Sonae Indústria, SGPS, SA

Transcription

1 2001 Report and Consolidated Accounts Sonae Indústria, SGPS, SA Company with share capital open to public investment

2 2 Report and Consolidated Accounts ISONAE INDÚSTRIA, SGPS, S.A Contents 3 Main events 5 Economic and Financial Indicators 9 Group Structure and Statutory Bodies 13 Board of Directors Report Business and Economic Environment 2. Operational Review 2.1. Germany 2.2. France 2.3. The United Kingdom 2.4. Portugal 2.5. Spain 2.6. Brazil 2.7. Canada 2.8 South Africa 3. Gescartão 4. Human Resources 5. Shared Service Center 6. Eco-efficiency 7. Euro 8. Information Technologies and E-Business 9. SONAE INDÚSTRIA own shares 10. Dividends Proposal 11. Financial structure and changes in SONAE INDÚSTRIA S structure 12. Consolidated accounts assessment 12.1 Consolidated Profit and Loss Account Consolidated Balance Sheet 13. Outlook 14. Final Remarks 31 Appendix Corporate Governance 41 Consolidated Financial Statements 50 Notes to the Consolidated Financial Statements

3 Report and Consolidated Accounts ISONAE INDÚSTRIA, SGPS, S.A Main Events January Start-up of the new wood veneer production line in Gabon. February Environmental certification by EN ISO of the industrial plants in Meppen (Germany) and in Knowsley (United Kingdom). Start-up of the Cuéllar sawmill in Spain. March Start-up of the Souselas sawmill in Portugal. Closure of the decorative chipboard production plant at Peterlee, in the United Kingdom. Approval of SONAE INDÚSTRIA SGPS, SA s capital increase from EUR to EUR during the Annual Shareholders General Meeting. April Divestment of the hardboard production plant at Labruguière in France. Renaming into EURO of SONAE INDÚSTRIA SGPS SA s share capital to EUR by voluntary reserves incorporation of PTE ,70. May Sale of the affiliates Somit and Aserraderos de Cuéllar to Soflorin, BV, company held by Sonae Capital. June SONAE INDÚSTRIA SGPS, SA s share capital increase from EUR to EUR Start-up of the new chipboard line at Lure in France, with a production capacity of 450,000 m 3 /year. Start-up of the new thin MDF production line at Le Creusot in France, with a production capacity of 125,000 m 3 /year. Start-up of the new formaldehyde and resins production plant at Sines in Portugal. Merger of Roltech with Plysorol SAS, both legal bodies of Isoroy s plywood industrial business. July Start-up of the new chipboard production line at Linares in Spain, with a production capacity of 450,000 m 3 /year. Start-up of the new melamine surfacing line at Oliveira do Hospital in Portugal.

4 4 Report and Consolidated Accounts ISONAE INDÚSTRIA, SGPS, S.A August Start-up of the new thin MDF production line at Piên in Brazil, with a production capacity of 200,000 m 3 /year. Start-up of the new chipboard production line at Nettgau in Germany, with a production capacity of 550,000 m 3 /year. Sale of the affiliate SONAE Produtos e Derivados Florestais SGPS SA to SONAE SGPS SA. September Start-up of the Shared Service Center, a pilot project in back-offices migration and centralisation of several countries where SONAE INDÚSTRIA operates. Start-up of the new OSB production plant at Nettgau in Germany, with a prodution capacity of 300,000 m 3 /year. Closure of the chipboard production plant at Sassenburg in Germany. Acquisition of RGR Reciclagem e Gestão de Resíduos, SA from SONAE Produtos e Derivados Florestais, SGPS SA s portfolio. October Start-up of the new MDF coating line at Le Creusot in France. December Closure of the chemicals production plant at Valencia in Spain; Partial corporate structure reorganisation in France by establishing the industrial plants in four legal autonomous entities: Casteljaloux (Isoroy Casteljaloux), Chatellerault (Isoroy Chatellerault) and Honfleur (Société de Tranchage Isoroy and Société Essences Fines Isoroy); Plysorol SAS holds the former Isoroy SAS s Leroy Gabon and Placage Okumé du Gabon shareholdings; Share capital increase of Sonae Serviços de Gestão from EUR to EUR ; Acquisition of Ecociclo Energia e Ambiente, SA from Sonae Capital (Spinveste SGPS), whose object is the development of business opportunities related to wastes recycling and energy recovery.

