Annual Report
Index
01 Letter from the Chairman 8 02 Highlights 10 03 Management Board of Directors 06 page 10 14 Executive Committee Organization Structure 04 Ownership Structure 20 05 The Largest Latin American IT Services Network The Company 20 22 Business Segments History Subsidiaries Human Resources Quality Management World-Class Credentials SONDA and Transantiago Investment and Financing Policies Thousands of customers in Latin America Business Alliances 06 The Information Technology (IT) Industry Information Technology Market 36 07 Results 2007 Results in Chile 38 42 Results in Brazil Results in Mexico Results in OPAL (Others) Prospects for 2008 08 The Company and its Subsidiaries 09 Financial Information 60 72
2007. Highlights Procwork US$540 million in revenues Acquisition 100% SONDA SONDA made significant progress with its investment plan 2007-2009 with the acquisition of 100% of Procwork, a leading company in Brazil in IT consulting services and IT systems integration. Its incorporation within SONDA strengthens the Company s regional position with the addition to its customer base of close to 700, and of more than 3,600 highly-qualified professionals. The leadership reached by SONDA in the provision of IT Services in Latin America reflects itself in unprecedented figures for the Company: revenues of US$ 540 million and EBITDA of US$ 98 million during 2007. IPSA Although only a year has passed since its stock listing, SONDA entered the list of the 40 most traded stocks on the Santiago Stock Exchange (the IPSA index), with a market capitalization over US$ 1,000 million. US$1,000 million market capitalization In 2007, SONDA becomes one of the principal partners of SAP in Latin America. SAP
700 Customer 3,600 Highly-qualified professionals In line with its strategic plan, SONDA achieved to increase the relative share of revenues originated out of Chile in its consolidated sales, significantly increasing the relative weight of Brazil, the largest technology market in Latin America. Non-Chilean sales in the second half of 2007 represented 49.5% of total revenues. US$439 50% Revenues coming from outside Chile in the second half Deals signed by SONDA during 2007 grew by 65% over the year before, totaling contracts worth more than US$439 million. page 00 Annual Report SONDA 07 million long-term contracts SONDA successfully introduced the technology for the new means of payment of the Santiago public transportation system - the BIP! card - processing more than 1,300 million transactions in the year. BIP!
01. Letter from the Chairman Dear shareholders, The year 2007 was a period of many challenges and considerable achievements. SONDA s medium and long-term potential was strengthened and, apart from the difficulties we had to overcome, the Company showed strong bases for continuing to develop successfully in the future. The Annual Report and Financial Statements of SONDA for the year ended December 31, 2007 are therefore the reflection of excellent results that enable us to look to the future with great confidence.
During the year, the Company made substantial progress in its development and consolidation strategy. Large-scale projects were carried out, reaffirming its position, after 33 years of existence, as one of the most complete and reliable information technology (IT) companies in the whole continent, with a presence in nine countries and a relevant volume of business in each one. The financial statements show a net income of Ch$ 23,084 millon (US$ 46 million). I cannot but express my satisfaction of having achieved revenues in 2007 of US$ 540 million, a record for our Company. The new businesses awarded to SONDA in 2007 grew by 65% over the year before, with contracts totalling US$ 439 million. Of these, US$ 305 million related to IT Services and Applications, including contracts with companies like Consorcio Red Uno (Telmex) and Citibank-Banamex in Mexico, or Petrobrás, Redcard, Embraer, Teleperformance y Sadia, in Brazil. In this, I should praise especially the efforts of our commercial teams which have carried out an extraordinary job in working in markets that are increasingly more competitive, without frontiers and tremendously dynamic. One of the most relevant events of the year was undoubtedly the acquisition of 100% of the company Procwork, one of the most important IT services companies in Brazil. The transaction, forming part of the investment plan outlined at the time of our stock exchange listing in November 2006, also brought formidable development and growth opportunities, where the first beneficiaries were our own customers and personnel, both in Brazil and the rest of the region. Our operation in Brazil already contributed revenues of US$ 117.4 million in the first halfyear, representing 36.5% of that period s consolidated revenues. page 00 Annual Report SONDA 07
Procwork, was the achievement of the coveted desire to increase the relative participation of the international area of the Company s consolidated revenues. In the third quarter of 2007, revenues generated from outside Chile already represented 50% of total revenues, a figure that should increase with the organic growth of the subsidiaries and the new planned acquisitions, the first of which will be a first-class company in Colombia. This, together with the sustained growth of our present business, points to the objective of generating more value for our shareholders. Its great acceptance by the market has enabled SONDA to become part of the IPSA (the Chilean selective stock price index) in early 2008, occupying an outstanding place among the most actively-traded companies in Chile. But 2007 also brought us difficulties, mainly deriving from our participation as the technological operator of Transantiago. However, we believe that this project, rather than weakening us, actually strengthened us. Thanks to the unconditional work of each and every one of our engineers and staff, we managed to successfully overcome the technical disputes, which in fact were relatively minor, and face with firmness and maturity the innumerable political and communicational problems. We have not for one moment regretted becoming involved in Transantiago; quite the opposite. We are convinced that there is no other company in the world capable of carrying out a project of such scale and complexity and we are proud and particularly gratified to be part of something as important as the new Santiago public transportation system. We are very optimistic about the future of the project. The agreements reached in early 2008 between the different players (including Administrador Financiero de Transantiago, the banks, bus operators, computer firms and government) show that there is a serious and real commitment to make a success of this ambitious plan, which is what the people and country need. We will remain faithful to our mission of working with all our energy, enthusiasm and skills in the process of the incorporation of information technologies and innovation in the countries of Latin America. We have the cash resources for continuing with our investment plans which include new acquisitions in the most important markets. In conclusion, and on behalf of the Company s board of directors, I have to thank very especially all the employees of SONDA for the great effort made during the year. Without their commitment and dedication, the achievements and good results shown would not have been possible. The quality of our human team is our principal pride. I wish to extend this appreciation also to our shareholders for their trust and support during the year, and to express to them my profound satisfaction for the honor of presiding such prestigious company. Thank you, everyone. As a global company, we are certain of finding ourselves in an advantageous position for continuing to consolidate our business in 2008. This is despite a scenario that presents uncertainties from the viewpoint of the global economy. Our commitment is to continue creating value for our shareholders on the basis of professional and efficient management. Andrés Navarro Haeussler / President SONDA S.A.
