How To Understand The Financial Results Of Soares Da Costa

Transcription

1 Management Report 1st. Semester 2007 Page 1 of 103

2 Management Report 1st. Semester 2007 Page 2 of 103

3 , SGPS, S.A. a company with share capital open to public investment Registered Office: Rua de Santos Pousada, Porto Share Capital Euros Corporate body no Oporto Companies Registration Office CONTACTS: General geral@soaresdacosta.pt Press contact, Public Relations rita.pinto@soaresdacosta.pt Investor support a.paula.santos@soaresdacosta.pt Management Report 1st Semester 2007 Financial Year 1. INTRODUCTION The current interim report and the financial statements which accompany it seek to offer our Shareholders and the share capital market, in compliance with respective applicable legislation, (namely the Companies Act, Securities Code as well as the statutes and recommendations of the CMVM [Securities & Exchange Commission (SEC)] regarding the rendering of six-monthly accounts), public disclosure of the evolution of our business, economic and financial standing and the more relevant aspects of the life of the «, SGPS, SA» company and respective business group which it heads. The accounting data presented when reported for individual accounts, should be interpreted in the light of the accounting principles generally accepted in Portugal (Official Chart of Accounts and accounting guidelines emanating from the Accounting Regulatory Commission), whilst within a consolidated context any reading or analysis should be pursuant to international guidelines (IAS/IFRS: International Accounting Standards/International Financial Reporting Standards) as adopted within the European Union. Management Report 1st. Semester 2007 Page 3 of 103

4 In this Report and for the purposes of simplification, abbreviations and expressions are used which have the following meaning: ABDR Notes to the Balance Sheet and Statement of Profit and Loss PC&NE "Accounting Policies and Explanatory Notes" which includes the consolidated Financial Statements. EBIT Operational Result EBITDA Operational Cash Flow AN Business Area VN Turnover equal to the sum of Sales and Services rendered Supplementary income (Chart of Accounts 71, 72 and 73) The financial statements supporting this report have not yet been audited. Management Report 1st. Semester 2007 Page 4 of 103

5 2. OVERALL SUMMARY / HIGHLIGHTS Consolidated result attributable to the Group of 8,697 million Euros, 3,8 times the profit of 2,299 million for the same period of the previous year; Operating result of 11,935 million Euros (+ 8.8%); Individual net results of 8,917 million Euros, compared to at the end of the 1st Semester 2006 Finalisation of Public Offering of company shares; Signing of Tel Aviv Metro Red Line Concession Contract with the utility company which is a shareholder in a Group company; Work in portfolio at the end of the semester totalling 1,182 million Euros (+37,8%) more than in Dec. 2006; Inclusion of Soares da Costa shares in PSI-20 index portfolio from 2 July 2007; Group activity throughout the first half of 2007 has been very positive. Based on the sustained economic and financial recovery already widely acknowledged in the financial statements for the 2006 financial year approved at the General Shareholder s Meeting of 22 May 2007 and in the stability of the reference shareholder nucleus, the Group has created the conditions to be able to develop its activities through coherent growth, internationalisation, diversification and creation of worth. First mention in the accounts disclosed herein naturally goes to net profit which at the end of this semester totalled 8,697 million Euros, an amount 3.8 times that registered at the end of the same period in the previous financial year and already higher than annual turnover for A slow down was felt in relation to turnover which had already been predicted in the 1st quarter resulting on the one hand from the continued recessive climate within the domestic market (see below in overall macroeconomic environment), as well as the conclusion of the Porto Metro works. On the other hand, the falling US dollar has meant that the equivalent amount in Euros in turnover for the primary foreign market in which the Group operates has felt this effect. Another timely extra-economic factor which resolved to associate itself with this period has been the exceptionally adverse meteorological conditions as alluded to in the information from the 1st quarter and which has especially affected the pace of the execution of several important projects in the African market. Management Report 1st. Semester 2007 Page 5 of 103

6 This reduction in turnover though well contained has been positively offset by operating results which totalled 11,935 million (+ 8,8 % than in the 1st semester of 2006) as well as a continued EBITDA/turnover margin of 5,9%. The table below specifies the main consolidated indicators. Main Consolidated Indicators Amounts in thousands of Euros Items 1st Sem st Sem 2006 Variation Turnover 276, ,109-6,18% -EBITDA 16,313 17,478-6,67% EBITDA margin Turnover 5,9% 5,9% -- Financing activities: 11,935 10,969 (8,81%) 9,875, ,762 2,924 62,86% Profit before taxation 9,280 4,815 92,76% Net profit (inc. Min. Int.) 8,974 2,805 3,20 times Net Result attrib. to Group 8,697 2,299 3,78 times Net banking debt (net-debt) 168, ,235 2,79% In terms of individual accounts, net profit registered for the end of the 1st semester was +8,917 million Euros, compared with a negative total of 2,036 million for the similar period. This evolution in profit is primarily influenced by gains from share capital investment (dividends received). Thought not entirely new events, since in this summary we intend to highlight the main aspects relevant to the life of the company and the Group throughout the semester, reference must be made to: i) Receipt in January 2007 of sums agreed to relating to Angolan foreign debt by our subsidiary Sociedade de Construções Soares da Costa, SA. ii) iii) Extraordinary session of the stock-market held on 29 January 2007 in relation to the Public Offering of shares representing the share capital of the Soares da Costa, SGPS, SA Group by "Investifino - Investimentos e Participações, SGPS, SA", which resulted in the same becoming the holder of 56,314% of share capital and voting rights The Annual General Shareholders Meeting held on 22 May 2007 at which all proposals timely published on each of the items of the Order of the Day were approved. Management Report 1st. Semester 2007 Page 6 of 103

