REPORT AND CONSOLIDATED ACCOUNTS Futebol clube do porto - futebol, s.a.d.

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3 REPORT AND CONSOLIDATED ACCOUNTS Futebol clube do porto - futebol, s.a.d.

4 A3 Evolution of Company Business 6

5 7 Futebol Clube do Porto - Futebol, SAD Report and Consolidated Accounts 2008/2009

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7 Futebol Clube do Porto - Futebol, SAD Report and Consolidated Accounts 2008/2009 FUTEBOL CLUBE DO PORTO - Futebol, SAD Public Company Capital: 75,000,000 euros Capital: 15,880,863 euros (approved by the General Assembly of November 13, 2008 Head Office Estádio do Dragão, Via FC Porto, 3rd Floor Poente Registered in the Oporto 1st Commercial Registry Office, N Corporate Fiscal (Tax) Number

8 A3 Evolution of Company Business 10

9 A Management Report 1 President s Message 2 Governing Bodies 3 Evolution of the Company Business 4 Other Facts Occurring During the Year 5 Material Facts Occurring after the Close of the Year 6 Prospects 7 Information about shares 8 Declaration of the Management Body B Consolidated Financial Statements and Appendices 1 Consolidated Balance Sheet 2 Consolidated Statements of Results by Nature 3 Consolidated Statements of Changes in Equity Capital 4 Notes to Consolidated Financial Statements 5 Consolidated Statements of Cash Flows 6 Certification of Accounts and Audit Report 7 Report and Opinion of the Statutory Audit Board C Report on Corporate Governance 0 Declaration on Compliance 1 General Assembly 2 Governing Bodies 3 Information D Qualifying Holdings 11

10 A3 Evolution of Company Business 12

11 Futebol Clube do Porto - Futebol, SAD Report and Consolidated Accounts 2008/2009 A 13

12 A 1PRESIDENT S MESSAGE 14

13 The fourth championship and the Cup of Portugal are the highlights of another successful season from FC Porto - Futebol, SAD. And if we add the excellent performance in the Champions League, in which we won again in our group ahead of Arsenal, and that we just got out of the scene in the quarter-final with Manchester United in a round that could have swung to the blue and whites, the sense of accomplishment is further strengthened. The season was filled. The first team has enriched our parchments, but the young ones also inflated our pride. FC Porto won the Liga Intercalar and the Under-17 Championship, proving the correctness of the path taken in the detection and preparation of young athletes. And, as it has been the norm in recent years, our assets were again the most requested in the international scene. More than all the foreign journalistic works on our valorization process, which is a proficiency certificate across borders, is the certainty that it is possible to maintain the tone of success, year after year, transaction after transaction. A final word for the 2008/09 season, which reserved an enhanced page to the first year of the Dragon Force. Our project is for the young ones. It is already a success. And it will continue to be, growing under the progression pace of the FC Porto brand. Jorge Nuno Pinto da Costa 15

14 A3 Evolution of Company Business A 2GOVERNING BODIES 16

15 Futebol Clube do Porto - Futebol, SAD Report and Consolidated Accounts 2008/2009 General Assembly Board of Directors Supervisory Board Statutory Auditors Company Secretary Advisory Council President - José Manuel de Matos Fernandes Secretary - Rui Miguel de Sousa Simões Fernandes Marrana President - Jorge Nuno Lima Pinto da Costa Adelino Sá e Melo Caldeira Fernando Soares Gomes da Silva Reinaldo da Costa Teles Pinheiro Jaime Eduardo Lamego Lopes President - José Paulo Sá Fernandes Nunes de Almeida Armando Luís Vieira de Magalhães Filipe Carlos Ferreira Avides Moreira José Manuel Taveira dos Santos (suplente) Deloitte & Associados, SROC SA, represented by Jorge Manuel Araújo de Beja Neves Daniel Lorenz Rodrigues Pereira Substitute - Urgel Ricardo Santos Brandão Horta Martins President - Alípio Dias Álvaro Pinto Álvaro Rola Américo Amorim António Gonçalves António Lobo Xavier Armando Pinho Artur Santos Silva Elisa Ferreira Fernando Pimenta Fernando Póvoas Ilídio Pinho Ilídio Pinto João Espregueira Mendes Poncio Monteiro Jorge Armindo Jorge Nuno Pinto da Costa Ludgero Marques Rui Alegre Remuneration Committee President - Alípio Dias Joaquim Manuel Machado Faria de Almeida Fernando Freire de Sousa 17