page 00 Annual Report SONDA 07
02. Highlights Consolidated Net Income of SONDA 2004-2007 (figures in millions of constant Ch$ as of Dec. 31, 2007) 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 10,513 5.9% CAGR: 30.0 % 21,715 23,084 12,227 10.8% Net margin 8.6% CAGR 6.1% annual growth 2004 2005 2006 2007 Consolidated EBITDA 2004-2007 (figures in millions of constant Ch$ as of Dec. 31, 2007) Consolidated Operating Income 2004-2007 (figures in millions of constant Ch$ as of Dec. 31, 2007) 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 CAGR: 21.1 % 35,116 31,813 27,508 17.5% 15.4% 15.9% 48,834 18.2% 2004 2005 2006 2007 EBITDA margin CAGR annual growth 50,000 40,000 30,000 20,000 10,000 0 CAGR: 24.8 % 30,757 21,845 15,832 19,542 11.5% 8.9% 9.8% 10.9% 2004 2005 2006 2007 Operating margin CAGR: annual growth Consolidates Sales of SONDA 2004-2007 (figures in millions of constant Ch$ as of Dec. 31, 2007) 270,000 250,000 230,000 210,000 190,000 170,000 150,000 130,000 CAGR: 14.6 % 199,801 268,093 200,582 178,170 2004 2005 2006 2007 CAGR: annual growth
SONDA s sales by country Distribution of personnel 6.6% México 8.1% Opal Total: 9.262 emplayees as of December 31, 2007 10.0% México 7.2% Opal Sales by Lines of Business 57.8% Chile 27.5% Brazil 9.2% Applications 63.0% IT Services 24.2% Chile 58.6% Brazil page 011 Annual Report SONDA 07 27.8% Platforms 2004-07
Claudia Pessoa / Director of Natura Our experience with SONDA has been very positive.
Natura / Brazil Through the relationship that we have built, we seek the continuous improvement of our services, for which we include a permanent monitoring of its quality. NATURA ONE OF THE MOST ADMIRED COMPANIES OF BRAZIL, LEADER IN THE INDUSTRY OF COSMETICS, PARFUMS AND PERSONAL HYGIENE, AND ONE OF THE MOST VALUED BRANDS OF THAT COUNTRY. ITS PRODUCTS ARE SOLD ALSO IN VARIOUS COUNTRIES OF LATIN AMERICA AND EUROPE, HAVING REACHED SIGNIFICANT GROWTH RA- TES. THEIR REVENUES FLANKED US$1,700 MILLION, WITH OVER 5,000 EMPLOYEES.
03. Management a. Board of Directors Ensuring the interests of all shareholders, SONDA and its management assume full responsibility of carrying out the best practices related to corporate governance. In order to correctly manage the organization, the Company is therefore headed by a board of directors comprising nine members, who have been elected by the ordinary shareholders meeting for a period of three years. Board of directors meets monthly, and extraordinary meetings are held in the event of special situations. The function of the Company s management and performance is delegated to a chief executive officer by the board of the Company, who is responsible for all the company s operations and to whom each of the business and support units reports. The ordinary shareholders meeting held on April 17, 2007 appointed the members of the board for the new statutory period, as follows: 1 2 3 4 5 6 1 HÉCTOR GÓMEZ BRAIN Director Civil Industrial Engineer Universidad Católica de Chile Tax Id N 6.426.176-2 2 ANDRÉS NAVARRO HAEUSSLER Chairman Civil industrial engineer Universidad Católica de Chile Tax Id N 5.078.702-8 3 MARIO PAVÓN ROBINSON Director Civil industrial engineer Universidad Católica de Chile Tax Id N 5.386.757-K 4 PABLO NAVARRO HAEUSSLER Director Civil industrial engineer Universidad Católica de Chile Tax Id N 6.441.662-6
Directors Committee SONDA, in accordance with clause 50 bis of the Corporations Law 18,046, has a Directors Committee consisting of three members of the board, whose functions are those stated in the law. The Company s board, at its meeting held on April 25, 2007, appointed Segismundo Schulin-Zeuthen Serrano, Ignacio Fernández Doren and Mario Pavón Robinson as the members of the Directors Committee. At its meeting held on June 4, 2007, SONDA s Directors Committee appointed Segismundo Schulin-Zeuthen Serrano as its chairman and Ramón Valdivieso Ríos, the Company s legal counsel, as secretary. 7 8 Activities of the Committee The Directors Committee met four times during 2007. The first one set the guidelines for carrying out the Committee s own tasks, agreeing to meet at least four times a year, on a day prior to the board meeting for approving the Company s quarterly financial statements. The Committee examined the respective quarterly financial statements and proposed their approval to the board, established procedures for the revision and approval of the Company s transactions with related parties and the up-dating of information relating to directors and senior executives, and took note before the close of the year of the internal control letter sent by the external firm of auditors. page 015 Annual Report SONDA 07 5 SEGISMUNDO SCHULIN-ZEUTHEN SERRANO Director Civil Industrial Engineer Universidad de Chile Tax Id N 4.689.635-1 6 LUIZ CARLOS U.FELIPPE Director Economist, Universidad Católica de Sao Paulo, and Business Administrator of the Faculty Eduardo Prado Tax Id N 10.188.505-2 7 IGNACIO FERNÁNDEZ DOREN Director Civil engineer Universidad de Chile Tax Id N 7.037.340-8 8 RAÚL RIVERA ANDUEZA Director Master of Business Administration University of Stanford and Degree in Economics, Macalester College, USA Tax Id N 6.460.793-6
b. Executive Committee 1 PABLO NAVARRO HAEUSSLER Vice president Civil industrial engineer Universidad Católica de Chile Tax Id N 6.441.662-6 2 RAÚL VÉJAR OLEA Chief Executive Officer Civil Electronic Engineer and Master in Electronic Engineering, Universidad Santa María Tax Id N 6.580.740-8 3 ANDRÉS NAVARRO HAEUSSLER Chairman Civil industrial engineer Universidad Católica de Chile Tax Id N 5.078.702-8