7 With regard to the composition of company bodies 1, the result was: - Ratification of the recruitment of Mr. Manuel Roseta Fino and Mr. Pedro Gonçalo de Sotto-Mayor de Andrade Santos as Chairman and Voting Member, respectively, of the Board of Directors; - The new composition of the General Shareholders Meeting Board: Chairman: Mr. José Manuel de Almeida Archer Secretary: Mr. João Pessoa e Costa - The new composition of the Remunerations Commission: Chairman: Mr. Pedro Gonçalo de Sotto-Mayor de Andrade Santos Voting member: Mr. João Pessoa e Costa Voting member: Mr. António Jorge Gonçalves Afonso - Nomination of Mr. Jorge Bento Martins Ledo, ROC No. 591 as the representative of Moreira & Valente, SROC iv) The signing on 28 May 2007 of the concession contract for the Tel Aviv Metro Red Line by the State of Israel and MTS, the utility company which is a shareholder with a 20% stake in our affiliate "Soares da Costa Concessões, SGPS SA". In addition to the results registered, it is also a pleasure to record the positive evolution of our works' portfolio, which on the closing date for the semester totalled 1,182 million Euros, denoting an increase of 324 million Euros (+37,8%) in relation to the end of 2006, far in excess of the contribution from the Tel Aviv Metro project. Following the ordinary revision of the PSI-20 index taken into effect by Euronext Lisbon via notification No. 609/07 of 15 June , this entity made public the composition of the portfolio which took effect as of 2 July and included therein the issue of Soares da Costa Esc, PTSCO0AE0004, corresponding to the ordinary shares of the Soares da Costa, SGPS, SA Group. 1 The entire composition of company bodies is set forth in point 3.3 below. 2 Which would subsequently be rectified by Notification No. 639/07 of 25 June Management Report 1st. Semester 2007 Page 7 of 103

8 3. ORGANISATION 1.1Composition of the Group Composition of the group is outlined on the chart Parameters and Methods of Consolidation, which precedes the Consolidated Balance Sheet, and on the organization chart bearing the logos of group companies, which features on the titlepage. The complete list of companies that are directly or indirectly associated and included or not in consolidation is laid out in notes numbers 3, 4, 5, and 6 PC&NE. While maintaining its core business area of construction, the Group has been divided, since the end of 2002, into four business areas. Each of these business areas is headed by an equity interest management company: Soares da Costa CONSTRUÇÃO, SGPS, S.A. -construction and civil engineering Soares da Costa Indústria, SGPS, S.A. - subsidiary or highly specialised construction Soares da Costa Concessões, SGPS, S.A - operation of infrastructure or public service concessions Soares da Costa Imobiliária, SGPS, S.A. - Real Estate management and promotion These are the four companies wholly owned by the Soares da Costa, SGPS, SA Group which controls a direct stake in the operational companies of each specific business area, even though in a vertical structure some of these operational companies hold their own stake in turn in other companies. On the other hand, the company also owns other direct stakes, for example SCSP - Soares da Costa Serviços Partilhados, Lda. (Formerly - Albino Caetano Duarte, Lda.) and the recently incorporated Soares da Costa Desenvolvimento, S.A., set up to take on the role in the Group of entering new business areas other than existing areas. 3.2 New shareholdings and alterations this financial year In order to better elucidate the above, amendments made to the Group's composition or percentage stake owned which occurred during the first semester of 2007 are shown below: i) Incorporation of the Soares da Costa Civil LLC company with head offices in Miami, Florida, USA and share capital of 100,000 USD, with 80% of share capital owned by «Soares da Costa América». It is consolidated by the full consolidated profit method. Management Report 1st. Semester 2007 Page 8 of 103

9 ii) iii) iv) Incorporation of the Mini Price Hotels (Porto) SA Company, with head offices in Porto 34% owned by the Group, with Soares da Costa Imobiliária, SGPS, SA, owning a 33% stake and Soares da Costa Desenvolvimento, SA 1% of share capital as shareholders. Incorporation on 25 June 2007 of "Indáqua Matosinhos - Indústria e Gestão de Águas, S. A." with head offices in Matosinhos and share capital of 500,000 directly owned by Sociedade de Construções Soares da Costa, SA and Soares da Costa Concessões, SGPS, SA 1% and 27,14% indirectly via the stake SDC Concessões, SGPS, SA owns in "Indáqua Indústria e Gestão de Águas, SA" (97,5% shareholder of the recently incorporated company). Thus, the overall direct and indirect stake of the Group is 28,14%. It is included using the equity method. The Dissolution and liquidation of the Supplementary Group of Companies "Engil, Soares da Costa Construção da Etar de Sobreiras, ACE" due to its exhausted Company Object. 3.3 Company Bodies The current composition of company bodies after the General Shareholders Meeting decisions of 22 May 2007 is as follows: Board of the General Assembly Mr. José Manuel de Almeida Archer (Chairman) Mr. João Pessoa e Costa (Secretary) Statutory audit committee Mr. José Luís de Barros Soares Barbosa (Chairman) Augusto Gaspar Teixeira Ferreira (Member) Mr. Joaquim Augusto Soares da Silva (Member) Mr. Júlio de Jesus Pinto (Substitute) Chartered Accountant "Moreira & Valente, Associados, SROC", represented by Mr. Jorge Bento Martins Ledo, (ROC nº. 591), and as Substitute Mr. Carlos de Jesus Pinto (ROC nº. 622). Remunerations Commission Mr. Pedro Gonçalo de Sotto-Mayor de Andrade Santos (Chairman) Mr. João Pessoa e Costa (Member) Mr. António Jorge Gonçalves Afonso (Member) Management Report 1st. Semester 2007 Page 9 of 103