5 1 Economic and Financial Indicators

6 6 Report and Consolidated Accounts ISONAE INDÚSTRIA, SGPS, S.A Economic and Financial Indicators Economic Indicators /00 Turnover EUR (10 6 ) 1.294, ,1 16% PTE (10 9 ) 259,5 301,1 Operational Profit EUR (10 6 ) 29,6 24,4-18% PTE (10 9 ) 5,9 4,9 Profit from Ordinary Activities EUR (10 6 ) - 13,4-51,8 n.s. PTE (10 9 ) - 2,7-10,4 Profits before Taxation EUR (10 6 ) - 5,1-87,5 n.s. PTE (10 9 ) - 1,0-17,5 Net Profit + Minority Interests EUR (10 6 ) - 13,4-61,3 n.s. PTE (10 9 ) - 2,7-12,3 Net profit EUR (10 6 ) - 21,4-70,7 n.s. PTE (10 9 ) - 4,3-14,2 n.s. not significant. Financial Indicators Total of Net Assets EUR (10 6 ) 2.256, ,5 PTE (10 9 ) 452,5 518,1 Capital Employed EUR (10 6 ) 1.661, ,0 PTE (10 9 ) 333,0 343,8 Shareholders Funds + Minority Interests EUR (10 6 ) 592,6 532,4 PTE (10 9 ) 118,8 106,7 Since the applied formulas were different this year, they are stated below: Capital Employed = Shareholders Funds + Minority Interests + Loans through MLT and ST bonds + MLT and ST debts to credit institutions + Affiliates MLT and ST loans + other MLT and ST loans Negociable Bonds Bank Deposits and cash money - MLT and ST loans to affiliates. Net Borrowing = Loans contracted through MLT and ST bonds + MLT and ST debts to credit institutions + Other MLT and ST loans Negociable bonds Bank deposits and cash money. Interest Cover Ratio = EBITDA / Interest Paid = (Operational Profit + depreciation + provisions) / Interest Paid. REMARK: 2001 results are not directly comparable with those of previous years because of the inclusion of Imocapital (and consequently Gescartão) in the scope of consolidation together with changes in accounting policies and consolidation procedures.

7 Report and Consolidated Accounts ISONAE INDÚSTRIA, SGPS, S.A Evolution of Financial Indicators Net Borrowing / Shareholders' Funds + Minority Interests Net Borrowing Interest Cover 129% 131% 151% % * Figure: EUR Turnover Investment in Fixed Assets 1,375 1,294 1, Figure: EUR Figure: EUR 10 6 Net Fixed Assets Employees 1,661 9,933 1,328 8, ,962 3,106 * Consolidated figures including Glunz since * Figure: EUR

8 8 Report and Consolidated Accounts ISONAE INDÚSTRIA, SGPS, S.A Evolution of Operational Indicators (wood based panels) Sales by product Operational Income by Employee Chipboard 14% MDF 21% Plywood 8% Others 9% Surfaced 26% Figure: EUR 10 3 OSB 1% Value added products 14% Hardboard 2% Flooring 5% Sales by market Boards production Capacity (1000 m 3 ) Rest of the World South Africa 5% 5% Portugal 8% 8,471 South America 5% Spain 16% 7,276 North America 9% 5,661 Rest of Europe 11% France 17% United Kingdom 7% Germany 17%

9 2 Group Structure and Statutory Bodies

10 Group Structure Compared with the group structure on December, 31st 2000, Sonae Produtos e Derivados Florestais moved into SONAE, SGPS SA s scope of consolidation and Gescartão is now under SONAE INDÚSTRIA SGPS SA s scope of consolidation by the line-by-line integration method through Imocapital. SONAE SGPS, S.A. EUR % SONAE INDÚSTRIA SGPS, S.A. EUR % 91.23% 50.0% Sonae Indústria de Revestimentos EUR TAFISA EUR IMOCAPITAL EUR % GESCARTÃO EUR

11 Report and Consolidated Accounts ISONAE INDÚSTRIA, SGPS, S.A Statutory Bodies Board of the Shareholders General Meeting Members of the Board of Directors Luzia Gomes Ferreira - Chairman Júlia Maria Moreira da Silva - Vice-Chairman Anabela Nogueira Matos - Secretary Board of Directors Belmiro Mendes de Azevedo - President Duarte Paulo Teixeira de Azevedo Fernando Manuel de Sousa Carvalho José Antonio Comesaña Portela José Fernando Maia de Araújo e Silva Manuel Guilherme Oliveira da Costa Sergio Ricardo González Andión Single Statutory Auditor Belmiro Mendes de Azevedo Presidente Age 64 Degree in Industrial-Chemical Engineering (Oporto University) With Sonae since 1965 President of Sonae, SGPS, SA Director for Portugal of the Association for the European Monetary Union Member of Clube México-Europa 2000 Member of the European Union Hong-Kong Business Cooperation Committee Member of the World Business Council for Sustainable Development Member of the International Advisory Board of Allianz AG Member of the Advisory Board of London Business School Effective Magalhães, Neves e Associados, SROC represented by: Jorge Manuel Araújo de Beja Neves Substitute António Dias & Associados, SROC represented by: António Marques Dias Duarte Paulo Teixeira de Azevedo Age 36 Degree in Chemical Engineering EPF Lausanne MBA EGP (former-isee /Oporto University) With Sonae since 1988 Board Member of Sonae SGPS SA CEO of Sonae.com Headed the Planning and Control Department of Sonae Investimentos Board Member of Modelo Continente, responsible for Sales, Marketing and IT CEO of Optimus

12 12 Report and Consolidated Accounts ISONAE INDÚSTRIA, SGPS, S.A Fernando Manuel de Sousa Carvalho Age 60 Degree in Industrial-Chemical Engineering (Oporto University) With Sonae since 1972 Member of various national and international professional associations and advisory committees. Former board member of Tafisa José Antonio Comesaña Portela Age 55 Degree in Mechanical Engineering (Industrial Engineering School - Barcelona, Spain) With Tafisa since 1974 With Sonae Indústria since 1993 Board Member of Tafisa. Member of Tafisa s Executive Committee and Director of other Group companies. José Fernando Maia de Araújo e Silva Age 50 Degree in Economics (Oporto University) With Sonae since 1989 Board Member of Tafisa Former Director of Soserfin Headed BES (Espírito Santo Bank) International Department. Manuel Guilherme Oliveira da Costa Age 50 Degree in Economics (Oporto University) Board Member of Portucel SA Board Member of Soporcel SA Board Member of Gescartão, SGPS, SA and affiliates Adjunct Assistant Professor of UCP (Portuguese Catholic University) Former President of the Board of ICEP Non-executive Director of FIEP Assistant Professor of FEP (Oporto Faculty of Economics) Sergio González Andión Age 49 Degree in Industrial Engineering (Universidad Iberoamericana) MBA KUL, Leuven, Belgium With Sonae since 1996 Board Member of Tafisa CEO of Tafisa Former partner of McKinsey

