GRUPO PESTANA SGPS ENGLISH

Transcription

1 GRUPO PESTANA SGPS ENGLISH

2 GRUPO PESTANA SGPS Management Report Financial Statements YEAR-ENDED December 31st 2007

3 INDEX

4 05- Individual and Consolidate Management Report 06- Introdution 08- The Fiscal Year General Enviroment 12- The Consolidated Universe of Grupo Pestana, S.G.P.S. in Grupo Pestana - S.G.P.S., S.A., Individual Financial Statements 19- Profit Distribution Proposal - Liabilities to the State and Social Security 20- The Future 21- Relevant Facts already occurred in Thanks 22- Consolidated Balance Sheet 23- Grupo Pestana SGPS, SA.- Consolidated Balance Sheet 25- Consolidated Profit and Loss Statement by Nature 26- Consolidated Profit and Loss Statement by Functions 27- Consolidated Cash-flows Statement 28- Notes to the Consolidated Financial Statements 29- Introduction 30- Basis of Consolidation - Consolidated Companies 32- Companies Excluded from the Consolidated Financial Statements - Other Financial Investements % of Owned Share Greater than 10% - Average Number of Employees - Appropriate and Fair Presentation 33- Consolidation Differences 34- Depreciation of Consolidation Differences - Guarantees Provided 35- Basis of Presentation and Accounting Principles 38- Exchange Rates Used - Fixed Assets Movement 39- Movements in Adjustments 40- Debts to Third Parties (more than 5 years) - Debts to Third Parties covered by Real Warrantees - Sales and Services Rendered by Bussiness Area and Geographical Market 41- Differences between the Accounting and Tax Results - Wages of Board Menbers 42- Fixed Revaluation of Tangible Assets 43- Consolidated Statement of Financial Results - Consolidated Statement of Extraordinary Results 44- Movements in ProvisionsFinancial Leases - Financial Leases 45- Financial Statements 46- Balance Sheet 48- Profit and Loss Statement by Nature 49- Profit and Loss Statement by Functions 50- Cash-flows Statements 51- Notes to the Financial Statements 52- Introduction - Comparability with Previous Years 54- Taxation - Avarage Number of Employees 55- Fixed Asset Movements 56- Group and Associated Companies 57- Debts to Third Parties (more than 5 years) - Guarantees Provided - Increase in Share Capital - Companies Holding More than 20% of Share Capital - Movements in Shareholders Equity 58- Statement of Financial Results - Statement of Extraordinary Results 59 - Other Relevant Information 61- Report and Opinion of the Statutory Auditor 63- Auditor Report Consolidated Financial Statements 65- Auditor Report Individual Financial Statement 04

5 INDIVIDUAL AND CONSOLIDATED Management Report

6 FISCAL YEAR 2007 In the terms of the Law, we have the honour to submit for your appreciation and approval the Board of Directors management Report and the individual and consolidated financial statements as of and for the year-ended 31 December INTRODUCTION Grupo Pestana - S.G.P.S., S.A. (Grupo Pestana SGPS or the Company) was created in December of 2002 following the reorganization process established for the companies held by the Pestana family. Beyond simplifying the Group structure and making it more understandable, pasted 5 years of activity we can say that this reorganization allowed, throughout the organization by geographical areas and by nature of the business of the different companies, to: define correct global financing policies for the Group and for the different business and geographical areas; apply economic efficiency, financial and commercial criteria s to the business structure having in the mind not only the actual business development, but also to the investments outlined meanwhile; obtain operational synergies needed to improve the businesses competitiveness and, therefore, become better prepared to face the actual globalization circumstances. 06

7 The 2007 consolidated financial statements include the following companies: 07

8 2. THE FISCAL YEAR 2007 GENERAL ENVIRONMENT The world economy had, in 2007, a positive year at a global level (estimated growth of 5,2%), despite very different intensities depending on the world regions and on the different countries. Thus the positive signs were more noticed in the emerging economies BRIC Brazil, Russian, India and China (average growth around 8% with China reaching a rate of more than 11%) than in the historically more developed economies USA, Japan and European Union (average growths between 0,25% and 2,5%). On the side of the economically most developed countries, the USA came again to slow down, getting the situation worse as the year was ending, and Japan, although with positive growth, did not confirm the signs that would suppose a stronger recovery in relation to the previous year. Also the Euro zone exhibited a slow down in the economic growth and the signs of concern became worse as the year-end was closer. The economies included in EMU European Monetary Union had a growth of around 2,6% (comparing to 2,8% in the previous year) and only the United Kingdom shown a positive trend, as the growth in 2007 was estimated in 3,1% against the 2,8% registered in In 2007 Spain shown a growth of 3,8%, one of the highest in Euro zone, stimulated by the internal demand and, once again, leveraged by the construction and real estate sectors. Despite being under control, the inflation rate shown a slight increase trend, which causes a rise in interest rates of the European Central Bank (ECB) that had continuity in the first months of this year. In opposition to this rise, in the USA, due to the backdrop of economic slow down, the FED had reduced its reference interest rate in 1% during 2007 (from 5,25% to 4,25%) reducing, thus, to 25 basis points the difference to the ECB s rates (4% at the end of 2007). For this scenario contributed significantly the oil prices boost, whose Brent barrel price climbed from to US dollars during We point out that this trend continues in the first months of 2008 together with the general rise in prices of raw materials and of basic food products. In the Euro zone this prices rise was partly compensated by the appreciation of the Euro against the Dollar (10,68% in 2007) which exchange rate on 31 December 2007 was US $ per Euro. In 2007 the Portuguese economy had a modest but positive trend. It is estimated that the GDP has 08