10 Board of Directors Mr. Manuel Roseta Fino (Chairman) Mrs. Maria Angelina Martins Caetano Ramos Mr. Pedro Gonçalo de Sotto-Mayor de Andrade Santos, Mr. Pedro Manuel de Almeida Gonçalves Mr. António Pereira da Silva Neves Mr. António Manuel Sousa Barbosa da Frada Executive Commission Mr. Pedro Manuel de Almeida Gonçalves (Chairman) Mr. António Pereira da Silva Neves Mr. António Manuel Sousa Barbosa da Frada 3.4 Staff Notes No. 7 (ABDR) and No. 23 (PC&NE) provide information on the number of company staff members individually and of the Group as a whole. In individual terms, during the semester the company had an average number of 22 staff members, less at one unit than the number of staff members with which it ended the 2006 financial year. Personnel costs throughout the semester now ended have risen to 1,707 million Euros, representing 51,0% of the operating costs of the company (57,4% in the previous financial year). Group companies included in the consolidation via the full consolidated profit method employed on average 3,301 workers throughout the semester. Personnel costs throughout the semester now ended totalled the amount of 52,423 million Euros in the consolidated profit and loss statement, increasing its weight on the percentage of operating revenue from 16,6% (in the 1st semester of 2006) to 18,5%. 3.5 Sustainability The Soares da Costa Group undertakes sustainability on technical, economic, environmental and social fronts as one of its management priorities, constituting an integral part of its business strategy, with a view to ensuring the creation of long term worth for its shareholders and stakeholders in general. Given the certainty that the company already adopts a substantial amount of good sustainability and social accountability practices, it is understood that it is timely to Management Report 1st. Semester 2007 Page 10 of 103

11 tackle this subject in a more structured and systemised manner, so much so that during the semester now ended development of a sustainability project began with the support of external consultants. Within the context of quality, safety and the environment, the Soares da Costa Group has come to implement and consolidate, in phases yet progressively, a policy towards approximation with the European reference standards in these areas. Sociedade de Construções Soares da Costa, SA, holds Quality and Safety certificates and its Environmental Management System is awaiting certification audits already scheduled for January Our industrial affiliate «Clear» is undergoing the final phase of quality and safety certification having already carried out the audits for this purpose. 3.6 Shared Services As mentioned in the 2006 report, SCSP - Soares da Costa, Serviços Partilhados, Lda, began centralising and ensuring all administrative, accounting and accounts consolidation, financial, information systems and personnel functions within the Group. Activities at this company throughout the 1st semester were conducted under normal working conditions. It is worth mentioning the adoption and implementation already carried out of an accounting and start-up consolidation tool for a project to modify the general information system with the support of external consultants. Management Report 1st. Semester 2007 Page 11 of 103

12 4. MACROECONOMIC ENVIRONMENT World economic activity continues to expand at a healthy rate propelled by Europe and emerging countries and should remain in 2007 at a high level by historic standards. On the other hand, the US economy has been showing a deceleration in growth motivated by a more accentuated slowing of its real estate and equity markets. Even so, if recent events in the financial markets related to real estate credit do not spread, there are forecasts that growth rate in 2007 for the US will be around 2%. The evolution of the Portuguese economy throughout the current year continues to be influenced by a number of factors which have already classified the same in the previous year, namely: i) The continuity of the process of economic and financial globalisation; ii) The restrictive nature of the budget policy; iii) The increase in the interest rate of the European monetary market which renewed six month maximums in June, reflecting a new rise in European Central Bank base rates at the beginning of the month as well as the perspective for new increases. The growth of economic activity in Portugal has tended to increase propelled by the excellent performance of the export sector but remains insufficient to restart a trajectory of true convergence with our European partners. GNP growth may reach a rate of 1,8% 3 in 2007 compared with 1,3% verified in 2006, in contrast with 2,9% (3,0% in 2006) within the European Union (27). With regard to inflation, current forecasts point to an average IHPC rate variation of 2,5% in 2007, compared with 3% registered in 2006, favourable progress based on the performance of the energy sector. If globally the Portuguese economy appears to be recovering the desired trajectory, the civil construction sector is still undergoing a difficult (and already extensive) phase: a) Monthly production indexes in Construction and Public Works released by the INE [National Institute of Statistics] continue to register consecutive and invariably lower monthly levels than in the same previous period, when in June average variation over the last twelve months revealed a rate of -6,7% in the total gross index, -6,6% in the construction of buildings and even worse 6,9% in engineering works. 3 In the 1st quarter of 2007 the variation rate compared with the same previous period was 2% (National Quarterly Accounts, 1st Quarter of 2007, INE) 4 INE Production, Employment, Remuneration & Hours Worked rates in Construction and Public Works June 2007, released on 13 August. Management Report 1st. Semester 2007 Page 12 of 103

13 b) The FBCF in construction alone in 2008 will enjoy a slightly positive growth after a cycle of a number of years (since 2001) of negative rates which 2007 shall join 5, whilst global investment already in current year is predicted to enjoy annual positive growth, though marginal (+0,4% according to the European Commission or +0.6% according to the Banco de Portugal 6. c) Drop in public demand has been an important component in the restrictive budget policy taking into account the goal of consolidating public accounts. In the first semester of 2007, the bid price in public works' tenders was 31% below the amount calculated in the same period of , when then it was already below 20% of the same rate for the previous year. d) Cement consumption continues to register negative variation indexes (-1,8% up to July). In the light of that shown and as a result of the prolonged crisis, 2007 will still be overall a generally poor year for the construction sector but there is confidence that it may serve as a year announcing the turnaround, given the indicators, namely in the construction sector of non-residential buildings which appears to already denote an appreciable recovery. This hope, much more so than expectation, is also based on the favourable global macroeconomic environment and the perspective of a reorientation of economic policy with the necessary inversion of the investment trajectory and within the same, the swift re-launching of investment in construction. The QREN (National Strategic Reference Framework) approved is merely an indicator of this desired reorientation necessary to the growth and sustained development of the country. With regard to the Angolan market in which the Group has been operating for more than 25 years, the economy still continues to present signs of strong economic growth and should register in 2007 one of the highest levels of GNP growth in the world 8. This continual and sustained growth in GNP is backed by a consolidation of the macroeconomic stabilisation process which has guaranteed monetary and exchange rate stability as well as the continual drop in the rate of inflation, creating the ideal conditions for private investment. Within this context, the construction sector has revealed itself to be particularly dynamic % according to European Estimates (Economic Forecasts Spring 2007) quote by ANEOP. 6 Economic Bulletin Summer Quarterly Report 2nd Quarter of 2007 ANEOP July On the contrary, some kind of phenomenon in the concentration of adjudications throughout the semester has caused however a 41% increase in prices compared with the same period of the previous year. This aspect has generated positive forecasts for the production of public works in the medium term. 8 Estimate of 31% for 2007 according to the IMF Management Report 1st. Semester 2007 Page 13 of 103