SONDA s Executive Committee consists of the chairman, two directors, the chief executive officer and two first-line managers. Its objective is to support and strengthen the management on matters as important as the design of strategies, investment plans and decisions, customer satisfaction, business analysis and results, quality management, human resources policy and marketing. The executives who are members of the Executive Committee are: 1 2 3 4 5 6 page 017 Annual Report SONDA 07 4 MARIO PAVÓN ROBINSON Vice president Civil industrial engineer Universidad Católica de Chile Tax Id N 5.386.757-K 5 OCTAVIO GÓMEZ COBO Division Manager Professional Degree from Universidad de Concepción Tax Id N 5.380.064-5 6 RAFAEL OSORIO PEÑA Corporate Finance Manager Civil industrial engineer Universidad de Chile Tax Id N 7.923.570-9
Directors Remuneration (Thousands of pesos) Directors 2007 2006 Per Diem Others (*) Per Diem Others (*) The directors Andrés Navarro H., Mario Pavón R., Pablo Navarro H. and Héctor Gómez B. are also directors of the subsidiaries mentioned below, without receiving any remuneration for such functions. Director Name of company and position Andrés Navarro Haeussler - 189,009-249,549 Mario Pavón Robinson - 107,081-138,563 Pablo Navarro Haeussler - 96,562-171,264 Segismundo Schulin-Zeuthen Serrano 10,333-8,784 - Ignacio Walker Prieto (3) 7,421-8,822 - Héctor Gómez Brain 9,382-11,730 - Raúl Rivera Andueza 5,659-9,767 - Ignacio Fernández Doren 10,326-10,754 - Miguel Navarro Haeussler (1) - - 963 - Alejandro Ferreiro Yazigi (2) - - 3,868 - Luis Carlos Utrera Felippe (4) - - - - Julio Solar Caamaño (4) 3,719 - - - Total 46,840 392,652 54,688 559,376 (*) Includes remuneration received as directors who also perform executive functions within the Company. (1) The remuneration 2006 of Miguel Navarro relates to the month of January. The board was re-elected at the ordinary shareholders meeting held on March 21, 2006. (2) The director Alejandro Ferreiro Yazigi resigned on July 14, 2006. (3) Ignacio Walker Prieto resigned on October 23, 2007 without a replacement having been appointed as of December 31, 2007. (4) The director Julio Solar Caamaño resigned on September 12, 2007 and Luiz Carlos Utrera Felippe was appointed as his replacement. Management remuneration The total remuneration received during 2007 by the executive committee of SONDA and principal executives amounted to Ch$2,532 million. There were no severance payments to senior executives during 2007. Andrés Navarro Haeussler Mario Pavón Robinson Pablo Navarro Haeussler Héctor Gómez Brain Administradora de Activos Financieros S.A. (Chairman) Fullcom S.A. (Chairman) Microgeo S.A. (Chairman) Novis S.A. (Chairman) Orden S.A. (Chairman) Servibanca S.A. (Chairman) SONDA México S.A. (Chairman) SONDA del Perú S.A. (Chairman) SONDA Servicios Profesionales S.A. (Chairman) Administradora de Activos Financieros S.A. (Director) I-Med S.A. (Director) Microgeo S.A. (Director) Novis S.A. (Director) Orden S.A. (Director) Servibanca S.A. (Director) Soluciones Expertas S.A. (SOLEX S.A.) (Director) SONDA Ecuador S.A. (Director) SONDA del Perú S.A. (Director) SONDA Inmobiliaria S.A. (Director) SONDA Servicios Profesionales S.A. (Director) Tecnoglobal S.A. (Director) Transacciones Electrónicas S.A. (Director) Factoring General S.A. (Director) Microgeo S.A. (Director) Servibanca S.A. (Director) Servicios Educacionales SONDA S.A. (Director) SONDA Inmobiliaria S.A. (Chairman) SONDA Servicios Profesionales S.A. (Director) Tecnoglobal S.A.(Director) Bazuca Internet Partners S.A. (Chairman) I-Med S.A. (Chairman) Transacciones Electrónicas S.A. (Chairman)
c. Organization Structure SONDA s organization structure is designed to assume a series of corporate functions in addition to the functions pertaining to the different business and support units. The corporate functions are oriented to the definition and implementation of strategic decisions in different areas of action, producing the generation of synergies and the alignment of the whole organization with respect to the guidelines provided by the senior management, both locally and regionally. These functions provide transversal support for the different business units and cover matters related to marketing, range of products, alliances, human resources, corporate finance and performance control. The different business units have been organized in such a way that they can respond effectively and efficiently to customer needs, having a degree of autonomy necessary for taking decisions quickly and flexibly. The corporate organizational structure is shown below: Incentives Plan Incentives are an important factor within the organization. The Company therefore has plans for remunerating its executives in a variable way as a function of compliance with annual objectives, individual performance and contribution to achieving SONDA s targets. In addition, on October 23, 2007, the board, as agreed by the extraordinary shareholders meeting of July 4, 2006 and the board meeting of December 19, 2006, resolved to offer a group of principal executives the option to subscribe and pay for Company shares related to the capital increase agreed at that extraordinary meeting. Executive Commitee Board CEO page 019 Annual Report SONDA 07 Corporate Functions Business Units Products and Alliances Human Resources Marketing Corporate Finance and Reporting