13 3 Board of Directors Report

14 14 Report and Consolidated Accounts ISONAE INDÚSTRIA, SGPS, S.A To the Shareholders: In accordance with legal and statutory obligations, we submit the report and consolidated accounts for the fiscal year ended 31 December BUSINESS AND ECONOMIC ENVIRONMENT Economic Environment During 2001 the world economy suffered a strong slowdown, mainly due to a lack of trust, emphasized by the events of September, 11th. In 2001, the OECD economies might have grown by 1 per cent, a clear contrast with the 4.3 per cent growth in From a strictly economic viewpoint, September 11th events resulted in an increase of a general risk aversion seen in the consumers and investors behaviour. The financial area was one of the most affected with a hardening of financing conditions to the most indebted and greater risk economies. The world economic slowdown was more noticeable in the USA, mainly in the second half of the year, the GDP growth rate is expected to decrease from the 4.1 per cent in 2000 to around 1 per cent in After a constant restrictive monetary policy as a precaution against the risk of inflation increase during the last years of the nineties, the Federal Reserve reacted promptly towards the change felt in the United States with eleven successive cuts on interest rates, achieving the fed funds rate the lowest level in the last 40 years per cent -, expanding, thus, the monetary policy. The strong North-American economic slowdown was mainly due to a lack of trust worsened by the events of September, 11th. At the end of 2001, the unemployment rate in the North-american economy was around 4.9 per cent, far above the best figures achieved, 4 per cent, in Closely influenced by the North-american economy, in 2001, the Canadian economy, might have achieved an economic growth of 1.4 per cent similar to the United States, also reflecting a strong slowdown in the growth drive when compared with the 4.8 per cent of 2000 growth rate. The European Union economy, although less affected, suffered the effects of the North-american growth slowdown, with an exports decrease to the USA and a fall in the stock exchanges, cause and consequence of a general lack of trust associated with a general fall at the expectations level. In 2001, the Euro-Zone might have grown 1.6 per cent, far below the 3.4 per cent growth rate in 2000.

15 Report and Consolidated Accounts ISONAE INDÚSTRIA, SGPS, S.A The German economy, responsible for one third of the Euro-Zone GDP, might have grown 0.7 per cent in 2001 against 3 per cent in In Germany the civil construction and public works sectors stand out negatively due to the fall in housing private investment, which is expected to continue during 2002, the third consecutive year: foreseen decrease of 2.4 per cent, after having fallen 2.9 per cent in 2000 and 6.9 per cent in The remaining economies had also lower performances in 2001 when compared with the previous year: France is expected to have grown 2.1 per cent (3.5 per cent in 2000), Italy 1.8 per cent (2.9 per cent in 2000) and the United Kingdom 2.3 per cent (2.9 per cent in 2000). During 2001, the Portuguese economy, as a small economy highly open to foreign interests, reflected the unfavourable international economic situation. It is estimated to have grown 1.7 per cent in 2001, below the 2.7 per cent in In 2001 the growth of the Portuguese economy was predominantly assured by the net foreign demand: export and import growth rates of 6.7 per cent and 2.7 per cent, respectively. As a consequence of the families adjustment process to the excessive indebtdeness incurred in previous years, the private consumption growth did not surpass 1.1 per cent, and the most negative performance was the growth rate of gross fixed assets (negative 1 per cent). Public consumption grew at a rate higher than the economy growth rate as a whole, 1.9 per cent, increasing, although as a marginal effect, the weight of public expenditure within GDP. Expectations for the next year point again to a very moderate growth rate of the Portuguese economy, between 1 per cent and 1.75 per cent. In most European countries, the public finance situation hinders the implementation of a deliberately expanding fiscal policy similar to the one of the United States. For instance, Germany with GDP deficits of around 2.6 per cent in 2001 and foreseen for 2002 is close to the limit established by the Growth and Stability Pact (3 per cent of GDP). A second reason to explain the difficulty in the implementation of a deliberately expanding policy in the European Union within the Euro-Zone has to do with the European Central Bank guidelines concerning monetary policy: interest rates did not decrease more than 150 basis points between December 2000 and December 2001 (compared with the 375 basis points fall in the United States). Except for the United Kingdom, the persistency of the inflation rate (2.5 per cent within the Euro-Zone for 2001) together with the monetary growth above the established limits make the possibility of expanding the European monetary policy today less probable than it had been estimated. The third reason of structural nature responsible for limiting the European economy recovery has to do with the labour market functioning, as less flexible than the United States s, creates more difficulties to the restructuring process of the European industrial companies already living in a recession period. Considering the aforesaid, the Euro-Zone economy growth is expected to reach 1.4 per cent in 2002, slightly below the 1.6 per cent achieved in 2001.The German economy growth will recover slightly (1 per cent in 2002 against 0.7 per cent reported in 2001); except for Finland, all remaining economies are expected to slow down when compared with the previous year s figures. The Brazilian economy was not indifferent to the economic slowdown felt in the United States and, already in the second half, was also affected by the Argentina financial crisis. Brazil s capacity to endure the tango effect is still to be exactly measured. However, in 2001, the strong devaluation of the Real currency compared with the euro (more than 20 per cent) and above all, compared with the American dollar (more than 22 per cent) made the foreign direct investment in the Brazilian economy more risky and its return more uncertain. Furthermore, the Brazilian economy was affected by the energy rationing occured in several Brazilian states, also due to financial structural problems (public debt and foreign debt in strong currency), as well as by the

