consolidated management report

Transcrição

CONSOLIDATED
ANNUAL REPORT
2007
Consolidated Annual Report 2007
SAG GEST - Soluções Automóvel Globais, SGPS, SA
Listed Company
Registered Share Capital: € 169,764,398
Taxpayer: 503 219 886
Registered at the Amadora Registrar of Companies under no. 503 219 886
Headquarters: Estrada de Alfragide, 67 – 2614-519 Amadora
Offices: Alfrapark – Edifício SGC, Piso 2
2614-519 Amadora
Tel. 21 359 66 64
Fax: 21 359 66 74
E-mail: [email protected]
Web: http://www.sag.pt
SAG GEST – Soluções Automóvel Globais, SGPS, SA – Sociedade Aberta
C.R.C. Amadora nº 503219886 – Capital Social: EUR 169.764.398 – Contribuinte Nº 503 219 886
Sede: Estrada de Alfragide, nº. 67 – 2614-519 Amadora
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CONSOLIDATED
MANAGEMENT REPORT
2007
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TABLE OF CONTENTS
I. MACROECONOMIC BACKGROUND
A. INTERNATIONAL BACKGROUND
B. PORTUGUESE ECONOMY
C. BRAZILIAN ECONOMY
II. THE AUTOMOTIVE MARKET IN 2007
A. PORTUGAL
B. BRAZIL
III. BUSINESSES REPORT
A. AUTOMOBILE DISTRIBUTION AND RETAIL
1 - Automobile Distribution - SIVA
2 - Automobile Retail – New Cars - SOAUTO
3 - Automobile Retail – Semi-new and Used Cars – Globalcar
B. AUTOMOBILE SERVICES
1 – Portugal - LGA
2 – Brazil - Unidas
C. PARTNERSHIPS / STRATEGIC STAKES
1 – Renting
i. Portugal/ SC Multirent
ii. Spain/ SC Iber-Rent
2 – Remarketing
i. Portugal/ Manheim Portugal
IV. BUSINESS SUPPORT ACTIVITIES
A. FINANCIAL AREA
B. HUMAN RESOURCES
C. INFORMATION SYSTEMS
D. LOGISTICS
V. BUSINESS RESTRUCTURING AND INNOVATION PROCESS
VI. ECONOMIC AND FINANCIAL ANALYSIS
VII. OUTLOOK FOR 2008
A. MACROECONOMIC PROSPECTS
4
1 - Portugal
2 - Brazil
B. AUTOMOBILE MARKET EVOLUTION FORECAST FOR 2008
C. GROUP ACTIVITY EVOLUTION FORECAST
1 - Automobile Distribution and Retail
i. Automobile Distribution – SIVA
ii. Retail – New Cars - SOAUTO
iii. Retail – Semi-New and Used Cars – Globalcar
2 - Automobile Services
i. Portugal/ LGA
ii. Brazil/ Unidas
3 – Recycling of End of Life Vehicles - ELV
i. Ecometais
4 - Partnerships / Strategic Stakes
i. Renting
a.1. Portugal/ Multirent
a.2. Spain/ SC Iber-Rent
a.3. Poland/ SC Multirent Sp Zoo
ii. Portugal/ Manheim Portugal
VIII. FINAL NOTE
5
I. MACROECONOMIC BACKGROUND
A. INTERNATIONAL BACKGROUND
According to IMF estimates, world economy grew approximately 5.2%, i.e., for the third time in 10 years it
has had a higher than 5% growth rate, although this growth shows a slight slowdown vs. the previous year
(5.4%). This slowdown has also manifested itself in the Euro Zone, where GDP is expected to have grown
2.5% vs. 2.8% in 2006.
Table 1 – International Background – Main Assumptions
2006
5,4
2,8
8,4
65,1
1,256
2007 (E)
5,2
2,5
6,8
72,5
1,360
2008 (P)
4,8
2,1
6,2
80,8
1,420
1
3,1
4,3
4,2
2
3,9
4,4
4,4
World GDP
Euro Zone GDP
Growth of relevant external demand (in %)
Oil price (brent, USD/barrel)
USD/EUR exchange rate (annual average)
Short term interest rate (annual average, %)
Long term interest rate (annual average, %)
Sources: IMF, October 2007 Forecasts (WEO, October) (GDP); Ministry of Finance PEC 2007-2011,
December 2007 update 2007
1
Euribor 3 months; 2 10 year Government bonds
Money market interest rates showed across the board increases for all terms: nearly 100 bp in 2007 on
the 3-month term, 85 bp on the 6-month term, approximately 70 bp on the 1 and 12-month terms. ECB
official rates increased twice (25 bp on each revision), with the refi rate settling on 4% at the end of the
year.
The effects of the turbulence started last July following the subprime mortgage crisis and the subsequent
liquidity reduction in international financial markets were the main driver of these increases which were
particularly felt in more advanced economies, while the main emerging economies (Brazil, Russia, India
and China) generally remained unaffected by this situation.
6
B. Portuguese Economy
In Portugal, although GDP grew in 2007 at a higher rate (+1.9%) than in the previous year (+1.2%), it still
evolved at a lower rate than in the Euro Zone, this being the sixth year of real divergence vs. the
European average.
Table 2 – Portugal – Main Macro-economic Indicators
GDP
Private Consumption
Public Consumption
Investment (GFC)
Exports
Imports
unit
avr %
avr %
avr %
avr %
avr %
avr %
2006
1,2
1,2
-0,7
-1,8
9,1
4,3
2007 (E)
1,9
1,2
0,0
2,6
7,0
4,1
2008 (P)
2,0
1,1
0,0
3,3
4,9
2,9
Inflation (HICP) -average
Unemployment rate
Public Deficit
Public Debt
% var
% act.pop.
% GDP
% GDP
3,0
7,7
-3,9
64,8
2,4
7,8
-3,0
64,4
2,4
7,6
-2,4
64,1
Sources: Banco de Portugal, Winter 2007 Economic Bulletin; Jan. 2008; Ministry of Finance, PEC 20072011, December 2007 update
Private consumption is expected to show a growth rate similar to the one in 2006 (1.2%), which was below
the national and Euro Zone GDP growth, and to the increase of the households' real available income, for
which reason the savings rate probably stopped the downward trend it had in the last few years.
Moderation of the growth in private consumption in the last two years probably was linked to the gradual
increase of interest rates and consequent increase of the debt servicing - in a context of high household
indebtedness – as well as to an increased tax burden, namely in indirect taxes.
This development probably affected the consumption of non-durable goods and the strong increase in
consumption of durable goods, where reference has to be made to a 3.7% increase in sales of Passenger
Vehicles (PVs).
Exports continued to show a strong growth rate, and market shares are expected to grow more than in
2006. While exports of goods slowed down (to 5.0%), exports of services (tourism, transport, others) saw
a very high growth rate (12.4%)
Inflation dropped 0.6% vs. 2006 and on average, totaling 2.4% (CPI). However, the year on year variation
(December 2007 vs. December 2006) rose to 2.7%.
Inflation differential against the Euro Zone decreased.
Unemployment continued to grow, having reached 7.8% (vs. 7.7% in 2006), and even exceeded (for the
first time in several years) the Euro Zone unemployment rate. On the other hand, maintenance of a high
rate of long-term unemployment in a context of restructuring of the production capability could reflect
some discrepancy between labor supply and demand and a low endowment in human capital, factors that
jeopardize a more favorable development of unemployment. Employment growth decreased from 0.7% to
0.4%.
7
Revenue from the Car Tax (name of the tax which was in force during the 1st semester of 2007) and from
the Vehicle Tax (new name of the tax which came into force in the 2nd semester) increased 1.8%, to €
1,186.7 million, in line with the simultaneous increase in sales of light vehicles: 4.3% made by official
Make representatives and 11% in parallel imports.
Public debt halted the previous 2-year upward trend, and decreased from 64.8% to 64.4% of GDP
according to the most recent version of the PEC 2007-2011.
C. BRAZILIAN ECONOMY
The Brazilian economy is expected to show around 4.8% GDP growth in 2007, substantially above growth
in both 2006 and 2005 (3.7% and 2.9%, respectively), strongly driven by an increase in domestic demand:
investment and private consumption.
Strong growth in private consumption can be explained namely by the improvement in the consumer
confidence index, maintenance of stabilized inflation, positive evolution in the labor market, interest rate
reduction environment as well as improved access to credit by an increasing percentage of the Brazilian
population, which led to a 33% increase in personal credit.
Inflation rate in 2007 (4.2%) remained within the target that had been initially defined by the Government
(4.5%), although in the second semester of the year a somewhat greater pressure was felt on prices,
particularly as regards food products.
Net public debt should stand at 40% of GDP, keeping its downward trend, and this ratio is expected to
show its lowest figure since 1998.
The interest rate also kept its downward trend, having decreased from 13.25% at the end of 2006 to
11.25% at the end of this year. Some inflationist pressure particularly in the second semester slowed
down the pace of interest rate decrease of recent years.
As regards foreign trade, the Trade Balance showed a US$ 40 billion surplus in 2007, a decrease vs.
2006 (US$ 46 billion), following an increase in imports that is the result of increased domestic demand
and valuation of the Brazilian Real.
Labor market behavior, with a decrease in the unemployment rate (9.4% in 2007), together with an
average increase in salaries (4.7% in real terms), are strong drivers of private consumption.
8
II. THE AUTOMOTIVE MARKET
A. PORTUGAL
Sales of light vehicles (LV) increased 4.3% vs. 2006, totaling 270,237 units. However, this volume
represents 140,293 less vehicles (-34.2%) sold compared to 2000.
Chart 1 – Sales Volume – Total Markets
410.530
353.894
295.490
305.387
260.59 6
273.093
273.126
268.875
258.860
228.956
215.356
206.488
200.241
192.308
259.189
270.237
201.816
1 94.702
115.040
93.298
76. 431
57.737
1988
2000
2001
2002
Light Passengers Vehicles
66.552
2003
66 .638
68.6 34
2004
64.487
2005
Light Commercial V ehicles
2006
68.421
2007
Total - Light Vehicles
Source: ACAP
Therefore, the Portuguese market continues stabilized at low levels, in contrast with trends in the
European LPV automotive market (EU-15 + EFTA), which is also stabilized, however at levels that are
among the highest in recent years.
In fact, the European automotive market saw a volume of 14.8 M LPV in 2007 (+0.2% compared to 2006).
The volume of LCV sales in that area, with 2.1 million units sold, grew 5.0%.
Chart 1.A – Sales Volume – Total Markets in Western Europe (EU-15 + EFTA)
14.817. 719
1.859.523
2001
14.398. 742
14.212.669
1.803.753
2002
14.524.450
1.757. 042
2003
Light Passengers Vehicles
14.763.013
14.504. 759
1.921.686
2004
1.986.302
2005
1.948.481
2006
14.792.143
2. 045.705
2007
Light Commercial Vehicles
Source: ACEA
The Portuguese light passenger vehicle (LPV) market grew 3.7% vs. 2006, totaling 201,816 units sold, the
fourth lowest volume since 1988, the year when measures were adopted to regulate the opening of the
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national market. In comparison with the best year ever (1999), the market decreased 33.1%, i.e., 100,000
less vehicles sold.
Behavior in both semesters was contrasting due to changes in the tax system which came into force on 1
July: while during the first half of the year the market decreased 1.8% vs. the same period in 2006, in the
second half it increased 10.8%, a change which was driven, among other things, by campaigns by the
Makes to foster the decommissioning of end of life vehicles.
Light commercial vehicles (LCV), with 68,421 units sold, saw a 6.1% increase versus the previous year.
However, this was the fourth lowest annual volume since 1995, the year when the Car Tax began to affect
some segments of this class of vehicles. 46,619 less cars were sold in this group, a 40.5% decrease
compared to 2000.
In the same market, developments in 2007 were differentiated in comparison with the previous year:
during the first half of the year, the volume of sales grew 24.1%, whilst in the second semester it saw a
12.4% drop due to the increase introduced by the Vehicle Tax (ISV).
Three important phenomena are worth highlighting in terms of the LPV market:
• Increased sales (+155%) following the decommissioning of end of life vehicles (more than 10 years old),
as a result of a joint effort by the Government and strong campaigns by several Makes
• Sustained growth in sales to corporate clients, with OR (operational rental) already accounting for 16%
of the total market (13.7% in 2005, 7.4% in 2002), surpassing sales to the rent-a-car industry which
totaled 11.1%.
• Diesel cars already account for more than 69% of the total of units sold (Chart 2). Among these, low
cubic capacity engines (under 1,600 cc) - the so-called small diesels – already account for 40.2% of the
total market (vs. 38.5% in 2005 and 8.7% in 2002).
Chart 2 – Diesel powered vehicles in total PC sales
63,7%
64,9%
69,1%
57,1%
2 6 ,4 %
44,3%
2 6 ,4 %
2 8 ,9 %
2 7 ,5 %
34,8%
2 4 ,6 %
26,9%
16,9%
18,7%
20,9%
12,5%
24,2%
2 0 ,4 %
2 3 ,6 %
12 ,4 %
15 ,2 %
17 ,7 %
4 ,2 %
4 ,5 %
3 ,5 %
3 ,2 %
3 ,8 %
3 ,3 %
1996
1997
1998
1999
2000
2001
8 ,3 %
4 0 ,2 %
2 6 ,0 %
3 7 ,3 %
3 8 ,5 %
2005
2006
2 9 ,6 %
19 ,7 %
8 ,7 %
2002
Diesel < 1,6 / LV
2003
2004
2007
Diesel > 1,6 / LV
Source: ACAP
10
These three factors combined caused an increase of the industry's operational costs, which resulted in an
additional erosion of the margins.