16 A3 Evolution of Company Business A 3EVOLUTION OF COMPANY BUSINESS 18

17 Futebol Clube do Porto - Futebol, SAD Report and Consolidated Accounts 2008/2009 The FC Porto - Futebol, SAD meets its obligations by providing economic and financial information about the financial year of 2008/2009, between the period of 1st of July 2008 to June 30th This document was elaborated according to the present statutory law, indicated in the Código das Sociedades Comerciais, Código dos Valores Mobiliários and Regulamentos da Comissão do Mercado de Valores Mobiliários (CMVM). As stated in the European Parliament s Regulation, the societies with real estate values in regulated markets inside the European Union (EU) must use, in its consolidated financial statements, international rules of accountancy (IAS/IFRS) adopted by the EU, for all financial statements started on or after the 1st of January of In the case of F.C. Porto Futebol, SAD, these rules were followed in the 2005/2006 statement. Accounts presented in all trimesters, as well as in this report of annual statements, were made according to the international rules of accountancy. SPORTING ACTIVITIES In the wake of recent seasons, the 2008/09 season of the professional football team was full of titles and high-level exhibitions. The 24th national champion title allowed FC Porto to directly qualify for the UEFA Champions League 2009/10, all in a year where only the first in classification would guarantee its qualification. In symbolic terms, it was also a title of great importance, since it represented the second time that FC Porto won the championship for four consecutive times and the sixth League title won in seven years. However, the team s career wasn t depleted in the Portuguese League, as the Dragons added to their list of successes the Cup of Portugal, with a victory over Paços de Ferreira in the final at Jamor. It was the sixth double (winning the Championship and Cup in the same season) and 14th Cup, in the culmination of a season that proved once again the enormous capacity of the club to shape and project football players of the highest worldwide level. In this field, the ultimate test is the Champions League, where FC Porto fell in the quarter-final at the foot of the then European Champion title, Manchester United, and by a tangential margin (2-3 in two rounds). The exhibition in England, where the blue and white team got a draw (2-2) and a superb demonstration was essential to sharpen the desire of great European teams for various elements of the team, which provided a high return by selling their passes. But the career of FC Porto at the most competitive media world club also had other moments of high level, with the first group stage (ahead of England s Arsenal) and the elimination of the Spanish Atletico de Madrid in the knockout round finals. The Dragons have, in fact, a record-breaking attendance in the UEFA Champions League alongside Manchester United, with 15 participations. This is only possible thanks to the careful selection of players for the professional team, later boosted by the work and overcoming philosophy of the club. 19

18 A3 Evolution of Company Business Today, the creations of FC Porto are praised in the most demanding catwalks of Europe. Cissokho, Lucho Gonzalez and Lisandro Lopez helped to strengthen an already extensive list of athletes created / discovered and empowered by the Dragon. In the preparation and during the 2008/09 season the athletes Rodríguez, Rolando and Cissokho were recruited, safe values as players and knowledge holders of Portuguese football (the French left back would assume himself as another important process of appraisal of assets), and Tomás Costa, Guarin, Hulk and Sapunaru, athletes with unquestionable quality and remarkable margin of progression. Despite the present success, we must also ensure the future. As to what concerns training, the National Championship Under-17 League title and the Liga Intercalar confirmed the vocation of FC Porto to train to gain by keeping the good performance of logic and consistency of a rich track. The participation in renowned soccer tournaments (especially the victory in the Tournament Dani Guenes Under-14) enhances, on the other hand, the international blue and white prestige. The football school Dragon Force, which fulfilled its first year of operation, is an important step in that direction. Its implementation was made possible due to the investment at Vitalis Park (formerly Campo da Constituição), with an elite infrastructure, where a pitch of synthetic grass for football of 11 and a pitch covered with synthetic grass football seven stand out. This was a significant step towards the projection of the FC Porto, particularly among the young, opening new possibilities in terms of scouting and later development of young talent. ECONOMICAL ACTIVITY Following the good sporting performance, the Futebol Clube do Porto - Futebol, SAD has also been successful in the economic and financial dimension, consolidating its capital structure. After the negative result obtained in the financial year of 2005/2006, this is already the third consecutive term with positive results, a direct consequence of an increased concern with the combination of sporting success and economic viability. In this report we analyse the consolidated results, i.e., the results obtained through the participation of individual companies included in the consolidation, net of transactions between them. But of course these are the individual results of FC Porto - Futebol, SAD that contribute significantly to the consolidated results. The year under review accounts for the second year, with the inclusion of the business exploitation of PortoSeguro, the company gained 90% on 28 June 2007 for the consolidated result. Later in this report it will be presented an overview of the results obtained by each of the subsidiaries individually, so now we will concentrate on the analysis of the consolidated results. As shown in the chart below, the net profit in the last three years reflects operating surpluses. 20

19 Futebol Clube do Porto - Futebol, SAD Report and Consolidated Accounts 2008/2009 Net Result ,3 8, ,1 From a more financial approach, which is increasingly essential to analyse the health of companies, we found that, despite the fall in net profit compared with last year s, the cash-flow has been steadily increasing in recent years, reaching the year in analysis 38.1 M. EBITDA - Earnings before interests, taxes, depreciation and amortization ,5 33,4 38,1 The strong growth in cash flow, measured by the operating income, net of depreciation, impairment losses and provisions in the order of 34% in two years, allows the company greater self-financing ability. 21

20 A3 Evolution of Company Business Despite the serious international crisis that affects in a more or less relevant way the activity of the companies, the group knew how to increase its revenues over the last year. Even removing from this analysis the proceeds from transactions with the passes of players, also constituting revenues but more unstable and uncertain, there was an increase of 13.2 M in this indicator, reaching 68.1 M. Revenues 2006/ / /09 Tickets 14,1 12,5 13,4 TV 7,2 7,1 8,3 UEFA Competitions 12,6 11,6 16,2 Advertisement and Sponsorship 11,4 13,0 13,6 Corporate Hospitality 2,4 2,0 2,0 Other Revenues 7,3 8,8 14,7 Revenues excluding transactions with passes 54,9 55,0 68,1 Examining each of the items that are operating revenues, excluding transactions of players passes; it appears that all, without exception, have grown in the previous period. The box office, which includes the marketing of Dragon Seats (seats per year), tickets sold per match and part of the dues paid by members of the FC Porto which are in the benefit of the sporting society, was influenced by the achievement of UEFA 1/4F Champions League at Estadio do Dragão, considering that in the two previous years, the team stood at 1/8F of the competition. The sale of individual tickets for this game, played with Manchester United at Estadio do Dragão, contributed to the growth of the gate receipts at about 0.9 M. Regarding television revenue, there was an increase of 1.2 M, which derives from the contract signed on July 4, 2008 between FC Porto - Futebol, SAD and Olivedesportos - Advertising, Television and Media Limited. As communicated on time to the market, the two companies prorogated until the 2013/2014 season, the transfer contract, on an exclusive basis, the rights of audiovisual media, national and international games played for FC Porto for the main competition Portuguese League for Professional Football as the home team. In return for this agreement, the FC Porto - Futebol, SAD obtained additional revenues of 1M in the year under review. In addition, and reflecting the growing interest in the work of FC Porto, there was an increase in revenue from the sale of television rights to pre-season games. For the UEFA Champions League, the company obtained a much higher business ratio than the previous season as the team had a more positive performance in this competition. FC Porto passed the 1st stage of the competition, played against the Fernebahçe, Dynamo Kiev and Arsenal, getting the 1st place in the group. In the 1/8F eliminated Atletico Madrid, according to the 1/4F, where it found the at the time European champions, Manchester United, defeated by 2-3. Even if it is negative for Portuguese football, the presence of two teams in European competition without the presence of SL Benfica and in 2007/2008, has enabled the company to obtain additional 0.4 M in the UEFA Market Pool. It was still registered as a 22

21 Futebol Clube do Porto - Futebol, SAD Report and Consolidated Accounts 2008/2009 revenue of this exercise, the guaranteed access to the 2009/2010 edition of the UEFA Champions League, which provides financial compensation to the participating teams, about 30% higher than the previous edition. The income relating to advertising contracts and sponsorship comes mainly from advertising in the official equipment of F. C. Porto, by its main sponsors, which in the year under review were Portugal Telecom, Nike, and BES. The contract extension with Nike, signed on 25 October 2007, valid for four years , along with royalties and the prize for sporting performance given by this renowned brand of sports equipment that will continue to dress all blue and white teams assured the FC Porto - Futebol, SAD an additional income of around one million euros. However, a reduction in the same line, in PortoComercial, led to the overall increase to be located at 0.6 M. The operating results of Corporate Hospitality business, which briefly consists in providing a range of products and services for corporate clients, which include the rights to use of boxes and seats for companies in the Dragão Stadium to watch the FC Porto games, are directed to the company EuroAntas held by FC Porto (club), which uses this cash to meet debt service contracted to build the stadium. The model is designed such that FC Porto - Futebol, SAD, after having honored all of its obligations under the Project finance, guarantees itself the distribution of the excess amount from the management of this business. The value obtained in this space remained virtually unchanged, contributing to the result of the company with 2M. The item Other Revenues has increased, when compared with the previous period, 5.9 M. This increase was due mainly to two factors. First, here are encompassed the sale of merchandise, a business area that was further explored by PortoComercial, as explained later in this report, which contributed to the consolidated business ratio of 2.1 M. Moreover, here is also reflected the effect of accounting for the overall benefit of the unilateral termination of professional football coach Co Adriaanse and his assistant coach, as decided by the CAS (Court of Arbitration for Sport). Additionally, this item includes revenue from the participation of FC Porto in friendly tournaments held in pre-season in the Cândido de Oliveira Super Cup and the Cup of Portugal, which this year awarded its winner FC Porto, a 500 thousand euros prize. Here are also encompassed the incomes arising from PortoComercial, not included elsewhere, including the guaranteed revenue contract with TBZ, which was obtained before termination of the same (according to the above analysis of the activity of PortoComercial). This item also includes the revenues of other companies in the consolidation sphere, PortoEstádio, the PortoMultimédia and PortoSeguro. As a result of the given data, the operating income excluding transactions Passes players increased 24% over the previous period, as shown in the chart below: 23

22 A3 Evolution of Company Business Revenues excluding Passes Transactions ,9 55,0 68,1 Analysing the cost structure of the society, there is an increase of about 27% when compared with 2007/2008. When observing the table below, we find that this increase is based largely on increase at the staff costs level and other costs pertaining to other operations. Operational Costs 2006/ / /09 External services and suppliers 16,1 16,9 20,2 Costs with staff 34,0 38,7 47,5 Amortization excluding devaluation of passes 0,9 0,9 1,0 Other operational costs -2,8 1,0 4,5 Operational costs excluding passes transactions 48,2 57,5 73,2 Labor costs, which have large representation in the cost structure, as it is typical in this activity, were higher by about 8.8 M, largely because of prizes paid to the team for good performance in the disputed national and European competitions. Note that 25% of total staff costs are presented for a variable component related to the individual and collective performance of the team. On the other hand, the company bets on the investment of the team with players of high quality, most of them international with their national teams, to ensure the best sporting results, which necessarily requires adequate compensation to their status. Additionally, it is the company s policy to ensure the continuation of key players in the squad. Thus, in order to safeguard the Webster Law (Article 17. Of the Regulations on the status and transfer of player, which allows a player to unilaterally terminate the contract after three years in a club, or just two if he is over 28 years, to represent a foreign club, and to compensate the club for the value of salaries that would have been entitled to receive for the years he had in contract) and FC Porto - Futebol, SAD renewed, even in the sporting season 2007/2008, the working contracts with various athletes, and payments and conditions were improved, a situation that obviously had an impact in the season in question. 24

23 Futebol Clube do Porto - Futebol, SAD Report and Consolidated Accounts 2008/2009 The item Supplies and Services noted a considerable increase of about 3.3 M, distributed by various companies represented in this consolidated report. FC Porto - Futebol, SAD, in order to be able to meet the increasingly varied needs for work, had to spend an amount higher than current costs. There was also an increase in this rubric with PortoComercial and PortoEstádio in order to accommodate the organized events, with the usual quality. The costs pertaining to Other Operations, shown in the table above, were increased by 3.5 M. A total of 4.5 million presented, are included impairment losses for receivables, amounting to 2.2 M due to failure to meet deadlines on receiving credits from various entities. In addition, it also encompassed the cost of goods sold by PortoComercial, amounting to 1.4 M, which did not appear reflected in the previous two years, since the exploitation of the commercial areas of the FC Porto was carried out by the end of the previous year by TBZ. The combination of factors presented led to obtaining Operating Income, excluding players transaction Passes of a negative 5.1 M. It is important to add to this analysis two items of FC Porto - Futebol, SAD that have an undeniable weight, the amortization and impairment losses with passes of players and the outcome of players transactions Passes. Contributing negatively to the outcome of the society, the amortization and impairment losses with players passes registered a value of 23.8 M, representing an increase of 3.7 million from the previous period. The increase in depreciation resulting from contracts signed with the players and the investments made in the acquisition of sports rights, reflect the investment in the team, while the increase in impairment losses is related to the increase in economic costs with the deduction of the players pass in assets. The result of the players transactions Passes which includes the costs and revenues resulting from loan sales and players sports rights has traditionally been a positive item in the financial statements of the group. Here are encompassed capital gains from the sale of players sports rights that have played a substantial part of the proceeds from FC Porto - Futebol, SAD and in a broader perspective, of many companies in this sector of activity that in this way balance the exploitation results. The 41.5 M of capital gains arising from transfers (to the value of the sale must be subtracted the costs of each business and the net book value of its sports rights) and loans are derived largely from sales of Quaresma s Players sports rights to Inter Milan for 24.6 M, (held at the beginning of the season) and the pertaining prizes of contract objectives of Lucho to Marseille for 18M and Paulo Machado to Toulouse, for 3.5 M. The result of the players passes transactions presents, therefore, a net value of 40M. 25

24 A3 Evolution of Company Business Results with Transactions with Passes ,3 35,3 40, Based on the graphic above, it is clear the influence that the income generated from the transaction of the players passes has in the total obtained in operating income. The focus on equipping the team with good values, in addition to contributing to the sporting success, also make possible to obtain important gains for the society itself. Despite the operating profit excluding Passes Transactions being negative, the addition of these two items related to transactions of players passes, allowed achieving an operating income of 11.2 M. Operating Results ,4 12,7 11,2 In addition to the operating results, it is necessary to include the financial results to obtain the net result. In this exercise, the financial results worsened in 1.6 M not only by the increase in financial charges arising from more difficult access to credit, but also the effect of the adjustments required 26

25 Futebol Clube do Porto - Futebol, SAD Report and Consolidated Accounts 2008/2009 to the level of international accounting standards, relating to the updating, by bringing the payment terms, and accounts to be paid by the society. As an epilogue of the analysis, and after deducting the calculation of tax liability of 0.6 million, the consolidated net profit of the society was, as mentioned above, 5.1 M. Still considering the annual exploitation of the company it is important to present a key indicator in the activity, which reflects the weight that staff costs have on the income. Using the indicator commonly used by experts in the analysis of the finances of football, this ratio, which should not include the income from transactions with passes of players must be below 70%, as recommended by UEFA. As you can see by the chart below, the company has managed to keep the ratio within the recommended levels, despite the constraints that FC Porto has, as a club from a small country, the raising of traditional revenues (box office receipts and television advertising), for major European clubs, given that to maintain the same level of competitiveness it has to pay similar wages. Salaries vs Operational Income excluding transactions with players passes % 70% 70% Moving to the patrimonial position of the company on 30 June 2009, it is highlighted the fact that the total accounting assets amount to M, representing an increase of 16% compared to June 30, This increase is supported not only by an increase in the value of the sports rights of players, due to the investment made in strengthening the squad, but also because of the receivable amounts from the sale of players are prolonged in time, reflecting the agreed conditions. 27

26 A3 Evolution of Company Business Assets ,3 158,8 183,6 The company s total debt amounts, on 30 June 2009 to M, with a strong connection with bank loans, because the accounts are disclosed in accordance with international accounting standards (IAS / IFRS), include the value of discounted bills. Contractualised Financial transactions are secured with collateral of receivables by the company. The structure of the penalized liabilities appears, on June 30, 2008, solely due to the proximity of the deadline for repayment of the loan, which will be undertaken at nominal value, at once, on 15 December However, the company has already prepared a financial transaction to restructure the liability so as to become a significant part of its debt in the long term. Liability 160,8 116,6 141, ,0 98,8 124, ,6 42,3 36, Non current liability Current Liability 28

27 Futebol Clube do Porto - Futebol, SAD Report and Consolidated Accounts 2008/2009 Concerning the company s equity capital it is possible to verify that the results obtained in recent years have improved the pertaining structure. Equity Capital ,7 17,7 22, In this analysis one should not overlook the financial statements that may not be able to reflect the fair value of the company, mainly due to the fact that some assets are recorded in the accounts for values significantly below their market values. With regard to the book value of the squad, it is clear that this does not reflect its fair value, because if the passes of the players of the squad were recorded at their market value, this asset item would be considerably higher. Each year, the company has obtained very significant gains on the sale of sports rights of players of the squad, which clearly shows that these assets are deflated in accounting. However, and since the equity capital is less than half of the capital, FC Porto - SAD is under the provisions of Article 35 of the Companies Act. The Board of Directors of FC Porto - SAD believes that, depending on the profits of the year 2008/2009 and budget estimates for fiscal year 2009/2010 to be presented at the Annual General Meeting, the capital structure of the society will appear naturally reinforced. Even without reaching the objective of the meeting referred to in Article 35 of the Companies Code, this Administration is convinced that the economic and financial performance improvement will continue in the coming years, and so complying with that Article. Moreover, the Board provides that the publication of the results for the 1st quarter of 2009/2010, are now presented results of operations enabling the company to come out from under that article. Even so, and in the assumption of quickly complying with this requirement, the Board has been studying other solutions that will enable to strengthen the company s capital. 29

28 A3 Evolution of Company Business The Board of Directors, besides looking at the analysis of this issue at the General Meeting of Shareholders for approval of the accounts for this year may also convene an Extraordinary General Meeting for discussion and approval of proposals that may be presented, which may pass the following alternatives: * Reduction of share capital amounting to not less than the equity of the company; * Development of capital entries by members to strengthen the coverage of the capital, and * The combination of the two alternatives. OVERVIEW OF THE COMPANIES INDIVIDUAL ACCOUNTS BELONGING TO THE CONSOLIDATION REPORT PERIMETER PortoComercial PortoComercial is the operator of the brand FC Porto, which develops the commercial component of this activity in its various areas, such as merchandising, sponsorship and licensing, and is owned 93.5% by FC Porto - Futebol, SAD. By decision of the Board of PortoComercial, the contract concluded on 31 March 2006, with TBZ - Promotional Marketing, SA, for providing the commercial exploitation of the brand and the shopping areas of FC Porto, and that was the target of amendment on June 30, 2008, failing to include the management and operation of shopping areas, it was terminated for just cause due to failure to comply with obligations on 4 December These facts have caused major changes in the income structure of society, as shown in the table below: 13% 5% 1% 12% 5% 0% 14% 22% 17% 7% 21% 2% 13% 60% 67% 43% 2006/ / /2009 Sales Licensing Advertisement Brand Transfer Other Services 30

29 Futebol Clube do Porto - Futebol, SAD Report and Consolidated Accounts 2008/2009 The immediate effect was to decrease the item of income, Transfer of the Brand, by decreasing the minimum guaranteed income for the change in contract with TBZ at the beginning of the fiscal year. The effect of termination, with the disappearance of this income and to take the business license for PortoComercial, had only visibility in the 2nd half of this fiscal year, to the extent that the contract was terminated on December 4, However, this impact was compensated by the development of other business areas within the PortoComercial. The business ratio of the company increased 32%, driven by the fact that the sale of merchandise, which contributed 2.1 M has returned to be managed by the company. The successful marketing of the concepts of Corporate Hospitality continues to have strong representation in the income structure of the company, but remained stable in value terms over the financial years since its marketing has always led to an occupancy rate close to 100%. In early October 2008 there was another change in the business PortoComercial, as it became responsible for marketing services in non-sports events held in the Estádio do Dragão, prior activity within the PortoEstádio. This service, although it was already assigned to PortoComercial during the year under review, had a considerable impact on the income structure of society, since it contributed with more than one million euros for the business ratio. Thus, the activity of PortoComercial during this financial year recorded a total income of 11.2 M, representing an increase of 32% over the same period last year. values in milliards of euros Porto Comercial 2006/ / /2009 Turnover 6.752, , ,1 Total Income 6.814, , ,8 Total of Costs before taxes 6.664, , ,5 Period Result 103, ,2 396,7 Cash-Flow 388, ,7 921,5 Alongside the alteration in the income composition, also the cost structure has underwent some alterations. The cost of goods sold, which had an almost residual value, is now responsible for 13% of operating costs of the company. Supplies and services also suffered a considerable increase in order to guarantee the usual quality in the organization of events held. There was also a significant increase in staff costs, given the increase in the number of staff needed to ensure the business areas that fall within the PortoComercial again. During this period they also recorded impairment losses to deal with bad debts of receivables and depreciation of goods, a total of 412mil Euros. The combination of these factors allowed the acquisition by PortoComercial, a net profit of 397 thousand Euros. 31

30 A3 Evolution of Company Business PortoEstádio PortoEstádio, owned entirely by FC Porto - Futebol, SAD, is a company conceived and directed towards the management and operation of sports facilities of the FC Porto Group. Currently, the company is responsible for the Estádio do Dragão and the Center for Vocational Training and Sport, but also by Vitalis Park and the Home Youth Soccer, giving the daily exploitation of the latter a large percentage of its business ratio. Near the end of the period under review, April 23, 2009, the Dragon Box premiered, the new pavilion of the club, located next to Estádio do Dragão. This pavilion will play host to three sports modalities of the club (hockey, handball and basketball), and can also host other events of sporting nature and culture. This modern infrastructure, with capacity for 2007 seats, will also be managed and operated by PortoEstádio. To further rationalize the activities of PortoComercial and PortoEstádio the marketing of non-sporting events held in the Estádio do Dragão, previously performed by PortoEstádio, is now managed by PortoComercial on the understanding that the latter is more suitable for this activity. PortoEstádio maintains the responsibility of organizing the games and the performance of the non-sporting events. This, despite not having committed the revenue, since there was an increase of about 21% of the total income generated by the company, came to influence the outcome, since this is the only exercise in the last three years, which presents a result of practically zero. values in milliards of euros Porto Estádio 2006/ / /2009 Turnover 5.990, , ,3 Total Income 6.218, , ,3 Total Costs before Taxes 5.928, , ,8 Result of the Period 187,8 70,8 0,3 Cash-Flow 516,5 873,3 351,7 As shown by the analysis of the above table PortoEstádio showed a significant increase in the business ratio around 19% over the same period last year. This increase was due basically to the growth in revenues related to the events. Providing services in events, including football games remains the main portion of the income structure of the society. However, the non-sporting events continue to be very important, since the smaller events that take place daily, as some with more focus, are becoming more and more common in the Estádio do Dragão, as São João, or Festival Panda. In the year under review it was particularly important to conduct an event that needs no introduction, the Race of Champions an event that mixes top drivers in motorsport. This event, unique in Portugal, called for the construction of a real racing track in place of lawn, which reflects the enormous capacity and versatility that a modern and well-designed stadium can provide to a variety of audiences. 32

31 Futebol Clube do Porto - Futebol, SAD Report and Consolidated Accounts 2008/2009 In terms of costs, there was a substantial increase, taking into account the business ratio, which is due solely to an increase in supplies and services to cope with the realization of events carried out, especially the aforementioned Race of Champions, which forced the company to have high costs. In the remaining cost items there have been no major changes made in the same period of the previous year. It is also reflected in these accounts, an adjustment of customers debts due to failure to meet deadlines for receipt of credits, as well as strengthening the provision made in 2007/2008, to deal with a case brought by a third party for the cancellation of the Festival of the Dragon, which should have taken place in 2005, totaling 190 billion euros. This is a transitional year in which the PortoEstádio stopped operating a business area from which he drew a considerable margin, the marketing of services in non-sporting events, now it only operates these same events, so the result of the society suffers this transition. Despite the net about zero, the PortoEstádio generated a cash flow, which reflects the cash flows for the business, of about 352 thousand euros. PortoMultimédia The PortoMultimédia is held directly and indirectly 70% by FC Porto - Futebol, SAD. The main activity of the company consists of editing, production and marketing of multimedia content management and commercial exploitation of products and services of the club through remote channels, which include the Internet, Mobile Phone and the production of periodicals and non-periodic digital format. In carrying on the 2008/2009 season, PortoMultimédia significantly expanded its level of activity in various business areas at the same time presenting novelties and new features in line with its strategy of continuous innovation. At the end of the season, to lead the conquest of the fourth title in the Portuguese Football League, a new official site started with completely new graphics, more appealing and more simple, particularly in terms of menu structure, thus increasing the levels of usability from visitors. In addition there was a presentation on the home page and on the main page of videos relating to special international achievements and the achievement of the fourth title by the first team. The new site also includes platforms that bring together members and supporters of the Club such as direct access to micro-blog Twitter FC Porto and the introduction of three thematic blogs (Dragon Seat, and Dragon Force Dragon Tour). There is also innovation in the area of video content, by entering into a partnership with an operator of television and two mobile operators which allowed for the first time in Portugal to view live coverage of some games of FC Porto., The Portuguese Football League, the Meo Mobile service. In addition to the renewed and adding content, there is a fundamental aspect: the English version of the site. At a time when FC Porto is the Portuguese club with the highest reputation on the international scene, and won more titles, publishing information in English has become essential, which 33