9 grown 1.9% (against 1,2% in 2006), and the budget deficit reached the 2,5% finally decreasing under the 3% limit imposed by UE to all Euro zone. As positive signs there is still the investment recovery +2,6% (first positive value in the last 3 years) and the exports growing +7%, which was once again higher than the imports growth. As negative signs we had the continuous growing of unemployment, which should have reached the 8% at the year-end, and the maintenance of very high indebtedness levels, either by the Government either by the companies and households, indicating that Portugal and the Portuguese s still live above its possibilities. Perspectives The year 2008 began with great turbulence. To the global inflationary pressure, caused by the ongoing climbing in oil prices (which has been beating successive records) and by the prices of raw materials and basic food products, overlapped the financial sector crisis. This crisis, which began in the US Subprime market, has been spreading to all financial system, and, in a chain reaction, has affected the construction and real estate sectors, important to the majority of western economies. Thus, in the actual context, coexist economies with huge financial resources but with dubious efficiency in the rational application of these resources (countries that sell oil) and emerging economies still growing at significant rates but with lower social indicators with the most advanced economies that struggle with the verge of a crisis. By their side, in order to reverse the actual negative trend, these economies need to make large reforms, being that many of these needed reforms mean diminishing in some social benefits that have been created over the years of economic growth, which, naturally, is not well accepted by the people and creates an environment of instability and conflict. Tourism Sector The Tourism sector, Grupo Pestana core business, had in 2007 a good year. At a global level, the demand increased once again very positively in the trend of which happened in previous years (between the world-wide tourism has grown an average of +5,0% per year), and also in the trail of what is foreseen to the next years (for the next years, WTO World Tourism Organization expects an annual average growth of +4,0%). The socioeconomic changes that occurred in the life conditions of the most advanced economies are not unrelated with this expected growth. The creation and then the enlargement of the vacations period, the enlargement of the retirement period due to a reduction on the age limit, the better remuneration s conditions either in the active age either in the retirement period, the information society that enabled the people s curiosity for the world or the nowadays lifestyle, are all factors that strongly contribute to the need of spending time on holidays becoming a basic need and not superfluous. It is clear that the economic environment influences a greater or lesser spending in holidays, but its neediness is no longer questioned by a large portion of developed countries population. 09

10 However, if the demand had sustainable growth, it is also true that has become more challenging and sophisticated. The nowadays Tourist is aware of his rights, requires a greater satisfaction level of his needs that are often specific and has a bigger capacity to change its type of purchase. Varies in the commercial channels, in the ways that uses to travel, in the destinations and in the main motivation of each vacations period. Given that, the industry itself had also a quite innovation. First of all in the air transport, where the business model set up by the Low Cost companies has made that the average price of the air tickets has fallen considerable, leveraged by greater competition between the airlines due to the Open Air policy. In the distribution channels have also registered significant changes. If, on one hand, there has been a trend to concentrate the traditional Tour Operatours (in the end of 2006 the first four players on the European market were reduced to two through a merger process), on the other hand, the level of competition has increased due to the internet sales. This phenomenon made possible the emergence of new tour operators based on web channels and allowed the disintermediation of the purchase process, turning much easier the communication between the final costumer and the companies that want to sell the touristic product Hotels, entertainment companies, etc.. Therefore, the sector became much more competitive forcing companies to improve their efficiency and effectiveness levels. Better business strategies are needed nowadays, engaging more and better products offerings, providing greater value to the client and increasing the productivity levels through better qualifications of the employees, and obtaining bigger synergies and scale economies. This phenomenon explains, in part, the concentration trend that is seen in the sector and that is a consequence of the market players reduction, which themselves become bigger as they buy the small and inefficient companies around them, that don t keep up the pace with the market s competitiveness. This competition is also enhanced by the bet that many countries or regions are doing in the creation and growth of new touristic destinations. Countries or regions until recently regarded as nonexistent or even considered as impossible to operate in the tourism sector, appear on the market with new and innovative products and with very aggressive promotional campaigns supported by massive public investments. The traditional destinations face a new challenge that can be won only through the quality of service and the culture of tourism that their experience gives them and that they have to transform into higher value for their customers. The public/private partnership in Tourism is furthermore increasingly urgent. Not only in the institutional promotion of the Tourist Destination but also in other areas traditionally in the scope of the public intervention but that are essential to the quality and international competitiveness of the destination. This includes public policies on territory planning, environment, transportation and its infrastructures, health, public security, entrance visas, management of cultural spaces and of the historical and cultural heritage, beyond other specific of each destination. For that purpose, it is necessary an effective partnership with the private economic agents, which are the main players of this industry. This public/private partnership is fundamental not only for the definition of the destination strategy, but also for its concretization. As such, the integrated management of a touristic destination with shared responsibilities between the different sectors of the public policy and, between these and the private sector, is a key factor to reach good levels of competitiveness in the global market. 10