There was also a new increase in the volume of imports of used cars in the parallel market: used PV
increased 10.5% vs. the previous year (to 48,892 units). This volume of imported cars accounted in 2007
for approximately 24.2% of the market of new vehicles sold by official Importers.
Chart 3 – Used PC Imports, 2000-2007
24,2%
22,7%
48.892
19,3%
44.257
17,1%
39.845
13,8%
12,6%
12,3%
10,8%
31.922
2000
34.286
32.856
2001
28.061
26.627
2002
2003
LPV
2004
2005
2006
2007
LPV % LV
Source: ACAP
In the evolution per PV segments, the medium low or A segment (VW Golf) again surpassed, as in 2005,
the lower or A0 segment (VW Polo). Larger MPVs, which benefit from a reduction in the Vehicle Tax
(ISV), i.e., VW Sharan), had a significant weight (5.3%), due to the change in taxes in July: after the ISV
came into force, some models suffered significant increases, which originated a strong ‘anticipation’
purchase drive in the second quarter of the year.
11
Chart 4 – PV Segments 2002-2007
1,3%
1,3%
2,2%
15,3%
1,3%
1,6%
1,3%
1,7%
2,7%
2,9%
14,8%
33,1%
2003
A00
A0
A
2,5%
36,7%
36,0%
33,7%
5,8%
4,4%
2005
B
3,3%
13,2%
36,0%
35,2%
2004
5,3%
2,3%
13,2%
39,5%
4,0%
3,0%
3,7%
14,5%
38,1%
2,7%
2002
2,8%
37,6%
42,7%
2,2%
2,2%
14,4%
34,2%
44,6%
1,5%
C+D
5,3%
2006
G
2007
MPV ISV red.
Source: ACAP / SIVA
According to preliminary ACAP estimates, the national car stock reached approximately 4.4 million PVs at
the end of 2007, compared to 4.29 million in the previous year, i.e., a 2.5% increase. The average car life
increased again, from 8.6 at the end of 2006 to 8.7 years.
In the LCV segment, the most representative one, i.e., larger vehicles (vans and pick-up trucks, 3 to 3.5
tons in gross weight) increased its weight in the market, from 14.4% to 16.2%. The larger segment, that of
Passenger Derivatives (2 passenger vehicles) recovered again part of its market position, going from
37.3% in 2006 to 37.7% in 2007 (Chart 5). Pick-up trucks also increased their penetration, from 12.3% to
12.8%.
12
Chart 5 – LCV Segments 2002-2007
10 ,1%
10 ,0 %
9 ,2 %
15 ,6 %
15 ,1%
15 ,3 %
17 ,0 %
16 ,7 %
2 1,0 %
19 ,8 %
3 3 ,4 %
3 4 ,5 %
2002
2003
11,6 %
17 ,5 %
16 ,5 %
19 ,9 %
Der.Pass.
Vans <2 t
16 ,0 %
12 ,3 %
12 ,8 %
14 ,4 %
16 ,2 %
13 ,8 %
13 ,9 %
2 3 ,2 %
2 2 ,3 %
19 ,4 %
3 6 ,3 %
3 8 ,4 %
3 6 ,3 %
3 7 ,3 %
2004
2005
2006
2007
Fg+Ch.-Cab. 2-3 ton *
Fg+Ch.-Cab. 3-3.5 ton
Pick-ups
Source: ACAP / SIVA
The total number of LCVs in the country is estimated by ACAP to be around 1.21 million vehicles at the
end of 2007, against 1.184 million in December 2006, showing a 2.1% increase. The average age of
vehicles in circulation increased once again, going from 7.4 years at the end of 2006 to 7.5 in 2007.
B. BRAZIL
Sales of passenger vehicles and light commercial vehicles in the Brazilian market grew 28% in 2007,
totaling 2.36 million units, against 1.84 million units sold in 2006.
2007 was the best year ever for the automotive market, both in sales and production, the latter totaling
2.79 million light passenger and commercial vehicles.
This result was clearly helped by the ease of access to the car finance market in conditions (rates and
terms) that had not been available in previous years, and this made it possible for a significant part of the
population to buy a car who previously had not had access to this type of goods.
Sales of flex-fuel vehicles (which make it possible to use simultaneously or alternatively gas and alcohol)
were predominant in the Brazilian market and account for 86.1% of total sales in that period, against
78.1% in the previous year.
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III. BUSINESSES REPORT
A. AUTOMOBILE DISTRIBUTION AND RETAIL
1 - Automobile Distribution - SIVA
In 2007, SIVA recovered its leadership position in the light passenger vehicle market and ranked again in
the third position among importers for the light vehicle market.
Total sales of light vehicles by SIVA totaled 30,515 units, a 5.6% increase compared to 2006. This growth
surpassed the growth rate for the total market, and was the result of an increase in the market share
which, having reached 11.3%, grew 0.2% vs. 2006.
In the passenger vehicle market, SIVA sold 26,541 units, a 3.5% increase vs. the previous year. The
market share remained at 13.2%.
All Makes gave a positive contribution to the growth in sales made by the Group. VW Passenger Cars
increased 1.5% and VW Commercial Vehicles increased 23.5%. Audi sales increased 7.2% and Škoda
grew 4.9%. In addition, luxury makes saw the best year ever, with total sales of 18 units of both Bentley
and Lamborghini, a 100% increase vs the previous year.
Chart 6 – SIVA Total Sales, 2006-2007 (in units)
+ 5,6%
LPV Market: + 3,7%
LCV Market: + 6,1%
LV Market: + 4,3%
+ 1,5%
28.885
30.515
+ 7,2%
15.645 15.881
+ 4,9%
6.422
3.640
VW VP
AUDI
* Excl. Derivatives and Pickups
+23,5%
6.883
3.820
SKODA
2006
3.169
3.913
VW VCL
+17,1%
2.052
2.403
VW VCL "ABC" *
2007
SIVA **
** Includes Luxurius
I l d L
B d
Source: ACAP
14
Volkswagen – Light Passenger Cars
2007 should be considered as a period of consolidation for Volkswagen, with growth in sales volume for
the second consecutive year.
In a light passenger vehicle market that has stabilized at a low level in the last four years, the Make grew
1.5% and achieved a 7.9% market share.
The investment effort in communications and image, as well as a clear focus on the corporate market
were the main factors behind these results.
Chart 7 – Volkswagen Sales – Light Passenger Cars
Units
Market Share
15.881
8,0%
7,5%
7,9%
15.645
15.415
2005
2006
2007
Good acceptance of the Make from the part of the corporate market, namely of the Passat and Polo
models, was complemented by a strong presence in the Consumer/individuals market, to which the new
Golf Variant contributed decisively from mid-year onwards.
Passat was – for the second consecutive year – sales leader among its segment, with a 14.1% market
share, which proves that the range’s balanced offer and excellent product image match market needs
well.
Polo, in spite of recent renovation among its major competitors, performed very well in terms of sales,
keeping the fourth place in its segment, with no erosion of its 7.2% share.
The end of 2007 is also marked by the launch of the Tiguan, whose acceptance by both the market and
trade press is clearly shown by a significant order portfolio.
A special reference should be made to Eos – produced at Autoeuropa – which achieved a top position in
terms of sales in its sub-segment.
15
Volkswagen - Commercial Vehicles
With 3,913 units sold in 2007, sales volume for the Make rose 23.48% vs. the previous year, having been
one of the Makes with higher growth in the commercial vehicle market.
In the ABC segment, a new sales record was achieved for the third consecutive year (2,382 units), with a
7.0% market share in a market that totaled 33,900 vehicles.
Chart 8 – Volkswagen Sales – Commercial Vehicles (ABC Segments)
7,0%
5,8%
6,0%
5,8%
6,3%
5,2%
5,8%
5,3%
5,2%
5,0%
2.197
1.831
4,1%
2.052
2382
4,2%
3,6%
3,1%
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Units
Market Share
Audi
The Audi Brand sold a total of 6,883 units in 2007, corresponding to a 3.41% market share, a 7.18%
increase vs. the previous year.
In 2007, the Make strengthened its sportive image with the launch of two new models: the Audi A5, which
marked the return of the Make to the luxury Coupé segment, and the Audi R8, the Make’s new ex-libris, a
super sports model giving extreme performances with a central engine, 420 HP and V8 engine, which
places Audi in the exclusive club of car makers producing vehicles that go over 300 km/h.
Apart from the two above-mentioned sports cars, the renewed lines of the Audi A8 are also worth
mentioning, as well as the new 125 HP TSI engine for the Audi A3, and the transition of the A4 range to
the new generation to be launched in January 2008.
The Audi Q7 sold 360 units in its first full year of sales, and already stands as the reference of its
segment.
16
Chart 9 – Audi Sales
3, 52
Units
Market S hare
3,28
3, 32
3, 30
3, 19
3,41
6.883
6.422
7.259
6.392
6.387
6.020
7.510
6.104
5.012
2, 04
%
1.145
0,47
2, 02
2.539
1,22
4.047
1,76
2,22
6.047
2,18
7.603
2, 92
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: ACAP
The Dealer Network was strengthened and modernized to be able to respond to the effort that the Make
will be making with new product launches.
New sales points were opened in 2007 in Ponta Delgada and Caldas da Rainha. A new Dealership,
Expocar Porto, was opened in the Porto/Matosinhos region. This development and renovation effort is to
be continued in the next two years.
Two important Programs were also launched:
•
Through the After Sales Courtesy Car Program, Dealers make available to Car
Repair Workshop Clients a vehicle at no cost in accordance with the existing
Service program.
•
The Audi Used Car Program – “Audi Advantage Plus” embodies the Make’s
international standards for used cars and provides new dynamism to this
business area that complements the sale of New Cars.
Škoda
In 2007, the Škoda Make showed a 4.95% increase in sales – above the market increase – which made it
possible for Škoda to improve its market share for the third consecutive year, now established at 1.87%
(vs. 1.83% in 2006).
With a total volume of 3,820 units sold in 2007, sales to Security Forces should be highlighted, which
totaled 373 units (920 units so far since 2004), a clear sign of the preference of this important Client who
relies on the quality and reliability of the Škoda cars, features that are associated to the good levels of
service provided by the Dealer Network.
17
Chart 10 – Škoda Sales
3.810
3.607
1,87%
1,80% 1,83%
1,86% 1,84%
1,35%
1,02%
0,25% 0,29%
94
95
96
97
3.820
2.784
2,12%
0,33% 0,40%
3.640
0,55% 0,65%
98
99 '00* '01 '02 '03
Units
'04 '05 '06 '07
Market Share
Source: ACAP
Implementation of a marketing policy which was oriented towards above-the-line communications focused
on volume segments (particularly the launch of the new Škoda Fabia in May 2007) and activities which
aimed to bring the Make closer to the Clients, such as Shows in Shopping Centers and sponsoring (surf,
athletics, go-karting and cycling events), contributed decisively to consolidation of the Make in the market
in 2007.
The very competitive “value for money” positioning of Škoda vehicles, versions such as Octavia RS and
Scout, improved penetration in the corporate segment and increased levels of Client satisfaction also
contributed to the good results achieved in 2007.
Another strategic vector was a greater consistence among Distribution Networks, with good performance
by recently appointed Dealerships (particularly Almada, Setúbal and Montijo), which gave the Make better
territorial coverage and higher visibility.
Luxury brands (Bentley and Lamborghini)
2007 proved to be a very positive year in terms of sales for the represented luxury brands, particularly for
Bentley that reached the highest number of units sold in Portugal (16) since its introduction in 2000. Sales
involved in particular the Bentley Continental GTC and the Bentley Continental GT models.
It is also worth highlighting the sale of two Lamborghinis, a Murciélago LP640 and a Gallardo
SuperLeggera.
In terms of After Sales, the turnover remained basically at the same level as the previous year, with a
slight increase in the total number of admissions and hours sold.
Spares and Accessories
Sales of Spares and Accessories exceeded €78 million, a 3% decrease versus 2006.
However, and in spite of this decrease – for the third consecutive year – the total for this item should be
considered particularly positive, particularly if we take into account the difficult economic environment and
18
the way it continues to affect in particular the automotive business. This fact has contributed to a
slowdown in the growth potential of the Parts and Accessories business, which was also affected by a
decrease in the car stock of vehicles less than 8 years old.
Also noteworthy, particularly in terms of results of the Group, is the fact that there was a decrease in the
weight of parts sold under warranty operations.
€ Millions
Chart 11 – Sales of Parts and Accessories
87,5
87,5
81,2
83,6
80,9
78,2
67,9
54,5
46,6
38,1
21,4
1994
24,0
27,5
1995 1996
29,8
1997
1998 1999 2000
2001 2002
2003
2004
2005 2006
2007
Source: SIVA
The Degree of Service (an indicator that measures the level of Spares and Accessories supplied by SIVA
to its Authorized Repairshop Network) showed a favorable evolution in the annual average, above 95%,
with important effects on the level of Customer Satisfaction.
During 2007, several actions were implemented that became decisive for the performance achieved, such
as:
• facilitation of local marketing activities
• significant reinforcement of promotion and advertising of the Accessory line;
• price repositioning of the more competitive parts
• new product launches
• improvements in inventory management
• careful monitoring of procedures involving orders for broken down vehicles
• training activities provided to SIVA and Authorized Repairshop employees.
19
2 - Automobile Retail – New Cars - SOAUTO
The automobile retail business is conducted via a seven dealership network located in the Lisbon and
Oporto urban centers:
•
Castelimo SA, VW and Audi dealer (Lisbon), under the Expocar brand for the Audi make and
Castelimo for VW.
•
JM Seguro SA, VW and Škoda dealer (Lisbon).
•
Justocar SA, VW dealer (Barreiro), under the Castelimo brand for the VW make.
•
Cervag SA, VW dealer (Oeiras).
•
Rolporto, VW dealer (Oporto).
•
Cercascais, Audi dealer (Oeiras and Cascais).