04. Ownership Structure Ownership structure (As of December 31, 2007) RUT Shareholders Shares Percentage 88.492.000-0 INVERSIONES PACIFICO II LTDA. 302,769,600 39.33% 79.822.680-0 INVERSIONES SANTA ISABEL LTDA. 78,854,400 10.24% 78.091.430-0 INVERSIONES ATLÁNTICO LIMITADA 73,848,000 9.59% 97.008.000-7 CITIBANK N.A. ON BEHALF OF 3RD PARTIES (foreign investors) 36,278,400 4.71% 59.120.060-7 INTERNATIONAL FINANCE CORPORATION 35,318,400 4.58% 97.008.000-7 CITIBANK N.A. ON BEHALF OF 3RD PARTIES 32,636,202 4.24% 97.036.000-K BANCO SANTANDER CHILE. 28,997,795 3.76% 99.552.910-6 INVERSIONES TECNOLÓGICAS S.A. 28,279,200 3.67% 96.684.990-8 MONEDA S.A. AFI PIONERO INVESTMENT FUND 13,011,000 1.69% 84.177.300-4 CELFIN CAPITAL S.A. CORREDORES DE BOLSA 9,780,608 1.27% 90.249.000-0 BOLSA DE COMERCIO DE SANTIAGO BOLSA DE VALORES 9,135,691 1.18% 91.888.000-3 CIA. DE INVERSIONES TRANSOCEANICA S.A. 7,607,354 0.98% OTHERS 113,202,611 14.70% TOTAL 769,719,261 100.00%
US$46 million was SONDA net income in year 07 Dividend Policy The shareholders meeting agrees on the amount of the dividend by a majority, unless this be for less than 30% of the net income for the year, in which case this requires unanimous approval page 021 Annual Report SONDA 07 Dividends paid per share 2005 2006 2007 2004 2005 2006 2007 No. of shares (*) 23,604,000 769,282,884 769,719,261 Earnings per share 472.38 26.28 29.99 Dividends paid 196.03 (1) 7.24(2) 7.88(3) (figures in pesos on the date of payment) (*) Subscribed and paid shares (1) Relates to distribution of net income for 2004, paid on April 15, 2005 (2) Relates to distribution of net income for 2005, paid on March 30, 2006 (3) Relates to distribution of net income for 2006, paid on April 30, 2007 Distributable Earnings ThCh$ 2006 2007 Net income 21,714,578 23,084,371 Amortization of negative goodwill (881,362) (48,213) Accumulated earnings 835,713 16,078,376 Distributable earnings 21,668,929 39,114,534
05. The Largest Latin American IT Services Network The Company SONDA is the largest Latin American Information Technology Services company. It has a base of more than 5.000 customers in nine countries, including the principal markets in the Region. Its mission is to add value to its clients by means of the best use of information technologies. Because of it, SONDA has been characterized for the strong commitment with its clients, trying to establish long-term relationships, which requires to deliver consistently services and products of quality. The Company seeks, develops and implements innovative solutions for improving the productivity of a wide range of private and public organizations, bringing technology to the people. In its more than 33 years of life, it has been the artifice of initiatives of great importance and technical complexity, such as the new Chilean system of identification, the measuring of environmental variables in Santiago, the electronic health-attention insurance contribution system, and traffic control systems in the cities of Santiago and Sao Paulo. Its annual sales amounted to US$ 539.5 million (Ch$268,093 million) in 2007 while its market capitalization as of December 31 exceeded US$ 1,000 million. SONDA has successfully expanded into Latin America through the merger and acquisition of companies, increasing market share and significantly expanding its customer base. The Company has selectively acquired more than 20 companies in nine countries since the 1980s, making it the Latin American provider with the most complete regional coverage. INTEGRAL IT SOLUTIONS IT SERVICES Professional services and systems integration IT outsourcing MARKET LEADERSHIP POSITION Leader in systems integration Positioning in the top-level corporate market NEARSHORE MODEL ADVANTAGES Geographical proximity Similar time zone and language IT management and support Brand recognition Same culture APPLICATIONS Less travel PLATFORMS Lower costs
US$540 million was SONDA revenues in year 07 US$98 million was the EBITDA of SONDA in year 07 SONDA is present in the three principal segments of this industry: IT Services, the segment offering the highest value added and the best growth potential; Applications, which consist of the development and commercialization of software solutions; and Platforms, which relate to the supply of technological infrastructure. Lines of Business SONDA s offer is integral and covers IT Services, Applications and hardware and software Platforms. The Company complements its development capacities with agreements and alliances with the principal global suppliers of technology. The extensive regional coverage of its services enables it to take advantage of the knowledge and experience accumulated in each of its territories. The Company has developed the ability to export and adapt its solutions and technological services to the reality in each country, obtaining synergies in its operation and penetrating markets with large growth potential. Over the years, SONDA has managed to combine its own IT-world capacities with its knowledge of different industries and processes, allowing it to add value to the businesses of its customers and provide them with an optimum return on their investments in technology. page 023 Annual Report SONDA 07 IT Services Outsourcing IT management and support Projects and systems integration Professional services Specialized consultancy and advice Applications Software solutions Industry-specific solutions Development of tailor-made software Implementation, support, maintenance and updating of versions Platforms Platforms Servers PCs Printers Storage and back-up Communications equipment Basic software (data bases, operating systems, etc.)