11 In Portugal the performance of the tourism sector in 2007 was positive. In the key Touristic regions it was verified growth in demand and improvement in product s selling conditions. In Algarve, as in previous years, the recovery continued and, for many companies, it was the best Tourism year. In Madeira there was also a significant rise in demand that, together with the temporary closure of some units for renewals, lead to a significant improvement in some companies results, especially those of our Group. Also the Lisbon area, because of the publicity and increase in the demand occurred in the second semester of 2007 pushed by the Portuguese Presidency of the European Union, had a good evolution comparing with the previous homologous period, of which benefited, in first hand, the upper category units. However, serious structural problems still affect the Tourism sector in Portugal, which weakens its position in the context of aggressive international competition. Some of these structural problems, most of them carried forward from the past, include: Lack of territory planning, that is verified in the existing urban chaos in some touristic regions, in the deficient cleanness of public touristic zones, in the lack of tourism signalization and in the deficient landscape environment; The difficulty to fit the new touristic projects under the scope of greater plans of conservation and handling of the cultural, historical and natural patrimony, which complicates and delays, many times, the development of new initiatives; The comparatively insufficient promotion that Portugal makes of its destinations, contrasting with neighbour countries and other destinations that, all around the world, strongly invest to turn the Tourism a significant component of their GDP; The little professional attitude towards the tourist in some units, as restaurants, hotels, stores and other services, many times motivated by a wrong perception of the importance and potentiality of this sector for the Portuguese economy. Although some recent improvements, due to the present importance that Tourism has, and that will be able to have in the Portuguese economy, we can say that Portugal still misses a true Tourism culture. For 2008 there are clear signals of a slowdown in the growth rate that the sector has been experiencing, especially in the western countries economies, which are the ones that most influences the Grupo Pestana, SGPS performance. The oil prices climb, the crisis in the financial markets, the effects of speculation on raw materials and food products markets and the economic slowdown, creates a recession atmosphere of which Tourism is not immune. However, fortunately for this sector s players, the interest in traveling and meeting new destinations or live new experiences still strongly remain. The weak secondary roads network, inclusive in some of the most important national touristic zones; The labour legislation that does not attend the specific needs of an extremely seasonal activity, not allowing, at a time of extreme global competition, the optimization of the companies operations; 11

12 3. THE YEAR 2007 FOR THE CONSOLIDATED UNIVERSE OF GRUPO PESTANA S.G.P.S. Introduction In the activity of the Group companies, the following investments should be pointed out: Deep renewal of the Pestana Casino Park Hotel in Funchal, which reopened in March 2007 after 8 months of temporary closure. Continuation of construction works of the Group s future hotels in Porto Santo, Caracas and Sao Tome which have openings planned, by this order, for the first half of Starting the construction of the future Pestana Chelsea Bridge in London and the launch of the new product Pestana Investhotel for selling part of that unit. Start the large renewal of the Pestana D. João II in Algarve, with its temporary closure. Continuation of the construction of the future Pestana Promenade in Funchal with opening planned for the beginning of The remodelling of four Pousadas -Manteigas, Valença, Ourém and Caniçada in Gerês, following the global up-grade effort to these physical structures under Group s management. Continuation of construction works in the new Pousada of Viseu and Palácio do Freixo in Porto. The launch of Pestana Residence, new Group division for the touristic real estate segment. Start-up the new e-learning application with the goal of increasing the skills of Group employees. The launch of SRM Purchases web-site common to all Group in Portugal, with the objective to improve savings and gain larger synergies. Merge of the travel agencies Intervisa and Viva Travel in the company Intervisa Solutions, having agencies in Lisbon, Porto, Funchal and Algarve. Therefore, the Group continued its organic growth process following its strategy of enhancement of the two brands under Group s management: Pestana Hotels & Resorts and Pousadas de Portugal. This strategy aims to turn the Pestana Group into a 12