•
Rolvia SA, Audi dealer, (Oporto), under the Expocar brand.
Presence in the retail business is based on a logic of network value enhancement and facilitation, to
enable stronger and better positioning of the Makes represented in the national market. This continued to
be pursued throughout 2007, and the following initiatives are worth highlighting:
•
Opening of Expocar Porto, an Audi Dealership, in partnership with the Network Dealership, thus
strengthening the weight of the Group on the total sales of the importer
•
Continuity of the restructuring and streamlining process of our network, to make it more flexible,
efficient and increasingly Client Satisfaction oriented, in an increasingly competitive market.
•
Centralization of Back Office tasks in the shared services unit of Grupo SAG, therefore enabling
Dealerships to focus on the strengthening of their critical activities.
In terms of operational activity, 3,637 new vehicles and 1,255 used vehicles were sold, i.e., a decrease of
5.3% and 5.6% vs. the previous year.
The weight of after sales business (repairs and parts) in turnover increased from 46% in 2006 to 48% in
2007.
20
Chart 12 – EBITDA
Workshpop
Services
20%
Vehicles
28%
Spare
Parts
52%
With these results, Grupo SAG maintains a share of reference in the sales of the national VW / Audi and
Škoda Dealership Network, with a share of approximately 17%.
3 - Automobile Retail – Semi-new and Used Cars – Globalcar and Car&Go
Within its business of semi-new and used car sales to Private Customers and to Retailers, as planned,
Globalcar opened two new Car Centres in 2007: one in Odivelas and one in Leça da Palmeira, which
joined those in Rio de Mouro and Montijo, thus completing the expansion plan that had been drawn and
strengthening the presence of the Globalcar brand nationwide.
In total, 1,677 vehicles were sold, of which 1,200 to Private Customers.
When it merged its business with that of Car&Go in mid 2007, Globalcar became an integrated operator of
Sales and Post-Sales, an innovative situation in this line of business. It is worth mentioning that the new
centers opened in 2007 include a Car&Go unit, therefore complementing the original unit that existed in
Rio de Mouro.
With the aim of developing and establishing Globalcar’s business, several initiatives took place in 2007,
apart from the opening of the new centers, among which the following:
• Facilitation of the purchasing area to optimize efficiency of this function and to improve purchase price
conditions.
• Creation of a dedicated Marketing team;
• Change of image of the Centers to clearly show Globalcar’s six values (Attitude, Transparency, Pride,
Commitment, Trust, Satisfaction).
21
B. AUTOMOBILE SERVICES
1 – Portugal - LGA
As expected, LGA continued in 2007 to focus on the adaptation of its activities to the new market
realities.
Therefore:
Preparation of new cars
Having prepared 30,125 new cars of the various makes represented by SIVA, there was an increase of
approximately 6.5% in business vs. 2006, a direct reflection of SIVA’s sales activity and of the
evolution of the domestic new car market.
Repairs
This unit saw increased activity in 2007, consubstantiated in an increase of approximately 4% in
billings, which was mainly the result of significant growth in the segment of Clients outside Grupo SAG.
It is worth mentioning that, for the first time, this repair unit surpassed the annual threshold of € 3
million in billings, and also posted the highest monthly amount in billings of €300,000 in October.
The number of jobs involving new cars saw a decrease of approximately 13.5%, which denotes an
improvement in the quality of cars received, as well as a reduction in en-route damage. As concerns
used cars, the number of repairs increased approximately 9%, reflecting the increase in the business
segment of external clients.
The average amount per repair grew significantly, since the type of intervention in new cars represents
an average invoice amount that is significantly below that of repairs in used cars.
2 – Brazil - Unidas
In 2007, Unidas continued to show solid growth in all its business areas: in Fleet Management and Renta-Car, the central pillars of the operation in Brazil, and also in the Semi-new car business, an instrumental
unit within Unidas the aim of which is to maximize the value of sales of vehicles originating in Fleet
Management and Rent-a-Car.
Fleet Management
The Fleet Management business, which accounts for approximately 70% of Unidas' total revenue, showed
a significant increase, with the fleet reaching 23,240 units at the end of the year. This amount reflects an
increase of approximately 28% vs. 2006, and consolidates Unidas’ leadership position in Fleet
Management in the Brazilian market.
22
Chart 13 Fleet Management - No. of Vehicles – Total Fleet on 31st December
22.265
18.189
12.242
156.283
8.085
126.632
89.944
68.667
2004
2005
Gross Turnover (R$000)
2006
2007
Total Fleet
In terms of annual production, 13,617 new OVR contracts were signed, in comparison with 7,745 in 2006.
Financed capital rose to R$362 million in 2007, 78% more than the R$203 million achieved in 2006.
Rent-a-Car and Franchises
Throughout the year, continuity was given to the plan of expansion based on Franchises, through the
‘Turn-key’ model and on a sales strategy focused on the more profitable segments (Agencies and
Individuals). It was therefore possible to increase billings in the Unidas network by 32%, with the number
of rental days reaching 807,779 days, i.e., 36% more than the amounts reached in 2006.
Chart 15 - Rent-a-Car / Franchises - Gross Revenue and No. of Daily Rentals
807.779
593.728
529.147
411.316
7 1.0 7 3
5 3 .8 4 3
4 4 .9 2 8
3 8 .2 7 1
2004
2005
Gross Turnover (R$ 000)
2006
2007
Daily Rentals
23
The success of the Franchise model is fundamentally due to the benefits it provides to all parties involved:
•
Reduction in the level of investment required from the Franchisee to open the Franchise, since the
Franchisee “receives” a shop that is ready to operate and includes the cars that are needed to
develop the business.
•
Faster expansion of the network due to a decrease in structural investments.
•
Greater control from the part of Unidas as regards the standards of the franchised fleet (vehicle
model, age, mileage).
Semi-New
In the Semi-new area, Unidas sells cars originated in the Fleet Management (OVR) and Rent-a-Car
businesses. The aim of this instrumental unit is to maximize the sales value of the cars resorting to two
channels of distribution: Dealers and Private Consumers.
In 2007, 12,289 vehicles were sold, of which 9,792 (80%) directly to Private Consumers and 2,497 (20%)
to used car Dealers. The Private Consumer channel increased its weight significantly as regards total
sales, following the decision to concentrate sales points of this channel in the Greater Sao Paulo area,
where it is possible to achieve higher sales margins than in other regions of the country.
Chart 16 – Sales of Semi-New Cars
2.497
2.317
9.792
2.354
3.161
4.199
5.003
1.703
2004
2005
2006
Private Consumers
2007
Dealers
24
C. PARTNERSHIPS AND STRATEGIC STAKES
1 – Portugal / Santander Consumer Multirent
The lack of consolidated and reliable statistics about the Portuguese Operational Vehicle Rental (OVR or
Renting, the latter term having become more commonly used) makes it extremely difficult to know the
actual performance of this business, but it is estimated that 2007 saw an increase of more than 5% in the
production of new contracts. This shows again that there has been an increase in the penetration rate of
this product vs. sales of new light vehicles, which grew 4.3% vs. 2006.
The total fleet managed by companies operating in this market was estimated at more that 115 thousand
units at the end of December 2007, which shows an increase of more than 10% vs. the 105 thousand
vehicles assigned to fleets at the end of 2006.
SC Multirent strengthened its position in the Portuguese OVR market with 5,748 new contracts, a 16%
increase vs. the 4,955 contracts signed in 2006.
The amount of capital invested in new vehicles rose to over € 104 million, a 7% increase vs. the previous
year. At the base of this growth was the excellent performance of the Indirect Distribution Channel, one of
the strategic focuses defined for 2007, as well as Multirent’s technological platform and increased
penetration in Clients’ fleets where the Company already had a presence.
Chart 17 – Operating Leases Market
305,387
2.1%
2.0%
268,121
258,859
1.6%
273,126
1.7%
259,189
270,237
1.9%
1.2%
3,528
2002
5,232
2003
Light Vehicles Slaes
4,420
2004
4,726
2005
SC MR New Contracts
5,748
4,955
2006
2007
Penetration Rate
The active OVR contract portfolio was 10,296 units on 31st December 2007, a 9% increase vs. the 9,472
active contracts at the end of 2006.
25
Chart 18 – Multirent - Fleet
Fleet Under Management
12.000
200.000
180.000
10.000
160.000
140.000
8.000
120.000
6.000
100.000
80.000
4.000
60.000
40.000
2.000
20.000
0
0
2002
2003
2004
Invested Capital (€'000)
2005
2006
2007
Number of Contracts
Capturing new clients focused on the private consumer and small/medium sized company segments,
where OVR penetration is only just beginning, and the following main actions should be highlighted in
2007:
• Beginning of the distribution of SC Multirent’s OVR through Banco Santander Consumer Portugal’s
business structure, benefiting from the agreements established by this entity with a vast network of
Dealers of various makes;
• Provision of management services for Maintenance, Tires and Residual Value of OVR contracts
distributed by Banco Santander Totta in its branch network;
• Beginning of sales of Maintenance and Warranty Extension Contracts for new vehicles of the
Volkswagen, Audi and Škoda Makes through their respective dealer networks. This initiative was
significantly successful and resulted in 1,263 Warranty Extension Contracts in just 10 months of activity;
• Beginning of the sales, under an autonomous scheme, of Maintenance and Tire services which, until
now, had been sold only as an integral part of OVR contracts;
• Relocation of the Quotations and Client Support Service areas to Konecta, a Call Center of Grupo
Santander; these services are now sub-contracted under a variable regime;
• Closing of the Chelas Wellcome Center, and relocation of the reception of end of contract vehicles to
Manheim Portugal’s facilities, an affiliate of Grupo SAG specializing in car auctions;
• Continuous improvement of technological business support tools;
• Focus Group activities and specific events to ensure Client loyalty.
26
2 – Spain / Santander Consumer Iber-Rent
Santander Consumer Iber-Rent, a company which is partly held by SAG (40%) and Santander Consumer
(60%), is active in the Renting area in Spain, apart from also conducting that business in Portugal as
owner of SC Multirent’s capital.
The Spanish Renting market continued to show signs of strong vitality, in spite of a decrease of
approximately 1.2% in the total volume of sales of new light vehicles vs. 2006.
It is estimated that the total number of new contracts grew around 10%, which represents a penetration of
nearly 11% as regards the total amount of new licensed vehicles. Also, the managed fleet is expected to
have grown over 12%, totaling around 600,000 units.
Unlike previous years, the growth in the Renting market was based on small and medium sized
companies and private Clients, a situation which has to do with increased competition in product
distribution through Dealerships, since that is the channel which makes it possible to reach those market
segments more effectively.
Bearing that in mind, the Company adopted in the Spanish market the strategy it had started in 2006, i.e.,
to increase its sales effort in the Indirect Channel, trying to optimize synergies with Santander Consumer
EFC that has established sales agreements with a vast network of Dealers for the distribution of traditional
car finance products.
Therefore, in 2007, Santander Consumer Iber-rent produced a total of 10,551 new contracts that
represent an increase of approximately 18.4% vs. the same period in the previous year.
The total financed capital reached € 180 million, which reflects a 19.1% increase vs. 2006.
The managed fleet totaled 17,186 units, a 2.1% increase vs. the situation at the end of December 2006.
3 – Portugal / Manheim Portugal
SAG, in partnership with Manheim, a world leading North-American company in the Remarketing of used
cars, entered the Remarketing services business in Portugal at the beginning of 2007 through the
establishment of Manheim Portugal, a company whose capital is held by both companies, 40% by SAG
and 60% by Manheim, respectively. The businesses of S.L.V. and Unileilões were acquired
simultaneously, both of them being used car auction companies operating in the Portuguese market for
some time already.
With these acquisitions, Manheim positioned itself immediately as the second largest operator in this
business sector. Manheim Portugal focuses its services on the auctioning of used cars and on the
provision of certain complementary services, such as transportation, parking and preparation of vehicles.
2007 was a crucial year for the launch of the foundations of Manheim Portugal, and several key projects
were implemented to ensure a successful future:
•
Merging of the two auction centers existing in Lisbon (Cacém and MARL), with all services
provided by the Company now centralized at the MARL facilities;
•
Reorganization of the internal structure, taking into account the merging of the operations of both
companies;
27
•
Launch of two auction floors with parallel functioning;
•
Development of a new website with the new Manheim Portugal image;
•
Launch of online auctions, supported by the Manheim’s internationally tested tool (Cyberstock);
•
Construction and opening of a new auction center in Oporto to replace the former one and to be
positioned as the biggest and more sophisticated auction center in Oporto;
•
Expansion of the Lisbon auctioning center located at MARL;
•
In September, staging of the largest auction ever in Portugal coinciding with the opening of the
renovated facilities at MARL: approximately 800 cars were auctioned in the presence of 1,000
used car dealers.
IV. BUSINESS SUPPORT ACTIVITIES
A. FINANCIAL AREA
During 2007, the provision of financial area services continued to be extended to the various Business
Areas of Grupo SAG, with integration of the Car Retail Companies’ back-office.
Apart from reductions in the costs with personnel as a result of the centralization measures adopted,
particular attention was given to every possibility of decreasing costs, namely through increased efficiency
in the provision of services and with the continuation and launch of the following projects:
•
Implementation of the Hyperion software as a tool for accounts consolidation and
preparation of individual and consolidated accounts reports.
•
Streamlining of the technological platform.
The client base growth strategy resulted in four new contracts.
B. HUMAN RESOURCES
In 2007, the Group made a strategic commitment towards clarification of its Values.
Therefore, the Group defined its core values that are now the framework of the Group’s business in its
entirity.
Grupo SAG’s values reflect the posture and the unique internal attitude, the aim being that they become
the basis for the Group’s Organizational Culture and generate common corporate motivations and
objectives:
•
Responsibility
We are committed to sustainable development.