33.7% of revenue growth in year 2007 History 1974 Foundation of SONDA in association with Copec 1975 / 80 Representation of Digital Equipment Corp., a successful American manufacturer in the 1980s (1978) First integral outsourcing services contract (National Savings and Loans Association) 1981 / 85 1986 / 90 1991 / 95 1996 / 00 Start of internationalization: Peru (1984) Internationalization process continues: Argentina (1986) Ecuador (1990) Uruguay (1994). Check clearing processing services Colombia (2000) Launching of ERP FIN700 Applications for AFPs (pension funds) and ISAPRES (health insurance entities) Applications for the banking industry Traffic control in Santiago and Sao Paulo Mobile telephony projects in Brazil and Paraguay Automation of horse-racing betting Pension fund solutions in Argentina and Peru Outsourcing service for Telefónica CTC Chile 2001 / 05 Brazil (2002) Costa Rica (2003) Mexico (2004) Electronic health coupons ( I-med ) Winery solution (Kupay) New Chilean identification system (Civil Registry) Pension funds solution (Brazil) 2006 2007 Stock market listing for SONDA (November 3, 2006) SONDA acquires Technical Support Division of Qualita in México Adjudication of the state of Colombia s procurement system Acquisition of the Brazilian company Procwork Adjudication and implementation of large-scale projects in different countries, like Codelco, Pizarreño, AFT and SII in Chile, Petrobrás, Teleperformance and Redecard in Brazil, Telmex and Banamex in Mexico, and several Nigerian pension funds.
First large systems integration project (automation of the Civil Registry) Start of banking projects in Latin American countries: Bandesco in Perú Mobile telephony projects in Argentina First ERP of SONDA (SGS management system) Monitoring of environmental variables in Santiago Banking projects in Indonesia, Thailand and Taiwan SONDA s business record has been marked by its adaptation abilities both in IT development and with the constant economic, political, social and cultural changes in the countries of the region. This, added to a responsible and careful management, has enabled it maintain solid growth over and above swings in the market, the industry or page 025 Annual Report SONDA 07 Solutions for health providers SAP platform service for Codelco Automation of hospitals in Argentina, Colombia and Chile ownership changes, to become the principal Latin American network in IT Services. ChileCompra Outsourcing for tax collections (Brazil) Livestock traceability (Uruguay) High-value payments clearing in the financial industry (ComBanc) Contract with Petrobrás Development of the AFT project Pension funds solution (Nigeria) For the first time, in the third quarter the international operational revenues surpass revenues in Chile SONDA qualifies to enter the IPSA (Chile s selective stock price index). Successful implementation of the BIP! card, new means of payment for the Transantiago.
Dr. Telmex / Chile Our experience with SONDA as one of our more important strategic partners in Chile has been of great value. To the quality of their services, one must add the agility with which they attend us and the personal and permanent contact that we have with their executives and technical support engineers. In all these years, this has added positively in our business processes. TELMEX CHILE CHILEAN SUBSIDIARY OF ONE OF THE LEADING TELECOMMUNICATIONS COMPANIES IN LATIN AMERICA, WITH OPERATIONS IN MEXICO, ARGENTINA, BRAZIL, COLOMBIA, CHILE, URUGUAY, PERÚ AND UNITED STATES, AND ANNUAL CONSOLIDATED BILLING OVER US$16,000 MILLION. TELMEX CHILE HAS HAD REMARKABLE GROWTH AND BUSINESS DEVELOPMENT SINCE ITS ARRIVAL IN THE COUNTRY IN THE YEAR 2004.