13 player even more competitive in a highly globalised and aggressive environment. This strategy has three foundations: Horizontal integration which means the expansion of the Group core business Tourism Hotels. Therefore, the Group experience in the Traditional Hotels Business and in Time Sharing has been extended to other tourist destinations and to complementary sectors as Touristic Real Estate. Following this process, in 2007 were launched two new products Investhotel in United Kingdom and the Pestana Residence in Portugal and Brazil. growing number of costumers. Even the costumers that are faithful to our products have been changing throughout these 36 years of history. They are better informed, have more options and are more demanding and sophisticated. Our activity must be developed in order to satisfy their needs and interests and, therefore, the adherence to change and innovation is crucial to conquer the confidence of these customers and to establish long term relationships. Achieving this goal, we will be able to consolidate our business and to have a sustained development. Vertical Integration this strategic concept consists in the businesses diversification within the chain of value. The diversification was reached through activity in other tourism sub-sectors, namely in the touristic animation management of Casinos, thematic parks, golf courses, leisure real estate and in the touristic operation/distribution, in Portugal and abroad. The rational of this process was, on one hand, to create distribution channels where the Group could have a significant influence to reduce the dependence levels from the great players of this market, and, on the other hand, to develop, downstream to the hotels business, operations that could allow it to increase the attractiveness of hotels products, being able to present to the market more complete products. Projects Flexibility in contrast to other growing processes, the new units adapted to their locations. Homogeneous service standards are a constant, but products and concepts are adapted to the customers expectations regarding the tourist destinations where the investments are located, following the principle: importance of delivering special attention to the needs and desires of our customers. The fulfilment of the Pestana Group vision To grow with strength and passion in the five Continents has been allowing the Group to enlarge its services to a 13

14 Results obtained in 2007 by Geographical Area Amounts in Million EURO Geographical Area TURNOVER GOP (1) Amount Δ 2007/2006 Amount Δ 2007/ Madeira 83,3 72,4 +15,1% 37,4 29,6 +26,3% Algarve 52,3 60,0-12,8% 20,7 23,3-11,2% Gr. Lisboa Porto 63,4 57,2 +10,8% 13,8 9,9 +39,4% Internacional 11,7 10,7 +9,3% 4,1 3,0 +36,7% 210,7 200,3 +5,2% 76,0 65,8 +15,5% (1) G.O.P. Gross Operational Profit is the EBITDA of each hotel excluding the shared services administrative costs and the Administration accounts. Naturally, the good tourist year of 2007 reflected in the results. This good performance follows the trend of a positive year observed in When compared to 2006, the turnover increased 10,4 million EURO, corresponding to a GOP increase of 10,2 million EURO. These figures represent the good cost management by the Group, since the change of turnover is almost equal to the change in GOP. Also the Group s operational Leverage was very good, getting closer of 3. In geographical terms, the profitability increased is not generalized only because of Algarve. And even in this geographic area the negative variation only occurred in the real estate segment, originated in an excellent year of 2006 that can not be repeated, also because lack of inventories for sale, in The profitability increased at significant rates in all other geographic areas, even in Madeira, which is the Group s main region representing almost half of the operational profitability, the growth was of 26.3%, which is very substantial. The International Area has grown once again, although this value does not represent all the presence of the Group Pestana outside Portugal, since the Brazil s operation, the most valuable international operation, and also, since 2006, the Mozambique area, are outside the consolidation perimeter of the Grupo Pestana - SGPS, S.A.. If these two operations were included under this perimeter, in 2007, the International Area Turnover would be higher in approximately 40 million EURO and the GOP in approximately 11 million EURO. It should be noted that he region of Great Lisbon and Porto, which includes the Pousadas de Portugal and was the area with higher growth, managed to increase its profitability once again, which is being done on a sustained basis since

15 Results by Business Area in 2007 TURNOVER GOP Business Amount Δ 2007/2006 Amount Δ 2007/ Hotels 137,8 124,1 11,0% 39,9 28,8 38,5% Timeshare & Touristic Real Estate 36,4 40,8-10,8% 17,7 19,7-10,1% Tourist Animation 20,8 20,2 3,0% 11,1 10,5 5,7% Tourist Distribution & others 15,7 15,2 3,3% 7,3 6,8 7,3% 210,7 200,3 +5,2% 76,0 65,8 15,5% Amounts in Million EURO Either in absolute or in relative terms, it is verified that the major profitability increases occurred in the Group s most important business - Hotels - more 13,7 million EURO of turnover and more 11,1 million EURO of GOP, which presented a growth of 38,5% in relation to the previous year (please note that in 2006 had already increased 43,3%). It is also important to point out that the analysis to these growths in the Hotels business shows a Flow Through of 74%, demonstrating, thus, a good costs management. With the exception of Touristic Real Estate, for the reasons already explained above, all other business units have also positive changes. The growth rates observed are, usually, higher in GOP than in turnover, which is a good indicator of the performance of the different operations. Balance Sheet structure of Grupo Pestana S.G.P.S., S.A. Analyzing the Company s Balance Sheet, it is possible to present the Group s statement of origins and applications of capital, as follows: APPLICATIONS 2007 % TOTAL 2006 Δ 07/06 Fixed Assets ,9% ,7% Current Net ,8% ,6% Cash and banks ,3% ,5% ,0% ,8% Amounts in Million EURO 15