•
Adaptability
We assimilate change in order to evolve and grow.
•
Cooperation
We achieve better results working as a team.
28
•
Innovation
We improve continuously, doing things always differently and better.
•
Entrepeneurship
We discover and exploit new business opportunities, taking on calculated risks.
These values are materialized in an internal posture that enhances both individual and collective growth
among our staff. This resulted in the definition and communication of a core pillar of our Human
Resources strategy – the Group’s Competence Model.
Furthermore, the Global Performance Management System – GPS– was defined in articulation with the
remaining policies in the Human Resources Management area.
With the aim of “revamping our structures”, of creating a “personnel exchange” which could potentially be
of interest to the Group and be able to provide challenging work opportunities to young graduates in a
prestigious Group, closer contacts were established with major Universities and Traineeship Protocols
were developed. The Group also sought to be represented in this market and began to attend University
Forums.
C. INFORMATION SYSTEMS
The PESIG (Group Strategic Information Systems Plan) aims to ensure a set of technological solutions to
support Grupo SAG’s different Business Areas, so as to enable these to develop their business plans with
adequate effectiveness and security levels.
Accordingly, the Group’s IT Government was strengthened with a new IT project management software
which enables the Technological Committee to have an integrated vision of all the projects and of their
importance for the Organization and relevant priority levels.
The IT area continued to give support to the approximately 4,500 users of the Dealer Network nationwide,
and updates of the integrated systems have been done with the factory for the various Makes.
D. LOGISTICS
The efforts of the Logistics Department in 2007 were focused on organizational improvement, on the
establishment and implementation of streamlined procedures in the various Business Units, as well as on
the areas of car documents, nationwide distribution of cars.
V. BUSINESS RESTRUCTURING AND INNOVATION PROCESS
Within Grupo SAG’s corporate development strategy based on the development and strengthening of
partnerships, on the expansion of the services area and on consolidation of the process of
internationalisation, several activities were conducted, among which we point out the following:
Santander Consumer Partnership
Under the partnership with Santander Consumer for the development of the Operational Vehicle Rental
(OVR) business, Santander Consumer Multirent Sp. z.o.o.., was created, with SAG holding a 40% stake,
while the remaining 60% are held by Santander Consumer Bank Poland.
29
The extension of the partnership to this new market represents an important step in SAG’s
internationalization process as well as a strengthening and consolidation of the partnership with
Santander Consumer.
In the area of car finance in Portugal, SAG agreed with Santander Consumer the terms of sale of the 40%
stake the former held in Banco Santander Consumer Portugal (formerly Interbanco).
However, the parties will continue to exploit new possibilities of cooperation in other markets where
potential growth and synergies between both partners can be maximized.
Ecometais
The year 2007 also marks SAG's entry in the end of life vehicle recycling business through the acquisition
of 100% of Ecometais’ equity capital.
Integration of yet another business in the automotive value chain extends SAG’s activity area to a
business segment that is increasingly more important in developed economies and which has significant
valuation potential, whilst at the same time enacting the Group’s commitment as an environmentally
responsible entity.
Car Retail
As part of the development of the car retail network, Rolvia was established, a new Dealer operating
under the Expocar Porto brand where SAG holds a 60% stake and which is the result of an expansion
strategy of the Audi make in the Greater Oporto region.
Research, Development and Innovation
Given the context of stagnation that has affected the automotive sector in recent years, the increase in
Research, Development and Innovation (RDI) represents today an undisputable value for SAG to be able
to differentiate itself and compete in the future.
Based on the knowledge, experience and results accumulated through the implementation of the “Sagres”
innovation project, an RDI Management System was developed which materializes the requirements
considered by SAG to be needed for proper innovation management: a clear, innovation-oriented mission,
the definition of ambitious objectives, identification of those managers in the Company who will be
responsible for this mission, involvement of all Staff, sharing of knowledge and recognition of innovation
efforts.
With the implementation of the RDI Management System, SAG encompasses different dimensions of
Innovation projects at the level of Products and Services, Marketing, Processes and Organization.
Although it is too early to evaluate the economic result of the new business opportunities since they only
started recently, in 2007 some results of the innovation process could be seen as the ideas that were
generated materialized into new business opportunities. These include SAG’s entry in the end-of-life
vehicle recycling business (with the above mentioned acquisition of Ecometais) and start of the
implementation of a project in the area of individual urban mobility systems, which is still in its pilot stage.
In November 2007, Grupo SAG was one of 15 Portuguese companies that obtained certification for their
RDI Management System according to the Portuguese NP4457:2007 standard. This distinction
recognizes the Group for its practices, procedures, processes and involvement from top management in
the development and implementation of the RDI policy in the organization.
30
VI. ECONOMIC AND FINANCIAL ANALYSIS
Total Revenue and Margins
In 2007, Grupo SAG’s Turnover totaled €739 million, a 1% increase vs. 2006.
It is worth to highlight the performance by the Distribution Business Areas in Portugal, which grew 6.5%,
and in Brazil (Unidas), which saw a 34% increase vs. the previous year.
In 2007, the Group’s margin of contribution was 25.4%, a significant improvement vs. the previous year,
where this indicator was 21.7%.
Income Statement ( € )
Sales
2007
2006
Var. %
641.360.042
654.468.279
-2,0%
97.702.058
79.392.208
23,1%
Turnover
739.062.100
733.860.487
0,7%
Contribution Margin
187.675.134
159.611.264
17,6%
% Contribution Margin
25,4%
21,7%
Outside Services and Supplies - Commercial Expenses
-19.440.462
-20.154.808
-3,5%
Outside Services and Supplies - Car Expenses
-24.103.876
-21.020.582
14,7%
Sub-Total Variable Expenses
-43.544.338
-41.175.389
5,8%
Outside Services Supplies - Non-Variable Expenses
-29.451.985
-24.745.052
19,0%
Payroll Expenses
-44.979.113
-39.221.448
14,7%
Sub-Total Overheads
-74.431.098
-63.966.499
16,4%
-3.293.683
-2.230.011
47,7%
-121.269.119
-107.371.899
12,9%
66.405.984
52.239.365
27,1%
9,0%
7,1%
-13.431.035
-7.877.409
70,5%
-177.860
1.632.694
-110,9%
Provisions
-5.182.292
2.174.748
-338,3%
EBIT
47.614.830
48.169.398
-1,2%
6,4%
6,6%
Financial Income
-9.388.748
-23.441.519
-59,9%
EBT
38.226.081
24.727.879
54,6%
5,2%
3,4%
40.040.545
5,4%
24.105.286
3,3%
Services Rendered
Taxes
Operational Costs
EBITDA
% EBITDA
Depreciation
(+/-) Capital Gains
% EBIT
%EBT
Net Profit
% Net Profit
66,1%
31
Total Revenue ( € 000)
2007
2006
Var. %
Sales
Distribution
589.459
553.262
6,5%
Retail
108.449
111.605
-2,8%
19.215
21.803
-11,9%
1.981
1.992
-0,6%
-100,0%
Used Car Retail
Automobile Services - Portugal
Automobile Services - Brazil
Ecometais
Residual Value Units
Other Companies
Intra-group sales
Consolidated Total
0
6
1.701
0
23.685
64.839
-63,5%
-100,0%
n.a.
0
1.042
-103.130
-100.081
641.360
654.468
-2,0%
896
842
6,4%
8.772
8.902
-1,5%
Services
Distribution
Retail
Used Car Retail
Automobile Services - Portugal
Automobile Services - Brazil
Ecometais
Residual Value Units
Other Companies
Intra-group sales
Consolidated Total
Total Revenue
221
191
15,7%
6.726
8.016
-16,1%
83.842
62.542
34,1%
-16
0
n.a.
1
6
-83,3%
10.077
9.950
1,3%
-12.817
-11.057
97.702
79.392
23,1%
739.062
733.860
0,7%
Operational Costs
Operational Costs totaled € 121 million in 2007, a 12.9% increase vs. the previous year. This evolution is
in line with growth in business volume, particularly in Unidas, in Brazil.
EBITDA
EBITDA totaled € 66.4 million, a 27% increase vs. 2006, with EBITDA margin reaching 9% (7.1% in the
previous year).
Financial Income (Net Interest)
Consolidated net interest obtained in 2007 was € -9.4 million, a 60% improvement vs. 2006, and it is
influenced by capital gains achieved with the sale of SAG’s 40% stake in Banco Santander Consumer
Portugal (formerly Interbanco).
32
As concerns the contribution to SAG’s consolidated results, there were positive evolutions in the Affiliates
overall through the equity method, particularly contributions from SC Multirent and SC Iberent, which
showed increases of 18.6% and 68.6% vs. results achieved in 2006.
Financial Income ( € )
2007
2006
SC Multirent (Portugal)
1.252.531
1.056.450
18,6%
SC Iberent (Spain)
1.150.800
682.400
68,6%
-100,0%
Banco Santander Consumer Portugal (ex. Interbanco)
Var. %
0
8.980.906
Manheim
-24.468
0
CRE
133.214
119.311
11,7%
Others
-11.372
-247.446
-95,4%
2.500.705
10.591.621
-76,4%
( + / - ) Capital Gain
32.791.407
1.002.142
3172,1%
Income from Assciated Companies
35.292.112
11.593.763
204,4%
Financial Income - Brazil
-25.089.912
-17.748.407
41,4%
Financial Income - Portugal
-19.590.949
-17.286.874
13,3%
-9.388.749
-23.441.518
-59,9%
Associated Companies Total
Consolidated Financial Income
n.a.
Variation in interest expenses involving financing operations contracted by the Group was a consequence
of the increased level of indebtedness, both in Portugal and in Brazil: in Portugal, as a result of
investments made, namely in SC Multirent Sp Zoo in Poland and the acquisition of Ecometais; in Brazil,
as a result of increased finance needs due to the high pace of growth of Unidas’ portfolio.
Consolidated Net Profit
Consolidated Net Profit assignable to SAG totaled € 40 million, which corresponds to an increase of
approximately € 16 million compared to 2006.
Balance Sheet and Financial Structure
The structure of the Consolidated Balance Sheet is affected by the above-mentioned conditions, and the
level of investments made by SAG and the strong business growth of Unidas in Brazil should be
highlighted.
Therefore, to finance the increase in assets in Brazil, and apart from support by SAG via a new capital
increase that totaled € 36 million, Unidas resorted to raise new credit facilities in the local market, which
originated an increase of approximately € 45 million in financial liabilities.
Grupo SAG's net bank debt rose to € 367 million, a € 45 million increase vs. December 2006, whilst
maintaining in essence the recommended balance for the type of assets that make up the Group’s
business portfolio, as shown by the Average Interest Expenses to EBITDA, which improved from 6.98 to
5.90.
33
Financial Ratios
The evolution of the major consolidated financial ratios was as follows:
2007
Net Profit/Total Assets
Net Profit/ Medium Average Adjusted Equity
Average Net Financial Debt/Medium Average Adjusted Equity
2006
2005
2004
3,6
3,0
4,2
10,3
6,3
9,0
3,3
6,9
101,0
94,6
104,9
103,7
Medium Long Term Financial Debt/Total Financial Debt
48,6
43,1
55,9
51,4
EBITDA / Net Interest
2,10
2,37
2,14
3,43
Adjusted Equity/Assets
0,36
0,50
0,46
0,48
Average Financial Debt / EBITDA
5,90
6,98
9,17
4,84
•
In this context, it is worth to highlight the positive evolution of the asset and equity profitability
indicators.
•
Debt structure, with medium and long term debt accounting for approximately 50% of total debt, in
addition to the above mentioned positive trend of Net Debt to EBITDA started in 2006.
34
The following amounts were considered in the calculation of the above ratios:
Basis for the Financial Ratios Calculation (€ 000)
EBITDA
2007
2006
66.406
52.239
-31.645
-22.001
40.041
24.105
Equity
126.892
108.532
Adjustment
279.279
279.022
Adjustment Equity
406.171
387.554
Adjusted Average Equity
387.956
385.731
Liabilities
717.112
668.180
Average Liabilities
692.646
699.988
Financial Debt Short Term
204.983
160.021
Financial Debt Medium/Long Term
178.613
211.320
Total Financial Debt
383.596
371.341
Cash
-15.760
-49.014
Net Financial Debt
367.836
322.327
Net Average Financial Debt
391.752
364.836
Net Interest
Net Profit
Assets
844.004
776.712
Average
810.358
808.094
35
Shareholder Profitability and Dividends
The Board of Directors is going to propose a payout of 70% of the consolidated net profit. This proposal
implies an additional dividend payment of € 0.1335 per SAG share, to be added to the interim dividend
that was already paid in 2007 (€ 0.0314 per share).
Shareholder Ratios
2007
2006
Net Profit/Equity (not Adjusted)
31%
22%
Net Profit/Adjusted Equity
10%
6%
Net Profit/ Market Capitalization
14%
8%
Profit per Share - Basic (€)
0,2359
0,1420
Profit per Share - Diluted (€)
0,0259
0,1368
70%
60%
Payout Ratio (Base IAS)
Dividend Yield
Dividendo per Share (€)
5,3%
4,8%
0,1649
0,0853
Stock Performance
SAG’s stock price, which saw a 74% valuation in 2007, continued the upward trend it started in 2005 (+
5% in 2006 and + 33% in 2005), a noteworthy performance if we consider the financial market
environment in the second semester of the year which was particularly punitive to small & mid caps.
In 2007, the Liquidity Management program for SGA shares signed with BIG – Banco de Investimento
Global was continued. Under this agreement, 1.9 million treasury stock were purchased.
Chart 19 – SAG Share Price Evolution at the Stock Exchange
36
VII. OUTLOOK FOR 2008
A. MACROECONOMIC PROSPECTS
1 - Portugal
World GDP is expected to grow approximately 4.8% in 2008. According to the IMF, this slowdown is
mainly due to turbulence in international financial markets and to continuing oil price rises. The European
Commission forecasts that GDP growth could reach 2.2% in the Euro Zone in 2008.