16 16 Report and Consolidated Accounts ISONAE INDÚSTRIA, SGPS, S.A significant increase of the Selic short-term interest rate, with negative consequences to the consumption credit. In 2001 the Brazilian economy is estimated to have grown 1.5 per cent against a 4.2 per cent growth in the previous year. With regard to the South African economy, after a growth rate of 3.4 per cent in 2000, it is expected to have grown 2 per cent in 2001, as a consequence of the strong devaluation of the Rand and the loss of direct foreign investment. Attempting to foresee the evolution of the worldwide economic situation for 2002 and as the domestic consumption is the main growth factor in the North-american economy - the growth drive of the world economy - successive interest rates cuts, not only in the USA but in the Euro-Zone as well, are expected to favour a stronger economic dynamic, mainly as from the second half of The upward evolution of the long-term interest rates are a signal of the aforesaid. In what prices evolution is concerned, it is expected that the deflation process, helped by the oil price fall, proceeds softly throughout the first half of 2002, in order to enable, during the second half of 2002, a slow and gradual price increase process, resulting from a foreseenable worlwide economy recovery and employment increase. Business Environment In 2001 the global wood-based panels consumption might have grown on average 1 per cent, reflecting the strong economic slowdown reported in almost every country where SONAE INDÚSTRIA operates. However, there was a clearly distinct evolution according to geographical areas and among different products. As it is well known, wood-based panels consumption depends strongly on the evolution of furniture production and demand and of the construction activity. The last Euroconstruct statistics published in December 2001 report a standstill in the European construction industry during the previous year. As an indirect consequence, the wood-based panels industry in Europe reported an almost non-existent growth. The worldwide economy slowdown was particularly felt in countries of Central Europe, mainly in Germany, although the Iberian Peninsula was also affected. This factor was added to other aspects already considered as determinant of the market evolution, for instance, its own maturity and the progressive standstill and ageing of the European population. Meanwhile, the United Kingdom stood out positively with a new housing construction growth rate of 12 per cent when compared with the previous year and expecting a more rapid consumption recovery than in other European country members for However from the production viewpoint intensively dependent on export, the situation is still difficult and will remain unchanged during In Portugal, although 2001 also registered a decrease in the civil construction activity and an economic cooling, the market had a slight positive performance. If these trends are maintained during 2002, they will put a stronger pressure on prices. In Spain, the economic crisis impact on furniture and civil construction sectors was lower than in other countries, and the latter activity even reported a 5 per cent growth in A quick analysis on the behaviour of wood-based panels European market during 2001 will show that MDF and OSB had a more satisfactory performance than chipboard: the first ones saw their markets grow between 5 and 10 per cent, whereas chipboard a mature product reported on average a slightly decrease. Furthermore, hardboard has been gradually being replaced by MDF in most usual applications, decreasing its importance in the European wood-based panel market. In 2002 this market behaviour will still be strongly conditioned by the macroeconomic evolution. On the other hand, market maturity in Western Europe will correspond to a demand growth in Eastern Europe, namely in what chipboard is concerned. Considering this, it is expected that the chipboard European market reports a stable situation in terms of consumed volumes. A special remark to the fact that this is the key reference product for decorative surfacing. With regard to MDF, the positive market evolution of laminate flooring, a large consumer of this product, together with the natural development of a growing