16 Balance Sheet structure of Grupo Pestana S.G.P.S., S.A. ORIGINS 2007 % TOTAL 2006 Δ 07/06 Shareholder s equity ,1% Minority interests ,2% Debts to Shareholders ,1% Shareholder s equity or Equivalent ,4% ,0% Provisions for risks and charges 408 0,1% 398 Financial liabilities medium / long term ,2% Total Permanent Capital ,6% ,0% Financial liabilities short term ,6% Accruals and deferrals ,8% ,0% ,8% Amounts in Million EURO The Capital Applications comprise mainly Fixed assets, representing more than 85% of the total. This Fixed assets weight reflects the Company s core business Hotels and the strategic option to hold the propriety of the majority of the operated units. This option, which is not aligned with the policy that has been followed in the last years by other hotels chains, which prefer to concentrate in the units management leaving the property to another type of companies or investors, implies, on one hand, a slower growth in terms of number of units and beds managed, but, on the other hand, turns the Company s Balance Sheet stronger giving sustainability to the growth achieved. The partial securitisation of the assets, mainly the Fixed assets, keeping them under the Group s management, a very common operation in tourism companies and already tested by the Group in some units, would allow to liquidate all the financial liabilities. Indeed, the value of fixed assets is almost twice the total of financial liabilities and fixed assets contain significant potential capital gains since its majority is booked at acquisition cost. At last, we stress that medium and long term financial liabilities, in its majority, bear interests at fixed rates. The Balance Sheet strength can also be evaluated by the Financial liabilities/fixed assets ratio, which is 50,4%, and by the weight of permanent capital, which is 77,6%. 16

17 Cashflows of Grupo Pestana SGPS, S.A Var. 07/ Var. 06/05 + Operational profit , ,0 +59,9% 9.245,2 +144,9% + Depreciations , ,8-2,0% ,6 +17,7% + Provisions 1.141,6 246,6 363,9% 4.793,2-94,8% Operational cashflow , ,4 +31,3% ,0 +37,2% Annual cashflow , ,9 +69,5% ,1-30,3% Amounts in Million EURO The 2007 Operational cash flow was higher in 31,3% than the one obtained in 2006, and 80% higher than the one obtained in This figure reflects the good performance achieved by the several business areas of Pestana Group in a year that was also positive for the tourism, namely in the markets where we operate. This figure still represents about 19% of the total shareholder s equity or equivalents of the period. The achievement of these positive results, in a context of growth of the Group in business areas like Hotels, which have long pay back periods, reflects the Company s good capacity to generate cash flows, namely, in those areas where the businesses are more matured. On the other hand, the total Annual cash flow was higher than the one obtained in 2005 (the highest amount obtained till this year), despite of not having significant extraordinary results, in opposition to 2005 where were booked significant capital gains obtained from the sale to Institutional Financial Investors of two properties where two hotels are installed: Pestana Delfim and Pestana Carlton Madeira, whose management are kept under Pestana Hotels & Resorts. Moreover, these gains allowed us to realize the existence of other significant potential capital gains in the Group s tangible assets, which could only be registered in a hypothetical selling scenario, which is not anticipated in the short term. Therefore, the Annual cash flow evolution was due, mainly, to the very positive trend of operational results. The total Operational cash flow was about 4,5 times higher than the amount of net interests charges in the year. These amounts reflect the strength of Grupo Pestana SGPS financial position since its creation, and are the result of a careful debt management that we intend to leave far below the Group maximum indebtedness capacity. 17

18 4. INDIVIDUAL FINANCIAL STATEMENTS OF GRUPO PESTANA SGPS The Company s activity, from an individual perspective, is acting as a holding company and during 2007 the following operations can be highlighted: increase up to 80,96% the share capital in Pestana Inversiones, a Spanish entity; add to 1,81% in share capital of SALVOR, S.A.; merger of Viva Travel with Intervisa in the new Intervisa Travel Solutions, SA, losing our company the majority of the share capital; follow on the effort of centralized treasury management policy, in order to improve efficiency in the usage of the Group s cash positions. EURO, include 43,4 million EURO of bank loans and 53,5 million EURO of cash pooling applications made by group companies in the holding, of which approximately 30 million EURO are applied by Grupo Pestana SGPS in other companies of Pestana Group. The 2007 net income was mainly due to the application of the equity method in the accounting of affiliated companies, by the goodwill depreciations, of acquisitions carried out in the past, and by interests charges related with the financing of these acquisitions. The great evolution of net income is due to the good operational performance showed in 2007 by the different business units. The Company s individual financial statements present total assets of Euro ,48 and shareholders equity of Euro ,96, including a net income for the year of Euro ,17. The liabilities, amounting to approximately 100 million 18

19 5. PROFIT ALLOCATION PROPOSAL As a consequence of the previously mentioned facts and considering the Company s economical and financial position, we propose the following allocation of the 2007 net income, amounting to Euro ,17: Legal reserve ,00 Retained earnings ,17 6. LIABILITIES TO THE STATE AND SOCIAL SECURITY The universe of the consolidated companies has its situation regularized with the State and with the Social Security.

