79 031290

This version of our report is a free translation from the original, which was prepared in Spanish. All possible care has been

taken to ensure that the translation is an accurate representation of the original. However, in all matters of interpretation of

information, views or opinions, the original language version of our report takes precedence over this translation

Independent auditor´s report on the annual accounts

To the General Assembly of Geroa Pentsioak, Entidad de Previsión Social Voluntaria de Empleo:

Opinion We have audited the annual accounts of Geroa Pentsioak, Entidad de Previsión Social Voluntaria de Empleo (the Entity), which comprise the balance sheet as at December 31, 2017, and the income statement, statement of changes in equity, cash flow statement and related notes for the year then ended.

In our opinion, the accompanying annual accounts present fairly, in all material respects, the equity and financial position of the Entity as at December 31, 2017, as well as its financial performance and cash flows for the year then ended, in accordance with the applicable financial reporting framework (as identified in Note 3.1 of the notes to the annual accounts), and in particular, with the accounting principles and criteria included therein.

Basis for opinion We conducted our audit in accordance with legislation governing the audit practice in Spain. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the annual accounts section of our report.

We are independent of the Entity in accordance with the ethical requirements, including those relating to independence, that are relevant to our audit of the annual accounts in Spain, in accordance with legislation governing the audit practice. In this regard, we have not rendered services other than those relating to the audit of the accounts, and situations or circumstances have not arisen that, in accordance with the provisions of the aforementioned legislation, have affected our necessary independence such that it has been compromised. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Most relevant aspects of the audit The most relevant aspects of the audit are those that, in our professional judgment, were considered to be the most significant risks of material misstatement in our audit of the annual accounts of the current period. These risks were addressed in the context of our audit of the annual accounts as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these risks.

Geroa Pentsioak, Entidad de Previsión Social Voluntaria de Empleo

2

Most relevant aspects of the audit How our audit addressed the most relevant aspects of the audit

Valuation of the investment portfolio

In accordance with current legislation, Voluntary Social Welfare Entities (EPSV) are institutions carrying out pension activities whose purpose consists of providing the relevant coverage to members and beneficiaries for the contingencies established in their bylaws and in Law 5/2012 governing Voluntary Social Welfare Entities. In accordance with the activities described above, the technical provisions of Geroa Pantsioak, Entidad de Previsión Social Voluntaria de Empleo, are basically invested in financial instruments. The accounting policy applicable to the Entity’s portfolio is described in Note 5, Significant accounting policies and the Entity’s financial instruments portfolio at 31 December 2017 is detailed in Note 9 to the accompanying annual accounts.

We identified this area as a relevant aspect of

the audit due to the repercussions that the

investment portfolio has with respect to the

calculation of technical provisions.

We obtained an understanding of the procedures and criteria used by the Entity to determine the carrying amount of the financial instruments in the portfolio in order to consider their appropriateness and consistent application to all the Entity’s assets, on the basis of their accounting classification. Additionally, we carried out procedures on the Entity’s investment portfolio, specifically: • Asking depository entities for confirmation

concerning the existence of all securities included in the Entity’s portfolio at 31 December 2017.

• For all fixed income and hybrid securities in

the Entity’s investment portfolio recognised at fair value at 31 December 2017, we reviewed the valuation methods used by the Entity, re-performing the calculations made during the year, using the work of the auditor’s valuation expert who meets the requirements of independence.

• For the securities recorded in the held to

maturity portfolio, we verified the fair value of the securities held in the portfolio compared with the value at amortised cost and verified the possible existence of indications of impairment because of significant differences between fair value and carrying amount, also analysing, for a sample of securities, that the issuer rating does not, a priori, signal indications of additional impairment to that which could be recognised in the accounting records at 31 December 2017.

• Verifying the measurement of a sample of

variable income securities in the Entity’s investment portfolio that are carried at fair value at 31 December 2017 by re-performing the calculations performed by the Entity, through comparison with reliable market values at the analysis date.

As a result of the procedures performed, differences in the valuations obtained compared with the amounts recognised in the Entity ‘s accounting records are not significant.


3

Measurement of mathematical reserves Mathematical reserves include the Entity’s obligations with respect to a specific group of retired members and their beneficiaries. As indicated in Note 5 to the accompanying annual accounts, such obligations are quantified by an independent expert that carries out an actuarial technical study. Estimating such commitments requires a high level of judgement, a large volume of data and assumptions concerning the technical interest rate, mortality tables, survival tables and estimated pension growth rates.

We documented our understanding and our review of the estimation process carried out by the Governance Board and management and focused our procedures on aspects such as: • Understanding the methodology used to

calculate mathematical reserves in accordance with the nature of the commitments and its consistent application with respect to the previous year.

• Verifying the application of biometric

assumptions consistent with applicable regulations.

• Reconciling the Entity’s census database to

the report provided by the independent actuarial expert that calculated the Entity’s technical reserve liability.

• Selecting a sample from the census database

in order to corroborate its accuracy and completeness.

• Reviewing the sufficiency of the minimum

safety cushion of non-insured mathematical reserves.

• Verifying that the technical interest rate used

by the Entity is in conformity with the requirements of Decree 92/2007.

• Verifying the technical interest rate used by

the Entity and the average IRR on the portfolio assigned to the retired employee group.

• Obtaining confirmation from the external

actuary of his independence with respect to the Entity and his technical capacity and the appropriateness of his work for the Entity with respect to legislation applicable to EPSV.

Our procedures yielded sufficient and adequate audit evidence to confirm the reasonableness of the assumptions and estimates used by the Entity to determine and disclose its mathematical reserves.


4

Other information: Management report Other information comprises only the management report for the 2017 financial year, the formulation of which is the responsibility of the Entity´s directors and does not form an integral part of the annual accounts. Our audit opinion on the annual accounts does not cover the management report. Our responsibility regarding the management report, in accordance with legislation governing the audit practice, is to evaluate and report on the consistency between the management report and the annual accounts as a result of our knowledge of the Entity obtained during the audit of the aforementioned financial statements, and does not include information different to that obtained as evidence during our audit. Likewise, our responsibility is to evaluate and report on whether the content and presentation of the management report is in accordance with applicable regulations. If, based on the work we have performed, we conclude that material misstatements exist, we are required to report that fact. On the basis of the work performed, as described in the previous paragraph, the information contained in the management report is consistent with that contained in the annual accounts for the 2017 financial year, and its content and presentation are in accordance with the applicable regulations.

Responsibility of the directors for the annual accounts The Entity´s directors are responsible for the preparation of the accompanying annual accounts, such that they fairly present the equity, financial position and financial performance of Geroa Pentsioak, Entidad de Previsión Social Voluntaria de Empleo, in accordance with the financial reporting framework applicable to the entity in Spain, and for such internal control as the directors determine is necessary to enable the preparation of annual accounts that are free from material misstatement, whether due to fraud or error.

In preparing the annual accounts, the Entity ´s directors are responsible for assessing the Entity´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 the directors either intend to liquidate the Entity or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities for the audit of the annual accounts

Our objectives are to obtain reasonable assurance about whether the annual accounts 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 legislation governing the audit practice in Spain will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these annual accounts.

As part of an audit in accordance with legislation governing the audit practice in Spain, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the annual accounts, 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 for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Entity´s internal control.


5

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Entity´s directors.

• Conclude on the appropriateness of the directors´ 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 significant doubt on the Entity´s 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 annual accounts 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 Entity to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the annual accounts, including the disclosures, and whether the annual accounts represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with the Entity´s directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

From the significant risks communicated with the Entity´s directors, we determine those matters that were of most significance in the audit of the annual accounts of the current period and are, therefore, considered to be the most significant risks.

We describe these risks in our auditor´s report unless law or regulation precludes public disclosure about the matter.

PricewaterhouseCoopers Auditores, S.L. (S0242) Original in Spanish signed by Guillermo Cavia

13 April 2018

38

ANNUAL ACCOUNTS

GEROA PENTSIOAK, ENTIDAD DE PREVISIÓN SOCIAL VOLUNTARIA DE EMPLEO Annual accounts and Administrators’ Report for 2017

GEROA PENTSIOAK, ENTIDAD DE PREVISIÓN SOCIAL VOLUNTARIA DE EMPLEO BALANCE SHEETS AT 31 DECEMBER 2017 (Expressed in thousand Euros)

1

Note 31.12.2017 31.12.2016

A) ASSETS

A-1) Cash and cash equivalents 9 167,144 179,649

A-2) Liquid financial assets held for trading - -

III. Derivatives - -

A-3) Other financial assets at fair value through profit or loss 9 1,583,302 1,356,530

I. Equity instruments 946,458 805,983

II. Debt securities 539,027 492,712

III. Hybrid financial instruments 97,817 57,835

A-4) Financial assets held for sale - -

A-5) Loans and receivables 9 49,800 29,542

I. Debt securities 723 270

III. Deposits in credit institutions 41,043 26,061

V. Credits for operations of social welfare 247 238

IX. Other loans 7,787 2,973

A-6) Held-to-maturity investments 9 232,291 241,324

A-7) Derivatives held for hedging - -

A-8) Reinsurers’ share of technical provisions - -

IV. Other technical provisions - -

A-9) Property, plant and equipment and investment property 8 531 548

I. Property, plant and equipment 531 548

A-10) Intangible assets 7 8 31

III. Other intangible assets 8 31

A-11) Investment in group companies and associates 9 45,902 45,020

III. Investments in associates 45,902 45,020

A-12) Tax assets - -

A-13) Other assets 78 92

A-14) Assets held for sale - -

TOTAL ASSETS 2,079,056 1,852,736

(*) Presented only and exclusively for comparison purposes.

GEROA PENTSIOAK, ENTIDAD DE PREVISIÓN SOCIAL VOLUNTARIA DE EMPLEO BALANCE SHEETS AT 31 DECEMBER 2017 (Expressed in thousand Euros)

2

Note 31.12.2017 31.12.2016 A) LIABILITIES

A-1) Financial liabilities held for trade - -

A-2) Other financial liabilities at fair value through profit and loss - -

A-3) Debts and payables 9 1,912 2,535

IV. Debts for reinsurance transactions 209 262

IX. Other payables 1,703 2,273

A-4) Derivatives held for hedging - -

A-5) Underwriting reserves 11 2,031,212 1,812,874

III. Reserve for pension activities 2,031,212 1,812,874

Mathematical reserve 70,601 70,954

Reserves linked to defined contribution plans in which the member

assumes the investment risk 1,960,611 1,741,920

IV. Claims reserve - -

V. Profit-sharing reserve - -

VI. Other underwriting reserves - -

A-6) Non-Underwriting reserves 12 47 47

IV. Other non-Underwriting reserves 47 47

A-8) Remaining liabilities - -

A-9) Liabilities linked to assets held for sale - -

TOTAL LIABILITIES 2,033,171 1,815,456

B) EQUITY

B-1) Members’ funds 10 45,885 37,280

I. Members’ fund 13,734 15,911

III. Reserves 23,501 13,673

V. Profit from previous years - -

VI Other contributions - -

VII. Profit of the year 8,650 7,696

VIII. (Equalization reserve) - -

B-2) Measurment adjustments - -

B-3) Received subventions, donations and legates - -

TOTAL EQUITY 45,885 37,280

TOTAL EQUITY AND LIABILITIES 2,079,056 1,852,736


GEROA PENTSIOAK, ENTIDAD DE PREVISIÓN SOCIAL VOLUNTARIA DE EMPLEO INCOME STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2017 (Expressed in thousand Euros)

3

Note 2017 2016 I. SOCIAL WELFARE PLAN ACTIVITY ACCOUNT 6,659 5,626 I.1 Subscriptions for the year, net of reinsurance 13 82,674 79,331 I.2 Income from fixed assets and investments 9.2 17,559 19,046 I.3 Income from investments linked to defined contribution plans 9.2 489,316 467,590 I.4 Other Technical Income 13 26 79 I.5 Benefits for the Year, Net of Reinsurance 13 (40,983) (45,075) I.6 Change in Other Underwriting reserves, Net of Reinsurance (+ or -) 11 (218,293) (129,693) I.7 Profit-shares - - I.8 Operating expenses 13 (1,316) (835) I.9 Other Technical Expenses (+ ó -) - - I.10 Loss from fixed assets and investments 9.2 (11,097) (15,061) I.11 Loss from investments linked to defined contribution plans 9.2 (309,257) (369,756) I.12 Subtotal (Results from Social Welfare Plan Activity Account) 13 8,629 5,626 II. OTHER ACTIVITIES PERFORMED ACCOUNT - - II.1 Subscriptions for the year, net of reinsurance - - II.2 Income from fixed assets and investments - - II.3 Other Technical Income - - II.4 Benefits for the Year, Net of Reinsurance - - II.5 Change in Other Underwriting reserves, Net of Reinsurance (+ or -) - - II.6 Profit-shares - - II.7 Operating expenses - - II.8 Other Technical Expenses (+ ó -) - - II.9 Loss from fixed assets and investments - - II.10 Subtotal (Results from other activities performed account) - - III. NON SOCIAL WELFARE PLAN ACTIVITY ACCOUNT 21 2,070 III.1 Income from fixed assets and investments 9.2 17 10,007 III.2 Loss from fixed assets and investments 9.2 - (7,937) III.3 Other income 4 - III.4 Other losses - - III.5 Subtotal (Results from Non social Welfare Plan Activity Account) 21 2,070 III.10 PROFIT FOR THE YEAR (I.12+II.10+III.5) 8,650 7,696 (*) Presented only and exclusively for comparison purposes.