The relevant external demand for Portugal is expected to slow down again, but could still grow around
6.2%.
Inflation in the Euro Zone could be similar to 2007 (2.1%), the same applying to interest rates, while a new
valuation of the Euro vs. the US dollar (> 4%) is expected, as well as in effective terms (3.5%).
Chart 20 – GDP, variation rates (%)
2,8
2,6
2,2
2,0
1,5
0,8
1,9
2,0
1,5
1,2
0,5
2003
2004
2005
2006
2007 (e)
2008 (p)
-0,7
Portugal
Euro Zone
Source: European Commission, Autumn 2007 Forecast, November 2007
In Portugal, recovery of economic activity could continue; however, there is a risk that 2008 will be the
seventh consecutive year of real divergence with the EU, according to the European Commission.
GDP growth is likely to continue relying on corporate investment and exports.
Private consumption is expected to grow at a moderate rate, with gradual recovery of the savings rate vs.
the lowest values estimated in 2006 and 2007. A slight acceleration in real available private income is
expected as well as a pause in unemployment growth.
Inflation could stabilize at 2.4%, showing an increase similar to the one in 2007, both from the energy and
non-energy component.
37
The budget consolidation effort will continue, with the public deficit expected to decrease to 2.4% of GDP
and public debt to decrease to 64.1%.
In what concerns car taxation, the ISV (vehicle tax) that factors in a 60% environmental component on PV
since January 1st, is expected to yield € 1,120 million (-5.6% vs 2007) and the IUC is expected to bring in
€ 111 million (+26.1%) to the government. Also, a tax expenditure is expected in the amount of € 63.8
million in ISV (Vehicle Tax) as a result of the 11 types of tax benefits, representing 5.7% of the revenue.
2 - Brazil
The outlook for the Brazilian economy in 2008 is positive:
• GDP is likely to continue to grow around 4.7%, heavily supported by increased consumption and strong
investment on infra-structure
• Public debt ratio (40% of GDP) should continue its decreasing trend, allowing Brazilian Sovereign Debt
to aspire to achieving “Investment Grade” risk rating.
• The unemployment rate is expected to remain below the two-digit level.
Among the main risks that could affect the above growth scenario, these are the most important:
• Inflationist pressure which could be felt already in the second semester of 2007, particularly in the food
sector, should dictate restrictions to the decrease in interest rates, and these could see upward
adjustments in 2008 should inflation grow.
• Valuation of the Real should maintain the trend to decrease the surplus in external trade; however, it is
not expected to have significant impact on economic growth that is strongly based on domestic demand.
B. AUTOMOBILE MARKET EVOLUTION FORECAST FOR 2008
The current forecast of the ACAP for 2008 as regards the light passenger vehicle market is one of
stagnation: 202,100 vehicles or +0.1% vs. 2007, given the still weak growth of economic activity,
particularly private consumption.
These prospects strengthen the notion that this market will see a downward stabilization.
The same context, together with an increased tax rise through the Vehicle Tax in the more representative
segment of the Light Commercial Vehicle market, has prompted the same Association to forecast a 3.4%
drop in this market to 66,100 units sold.
In all, sales of light vehicles would therefore decrease to 268,200 units, -0.8% vs 2007.
38
C. GROUP ACTIVITY EVOLUTION FORECAST
1 - Automobile Distribution and Retail
i. Automobile Distribution – SIVA
Volkswagen - Light Passenger Vehicles
The outlook for the Make in 2008 is based on three main factors:
The best price positioning ever achieved in Portugal by the Golf range thanks to the introduction of the
new TDI Bluemotion engines, has given this model – the benchmark in its segment – a new dynamism
that can be extended to the already successful Golf Variant.
This fact will enable a successful transition to the new Golf to be launched in the last quarter.
Successive launches of the Passat CC and sporty Scirocco – which will be produced at Autoeuropa, like
the Eos –, together with the Tiguan, will enable an even wider market coverage.
Volkswagen - Commercial Vehicles
In 2007, the Make expects to strengthen its sales in all product ranges, keeping the double-digit growth it
has seen since 2003.
The launch of the new Caddy MAXI is expected to contribute to the expected performance, and it will
strengthen the product range in the relevant segment.
The VW Transporter and VW Crafter ranges are expected to grow the same as in 2007.
Other vectors that are considered to be strategic for 2008 will be the entry of new business partners in the
distribution area – to optimize territorial coverage – and facilitation of the new Customer Relationship
Management (CRM) tool to ensure Client Loyalty and Client Capturing.
Audi
In terms of sales, the Make aims to strengthen the level of activity of the previous year, both in terms of
sales volume and market share.
2008 will see the launch and presentation of the new o Audi A4 Sedan, o Audi A4 Avant e o A3 Cabrio.
Škoda
The Škoda make expects increased sales following the launch of the new Škoda Fabia Break (available
as early as January), which completes the renovation of this model, which already featured the hatchback
version (launched in May 2007). There will also be a launch of the low CO2 emission Fabia under the
name “Green Line”.
In the last quarter of the current year, the new Superb will be launched, a model which will certainly
strengthen Škoda’s Brand Image, since it is the top of the range, with high quality standards combined
with very attractive design and strong personality.
39
Luxury Brands (Bentley and Lamborghini)
Expectations for 2008 are high bearing in mind the decision to open a sales place that is exclusively
devoted to Lamborghini in the center of Lisbon, as well as a sales and post-sales facility for Bentley and
Lamborghini in Oporto.
The aim is to ensure full coverage to represented Makes, with exclusive and dedicated spaces, to ensure
the most exclusive and complete response possible. The aim is to surpass the expectations of a
demanding and sophisticated clientele.
Spares and Accessories
In spite of factors that will naturally influence the Spares and Accessories business - such as the reduction
of the number of cars with less than 8 years of age, improved quality of parts (extended service intervals,
reduction in the number of warranty claims) and increased competition - we expect an upward
consolidation of the current sales levels in this business segment of the Company.
ii. Automobile Retail – New Cars – SOAUTO
New Cars
Although the unfavorable economic environment in Portugal is expected to continue in 2008 and the
automobile market is stabilized downwards, a slight increase is expected in the turnover of the Group’s
Dealerships based on the ambitious business plan of the represented Makes.
iii. Automobile Retail of Semi-new and Used Cars – Globalcar and Car&Go
Integration of Car&Go in Globalcar’s business will enable a stronger optimization of the available
resources, with the majority of vehicles sold being serviced in one of the existing units (Rio de Mouro,
Odivelas and Leça). Also, the provision of services to external Clients is also planned, taking advantage of
the expansion to Odivelas and Leça.
Wit the aim to improve operational efficiency, at the beginning of 2008 a new Car Finishes unit will be
inaugurated at the Rio de Mouro facilities, exclusively dedicated to the preparation of cars sold.
Although using outsourced labor, the structure will enable a significant reduction in the reconditioning
costs of cars sold to the End Client.
2 – Automobile Services
i. Portugal/ LGA
Experience accumulated by LGA in its core activities justifies the continuation of the current operational
strategies, particularly as regards:

Strengthening of the business acquisition and facilitation capacities to enable growth of the
Repair business in the segment of External clients;

Planning and optimization of the installed capacity;

Analysis of new business opportunities;
40
ii. Brazil/ Unidas
In 2008, the growth rates evidenced in 2007 and in previous years are expected to continue.
• In Fleet Management (OVR), growth of the Brazilian economy and the subsequent increase in the
companies’ business, together with a progressive recognition of the Fleet Outsourcing services as a
way to affect financial resources to priority activities in a market where the penetration rate of this
product is still very low, the outlook for the future is optimistic.
• In Rent-a-Car, continuation of a favorable economic environment is a good sign for strong growth of
travel (business and leisure) with direct impact on the demand for Rent-a-Car services.
With that in mind, and to respond to the strong pace of growth of its business, the Company has made
significant investments in its major resources, namely personnel, technology, processes and infrastructure enabling the Company to respond to the expected growth while maintaining its leadership
position with its increased profitability levels.
3 – End of Life Vehicle Recycling (ELV)
i. Ecometais
To build on the large valuation potential involved in the ELV recycling business, Ecometais will have to
face two major challenges in 2008:
•
Significant increase of the obtained raw materials, as a means to optimize production capacity;
•
Processing of light fragmentation residues (“fluffs”), with the aim to reduce one of the
business’s most significant costs.
As concerns the first challenge, at the end of 2007 a new Commercial / Purchase Area was created
which comprises 1 Director and 3 Business Managers who will try to acquire on a nationwide scale the
raw materials needed to optimize the installed production capacity.
As for the second challenge, the aim is to research into and to develop, with support from the Group’s
Innovation area, the best way to separate the “fluffs” into their main constituent groups:
•
Ferrous and non-ferrous metals (approximately 4% of the weight of “fluffs”), which, being
sellable, will enable increased revenue for the company;
•
Inert materials (essentially “dirt”), which involve a “gate fee” in landfills that is much lower than
the one for “fluff” as a whole in general;
•
Rubber and plastic which, when duly processed (granulated) can be used as fuel.
41
4 – Partnerships / Strategic Stakes
i. Renting
a.1. Portugal/ SC Multirent
The Portuguese Renting market is expected to maintain in 2008 its growth trend, possibly with slightly
lower rates than previous years, since the adoption rate by private Clients and small and medium sized
companies is becoming significant. However, penetration rates achieved by this product vis-à-vis new
cars in other European markets seem to indicate that the growth potential is still there and offers
positive prospects.
SC Multirent is expected to continue to grow in a sustained manner, basing its business model in the
proprietary skills it has developed throughout the years and which have enabled it to achieve a
prominent position in the Portuguese Renting market, enhanced by synergies, namely at the
operational and commercial level, resulting from the excellent complementarity that exists between
both its Shareholders – Santander Consumer and SAG.
a.2. Spain/ SC Iber-Rent
In an uncertain economic environment, a decrease of approximately 3% in the total market of new light
vehicles is expected in Spain.
In spite of this, it is believed that the production of new Renting contracts could grow at the same rate as
in 2007, i.e., at a rate of approximately 10%. As in 2007, growth in the Renting market in 2008 will
essentially be based on the small and medium sized companies segment, as well as on the private Client
segment.
Therefore, Santander Consumer Iber-rent will maintain its production growth strategy, with special focus
on the Indirect Channel, mainly in the areas outside Madrid and Barcelona.
a.3. Polónia / SC Multirent Sp. z.o.o.
Following the team building and computer system implementation stage, January 2008 will mark the
beginning of the development of SC Multirent Sp. z.o.o.’s activity in Poland.
As is the case in Portugal and in Spain, SC Multirent Sp.z.o.o. will sell its services through two
distinctive distribution channels:
•
Indirect Channel: distribution through the vast dealer network with which Santander Consumer
Bank has established contracts, therefore taking advantage of the commercial structure of this
partner/shareholder that has a leadership position in the Polish car finance market;
•
Direct Channel: distribution via its own sales team comprising employees who have a vast
know-how about the Polish Renting market.
We believe that, within the short term, this new company that is the result of the strengthening of the
partnership between SAG and Santander Consumer, will take a forefront position in a market with
strong growth potential.
42
ii. Remarketing / Manheim Portugal
In 2008, synergies resulting from Manheim’s vast experience in this type of operations, on the one hand,
and SAG’s know-how about the Portuguese used car market, on the other, will be the base for
implementation of the growth strategy and business profitability of Manheim Portugal.
VIII. FINAL NOTE
In compliance with the legal and statutory provisions, the Board of Directors submits to the Shareholders’
approval the Annual Report and Accounts for financial year 2007, in the firm belief that, to the best of its
knowledge, information contained in the same was prepared in compliance with the applicable accounting
standards and gives an accurate and adequate image of the Company’s and its affiliates included in
consolidation, assets and liabilities, financial situation and results, and that the Management Report
accurately reflects the development of business, performance and position of the Company and the
affiliates included in the consolidated accounts and contains a description of the main risks and
uncertainties that confront them.
Alfragide, 28 February 2008
THE BOARD OF DIRECTORS
João Manuel de Quevedo Pereira Coutinho
Esmeralda da Silva Santos Dourado
Carlos Alexandre Antão Valente Coutinho
Fernando Jorge Cardoso Monteiro
António Carlos Romeiras de Lemos
Manuel Ferro da Silva Meneses
Rui Eduardo Ferreira Rodrigues Pena
José Maria Cabral Vozone
Pedro Roque de Pinho de Almeida
43
CONSOLIDATED
FINANCIAL STATEMENTS
2007
44
45
CONSOLIDATED INCOME STATEMENT
2007
2006
YTD
YTD
Notes
Revenue
Sales
Services Rendered
Turnover
641.360.042
97.702.058
739.062.100
654.468.279
79.392.208
733.860.487
Cost of Goods Sold
(565.488.478)
(584.265.401)
Gross Margin
173.573.622
149.595.086
34.336.164
(23.528.335)
184.381.452
26.063.694
(18.277.526)
157.381.254
(19.440.462)
(24.103.876)
(43.544.338)
(20.154.808)
(21.020.582)
(41.175.390)
3
Other Operating Income
Other Operating Expenses
Contribution Margin
4
4
Variables Expenses
Outside services &Supllies- Commercial Expenses
Outside services &Supllies- Car Expenses
Sub-Total - Variáble expenses
Variáble Margins
140.837.113
Overheads
Outside services &Supllies- Non-variable Expenses
Payroll Expenses
Sub-Total - Overheads
22
Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA)
Provisions
Depreciation and Amortization
Gains / (Losses) on Assets Sold
9, 11
4
Earnings Before Interest and Tax (EBIT)
Interest Paid
Interest Received
Income from Associated Companies - Equity Method
Profit Before Taxes (EBT)
Corporate Income Tax
(29.451.987)
(44.979.113)
(74.431.100)
(24.745.052)
(39.221.448)
(63.966.500)
66.406.014
52.239.364
(5.182.292)
(13.431.035)
(177.858)
47.614.828
4
4
4, 5
5
Net Profit from Ordinary Activities
116.205.864
2.174.749
(7.877.409)
1.632.694
48.169.398
(100.323.481)
83.509.045
7.425.687
38.226.079
(67.213.448)
33.052.174
10.719.756
24.727.880
1.748.216
(602.492)
39.974.294
24.125.388
39.974.294
24.125.388
66.250
40.040.544
(20.101)
24.105.287
Básic
0,2359
0,1420
Diluted
0,2588
0,1539
Net Profit from Discontinued Activities
Net Profit
Attributable to :
Minority Interests
Earnings per share:
7
Charted Accountant
The Board of Directors
46
47
48
NOTES TO THE
CONSOLIDATED
2007
49
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 DECEMBER 2007
1. GENERAL INFORMATION REGARDING THE GROUP’S ACTIVITY
The Consolidated Financial Statements of SAG Gest as at 31 December 2007 have been
approved and authorized for presentation by the Board of Directors.