17 Report and Consolidated Accounts ISONAE INDÚSTRIA, SGPS, S.A product leads to expect that MDF demand in Europe will grow higher than 4 per cent. OSB, on the other hand, has been steadily achieving a market share, either by replacing plywood or by being used in new applications, namely in construction, and its consumption will increase above 10 per cent in However due to a recent start-up of several OSB production plants in Europe, this market will suffer a competitive pressure within the next few years. Driven by the macroeconomic evolution, wood-based panels demand in North America suffered a significant decrease. In 2001 the chipboard demand decreased almost 5.5 per cent when compared with the previous year, whereas the evolution of MDF consumption reported a fall of 1 per cent. These reductions were exclusively due to the USA market performance, since in Canada there was a clear positive evolution on wood-based products demand. Meanwhile this downward trend in the United States reported in a period of reduced market trust levels might reverse with the expectations revival of the economic agents and the return to higher economic growth levels. Nevertheless, evolution might be even more favourable in Canada due to the higher price-competitiveness relationship attained by the currency rate, although the market might be still affected by the renegociation outcome of the new commercial agreement on forest products between Canada and USA and its impact on the wood fibre price. The Brazilian wood-based panels market had distinct performances in the first and second halves of the year. During the first half, there were no significant changes in market conditions, whereas in the second half a lower demand was felt, as a result of the economic slowdown. Even though this sector had a positive performance, and comparing with the previous year, the apparent consumption growth rate for 2001 was 6 per cent in chipboard, 60 per cent in MDF and 16 per cent in laminate flooring. The crisis evolution in Argentina, the energy crisis in Brazil and the events of September, 11th led to a significant increase in stock levels. At the same time, MDF and chipboard supply in the Brazilian market increased in 2001, with the start-up of new production capacities and the optimisation of the existing ones. This scenario enabled Brazil to reach the year-end with an economic situation of supply higher than demand evolution of the South-American market in general and Brazilian s in particular will depend upon the international economic situation, Argentina s capacity to recover from the current political and economical crisis and the evolution of the consumers trust levels. In Brazil, after the end of the energy rationing, the economic outlook for 2002, year of Presidential election, is relatively optimistic. However, the great increase in installed wood-based panels production capacity during 2001, together with the aforesaid high stocks level must be taken into account as they will definitely have a decisive impact on the sector companies performance. In South Africa, the economic slowdown brought a decrease on wood-based panels demand, although the domestic market is still ruled by import taxes protecting, thus, local producers from other countries competition. At the end of 2000, there was a significant stocks increase in the distribution channel, a way to avoid prices increases and achieve volume goals leading to an important demand reduction in the first months of Furthermore, furniture sales were quite low forcing some furniture manufacturers to produce 30 per cent below their production capacity to face a less favourable economic situation. The evolution of wood-based panels market for 2002 will stay strongly dependent from the economic situation. The performance of SONAE INDÚSTRIA s affiliates kept pace with the economic and competitive evolution of markets where they operate. Thus, with the exception of the United Kingdom, the lower economic growth felt in Europe unfavoured the performance of companies operating in those markets, namely France and Germany. On the contrary, despite the less favourable economic situation, in the United Kingdom, operational improvements and efforts developed to conquer market share enabled the overcome

18 18 Report and Consolidated Accounts ISONAE INDÚSTRIA, SGPS, S.A of an adverse economic environment. Due to a demand decrease, also average prices suffered similar negative variations. This trend was fought by enlarging the offer with more value-added products, and by improving customers service level. For 2002, in spite of moderate economic recovery expectations and European market revival, the outlook for SONAE INDÚSTRIA s European operations is quite optimistic, due to huge investments, restructuring and organisational efforts carried out during the last years. In Brazil, the 2001 turnover was slightly higher than in 2000, but the unfavourable exchange evolution left the Brazilian operation less profitable when assessed in a strong currency. In 2002 a larger MDF availability will probably allow the use of this product in classic chipboard applications and the development of new applications for furniture and civil construction, an important positive contribution for the company performance. The activity of Canada s affiliate suffered the standstill of the renegociation on the forest products commercial agreement between Canada and USA. Furthermore, the September, 11th events had a strong impact on consumers trust level and in the regular goods circulation between Canada and the USA. However, despite these difficulties, the start-up of the new chipboard production line in Canada in April 2000 allowed a significant turnover increase in North America. In South Africa, 2001 was a consolidation year of the industrial assets acquired in 2000, with a favourable evolution of the company s profitability. For 2002, the market for every wood-based panel is expected to maintain the trends registered in the previous year. Chipboard might maintain the previous sustained growth increase with regional fluctuations, according to each country economic evolution and specific market. For those products whose markets are growing steadily, the case of MDF and OSB, this trend is expected to be maintained, although at a lower pace, due to recent production capacity increase, mainly with OSB in Europe. 2. OPERATIONAL REVIEW The restructuring effort began in 1999 proceeded and during 2001 SONAE INDÚSTRIA achieved its major annual production capacity in history by fixed assets growth. In fact, 2001 stands for the year with more new installed production lines, either replacing old ones or greenfield investments: five new production lines: a chipboard line at Linares in Spain; a melamine surfacing line at Oliveira do Hospital in Portugal; a thin MDF line at Piên in Brazil; a chipboard line at Nettgau in Germany; an OSB line at Nettgau in Germany; two lines replacing old plants with unefficient industrial costs, quality and customer service: new chipboard line at Lure in France; new thin MDF line at Le Creusot in France. These investments provide a more competitive cost structure, increase the supply of value-added products and widen SONAE INDÚSTRIA s product range available to customers.