20 7. THE FUTURE The year 2008, despite some negative signs that hang over the economies of the principal touristic markets, is foreseen as a good touristic, in the continuity of what occurred in It is expected that in the Lisbon area a slight slowdown can be observed, as in 2007 the demand for 4 and 5 stars units increased a lot because of the Portuguese Presidency of the European Union. Also leisure destinations, where prevail the products Sun Beach and Nature, might suffer a decrease of an important market, such as the English if the Euro continues to appreciate against other currencies. Therefore, we have a fairly positive outlook, despite the oil prices climb are creating difficulties in the air transport, and despite the financial market crisis, but in a globalised industry such as Tourism, at any time unexpected events may occur that completely change the sectors reference setup. The good perspectives for this sector will also induce the appearance of new destinations and products, which will increase the competition. The supply will react to the foreseeable increase in demand. Therefore, it will be crucial that business strategies incorporate the necessary measures leading to higher competitiveness levels. The Pestana Group will keep its strategy, continuing to bet in new challenges and new business models that will allow adding value to its costumers. Thus, 2008 will be marked by: the opening of three new hotel units Pestana Porto Santo, Pestana Caracas and Pestana São Tomé and a new lodging-house ( Pousada ) Pousada de Viseu ; the maintenance of the strategic plan regarding IT, with particular emphasis in the creation of the new reservations central for the Group, the centralization of the whole payroll processing and standardization of the software used, the up grade of Front office systems to enable better interfaces, either with the Back-office system or with the e commerce system; the effort in establishing new partnerships, which have at this stage as main goal the set up of two charter operations Porto Santo and São TomŽ e Principe in order to open these destinations to the market. These partnerships will be established with the main tour operators that usually work with the Group (Portuguese and from other European countries) and with new operators that explore new markets, channels or concepts, namely web operators; the investment for renewal of Carlton Madeira, of D. João II in Alvor and of the lodging-houses ( Pousadas ) in Setúbal, Sagres and Viana do Castelo, in order to promote some up grades in the facilities and functionalities; the continuation of construction works in the new Pestana units: Promenade in Funchal, Chelsea Bridge in London and Pousada do Freixo in Porto; the revitalization of Madeira s Casino updating it for the market requirements. 20

21 8. RELEVANT FACTS ALREADY OCCURRED IN 2008 Of the facts that have already occurred in 2008 was the soft opening of Pestana Porto Santo hotel in February, after almost 24 months of construction works and an investment of 40 million EURO. We also highlight the last phase of the renewal in Pestana Carlton Madeira that meant its closure in January and February. 9. THANKS The Board of Directors of Grupo Pestana S.G.P.S., S.A., as well as their colleagues who carry out administration functions in other Group companies, would like to express their deepest thanks to all the public and private entities that, directly and indirectly, have supported and worked with our Group. To our clients, suppliers and other business partners, namely financial institutions and other professional services providers, our recognition for all the trust showed in the development of our Group. The Board of Directors would like to emphasize the support and cooperation that the General Shareholders Meeting Chairman and the Statutory Supervisory Board Members showed in fulfilling their duties. Finally, we would like to enhance the great professional spirit and sense of duty of all the staff working with Group Pestana. Its effort and devotion are the reason that makes possible the creation of value by which the Group Pestana is responsible. Funchal, 28 April 2008 The Board of Directors Dionísio Fernandes Pestana - Chairman Pietro Luigi Valle - Member José Alexandre Lebre Theotónio Member 21

22 CONSOLIDATED Balance Sheet

23 CONSOLIDATED BALANCE SHEET GRUPO PESTANA, S.G.P.S., S.A. As at December 31st 2007 Assets Gross Assets Depreciations and Adjustments Net Assets Net Assets FIXED ASSETS: Intangible Assets: 431 Start-up expenses 5,969, ,201, , , Research and development costs 200, , , , Patents, brand names and other rights 19,182, ,175, ,007, ,161, Key money premiums 1,904, , ,524, , /6 Intangible assets in progress 4,341, ,341, ,742, Advances paid on account of intangible assets , Consolidation differences 54,955, ,751, ,204, ,642, ,554, ,675, ,879, ,162, Tangible Assets: 421 Land and natural resources 57,784, ,784, ,835, Buildings and other constructions 368,019, ,273, ,746, ,645, Basic equipment 148,132, ,955, ,177, ,328, Transportation equipment 2,930, ,962, , , Tools 637, , , , Administrative equipment 14,285, ,944, ,340, ,226, Containers Other fixed assets 730, , , , /6 Fixed assets under construction 82,001, ,001, ,739, Advances paid on account of tangible assets 805, , ,327, ,670, ,656, ,613, Financial Investments: 4111 Shares in group companies Loans to group companies ,006, Shares in associated companies 10,511, ,511, ,199, Loans to associated companies 9,175, ,175, ,148, Shares in participated companies 2,462, ,462, , Loans to participated companies 2,983, ,983, , Other financial investments 23,933, , ,983, ,809, Other loans granted /6 Investments in progress 1,099, ,099, Advances paid on account of financial investments ,832, ,165, , ,216, ,406, CURRENT ASSETS: Inventories: 36 Raw and subsidiary materials and consumables 1,798, ,798, ,863, Work-in-progress 24,050, ,484, ,566, ,075, By-products and wastage Finished and intermediary products 6,536, ,536, ,103, Goods 2,406, ,406, ,967, Advance payments for goods in transit 3,357, ,357, ,149, ,484, ,665, ,009, Receivables from third parties - long term: 211 Trade debtors Trade debtors - bills receivable Doubtful debts Public entities , Other associated companies 2,051, ,051, ,385, Shareholders Advances to fixed assets suppliers Other debtors ,467, ,051, ,051, ,937, Receivables from third parties - short term: 211 Trade debtors 33,726, ,373, ,353, ,641, Trade debtors - bills receivable , Doubtful debts 6,008, ,435, , , Other associeted companies 4,146, ,146, Shareholders 3,312, ,312, , Advances to suppliers 1,889, ,889, , Advances to fixed assets suppliers 6,877, ,877, ,731, Public entities 8,938, ,938, ,583, Other debtors 9,007, , ,595, ,699, Capital subscribed but not paid up , ,907, ,220, ,687, ,679, Marketable securities and bonds: 1512 Shares in associated companies Bonds and other titles in associated companies /9 Other marketable securities 1,249, ,249, ,168, Other short term applications 5,626, ,626, ,608, ,876, ,876, ,777, Cash and banks: Bank deposits 31,371, ,371, ,402, Cash 1,557, ,557, ,086, ,928, ,928, ,488, ACCRUALS AND DEFERRALS: 271 Accrued income 1,881, ,881, , Deferred costs 6,813, ,813, ,970, Deferred taxes asset 5,765, ,765, ,859, ,461, ,461, ,376, Total Depreciations 272,295, Total Adjustments 16,704, Total Assets 980,423, ,000, ,423, ,452,

24 CONSOLIDATED BALANCE SHEET GRUPO PESTANA, S.G.P.S., S.A. As at December 31st 2007 SHAREHOLDERS EQUITY AND LIABILITIES SHAREHOLDERS EQUITY: 51 Capital 80,000, ,000, Acções (quotas) Próprias: 521 Par value Premiums and discounts Supplementary capital 21,000, ,403, Premiums on issuance of shares 33,716, ,690, Adjustments to investments in affiliated and associated companies -829, ,514, Revaluation reserves Consolidation differences 28,535, ,443, Conversion differences -1,206, , Reserves: 571 Legal reserves 325, , Statutory reserves Contractual reserves a 579 Other reserves 18,686, ,661, Retained earnings 27,997, ,876, Sub total 208,227, ,381, Net profit/(loss) for the year 15,032, ,993, Anticipated dividends Total Shareholders equity 223,259, ,374, Minority Interests 77,583, ,358, LIABILITIES: Provisions : 291 Provision for pensions 8, , Provision for taxes 93, , /8 Other provisions 306, , , , Debts to third parties - long term: Bank loans 150,425, ,989, Fixed assets suppliers - bills payable Shareholders 6,644, ,128, Other loans 29,979, ,837, Fixed assets suppliers Fixed assets suppliers - Leasing 5,316, ,378, Public entities Other creditors ,175, ,365, ,509, Debts to third parties - short term: Bonds: 2321 Convertible Non convertible Other titled loans Bank loans 85,730, ,068, Advances received on account of sales , Trade creditors 15,728, ,797, Trade creditors - outstanding invoices 24, , Trade creditors - bills payable , Fixed assets suppliers - bills payable Other associated companies Shareholders 18, ,757, Advances from trade debtors 641, ,193, Other loans 474, ,561, Fixed assets suppliers 8,639, ,070, Fixed assets suppliers - Leasing 72, Public entities 5,032, ,757, Other creditors 11,004, ,116, ,367, ,780, Accruals and deferrals: 273 Accrued costs 18,976, ,914, Deferred income 25,184, ,507, Deferred taxes liability 26,277, ,608, ,438, ,030, Total liabilities 390,579, ,719, Total Shareholders equity, Minority interests and Liabilities 691,423, ,452,