The accounts are consolidated in Portugal. SAG Group, of which SAG Gest – Soluções
Automóvel Globais SGPS, SA (SAG GEST SA) is the parent company, comprises Companies
operating in various business areas in Portugal, Spain, Brazil and Poland, namely in automobile
distribution and retail trade of the Volkswagen, Audi, Skoda, Bentley and Lamborghini makes,
sale of used multi-brand cars, preparation of new cars and bodywork repairs, Operational
Vehicle Rental – medium to long term car rental products and services, maintenance contracts,
rent-a-car services as well as insurance brokerage.
SAG GEST SGPS SA is a holding Company with headquarters in Estrada de Alfragide, 67 –
Alfragide, Amadora.
2. SUMMARY OF MAIN ACCOUNTING POLICIES
2.1 Bases for preparation
The Consolidated Financial Statements include the accounts of SAG GEST SGPS SA and its
affiliates where it holds a majority interest or controls management. The Financial Statements of
these Companies were integrated through the integral consolidation method with the exception
of Santander Consumer Iber-Rent SL, Autolombos, Lda. and CRE SGPS, where the equity
equivalence method was used.
All amounts shown in the Notes herein are expressed in euros, unless stated otherwise.
2.2 Compliance statement
The Consolidated Financial Statements were prepared according to the International Financial
Reporting Standards (IFRS).
Any standards not disclosed are not applicable.
2.3 Bases for Consolidation
The Consolidated Financial Statements, as well as the individual Financial Statements of
Companies included in the consolidation perimeter of SAG GEST SGPS SA, are reported for the
period ending 31.12.07, and were prepared using accounting policies that are consistent among
them, except for Globalrent – Sociedade Portuguesa de Rent-a-car, Lda. and Unidas, S.A.,
whose specific activities differ from the other Companies’ included in the consolidation, whereby
vehicles used by such Companies are recognized as basic equipment.
Hence, the criterion and depreciation rates used in connection with assets used by said
Companies are different from the rates used in depreciating assets by the remaining Companies
included in the consolidation perimeter. Such depreciation criteria are, however, applied
50
uniformly to all Group Companies that perform similar activities, as is the case of the above
Companies.
Inter-company balances and significant inter-company transactions (with their corresponding
income and expenses) performed between Companies included in the consolidation perimeter
were eliminated in the consolidation process.
Differences between the book value of financial investments and the acquisition values of the
Companies consolidated through the integral consolidation method are recognized as follows:
•
Where the acquisition price is higher than the acquired company’s equity value, such
difference is booked as Goodwill;
•
Where the acquisition price is lower than the acquired Company’s equity value, such
differences affect Net Income in the financial year in which the acquisition takes place.
Differences determined on the date of the Group’s first consolidation, regardless of whether they
are positive or negative, were recognized against Consolidated Shareholders Equity, in
accordance with the terms and conditions set forth in Decree no. 410/91, dated 2 July 1991.
The consolidation of Companies using the integral consolidation method originated the
recognition of the following Goodwill amounts:
•
Goodwill assets, included as Intangible Assets (Note 11) arising from Companies
acquired between 1999 and 2007:
The Group applied IFRS 3 – Business Combinations, effective as of 1st January 2004. From that
date, amortization of Goodwill generated by the acquisition of the aforementioned investments is
no longer considered. The value of goodwill became subject to impairment tests on an annual
basis. The amount shown in the adjusted Consolidated Balance Sheet is considered to be close
to the respective market value.
Auto Lombos Lda, CRE SGPS, Ecometais, SA and Manheim, Lda were included for the first
time in the period ending 31 December 2007 in Grupo SAG's consolidation using the equity
method.
Under the terms of an agreement established on 22 December 2006, SAG alienated on 15
February 2007 its stake in Comepor - Companhia Portuguesa de Mediação de Seguros, S.A.,
which corresponded to 100% of the registered capital, on behalf of CRE SGPS, SA, a company
where, following this transaction, SAG now holds a stake which corresponds to 20% of the
relevant registered capital. Regarding Banco Santander Consumer Portugal SA, the Group sold
21,2% of the shares, remaining with 11,8%. The corresponding Goodwill was eliminated.
51
•
Creditors, reflected in Net Equity, and resulting from the first consolidation performed in
1998, and from the inclusion of new companies:
The amount representing third party participations is included in the Consolidated Financial
Statement under “Minority Interests”.
Minority interests represent the interests of unrelated third parties in Subsidiaries Rolporto –
Comércio e Indústria de Automóveis, S.A. Rolvia - Sociedade de Automóveis, SA and Inovision
– Tecnologias de Informação, S.A..
2.4 Main accounting policies
Investments in affiliates
The Group’s investments in Affiliates are recognized through the equity method. Therefore, the
investments are recognized at their cost of acquisition, adjusted to any subsequent changes
occurred to the stake held by the Group in those Companies’ assets. The corresponding
Goodwill is recognized as Intangible Assets, and it is not depreciated, being subject to annual
impairment tests.
The results of the period reflect the recognition of the Group’s proportion of the operating results
of such Affiliate Companies.
Other Financial Assets
Other financial assets are recognized at fair value.
52
Foreign Exchange Transactions
The functional currency used in the preparation of the Consolidated Financial Statements of
SAG GEST SA and its Subsidiaries is the Euro, except for its Subsidiary Unidas, SA, whose
functional currency is the Brazilian Real, and Affiliate Santander Consumer Multirent Sp. z.o.o.,
whose functional currency is the Polish zloty. The Financial Statements of Unidas, SA are
translated into Euros in accordance with the following criteria:
•
The Balance Sheet is converted to Euros using the exchange rate prevailing at yearend.
•
The Income Statement in Euros is the result of adding all monthly Income Statements
after each one of them is converted to Euros using the exchange rate prevailing at the
end of each month.
Transactions in foreign currencies (outside the Euro zone) are converted into Euros using the
exchange rate prevailing on the date of the transaction. Foreign currency denominated accounts
receivable and payable are converted into Euros using the exchange rate prevailing on the
Balance Sheet date.
All exchange rate differences are recognized as income or expense for the period, except for the
differences determined as a result of translating the Financial Statements of Unidas, SA, which
are recorded against Consolidated Shareholders Equity.
Land, Buildings and Equipment
Buildings and Equipment are recognized at cost or at their re-valued amounts in accordance with
the terms and conditions set forth in the applicable regulations, the last of which was performed
in 1998 in respect of assets existing as at 31 December 1997. Since 2001, the Group’s property
is re-valued every two years based on technical valuations performed by independent experts.
These valuations are used as the basis for the execution of the impairment tests required by the
IFRS.
Depreciation is calculated based on cost or re-valued amounts, using the straight-line method,
except in the cases mentioned below, in order to fully depreciate the assets during their
estimated useful life, as follows:
%
Buildings and other constructions
2,00
to
16,66
Machinery and equipment
10,00
to
31,25
Autos and trucks
14,28
to
25,00
Tools
10,00
to
25,00
Office equipment
10,00
to
33,33
Other tangible assets
10,00
to
33,33
In Unidas, SA, depreciation of vehicles included as basic equipment that are assigned,
respectively, to Operating Vehicle Rentals and Corporate Fleet activities, is calculated in such a
way as to reflect the estimated loss in value of the vehicle during the term of the relevant
contract.
At Globalrent and Unidas, SA, depreciation of vehicles included as basic equipment that are
assigned, respectively, to Rent-a-Car and Daily operations, is booked so as to reflect the
estimated loss in value of the car between its date of purchase and its expected sales date,
using the straight-line method.
Expenses incurred in connection with the repair and maintenance of equipment are recognized
as expenses in the period in which they are incurred.
53
Impairment of Assets
On each reporting date, the Group evaluates any signs of impairment that may affect the value
of its assets. Whenever these occur, or whenever the IFRS require the performance of
impairment tests, the Group makes an estimate of the recoverable value of the asset
corresponding to the highest of the corresponding fair value, after deducting eventual sales costs
or the asset’s usage value. In the event of an impairment situation, the value of the asset is
reduced in order to reflect its recovery value.
Financial costs
Loans are recognized as liabilities at their nominal value, and their costs are recognized as
expenses in the period to which they relate.
Intangible Assets
Intangible Assets are valued at cost. Depreciation is calculated on a straight-line basis, using
depreciation rates that allow full depreciation of these assets until the end of their useful life.
This account includes the differences (“goodwill”) between book value of the Companies
included in the consolidation perimeter either through the integral method or the equity method,
as the case may be, and the respective equity value at the date of entry to the Group.
Under the terms of IFRS 1 Appendix B (“First Time Adoption of International Financial Reporting
Standards”), it was decided to neither apply calculations retroactively to determine the value of
goodwill in accordance with IFRS 3 (“Business Combinations”), nor the retroactive calculation of
IAS 21 (“The Effects of Changes in Foreign Exchange Rates”) with regard to acquisitions made
before 1 January 2004.
Inventories
Inventories are valued at the lower of cost or market value. Market value represents the normal
sales price less sale costs.
Cost is determined as follows:
•
New cars – acquisition cost plus any other additional purchase expenses;
• Used cars – These inventories result from repurchase transactions and are valued using the
cost of such repurchase transactions;
• Spare parts and other saleable goods – Average cost of acquisition plus any other expenses
incurred prior to the respective entry into stock.
Debtors
Receivables are recognized at invoice value after deducting any adjustments for bad and
doubtful accounts.
Adjustments for bad and doubtful accounts are recognized when there are doubts regarding the
possibility to collect debt, when collecting is not probable or on the basis of their respective
ageing.
54
Creditors
Payables are booked at invoice value.
Cash and cash equivalents
The Cash and Banks amounts shown in the Consolidated Balance Sheet include values with a
maturity of three months or less, and are net of bank overdrafts.
Bank Debt
Bank Debt is recognized at par. Expenses associated with bank loans are recognized as
expenses in the periods they relate to.
Provisions
Provisions are recognized when the Company has an obligation (of legal or constructive nature)
based on past actions, that will probably involve a future financial payment in connection with
such obligation, and that such payment can be measured reliably.
Leasing
Fixed assets acquired under financing contracts, or other contractual instruments that, in their
substance, represent financial leases, are booked as financial leases, in accordance with the
provisions set forth in IAS 17 (“Leases”) recognizing, on the one hand, tangible assets, deducted
from the respective cumulative depreciation and, on the other, outstanding principal payments, in
accordance with the applicable financial plan. Interest expenses included in contractual
instalments and depreciation are recognized as expenses in the relevant period.
Income Recognition
Income is recognized as such to the extent that it is probable that the Company will obtain a
future economic benefit and that the value of the latter value can be assessed reliably.
In order for income to be recognized, the following criteria also have to be fulfilled:
Sales of goods
Income is recognized when the significant risks and benefits resulting from the ownership of the
asset have been passed to the purchaser and the said income can be measured accurately.
In the case of cars, income recognition coincides with the transfer of car ownership, which
occurs, in most cases, simultaneously with the issuing of the corresponding sales invoice.
In transactions where, simultaneously with the issuing of the sales invoice, the Selling Company
or any other Company included in the consolidation perimeter, undertakes a repurchase
commitment for the same vehicle, the principles specified in IAS 18 (“Revenue”) have been
applied. Hence, neither income from revenues nor any other income or expenses relating to this
kind of transaction have been recognized. Such income and expenses were recognized on a
straight-line basis during the period in which these commitments are maintained, which generally
corresponds to the period of time between the invoice date and the date on which the vehicle is
repurchased.
Services
Income from services is recognized during the period in which they are actually provided,
regardless of whether or not an invoice was issued.
55
Interest
Interest income is accrued so that it is recognized in the corresponding period, regardless of
whether or not the corresponding support document was generated.
Dividends
Dividend income is recognized when the Shareholder’s right to receive such dividends is
established.
Income tax
The Companies included in the consolidation that comply with the provisions of section 63 of the
Portuguese Income Tax Code elected to apply in 2007 the Portuguese regime for consolidation
of Groups of Companies.
Accordingly, Portuguese Income tax is the result of adding all individual income taxes due by
each of the Companies included in consolidation.
In accordance with current legislation, income tax returns can be subject to review and
correction by the tax authorities for a four-year period (five to ten years for Social Security, as
provided for in the transition regime). Hence, the tax returns of the Companies included in the
consolidation in respect to the years 2003 to 2007, may still be subject to review, although Grupo
SAG considers that any possible corrections resulting from tax reviews to such tax returns will
not have any material impact on the Consolidated Financial Statements as at 31 December
2007.