14 5 ECONOMIC AND FINANCIAL SITUATION AND GROUP PERFORMANCE 5.1 Individual Accounts (P.O.C.) The individual accounts of the Grupo Soares das Costa, SGPS, SA company registered at the end of this semester a turnover of 1,6 million Euros, an amount substantially lower than in the previous financial year as a result of the concentration, already referred to in the 2006 Management Report, of a set of services which the company provided before at SCSP - Soares da Costa Serviços Partilhados, Lda. Net results for the year had a negative value of 1,7 million Euros. Financial results (see note 45 of the ABDR) registered +9,339 million Euros (compared with the negative amount of 2,061 in the same period of the previous year) as a result of the conjunction of a certain rise in the net cost of finance (rising from 2,440 to 3,123 million Euros) and the expressive record of returns from share capital participation of 12,904 million, an amount sustained by dividends received specifically from Subholdings (9,9 million from the construction area, 1.5 million from the industrial area and 1.5 million from the concessions' area). As a result, profit at the end of the semester totalled around 8,917 million Euros which enables a much better profit for the end of the financial year than that registered in Net asset worth 302,5 million Euros rose by around 15,3 million Euros in relation to December 2006 with a variation concentrated in the current assets of third party debts (+13,5 million) and stock (+1,6 million). This increase on the asset side was compensated in the 2nd half of the balance sheet by the increase in own share capital (+8,9 million corresponding to net profit for the semester) and the remainder (6,4 million) for the increase in liabilities, providing for an improvement in the ratio of financial autonomy, which rose from 50,4% to 50,8% (+0,4 percentage points). 5.2 Group consolidated accounts Turnover Turnover registered at the end of the 1st semester is 276,9 million, that is, 6,2% lower than in the same period of the previous year (295,1 million). Management Report 1st. Semester 2007 Page 14 of 103

15 This drop however is substantiated by the distinct behaviour of both domestic and foreign markets. On the domestic market, the continued depressive climate and the conclusion in 2006 of important works, namely the construction works of the Porto Light Metro and the Sá Carneiro Airport, decisively contributed to the substantial reduction in Turnover (VN) (in accordance with the Turnover per market chart shown below), which however is not that far off that expected. On the other hand, the recession of the sector in the domestic market has led to aggressive competition with the inherent degradation of adjudication prices and incomparable squeezing of profit margins which the policy-strategy orientation of the Group resists associating itself with. On the other hand, efforts by the Group s commercial department visible in the expansion of the works' portfolio (See point 5.3) have not yet been reflected in the semester now concluded in terms of actual production. Whilst in the foreign sector, turnover has increased substantially, now representing 71,9% of total turnover. In all foreign markets there has been an increase in turnover with the exception of the US market. But also in this, the variation of -7,2% registered is more nominal than actual since in the currency of origin (USD), turnover registered an all but marginal increase (+0,2%), with its value suffering in Euros as a result of the devaluation of the dollar, as shown in the table below: United States of America 1st S st S 2006 Variation US$ 77,062 76,913 0,2% Exchange Rate 0, , ,4% Euros 57,763 62,234-7,2% These factors have been worsened by the negative climactic conditions throughout the first half of the semester which also affected the pace of the execution of several important projects in the African market. Even so, if we consider all operating revenue (the most appropriate reality for reflecting production in this activity sector) and which takes into account specifically variations in production, the reduction is lower (-4,9%). This reduction may be contrary to the level of increased efficiency which has enabled operating results recorded for the end of the semester of around 1 million Euros higher than for the same period the previous year (11,93 million versus 10,97). Management Report 1st. Semester 2007 Page 15 of 103

16 Distribution of Turnover by Geographical Market Amounts in thousands of Euros Market 1st S 2007 % 1st S 2006 % Var. 07/06 Portugal 77,801 28,10% 124,964 42,35% -37,74% Angola 122,846 44,37% 101,444 34,38% 21,10% U.S.A. 57,763 20,86% 62,234 21,09% -7,18% Mozambique 6,269 2,26% 3,297 1,12% 90,18% S. Tomé and Príncipe; 6,132 2,21% 1,986 0,67% 208,80% Others 6,056 2,19% 1,184 0,40% 411,64% Total 276, ,00% 295, ,00% -6,18% 20,9% 2,3% 2,2% Turnover 2007 Broken down by markets 2,2% 28,1% Portugal Angola U.S.A Mozambique S. Tomé Príncipe Others 44,4% The following table stratifies turnover into the respective areas: Construction, "Industry, Real Estate and Concessions, which enables the respective evolution per business segment to be verified. Management Report 1st. Semester 2007 Page 16 of 103