The experience to have SONDA as strategic partner has been of great value for us. Eduardo Díaz Corona / Chief Executive Officer Telmex Chile
Subsidiaries in Latin America and Chile SONDA directly and indirectly owns 100% of its subsidiaries in Latin America. Besides, it has shareholdings in other subsidiaries related to the IT industry. SONDA S.A. Company SONDA Holding Sonda Argentina S.A. y Filial 100.00% Sonda do Brasil S.A. y Filial 100.00% Sonda de Colombia S.A. 100.00% Sonda Tecnologías de la Información de Costa Rica S.A. 100.00% Sonda del Ecuador Ecuasonda S.A. 100.00% Sonda Pissa (México) S.A. de CV. 100.00% Sonda del Perú S.A. 100.00% Sonda Uruguay S.A. 100.00% Fonsorbes Participacoes Ltda. 100.00% CHILE Company SONDA Holding Acfin S.A. 60.00% Bazuca Internet Partners S.A. 100.00% Factoring General S.A. 100.00% Fullcom S.A. 97.00% I-Med S.A. y Filiales 50.08% Microgeo S.A. y Filial 71.17% Novis S.A. 60.00% Orden S.A. y sus Filiales 100.00% Puerto Norte S.A. 59.43% Servibanca S.A. 86.75% Servicios Educacionales Sonda S.A. 100.00% Soc. Prod. y Serv. Redes Móviles 90.00% Soluciones Expertas S.A. 50.01% SONDA Inmobiliaria S.A. 100.00% SONDA Servicios Profesionales S.A. 100.00% Tecnoglobal S.A. 100.00% Transacciones Electrónicas S.A. 50.08%
Human Resources SONDA s human resources policy is oriented to develop people in the organization in both the professional and personal areas, as well as forming motivated and highly-productive teams. All this within a framework of a good working climate that contributes to the integral development of all its staff. SONDA seeks to develop in an integral manner its staff, primary basis for a good long-term relationship with customers. As of December 31, 2007, the Company has a total of 9,262 employees throughout Latin America, of which 7,856 are specialized engineers and technicians who constitute the basis of a complete and broad network of support and service for its customers. Personnel (as of December 31, 2007) Chile Brazil Mexico *Opal 0 55 10 5 64 1000 603 507 859 22 503 140 2000 1,584 3000 4000 5000 4,910 6000 7000 8000 Total country 2,242 5,427 928 665 % by country 24.2% 58.6% 10.0% 7.2% page 029 Annual Report SONDA 07 The executive staff have been with the Company for an average of 14 years; this reflects a broad experience and recognized reputation in the IT industry. These executives have carried out large undertakings and actively contributed to the Company s growth and its regional expansion. TOTAL 92 1,314 % by functions 7.856 9,262 1.0% 84.8% 14.2% 100,0% SONDA s growing presence in nine countries of the region has permitted a greater mobility of its executives and technicians, substantially improving the Company s know-how and contributing to generating a unique corporate culture. Executives Engineers & technicians Administration, sales & operations * Opal (other countries Latin American )
Quality Management The quality management standards of SONDA are of an international level. Thanks to the permanent investment in improving the services, techniques and processes, the training and formation of its staff and the introduction of practices, methodologies and new technologies have enabled it to respond professionally and completely to the requirements of its customers. It is fundamental and indispensable for the Company to strengthen the development of the staff and their skills, improve productivity and work quality, pillar that generates competitive long term advantages. Principal Quality Credentials ISO 9001:2000 Quality management system based on processes whose focus is on continuous improvement and customer satisfaction. ITIL (IT Infrastructure Library) A combination of best practices for IT service management. SONDA s quality management system is based on three fundamentals: PMO (Project Management Office): Quality methodology in project management. PEOPLE Constant concern for training, service attitude to customers and recognition of its staff. PROCESSES Incorporation of internationally-recognized mature models. CMMi (Capability Maturity Model Integrated): Combination of the best practices for the development of software products. TOOLS Information systems developed by SONDA that gather the broad experience of more than 30 years in the provision of IT services in Latin America. World-class credentials SONDA provides its services within high standards of quality and consistency. The Company in 2007 made constant investments that maintained these high standards and industry best practices, this being coherent with its commitment to provide quality services to its customers. The principal global IT manufacturers recognize the high levels of service quality provided by the Company to its customers.
page 031 Annual Report SONDA 07
1,300 million transactions with the Bip! Card SONDA and Transantiago It is a fundamental part of SONDA s work to undertake projects involving important technological innovation that represent long-term recurring revenues and have a positive impact on the companies or society. These were the motivations that led the Company to participate in the Transantiago project, the new public transportation system of Santiago city. In previous years, SONDA s own abilities plus those of specific partners in the projects it undertook enabled it to acquire valuable experience in projects like the automation of traffic lights in Santiago, the modernization of the Chilean identification system or the construction and operation of the state electronic procurement portal called ChileCompra. SONDA acts as technological operator of Administrador Financiero de Transantiago (AFT), an entity formed by large local financial institutions to provide services for the new transportation plan for the capital. In its search for suppliers having the technical, organizational and financial capacities required for a project of this size, AFT chose SONDA, asking it also to take a minority stake in the company. The technological operation services contract between AFT and SONDA basically consists of: Payments system: Includes control machines for capturing transactions with the Bip! card, tariff integration and processing in a clearing system involving the metro and the card recharging points. Fleet Exploitation Support System (SAEF). Technological equipping for a total (originally) of 4,515 buses, computers (or concentrators) and aerials at the bus terminals, fixed and wireless communications system, and central computers. The equipping of buses consists of sophisticated elements of which the heart is the on-board or MTC computer which includes GPS. A combination of support services for the normal operation.