The Group adopted the recognition of deferred taxes, in accordance with the terms and
conditions set forth in IAS 12 (“Income Taxes”), as a way of suitably allocating the tax effects of
its operations and to exclude distortions associated with tax criteria that would affect the
economic results of certain transactions.
The movement recognized during the period, and the reconciliation between the Provision for
Income Taxes for the period and current income tax, as well as the breakdown of deferred taxes
are described in Note 5 below.
Financial instruments (and derivative financial instruments)
Certain Group Companies regularly use financial instruments or derivative financial instruments
in the regular course of their operations, exclusively in order to minimize their exposure to risks
related to the fluctuation of interest and exchange rates, and not for negotiation or speculation
purposes.
The most commonly used instruments for coverage of said risks are recognized as follows:
Coverage of interest rate fluctuation risks
Interest rate swaps and Forward Rate Agreements – The fair value of derivative financial
instruments is recognized in Equity and subsequently recognized as Income for the period as the
cash flows associated with these operations occur, by recognizing interest paid and/or received
on a monthly basis during the period of the operation.
Coverage of exchange rate fluctuation risks
•
Exchange rate options or exchange rate forwards regarding investments in foreign
Affiliates – the fair value of such derivative financial instruments is recognized in the
Balance Sheet as Equity, together with the adjustments resulting from the conversion
into Euros of the Financial Statements of such foreign Affiliates.
•
Exchange rate forwards to cover exchange rate fluctuation risks associated to financing
in foreign currency – the fair value of derivative financial instruments is recognized as
Equity and subsequently recognized in the Income Statement on a monthly basis,
56
simultaneously with the monthly recognition of exchange rate variances associated with
the corresponding liabilities.
These procedures were adopted by the Group in accordance with the corresponding written
policy approved by the Board of Directors, which came into effect on 1 January 2004.
The de-recognition of financial instruments occurs when the Group no longer controls the
contractual rights that govern such financial instruments, which occurs regularly when they are
sold or when cash-flows from said instruments are transmitted to a third party.
Calculation of the Fair Value of financial instruments (and derivative financial instruments)
The principles and procedures defined in IAS 32 (“Financial Instruments: Disclosure and
Presentation”) and IAS 39 (“Financial Instruments: Recognition and Measurement”) have been
fully adopted.
57
2.5 Companies included in Consolidation
The Subsidiaries included in the Consolidated Financial Statements, as well as their main
financial indicators are as follows:
These Affiliates were consolidated using the integral method, with the exception of Santander
Consumer Iber-Rent SL, Autolombos, Lda., CRE SGPS and Manheim, Lda. which were
consolidated using the equity method.
In 2007, Banco Santander Consumer Portugal and Comepor – Companhia Portuguesa de
Mediação de Seguros, SA, were no longer part of the consolidation perimeter, and Rolvia –
Sociedade de Automóveis, SA, Ecometais, SA and CRE SGPS, SA are now included in the
consolidation perimeter.
The entity Santander Consumer Multirent Sp. z.o.o. is not included in consolidation as its activity
during 2007 was meaningless.
58
3. REPORTING BY BUSINESS SEGMENT
The Group’s main reporting format is the report by business segments, the report by
geographical area being the secondary format.
The identified business areas are managed separately based on the nature of the products and
services provided. Each segment represents a strategic business unit that offers different
products and operates in distinct markets.
The new car, used car and spare parts segment corresponds to distribution and retail sales of
the Volkswagen, Skoda, Audi , Lamborghini and Bentley brands, sale of multi-brand used cars,
as well as sale of spare parts and accessories for the respective brands.
The car rental segment represents essentially the “fleet management”, “Corporate Fleet”, “renta-car” and “daily” services – medium to long-term car rental products and services, maintenance
contracts, and short-term car rental services.
Other operations involve namely the preparation and repair of vehicles.
Transfer prices between business segments are determined on an arm’s length basis, and are
equivalent to prices used in transactions performed with bona fide unrelated third parties.
The Group’s geographic segments are reported in accordance with the physical location of the
corresponding assets and operations.
Business segments
The following chart represents the results, assets and liabilities as at 31 December 2007 and
their comparison with identical information as at 31 December 2006, with regard to the various
business segments where the Group is involved:
59
Geographical Segments
The following chart represents the results, assets and liabilities as at 31 December 2007 and
their comparison with identical information as at 31 December 2006, with regard to the
geographical segments:
Portugal
2007
Brazil
2006
2007
Total
2006
2007
2006
Revenue
Sales/Services
Revenue from cont.operation
655.220.163
655.220.163
671.312.874
671.312.874
83.841.936
83.841.936
62.547.613
62.547.613
739.062.099
739.062.099
733.860.487
733.860.487
Segments Assets
655.220.163
671.312.874
83.841.936
62.547.613
739.062.099
733.860.487
Other Segment Information
Segments Assets
Total Assets
440.534.927
440.534.927
474.905.960
474.905.960
403.469.131
403.469.131
301.806.050
301.806.050
844.004.058
844.004.058
776.712.010
776.712.010
60
4. OTHER OPERATING INCOME AND EXPENSES
Other Income and Expenses are as follows:
Other Operating Income and Expense
2007
2006
Other Income
Manufacturer's Support
Other Income
Other Operating Income
Mobility Expenses
Legalization of Imported Vehicles
Miscellaneous Income
Total
10.853.780
7.809.602
10.798.717
2.400.595
2.237.588
235.882
34.336.164
11.270.978
5.265.559
4.982.146
2.317.885
2.225.252
1.873
26.063.694
Other Expenses
Manufacturer's Guarantees
Taxes Other Income
Legalization of Imported Vehicles
Donations
Other Operating Expenses
Mobility Expenses
Fines and Penalties
Miscellaneous Expenses
Total
12.073.604
3.293.683
1.648.541
86.029
3.961.139
2.440.469
5.059
19.811
23.528.335
9.002.476
2.230.014
1.677.765
189.751
2.751.585
2.412.532
12.292
1.111
18.277.526
2007
2006
Financial Income
Favourable Exchange Differences
Interest Received
Income From Subsidiaries and Associates
Miscellaneous Financial Income
Cash Discount Received
Buildings Income
Total
45.648.940
9.345.004
27.866.424
620.559
28.118
0
83.509.045
20.677.276
10.716.703
1.002.142
632.093
13.555
10.405
33.052.174
Financial Expenses
Interest Paid
Unfavourable Exchange Diffrences
Depreciation
Miscellaneous Financial Expenses
Bank Changes
Losses From Subsidiaries and Associates
Cash discount Allowed
Total
37.159.468
55.010.752
135.113
4.500.993
3.354.890
0
162.267
100.323.481
32.717.691
27.159.773
139.396
4.208.861
2.809.464
128.135
50.127
67.213.448
Financial Expenses and Income
Gains and Losses on Sales of Fixed Assets
Gains on Sales of Fixed Assets
Losses on Sales of Fixed Assets
Total
Gains & Losses from Associates
Income from Associates
Expenses from Associates
Total
2007
2006
63.767
241.625
(177.858)
2007
7.461.529
35.842
7.425.687
1.646.313
13.619
1.632.694
2006
10.719.756
0
10.719.756
Income from Subsidiaries and Associates reflects from one side the result of the effective sale of
the 28,2% stake held in Banco Santander Consumer Portugal in October 9th, 2007, in which
resulted a capital gain of Eur 19.614.747. Additionally, This item also reflects an amount of Eur
61
8.251.677, as the result of the “fair Value” applied to the remaining stake, that has been sold in
January 4th, 2008. Since at December 31, 2007 existed the commitment of an irreversible
obligation to sell the stake effectively sold in January 4, the company, under IAS 39, applied the
option ”fair value through profit or loss” by the agreed amount to this item, in order to present the
relevant financial information at December 31, 2007, by eliminating the “accounting mismatch”,
that in the absence of this revaluation, would be reflected in the accounts.
5. INCOME TAX
The estimate for Income Tax recorded in the Consolidated Financial Statement accumulated
until 31 December 2007 is as follows:
The other non deductible items includes adjustments from Brazilian accounting principles to
IFRS.
62
Deferred Tax accounts balances registered the following movements in the period ending on 31
December 2007:
Profit and losses from hedging operations are recognized in Equity at their value, net of taxes.
Taxes resulting from these operations, totalling € 465,602.62, have been registered as Deferred
Tax Assets.
7. EARNINGS PER SHARE
As at 31 December 2007, Grupo SAG had 10 378 415 treasury stocks. In addition, there are
4,687,500 treasury stocks that SAG could be obliged to buy under a swap agreement
established with a financial institution.
The nominal value of SAG stock is € 1 each.
Earning Per Share
2007
Net Profit After Tax - Before Discontinued Operations
Net Profit After Tax After Minority Interests
2006
40.040.544
40.040.544
24.105.287
24.105.287
Number of Outstanding Shares
Number of Shares in Treasury Stock
Weigthed Average Number of Shares Outstanding (Basic)
Earnings per Shares (Before Dilution)
169.764.398
(15.065.915)
154.698.483
0,23586
169.764.398
(13.165.915)
156.598.483
0,14199
Stock Options
Weigthed Average Number of Shares Outstanding (Diluted)
Earnings per Shares (Diluted)
154.698.483
0,25883
156.598.483
0,15393
63
9. LAND, BUILDINGS AND EQUIPMENT
Tangible Fixed Assets are detailed as follows:
Land and Buildings include € 7,316,338 and € 22,129,012, respectively, in respect of assets
recognized through a sale and leaseback agreement.
The Group considers that, as at 31 December 2007, there were no impairments signs that may
affect the value of its Tangible Assets.
11. INTANGIBLE ASSETS
IAS 38 (“Intangible Assets”) defines an intangible asset as a non-currency, identifiable asset
without physical substance, for use in production or supply of goods or services, leasing to
others, or for administrative purposes. An asset is a resource that is:
•
controlled by the Company as a result of past events;
•
expected to produce future economic benefits for the Company.
Hence, and as an adjustment following the Group’s first adoption of IFRS/IAS, SAG cancelled
start-up expenses and research expenses from its Consolidated Balance Sheet as at 31
December 2003.
64
2007
Software
Opening Balance- 1 January 2007 (Net Fixed Assets)
Increases
Retirements-At Cost
Retirements of Depreciation
Transfers
Attributable to Discontinued Operations
Impairment
Depreciation Charged Against Profit & Loss
Closing Balance - 31 December 2007 (Net Fixed Assets)
Research &
Development
Expenses
Start-Up
Expenses
Key Money on
Transfer of
Goodwill (Note
Leaseholds
2.3)
Patents &
Trademarks
TOTAL
139.552
3.427.078
(865.748)
2.700.883
-
-
174.579
(225)
174.354
1.684.736
399.000
2.083.736
114.142.267
6.325.151
(51.627.110)
68.840.308
116.141.134
10.151.229
(51.627.110)
(865.973)
73.799.281
As at 1 Januarys 2007
At Cost
Accumulated Depreciation
Fixed Assets - Net
3.982.076
(3.842.524)
139.552
32.337
(32.337)
-
406.645
(406.645)
-
174.579
174.579
1.684.736
1.684.736
114.142.267
114.142.267
120.422.640
(4.281.506)
116.141.134
As at 31 December 2007
At Cost
Fixed Assets - Net
7.409.154
(4.708.271)
2.700.883
32.337
(32.337)
-
406.645
(406.645)
-
174.579
(225)
174.354
2.083.736
2.083.736
68.840.308
68.840.308
78.946.759
(5.147.478)
73.799.281
Tangible Fixed Assets - Balance Detail - 31 December
2007
2006
Software
Opening Balance- 1 January 2007 (Net Fixed Assets)
Increases
Retirements-At Cost
Retirements of Depreciation
Transfers
Attributable to Discontinued Operations
Impairment
Depreciation Charged Against Profit & Loss
Saldo Final a 31 de Dezembro 2006 (Imobilizado Líquido)
Research &
Development
Expenses
Start-Up
Expenses
Patents &
Trademarks
Key Money on
Transfer of
Goodwill (Note
Leaseholds
2.3)
TOTAL
730.127
646.228
(1.085.206)
176.816
(328.413)
139.552
-
-
174.579
174.579
42.398
1.642.338
1.684.736
99.693.596
14.458.671
(10.000)
114.142.267
100.640.700
16.747.237
(1.095.206)
176.816
(328.413)
116.141.134
As at 1 Januarys 2006
At Cost
Fixed Assets - Net
4.421.054
(3.690.927)
730.127
(32.337)
32.337
-
406.645
(406.645)
-
174.579
174.579
42.398
42.398
99.693.596
99.693.596
100.640.700
(4.065.234)
96.575.466
As at 31 December 2006
At Cost
Fixed Assets - Net
3.982.076
(3.842.524)
139.552
(32.337)
32.337
-
406.645
(406.645)
-
174.579
174.579
1.684.736
1.684.736
114.142.267
114.142.267
120.357.965
(4.216.831)
116.141.134
Tangible Fixed Assets - Balance Detail - 31 December
2006
The Group considers that, as at 31 December 2007, there are no impairment signs regarding the
value of the registered goodwill.
65
12. INVESTMENT IN AFFILIATES
Investments in Affiliates are detailed as follows:
14. OTHER FINANCIAL ASSETS
Other financial assets refer to other securities and treasury operations.
15. INVENTORIES
Inventories are represented as follows:
New Vehicles Used Vehicles
At Cost
Retirements - At Cost
Reserve for Obsolete &Slow Moving Items
Total
At Cost
Retirements - At Cost
Reserve for Obsolete &Slow Moving Items
Total
84.764.544
0
(160.577)
84.603.967
2007
Spare Parts &
Accessories
25.148.040
(830)
(1.182.438)
23.964.771
15.179.112
(12.927)
(1.089.482)
14.076.702
New Vehicles Used Vehicles
2006
Spare Parts &
Accessories
75.386.812
0
(183.853)
75.202.959
5.967.055
0
(644.651)
5.322.405
15.682.898
(16.853)
(636.469)
15.029.576
Work in
Process
87.262
0
0
87.262
Work in
Process
123.446
0
0
123.446
Other
1.825.320
0
0
1.825.320
Other
431.404
0
0
431.404
Total
127.004.277
(13.757)
(2.432.497)
124.558.022
Total
97.591.615
(16.853)
(1.464.972)
96.109.789
66
16. DEBTORS
Accounts receivable are detailed as follows:
67
17. CASH AND CASH EQUIVALENTS
Cash and Cash Equivalents are detailed as follows:
Bank Deposits
Cash
2007
2006
14.830.838
929.346
15.760.183
48.684.005
330.365
49.014.369
Reconciliation of Cash & Marketables Securities Balance per Consolidated Statement of Cash Flows
Bank Deposits
Bank Overdrafts
Cash
14.830.838
(13.289.832)
929.346
2.470.352
48.684.005
(24.201.526)
330.365
24.812.843
The amounts included in Cash and Cash Equivalents are determined in order to only include
amounts that can be realized within no more than three months from the Balance Sheet date,
and include creditor balances of bank accounts on the same date.
As at 31 December 2007, Group Companies had a total of € 103,712,137 in bank facilities
available for use in order to fulfil operating requirements.
18. ISSUANCE OF CAPITAL AND RESERVES
As at 31 December 2007, Registered Share Capital was represented by 169,764,398 ordinary
shares with a par value of € 1 each, and was fully paid up.
Treasury stock is owned by the Group’s Parent Company that, as at 31 December 2007, held
10,373,315 shares, and by affiliate Rolporto S.A. which, on the same date, held 5,100 shares of
SAG SGPS.
An additional 4,687,500 shares could have to be purchased by SAG Gest at a unit price of €
1.71, pursuant to a commitment made under a swap agreement established with a Financial
Institution. The impact of this transaction was recognized according to IAS 39 (“Financial
Instruments: Recognition and Measurement”) in the Consolidated Equity.
Capital
2007
2006
Autorized
Ordinary Shares at EUR 1
Convertable Warrant
Warrant were exercised
Capital Issued
169.764.398
0
0
0
169.764.398
150.000.000
19.773.871
(19.773.871)
19.764.398
169.764.398
68
The amount of EUR 8,943,032 recognized as Cumulative Translation Adjustments corresponds
to the positive variance that occurred in 2007 in the conversion to Euros of the investment and
results of the Unidas, SA subsidiary for consolidation purposes.
The amount of € 9,199,307 in connection with hedging losses is the result of gains and losses
incurred in exchange rate risk coverage derivative financial instruments in respect of the Group’s
investment in the same Subsidiary.
The recognition at fair value, in accordance with IAS 39 (“Financial Instruments: Recognition and
Measurement”), of derivative financial instruments purchased to provide coverage in respect of
interest rate fluctuation risks (considered as Cash Flow Hedging Instruments) produced a
decrease in Other Reserves of EUR 215,129.
These instruments were engaged in accordance with the Exchange Rate Risk Coverage Policy
approved by the Board of Directors, as specified in Note 23.
69
19. BANK DEBT
Bank Debt is detailed as follows:
70
20. PROVISIONS FOR OTHER RISKS AND CHARGES
Provisions refer to specific risks that are reassessed each year.
2007
Legal
Proceeding
Miscellaneous Risks
Other Provisions
Total
Balance as at 1 January 2007
Increases
Reductions
Balance as at 31 de December 2007
7.803
629.453
0
637.257
0
2.792.692
0
2.792.692
6.216.790
4.737.897
(6.526.398)
4.428.289
6.224.593
8.160.042
(6.526.398)
7.858.238
Non Current 2007
Total
637.257
637.257
2.792.692
2.792.692
4.428.289
4.428.289
7.858.238
7.858.238
2006
Legal
Proceeding
Miscellaneous Risks
Other Provisions
Balance as at 1 January 2006
Increases
Reductions
Balance as at 31 de December 2006
0
7.803
0
7.803
0
0
Non Current 2006
Total
7.803
7.803
Total
0
9.417.624
2.102.212
(5.303.046)
6.216.790
9.417.624
2.110.015
(5.303.046)
6.224.593
0
0
6.216.790
6.216.790
6.224.593
6.224.593
Contingencies associated with these provisions refer mainly to operating risks related with the
possibility of the Group's generating losses as a result of:
•
court proceedings, including of tax nature;
•
unjustified appropriation of assets;
•
loss in the value of vehicles.
71
21. CREDITORS
Accounts Payable detailed as follows:
72
22. RELATED PARTY DISCLOSURES
In addition to the balances between, and the transactions performed with Companies included in
Consolidation, as mentioned in Note 2 herein, which were eliminated during the preparation of
the Consolidated Financial Statement, there are other balances and transactions performed with
related parties, namely:
Entity
SGC
S.A.
–
S.G.P.S.,
Nature of Transaction
Amount of
transactions
conducted
during
period
interest
1.058.059
Payroll costs are detailed as follows:
2007
Corporate Bodies
2006
2.626.178
2.345.756
25.962.152
26.365.665
Bonuses and Variable Remuneration
6.228.243
1.499.457
Social Security Contributions
8.140.352
6.153.835
Other Headcount Costs
2.022.188
2.856.735
44.979.113
39.221.448
Employees
Total
23. FINANCIAL INSTRUMENTS
In the course of their regular activities, SAG Group Companies are exposed to interest and
exchange rate variations that are monitored dynamically in order to guarantee the fulfilment of
policies established to manage such financial risks.
The ALCO (“Assets and Liabilities Committee”) is in charge of defining Grupo SAG's financial
risk management policies, and it is also responsible for monitoring and assessing the
implementation of recommended coverage strategies on a regular basis.
In order to implement the risk coverage strategies, Derivative Financial Instruments are
negotiated from time to time in order to freeze interest or exchange rates or, alternatively, to limit
the fluctuation range of such variables. The products that are normally used in these hedging
operations are as follows:
•
Interest rate fluctuation risk coverage – “Interest Rate Swaps” (IRS) and “Forward Rate
Agreements” (FRA);
•
Exchange rate fluctuation risk coverage – “Forwards” and exchange rate options.
Relating to exposure to exchange or interest rate fluctuation risks, Group SAG suitably
documents, in accordance with IAS 39 (“Financial Instruments”: Recognition and
Measurement”), the following:
•
the existing relation between the hedged item and the hedging instrument.
•
the objectives to be achieved with the coverage;
•
the method used to assess the efficiency of the hedge; and
•
the accounting method used.
73
To assess the effectiveness of the hedge, efficiency tests are performed, in with paragraph AG
105 of IAS 39. These tests demonstrate the effectiveness of the hedges within the established
limits, and consist in the comparison of past changes in the cash flows of the hedged items that
are attributable to the hedged risks with past changes in cash flows of the hedging instruments.
These changes are stated in the following paragraphs.
The Group currently has two types of positions that generate exposure to interest and exchange
rate fluctuations risks, for which policies have been defined.
1.
Investment in Foreign Currency
During each reporting period, the Financial Statements of Unidas, SA, a Brazilian Grupo SAG
Company whose functional currency is the Brazilian Real, are converted using the exchange
rate as at the date of the Financial Statements, in accordance with Note 2 – Summary of Main
Accounting Policies (Transactions in Foreign Currency).
Market exchange rate fluctuations and the consequent use of different exchange rates in each
reporting period generate exchange differences that are exclusively registered in Equity
(Cumulative Translation Adjustments), without any impact in the Profit and Loss Account.
Because there is no liquid market actively performing transactions between the Real and the
Euro, SAG analyses and manages the exchange risk generated by this Investment in two
different ways. SAG considers that its total foreign exchange exposure resulting from Investment
in Foreign Currency comprises two different, unrelated risks:
•
risk of variation between the Real and US Dollar; and
•
risk of variation between US Dollar and Euro.
Therefore, different financial instruments are usually engaged to cover the risks inherent to each
one.
The results obtained with such coverage are recognized exclusively in Equity without any impact
in the Profit and Loss Account.
On the other hand, in accordance with the defined policies, the transaction costs associated to
the coverage instruments may imply that, at certain times, certain exposures are not covered or
are only partially covered.
As at 31 December 2007, the Group only had active coverage for the USD /EUR currency
exposure situation: This coverage was achieved through an exchange forward in the amount of
USD 227 million. As at 31 December 2007, this operation had an unfavourable market value for
SAG totalling EUR 30,808.46.
Operations conducted in 2007 for BRL /USD exchange rate coverage recorded an unfavourable
result totalling € 23,976,965.40, while operations engaged for USD / EUR exchange rate risk
coverage saw a total (positive) result of € 11,460,271.02.
On the other hand, as a result of exchange rate variations occurred in that same period, the
value of the said Group’s investment showed a total exchange rate valuation of € 8,938,882.84
in the translation of Reals into Euros broken down as follows:
2.
•
€ 20,517,133.13 gain as a result of the valuation of the Real vs. the USD;
•
€ 11,578,250.29 loss as a result of the devaluation of the USD vs. the Euro;
Variable Interest Rate Liabilities
Financial instruments were engaged to cover the risk of interest rate fluctuations in connection
with certain financing liabilities of SAG Group bearing a variable interest rate and which are not
connected to Assets whose value is directly related to changes in interest rates. The decision to
obtain this type of coverage is taken on a case-by-case basis and depends on the expected
evolution of market interest rates.
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In 2007, certain coverage instruments were in force using Interest Rate Swaps (IRS), through
which Grupo SAG aimed to cover the portion of interest whose value depends on the 6-month
Euribor applied to bond issues.
These coverage instruments are considered as Cash Flow Hedges and the fair value of the
corresponding derivative financial instruments affects Grupo SAG's Equity. This amount is
progressively transferred to the Income Statement, as and when the corresponding interest is
recognized in Financial Results.
Operations subject to coverage, all of which are subject to re-pricing every six months, were as
follows:
The coverage financial instruments involving these liabilities and that were in force during the
reporting period and are also subject to re-pricing every six months were the following:
The Equity is positively affected by the fair value of the above mentioned hedging instruments,
totalling Eur 1,756,991.01 at December 31. The 2007 Financial Result includes the appropriation
of the changes in fair value of the financial instruments that occurred during 2007, for a positive
amount of Eur 1,060,406.50. This amount reflects the appropriation of the changes in fair value
of the financial instruments corresponding to the portion of the hedged interest expense
recognised in the Profit & Loss Account during 2007.
24. COMMITMENTS AND CONTINGENCIES
Guarantees
As at 31 December 2007, several bank guarantees had been issued on behalf of Group
Companies by banking institutions in the amount of approximately € 46,315,562. Group
Companies’ liability for issued bank guarantees totals € 124,215,372.
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Contingencies
Portuguese Tax Authorities issued additional Income Tax assessment notes to SAG Gest and
other Companies within the consolidation perimeter, with regard to Income Tax owed for the
years 2003 to 2002, totalling € 6,056,140.84.
The said Companies disagree with the basis for the issuance of such additional assessments
and have initiated, within the applicable legal deadlines, legal proceedings in respect of each of
the said assessments. Therefore these costs have not been reflected in the Consolidated
Financial Statements as at 31 December 2007.
In the opinion of the Board of Directors, based on recommendations issued by renowned
independent entities, the probabilities of success of the contest proceedings are high.
25. SUBSEQUENT EVENTS
Apart from the subsequent event referred in note 4, no other events have taken place after the
Balance Sheet date that could have a material impact on the financial statements.
Alfragide, 28 of February 2008
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STATUTORY AND AUDITOR’S
REPORT
CONSOLIDATED
2007
77
REPORT AND STATEMENT OF
THE AUDIT BOARD
CONSOLIDATED
2007
78
Report and Statement of the Audit Board
on the consolidated accounts reports
In accordance with the law, the memorandum of association and the mandate assigned to
us, we present our report on the auditing activity conducted, as well as our opinion about
the management report and consolidated financial statements presented by the Board of
Directors of SAG GEST - Soluções Automóveis Globais, SGPS, SA, a listed company,
concerning the financial year ended on 31 December 2007.
1.
Report
1.1
We regularly monitored the Company’s activity throughout the year to the extent
that we deemed adequate. We had contacts with the Board and other responsible staff of
the Company, who were always available to provide all the required explanations about
the Company and its Affiliates.
1.2
All checks that were considered due and adequate were conducted, and no
situation was brought to our knowledge that could be in breach of the applicable by-laws
and legal precepts.
1.3
We reviewed the Legal Certification of the Consolidated Accounts and the Audit
Report prepared by Ernst & Young Audit & Associados, SROC, SA, which have our
approval, and we have taken note of the relevant Annual Audit Report issued by that
Auditing Company about the auditing that was conducted.
1.4
The consolidated accounts, including the balance sheet, financial statements, the
relevant Annex and other statements provide a good understanding of the financial
situation and results of the group of companies.
1.5
The adopted accounting policies and valuation criteria are adequate and comply
with the International Financial Reporting Standards (IFRS).
1.6
The management report is sufficiently clear about the development of the
businesses and situation of the companies included in the consolidation, in each of the
markets where they operate, and it provides evidence about the most significant aspects
of the relevant activity and prospects as regards the evolution in the present
environment.
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2.
Opinion
In view of the above, and considering the information received from the Board of
Directors and the conclusions contained in the Legal Certification of Accounts and Audit
Report, our opinion is that the management report, the balance sheet and the
consolidated financial statements for the 2007 financial year are in a position to be
approved
Alfragide, 12 March 2008
The Audit Board
João José Martins da Fonseca George (Chairman)
Duarte Manuel Palma Leal Garcia (Voting Member)
Martinho Lobo de Almeida Melo de Castro (Voting Member)
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