17 thousands of Euros Consolidated Turnover Broken down by business areas Amounts in Business Areas 1st Sem % 1st Sem % Variatio n GRUPO SDC, SGPS + SHARED 0,0% 0,0% SERVICES ,5% AN CONSTRUCTION 244,801 88,4% 268,083 90,8% -8,7% AN INDUSTRY 29,311 10,6% 26,579 9,0% 10,3% AN REAL ESTATE 2,423 0,9% 254 0,1% 854,0% AN CONCESSIONS 264 0,1% 106 0,0% 148,9% 100,0 100,0 TOTAL TURNOVER 276,868 % 295,109 % 100,0 % The table naturally demonstrates the significant weight of the AN Construction contribution to the turnover of consolidated business but also reflects increases in the other business areas. A specific note for the Concessions Area, which due to the consolidation method (Equity Accounting) is not witnessing in an adjusted manner, the increasingly important weight in Group activity, a situation which the tables referring to profitability (see ) will enable one to see Profitability If the tables above allow for an analysis of evolution and composition per «output» business area, those below enable the progress of their respective profitability to be verified. In the next table a statement and structure of consolidated results is shown for the three-year period , which well demonstrates a very positive evolution in Group profitability. If the 1st semester of 2005 represented a landmark in the inversion of results which began (though modestly) to enter positive territory, 2006 enabled the consolidation of an upward trend which in 2007 is clearly reinforced by reaching a net turnover profitability of 3.1%. Thus, financial statements for the end of the 1st semester of 2007 reveal an operating profit of 11,935 million Euros (4,3% of Turnover VN), 8,8% higher than the equivalent profit in the previous year on the same date and which is 7,2 times the amount in Management Report 1st. Semester 2007 Page 17 of 103

18 In turn, the information set forth in PC&NE 24 which this refers to, is an important contribution to the analysis of the respective consolidated financial results. Net consolidated profit for the financial year totalled 8,697 million Euros 3,78 times that obtained in the same period of Financial Statement and Structure of Consolidated Results 1st S st S 2007 Amounts in thousands of Euros; structure in % of turnover 1st S 2007 % TURNOVER 1st S 2006 % TURNOVER 1st S 2005 Variation Turnover 276, ,0 % 295, ,0 % 258,821-6,2% Variation in production 1,248 5% ,1% 11, Other operating profits 5,014 1,8% 2,773 0,9% 1, Operating profits 283, ,3% 297, ,9% 271,588-4,9% Cost of goods sold and Raw Materials consumed 72,866 26,3% 74,557 25,3% 58,994-2,3% External Supplies and Services 128,562 46,4% 146,912 49,8% 152,647-12,5% Personnel expenses 52,423 18,9% 49,536 16,8% 43,923 5,8% Other operational costs 11,324 4,1% 9,111 3,1% 5,540 24,3% Provisions and value adjustments 416 0,2% 1,240 4% 4,302-60,4% Depreciations & impairment losses 5,604 2,0% 5,341 1,8% 4,527 3,5% Operational Result (EBIT) 11,935 4,3% 10,969 3,7% 1,655 8,8% Net result of discontinued operations 0 0,0% ,2% Financial results -2,655-1,0% -5,609-1,9% ,7% Profit Before Taxation 9,280 3,4% 4,815 1,6% ,8% Income taxes ,1% -2,009-6,8% ,5% Net result of the Year 8,974 3,2% 2,805 1,0% ,9% Net result of atrib. to Group 8,697 3,1% 2,299 0,8% ,2% Free Operating Means (EBITDA) 9 reached a total of 16,313 million at the end of the semester at the level obtained one year earlier in terms of the relation to Turnover (+5,9%). 9 Operating Result + Financial year Depreciations + Provisions and adjustments in worth, net of reversals Management Report 1st. Semester 2007 Page 18 of 103

19 The table below shows the contribution of each business area to the successive levels of results: operating, financial and net, with reference to the 1st semester of 2007 Operating results, Financial and Net broken down by business areas Business Areas Amounts in thousands of Euros Operat. Res. Financ. Res. Net Resul. GRUPO SDC, SGPS + SHARED SERVICES AN CONSTRUCTION AN INDUSTRY AN REAL ESTATE AN CONCESSIONS Eliminations/Dividends TOTAL: Noteworthy: The determining contribution of the Construction area and also Concessions, whose relative weight is already important in the formation of Group net profit. The Industrial area contributed throughout the semester to a positive profit which was not the case in the 1st semester of The Real Estate area has contributed still negatively since the effect of the total use of the space of the former Central Shopping development has not yet been fulfilled. Net results for the Group which is now positive due to the strength of the distribution of dividends by affiliate companies as already referred to above in the reason for the analysis of the individual accounts of the Company but whose effect within the context of the consolidation has to be eliminated Evolution of consolidated assets and its geographical breakdown. In the breakdown of the consolidated balance sheet and with regard to assets, the following considerations can be made: Goodwill is at the same amount of 5,962 million Euros with regard to its stake in "Indáqua". Total assets registered around 655,8 million Euros, 11,7 million more than on 31 December This increase breaks down into +7,6 million in non-current and +4,1% in current assets. Within non-current assets, the increase in tangible fixed assets (+11,4 Management Report 1st. Semester 2007 Page 19 of 103

20 million) is important with particular importance for land plots and buildings (+7,1 million) as well as basic equipment (+3,8 million). In current assets, an increase in inventories and other current assets (accruals and deferrals) was registered whilst third party debts in turn registered a significant drop (- 20,7 million) due to the collection of credits already indicated in relation to Angola. The distribution of the respective main asset headings per geographical area is set forth in the final part of PC&NE 7, which together represents the following spatial distribution: Consolidated assets 1st S2007 4% Location 2% 6% 31% 57% Portugal Angola U.S.A. Mozambique Others Evolution of own capital The company holds no own shares directly or indirectly. Throughout the semester there have been not market operations which modified share capital which because of this remains at a total of 160 million Euros (see PC&NE 16). There has also been no distribution of funds. The evolution of the all own capital from 124,1 to 132,9 million Euros is thus essentially justified by the consolidated profit from the financial year (+8,7 million). Management Report 1st. Semester 2007 Page 20 of 103

21 5.2.5 Evolution of Consolidated Liabilities Total liabilities have suffered a slight increase since 31/12/2006 (+1,8%), rising to 522,8 million. This has been achieved at the cost of the different performance of current and noncurrent liabilities. The former has registered a substantial reduction in current third party debts whilst in turn non-current liabilities have not suffered any increase. Net debt has registered 168,4 million Euros, practically at the level of the end of 2006 (167,7 million) compared with 173,3 at the end of the first semester of last year Evolution of certain ratios and indicators The table below shows the evolution of some economic and financial ratios and indicators registering the consolidated accounts of the Group, which reflect a positive trend, whether in terms of indicators of liquidity or financial autonomy, whilst the EBITDA maintains a very interesting level in relation to turnover: Ratio /indicator Reduced liquidity [(current assets Inventories)/ current liabilities] 1st S Variatio n 0,800 0,781 +2,4% General Liquidity (current assets/ current liabilities) 1,105 1,058 +4,4% Solvency (Net assets / total liabilities) 1,254 1,239 +1,2% Financial autonomy (Own capital / Net assets) 20,3% 19,3% + 1 p.p. EBITDA Margin (ebitda / turnover) 5,9% 5,9% Portfolio On 30 June 2007, the works portfolio registered a total of 1,182 million Euros, which compared with the amount of 858 million at the end of the previous year demonstrates a truly positive performance throughout the semester and reflects the efforts of the Group s commercial area, reinforcing forecasts regarding the positive future evolution of turnover. In addition to the signing of the concession contract for the Tel Aviv Metro Red Line, the semester now ended has been characterised by the adjudication of important works, both domestically and abroad, most noteworthy: 10 Those relating to the balance sheet (the first four) are reported on 31/12/2006, whilst the latter, respecting flows refers to the end of the 1st Semester. Management Report 1st. Semester 2007 Page 21 of 103

22 Edifícios Europa - Ruben A., Porto Pousada de S. Teotónio Grupo Pestana, Viseu Renovation of the Viana do Castelo bridge Refer Water provision for the districts of Valença, Monção and Melgaço Águas do Minho and Lima Hotel Promenade - M & J Pestana, Madeira ETAR Barreiro / Moita, in consortium Ice Logic I + II, USA Trindade Secondary School St. Tome & Principe Atlantic Towers (Final Touches) Atlantic Towers, Angola (in consortium) Leisure area - Apartments - Mussulo - Angola Sana Luanda Royal Hotel Angola Construction of new Catumbela bridge - Angola (in consortium) INEA Luanda/Viana Highway Angola (in consortium) 6. PROJECTED EVOLUTION UNTIL THE END OF THE FINANCIAL YEAR Considering the development of activity in the first semester, one verifies a degree of contention in overall turnover due to a reduction in the contribution of the domestic market. This fact as can be seen by the results shown in the financial statements attached to this report, has not resulted in any significant effects on profitability shown (even by safeguarding the non-exposure of the Group to the degradation of current profit margins which has dogged the adjudication of works across the country), reflected by operating turnover of higher than 8.8% compared with that obtained the year before. Notwithstanding any potential effects from factors not controlled by the company, namely significant variations in exchange rates, interest rates or the occurrence of exceptional factors, forecasts are that for the end of the financial year the Group may register the following consolidated amounts: Turnover: 575 million Euro EBITDA : 36 million Euro Net result over 10 million Euro Management Report 1st. Semester 2007 Page 22 of 103

23 7. SOARES DA COSTA DEEDS AND THE SHARE CAPITAL MARKET 7.1. Share capital representation Company share capital in the amount of 160 million Euros has been represented by 160,000,000 book entry shares of a nominal unit value of 1, comprising 133,000,000 ordinary shares and 27,000,000 preferential shares with no voting rights, and has shown no modifications throughout the semester. However, in accordance with No. 3 of Art. 342 of the Companies Code, whereby they have voting rights Summary of notifications to the market throughout the semester During the first semester of 2007,, SGPS, SA published or made the following information available to the public as the issuer of securities accepted by quotation: 1- Notifications and Information made available to the public via the website of the CMVM [Securities & Exchange Commission (SEC)], NYSE Euronext and SGPS, S.A. a) Privileged Information Date 28/05/07 28/05/07 22/05/07 18/05/07 26/04/07 Description, SGPS, S.A. notifies of the signing of the concession contract for the TEL AVIV Metro Red Line, SGPS, S.A. notifies of Accounts relating to the First Quarter of 2007, SGPS, S.A. notifies of the decisions of the Annual General Shareholders Meeting of 22 May 2007, SGPS, S.A. notifies of its intent to incorporate a consortium for the concession of the Miami Street Car, SGPS, S.A. notifies of the presentation to Investors (version in English) Management Report 1st. Semester 2007 Page 23 of 103

24 02/04/07 16/01/07 05/01/07, SGPS, S.A. notifies of the Disclosure of Results relating to the 2006 financial year (accounts not yet audited), SGPS, S.A. notifies of the Announcement received from the Revision of Offer Price of the Public Offering, SGPS, S.A. notifies of the payment of the external debt of the Republic of Angola b) Rendering of Accounts (annual, six-monthly and quarterly) Date 13/06/07 28/05/07 28/05/07 Description, SGPS, S.A. notifies of Report & Accounts relating to the financial year of 2006, SGPS, S.A. notifies of Accounts relating to the First Quarter of 2007 (version in English), SGPS, S.A. notifies of Accounts relating to the First Quarter of 2007 c) Report on Corporate Governance Date Description 13/06/07, SGPS, S.A. Corporate Governance 2006 d) Company Body Title-holders Date 22/05/07 Description, SGPS, S.A. notifies of the decisions of the Annual General Shareholders Meeting of 22 May 2007 e) Summonses Date 19/04/07 Description, SGPS, S.A. notifies of Correction of Summons Explanation of Point 6 of the Order of the Day Management Report 1st. Semester 2007 Page 24 of 103

25 18/04/07, SGPS, S.A. notifies of Summons for Annual General Shareholders Meeting f) Qualified holdings Date 27/06/07 26/06/07 19/06/07 14/06/07 14/06/07 23/05/07 22/05/07 21/05/07 07/05/07 02/05/07 Description, SGPS, S.A. notifies of the increase of the qualified holding of Millennium BCP Gestão de Fundos de Investimento, S.A., SGPS, S.A. notifies of the reduction of the qualified holding of Millennium BCP Gestão de Fundos de Investimento, S.A., SGPS, S.A. notifies of the increase of the qualified holding of Millennium BCP Gestão de Fundos de Investimento, S.A., SGPS, S.A. notifies of the reduction of the qualified holding of Deutsche Bank AG, SGPS, S.A. notifies of the reduction of the qualified holding of Millennium BCP Gestão de Fundos de Investimento, S.A., SGPS, S.A. notifies of the qualified holding of Santander Gestão de Activos, S.A., SGPS, S.A. notifies of the increase of the qualified holding of Millennium BCP Gestão de Fundos de Investimento, S.A. Correction, SGPS, S.A. notifies of the increase of the qualified holding of Millennium BCP Gestão de Fundos de Investimento, S.A., SGPS, S.A. notifies of the reduction of The qualified holding of Banif Banco de Investimentos, S.A., SGPS, S.A. notifies of the reduction of the qualified holding of Millennium BCP Gestão de Fundos de Investimento, S.A. Management Report 1st. Semester 2007 Page 25 of 103

26 24/04/07 23/04/07 23/04/07 20/04/07 13/03/07 07/03/07 14/02/07 01/02/07 01/02/07 29/01/07 29/01/07 15/01/07 11/01/07, SGPS, S.A. notifies of addendum to Notification of the sale of the qualified holding of M2 Capital Management, LP, SGPS, S.A. notifies of the acquisition of the qualified holding by Deutsche Bank AG, SGPS, S.A. notifies of the sale of the qualified holding by M2 Capital Management, LP, SGPS, S.A. notifies of the qualified holding of Banif Banco de Investimentos, S.A., SGPS, S.A. notifies of the increase of the qualified holding of Millennium BCP Gestão de Fundos de Investimento, S.A., SGPS, S.A. notifies of the reduction of the qualified holding of Fundação Salvador Caetano, SGPS, S.A. notifies of the reinforcement of the qualified holding of Millennium BCP Gestão de Fundos de Investimento, S.A., SGPS, S.A. notifies of the sale of all the qualified holding of Laurindo Correia da Costa and Sociedade Agrícola Quinta do Cisne, SGPS, S.A. notifies of the sale of all the qualified holding of Banif Banco de Investimentos, S.A., SGPS, S.A. notifies of the qualified holding of Investifino after calculation of the results of the Public Offering, SGPS, S.A. notifies of the qualified holding of Millennium BCP Gestão de Fundos de Investimento, S.A., SGPS, S.A. notifies of the reinforcement of the qualified holding of Banif Banco de Investimentos, S.A., SGPS, S.A. notifies of the qualified holding of M2 Capital Management, LP Management Report 1st. Semester 2007 Page 26 of 103

27 g) Public Offering Date 16/01/07 Description Announcement of the revised offer price in the Public Offering, both general and required, launched by Investifino for the ordinary and preferential shares of. h) Annual Summary of Disclosed Information Date 14/03/07 Description, SGPS, S.A., notifies of the Annual Summary of Disclosed Information in Notifications and Information made available to the public via the Judiciary Website Date 23/04/07 19/04/07 Description, SGPS, S.A. notifies of Correction of Summons Explanation of Point 6 of the Order of the Day, SGPS, S.A. notifies of Summons to Annual General Shareholders Meeting 3- Notifications and Information made available to the public via the Euronext Quota Bulletin Date 23/05/07 23/04/07 19/04/07 Description, SGPS, S.A. notifies of the decisions of the Annual General Shareholders Meeting of 22 May 2007, SGPS, S.A. notifies of Correction of Summons Explanation of Point 6 of the Order of the Day, SGPS, S.A. notifies of Summons to Annual General Shareholders Meeting Management Report 1st. Semester 2007 Page 27 of 103

28 After 30 June 2006 the following notifications were issued: 09/07/07 10/07/07 13/07/07 02/08/07, SGPS, S.A. notifies of the increase in the qualified holding in excess of 2/3 of Investifino - Investimentos e Participações SGPS SA, SGPS, S.A. explains news released in the company memorandum, SGPS, S.A. notifies of addendum to the notification from Investifino regarding the qualified holding, SGPS, S.A. notifies of the reduction of the qualified holding of Millennium bcp Gestão de Fundos de Investimento, S.A BEHAVIOUR ON THE STOCK EXCHANGE The table below shows some of the general data on ordinary share movements and quotas throughout the semester now ended and the same semester of the previous year. Note that the data corresponds to the 1st semester. Semester of 2006 were adapted taking into account the «split» subsequently carried out in order to thus make them comparable: Indicator Unit 1st S st S 2006 Number of ordinary shares transacted Unit 433,650,192 59,014,610 Total value of ordinary shares transacted Thousand Euro -668,776,53 28,572,85 Value at start of financial year Eur/share Value at end of financial year Eur/share Average value/ordinary share Eur/share 1, Maximum value/ordinary share Eur/share Date of respective session Month/day Jun/29 Jun/21 Minimum value ordinary share Eur/share Date of respective session Month/day Jan/02 Jan/16 Though financial markets and Euronext/Lisbon throughout the semester now ended have evolved under favourable conditions and in generally in positive territory, one must note the exceptional and particularly active behaviour of the ordinary shares of the Management Report 1st. Semester 2007 Page 28 of 103

29 company both in terms of movement and value. This behaviour culminated with its inclusion from 2 July of the current year in the PSI-20 portfolio. One notes that the average value of the ordinary shares transacted during the 1st semester were in excess of + 218,5% than that witnessed in the same period of the previous year and that the closing price for the semester of 2,45 (versus 2,98/5) corresponds to a variation of +311% in relation to the closing value the year before. Also at a date beyond the end of the semester on 10 July 2007 shares hit a closing price of 2,79 and on the following day reached a maximum inter-session value of 2, SUBSEQUENT FACTS The attached accounts have been approved by the Board of Directors for disclosure on 11 September No significant events which may have affected the information expressed in the same have occurred since the closure date of said financial statements. Oporto, 11 September 2007 The Board of Directors Manuel Roseta Fino (Chairman) Maria Angelina M. Caetano Ramos Pedro Gonçalo de Sotto- Mayor de Andrade Santos, António Pereira da Silva Neves Pedro M. de Almeida Gonçalves (Chairman of the Executive Commission) António Manuel S. Barbosa da Frada Management Report 1st. Semester 2007 Page 29 of 103

30 SHAREHOLDERS WITH STAKE IN EXCESS OF 2% ON 30/06/2007 Manuel Fino SGPS, S.A. No. of Shares % Voting Rights Indirectly via Investifino Investimentos e Participações, SGPS, AS 105,865,097 66,1657 Total attributable 105,865,097 66,1657 Caetano SGPS, S.A. No. of Shares % Voting Rights Directly 17,600,000 11,0000 Via the Administrator of Caetano SGPS, S.A. 9, Total attributable 17,600,000 11,0109 Millennium bcp Gestão de Fundos de % Voting No. of Shares Investimento,S.A. Rights Via a number of Investment Funds 9,266,107 5,791 Total attributable 9,266,107 5,791 Santander Gestão de Activos, S.A. No. of Shares % Voting Rights Via a number of Investment Funds 4,584,941 2,87 Total attributable 4,584,941 2,87 Management Report 1st. Semester 2007 Page 30 of 103

31 STAKE OF COMPANY BODY MEMBERS ON 30/06/2007 MEMBERS OF THE BOARD OF DIRECTORS Mr. MANUEL ROSETA FINO Is Chairman of the Board of Directors of Sociedade Investifino Investimentos e Participações SA. This company owned 69,322,820 shares on 1 January Subsequent to 1 January, «Investifino» went ahead with the following acquisitions: Date PRICE AMOUNT 26 January ,81 20,647,979 PO 26 January ,81 131,209 Outside PO 30 January 0,81 122,300 After PO ,82 881,971 0,84 802,200 2 February 0,85 928, ,86 1,221,325 0,87 682,468 5 February ,88 399,227 6 February 0,92 217, ,93 65,457 5 June ,90 250,000 1,88 60,137 6 June ,89 72,122 1,90 484,341 7 June ,90 19,627 1,89 84,000 8 June ,90 113,773 1,93 50,000 1,94 200, June ,14 191,000 2,20 3,215,000 2,17 121, June ,18 190,000 2,19 20,000 2,20 800, June ,18 49,595 2,20 20,000 Management Report 1st. Semester 2007 Page 31 of 103

32 2,23 213,000 2,24 204,950 2,25 465,050 2,38 26, June ,39 73,028 2,40 50,000 2,37 28, June ,38 120,520 2,39 115,516 2,40 1,015,171 2,38 102,797 2,39 103, June ,40 230,850 2,42 116,300 2,45 440, June ,42 74,835 2,45 815, June ,43 306,625 After PO Thus on 30 June 2007 it owns 105,865,097 shares corresponding to 66,1657% of share capital, listed as follows: SHARES AMOUNT % TOTAL Ordinary Shares 78,872,452 59,3025% Preferential Shares currently with vote 26,992,645 99,9728% Total 105,865,097 66,1657% DR. MARIA ANGELINA MARTINS CAETANO RAMOS - Owned 474,000 shares on 1 January Sold 465,000 shares at a price of 0,83 Euros on 18 January 2007 and then owned 9,000 shares of which correspond to 0,0057% of share capital. She is the administrator of Caetano SGPS, SA. which owned 26,409,000 shares on 1 January After 1 January, Caetano, SGPS, SA went ahead with the following sales: Date PRICE AMOUNT 7 February ,935 2,000,000 9 February ,955 1,000, April , , April ,0292 1,186, April , , April , ,829 Management Report 1st. Semester 2007 Page 32 of 103

33 18 April , , April , , April , , April , , April , ,000 Thus on 30 June ,600,000 shares are owned corresponding to 11,00% of share capital. Mr. ANTÓNIO PEREIRA DA SILVA NEVES Owned 13,200 shares on 1 January 2007 and still has the same quantity. Mr. PEDRO GONÇALO DE SOTTO-MAYOR DE ANDRADE SANTOS Is the administrator of Sociedade Investifino Investimentos e Participações SA. This company owned 69,322,820 shares on 1 January After 1 January «Investifino» went ahead with the following acquisitions: Date PRICE AMOUNT 26 January ,81 20,647,979 PO 26 January ,81 131,209 Outside PO 30 January 0,81 122,300 After PO ,82 881,971 0,84 802,200 2 February 0,85 928, ,86 1,221,325 0,87 682,468 5 February ,88 399,227 6 February 0,92 217, ,93 65,457 5 June ,90 250,000 1,88 60,137 6 June ,89 72,122 1,90 484,341 7 June ,90 19,627 1,89 84,000 8 June ,90 113,773 1,93 50,000 1,94 200, June ,14 191,000 2,20 3,215, June ,17 121,012 Management Report 1st. Semester 2007 Page 33 of 103