Soon before the start-up of the new system, the authority decided to gradually increase the fleet of buses, which a few months afterwards had grown by 43%. This situation meant a large challenge for SONDA implying the generation of a technology that could accompany these uncontemplated modifications but which were necessary for progressively improving the quality of service of the public transport. The role of SONDA is that of integrator of solutions and services, under which it chose specialized suppliers. Among the most important is Siemens, a global company with world-class credentials and a vast experience in technological systems for transport. Between 2006 and 2007, SONDA has invested close to US$100 million in the Transantiago project which amount was mostly in software development and the acquisition of equipment, software and services for the installation and start-up of the technological system. In particular, at the end of the first operation period of Transantiago, very especially notable was the performance of the Bip! card, the new means of payment of the transportation system that has worked robustly, both in its use in controlling machines for recording transactions and in the sale and recharging of cards, unloading of transactions and transmission of the data to the central computers, and processing the so-called Clearing for payment to the operators. As of December 31, 2007, 1,300 million transactions had been processed, successfully passing demanding tests by external auditors. Transantiago is a unique project in the world, which integrates with a means of payment to multiple transport operators, including the metro. It is the most sophisticated and ambitious systems-integration project developed in Chile, not only for the level of investment required until now, but for all it has meant in generating a technological solution in which multiple component and various suppliers are integrated. During 2007, and despite the excellent functioning of the Bip! card, SONDA had to face innumerable difficulties, most of which were outside its scope of competence. Apart from the adjustments that any new system requires in its implementation stage, the situation of this project has been particularly amplified as a result of modifications made to the original design. In this situation, SONDA s engineers managed to design and introduce complementary solutions that enabled the payments system, vital in an integrated-tariff transport system, to operate properly. These solutions included equipping the additional buses incorporated partially into the fleet with control machines but without on-board computers as the manufacturers delivery time for the required new equipment is around 6 months. However, for the Fleet Exploitation Support System, being an on-line system and there being a significant proportion of the fleet without onboard computers, it was impossible to perform the work foreseen in the original project. This caused it to receive unjust criticisms suggesting that the technological system was not working. In addition, SONDA had to assume a series of important tasks vital to the operation of the system and which were not included in the tender bases or contracts. These include the equipment and technological upgrading of the pay zones, the daily determination of the Program Compliance Index (ICP) requested by the Ministry of Transport and the development of a synoptic system for controlling fleets. Transantiago should be seen from two optical, a real one, which is the one described previously, and another media one. This last one has covered diverse political and communication spheres, in which SONDA has been treated very unfairly. Nevertheless, doubts concerning where the main responsibilities lie in the difficulties in the design and implementation of the new transport plan have been clearing over time. SONDA has placed its best skills in the development of this project, which would not have been possible to implement without the Company s contributions. Based on this and the degree that the corrective actions being taken by the authority so that the new capital transportation plan achieves a level of service of the quality that the population expects, SONDA will once again have contributed significantly to the improvement of the quality of life of the citizens through the introduction of new technologies. page 033 Annual Report SONDA 07
49% of progress of the investment plan in its first year of implementation Investment and Finance Policies Investment Policy SONDA is continuously analyzing new investment opportunities related to the development of IT businesses, both in the countries where it is currently operating or in markets not yet explored. However, and despite SONDA having contemplated continuing its expansion strategy in Latin American markets, this should not translate into higher debt levels. Its principal investments will be financed through the use of funds generated by the business and the proceeds of the capital increase made in 2006. It is expected that an increase in revenues from the businesses under development (which in 2006 and 2007 have required greater working capital funds) will strengthen net operating cash flows. The Company uses as a basis for assessing the convenience of an acquisition the following aspects, among others: Financial evaluation Portfolio of customers and contracts that permit the expansion of the customer base, cross selling and recurring revenues. Customers perception of the company s services. Capacity and commitment of the principal executives and profesionals and their willingness to remain in the organization. Geographical presence. Possibilities of synergy. Management style.
Finance Policy SONDA stands out from among its peers for having an effective financial flexibility related to a good funds-generation capacity, a satisfactory debt repayment structure and a balance of cash and cash equivalents at December 2007 of US$122 million. This figure includes the Company s share in the SONDA Private Investment Fund, managed by Moneda Asset Management, whose investments are in cash, mutual funds and Chilean and foreign fixed-income securities. Added to this, the strengthening of its equity base has enabled it to finance its investment plan without increasing its stock of financial debt. The Company has maintained a satisfactory liquidity position, with large available funds (cash and liquid assets) compared to its short-term cash needs and has therefore not needed to face the risks of refinancing significant amounts of debt. Most of the financial debt is concentrated on the parent company and is denominated in local currency with long-term maturities and fixed interest rates. SONDA has no secured debt and its exposure as guarantor of subsidiary companies is insignificant. The principal bank loans have quarterly and semi-annual repayments of principal so the Company does not face a high concentration of debt maturities. The bank loan agreements contain covenants concerning the level of debt and net financial debt coverage to EBITDA, with which the Company is comfortably in compliance. In recent years, the focus of SONDA s acquisitions has been on companies whose principal business is the provision of technical support services, IT outsourcing and systems integration. On the other hand, investment decisions