19 Report and Consolidated Accounts ISONAE INDÚSTRIA, SGPS, S.A Following the strategy of embracing key activities in the business value chain, upstream and downstream of the wood-based panel sector, 2001 registered the start-up of the new formaldehyde and resins plant in Sines (Portugal), of the new sawmills in Souselas and Cuéllar (in Portugal and in Spain, respectively), and of the wood-veneer production plant in Gabon. These investments assure SONAE INDÚSTRIA s lower dependency on suppliers and external factors, such as oil price variation, further to operational and logistic clear improvements. Both sawmills have a high automation level enabling the optimisation of a sustained wood consumption, a key competitive factor in the Iberian Peninsula. Included in the profound restructuring plan began in 1999, SONAE INDÚSTRIA proceeded and deepened the assessment of its industrial fixed assets, closing plants that made no contribution in value creation due to their cost structure and to the markets where they operated. Thus, in 2001, the Peterlee plant in the United Kingdom, the Sassenburg plant in Germany and the Labruguière plant in France were closed. Still in 2001, the closure process of St. Pierre-sur-Dives (France) and Göttingen (Germany) began, and are expected to be concluded during the first half of In 2001 further to the normal process of start-up and ramp-up of new plants, the profitability of SONAE INDÚSTRIA s affiliates varied according to their industrial competitive levels and to the markets where they operate Germany SONAE INDÚSTRIA s operational activity in 2001 recorded the start-up of two lines in the Nettgau plant, one of chipboard and the other of OSB, both with the possibility of melamine surfacing and cut-to-size. This plant allows SONAE INDÚSTRIA to increase the presence in the OSB European market with a central geographical location, further to providing the company with a more competitive cost structure and better customer service. Due to the severe economic slowdown, turnover was lower when compared with the previous year, and average prices kept stable. Despite the lower sales volume, EBITDA margins maintained slightly 2000 levels, due to the operational optimisation effort, either on specific consumption or procurement and logistics management levels France In January 2001, the new flooring line in Ussel started up. With an annual production capacity of 6,400,000 m2, it reinforces SONAE INDÚSTRIA s range of products in the French market at competitive conditions. Pursuing the technological renewal strategy, in June, two new production lines, crucial to increasing profitability in this country, started up: a chipboard production line in Lure and a thin MDF production line in Le Creusot. Both lines operating in different markets have in common the possibility of producing value-added products, namely cut-to-size. The Le Creusot plant has also a coating line to guarantee the presence in some market segments. Within the French operation restructuring process, the hardboard plant in Labruguière (old and incapable of creating value) was closed down. The industrial assets modernisation was carried out together with an intense process of operational optimisation aiming at logistic management improvement in every procurement process, and at the installation of modern IT systems in every production plant. These will provide the plants with industrial and reporting management software enabling a more precise tuning and evaluation of the operational activity.

20 20 Report and Consolidated Accounts ISONAE INDÚSTRIA, SGPS, S.A Despite the improvements, the operational margin recorded a slight decrease in 2001 when compared with the previous year. Like in the German market, the macroeconomic evolution led to a turnover decrease, aggravated by a significant general reduction in prices. On the other hand, old lines replacement implied stoppage periods and start-up of new lines, with consequent learning costs and investments in training. The operational improvements were still unsufficent to sustain every mentioned adverse effects. One year after important human and financial investments with a still negative impact on the business profitability, 2002 will be an operational consolidation year in procurement management and logistic optimisation, interconnection of information systems, human resources rationalisation and utmost use of available capacity United Kingdom 2001 represented the first complete year of normal operational activity in the United Kingdom. The priority given to conquering market share and improving the operational conditions during the previous year was compensated by a significant operational margin improvement. Even with a downward pressure on prices, mainly during the second half of the year, as a consequence of the economic slowdown, sales increased significantly, mainly those of valueadded products, such as melamine faced chipboard and flooring. The technological layout of the Knowsley plant allows the use of wood wastes as the main raw material in the production process. The plant was licenced as accredited wood recycling unit and can issue PRN s (Packaging Waste Recovering Notes), environmental credits that can be sold in the market. These environmental credits, further than an additional profit source, reflect SONAE INDÚSTRIA s commitment to the sustainable use of forest resources Portugal 2001 was the first year of normal activity in the chipboard plant of Oliveira do Hospital, after the start-up in June 2000, recording a progressive increase in production volume and sales together with an operational margin growth. In July 2001 the new melamine surfacing line started up in Oliveira do Hospital. This line with a surfacing capacity of 85,500 m 3 per year will allow a sales mix improvement for value-added products. In June 2001, the formaldehyde and thermoplastic resins plant located in Sines started up successfully. This plant aims at supplying with resins every panel plant in the Iberian Peninsula, enabling, thus, the control on a vital component of production costs. From now on, SONAE INDÚSTRIA will be more protected from variations on oil prices and derivatives, decreasing risks on operational profitability. Reference should be made to the fact that in 2001 the first stage for the installation project of a large decorative paper impregnation plant in Sines began. This project will transfer the impregnated lines, currently located in Maia, as well as the investment on two new impregnators. The start-up of this new plant is scheduled for During the first half of 2001, the new sawmill started up in Souselas. It is the largest in the country, with a high degree of automatisation, integrating a fully automated line for value-added products manufactured from sawn wood. With this plant a major step is made towards a more efficient and valuable use of wood - a vital raw material - whose price in Portugal is the highest of every country where SONAE INDÚSTRIA operates.