32 A3 Evolution of Company Business shows a clear commitment to the internationalization of the brand. The debut of the new layout, on 5 June 2009, was marked by a video message from the president of the club. With regards to available services in the Club media channels there was a very significant increase in transactions, particularly in the area of ticketing and payment of shares. The sale of tickets for games at Estádio do Dragão registered historical levels of sales in the Champions League European Cup, including the game quarter finals where the opponents were Manchester United. The system of sale completely integrated with the information system of the club showed a good capacity to meet the high demand and experienced the same thing with the annual renewal of seats at the end of the season. Also in the sale of tickets capital gains at the level of delivery service to the club associates have been introduced contemplating new local surveys with extended opening hours in commercial spaces. values in milliards of euros Porto Multimédia 2006/ / /2009 Turnover 434,5 432,2 443,4 Total Income 440,4 432,2 443,4 Total of Costs before Taxes 467,5 477,9 488,5 Period Result -27,1-45,7-45,1 Cash-Flow -23,3-42,9-42,8 Moving to the results, it appears that there is little variation over the years, which derives from the fact that the accounts presented above reflect accounting movements inherent in the contractual structure of company activity. The structure of income, representing a total of 443m, reflecting the expertise in the exercise of the advance received for supplying the Sportinveste Multimedia on an exclusive basis and for a period of 10 years, a set of rights capable of online businesses. With regards to costs, there is a slight increase due to the increase in supplies and services. The net result was, in this exercise, negative about forty-five thousand euros. PortoSeguro On 28 June 2007, FC Porto - Futebol, SAD acquired from FC Porto a 90% share of the capital of Porto- Seguro, Ltd. This well known company engaged in the activity of insurance mediation was evaluated by an external entity, in 1.4 M. The PortoSeguro represents many different insurance companies, particularly larger ones operating in the market in non-life and life, and its portfolio of companies consists mainly of individual customers, especially in terms of representing the Group Futebol Clube do Porto itself. Throughout the activity of insurance mediation and on the Ranking of the top 20 corporate agents PortoSeguro is located on the 19th being that insurance agents of collective people with corporate 34

33 Futebol Clube do Porto - Futebol, SAD Report and Consolidated Accounts 2008/2009 headquarters in Porto there are only three, one belonging to a group banking (12.) and another of a large business group (15.). Please note that other companies are mostly owned by financial institutions and national and multinational car companies. There is in this sector a high concentration of companies with headquarters in Lisbon (11). Although the purchase price is already reflected in the stock of FC Porto - Futebol, SAD in the 2006/2007 financial year, the operating business of PortoSeguro on this exercise has not been included in the consolidation report. So, this is only the second fiscal year in which the FC Porto - Futebol, SAD consolidates its accounts with the PortoSeguro, so we will just present the figures for these two periods. values in milliards of euros Porto Seguro 2007/ /2009 Turnover 675,4 574,6 Total Income 710,2 588,4 Total Costs before Taxes 760,0 617,1 Period Results -52,4-30,5 Cash-Flow -9,7 8,3 Regarding the financial situation of the company, it was verified during the period, a decrease in the business ratio of around 15%, which is derived not so much by the reduction in size of the portfolio of awards, but especially by margins earned. The year 2008 was marked by economic and financial crisis that began in the summer of 2007 and whose peak was reached in September Macroeconomic and financial climate, observed internationally, resulted in significant losses for some financial groups, in particular for the insurance ones. Add to that the domestic insurance market is also hampered by the international situation due to the urgent need to appeal to the world market reinsurer, with increased costs, reduced commissioning and lack of business placement. To make matters worse, during the year 2008, there was an increase of 20% of insurance agents, category of intermediary insurance which includes the PortoSeguro, which meant more and stronger competition in this market. The costs of the company suffered a proportional decrease in the order of 19%, thus achieving a positive cash flow, which allows the company greater ability to flow. Net income for the period was negative at around 31 thousand euros. 35

34 A3 Evolution of Company Business A 4OTHER FACTS OCCURRING DURING THE EXERCISE 36

35 Futebol Clube do Porto - Futebol, SAD Report and Consolidated Accounts 2008/2009 * On the 15th of July 2008, FC Porto - Futebol, SAD was informed of the decision of the Court of Arbitration for Sport on appeals by Sport Lisboa e Benfica Futebol SAD and Vitoria Sport Clube with the decision rendered on June 13, 2008 by Appeals Committee of UEFA. The Court of Arbitration for Sport rejected the appeals. Therefore, it remained the decision of the appeals committee of UEFA that has confirmed the participation of FC Porto in the 2008/09 UEFA Champions League. * On the 13th of November 2008, FC Porto - Futebol, SAD voted in the General Assembly, the Audit Committee of the Society for the four years 2008/2011, on the death of the former President. The new Audit Committee is now composed of: José Paulo Sá Fernandes Nunes de Almeida (President) Armando Luís Vieira de Magalhães Filipe Carlos Ferreira Avides Moreira José Manuel Taveira dos Santos (Substitute) * On the April 3rd, 2009, the acquittal of the President of the Board of Directors of FC Porto - Futebol, SAD under the Apito Dourado was known. The multiple processes that were originated in the extracts taken from the Apito Dourado, was successively filed, and the chairman of FC Porto - Futebol, SAD was exonerated of any and all charges. * On April 28th 2009, FC Porto - Futebol, SAD and Unicer signed a partnership agreement, valid for the triennium By this contract the society gives and ensures the status of main sponsor of the Professional Football Team, which allows them to advertise on the official equipment. * FC Porto - Futebol, SAD formalized on 3rd June 2009, the agreement to extend for a further two seasons, i.e. until 30th June 2011, the employment contract that binds the company to the coach of the first team, Jesualdo Ferreira. * On 4th June 2009, FC Porto - Futebol, SAD completed its acquisition of 80% of the sports subscription of the player Álvaro Pereira, for 4.5 M. The athlete has signed an employment contract with a duration of 5 athletic seasons, to which a termination clause of 20M was imposed. The economic and financial effects of this acquisition will be the formalized in the year 2009/2010. * Under the scope of the society s bond issue, it the payment of interest on the coupon No. 4 and No. 5, the Bond Loan on 15 December 2008 and June 15, 2009, respectively was done. The reimbursement of the operation will take place on December 15, 2009, as defined in the prospectus of the public offer. 37

36 A3 Evolution of Company Business A 5RELEVANT EVENTS OCCURRED AFTER THE CLOSE OF THE YEAR 38

37 Futebol Clube do Porto - Futebol, SAD Report and Consolidated Accounts 2008/2009 * On July 6th, 2009, FC Porto - Futebol, SAD bought for 5M, the sport registration fees and 50% of the economic rights of the player Fernando Belluschi, to the Olympiakos of Greece, having the athlete signed a contract of employment lasting for 5 sports seasons and with a break clause of 30M. * On 7th July 2009 to FC Porto - Futebol, SAD reached an agreement with the Olympique Lyonnais (Lyon) for the sale of sports subscription rights of the professional soccer player Lisandro Lopez in the amount of 24M. The total amount to be received by this transfer may reach 28M, depending on the sporting performance of the club that the athlete has come to represent. * On 15th July 2009, FC Porto - Futebol, SAD bought, M, the sport registration fees and 60% of the economic rights of the player Radamel Falcao, from River Plate, and the player signed a contract of employment with a duration of 4 sport seasons with a break clause of 30M. * On 18h July 2009, FC Porto - Futebol, SAD sold for 15M, the registration Sports rights of the player Aly Cissokho to Olympique Lyonnais (Lyon). The company has secured 20% of the added value that Olympique Lyon may get as a result of an eventual transfer of the player. * FC Porto - Futebol, SAD decided on 21st August 2009 to extend for a further two seasons, i.e. until 30 June 2014, the employment contract that binds the firm and its player of Givanildo Vieira de Souza ( Hulk ) and changed its termination clause to 100M. 39

38 A3 Evolution of Company Business A 6PROSPECTS 40

39 Futebol Clube do Porto - Futebol, SAD Report and Consolidated Accounts 2008/2009 With the accountability of 2008/2009, which for the third consecutive year shows a positive result, it is observed that the capital structure of the society has improved significantly, according to the results presented. The budget of the company for the financial year 2009/2010 announced a very positive panorama; this paves the greater strength and consistency in the capital structure of society, while maintaining the goal of competing at the highest level in 2009/2010. The added value of transfers already achieved with the sale of subscription rights of the sports player Lisandro Lopez and Aly Cissokho to Lyon in July, helped to ensure important revenue for the company and the prospect of a positive result next season. On the recurring question of compliance with the Article 35 of the Companies Act, the Board of Directors of FC Porto - Futebol, SAD believes that, depending on the profits of the year 2008/2009 and the estimate budget for the fiscal year of 2009/2010 to be presented at the Annual General Meeting, the capital structure of the society will appear naturally improved. Reinforcing this, the Board provides that the publication of the results for the 1st quarter of 2009/2010 will already provide results of operations enabling the company to get under that article. FC Porto - Futebol, SAD assured, once again, its presence in the most important competition of the European football, UEFA Champions League, thus maintaining its status of record attendance at the event. At the time of this report, FC Porto is placed 2nd in the group, led by the colossal English team Chelsea and thus with good prospects for following the 1/8F of the race. In addition to the direct financial results, awarded by UEFA, the presence of FC Porto in the great showcase of European football, where players strongly shine, it is essential their valorization as economic assets of the society. This is the vision we have for our future. Modern football requires sporting and economic efficiency. This is the fate of F. C. Porto - Futebol, SAD. That is why we clearly bet on the training of talents and in early detection of the best players. This is where we want to make a difference. 41

40 A3 Evolution of Company Business A 7INFORMATION SHARES 42

41 Futebol Clube do Porto - Futebol, SAD Report and Consolidated Accounts 2008/2009 FC Porto - Futebol, SAD has, in terms of consolidated accounts, 100 shares, valued at 499. These shares, with a very small representation in the capital of the company are held by PortoSeguro, society in the consolidation, owned 90% by FC Porto - Futebol, SAD. The PortoSeguro acquired the 100 shares at the time of the formation of the Public Limited Sports Company in 1997 and has not since then sold or purchased any further stock. Thus, FC Porto - Futebol, SAD had consolidated in terms of both the beginning and the end of the period under review, 100 shares, with an acquisition cost of