in research and development (R&D) are related to the development of new software products, together with the evolution of the present ones and permanent updating of its professionals in the latest technologies required for the performance of their work. The rest ofr investment decisions are taken in accordance with the corporate general investment policy which states that these should be presented by the business units in their annual operating plans. Investments outside the plan are presented and analyzed together with the corporate finance management and submitted for approval by the board. page 035 Annual Report SONDA 07 The liabilities of SONDA with the financial system are generally taken at fixed interest rates and occasionally at floating rates. SONDA currently has a syndicated loan with the banks BCI, Estado and Security whose principal outstanding as of December 31, 2007 is UF 316,600. This loan carries a rate of TAB 180, plus a fixed spread with quarterly repayments and its remaining term to maturity is 9 months. In addition, SONDA has a loan subscribed in February 2006 for Ch$31,349 million (US$58.9 million) with the banks Santander, BCI and Estado (historic amounts). This loan has a four-year term, is peso-denominated at a fixed rate with semi-annual repayments, and its maturity is in 2010. The purpose of this loan has been to finance the acquisition of assets related to the technological operator contract with AFT (Administrador Financiero del Transantiago). The main purpose of SONDA s financial investments is to maintain an adequate level of surpluses for covering its short-term cash needs and these are generally made through purchases of fixed-income securities. SONDA and its subsidiaries do not participate in businesses of a speculative nature so the taking of positions in financial derivatives like forwards, futures, swaps, options or others does not form part of SONDA s business. However, when justified, the Company may take positions in financial instruments in order to hedge its exchange or interest-rate exposures arising from its normal course of business. In any event, natural or
US$439 millon in new contracts signed in the year 07 operating hedges are always preferred. from its normal course of business. In any event, natural or operating Thousands of Customers in Latin America SONDA s services have been characterized for their excellence and professionalism which has permitted it to maintain long-term relationships with most of its customers, which today amount to more than 5,000 in all Latin America. Sector and regional diversification has also helped it to considerably reduce its dependence on its individual sales. The 5 largest customers of SONDA generated during 2007 sales that represented just a fifth of total consolidated sales, while the 50 largest customers generated sales representing 43% of total consolidated sales. The broad spectrum of services that the Company is able to provide gives it a larger volume of potential business opportunities and long-term relations. The strong commitment with its customers and the integral offer of products and services have enabled it to cultivate relations that are shown in the high rate of contract renewals and recurrence in its sales of close to 70%. SONDA s customers include global and Latin American companies with a strong regional presence. There is also a large number of public deals in the countries where we operate which, through competitive tenders, have been awarded to SONDA for the execution of large projects related to state modernization. SONDA sales by business sector (as of December 2007) 100% 80% 60% 40% 20% 6.4% 14.4% 29.7% 42.0% Commercial 19.7% 12.0% 19.6% Financial 48,6% 0.8% 2.2% 16.3% 19.8% Government 4.5% 10.2% 22.2% 8.9% Telecommunications 1.3% 6.3% 10.2% 13.2% Others 2.6% 9.6% 3.2% 39.0% Manufacturing 3.6% 0.9% 1.8% 10.0% Health 1.0% 0.0% 2.4% 17.5% Natural Resources 0% Chile Brazil Mexico OPAL
0% 20% 40% 60% 80% 100% 65% increased the volume of new contracts signed in year 07 Business Alliances SONDA has long-term commercial and collaboration agreements with the world s principal technological suppliers. Through these, the Company is kept up to date in the state of the art in IT and in its incorporation and use in different industries, and has access to the latest innovations and trends. Apart from the regular updating of its offer of products and services, these relations give it expedite access to specialized high-level support in different technological platforms. SONDA also reaches occasional agreements with technological leaders, depending on the particularities of the projects in question, seeking the best supplier for each need. SONDA has signed such agreements with manufacturers like Microsoft, HP, IBM, SAP, Cisco, Autodesk, Intel Oracle, Sun, Symbol, Siemens, De la Rue and Montran. page 037 Annual Report SONDA 07 Consolidated 29.4% Commercial 19.5% Financial 13.1% Manufacturing 11.4% Government 7.6% Telecommunications 5.6% Natural Resources 3.3% Health 10.1% Others *Approximate figures
06. The Information Technology Industry Information Technology (IT) industry has been highly important in the modernization and efficiency of all sectors of society. The mass introduction of these tools has strongly affected the structure and dynamics of economic and social processes, redefining the ways of producing, selling and competing in practically all the productive sectors of goods and services. It has also influenced the education, interaction and communication between people and entities in society, and in all government actions. Now nobody can remain outside the incorporation and use of new technologies. The benefits it brings are extremely relevant. Among others, it increases the production and quality of goods and services, enlarges the productivity and competitiveness, creates new business opportunities, facilitates communications, permits equal access to information and knowledge, and contributes to raise the quality of life of the people. Technological Solutions Penetration Japan USA As the development level increases, a greater investment in IT services Europe and solutions takes place. In less than ten years, Latin America has become the second-fastest growing region in the world of IT, after Eastern Europe, with significant increases in the services segments, particularly IT outsourcing and professional services. Brazil and Mexico are the leaders, with investments of around US$23,500 million and US$ 11,300 million respectively. GDP per capital (US$) Mexico Chile Latin America Brazil Overall, Latin America invested more than US$ 51,000 millon during 2007, 23.2% more than in 2006. Of this, 74% came from the private business sector, 19% from the residential sector and 7% from the public sector. 0,5% 1,0% 1,5% 2,0% 2,5% 3,0% 3,5% Source: IDC (International Data Corporation ) and World Bank 2005 In the particular case of Chile, IT investment grew by 21.6% in 2007 to US$ 2,688 millon. This growth was greater than that of national Gross Domestic Product (GDP) in the same period, thus showing the important activity of the sector in recent times and its relative importance in the local economy. An even more positive scenario is expected for 2008. According to IDC, IT expenditure in Latin America will reach US$ 57,660 million, showing a 12.8% of increase over 2007.