21 Report and Consolidated Accounts ISONAE INDÚSTRIA, SGPS, S.A The Portuguese market kept up the operational profitability and margins achieved in 2000, despite some slowdown in demand growth, as a consequence of the economic situation and market pressure. MDF prices kept stable; this market still records interesting growth rates. In the chipboard and components markets there was some pressure on prices Spain In Spain another chipboard production line started up. Located in Linares (Andalucia) this greenfield investment, with a capacity of 450,000 m 3 /year, started up in July 2001, including two melamine surfacing lines and a cut-to-size line of great capacity and automation level. Following the Iberian strategy concerning chemicals supply, in December 2001, the chemical plant in Valencia was closed down after the start-up of the Sines plant. During the first quarter of 2001, the Cuéllar sawmill started up. This plant is similar to the one in Souselas either in strategic goals or in the technological layout and capacity. The pallets automated production line started up in the second half. This plant is, therefore, another important tool for the optimisation of wood raw material use in the Iberian Peninsula. The Spanish wood panels market was similar to the Portuguese. The economic slowdown and, specifically, in the civil construction and furniture sectors led in 2001 to a stronger pressure on prices, mainly of the chipboard. The operational profitability in this market decreased slightly compared with the previous year. The negative effect on prices was partially reduced by a larger turnover together with improvements on sales logistics Brazil In 2001, the wood-based panels Brazilian market maintained a sustained demand, even considering the higher uncertainty and lower growth economic environment, due to the increasing trend to replace the use of solid wood by wood-based panels. However, in 2001, the macroeconomic environment suffered with the strong devaluation of the Brazilian currency, around 20 per cent against Euro and around 22 per cent against the American Dollar. In August 2001, the new thin MDF production line with an annual production capacity of 200,000 m 3 started up. In 2002 and after reaching full capacity, this line will fulfil the MDF and flooring growing demand in the Brazilian market, besides enabling the optimisation of the Piên operation. The outcome of the turnover increase in the Brazilian plant did not provide a margin growth due to the price settlement method of some raw materials in the Brazilian market, namely resins. Although of domestic production, their price is settled in USD, thus, the ocurred currency devaluation affected the operational profit of the company. Human, finance and material resources for the operation start-up were normal. Chipboard and MDF prices recorded lower growth rates than those of some raw materials, as a result of the competition increase due to several start-ups of MDF and chipboards plants Canada During 2001, the Canadian plant was still affected by the long renegociation process of the commercial agreement on forest products between Canada and the USA, resulting in a negative impact on wood raw material price. In the beginning of the year, a more severe winter than usual affected the operational activity, for instance by making the chips drying process more difficult.

22 22 Report and Consolidated Accounts ISONAE INDÚSTRIA, SGPS, S.A Despite the unfavourable economic situation, the high competitiveness of the Lac Mégantic plant allowed a strong increase in North-american market share. The second chipboard production line gave here the major contribution. This line started up in April 2000 and 2001 represented the first year of full speed operation. Compared with 2000, the Canadian plant sales volume increased more than 50 per cent, and a similar increase was felt in sales value, since prices in local currency did not suffer significant changes. The Canadian plant suffered an operational margin decrease, due to the wood price increase and some other problems associated with the plant stabilisation after a maintenance stoppage at the end of South Africa In 2001 the operational activity in Southern Africa registered the growing consolidation process among the Panbult plant and the two other plants acquired in Sales volume doubled when compared with 2000, not only due to the incorporation of the two acquired plants, but also due to a better use of the installed production capacity. There was also a better use of synergies coming from the new distribution network and a better strategic and commercial interconnection between the production plants. Compared with the previous year, the operational margin in South Africa more than doubled, either through a sales volume increase, or by improvements achieved that led to an operational margin growth in percentual terms. Prices in local currency did not suffer significant nominal variations. Profitability was quite satisfactory, jeopardised only by the Rand currency devaluation throughout GESCARTÃO Gescartão SGPS s main affiliates are Portucel Viana, Portucel Embalagem and Portucel Recicla. In 2001 the group consolidated sales grew almost 4 per cent compared with the previous year. Sale prices kept relatively stable, the variation was mainly attributable to volume increases. The consolidated EBITDA margin registered a favourable behaviour, higher in values and percentage than in the previous year. Sales growth in volumes was 9.6 per cent in Portucel Viana and 9.8 per cent in Portucel Embalagem. Portucel Recicla mill was closed down on April, 29th 2001, as agreed within the planned process of filling up the Alqueva dam. The group introduced profound changes in the remuneration rules, by developing variable remuneration systems according to the companies global results. Within the scope of the structure rationalisation process, the total number of employees was reduced from 1,161 in the beginning of the year to 1,035 at the end of The labour contract termination by mutual agreement carried out for 132 employees, together with other labour contract terminations already agreed for 2002 represented an extraordinary cost of 7.4 million euros in 2001 consolidated accounts. Gescartão proceeded with the modernisation and uniformisation of the information systems architecture. The SAP R3 solution

23 Report and Consolidated Accounts ISONAE INDÚSTRIA, SGPS, S.A was implemented at Portucel Viana, upgrades were performed in several platforms for the use of EURO and the human resources SAP module was implemented. Products sales prices were stable in the beginning of 2002, although with a downward trend results will keep pace with the 2001 s and variations will mainly depend on the evolution of the Iberian economic activity and on the major European economies. 4. HUMAN RESOURCES At the end of 2001, SONAE INDÚSTRIA had 9,933 employees including Gescartão (without Gescartão 8,909 employees) in 14 countries: Portugal (26 per cent), France (24 per cent), Germany (16 per cent), Spain (10 per cent), Gabon (5 per cent), South Africa (5 per cent), United Kingdom (4 per cent), Mozambique (4 per cent), Canada (3 per cent), Brazil (3 per cent), The Netherlands, Switzerland, United States of America and China. Compared with the previous year, the employees number variation was due to the following reasons: closure of the following plants: Labruguière in France, Peterlee in the United Kingdom and Sassenburg in Germany; start-up of the production plants in Linares (Spain), Nettgau (Germany) and Gabon. The start-up of the new lines in Lure and Le Creusot (France) did not represent a significant increase on the employees number, since these production lines were modernised, moving or replacing the existing employees after an intensive and aproppriate training; creation in Portugal of a Shared Service Center for the finance and accountability services of Portugal, Germany, South Africa, United Kingdom, Spain and France; continuous restructuring process in France, United Kingdom and Germany, with a process review and some functions centralisation. From the social viewpoint, SONAE INDÚSTRIA still creates employment while restructuring and closing down plants. The global number of employees including Gescartão grew 11.8 per cent when compared with the previous year. 5. SHARED SERVICE CENTER (SSC) In order to face the new globalisation challenges, SONAE INDÚSTRIA has decided to implement an innovative business model in Portugal a SSC Model. This consists of a separate business unit, with consolidated and dedicated resources which take advantage of more electronic and automated transactions, fewer manual transactions, and increase quality of data. The main advantage of this model is that it improves quality of the support services significantly, reducing the costs by implementing common systems across all the business, providing a single platform for further changes and establishing a facility to provide control over, and realise the benefits from, new acquisitions. With this process, SONAE INDÚSTRIA aims at increasing the efficiency (best practice processes, economies of scale, greater