GEROA PENTSIOAK, ENTIDAD DE PREVISIÓN SOCIAL VOLUNTARIA DE EMPLEO STATEMENT OF CHANGES IN EQUITY FOR THE YEARS ENDED 31 DECEMBER 2017 (Expressed in thousand Euros)

4

A) STATEMENT OF RECOGNISED INCOME AND EXPENSES 2017 2016 (*) I) PROFIT FOR THE YEAR 8,650 7,696

II) OTHER RECOGNISED INCOME AND EXPENSE - -

II.1 Available-for-sale financial assets - -

II.2 Cash flow hedges - -

II.3 Net investment hedging on foreign operations - -

II.4 Differences on exchange and conversion - -

II.5 Correction of accounting asymmetries - -

II.6 Assets held for sale - -

II.7 Actuarial gains/(losses) for long-term employee compensation - -

II.8 Other recognised income and expenses - -

III) TOTAL RECOGNISED INCOME AND EXPENSE 8,650 7,696


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GEROA PENTSIOAK, ENTIDAD DE PREVISIÓN SOCIAL VOLUNTARIA DE EMPLEO STATEMENT OF CASH FLOWS FOR THE YEARS ENDED 31 DECEMBER 2017 (Expressed in thousand Euros)

7

2017 2016 (*) A) CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES A.1) Pension Plans Activity 1. Subscriptions received 86,745 83,364 3. Proceeds from outward reinsurance 4,220 3,718 4. Outward reinsurance payment (4,071) (4,033) 5. Benefits paid (44,950) (48,544) 7. Other operating proceeds (4,985) 5,792 8. Other operating payments (2,845) (2,714) 9. Total Cash collections related to pension activities (1+3+7)=I 85,980 92,874 10. Total Cash payments related to pension activities (4+5+8)=II (51,866) (55,291) A.2) Other operating activities 3. Proceeds from other activities - - 4. Payments from other activities - - 5. Other collections related to operating activities (3)=III - - 6. Other payments related to operating activities (4)=IV - - A.3) Cash Flows from operating activities (I+II+III+IV) 34,114 37,583 B) CASH FLOWS FROM INVESTMENT ACTIVITIES B.1) Collections 1. Property, plant and equipment - - 2. Investment properties - - 3. Intangible assets - - 4. Financial instruments 1,089,874 572,144 5. Shares of stock in Dependent, Multi-group and Associated Entities - 6. Collected interests 38,159 37,180 7. Collected dividends 7,437 6,669 8. Business unit - - 9. Other collections related to investment activities - -

10. Total Cash collections from investment activities (1+2+3+4+5+6+7+8+9)=VI 1,135,470 615,993 B.2) Payments 1. Property, plant and equipment (43) (57) 2. Investment properties - - 3. Intangible assets (6) (36) 4. Financial instruments (1,182,040) (647,297) 5. Shares of stock in Dependent, Multi-group and Associated Entities - - 6. Business unit - - 7. Other collections related to investment activities - - 8. Total Cash collections from investment activities (1+2+3+4+5+6+7)=VII (1,182,089) (647,204) B.3) Cash flows from investment activities (VI-VII) (46,619) (31,304)

GEROA PENTSIOAK, ENTIDAD DE PREVISIÓN SOCIAL VOLUNTARIA DE EMPLEO STATEMENT OF CASH FLOWS FOR THE YEARS ENDED 31 DECEMBER 2017 (Expressed in thousand Euros)

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2017 2016 (*) C) CASH FLOW FROM FINANCING ACTIVITIES C.1) Collections 1. Subordinated liabilities - - 2. Mutual Fund - - 3. Contributions - - 5. Other collections related to financing activities - - 6. Cash collection from financing activities (1+2+3+5)=VIII - - C.2) Payments 2. Interests - - 3. Subordinated liabilities - - 4. Payments due to reimbursements - - 5. Reimbursements - - 7. Other payments related to financing activities - - 8. Cash payments from financing activities (2+3+4+5+7)=IX - - C.3) Cash flow from financing activities (VIII-IX) - - Effect of exchange rate fluctuations (X) - - Net increase/(decrease) in cash and cash equivalents (A.3+B.3+C.3+-X) (12,505) 6,279 Cash and cash equivalents at beginning of the year 179,649 173,370 Cash and cash equivalents at end of the year 167,144 179,649 Cash and cash equivalents at end of the period 1. Cash 164,200 174,425 2. Other financial assets 2,944 5,224 3. Bank overdrafts repayable on demand - -

Total cash and cash equivalents end of the year (1+2+3) 167,144 179,649


GEROA PENTSIOAK, ENTIDAD DE PREVISIÓN SOCIAL VOLUNTARIA DE EMPLEO NOTES TO THE 2017 ANNUAL ACCOUNTS (Expressed in thousand Euros)

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1. Nature and principal activities Geroa Pentsioak, Entidad de Previsión Social Voluntaria de empleo (hereinafter the Entity or Geroa) was incorporated on 9 January 1996, under the corporate name of Geroa Pentsioak, Entidad de Previsión Social Voluntaria, modifying the name for the current name on 1 June of 2016. Its founding members were Asociación de Empresarios de Gipuzkoa (ADEGI) – Gipuzkoako Entrepresarien Elkartea, Eusko Langilleen Alkartasuna/Solidaridad de Trabajadores Vascos (ELA/STV), Langile Abertzaleen Batzordeak (LAB), Federación Estatal de Comisiones Obreras del Metal de Gipuzkoa (CCOO) and Federación Estatal Siderometalúrgica de UGT de Gipuzkoa. The Entity commenced activity on 1 January 1996 and its registered offices are located in San Sebastian (Spain). In the year 2015, Decree 203/2015 of 27 October was published, which approves the Regulation of Law 5/2012 of February 23, on Voluntary Social Security Entities, which has partially repealed Decree 87 / 1984 and 92/2007. During the 2017 financial year, the Entity's performance has been subject to the requirements established by Law 5/2012 of February 23, on Voluntary Social Security Entities and by Decree 203/2015 of October 27, which approved the Regulation of Law 5/2012 of February 23, Voluntary Social Security Entities. In addition, Decree 87/1984 of 20 February and Decree 92/2007 of 29 May have been applied (in what has not been repealed in both Decrees by Decree 203/2016), By the Order of April 29, 2009 and by Decree 86/2010 of 16 March approving the adaptation of the Accounting Plan of the Underwriters to the specificities of the EPSV On March 6, 2012 was published in the Official Bulletin of the Basque Country, Law 5/2012 of 23 February on the Voluntary Social Welfare Entities, which repealed Law 25/1983 of 27 October. The Entities must comply with the new law from the day following its publication in the Official Bulletin of the Basque Country, although the Constitutional Court agreed to hear a constitutional challenge brought by the President of the Government, represented by the State Advocacy against twelve articles of Law 5/2012: 14th-2, 19.2, 28, 23.1), 24, 26.1, 32.1, 46.2, 57.2, 58.1.c), 58.2 and 60.1. On June 12, 2014, the Constitutional Court delivered its judgment 97/2014, partially upholding the constitutional challenge, and consequently, declaring them unconstitutional and void Articles 14.a-2, 19.2, 22, 23.1), 32.1, 46.2, 58.1.c), 58.2 and 60.1. Based on the legal interpretation made by management and the members of the Governing Board of the Entity, the rules of the Basque Government remains fully in force for E.P.S.V. engaged exclusively in welfare activities, as is the case Geroa Pentsioak, E.P.S.V. This approach has been endorsed on December 2, 2014, by the Department of Treasury and Finance of the Basque Government through the statement issued on that date, where it is stated that "in relation to the financial reporting framework for EPSVs not engaged in insurance activities, the applicable regulations is established in Decree 92/2007 of 29 May, the Order of April 29, 2009, Decree 92/2007 and Decree 86/2010 of 16 March (normative currently supplemented, as previously mentioned, by the Decree 203/2015, of October 27, which approved the Regulation of Law 5/2012, of February 23, on Entities of Voluntary Social Welfare, which partially repealed Decrees 87/1984 and 92/2007)


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On December 9 of 2015 it was published on Official bulletin of the Basque Country (“Boletín Oficial de País Vasco”) , the Decree 203/2015 of October 27, approving the regulation 5/2012 of February 23, about Voluntary Social Welfare Entities, which repeals expressly certain regulation in effect on the date, as the Decree 87/1984 or February 20 with the exception of the Articles 12, 16 and 31 (previously modified by the Decree 92/2007) and certain regulations of the Decree 92/2007 of May 29. The Regulation approved by the Decree 203/2015 of October 27, which come into force on January 1st of 2016 with the following exceptions mentioned in the Final Provision Ten of the Decree: • The final provision two, related to the maximum limit of administration costs, will come

into force in three months’ time. • The subject-matter provided on the Articles 43 and 44 related to the life-cycle

investment strategies, will be enforceable by law in 24 months’ time, taking into consideration the stated on the transitory provision 3 related to the plans approved before January 1st of 2016.

At its meeting on April 29, 2016, the Entity’s General Meeting approved the non-establishment of a life-cycle strategy, based on article 44, paragraph 2, of Decree 203/2015, after a report of advantages and inconveniences by the Governing Board.

• The subject-matter provided on the Chapter X of the Title II of the Regulation of the Good Governance and Key Functions, will be enforceable by law in 24 months’ time.

• Furthermore, the established on the article 51 of the Regulation related to the information to shareholders will be enforceable in 12 months’ time.

The prevailing Regulation and Decree governing Voluntary Social Welfare Entities establish, inter alia, the following compulsory stipulations: (a) Administration costs of Voluntary Social Welfare Entities are those stated in the articles

of association. In the case of entities that operate under the defined contribution system, administration costs are established based on equity relating to each social welfare plan or on these plans and their yield and may not exceed, on an annual basis, the following limits: • When they are calculated only on the basis of related equity, 1.6% of this equity

(until 31 of March 2016, the ceiling was 2%). • When both variables are used, 1% of related equity and 10% of the yield. The General Assembly, in its session of April 29, 2016, it passed to establish the administration expenses in a maximum of 0.37% (0.37% in 2016) on the equity, including the inherent expenses in the investment of Collective Investment Institute and entities of risk capital.


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(b) Investments in assets must comply with certain requisites of diversification, dispersion and congruence: • At least 70% of the assets of each social welfare plan must be invested in the

following types of assets:

− Fixed and variable income securities and rights traded on regulated markets within the bounds of the OECD.

− Shares and investments in collective investment undertakings and stock investment funds that comply with certain conditions regulated by EU Directive 85/61 1/CEE and its successive modifications and the law 35/2003 and its successive modifications.

− Demand deposits or term deposits of less than or equal to 12 months.

Though, across the Order of May 21, 2013 of the Counsellor of Estate and Finance and the article 11.8 of the Decree 92/2007, of May 29, it will be considered suitable assets for the investment for Voluntary Social Welfare Entities deposits with less or equal 7 years in credit entities, when those have their headquarter in a Member state of the European Union, that the previous ones are nominated in a currency who are negotiated in the OECD, which are annotated in liabilities of the corresponding financial institutions and refer to the Supporting Financial Program of the SMEs, businessman and autonomous professional for the year 2013 regulated in the Decree 183/2013, of March 19.

− Derivative financial instruments traded on organized markets.

• Assets must be sufficiently diversified. Investments in the assets of a single

company listed in a regulated market may not exceed 5% of the Entity’s total assets, or 10% in the case of assets issued by companies of the same group. These limits are also applicable for derivative financial instruments.

• Voluntary Social Welfare Entities cannot invest more than 2% of their assets in

unlisted securities issued by a single entity, or more than 4% in the case of securities issued by companies of the same group.

• Investments in unlisted securities issued by promoters or protectors of social

welfare plans may not exceed 2% of total plan assets. • Investments in properties may not exceed 20% of total plan assets and a single

property may not exceed 10% of these assets. • Investments in securities issued on venture capital companies may not exceed

20%, on face value, of the total amount of shares issued. • Investments in a single collective investment undertaking, asset securitization

fund or stock investment fund can be up to 20% of the assets of each plan.


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(c) When a Voluntary Social Welfare Entity performs activities other than those that relate

to social welfare plans for retirement, death, permanent disability, long-term unemployment or serious illness, it should clearly define the assets and liabilities affected by these activities, without permitting, under any circumstance, the transfer of rights and obligations among the different activities.

(d) The governing board shall approve the entity’s investment policy through a written declaration of investment principles which should be reviewed at least every three years. The governing board of the Entity, in its 17 of December 2015 meeting has approved the entity’s investment policy, in force until April 29, 2016, updating the concentration limits and the requirement for the held-to-maturity portfolio. On the other hand, the Board of Governors held on December 15, 2016 approved the incorporation of the Socially Responsible Investment Policy implemented by the Entity, taking into account social, environmental, ethical and corporate governance considerations in their investments. In the Governing Board celebrated the 14 of December of 2017, a modification has been adopted in the DIP, regarded to the investment limits and its principles included in the corporate government manual.

(e) In Voluntary Social Welfare Entities in which more than one Pension Plan has been

established in order to cover the contingencies, they must implement an internal management, registration and accounting procedure that allows the attribution, separately and independently, of the rights and obligations assigned to each one of them. The Governing Board of the Entity held on June 1, 2016 has agreed to modify the current Regulations of the Performance Plan, renamed Geroa Pentsioak Social Security Employment Plan. On the other hand, it is agreed that the previously mentioned Plan, will be renamed GEROA I Social Employment Prevision Plan from January 1, 2017. In this plan will be integrated, the active partners, partners in suspense and passive partners that are being charging an annuity (Note 2). On the other hand, in the same Governing Board of June 1, 2016, has been agreed to integrate a new Social Security Prevision Plan which will be called GEROA II Employment Social Security Plan, which will integrate the passive partners that will collect a temporary rent or temporary rent with deferred annuity (Note 2). This regulation will come into force on January 1, 2017. At the date of preparation of these annual accounts no notification has been received from the Basque Government. Both amendments were approved by the Extraordinary Meeting of the Entity of June 16, 2016. The 17th of October of 2017, financial policies directorate of the Department of Treasury and Economy has rendered the 96/2017 resolution, of 17th of October, that approves mentioned modifications, as well as the inscription in the registration of Voluntary Social Securities Entities of Euskadi.

The Pension Plans integrated in the entity, maintain an appropriate identification of its assets, which allows a precise determination of the economic rights of the shareholders and beneficiaries of each plan.


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(f) Voluntary Social Welfare Entities that assume biometric risks and/or guarantee the

result of an investment or a certain level of benefits must create adequate technical provisions to cover the related obligations. The calculation of minimum technical provisions should be made using prudent prospective actuarial methods, taking into account all obligations related to benefits and contributions in accordance with the entity’s pension options. This amount should be sufficient to finance current benefits and reflect the obligations deriving from pensions accrued by ordinary members. Economic and actuarial assumptions used to evaluate liabilities should also be chosen with prudence.

(g) The technical interest rate used in the calculation of technical provisions shall be

determined on the basis of the internal rate of return of investments assigned to the social welfare plan. This may not exceed the estimated rate of inflation used to determine technical provisions by more than three points, with a maximum limit of 5%.

(h) Entities must maintain sufficient and adequate assets to cover the technical provisions

specified in the corresponding actuarial studies. In the event that, for three consecutive years, the entity does not establish sufficient funds to cover the necessary technical provisions, or when existing funds in a specific period are less than 90% of the technical provisions, the entity must draw up a plan to redress the situation, which must be subsequently approved by the Basque Government’s Department of Justice, Employment and Social Security.

(i) Voluntary Social Welfare Entities that incorporate plans to cover biometric risks or the

result of an investment or a certain level of benefits must permanently hold assets, in the form of reserves, other than those in which their technical provisions are materialized. These assets must be free of all foreseeable obligations and will be used as an available capital adequacy margin to absorb deviations between actual and foreseeable expenses and benefits. The capital adequacy margin must be equal to at least 4% of technical provisions. At December 31 of 2017 and at the date of filing of these Annual Accounts, the entity fulfils this requirement (Note 21).

(j) For Voluntary Social Welfare Entities which include defined contribution social security plans, the margin of safety must have a minimum amount of 0.125% of the provisions allocated to defined contribution pension plans in which the partner assumes the risk of the investment. The safety margin must be constituted in its entirety, at least at the close of each year. The safety margin will be constituted in a maximum period of ten years, starting in 2016, with a minimum of one tenth of its annual amount. At December 31, 2017 and at the date of preparation of these annual accounts, the entity fulfils this requirement (Note 21).

(k) The Minimum Mutual Fund is set at 50,000 euros and must materialize in eligible

assets and be fully disbursed. Note 10 of the Report details the amount of the Mutual Fund disbursed by the Protecting Members. The entity fulfil the minimum required level at December 31, 2016.

Note 20 of the attached Report details the degree of compliance in relation to the rules applicable to the entity in terms of percentages of investment, diversification, negotiability and liquidity.


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At the Extraordinary General Meeting held on June 16, 2016, certain modifications were approved regarding the adequacy of the Statutes to the requirements provided by Law 5/2012, of February 23, on Voluntary Social Security Entities and by Decree 203/2015, dated October 27, approving the regulations that develop it. In the 2017 exercise, the Basque Governement has approved the mentioned modifications, as well as its registration in the Voluntary Social Securities Entities of Euskadi. Company purpose On 27 November 1995 the Employment and Social Security Office of the Basque Government’s Department of Justice, Economy, Employment and Social Security approved the incorporation and articles of association of the Entity, as well as its inscription in the Basque Country Registry of Voluntary Social Welfare Entities under number 178-G. According to its articles of association, the Entity is governed by the general assembly (comprising the members of the governing board, 53 contributing member representatives and 53 ordinary member representatives) and by the governing board (composed of 26 members, 13 contributing member representatives and 13 ordinary member representatives). According to its articles of association, the scope of activity of the Entity, which is a non-profit-making organization, is the Basque Country. The Entity’s objective is twofold: • To protect ordinary members in the event of retirement, disability or death, the latter

insofar as widowhood, orphan hood or similar circumstances are concerned, paying them, once they have been recognized as passive members, or their beneficiaries the corresponding pension and benefit payments.

• To encourage its members to save by way of social welfare plans while protecting their rights.

The social welfare regime contemplated on the constitution of the Entity was created as a consequence of the collective agreements of the Iron and Steel Industries of Gipuzkoa, with a mandatory effect, under the Article 83 of the Worker’s Statute, and based on the Article 39.2 of the royal law Decree 1/1994, June 20 of 1994, currently repealed by the unique 1 derogatory provision of the royal Decree 8/2015, of October 30 (currently, Article 43 of the cited Royal Law Decree 8/2015). The Entity has three types of members: founding, contributing and ordinary members (the latter of which may be paying or non-paying), the main characteristics of which are as follows: • The founding members are Asociación de Empresarios de Gipuzkoa (ADEGI) and the

ELA, LAB, CCOO and UGT trade unions, whose sole purpose in this context is to promote saving through supplementary social welfare plans.

• Contributing members are those who, in accordance with the established membership

regulations, contribute to the maintenance and development of the Entity through the corresponding contributions made as contributing members and those made on behalf of the corresponding employees who are incorporated into the Entity as ordinary members.


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Contributing members are companies in the Gipuzkoa iron and steel sector which, as with their workers who are bound by the collective agreement of 1 December 1995 (Official Gipuzkoa Gazette of 03.01.96) or superseding accords, were compulsorily incorporated into the Entity, without the need for subsequent individual ratification or acceptance, those from other sectors of economic activity which have been or will be compulsorily incorporated into the present regime as a result of similar agreements, and companies that do not have a collective labour agreement in the Basque Country but which voluntarily joined the aforementioned regime following their admission by the governing bodies of the Entity.

• Ordinary paying members are employees or workers from the Gipuzkoa iron and steel sector who were compulsorily incorporated into the present regime, without the need for subsequent individual ratification, as a result of the collective labour agreement reached for the iron and steel sector in Gipuzkoa, or superseding accords, those from other companies affected by similar agreements, and voluntary members admitted by the governing bodies.

• Ordinary non-paying members are those who have suspended their contributions as a result of having previously suspended their working relationship with the contributing member(s), but who retain their rights within the Entity.

• Passive members are persons who, through their entitlement to receive benefits

(retirement or disability), are recognized as such in accordance with the Entity’s articles of association and regulations and who have been ordinary members of the Entity.

Beneficiaries of the Entity are persons who, as successor in title of the deceased ordinary or passive member, are entitled to economic rights from the Entity. Beneficiaries are those persons designated according to the order established in the Entity’s regulations. In order to adapt the payment system of the benefits, the government board of the entity held on December 9 of 2014 and the Extraordinary General Meeting of January 13 of 2015 approved certain modifications to the Benefits Regulation and the Entity’s Statutes, whose entry into force was conditioned by the correspondent approval of the Finance Director’s Office of the Economy and Treasury Department of the Basque Government. After taking into consideration certain recommendations of the cited authority, the Ordinary General Meeting held on April 15 of 2015 and the Extraordinary Government Board of the entity held on June 29 of 2015 confirmed the modifications of the Benefits Regulation. The Director’s Office of Political Finance and Institutional Resources of the Treasury and Finance Department of the Basque Government has approved the cited Regulation on June 30 of 2015, and the registration at the Registry of Voluntary Social Welfare Entities of the Basque Country, acquiring full effectiveness on the Entity from July 1st 2015 (Note 2) Likewise, the Government Board of October 8 and the Extraordinary General Meeting held on December 17, 2015 approved certain modifications regarding the adequacy of the Statute´s to the Entity's Benefits Regulation. On January 11, 2016, the Director’s Office of Financial Politics and Institutional Resources of the Treasury and Finance Department of the Basque Government has published the resolution 1/2016, of January 11, where it is approved the cited modification on the Entity’s Statutes, and its registry on the Voluntary Social Welfare Entity’s Registry of the Basque Country.


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During the 2017 financial year, the Entity´s Protecting Members amounted to 9,319 companies and Number Partners amounted to 108,365 people (9,390 companies and 105,235 Number Members during the financial year 2016). This is the breakdown among the different sectors integrated in the Entity: Contributing members Ordinary members 2017 2016 2017 2016 Ceramic 10 8 260 233 Fur/leather trade 98 98 490 492 Metal trade 849 868 6,098 6,032 Construction 851 872 6,197 6,167 Service stations 63 60 912 853 Timber industry 250 251 1,551 1,498 Furniture industry 49 47 471 428 Public sports facilities 24 22 337 383 Cleaning sector 310 301 8,112 8,087 Catering, entertainment and sports 182 175 2,610 2,334 Fruit wholesalers 22 21 176 157 Bakeries 169 179 2,085 2,093 Paper/cardboard 16 15 1,140 1,117 Iron and steel 2,719 2,732 50,279 48,746 Textile 467 478 3,120 3,070 Freight 56 54 799 716 Road haulage 526 547 4,158 4,039 Glass 27 28 209 202 Sundry 50 51 7,873 7,210 Offices 1,350 1,373 6,530 6,577 General trade 1,231 1,210 4,958 4,801 9,319 9,390 108,365 105,235 The Entity’s funds mainly comprise the initial one-off members’ fund contributions of its founding members and the regular fixed contributions from both its contributing members and individual associates (ordinary paying members), which are determined by the corresponding agreements. These regular contributions may vary across different sectors of activity, but can never exceed the amount agreed for the iron and steel sector in Gipuzkoa, and may be modified periodically by applying a percentage of the contribution base for common workers’ contingencies.


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Contributions are paid monthly and comprise a percentage of each worker’s Social Security base, 50% of which is paid by the employee (ordinary member) and withheld from their salary, and 50% by the company (contributing member). In the event of temporary disability, maternity or paternity leave or temporary lay-off procedures, both the contributing and ordinary member will continue to honour their contributions. The evolution of the contribution percentages in the different sectors covered by the Entity is as follows:

Sector Evolution Contribution percentage

Asedir Gestión, S.L. Since April 2005 3.5% Since January 2008 4.3% Since January 2009 4.6% Aspace Since June 2005 0.5% Since April 2006 1.0% Since March 2007 1.2% Since October 2008 1.4% Since January 2011 2.9% Aspace Viviendas y Residencias Since January 2004 0.5% Since September 2006 1.0% Since February 2007 1.5% Since January 2008 2.0% Atención Sanitaria Tercera Edad Since January 2003 1.0% Bidelan Gipuzkoako Autobideak, S.A. Since January 2009 4.6% Casino Kursaal Since January 2006 4.0% Cementos Rezola Since July 1998 1.0% Since January 1999 1.5% Since June 2000 2.5% Since June 2001 3.0% Since January 2002 3.5% Since January 2003 3.5% Since January 2006 4.0% Since January 2008 4.3% Cerámica de Gipuzkoa Since January 1997 1.5% Since May 1999 2.0% Since January 2000 2.5% Since January 2002 3.0% Since January 2003 3.5% Comercio de la Piel de Gipuzkoa Since October 1999 0.8% Since January 2000 1.6% Comercio del Metal de Gipuzkoa Since October 1999 1.0% Since January 2000 2.0%


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Construcción de Gipuzkoa Since June 1999 0.5% Since June 2000 1.5% Since January 2001 2.5% Since January 2005 2.9% Since January 2006 3.3% Since July 2007 3.5% Since January 2008 3.7% Since January 2009 4.0% Clece, S.A. Since March 2004 1.0% Clece, S.A. – Donostiako Lamiak Since October 2004 1.5% Comercio General de Gipuzkoa Since January 2008 0.2% Since January 2009 0.4% Electroquímica de Servicio de Gipuzkoa Since July 2000 0.5% Since January 2001 1.0% Since January 2002 1.5% Since January 2003 2.0% Since January 2005 3.0% Since January 2006 3.5% Since January 2007 4.0% Federación de Entidades de Previsión Social Voluntaria de Euskadi

Since January 2001 3.5%

Since January 2006 4.0% Since January 2009 4.6% Gureserbi, S.L. Since June 2005 1.0% Since January 2006 1.5% Since August 2007 2.0% Grupo Herribus Since June 1996 1.5% Since January 1998 2.0% Since January 2000 3.0% Since January 2002 3.5% Since January 2006 4.0% Grupo Radio Popular Since July 1999 1.0% Since January 2006 1.5% Industrias Químicas Irurena, S.A. Since January 2007 0.5% Since January 2008 1.0% Industria de la Madera de Gipuzkoa Since October 1997 0.5% Since January 1998 1.0% Since May 1999 1.5% Since January 2000 2.0%


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Industria del Mueble de Gipuzkoa Since September 1999 0.5% Since January 2000 1.0% Instalaciones Polideportivas de Titularidad Pública de Gipuzkoa


Itesa Producción Since January 2003 0.5% Since January 2004 1.0% ITV Gipuzkoa Since January 2003 1.0% Since January 2004 2.0% Since January 2005 3.0% Since January 2006 4.0% Izpia Media, S.L. Since January 2005 1.0% Katea Lantegiak Since January 2003 0.6% Since January 2007 1.56% Since January 2008 2.53% Since January 2009 3.50% Since January 2010 4.0% Kemen Manguitos, S.L. Since January 2009 4.30% Kursaal Producciones Since January 2002 0.5% Since January 2004 1.0% Lagun Izpi, s.L. Since September 2003 1.0% Since January 2004 1.5% Lending Service, S.L. Since April 2004 1.5% Since January 2005 2.5% Legaia Since July 1999 1.0% Since April 1999 3.0% Since January 2000 3.5% Since January 2007 3.66% Since January 2008 3.83% Since January 2009 4.00% Limpieza de Gipuzkoa Since January 2000 0.5% Since October 2003 1.5% Since January 2004 2.5% Locales, Espectáculos y Deportes de Gipuzkoa




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Manufacturas Oría, S.L. Since June 2004 2.0% Since July 2005 2.5% Since January 2008 3.10% Since January 2009 3.80% Since January 2010 4.60% Mayoristas de Frutas de Gipuzkoa Since June 2002 1.0% Since September 2004 1.5% Since June 2006 1.75% Since January 2007 2.5% Since January 2010 3.0% Oficinas y Despachos de Gipuzkoa Since January 2008 0.2% Since January 2009 0.4% Omey Kayak, S.L. Since January 2005 1.6% Panaderías de Gipuzkoa Since June 1998 0.7% Since January 1999 1.2% Papel-Cartón de Gipuzkoa Since July 1999 0.7% Since January 2000 1.2% Savera Since January 1999 1.0% Since January 2000 2.0% Since January 2001 3.0% Since January 2002 3.5% Since January 2006 4.0% Since January 2008 4.3% Since January 2009 4.6% Siderometalúrgico de Gipuzkoa Since January 1996 1.5% Since May 1997 2.0% Since January 1998 2.5% Since March 1999 3.0% Since January 2000 3.5% Since January 2006 4.0% Since January 2009 4.6% Silam, S.A. Since January 2005 0.5% Talleres Protegidos Gureak, S.A. Since January 2009 0.4% Textil de Gipuzkoa Since September 1999 0.8% Since January 2000 1.6% Trainelec, S.L. Since May 2007 4.0%


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Transitarios de Gipuzkoa Since January 1998 1.5% Since January 1999 2.0% Since January 2001 2.5% Since January 2002 3.0% Transporte de Mercancías por carretera

Since October 2003 1.0%

Since January 2004 1.5% Vidrio de Gipuzkoa Since June 1998 1.0% Since January 1999 2.0% Since January 2002 2.5% Since January 2003 3.5% Zahor Since January 2002 0.66% Since January 2003 1.32% Since January 2004 2.0% Since January 2005 2.5% Since January 2006 3.0% Since January 2007 3.5% Since January 2008 4.0% Since January 2009 4.3% Since January 2011 4.6% 2. Benefit coverage Benefits Regime applicable until June 30 of 2017 Benefits comprise the financial recognition of the entitlements of the Entity’s passive members or beneficiaries deriving from the materialization of contingencies covered by the Entity. When a contingency materializes, passive members or beneficiaries receive the liquidating value of their accrued entitlements in the form of capital or annuity. It will be perceived as compulsory annuity until 30 June 2015. Exceptionally, when economic rights existing at the time of paying the benefit not generate the minimum amount of income referred to in the Regulation Benefits of the Entity (166 euros for the year 2016) for the year of payment of the benefit payments will be established as capital. Certain amendments to the Entity’s articles of association were approved at the extraordinary general assembly held on 28 June 2000, and came into force on 1 January 2001. According to these amendments, the Entity’s benefits may be classified as ordinary (retirement and widowhood/orphanhood when the retired beneficiary dies) or risk (total permanent disability, absolute permanent disability and outstanding disability, widowhood/orphanhood in the event a disabled paying member dies and widowhood/orphanhood in the event a paying member dies). In order to reinforce or increase each paying member’s consolidated disability and death entitlements, an additional benefit was created (insured capital). This is obtained by multiplying the average payment made to the Entity by the ordinary member and the contributing member in respect of the ordinary member’s entitlements during the last six months by the number of months remaining from the materialization of the contingency until the member reaches 65 years of age.


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Nowadays, the benefits of retirement, benefits of disability for an active person and the benefits for death in an active member, will consist on a capital, by the payment of a unique quantity for the existing consolidated rights in the moment of the above mentioned benefits if the annuity does not reach the minimal revenue established in the Regulation Benefits of the Entity. The perception of the benefits will consist in an annuity if the amount previously mentioned is reached. Until June 30 of 2015, the benefits in favour of the widow, were mandatory in a life annuity basis. Exceptionally, when the economic rights at the moment of subscribing the benefits did not reach the minimum amount of income established in the Benefits Regulation of the Entity, it would be established a capital payment method. The orphanage benefits, derived from the death of the active shareholder, would only take place when there is no right to widow benefits and would consist on a temporary annuity income until the orphan is 25 years old, of the orphan or orphans on economic rights Existing at the time of such benefit, which will be distributed through the same monthly income to each of them, if there are several, or in the payment of a single capital. On 16 April 2010 the General Assembly of the Entity approved the inclusion of insurance covering death for six years from the start of the provision through actuarial lifetime income in such a way that if an unmarried member dies, or a married member whose partner has already died, their beneficiaries will be entitled to receive an annually decreasing percentage of the mathematical provision (60% the first year, to 10% in the sixth year) (For income caused from May 1, 2010). In the event of disability or death of a non-paying member, the corresponding benefits comprise the consolidated individual entitlements deriving from the regular contributions of the deceased ordinary member and the contributing member, and any yield and gains generated through the management of funds after the Entity’s management expenses have been settled. Under the resolution adopted by the Governing Board of the Entity, on December 18, 2012 to amend Article 9A of the Statutes, disabled members grade less than 45% will be entitled to a retirement pension from age 56 if they are not active and are entitled to social Security retirement. On 19 December 2006 the Entity took out a life risk transfer contract with an insurance company (AVIVA) through the Federación de Entidades de Previsión Social Voluntaria de Euskadi (Basque Federation of Voluntary Social Welfare Entities). This contract covers 50% of the risk of death, permanent total disability, permanent total disability and severe disability, and took effect from January 1, 2007. The Entity gives the 2.35% of the withdrawn fees for the hedge of the risky benefits cited previously for the 2017 and 2016 years. During the year 2016 the amount paid by the Bank to the insurance totalled 2,037 thousand euros (1,968 thousand euros during 2016).


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The June 14, 2012 has signed an additional contract for the transfer of risk to another reinsurer (VidaCaixa) covering the remaining 50% risk of death, permanent total disability, permanent total disability, severe disability, total disability permanent and permanent total disability. This reinsurance coverage took effect from January 1, 2012. The premium of this contract for the year 2017 amounted to 2,034 thousand euros (2,066 thousand euros for the year 2016). Both contracts are established on an annual basis, tacitly renewed each year and include the ability to participate in the benefits of reinsurance. During 2017 and 2016, 0 and 330 thousand euros have accrued revenues for this matter (312 thousand euros during the year 2016) with credit to "Net operating expenses" in the income statement (Note 13). After the new drafting of the Regulation approved by the Ordinary General Meeting of April 15 of 2015, this benefits regime stands applicable for the shareholders with benefits caused before December 31 of 2014, based on the transitory provision one and two of the cited regulation. Additionally, for this shareholders exclusively, their benefits based on an annuity of the actuarial system are constant and not revaluable. However, when the yield (previous to the transfer to benefits of the excessive risk) obtained in a year exceeds the technical interest rate, will generate a right to an improvement of the annuity of the 70% of the exceeding amount, and once taken into reserves for all of those annuity’s occurred until December 31 of 2014. Adaptation in the year 2015 on the payment of benefits In order to adapt to its partners’ request and avoid future problems in the payment of benefits derived from certain factors such as demographic or economic that could damage the Entity’s solvency, the Entity’s Governing Board meeting held on 9 December 2014 has announced the transition to a new model of paying benefits. The agreement has been approved by the Entity’s Extraordinary General Assembly meeting held on 13 January 2015. Finally, after attending the recommendations of the Basque Government, the new benefits model is under the Benefits Regulation approved by the Ordinary General Meeting held on April 15 of 2015, and also under the Entity’s Statutes approved by the Extraordinary General Meeting held on December 17 of 2015. This change in the income model has been implemented through two distinct phases: - Transitional period between January 1, 2015 and June 30, 2015: Continuity of the old

model of annuities, where the technical interest rate used to calculate technical provisions of 3.5% is reduced to 1.5%, the solvency margin of 6% is covered by the rentier and the individual capitalization of the contributions of each partner in their economic rights increases from 90% to 93%, allocating 7% to risk hedging.

- Period beginning on July 1, 2015: Introduction of a new model of payment of benefits

which establishes that the payment of benefits depend on the number of years of income that can be generated with the partner’s economic rights. Benefits shall be paid as annuities if the income reaches at the time of the benefit being made, the "Amount of Income Generation (AIG)" for each of the established later sections. The Amount of Income Generation is calculated as follows:

AIG year 1 = BCCC max year 0 * % max year 0


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In which: AIG year 1: Generated amount of income for year 1. MCCC max year 0: Maximum contribution base for common contingencies year 0. % max year 0: Maximum percentage of contribution to the Entity for year 0. The amount will be rounded up to the closest integer number. Thus, 4 sections are established:

a) Section 1: If the economic rights do not reach for the payment of an income during a 5 year period, with a monthly minimum amount of the AIG, it will be paid in a capital benefit form.

b) Section 2: If the economic rights reach for the payment of an annuity between 5

and 20 years, with a monthly minimum amount of the AIG, the benefits will be optional between a capital form and a temporary annuity income that goes between 5 and 20 years.

c) Section 3: If the economic rights reach the amount necessary to pay an annuity

between 20 years and the years left to reach the legal age of retirement plus 25, with a monthly minimum amount of the AIG, the benefits will be paid in a temporary annuity income basis between the 20 years and the years left to reach the legal retirement age plus 25.

d) Section 4: If the economic rights reach the amount necessary to pay a monthly

minimum amount of the AIG until the legal retirement age plus 25, the benefits will be paid as a temporary annuity income form until the legal age for retirement plus 25, and additionally a deferred life annuity (paid since the end of the temporary annuity until the death). The deferred life annuity it will be covered at the moment of transforming the capital into a rent, subtracting the amount who corresponds to the individual economic rights. The Entity will calculate a homogenous for all the members. Exceptionally this life annuity will be voluntary and the cost to apply will be real (Table PERM/F-2000C) if it is requested the benefit one year after the legal retirement age.

The benefit in favour of the widow, will be mandatory in a temporary financial income basis, with no deferred life annuity, the pending monthly instalments. The orphan's benefit for children under age 25 or disabled in a degree equal to or above 65% resulting from the death of an active partner, will receive the payment of the outstanding amounts as capital, proportionally to the remaining years up to 25 years of the orphan, matching the age of the handicapped child to the younger child, to be distributed by the same monthly rent to each of them, if there were more than one, or the payment of a single capital. Actuarial income from dependency insurance of the final section set in the model will not be reversed. On the other hand, at the Extraordinary General Meeting held on June 16, 2016, it approved amendments to the Statutes incorporating gender equality in its wording, including the new model based on two Regulations (Note 1) and modifying the previous section. Which includes the case in which the recipient has the option to charge the benefit in capital if the number of years to be 25 year old is less than 5.


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Also, for the case of benefits arising from the contingencies of absolute permanent disability or great disability, the member may choose its rent to be calculated based on the AIG or twice the AIG, thereby reducing the term of the rent, and hiring or no deferred life annuity. The agreement does not constitute a change in the contingencies covered by the Entity, but the establishment of a new system of payment of benefits, different from and a replacement of the previous one. The initial calculation of the temporary financial income will be done using an interest rate of 1%, and considering they are post payable growing at a 0.5% annual rate. Annually, in case that the conditions of the market allow the gain of a higher yield, the incomes will obtain a share of the benefits of the 100% of the excess of profitability over the 1% of the assets assigned to the hedge of these incomes, therefore it will be increased the monthly amount of all the shareholders in a homogenous percentage. The Finance Directors Office of the Economy and Treasury Department of the Basque Government approved the cited Regulation on June 30 of 2015, acquiring full effectiveness on the Entity from July 1st of 2015 onwards. Additionally, on January 11 of 2016, the Finance Director’s Office of the Economy and Treasury Department of the Basque Government sent a resolution that approved the modification related to the necessary adjustments of the Statutes to the Benefits Regulation of the Entity and the signing of those adjustments to the Voluntary Social Welfare Entity’s Registry of the Basque Country. The last amendments approved in the statutes and Regulations have not been approved by the Basque Government at the date of preparation of these annual accounts, although the Bank's Management expects to occur in 2017. 3. Basis of presentation of the annual accounts 3.1. Fair presentation The accompanying annual accounts have been prepared based on the accounting records of the Entity. The annual accounts for 2017 have been prepared in accordance with provisions applicable to Voluntary Social Welfare Entities issued by the Basque Government’s Department of Justice, Employment and Social Security and Department of Finance and the accounting principles established in the adaptation of the Spanish General Chart of Accounts to Voluntary Social Welfare Entities to present fairly the equity and financial position at 31 December 2017 and results of operations, changes in equity and cash flows for the year then ended. The application of the accounting principles and standards established by Decree 86/2010 referred to the financial statements, at December 31, 2017, is mandatory under Article 2 of Decree 86/2010 for all entities included in Title I of Law 5/2012 on Voluntary Social Security Entities.


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According to the statement of 2 December 2014 of the Department of Treasury and Finance of the Basque Government, the members of the Governing Board have proceeded to prepare these financial statements following the criteria indicated by the Basque Government and under the premise that entity does not perform any insurance activity, so the rules applied in preparing these financial statements have been established in Decree 92/2007 of 29 May, by which the exercise of certain activities EPSVs regulated, Order of April 29, 2009, the Ministry of Finance and Public Administration, amending certain aspects of Decree 92/2007 and Decree 86/2010, of March 16, in which it is approved the adaptation of the Insurance accounting plan to the specificities of Voluntary Social Welfare Basque Entities. These annual accounts, issued by the Governing Board of the Entity will be subject to approval by the General Assembly, they are expected to be approved without significant changes. The Entity’s annual accounts for 2016 were approved by the General Assembly of 31 of March of 2017. At 31 December 2017 the Entity is not required to prepare consolidated annual accounts in accordance with the provisions of Article 42 of the Commercial Code. Unless otherwise stated, these consolidated annual accounts are presented in thousands of euros. 3.2. Comparability The financial statements at 31 December 2017 are presented regarding the structure and accounting principles established in the current legislation of the Basque Government. In accordance with commercial legislation, the Entity only presents, for comparison purposes, for each item of the balance sheet, the profit and loss account, the statement of changes in equity and the statement of cash flows, in addition of the fiscal year 2017, those corresponding to the previous year. 3.3. Accounting principles When preparing these annual accounts the accounting and reclassification principles and standards set out, fundamentally, by the Basque Government Decree 86/2010, and the most significant are those described in Note 5. No mandatory accounting principle that has a significant effect on these annual accounts has been omitted from the preparation of the accompanying annual accounts. 3.4. Key aspects of the measurement and estimation of uncertainty When preparing the annual accounts judgments and estimates based on assumptions of the future and uncertainties have been used and basically refer to the impairment of financial assets, non-Underwriting reserves, the calculation of the fair value of financial assets not traded on active markets and the useful lives of property, plant and equipment and intangible assets. The estimates and assumptions used are reviewed regularly and are based on past experience and other factors that could have been considered more reasonable at any given moment. If, as a result of these reviews, there is a change in the estimate for a certain period, its effect would be applied to that period and, if appropriate, in successive periods.


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3.5. Items included under more than one heading For the purposes of facilitating the understanding of the balance sheet, the income statement, the statement of changes in equity and the cash flow statement, these financial statements are presented in a group format and all necessary disclosures are set out in the notes to the annual accounts. 3.6. Changes in accounting policies Changes in accounting policies, either because they amend an accounting regulation that governs a certain transaction or event or because the Governing Board decides to change the accounting policy for justified reasons, are applied retroactively unless: • It is impractical to determine the effect in each specific year deriving from a change in

an accounting policy regarding comparative information from a preceding year, in which case the new accounting policy is applied at the start of the oldest year so that retroactive application becomes practicable. When it is impractical to determine the accumulated effect, at the start of the current year, deriving from the application of a new accounting policy to all preceding years the new accounting policy is applied on a prospective basis as from the oldest date on which it is practical to do so or,

• The accounting rule or regulation changes or establishes the application date.

During the years 2017 and 2016, the Entity has not carried out any change on accounting criteria. 3.7. Correction of errors Errors in the preparation of prior-year annual accounts are the result of omissions or inaccuracies resulting from the failure to employ or use reliable information that was available when the annual accounts for those periods were prepared and the Entity should have used when preparing those annual accounts. Errors relating to prior years are corrected retroactively in the first annual accounts that are prepared after discovery, as if the error had never taken place: • Re-expressing the amounts of the various annual accounts affected by the error,

including the notes to the annual accounts that are published in the annual accounts for the purposes of comparison, which relate to that year and prior years, if applicable.

• Re-expressing the opening balance for the oldest year for which information is

presented if the error took place before the first annual accounts that are presented for the purposes of comparison.

When it is impractical to determine the effects arising in each specific year from an error involving comparative information from a preceding year, the opening balances for the oldest years are re-expressed, where possible. In the event that it is not practical to determine the accumulated effect, at the start of the current year, of an error involving all prior years, the comparative information is re-expressed correcting the error on a prospective basis as from the earliest date possible.


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Errors from prior years that affect equity are corrected in the year discovered using the relevant equity account. Under no circumstances are errors from prior years corrected through the income statement for the year in which they are discovered, unless they have no relative importance or it is impractical to determine the effect of the error based on the provisions of the preceding paragraph. During fiscal 2017 and 2016, the Entity has not carried out any correction. 3.8. Criteria for attributing income and expense Income and expense are recorded in the period in which the income or expense deriving from the goods or services in question is represented rather than the period in which the cash or financial flow is actually received or disbursed. The income statement adequately separates income and expense for the period by activity in accordance with the disclosure rules established by current legislation (Activities of Pension Plans of the Voluntary Social Welfare Entities, Other activities developed by Voluntary Social Welfare Entities and non-social welfare plan activity account). Within each activity, the related revenue and expenses related to the affected operations are charged to the appropriate account in the consolidated income statement. Revenues and expenses from investments to materialize in equity and other resources directly related to the practice of operations affected the social welfare activities are taken to the "non-social welfare plan activity account "in the consolidated income statement. The Entity only carries out activities relating to a single Retirement Plan to which all its assets and liabilities are associated. Expenses are classified by class in the income statement but, when this is not possible, analytical cost attribution criteria that are reasonable, objectives and verifiable are used. 4. Distribution of surplus The proposed distribution of profit for 2017 that the Governing Board of the Entity will submit for approval to the General Assembly as well as the already approved for the year 2015, is as follows: 2017 2016 Basis of allocation Surplus for the year 8,650 7,696 8,650 7,696 Distribution Reserves – reserves for actuarial risks (Note 10) 2,763 1,400 Reserves associated with defined contribution plans under which the member assumes the investment risk -

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Voluntary reserves 5,887 6,251 8,650 7,696


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The Entity is governed by an individual capitalisation financial system under which the rights of each member are the result of all direct or attributed contributions and the yields obtained from the investment of those amounts, less all attributable expenses. At any given moment, the Entity records all member financial rights through heading "I.6 Change in Other Underwriting reserves, Net of Reinsurance" in the income statement to the heading "A.5) Underwriting reserves" on the liability side of the balance sheet. 5. Significant accounting policies The accompanying annual accounts have been prepared in accordance with accounting principles established in the Spanish General Chart of Accounts for Insurance Entities adapted for Voluntary Social Welfare Entities, as per Decree 86/2010 of 16 March 2010 and the provisions of Decree 92/2007 of 29 May, both issued by the Basque Government’s Department of Finance. a) Intangible assets Intangible assets are measured at cost or cost of production, less any accumulated amortization and accumulated impairment. (i) Computer software Computer software acquired and produced by the Entity, including website costs, is recognized when there is evidence of technical success and a clear allocation in time of costs. Computer software maintenance costs are charged as expenses when incurred. (ii) Subsequent costs Subsequent costs incurred on intangible assets are recognized in profit and loss, unless they increase the expected future economic benefits attributable to the intangible asset. (iii) Useful life and amortization rates The Entity assesses whether the useful life of each intangible asset acquired is finite or indefinite. An intangible asset is regarded by the Entity as having an indefinite useful life when there is no foreseeable limit to the period over which the asset will generate net cash inflows. Intangible assets with finite useful lives are amortized by allocating the depreciable amount of an asset on a systematic basis over its useful life, by applying the following criteria:

Amortization

method

Estimated years of

useful life Computer software Straight-line 1 - 3

The depreciable amount of intangible assets is measured as the cost of the asset, less any residual value.


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The Entity reviews the residual value, useful life and amortization method for intangible assets at each financial year end. Changes to initially established criteria are accounted for as a change in accounting estimates. (iv) Impairment The Entity measures and determines impairment to be recognized or reversed based on recoverable amount, which is the higher of fair value less costs to sell and value in use. Impairment of intangible assets, or a reversal of impairment when the circumstances that gave rise to it have ceased to exist, is recognized as an expense or income, respectively, in the income statement. b) Property, plant and equipment (i) Initial recognition Property, plant and equipment are carried at cost less any accumulated depreciation and any accumulated impairment. (ii) Depreciation Property, plant and equipment are depreciated by allocating the depreciable amount of an asset on a systematic basis over its useful life. The depreciable amount is the cost of an asset, less its residual value. The Entity determines the depreciation charge separately for each component of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the asset and with a useful life that differs from the remainder of the asset. Depreciation is provided on a straight line basis over the estimated useful lives of the assets as follows:

Amortization

method

Estimated years of

useful life Buildings Straight-line 33 Furniture and installations Straight-line 10 Information technology equipment Straight-line 3

The Entity reviews residual values, useful lives and depreciation methods at each financial year end. Changes to initially established criteria are accounted for as a change in accounting estimates. (iii) Subsequent costs Subsequent to initial recognition of the asset, only the costs incurred which increase capacity or productivity or which lengthen the useful life of the asset are capitalized. The carrying amount of parts that are replaced is derecognized. Costs of day-to-day servicing are recognized in profit and loss as incurred.


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(iv) Impairment The Entity measures and determines impairment to be recognized or reversed based on recoverable amount, which is the higher of fair value less costs to sell and value in use. Impairment of property, plant and equipment, or a reversal of impairment when the circumstances that gave rise to it have ceased to exist, is recognized as an expense or income, respectively, in the income statement. c) Financial instruments (i) Classification and separation of financial instruments Financial instruments are classified on initial recognition as a financial asset, a financial liability or an equity instrument in accordance with the economic substance of the contractual arrangement and the definitions of a financial liability, a financial asset and an equity instrument. The Entity classifies financial instruments into different categories based on the nature of the instruments and management’s intentions on initial recognition. Regular way purchases or sales of financial assets, understood as those in which the reciprocal obligations of the parties must be consumed within the time frame established generally by regulation or convention in the marketplace concerned and cannot be settled by differences, are recognized using trade date accounting or settlement date accounting. (ii) Offsetting principles A financial asset and a financial liability are offset only when the Entity currently has the legally enforceable right to offset the recognized amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously. (iii) Financial assets and financial liabilities held for trading Financial assets or financial liabilities held for trading are those which are classified as held for trading from initial recognition. Financial assets and financial liabilities held for trading are initially recognized at fair value. Transaction costs directly attributable to the acquisition or issue are recognized as an expense when incurred. After initial recognition, they are recognized at fair value through profit or loss. Fair value is not reduced by transaction costs incurred on sale or disposal. Accrual interest and dividends are recognized separately. (iv) Financial assets at fair value through profit or loss Financial assets and financial liabilities at fair value through profit or loss are initially recognized at fair value. Transaction costs directly attributable to the acquisition or issue are recognized as an expense in the income statement.


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After initial recognition, they are recognized at fair value through profit or loss. Fair value is not reduced by transaction costs incurred on sale or disposal. Accrual interest and dividends are recognized separately. When investments are materialized in assets and it can be considered that the available information cannot be fully contrasted with third parties and the application of market value would give rise to a gain, this gain is not recognized. (v) Loans and receivables Loans and receivables comprise trade and non-trade receivables with fixed or determinable payments that are not quoted in an active market other than those classified in other financial asset categories. These assets are recognized initially at fair value, including transaction costs, and subsequently measured at amortized cost using the effective interest method. Nevertheless, financial assets which have no established interest rate, which mature or are expected to be received in the short term, and for which the effect of discounting is immaterial, are measured at their nominal amount. (vi) Held-to-maturity investments Held-to-maturity investments are debt securities with fixed or determinable payments and fixed maturity traded on an active market and that Entity management has the positive intention and ability to hold to maturity, other than those classified in other categories. The measurement criteria applicable to financial instruments classified in this category are the same as those applicable to loans and receivables. (vii) Investments in group companies, associates and jointly controlled entities Investments in group companies, associates and jointly controlled entities are initially recognized at cost, which is equivalent to the fair value of the consideration given, including transaction costs, and are subsequently measured at book value, less any accumulated impairment losses. (viii) Interest and dividends Interest is recognized using the effective interest method. Dividends from investments in equity instruments are recognized when the Entity is entitled to receive them. If the dividends are clearly derived from profits generated prior to the acquisition date because amounts higher than the profits generated by the investment since acquisition have been distributed, the carrying amount of the investment is reduced. (ix) Derecognition of financial assets Financial assets are derecognized when the contractual rights to the cash flows from the financial asset expire or have been transferred and the Entity has transferred substantially all the risks and rewards of ownership. Debt or equity instruments which form part of portfolios of similar instruments which have the same rights, except when the instruments sold and their individualized cost can be clearly identified, are measured and derecognized at weighted average cost


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On derecognition of a financial asset, the difference between the carrying amount and the sum of the consideration received, including any cumulative gain or loss deferred in recognized income and expense, is recorded in profit or loss. (x) Impairment of financial assets A financial asset is deemed to be impaired and its carrying amount is therefore adjusted on the basis of objective evidence of the following events: • Debt instruments, when there is objective evidence of a significant effect on the future

cash flows that were estimated at the transaction date.

• Equity instruments, when the carrying amount may not be fully recovered. Among the situations taken into consideration by the Entity as objective evidence that a financial instrument may be impaired, and gives rise to an analysis to determine the amount of the potential impairment, are the following: (a) Significant financial difficulties affecting the issuer or debtor.

(b) A failure to comply with contractual clauses, such as failure to make payment or delays

in the payment of interest or principle.

(c) When the Entity, for financial or legal reasons relating to the borrower's financial difficulties, grants the borrower concessions or advantages which it otherwise would not have granted, always applying the requirements established by the legislation applicable to the Entity.

(d) When it is considered probable that the borrower will enter into bankruptcy or any other financial reorganisation situation relating to difficulties to attend to its payment commitments.

(e) The disappearance of an active market for the financial asset in question, due to the debtor or counterparty's financial difficulties relating to the risk assumed by the Entity.

(f) If observable information indicates that there may be a decrease in the measurement of estimated future cash flows from a group of financial assets of uniform characteristics after its initial recognition, although the decrease may not be yet identified in the individual financial assets making up the group, including:

i) Adverse changes in the payment conditions for a uniform group of borrowers

which, for example, has a growing number of payment delays or presents an inadequate financial structure.

ii) Local or national financial conditions are co-related to the failure to make payment for a group of assets, such as an increase in the unemployment rate in the borrowers' geographic area, a significant decline in the price of mortgaged properties or adverse changes in the conditions of a sector that affects a group of borrowers.


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(g) For equity instruments, information regarding significant changes are taken into account when an adverse effect has arisen in the technological, market, financial or legal environment in which the issuer operates and the specific situations that affect the entities in which investments are made and which could indicate that the cost of the investment in the equity instrument may not be recoverable. A prolonged or significant decline in the fair value of an investment in an equity instrument below cost is also objective evidence of impairment, although the Entity requires a relevant analysis as to whether or not the decline is actually related to the impairment of the investment leading to the conclusion that the invested amount will not be recovered.

The methods applied by the Entity to identify possible impairment losses for each category of financial instruments and to calculate accounting provisions for that impairment are described below: Debt instruments measured at amortised cost: Impairment losses are equal to the positive difference between their respective carrying amounts and the present value of their estimated future cash flows. The market value of listed debt instruments is treated as a reasonable estimate of the present value of future cash flows. Subsequently, the cash flows are discounted at the instrument’s effective interest rate (where a fixed rate was contracted) or at the effective contractual interest rate at the discount date (where a variable rate was contracted). As regards impairment losses caused by the insolvency of a party liable for payment (credit risk), a debt instrument is impaired: • When there is evidence of a reduction in the party’s payment capacity due to default or

other causes, and/or

• When country risk materialises: country risk is considered to be the risk associated with debtors resident in a given country due to circumstances other than normal commercial risk.

The process of evaluating possible impairment losses for these assets is done individually, for all significant debt instruments and those which, though not significant, cannot be classified into homogenous groups of instruments of a similar type, business sector and geographic area, debtor activity, guarantee type, age of past due amounts, etc. Adjustments for impairment, as well as their reversal when the amount of such losses decreases for reasons relating to subsequent events, will be recognised as an expense or income, respectively, in the income statement. The reversal of impairment will be limited by the book value of the asset being recognised at the reversal date if the impairment has not been recorded.


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Equity instruments measured at cost Impairment losses, if applicable, are equal to the difference between the carrying amount and the present value of forecast future cash flows, discounted at the market rate for returns from other similar securities. Impairment losses are recognised in the consolidated income statement for the period in which they arise as a direct reduction to the cost of the instrument. These losses can only be reversed subsequently if the impaired assets are sold. (xi) Fair value The fair value of financial assets is mainly determined by using the listed prices on active markets as a reference. (xii) Individual cases Hybrid financial instruments Financial instruments are those that combine a primary non-derivative contract and a financial derivative, called an embedded derivative, which cannot be independently transferred and the effect is that some of the cash flows for the hybrid instrument very in a manner similar to derivative cash flows taken into consideration independently. These financial liabilities are measured, both initially and subsequently, at fair value and any changes affecting this value are taken to the income statement for the year. Directly attributable transaction costs are recognized in the income statement for the year. Compound financial instruments The non-derivative financial instruments simultaneously include liability and asset components The Entity recognizes measures and presents separately its components, distributing the initial book value in accordance with the following criteria which, except in the case of any error, will not be available for subsequent reversal: (a) It will assign the liability component the fair value of a similar liability that is not

associated with the equity component.

(b) It will assign the equity component the difference between the initial amount and the value assigned to the liability component.

(c) It will distribute the transaction costs in the same proportion. Financial guarantee contracts A financial guarantee contract is one that requires the issuer to make specific payments to reimburse the holder for any loss incurred when a specific borrower fails to comply with repayment obligations in accordance with the original or amended conditions of a debt instrument, such as a guarantee.


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These contracts are measured initially at their fair value which is the same as the premium received plus the present value of any premiums yet to be received. Subsequent to the initial recognition, and unless at that time the item has been classified as Other financial liabilities at fair value to changes in profit or loss, it is stated at the initially recognised amount less any portion relating to accrued income has been taken to the income statement. (xiii) Financial liabilities Financial liabilities, including trade and other payables, that are not classified as held for trading or as financial liabilities at fair value through profit or loss are initially recognized at fair value less any transaction costs directly attributable to the issue of the financial liability. After initial recognition, liabilities classified under this category are measured at amortized cost using the effective interest method. Nevertheless, financial liabilities which have no established interest rate, which mature or are expected to be settled in the short term, and for which the effect of discounting is immaterial, are measured at their nominal amount. d) Cash and cash equivalents Cash and cash equivalents include cash on hand and demand deposits in financial institutions. They also include other short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. An investment normally qualifies as a cash equivalent when it has a maturity of less than three months from the date of acquisition. e) Underwriting reserves (i) Reserves associated with defined contribution plans under which the member assumes

the investment risk Relates to the reserves created in order to attend to the obligations assumed with respect to Members as a result of the Entity's pension activity. The Entity charges the heading "Change in other underwriting reserves, net of reinsurance" to credit the heading "Reserve for pension activity transactions - reserves associated with defined contribution pension plans under which the member assumes the investment risk" in the amount of the positive change in equity associated with the Pension Plan. In addition, it credits the heading "Change in other underwriting reserves, net of reinsurance" for any negative changes in equity charged against the heading "Reserve for pension activity transactions - reserves associated with defined contribution pension plans under which the member assumes the investment risk".


37

(ii) Mathematical reserve The mathematical reserve covers the actuarial liabilities estimated by the Entity and calculated by an actuarial analysis prepared by an independent actuary in order to cover future obligations for benefits already being paid in the form of income. The basic working assumptions in the calculation of this reserve at 31 December 2017 and 2016 were as follows: 2017 2016 - Survival tables: PERM/F - 2000C PERM/F - 2000C - Mortality tables (only for insurance): GKM/F-95 GKM/F-95 - Technical interest rate 2.5% annual 2.5% annual - Growth of pensions 0% annual 0% annual

On June 11 of 2015 the Government Board approved to establish the technical interest rate for the calculation of mathematical provisions at a 2.5%, being effective from July 1st of 2015 onward (Notes 2 and 11). The new technical interest rate, in accordance with the macroeconomic environment and the returns of financial assets, is the proposed for its utilization for the calculation of mathematical provisions of the group of liabilities. To assign a decrease of 100 b.p. of the technical interest rate at the calculation of those provisions will be hedged with the reserves the Entity has recorded during the years, therefore, the pensions will not be affected. f) Recognition of income and expenses Income and expenses are recognized on an accruals basis, rather than upon collection or payment. Dividends are generally recognized as income when their distribution is approved and announced at the respective board of directors or annual general shareholder meetings. g) Commitments with personnel Pursuant to article 21 of the Gipuzkoa Office Workers’ Collective Labour Agreement, applicable to Entity personnel, workers with at least 25 years’ service who voluntarily leave the Entity are entitled to receive between two and four months’ salary, based on their length of service when leaving. The Entity has recorded the corresponding provision for the amounts accrued at 31 December 2017 and 2016 (Note 12). h) Foreign currency transactions - Functional and presentation currency The financial statements of the Entity are presented in Euros, which is the functional and presentation currency of the entity.


38

- Transactions and balances Transactions in foreign currencies are initially translated into functional currency using the prevailing exchange rates. It is deferred in equity as cash-flow hedges and qualifying net investment hedges qualified. Gains and losses on foreign currency from the settlement of these transactions and from the conversion to the closure exchange of the monetary assets and liabilities denominated in foreign currencies are recognized in the Income Statement, unless they are deferred in equity, such as qualified cash flow hedges and qualified net investment hedges. Changes in value in monetary assets in foreign currency classified as available for sale are analysed as the translation differences surging from changes in the amortized cost of the title and other changes in its book value. Exchange differences arising on translation of debtor and creditor balances denominated in foreign currency are generally recorded in the consolidated income statement. Differences arising from other changes in the book value are recognised in equity. The translation differences that arise on non-monetary items like equity instruments at fair value through profit or loss are considered as a part of the profit or loss in its fair value. In the case of exchange differences that arise on non-monetary items like available-for-sale equity instruments are included in equity. Non-monetary items in foreign currency valued at historical cost are translated using the exchange rates of the date in which that fair value is determined. The equivalent in Euros of the total assets in foreign currency held by the Entity at 31 December 2017 and 2016 is as follows: Thousand Euros 2017 2016 US Dollar 211,743 189,193 Sterling Pound 33,287 31,023 Norway Crown 1,906 1,444 Brazilian Real 813 - 247,749 221,660 The equivalent in Euros of the total assets in foreign currency held by the Entity at 31 December 2017 and 2016 classified by its nature is as follows: Thousand Euros 2017 2016 Cash and cash equivalents 8,361 4,892 Financial assets at fair value through profit or loss 239,388 216,768 Loans and receivables - - 247,749 221,660


39

i) Income Taxes In accordance with prevailing Legislation applicable on the three territories of the Basque Country, Voluntary Social Welfare Entities are taxed at zero per cent rate in the Income Tax. They are entitled to be reimbursed for any withholdings made on investment returns, which are shown in the heading “Loans and receivables – other receivables” of the balance sheet. j) Environment The Entity considers to be complying with the laws concerning environment preservation. In 2017 and 2016, the Entity has not incurred in significant expenses or investments for this matter, nor has considered necessary any provision, as there are no risks or contingencies that could affect these balances, given the Entity’s activity. k) Related party transactions Transactions between group companies are recognized at the fair value of the consideration given or received. The difference between this value and the amount agreed is recognized in line with the underlying economic substance of the transaction. l) Criteria for reclassifying expenses by final use As is indicated in Note 3.8, the distribution criteria used are basically: the nature of the expenses, the dedication of personnel and the assets associated with the activity. m) Instalment income and accrued benefits The heading "Instalments treated to the Year, net of reinsurance" in the accompanying income statement reflects the contributions made during the year by ordinary and preferred members of the Entity. The amounts paid out are recorded under the heading "Benefits for the year, net of reinsurance" in the accompanying income statement. 6. Information on the nature and level of risk arising from financial instruments

The activities of an EPSV are exposed to diverse financial risk: market risk (interest rate risk, price risk and exchange rate risk), credit risk and liquidity risk. The management of financial risks undertaken by the Entity is directed to the establishment of mechanisms to control the exposure to changes in interest rates, prices, and exchange rates as well as credit and liquidity risk. In this respect the Decree 92/2007 of 29 May, which regulates the exercise of certain activities of the EPSVs, establishes a number of regulatory factors that limit the exposure to those risks and whose control is performed by the Entity.


40

A summary of the policies and risk management procedures performed by the Entity is presented as follows: - Market risk Considering the nature of the risk factors, within market risk we can distinguish: Interest rate risk Interest rate risk is the risk of loss due to changes in interest rates in which the Entity holds open positions. The Entity is exposed to this risk by investing in debt instruments, both public and private, deposits made in financial institutions and money market instruments. Variable interest rate securities expose the entity to cash flow’s interest rate risk and fixed rate securities expose the entity to interest rate risk on fair value. In order to measure interest rate risk the entity uses the concept of the portfolio of debt securities duration as weighted average (Macaulay duration) and the modified duration as a measure of sensitivity of the portfolio to changes in interest rates. Price risk It is defined as loss from equity face to adverse movements on stock or index prices. Price risk can also be understood as changes in the volatility of stock prices, in the relationship between prices of different stocks, and the yield spread between stocks and bonds. The Entity is exposed to price risk on investments in listed securities held in its portfolio. Exchange rate risk It is the risk of change in value of the positions held in currencies different from the functional currency due to changes in exchange rates. This risk is measured taking the net position held in each currency and the volatility of the exchange rates of those currencies. The Entity invests in both domestic and international markets, placing most of their investments in the Euro area. The investment held by the Entity in foreign currency assets at 31 December 2017 and 2016 is indicated in Note 5.h). Market risk measurement is done by using VaR (Value at Risk) methodology, VaR method estimates the maximum potential loss that could be expected from an adverse, but normal, movement from any of the identified parameters affecting market risk. That estimate is expressed in monetary terms and is referred to a specific date, at a given confidence level and a specified time horizon.


41

- Credit/Default risk Credit risk refers to the potential loss from the breach of any or all the obligations of the counterparty. Credit risk exists Credit risk exists throughout the life of the operation, but may vary from one day to another due to the clearance procedures and changes in valuations. Two types of credit risk can be distinguished Counterparty risk It is the loss that would be incurred in the event of counterparty default, when having to restore the position in the market. Issuer risk It represents the risk of insolvency of the issuer due to changes in its economic and financial strength, becoming unable to face, the payments from the securities issued by him. It is also considered as issuer risk the potential adverse change in the market value of an issuer’s securities value due to a change in the market’s perception of its solvency. Credit risk is managed by groups. Credit risk arises from cash and cash equivalents, financial instruments, deposits with banks and financial institutions, including accounts receivable and committed transactions. Limits of diversification and dispersion are regularly tracked. The rating of the debt securities held by the Entity at the end of year 2017 and 2016 is as follows: 31 December 2017 (*)

Other financial assets at fair value through P&L Held-to-

maturity investments

Deposits with

credit institutions

Debt securities Hybrid

instruments

Total Rating AAA 3,956 - - - 3,956 Rating AA 2,070 27,470 9,559 - 39,099 Rating A 186,552 67,511 139,968 - 394,031 Rating BBB 302,512 - 50,444 35,039 387,956 Rating BB 24,511 - - - 24,511 Rating B 4,034 - - - 4,034 Rating CCC 2,203 - - - 2,203 Rating CC 2,583 - - - 2,583 Rating C - - - - - Rating D - - - - - Unassigned 10,606 2,836 16,096 6,004 35,581 539,027 97,817 216,067 41,043 893,954 Geroa II PPSE Rating A - - 6,917 - 6,917 Sin asignar - - 9,307 - 9,307 - - 16,224 - 16,224 TOTAL 539,027 97,817 232,291 41,043 893,954

(*) Includes the accrual interests at December 31 of 2017.


42

31 December 2016 (*)

Other financial assets at fair value through P&L Held-to-

maturity investments

Deposits with

credit institutions

Debt securities Hybrid

instruments

Total Rating AAA - - - - - Rating AA 4,241 4,562 20,216 - 29,019 Rating A 93,059 50,424 89,073 - 232,556 Rating BBB 245,754 2,849 116,445 20,050 385,098 Rating BB 136,208 - 7,492 - 143,700 Rating B 4,133 - - - 4,133 Rating CCC - - - - - Rating CC - - - - - Rating C - - - - - Rating D - - - - - Unassigned 9,317 - 8,098 6,011 23,426 492,712 57,835 241,324 26,061 817,932

(*) Includes the accrual interests at December 31 of 2016. - Liquidity risk We can distinguish two types of liquidity risk: Liquidity risk on the treasury forecast It is the risk of being unable to face the payment commitments due to an inadequate structure of the cash flows. The Entity regularly tracks the treasury forecasts depending on the expected cash flows. Liquidity control and management performed by the Entity ensures the availability of enough liquid resources to fulfil the payment commitments. In order to measure this risk, the Entity tracks the following ratio: Total Contributions + Assets with < 1 year maturity Total Benefits Market liquidity risk It is defined the Entity's risk of being unable to undo a position in a timely manner, without suffering distortions in the market price and the cost of the operation. The risk is assessed considering the relationship between different markets, each market’s depth (e.g. the sale of products whose pricing is not frequent may be difficult), the period of unexpired products and other factors. It is also associated with the possibility that a large-volume operation on a particular instrument may have an unpredictable effect on the market price of the instrument.


43

Liquidity risk is quantified adjusting risk measures to reflect the time needed to undo a certain position. This adjustment is known as liquidity factor. In illiquid markets, the trading gap tends to be which increases that cost. A related phenomenon is the risk of a sudden and unexpected decrease in liquidity, even in traditionally liquid markets, due to significant movements in price or volatility. 7. Intangible assets Details of intangible assets and movement during 2017 and 2016 are as follows: 2017 Thousand Euros 31.12.16 Additions Withdrawals Transfers 31.12.17 Cost Administrative concessions - - - - - Computer software 896 6 - - 902 896 6 - - 902 Accumulated amortization Administrative concessions - - - - - Computer software (865) (29) - - (894) (865) (29) - - (894) 31 (23) - - 8

2016 Thousand Euros 31.12.15 Additions Withdrawals Transfers 31.12.16 Cost Administrative concessions - - - - - Computer software 860 36 - - 896 860 36 - - 896 Accumulated amortization Administrative concessions - - - - Computer software (849) (16) - - (865) (849) (16) - - (865) 11 20 - - 31

The cost of fully amortized intangible assets still in use at 31 December 2017 totals 847 thousand euros (847 thousand euros at 31 December 2016). At 31 December 2017 and 2016 there are no intangible assets subject to guarantees, ownership restrictions or pledged to secure liabilities. The Entity does not have any firm urges-sale commitments relating to intangible assets at 31 December 2017 and 2016.


44

8. Property, plant and equipment Details of property, plant and equipment and movement during 2017 and 2016 are as follows: 2017 Thousand Euros 31.12.16 Additions Withdrawals Transfers 31.12.17 Cost Buildings 737 - - - 737 Furniture and installations 690 41 - - 731 Information technology equipment 179 2 - - 181 1,606 43 - - 1,649 Accumulated amortization Buildings (310) (18) - - (328) Administrative concessions (603) (20) - - (623) Information technology equipment (145) (23) - -

(168)

(1,058) (61) - - (1,119) 548 (18) - - 530

2016 Thousand Euros 31.12.15 Additions Withdrawals Transfers 31.12.16 Cost Buildings 737 - - - 737 Furniture and installations 677 13 - - 690 Information technology equipment 135 44 - - 179 1,549 57 - - 1,606 Accumulated amortization Buildings (292) (18) - - (310) Administrative concessions (586) (17) - - (603) Information technology equipment (135) (10) - -

(145)

(1,013) (45) - - (1,058) 536 12 - - 548

Details of the cost of fully depreciated property, plant and equipment in use at 31 December 2017 and 2016 are as follows: Thousand Euros 2017 2016 Furniture and installations 518 518 Information technology equipment 135 135 653 653

52


45

The Entity has arranged several insurance policies to cover the risks to which its property, plant and equipment are subject. The coverage of these policies is considered sufficient. At 31 December 2017 and 2016 there are no purchase or sale commitments relating to property, plant and equipment. All of the assets included under this balance sheet heading are used by the Entity during the course of its business. No property, plant and equipment is subject to guarantees, restrictions on ownership or pledged as security for liabilities.

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50

9.1.1.1 Other financial instruments at fair value through changes in profit or loss Detail of this heading at 31 December 2017 and 2016 is as follows: Thousand Euros 2017 2016 Equity instruments 946,458 805,983 Financial investments in equity 243,671 212,099 Participation units in Investment Funds 658,987 569,035 Participation units in Venture Capital Funds 43,800 24,849 Debt securities 539,027 492,712 Hybrid instruments 97,817 57,835 1,583,302 1,356,530

The maximum exposure to credit risk at the time of presentation of the information is the fair value of the securities classified under this category. Inside the chapter of “debt securities” a bond is included issued by Banco Espirito Santo with a maturity date on June 2015 and a face value of 2,000 thousand euros. At the preparation of the current annual accounts date the Entity has not received the correspondent amount, therefore the Entity has provisioned and taken it to Profit & Loses during the 2015 year for the whole amount of the asset. During the year 2017, the entity did not establish any provision for impairment of the "Other financial assets at fair value through profit or loss". The amount of income accrued and not due from debt securities and hybrid instruments of this heading amounted 9,643 thousand euros at December 2017 (9,155 thousand Euros in 2016). The annual interest rate of debt securities on the 31st of December, 2017 range between 0.08% and 10.75% (0.13% and 10.50% on the 31st of December, 2016). At 31 December 2017 and 2016, almost all of the securities of the Entity were deposited or pending deposit in Banco Bilbao Vizcaya Argentaria, S.A.


51

At 31 December 2017 and 2016 the detail of pending disbursement and committed investment in private equity entities is as follows: Thousand Euros 2017 2016 Adara Ventures Pending disbursement - - Committed investment 2,000 2,000 Azora Europa Pending disbursement - 1,238 Committed investment 3,979 6,000 Nord II Pending disbursement 107 320 Committed investment 8,302 2,440 Oquendo Mezzanine II Pending disbursement 79 148 Committed investment 3,000 3,000 Altamar Global Private Equity Progran VIII Pending disbursement 2,950 3,750 Committed investment 5,000 5,000 Stepstone European Fund Pending disbursement 1,129 1,745 Committed investment 4,037 4,771 Hermes GPE Infraestructure Fund Core Pending disbursement 2,198 3,263 Committed investment 11,449 11,733 Portfolio Advisors Secondary Fund II Pending disbursement 3,439 4,273 Committed investment 4,036 4,771 Partner Group Infraestructure Pending disbursement 8,336 8,199 Committed investment 10,000 10,000 KKR Lending Partner Europe Unleverd LP Pending disbursement 2,579 4,000 Committed investment 5,000 5,000 Tikehau Direct Lending III Pending disbursement 315 2,600 Committed investment 5,000 5,000 Diversified Infrastructure Fund II (Real Estate) Pending disbursement 6,480 - Committed investment 10,000 - Oquendo III clase A Pending disbursement 2,588 - Committed investment 5,000 - Women Entrepreneurs Debt Fund LP Pending disbursement 645 - Committed investment 2,422 - Partners Group Management Real Estate III s.á.r.l. Pending disbursement 4,803 - Committed investment 5,000 -


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On March 13, 2014, the Bank signed an agreement for the sale of its interests in Jenner Renewables, S.A.R.L, Jenner Renewables, S.L. For a total amount of 7,500 thousand euros to be paid in three payments of 2,500 thousand euros, on March 13, 2014, December 30, 2014 and September 30, 2015. On March 13, 2014, the entity received Payment of the first installment for 2,500 thousand euros. At December 31, 2015, the entity did not receive any amount for the installments due on December 30, 2014 and September 30, 2015. The entity fully provisioned this debit balance in 2014, having recorded a provision for impairment Of € 5,000 thousand charged to the income statement for that year. During 2016, the entity received partial amortization and interest, 433 thousand euros and 111 thousand euros, respectively. Previously mentioned balances have reduced the provision made in 2014 with a credit to the income statement for the year 2016. Both at December 31, 2015 and at the date of preparation of these annual accounts, this asset is fully provisioned. At 31 December 2017 and 2016, no financial instruments are subject to guarantees, ownership restrictions or pledged as collateral for liabilities. 9.1.1.2 Investments in group companies and associates Detail of investments at 31 December 2017 and 2016 is as follows: Thousand Euros 2017 2016 Equity instruments Shares 45,902 45,020 45,902 45,020 The additions of 2017 and 2016 correspond mostly to the increase of the book value of the shares of Orza, Gestión y Tenencia de Patrimonios, A.I.E. At December 31 of 2017 and 2016 there are no impairment losses on the investments in group companies and associates. Details of investments in the most significant subsidiary companies at 31 December 2017 and 2016, of the activities they carry out and shareholders’ equity according to their latest available unaudited financial statements are shown in Appendix I, which forms an integral part of this note.


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9.1.1.3 Held-to-maturity investments Detail by issuer of investments at 31 December 2017 and 2016 is as follows:

2017 2016 Geroa I PPSE Deuda Autonómica del País Vasco 64,176 74,151 Deuda Pública Española 17,667 17,064 Banco Popular Español - 11,116 Deuda Autonómica de Madrid 5,106 5,052 Fondo de Amortización de Deuda Eléctrica 9,397 9,391 Banco Santander, S.A. - 6,180 Goldman Sachs 9,915 10,012 El Corte Inglés 13,499 8,094 Tubacex 6,998 - Pitch 6,527 6,272 Citigroup 5,056 5,000 Credit Suisse 5,000 5,000 Other issuer (< 5 million Euros) 72,726 83,992 216,067 241,324 Geroa II PPSE Silverback Finance DAC 9,307 - Argentum Capital, S.A. 6,917 - 16,224 - Total 232,291 241,324 After the analysis done by the Entity during 2014, signs of impairment were identified in a note issued by Banco Espirito Santo with maturity on April 2015, in possession of the Entity at December 31 of 2014, having registered a provision for impairment on the held-to-maturity investments portfolio for an amount of 4,750 thousand euros during the cited year. At December 31 of 2017, the mentioned note keeps impaired for its fully amount, 5,000 thousand euros (5,000 thousand euros at December 31 of 2016). The explicit amount of interest accrued and not due from debt securities under this heading amounted to 8,196 thousand Euros in 2017 (9,101 thousand Euros in 2016). The annual interest rate at 31 December 2017 ranges between 0.71% and 6.65% (0.63% and 6.65% at 31 December 2016). 9.1.1.4 Loans and receivables a) Deposits with credit institutions Detail of deposits with credit institutions in 2017 and 2016 is as follows: Thousand Euros 2017 2016 Fixed income Deposits 41,043 26,061 Variable income Deposits - - 41,043 26,061


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During the 2015 year, the Entity has registered a provision for impairment of 10,170 thousand euros charged to the profit & loss account for the fully amount of a deposit at Banco Madrid with a maturity date at January 2015. The amount of accrued interest due from the assets of this account at 31 December 2017 amounted to 43 thousands euros (61 Thousands euros at 31 December 2016). The annual interest rate at 31 December 2017 ranges between 0.05% and 0.25% (0.33% and 0.45% at 31 December 2016). b) Other receivables Detail of the financial assets included in this category at 31 December 2017 and 2016 is as follows: Thousand Euros 2017 2016 Taxation authorities, withholdings on account 7,787 2,948 Other debtors - 25 7,787 2,973 The chapter “Taxation authorities, withholdings on account” at December 31 of 2017 include, mainly, 7,781 thousand euros still receivable for corporate tax of 2017 concept (2,948 thousand euros at December 31 of 2016 for the corporate tax of 2016). 9.1.1.5 Cash and cash equivalents Detail of cash and cash equivalents in 2017 and 2016 is as follows: Thousand Euros 2017 2016 Cash in hand and cash in credit institutions 164,200 174,425 Other highly liquid assets - - Deposits with credit institutions < 3 month maturity - - Guarantees for derivative transactions (Note 9.1.7) 2,918 5,224 Margins pending to liquidate through activities with futures. 26 - Total 167,144 179,649

Interest rate on current accounts of the Entity has ranged between 0% and 0.95% in 2017 (0% and 0.4% at 31 December 2016).


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9.1.1.6 Debts and payables Detail at 31 December 2017 and 2016 is as follows: Thousand Euros 2017 2016 Sundry creditors - 119 Creditors purchase of securities - - Taxation authorities, various concepts 238 252 Social security 23 22 Debts for reinsurance transactions 209 262 Purchases still to liquidate 1,247 1,880 Benefits pending payment 74 - Others 121 - Total 1,912 2,535 All debits and payables are short term, so the book value coincides with the face value and there is no significant risk of exposure to changes in interest rates. All these debts are in Euros, there is no exposure to exchange rate risk. 9.1.1.7 Transactions with derivatives Detail of transactions with derivatives at 31 December 2017 and 2016 is as follows: a) Transactions with financial futures 2017

Type

Underlying Asset Maturity Number of contracts

Market Value (Thousand Euros)

Buy-Futures USD badge March 2018 150 18,860 Buy-Futures Eurostoxx50 March 2018 900 31,437 Sale-Futures Mini S&P March 2018 100 11,145

2016

Type

Underlying Asset Maturity Number of contracts

Market Value (Thousand Euros)

Buy-Futures USD badge March 2017 300 37,703 Buy-Futures Eurostoxx50 March 2017 1,000 37,770 Buy-Futures Mexican Peso badge March 2017 80 1,824 Sale-Futures Mini S&P March 2017 100 10,631 Sale-Futures BUND bond March 2017 400 65,660 Sale-Futures Treasury Note 10YR March 2017 120 14,181

Financial futures contracts are settled daily in the organized market EUREX and CME. Securities lodged at 31 December 31 2017 for the open positions in futures amounted to 2,918 thousand Euros (5,224 thousand Euros at December 31, 2016) and are presented in "Cash and cash equivalents" on the asset side of the balance (Note 9.1.1.5).


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9.2. Information related to the Income Statement Detail of revenue and expenses registered in the Income Statement, both social Welfare Plan Activity account and non-Social Welfare account, classified by activity is as follows:

Thousand Euros 2017 2016 Income from investments in equity - dividends 8,858 7,327 Income from debt securities – coupons 36,495 32,800 Gains on measurement of financial instruments at fair value 388,600 405,476 Gains on realization of investments 60,481 39,097 Gains on financial futures 9,942 10,909 Disposals of funds comissions 215 184 Positive Exchange rate differences 1,422 1,034 Others 879 184 Total Income from investments 506,892 496,643

Thousand Euros 2017 2016 Expenses on property, plant and equipment and investments 1,196 1,072 Expenses on brokerage and intermediation 846 761 Other expenses on property, plant and equipment and investments 350 311 Losses on changes in the fair value of investments 306,507 371,598 Losses on realization of investments 4,277 5,372 Losses on financial futures 5,893 13,354 Exchange Losses 2,481 1,359 Total Expense from investments 320,354 392,755

9.3. Fair value of financial assets and liabilities We include below the fair value of held-to-maturity investments portfolio compared to its book value (without interests) at 31 December 2017 and 2016: 2017 Thousand Euros

Fair Value Book Value Gain

(Loss) Held-to-maturity investments 254,140 232,291 21,849 254,140 232,291 21,849

2016 Thousand Euros

Fair Value Book Value Gain

(Loss) Held-to-maturity investments 241,775 241,324 451 241,775 241,324 451


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As indicated in Note 5.c), the Entity's financial assets are recorded in the balance sheet at fair value except for: cash and cash equivalents, loans and receivables, held-to-maturity investments and holdings in group companies and associates. In order to obtain the fair value quoted prices in active markets have been searched in all cases. With the rest of the financial assets and liabilities at 31 December 2017 and 2016, it has been estimated that there are no significant differences between their book value and their fair value. 10. Equity At December 31, 2017 and 2016, the detail of equity of the Entity is as follows: Miles de euros 2017 2016 Mutual Funds 13,734 15,911 Reserves 23,501 13,673 Other underwriting reserves - Reserve for actuarial risks 9,788 8,390 Voluntary reserves 11,536 5,283

Safety margin 2,177 - Profit of the year 8,650 7,696 45,885 37,280 The movement of the items in Equity for the years 2017 and 2016 were as follows: Thousand Euros

Mutual Fund Reserves

Profit of the year Equity

Balance at 31 of December, 2015 15,911 19,920 (6,242) 29,589 Profit distribution 2015 (Notes 4 and 11) - (6,247) 6,242 (5) Profit of the year - - 7,696 7,696 Balance at December 31, 2016 15,911 13,673 7,696 37,280 Profit distribution 2016 (Notes 4 and 11) - 7,651 (7,696) (45) Profit of the year - - 8,650 8,650 Transfers (2,177) 2,177 - - Balance at December 31, 2017 13,734 23,501 8,650 45,885


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Members’ fund This comprises the fund created by the initial one-off contributions made by the founding members in accordance with the Regulation on Voluntary Social Welfare Entities. It also includes the contributions made upon the integration in prior years of Sidero-Zahar, Entidad de Previsión Social Voluntaria. Details at 31 December 2017 and 2016 are as follows: Thousand Euros 2017 2016 Contributions from founding members 8,596 8,596 Contributions from Sidero – Zahar Entidad de Previsión Social Voluntaria 7,432

7,432

16,028 16,028 Application of members’ fund (117) (117) Amount transferred to reserves in 2017 (2.177) - 13,734 15,911 On 28 February 1997 Sidero – Zahar, Entidad de Previsión Social Voluntaria was incorporated with the aim of complementing retirement, disability, widowhood, family and absolute orphan hood benefits below the national minimum wage for beneficiaries entitled to other income which, upon incorporation of the entity, was not being received and which, taken as a whole and added to the benefit, exceeded the national minimum wage. The beneficiaries of Sidero-Zahar, Entidad de Previsión Social Voluntaria were pensioners under the general Social Security regime who, when the entity was incorporated, were beneficiaries of the supplementary pension scheme established in the collective labour agreement for the Gipuzkoa iron and steel industry, and those declared beneficiaries by the Entity’s governing board on account of being entitled to certain benefits at 31 December 1996, even if they were recognised as such subsequent to that date. The articles of association of Sidero-Zahar, Entidad de Previsión Social Voluntaria stipulated that in order for the entity to be wound up, vested benefits had to be individually guaranteed and incorporated within another entity, institution or destination which guaranteed that contingencies would be covered, and that the necessary funds had to be made available to carry out the winding up and liquidation process. Furthermore, the transitional provision of Sidero-Zahar’s articles of association granted a period of two years to update the census of beneficiaries entitled to receive benefits. On 10 April 2000, subsequent to the completion of the update of the census of beneficiaries in 1999, the governing board of Sidero-Zahar decided to transfer Euros 3,000 thousand to the Geroa Pentsioak, Entidad de Previsión Social Voluntaria members’ fund as a result of the surplus in its mathematical provisions. This transfer was made on 26 April 2000. On 19 December 2001 the governing board of Sidero-Zahar proposed to the general assembly that it approve the commencement of the winding up of the entity by allocating the corresponding supplementary retirement, disability, widowhood, family and absolute orphanhood benefits below the national minimum wage to those entitled and, once these allocations were paid, that any surplus funds be transferred to Geroa Pentsioak, E.P.S.V. The initiation of the Sidero-Zahar liquidation process was approved at the extraordinary general assembly held on 24 April 2002. On 1 October 2003, once members had been located and their outstanding benefits settled, the Sidero-Zahar liquidation committee decided to transfer Euros 4,000


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thousand to the Geroa Pentsioak, Entidad de Previsión Social Voluntaria members’ fund, in compliance with article 43 of its articles of association. On 12 January 2004 this transfer and the total liquidation of Sidero-Zahar, Entidad de Previsión Social Voluntaria were approved at the Sidero-Zahar extraordinary general assembly. On 7 April 2005 the governing board approved the transfer of the surplus provision established to cover the Sidero-Zahar winding-up process, amounting to Euros 432 thousand, to the members’ fund. Furthermore, on 19 December 2006 the governing board approved the financing of the expenses deriving from the celebration of the tenth anniversary of the Entity, amounting to Euros 117 thousand, with a charge to the members’ fund. Reserves Article 20 of the Statutes indicates that the Entity will retain, on an ongoing basis, additional assets to those in which their mathematical materialize in reserve concept. These assets shall be free of all foreseeable liabilities and will serve as available solvency margin to absorb discrepancies between the costs and benefits, expected and actual. The Assembly of the Entity decided at its meeting of May 7, 2003, a reserve for risks of annuities, placing it in 25% of the commitment of defined benefit of reinsurance. At December 31, 2017, the said reserve is included in the "Reserves - Reserves for actuarial risks" of Shareholders' Equity. The General Assembly of 31 of March os 2017, has approved the constitution of the Safety Margin in the amount of 2,177 thousands euros charged to mutual fund. 11. Technical Provisions At 31 December 2017 and 2016 this balance sheet caption comprises the provisions established by the Entity to meet the consolidated rights of its members (Provisions attached to plans of defined contribution in which the partner assumes the risk of the investment), vested obligations paid in the form of annuities (mathematical provision) and obligations established by regulation (other technical provisions). The composition of the heading "Underwriting reserves" at 31 December 2017 and 2016 is as follows: Thousand Euros 2017 2016 Reserve for social welfare activities 2,031,212 1,812,874

Unexpired premium reserve - - Profit sharing reserve - - Mathematical reserve 70,601 70,954 Reserves linked to defined contribution plans in which the member assumes the investment risk 1,960,611 1,741,920

Other underwriting reserves - - 2,031,212 1,812,874


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Movements in this item in 2017 and 2016 are as follows: Thousand Euros

Mathematical reserve

Reserves linked to defined

contribution plans Total Balance at 31 December 2015 71,887 1,611,289 1,683,176 Change in other underwriting reserves, net of reinsurance (933)

130,626 129,693

Profit distribution of fiscal 2015 (Notes 4 and 10) - 5 5 Transfers - - - Balance at 31 December 2016 70,954 1,741,920 1,812,874 Change in other underwriting reserves, net of reinsurance (353)

218,646 218,293

Profit distribution of fiscal 2016 (Notes 4 and 10) - 45 45 Transfers - - - Balance at 31 December 2017 70,601 1,960,611 2,031,212

At 31 December 2017 and 2016, the most relevant information regarding the equity attributable to Members and Beneficiaries (Mathematical Reserve and Reserves associated with defined-benefit pension plans under which the Member assumes the investment risk) at the Entity are as follows: Geroa I PPSE Geroa II PPSE Total 2017 2016 2017 2016 2017 2016 Technical bases 2,014,907 1,812,874 16,305 - 2,031,212 1,812,874 Number of shares 82,295,690 81,414,754 713,540 - - 81,414,754 Unit value of shares (in euros) 24,483748 22,267135 22,844816 - - 22,267135 Annualized Return 9,95% 5,76% 2,59% - - 5,76% Number of acting partners 107,972 105,235 393 - 108,365 105,235 Under the chapter “Reserve for pension activities – Reserves linked to defined contribution plans in which the member assumes the investment risk” there are temporary annuity’s included for an amount of 16,637 thousand euros (7,125 thousands euros at 31 of December 2016), correspondent to the rights of the passive shareholders which benefit has been caused after December 31 of 2014 (excluded the deferred life annuity correspondent to the section 4 of the new benefits model (Note 2), that is registered in the chapter “underwriting assets” of the same chapter). The Entity disposes of an actuarial study dated on the 31st of December, 2017, executed by the University of the Basque Country following the hypothesis and financial actuarial calculations generally accepted in the moment of accomplishment. The mentioned study established that the actuarial value of the future duties of benefits that have been already caused at 31st of December, 2017, as the improvement established in the article 10.6 based on the profit generated in the fiscal year 2016 (Note 2), it reaches an amount of 70,601 thousand euros that are included in the heading denominated “Mathematical provisions” (70,954 thousand of euros at 31st of December, 2016). On December 31 of 2017 and 2016, there are deferred life annuity’s correspondent to section 4 (Note 2) of the new model of benefits (Note 2), included under the chapter “underwriting assets”, in the amount of 4 and 0 thousands euros, respectively.


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On December 31 of 2017, the chapter “Reserves” for a fully amount of 21,324 thousand euros (13,6730 thousand euros on December 31 of 2016), joined to the results distribution of 2017 to reserves for a negative amount of 8,650 thousand euros (Note 4) (7,651 thousand euros on December 31 of 2016), they correspond with the funds established by the Entity to cope with possible deviations of the actuarial commitments of the life annuity’s, in accordance with the points established at the General Meeting of the Entity (Note 10). 12. Non-technical Provisions Details at 31 December 2017 and 2016 are as follows: Thousand Euros 2017 2016 Provision for benefits and obligations 47 47 The provision for pensions and obligations at 31 December 2017 and 2016 derives from the commitments acquired by the Entity in respect of employee retirement bonuses (Note 5(g)). 13. Income and expense Expense classification by destination In compliance with the provisions of the Decree 86/2010 of 16 March, the Entity has distributed those expenses initially classified by its nature that according to its function should be reclassified by their destination. For the purpose of this reclassification the following should be taken into account: – The expense attributed to benefits primarily include expense in personnel dedicated to

the management of the benefits and the amortization of fixed assets assigned to this activity, commissions paid due to management of the benefits and the expenses incurred for services necessary for the process;

– Administrative expenses primarily include litigation fees in respect of the payment of

the benefits, the expense originated by the management of the collection of the contributions, the expense of the ceded reinsurance, in particular, personnel expense dedicated to those functions, and the amortization of fixed assets assigned to this activity.

– Expense that are imputed to the investment primarily include the expense on the

management of the investments, both internal and external, the latter comprising the fees and commissions accrued, personnel expense and amortization

– Other technical expense are those that, being a part of the account associated to the

social welfare, cannot be imputed applying the criteria established previously, it primarily includes general management expense.


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Variation of Other Technical Provisions, Nets of Reinsurance The details of the heading “I.6 Variation of Other Technical Provisions Nets of Reinsurance” of the Income statement of the fiscal years ended in 31st of December 2017 and 2016 are. Thousand Euros 2017 2016 Subscriptions for the year, net of reinsurance (82,674) (79.331) Benefits for the year, Net of Reinsurance 40,983 45.075 Income from Investment (506,875) (486.636) Loss from investment 320,354 384.817 Other technical Income (26) (79) Operating Expenses 1,316 835 Results from Social Welfare Plan Activity Account 8,629 5.626 (218,293) (129.693)

At 31 December 2017 and 2016, the Entity presents administrative expenses by destination, in compliance with the Decree 86/2010 of 16 March, and classifies them as follows in the Income Statement:

2017 Expense on benefits paid

Administrative expense (*)

Expense on investments

Other technical expenses Total

Administrative Expenses 253 1,316 1,142 - 2,711

2016

Expense on benefits paid

Administrative expense

Expense on investments

Other technical expenses Total

Administrative Expenses 249 835 1,072 - 2,156

(*) During the 2017 and 2016 years, revenues have been accrued for 0 and 330 thousand euros respectively,

for the participation of the Entity in the benefits of reinsurance contracts for transfer of risk (note 2), which are recognized under "Operating expenses" in the income statement.

14. Taxation In accordance with prevailing legislation relating to Voluntary Social Welfare Entities, the Entity is exempt from paying income tax and is entitled to be reimbursed for withholdings made on financial income (Note 5(i)). In accordance with current legislation, taxes cannot be considered definitive until they have been inspected and agreed by the tax authorities or before the inspection period of four years has elapsed. At 31 December 2017 the Entity has open to inspection by the tax authorities all main applicable taxes for the last four years. The administrators do not expect that any significant additional liabilities would arise in the event of inspection.


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15. Transactions and Balances with Group Companies and Associates In the years 2017 and 2016 there have been no related party transactions outside the Entity's normal operating (charges fees Patron members and benefit payments to partners and beneficiaries). The detail of the accounting balances and transactions maintained during 2017 and 2016 with group companies and associates is the following: (in thousand euros): Group and multigroup Balance Sheet 2017 2016 Shares in group companies and associates 45,902 45,020 Group and multigroup Profit & Loss Statement 2017 2016 Revenues from the investments - dividends 13 - The only significant transactions effected during this period with group companies and associates correspond to the collection of dividends distributed by those same companies that figure at the Appendix I of the current annual accounts. 16. Personnel Expenses The average headcount for 2017 and 2016, distributed by category, is as follows:

Average number

of employees 2017 2016 Managing director 1 1 Graduates 7 7 Administrative staff 12 12 20 20 La Distribution by gender of the governing board and personnel at 31 December 2017 and 2016 is as follows: 2017 2016 Male Female Total Male Female Total Governing board 18 8 26 18 8 26 Managing director - 1 1 - 1 1 Graduates 3 4 7 3 4 7 Administrative staff 2 10 12 2 10 12 23 23 46 23 23 46


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A breakdown of this heading in the income statement for the years ended 31 December 2017 and 2016 is as follows: Thousand Euros 2017 2016 Salaries 895 855 Social Security contributions 225 215 Contributions to EPSVs 17 16 1,137 1,086 Personnel expense at 31 December 2017 and 2017 has been recorded by destination in compliance with Basque Government’s Decree 86/2010. 17. Information on Environmental Issues During the year ended 31 December 2017 the Entity has not made any investments or incurred any expenses of an environmental nature, nor are any environment- related projects in progress. At 31 December 2017 the Entity considers that no significant contingencies exist concerning possible litigation, indemnities or other items connected with the environment and, accordingly, no provision has been made in this regard. The Entity has not received any environment-related income or grants during the year. 18. Information on the average supplier payment period. Additional Provision Three.

“Disclosure requirements” of Law 15/2010 of July 5. In accordance with final provision two of Law 31/2014, which amended additional provision three of Law 15/2010, which amended Law 3/2004, which established measures against delinquency on trade operations, in relation to the information to be disclosed in the notes to the annual accounts on the deferral of payment to suppliers on trade operations, calculated based on the Resolution of 29 January 2016 of the Institute of Accountants and Auditors. The information for 2016 is as follows:

2017 2016 Days Days Average payment period to suppliers 1 1 Ratio of payments made 1 1 Ratio of pending payments - - Thousand euros Thousand euros Total payments made 1,162 1,930 Total pending payments 121 121


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19. Information Relating to the Members of the Governing Board and Other

Information At December 31, 2017 and 2016 members of the Governing Board had not accrued salaries, allowances and other remuneration, and not maintain with the Entity advances or loans balances. During fiscal 2017 the senior management (composed of 7 people at 31 of December of 2017 and 2016) has accrued an amount of 517 thousand euros in compensation and contributions to voluntary social welfare entity (514 thousand euros in 2016). Also, at December 31, 2017 and 2016 the Entity had no obligations for pensions and life insurance with respect to current or former members of the Governing Board, nor has it on their own by way of security. 20. Compliance with regulations a) Decree 92/2007 of 29 May, which regulates the exercise of certain activities

of EPSV On a proposal of the Basque Government’s Treasury, Public Administration and Justice and Employment and Social security departments it was published in the Official Bulletin of the Basque Country the Decree 92/2007 of 29May, and came into force the day after its publication. The intention of the Decree 92/2007 of 29 May is to develop the content of the Law 25/1983 of 27 October, and its objective is that EPSVs and Welfare Plans provide a more effective framework, more solvent and rigorous for the benefit of the ordinary members and benefit recipients, through the development and regulation of certain matters. Transitional Provision 5 of the mentioned Decree established that compliance with the established in article 11 of Decree 92/2007, regarding financial investments was mandatory from January 1 2010, which establishes that investments in assets must be done in compliance with certain criteria of safety, profitability, liquidity, diversification, dispersion, term and congruence. The Entity adopted the mentioned criteria established in this article on January 1, 2010. The main impacts of the Decree regarding accounting principles and valuation of investments are included in Article 11. Both at 31 December 2016 and at the date of on which these annual accounts have been prepared The Entity, complies with the obligations set out in Article 11.


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The Entity maintains both at December 31 of 2017 and the annual accounts preparation date certain assets not classified as suitable, as established in the Decree 92/2007 in the article 11.3. The Entity maintains in its portfolio, at December 31 of 2017, 43,716 thousand euros worth non suitable assets (mainly investment funds which do not follow the European regulation UCIT) During the year 2017, the Entity has classified some ETFs with a 11,584 thousand euros value and some investment funds which follow the AIFMD regulation worth 32,865 thousand euros, as non-suitable assets by recommendation of the Basque Government, as they do not follow the UCIT mentioned regulation. The entity sees that the american ETFs, complies with the 11.3.ii) of the Decree 92/2007, to comply in turn with the article 30 d) of the Law 35/2003, of collective investment institutions, since they are under the supervision of the american SEC( Securities Exchange Commision), authority considered equivalent to the one that sets the Law of the European Union, that assures the cooperation among the authorities. On October 29 of 2009, the entity required the Economy and Treasury Department of the Basque Government the authorization for the maintenance in its portfolio of those assets, based on the possible damage that could cause the shareholders the disinvestments, obtaining on December 17 of 2009 the resolution by the Finance Department of the Basque Government, by which they authorized an extended deadline for the modifications to the portfolio if the Entity to the criteria’s in the article 11.3 of the Decree 92/2007. Nevertheless, the Entity cannot do any buying operation of non-suitable assets and will have to communicate quarterly to the Finance Department of the Basque Government the Balance of the mentioned assets. b) Order of 29 April 2009, from the Counsellor of Finance and Public Administration. Through the Order of 29 April 2009 from the Counsellor of Finance and Public Administration, certain aspects of the Decree 92/2007 are developed. This Order focuses on three areas: • The existence of a proper segregation in the allocation of rights and obligations to the

different activities that can be performed by the EPSV. • The development of those subjects related to the normal operations of the EPSVs in

which exists a higher risk due to the use of certain financial instruments.

• Development of the transparency of the EPSVs. At 31st of December, 2017 and on the date of the formulation of the accounts the Entity carries out with the duties in the Order of April 29, 2009 except for certain assets not qualified as suitable, as it established the 9th article of the above Order. At December 31, 2017, the Entity has nine structured financial assets with a total carrying amount of € 63,670 thousand, which have the A-rated dates granted by the DBRS rating agency for two of them.


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21. Statement of the coverage of underwriting reserves and Statement of the

solvency margin According to article 10 of Decree 92/2007, of May 29, modified by the Eighth Final Provision of Decree 203/2015, of October 27, of the Basque Government, the minimum amount of security margin available to absorb deviations between the expected and actual expenses and benefits correspond to: - For defined benefit social security plans, the minimum security margin required is 4% of the uninsured mathematical provisions, allocated to these plans. - For defined contribution social security plans in which the partner assumes the risk of the investment, the minimum safety margin is 0.125% of the technical provisions allocated to the mentioned plans. It should be noted that according to the Second Transitional Provision of Decree 203/2015, dated October 27th, this safety margin can be set up for a maximum period of ten years, starting in 2017, with a minimum of one tenth of its annual amount. Based on the aforementioned regulations, the Entity must have in each fiscal year an unencumbered equity covering the mentioned security margin. Likewise, the assets used for hedging must be higher than the technical provisions. The statement of underwriting reserve coverage at 31 December 2017 and 2016 is as follows: Thousand Euros 2017 2016 Mathematical reserve 70,601 70,954 Assets associated with coverage of the mathematical reserve 70,601 70,954 Surplus/(Deficit) - -


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The calculations carried out by the Entity for 2017 and 2016 regarding the Statement of the solvency margin are presented below: Thousand Euros Item 2017 2016 Mutual Fund (Note 10) 13,734 15,911 Reserves – Safety Margin 2,177 - Reserves - Reserve for actuarial risks (Note 10) 9,788 8,390 Reserves – Voluntary Reserves 11,536 5,283 Reserves - Reserve for actuarial risks Pending distribution of result (Note 4) 2,763 1,400 Reserves – Voluntary Reserves – Distribution of surplus pending (Note 4) 5,887 6,251 45,885 37,235 Technical provisions for solvency 1,960,611 1,741,920 Provisions matched to solvency (net of reinsurance) 70,601 70,954 Total provisions related to solvency 2,031,212 1,812,874 Legal minimum security margin - Defined contribution (0.125% of affected provisions) (*) 4,902 2,177 Legal minimum security margin - Defined benefit (4% of mathematical provisions not reinsured) 2,824 2,838 Total safety margin required 7,726 5,015 Excess / (defect) margin of safety 38,129 32,220 (*)Taking into account the transition period of 10 years established in the Second Transitional Provision of the Decree 2013/2015, of 27 of October (Note 1). The own equity without committed (or solvency margin) accounts for 2.26% of the margin of security required (2.05% at 31 of December of 2016) 22. Other information The fees received by PricewaterhouseCoopers Auditores, S.L. For the auditing services of the Entity's financial statements for the 2017 and 2016 financial years amounted to € 33 and € 28 thousand, respectively. In addition, the auditing company has invoiced for other honorary services amounting to 0 and 6 thousand euros in 2017 y 2016, respectively. Also, fees for other services provided by companies related to the auditing company in 2017 y 2016 amounted to 0 and 2 thousand euros, respectively. 23. Subsequent events There have not occurred any relevant facts subsequently to the closing date that are sensitive to be informed in the current annual accounts.

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Lugaritz Pasealekua, 2720018 Donostia (Gipuzkoa)

GEROA PENTSIOAK, EMPLOYMENT EPSV

www.geroa.eus

Winter:

• From 08.30 am to 2.30 pm• From 3.30 to 6.00 pmFriday:• 08:30 am to 2:30 pm

Summer:

(From 6/1 to 9/14)• 08.00 am to 2.30 pm

[email protected]@[email protected]

Call Center: 943 317 022Contributions Dpt.: 943 317 279Benefits Dpt.: 943 317 296Accountancy: 943 317 281Investments: 943 317 278

1720 - :: geroa pentsioak epsv · 2018-05-23 · annual report 1720. lugaritz pasealekua, 27 20018...

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