25 CONSOLIDATED INCOME STATEMENT BY NATURE GRUPO PESTANA, S.G.P.S., S.A. For the year-ended December 31st 2007 COSTS AND LOSSES Cost of goods sold and materials consumed: Goods 963, ,124, Raw and subsidiary materials and consumables 27,544, ,507, ,935, ,060, External services and supplies from third parties 67,387, ,178, Personnel costs: Wages ( ) 48,846, ,654, Social charges: Pensions ( ) 100, , Others (645/8) 13,915, ,862, ,325, ,276, Depreciations and amortizations of fixed assets ( ) 21,406, ,843, Adjustments ( ) 952, Provisions 188, ,548, , ,090, Taxes 5,984, ,815, Other operational costs and losses 2,089, ,073, ,573, ,388, (A) 189,379, ,995, Depreciations and adjustments for financial investments ( ) 5,030, ,238, Interests and similar costs: Group Companies , Losses on Group Companies 162, , Others ( ) 17,353, ,546, ,376, ,664, (C) 211,926, ,660, Extraordinary costs and losses 1,076, ,088, (E) 213,002, ,748, Income tax for the year 4,247, ,833, G) 217,250, ,582, Profit attributable to minority interests 6,522, ,936, Net profit/(loss) for the year 15,032, ,993, ,805, ,511, PROFITS AND GAINS Sales: Goods 3,085, ,242, Products 5,201, ,727, Services rendered 202,391, ,678, ,344, ,313, Increase in stocks of finished products and work-in-process 266, Self constructed fixed assets 7,841, ,039, Supplementary revenue 5,300, ,399, Operational grants 231, , Other operational profits and gains 13, , Reversions of depreciations and adjustments 1,245, ,790, , ,287, (B) 225,577, ,640, Gains in group and associated companies: Group companies 2,717, ,625, Other companies , Dividends received Gains in marketable securities and other financial aplications: Group companies 1,565, ,226, Others ( ) 465, , Other interests and similar gains: Group companies 323, ,080, Others ( /788) 4,243, ,315, ,275, ,547, (D) 234,893, ,187, Extraordinary profits and gains 3,912, ,323, (F) 238,805, ,511, SUMMARY Operational profit/(loss): (B)-(A)= 36,197, ,645, Financial profit/(loss): (D-B)-(C-A)= -13,230, ,117, Current profit/(loss): (D)-(C)= 22,966, ,527, Profit/(Loss) before income tax: (F)-(E)= 25,802, ,763, Consolidated profit/(loss) for the year including minority interests: (F) - (G) 21,555, ,929,

26 CONSOLIDATED INCOME STATEMENT BY FUNCTIONS GRUPO PESTANA, S.G.P.S., S.A. For the year-ended December 31st Sales and services rendered 210,678, ,018, Cost of sales and services rendered -132,885, ,774, Gross margin 77,792, ,244, Other operational profits and gains 18,811, ,748, Distribution costs -8,577, ,671, Administrative costs -25,368, ,213, Other operational costs and losses -23,624, ,778, Operational profit 39,033, ,328, Net funding costs -13,109, ,040, Gains/(Losses) in group and associated companies -586, ,796, Gains/(Losses) in other investments 465, ,303, Unusual gains/(losses) Current profit and loss 25,802, ,781, Income tax over current profit and loss -4,247, ,851, Current profit and loss after income tax 21,555, ,929, Extraordinary profit and loss Income tax over extraordinary profit and loss Profit attributable to minority interests -6,522, ,936, Net profit/(loss) for the year 15,032, ,993, Net profit/(loss) per share

27 CONSOLIDATED CASH-FLOWS STATEMENT GRUPO PESTANA, S.G.P.S., S.A. For the year-ended December 31st OPERATING ACTIVITIES Cash receipts from trade debtors 232,111, ,917, Cash paid to trade creditors -120,937, ,885, Cash paid to employees -61,407, ,920, Cash-flow from operations 49,766, ,111, Income taxes received/(paid) -3,862, ,310, Other receipts/(payments) of operating activities 6,265, ,278, Cash-flow before extraordinary items 52,169, ,079, Cash received related to extraordinary items , Cash payments related to extraordinary items , Net cash-flow from operating activities 52,169, ,283, INVESTMENT ACTIVITIES Receipts from: Investimentos financeiros 23,302, ,210, Tangible assets 2,440, ,053, Intangible assets Government grants 4,799, , Interests and similar profits 5,325, , Dividends 584, , Other receipts from investment activities 397, ,883, Payments of: Financial investments -21,171, ,002, Tangible assets -66,889, ,015, Intangible assets -1,087, ,504, Other payments of investment activities -1,721, ,457, Net cash-flow from investment activities -54,019, ,750, FINANCING ACTIVITIES Receipts from: Loans obtained 61,573, ,720, Capital increases, supplementary capital and premiums 2,046, , Grants and donations , Sales of own shares Coverage of previous years losses Other receipts from financing activities ,046, , Payments of: Loans obtained -48,714, ,527, Capital amortization of leasing contracts -1,279, , Interests and similar costs -18,240, ,402, Dividends -4,586, ,808, Capital reimbursement and supplementary capital Acquisition of own shares Other payments of financing activities Net cash-flow from financing activities -9,201, ,843, Net increase/(decrease) in cash and cash equivalents -11,051, ,622, Cash of new consolidated companies Exchange rate effect 8, , Cash and cash equivalents at the beginning of the period 47,933, ,549, Cash and cash equivalents at the end of the period 36,890, ,933, NOTES TO THE CASH-FLOW STATEMENT Cash 1,557, ,556, Bank deposits - current accounts 36,998, ,934, Other deposits until 3 months Other financial aplications until 3 months 1,249, (224,803.16) Bank overdrafts (2,914,288.30) (332,823.84) Cash and cash equivalents at the end of the period 36,890, ,933, Other Cash and cash equivalents 2,914, , Cash and cash equivalents at Balance Sheet 39,804, ,266,