24 24 Report and Consolidated Accounts ISONAE INDÚSTRIA, SGPS, S.A span of control, lower labour costs, technology leverage, standardisation, reengineering, integrated procurement and acquisition synergies) and effectiveness (enhance customer service focus, leverage specialist skills, free up management to focus on business issues, improve decision support, enable data warehousing and e-commerce) improving the finance function and strengthening the ability to control and support business decisions. The Shared Service Center provides services to all SONAE INDÚSTRIA s back-offices, excluding Brazil and Canada. 6. ECO-EFFICIENCY The strong business growth demanded the reformulation of the environmental management organisation as a corporate function, in order to make it an active component in the business global management and enable the implementation of SONAE INDÚSTRIA environmental management policy. Therefore, the "Eco-Efficiency Network" was implemented, representing the base structure of the environmental management and eco-efficiency function. This network includes every site responsible for the function and global business or regional coordinator (for the regions where SONAE INDÚSTRIA operates), led by a member of the Board of Directors. SONAE INDÚSTRIA kept its commitment to a sustainable consumption of forest and energy resources. During 2001, there was a significant increase in the installed production capacity; however, even with the start-up of new plants, sawmill co-products and wood wastes represented 58 per cent of the total consumption. This stands for the growing importance of reuse and recycle of wood procurement for the affiliates, since the consumption increase was basically guaranteed by this kind of wood raw material. The Knowsley plant in the United Kingdom was licenced as an accredited wood recycling unit and is authorised to issue PRN s (Packaging Waste Recovery Notes), environmental credits that can be sold in the market, according to the Law in force. Electric power global consumption in the wood-based panels plants was 1,250 GWh, 7 per cent of which were produced by own cogeneration plants. The installation of the environmental information collecting system and eco-efficient performance reporting proceeded, and is expected to be fully operational in every affiliate during During 2001 environmental investment amounted approximately to 20 million euros, representing almost 5 per cent of SONAE INDUSTRIA s Fixed Assets Investment. The formaldehyde and resins production plant in Sines, Portugal, was the first SONAE INDÚSTRIA s affiliate to apply for a licencing process within the scope of the recent regulation on Integrated Pollution Prevention and Control (IPPC), that transfers the corresponding European directive into the Portuguese legislation.

25 Report and Consolidated Accounts ISONAE INDÚSTRIA, SGPS, S.A With regard to the international status of the sustainable forest management, the expectations on the enlargement of PEFC - Pan-European Forest Certification were confirmed. Canada and USA joined as members (CSA initiative in Canada and Sustainable Forestry Initiative and American Tree Farm System in the USA). At this moment, the forest area certified by PEFC is higher than 42 million hectares. A special reference to the fact that the national initiatives in almost every European country where SONAE INDÚSTRIA operates are showing a strong progress towards PEFC. Thus, the initiatives in Germany, France and in the United Kingdom are already approved by the PEFC Council, the Spanish is under the final assessment stage, and the Portuguese will apply to the PEFC Council during Concerning ISO plants certification, a special reference to the certification of Meppen and Knowsley plants, both in the beginning of Knowsley management system has already been subject to a first review audit during February 2002 with positive results. 7. EURO Respecting the Euro project within the Sonae Group, SONAE INDÚSTRIA developed a successful introduction in the new currency and promoted several changing actions. Due to SONAE INDÚSTRIA s business and production plants geographical dispersion, the Euro project had to be adapted to deal better with the conversion to the new currency, without forgetting each country s specific characteristics: Portugal, Spain, France and Germany. The project gathered own cross skills, interacting and sharing information in the following areas: Production and Logistics, Human Resources, Information Systems, Commercial, Marketing, Fiscal, Legal, Administrative and Financial, Communication, Audit and Risk Management. Still during the first half of 2001, the necessary measures were implemented to prepare the company for the full use of Euro, and as from May, this was the reference currency unit in every information system of SONAE INDÚSTRIA. The remuneration processing systems within the Euro-Zone countries were only converted at the end of 2001, mainly due to difficulties felt by their Social Security services in receiving, before that date, all information in Euro currency. To prepare the currency conversion and guarantee transparency in processes, several training actions for employees, together with information and awareness campaigns addressed to customers and suppliers were carried out. The conversion into the Euro currency happened without any problem, on the one hand due to SONAE INDÚSTRIA s antecipation in the use of Euro at the information systems level, and on the other hand owing to the training provided. 8. INFORMATION SYSTEMS AND E-BUSINESS In 2001, important steps were taken to the unification and consolidation strategy of SONAE INDÚSTRIA s worldwide information systems. The most relevant were: