Management Reports • Apr 2, 2008
Management Reports
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2007 MANAGEMENT REPORT AND ACCOUNTS
| MANAGEMENT REPORT | 5 |
|---|---|
| 1. Our year | 6 |
| 1.1 Group at a glance | 6 |
| 1.1.1 About Sonaecom | 6 |
| 1.1.2 Our values | 6 |
| 1.1.3. Structure and corporate profile | 6 |
| 1.1.4 Competitive strengths | 8 |
| 1.2 Key figures | 11 |
| 1.3 CEO's message | 14 |
| 1.3.1 Outlook | 16 |
| 1.4 Corporate developments in 2007 | 16 |
| 1.5 Proposal for the application of results | 18 |
| 1.6 Acknowledgements | 18 |
| 1.7 Subsequent events | 19 |
| 2. Our business | 20 |
| 2.1 The Portuguese telecoms market | 20 |
| 2.1.1 Regulatory environment | 24 |
| 2.2 Business overview | 27 |
| 2.2.1 Consolidated perspective | 27 |
| 2.2.2 Consolidated income statement | 27 |
| 2.2.3 Consolidated balance sheet | 30 |
| 2.3 Mobile business | 32 |
| 2.3.1 Key market developments 2007 | 32 |
| 2.3.2 Operational data | 37 |
| 2.3.3 Financial data | 38 |
| 2.4 Wireline business | 39 |
| 2.4.1 Key market developments 2007 | 39 |
| 2.4.2 Operational data | 41 |
| 2.4.3 Financial data | 42 |
| 2.5 Software and systems information | 43 |
| 2.5.1 Key market developments 2007 | 43 |
| 2.5.2 Operational data | 45 |
| 2.5.3 Financial data | 45 |
| 2.6 Público | 46 |
| 2.6.1 Key market developments 2007 | 46 |
| 2.6.2 Operational data | 46 |
| 2.6.3 Financial data | 47 |
| 2.7 Sonaecom SGPS individual results | 48 |
|---|---|
| 2.7.1 Operational data | 48 |
| 2.7.2 Financial data | 49 |
| 2.8 Our people | 51 |
| 2.9 Our telecoms network | 53 |
| 2.10 Our information systems and quality certification | 56 |
| 3. Our management | 58 |
| 3.1 Qualifications of the Board of Directors | 59 |
| 3.2 Other offices held by members of the Board of Directors | 61 |
| 3.3 Article 447, 448 and qualified holdings | 64 |
| 4. Our governance | 67 |
| 4.1 Corporate Governance Report | 67 |
| 4.1.1. Declaration of compliance | 67 |
| 4.1.2. New CMVM recommendations on corporate governance | 68 |
| 4.1.3. Composition of our governing bodies | 73 |
| 4.1.4 Changes in governing bodies | 81 |
| 4.1.5 Group remuneration policy | 81 |
| 4.1.5.1 Description of components | 81 |
| 4.1.5.2 Medium term incentive plan (MTIP) | 83 |
| 4.1.5.3 Directors' remuneration and other compensation | 86 |
| 4.1.6 Fees of the statutory external auditor | 90 |
| 4.1.7 Share price evolution | 90 |
| 4.1.8 Investor relations | 91 |
| 4.1.9 Corporate regulations and guidelines | 92 |
| 4.1.9.1 Share dealing regulation | 92 |
| 4.1.9.2. Codes of conduct | 92 |
| 4.1.9.3 Internal risk management policies | 94 |
| 4.1.10 Relevant transactions with related parties | 96 |
| 4.1.11 Other offices held by members of the Board of Directors | 97 |
| 4.1.12 Article 447, 448 and qualified holdings | 97 |
| 5. Our performance | 98 |
| 5.1 Sonaecom consolidated financial statements 5.2. Notes to the Sonaecom consolidated financial statements |
98 105 |
| 5.3. Sonaecom individual financial statements | 180 |
| 5.4. Notes to the Sonaecom individual financial statements | 186 |
5.5. Legal certification of accounts and audit report
230
| 5.6. Report and opinion of the Statutory Audit Board | 233 |
|---|---|
| 6. Our shares | 234 |
| 6.1 Equity capital markets | 234 |
| 6.2 Share price evolution during 2007 | 234 |
| 6.3 Shareholder structure | 235 |
| 6.4 Own shares | 236 |
| 7. Glossary of terms | 237 |
1.1.1. About Sonaecom
Sonaecom is an entrepreneurial growth company whose ambition is to be the best Portuguese communication services provider and the company of choice for exceptional people to work and unlock their full potential.
Sonaecom relentlessly pursues the creation of innovative products, services and solutions that fulfil the needs of its markets and generate superior economic value.
Sonaecom is a holding company that controls and actively manages a portfolio of companies, divided into three main business units: telco (mobile and wireline), SSI and media. Sonaecom has two main reference shareholders, Sonae SGPS and France Telecom, both providing significant strategic support to the business. Sonaecom is currently one of the largest
communication traffic generators in Portugal, based on a proprietary national telecommunications infrastructure.
Sonaecom is an active agent of transformation across the Portuguese Telecoms sector, and today it is the integrated player best positioned as a true alternative to the incumbent. When it comes to telecommunications services, Sonaecom contributes significantly to the promotion of the Information Society in Portugal.
Sonaecom's mobile activities are carried out under the brand Optimus, launched in the market in 1998 after gaining the third mobile GSM licence in Portugal.
Until 2007, Optimus Telecomunicações, S.A. was the subsidiary that carried out our mobile communications activities. During 2007, this entity was merged into Novis Telecom, S.A. (our previous wireline subsidiary) and the new company adopted the name of Sonaecom – Serviços de Comunicações, S.A. This reorganisation had no impact over our brands and we continue to approach our customers under the same brands.
Optimus offers a broad range of mobile communications services to residential and corporate customers in Portugal, including traditional voice, data, a large range of mobile solutions and roaming services, as well as wholesale services to third parties. With its innovative, convergent fixed-mobile substitution product Optimus Home, its leading mobile broadband product Kanguru and its low-cost offer brand Rede4, Optimus has consolidated its market position in Portugal. It currently has 2.9 million subscribers and a market share of around 20%, at the end of 2007.
Sonaecom's wireline activities are carried out under the brands Clix (residential market) and Novis (corporate and SME markets).
Sonaecom Fixed1 was launched after the liberalisation of the wireline market in Portugal in 2000 and was, until 2007, the subsidiary that carried out our wireline communications activities. As mentioned above, during 2007, Sonaecom Fixed was merged with Optimus Telecomunicações, S.A. and adopted the name of Sonaecom – Serviços de Comunicações, S.A.
Sonaecom Fixed has consistently strengthened its position as the leading altnet operator in Portugal, providing voice and internet services to its residential, SME and corporate customer bases, as well as providing voice and data capacity and connectivity services to telecommunications operators around the globe. During 2007, we further strengthened our
1 Novis Telecom S.A
wireline services with the acquisitions of Tele2 Portugal and the residential and SOHO customer base of one of our competitors (ONI).
Sonaecom's presence in the Media sector is carried out through its subsidiary Público, a reference daily newspaper in Portugal launched in 1992. The newspaper ranks third in terms of paid circulation, with a 12.3% market share at September 2007, and also third in share of advertising (13.9% YTD November 2007). During 2007, Público implemented a new totally redesigned and full colour format, positioned to attract readers who have left the press market and younger readers that have not yet entered the market, while maintaining the same editorial standards. Through a joint-venture with a leading sports newspaper ("A Bola"), Público has also launched the first free weekly newspaper in Portugal ("Sexta").
These activities are carried out by our SSI division. Created at the end of 2002, it brings together companies such as WeDo, Bizdirect, Mainroad and Saphety.
WeDo is a provider of systems integration products and consultancy services, specialising in the telecom sector. It has competencies in revenue assurance, fraud management, network security and business continuity, with a strong foothold in international markets. During 2007, with the acquisition of Cape Technologies Limited (a company based in Ireland), WeDo became the world leader in the Revenue Assurance software integration market.
Mainroad is a leading player in information technology, with competencies in IT outsourcing, IT management, help desk and with a particular focus on data centre and business continuity.
Bizdirect, with BPI and AITEC as minority shareholders, is a reference player in providing eSourcing and eProcurement business solutions, based on an electronic platform, and multi-offer hardware solutions, based on partnerships with blue chip IT players.
Saphety, a company carved out from Sonaecom Fixed in 2006, is a provider of trusted services, such as electronic invoice and secure messaging.
Since the incorporation of Sonaecom and the launch of our various businesses, we have surprised the market with new products and services, better segmentation, significant operational gains, continuous improvements and exploitation of synergies between our businesses. Our strategy has been clearly translated into market results as demonstrated by the fact that Sonaecom has been the only telecommunications operator in Portugal to consistently increase its share of market revenues over the last nine years.
Taking into account the characteristics of the market and of our competitors, our success factors could not be based on scale, market power or relative size. On the contrary, we believe that our current competitive advantages and distinctive factors, developed over the years, are based on the following key elements:
Our positioning as an integrated telecommunications provider (Mobile, Wireline, Broadband and TV services) has allowed us to obtain important commercial synergies between the various group businesses, resulting in cross-selling opportunities and generating added value for our customers. Clear examples of these are our push into the ULL Broadband market, our development of fixed-mobile convergent products and our innovative offer of mobile Broadband to the mass market.
The search for operational efficiency, process improvement and cost-effective synergies led to an integrated management and an organisation structure that includes a highly developed Shared Services Division. When implementing this strategy, our objectives have been to maximise our ability to develop new business opportunities, encourage product development and promote cross-marketing opportunities between our mobile and fixed businesses.
| Sonaecom's organisational structure and headcount as at 31 December 2007 | ||||
|---|---|---|---|---|
| TOTAL SONAECOM GROUP 1,961 | ||||
| CORPORATE CENTRE 27 Senior Management, Planning&Control , IR, Corporate Finance, Internal Audit |
||||
| Legal, PR, Regulation, Customer Service, HR, | SHARED SERVICES 748 | Financial&Accounting , Environment, Facilities, Technical, IT | ||
| TELCO 439 | MEDIA 280 | SSI 467 |
Furthermore, Sonaecom aims to implement a fully integrated multi-service network, for both the mobile and wireline businesses, to enhance network capacity and flexibility while minimizing operational costs. During 2007, further significant steps were taken towards the convergence of networks (see "Our Network" section).
The Consolidated Financial Information contained in this report is based on Financial Statements that have been prepared in accordance with International Financial Reporting Standards ("IAS/IFRS") issued by the International Accounting Standards Board ("IASB"), as adopted by the European Union;
Enabler was sold on 30 June 2006. To facilitate comparisons of YTD results against the previous year, the 2006 comparative figures have been restated to exclude Enabler's contribution and associated capital gain to Sonaecom and to the Software and Systems Information Division (SSI) Results. In addition, 2006 full year Results include costs associated with the public tender offer for Portugal Telecom. To isolate these non-recurrent costs from the operational performance of the year the 2006 figures have been restated for comparative purposes. All comparisons, when stated, are made on this "like-for-like" or restated basis (2006R ).
| Million euros | 2006 | 2006(R) | 2007 | y.o.y |
|---|---|---|---|---|
| CONSOLIDATED INCOME STATEMENT | ||||
| Turnover | 836.0 | 822.4 | 892.7 | 8.6% |
| Mobile | 610.4 | 610.4 | 619.4 | 1.5% |
| Wireline | 200.2 | 200.2 | 255.4 | 27.6% |
| Público | 36.4 | 36.4 | 33.2 | -8.9% |
| SSI | 78.8 | 65.1 | 79.5 | 22.2% |
| EBITDA(1) | 184.3 | 156.9 | 162.0 | 3.3% |
| Mobile | 169.1 | 169.1 | 153.7 | -9.1% |
| Wireline | -6.2 | -6.2 | 9.8 | - |
| Público | -8.8 | -8.8 | -3.3 | 62.7% |
| SSI | 31.8 | 4.5 | 4.6 | 2.4% |
| EBITDA Margin (%) | 22.0% | 19.1% | 18.1% | -0.9pp |
| EBIT | 17.8 | 21.4 | 22.0 | 2.9% |
| Net Financial Results | -17.4 | -17.4 | -21.5 | -23.2% |
| EBT | 0.4 | 4.0 | 0.5 | -86.8% |
| Net Results Group Share(2) | -13.9 | -9.7 | 36.8 | - |
| CAPEX AND LEVERED FREE CASH FLOW | ||||
| Operating CAPEX(3) | 134.1 | 134.0 | 162.8 | 21.5% |
| Operating CAPEX as % of Turnover | 16.0% | 16.3% | 18.2% | 1.9pp |
| EBITDA-Operating CAPEX | 50.3 | 22.9 | -0.8 | - |
| Total CAPEX | 253.5 | 253.4 | 235.8 | -6.9% |
| Operating Cash Flow(4) | 51.3 | 30.3 | 55.5 | 83.6% |
| Levered FCF(5) | -81.7 | -102.6 | 59.6 | - |
| CONSOLIDATED BALANCE SHEET | ||||
| Total Net Assets | 1,720.2 | 1,720.2 | 1,758.6 | 2.2% |
| Tangible and Intangible Assets | 661.4 | 661.4 | 722.6 | 9.2% |
| Liquidity | 125.9 | 125.9 | 83.9 | -33.4% |
| Shareholders' Funds | 909.5 | 909.5 | 935.4 | 2.9% |
| Minority Interests | 0.5 | 0.5 | 0.9 | 83.7% |
| Gross Debt | 464.0 | 464.0 | 393.7 | -15.2% |
| Net Debt/ EBITDA last 12 months | 1.8 x | 1.3 x | 1.9 x | 46.5% |
| Debt/(Debt + Shareholders' Funds) | 33.8% | 33.8% | 29.6% | -4.2pp |
| KEY OPERATING DATA - MOBILE | ||||
| Customers (EOP) ('000) | 2,601.9 | 2,601.9 | 2,893.5 | 11.2% |
| Net Additions ('000) | 248.7 | 248.7 | 291.6 | 17.3% |
| Data as % Service Revenues | 14.4% | 14.4% | 17.7% | 3.3pp |
| MOU(6) (min.) | 115.9 | 115.9 | 118.1 | 1.9% |
| ARPU (euros) | 19.7 | 19.7 | 18.2 | -7.6% |
| % Pre-paid Customers | 77.8% | 77.8% | 73.1% | -4.6pp |
| KEY OPERATING DATA - WIRELINE | ||||
| Total Services (EOP) | 380,729 | 380,729 | 815,623 | 114.2% |
| Direct Services | 281,541 | 281,541 | 510,673 | 81.4% |
| Direct access as % Customer Revenues | 65.6% | 65.6% | 70.1% | 4.6pp |
| Total Accesses(7) | 310,338 | 310,338 | 551,222 | 77.6% |
| Unbundled Central Offices with ADSL2+ | 137 | 137 | 161 | 17.5% |
| SONAECOM OPERATING DATA | ||||
| Employees | 1,871 | 1,871 | 1,961 | 4.8% |
| Turnover/Employee ('000 euros) | 447 | 440 | 455 | 3.6% |
| EBITDA/Employee ('000 euros) | 99 | 84 | 83 | -1.5% |
(1) 2006 includes 25.3 million euros capital gain from the sale of Enabler; (2) Net Results after Minority Interests; (3) Operating CAPEX excludes Financial Investments and Provisions for sites dismantling; (4) Operating Cash Flow = EBITDA - Operating CAPEX - Change in WC -Non Cash item & Other; (5) FCF Levered after Financial Expenses but before Capital Flows and Raising Finance related up-front Costs; (6) Minutes of Use per Customer (including "Optimus Home"); (7) Reporting criteria according to Anacom standard: ISDN services equivalent to 2 or 30 accesses depending on whether they are basic rate (BRI) or primary rate (PRI); Accesses do not include indirect voice or narrowband services and data and wholesale services; (R) Restated Values, excluding Enabler's contribution in 2006 and associated capital gain and Tender Offer Costs.
(*) Operating Cash Flow = EBITDA - Operating CAPEX - Change in WC - Non Cash item & Other
I am pleased to be able to announce a strong set of operational and financial results for the full year 2007. Driven by our our telco businesses and by SSI, the year's highlights include:
I am also encouraged by the fact that most of the short-term objectives we set ourselves during 1Q07 for our Telco Business after the end of the tender offer have been met. As a result, I believe we have reinforced our position as the leading integrated alternative operator in Portugal:
Improved debt structure: The completion, before the 2H07 turmoil in the credit markets, of the refinancing of our debt facilities through a new committed and underwritten Commercial Paper Programme at Sonaecom SGPS, has allowed us to improve cash management, gain greater financial flexibility and significantly improve our debt maturity profile.
At SSI, during 2007, we achieved significant organic growth (18.4% increase in turnover on a like-for-like basis) as well as making significant progress on non-organic growth. In particular, WeDo increased its international customer portfolio, and, following the acquisition of Cape Technologies, consolidated its position as the leading international provider of revenue assurance solutions. In accordance with the objectives set for the year, both Mainroad and Bizdirect achieved a significant increase in profitability in 2007, driven by increased revenues and improved operational efficiency.
Consistent with SSI's stated strategy, and in line with the continuous assessment of our portfolio, we have successfully executed the sale of two minority stakes in non-core businesses, which generated a total capital gain of 3.3 million euros.
At Público, having completed a restructuring that eliminated approximately 4 million euros of fixed costs from the business, the focus during 2007 was on growing the top line with the launch of a redesigned new-look all colour newspaper in late February; the launch of "Sexta", the first free weekly newspaper in Portugal under a 50:50 joint-venture with "A Bola", a leading daily sports newspaper; and the strengthening of Público's commercial advertising team. During 2007, these efforts have been hampered by the falling circulation of paid daily newspapers; the success of free formats, which has impacted advertising revenues; and the maturity and competitive nature of the market for 'brand extension' sales. Despite this challenging environment, it achieved a material reduction of its EBITDA losses in the year and we strongly believe that the strategic path chosen is the correct one for Público.
As regards regulation, 2007 saw a number of significant developments on the regulatory front that have and/or will have a significant impact on our telco business:
In March 2007, our tender offer for Portugal Telecom (PT) was blocked in an unsatisfactory manner. However, I firmly believe that we gained from this process even though we did not achieve our ultimate objective. As a direct result of our bid, we have made a very significant contribution to achieving a more balanced structure in the Portuguese telecoms market that may lead to a more transparent competitive environment. This has been achieved primarily by the demerger of PTM (a direct consequence of our bid) into an independently run company, and, in part, by a greater acceptance of market realities among many who participate in or are influential over the Portuguese telecoms market.
In a particularly challenging year, and in my first year as CEO of Sonaecom, I am proud of our achievements during 2007 and I believe that the decisions taken and resources committed during the year, together with our investment plans for 2008, will establish a solid platform to deliver future growth and enhanced profitability from our businesses. The success and progress made is a tribute to all our officers and employees and to the time and effort they have committed to our organisation.
On the back of the encouraging results achieved in 2007, we now plan to further accelerate our investments during 2008, envisaging an ambitious investment programme in our telecoms business to enhance our competitive market positioning and provide for sustained future growth.
I believe that Sonaecom is today much better positioned to continue to successfully develop our business as the leading challenger to PT in the Portuguese telecommunications market and to lead the market in innovation and differentiation through quality and service.
During 2008, we plan to execute an ambitious investment plan in our telecoms business to improve the strategic positioning of the business, in order to enhance our competitive market position and provide for sustained future growth. The investments will be aimed at: (i) accelerating the extension of coverage and capacity of our mobile and wireline networks in order to improve quality of service, consolidate our leading position in mobile broadband and as a ULL broadband provider and, at the same time, to increase our addressable market; (ii) promoting our brands, as demonstrated by the Optimus brand repositioning already launched in 2008; (iii) enlarging our distribution channels by increasing the number of own brand stores; (iv) improving customer service; and (v) implementing the initial phase of our recently announced plan for fibre deployment targeting new office and residential developments and priority areas in Lisbon and Porto. Our new organisational structure should enhance our ability to address the market in a more integrated manner while getting closer to our customers.
At SSI, the focus will be on growing the existing businesses by consolidating WeDo's international footprint and integrating the businesses acquired during 2007, and improving profitability. SSI will also continue to actively manage its portfolio and analyse new growth opportunities.
At Público, the main focus will be on stimulating top line growth, refining existing products, striving for operating efficiency and exploring online opportunities. In terms of circulation, efforts will continue to build readership on the back of the new-look format, supported by further product differentiation and improvements in the weekly and weekend newspaper supplements. The recently strengthened commercial team will focus on attracting more advertising by getting closer to both advertising agencies and advertisers themselves. The success of Público will therefore be built on continuous efforts to increase paid circulation and traditional advertising revenues, while further strengthening online presence.
As for regulation: we will continue to push for improved competitive conditions in wireline markets, aiming during 2008 to finally improve the processes and the SLAs (Service Level Agreements) under the main reference offers, including the unbundling process and access to ducts. We will also push for the incumbent to be required to meet all obligations under the reference offers on a timely basis, as a result of substantially reducing the scope for different interpretations of existing rulings. In addition, we will be pushing for a regulatory framework for the deployment of fibre networks that will avoid the high costs of building new ducts and the irrational duplication of fibre access networks, while stimulating competition.
We are confident that our proven track-record, experience and understanding of the markets, combined with the energy, ambition and creativity of our people, will once again ensure the success of our strategy.
These were the main corporate developments during 2007:
Since the submission of the preliminary offer documents on 6 February 2006, the public tender offer for Portugal Telecom, SGPS, S.A. has been through a long chain of events which lasted until the first quarter of 2007. The most important events that occurred during this period are highlighted below:
(i) On 12 January 2007, the Portuguese Securities' Exchange Market Commission (CMVM) granted the final registration of Sonaecom's Offer for PT
This conclusion to our bid was disappointing both in terms of shareholder democracy and from a Portuguese capital markets perspective. It denied shareholders of both PT and Sonaecom significant value creation that the transaction would have generated.
Despite having failed to achieve our main objective, we are cautiously confident that our bid for PT will contribute to a more positive competitive environment in the overall Portuguese telecommunications market. We believe Sonaecom was strengthened by this transaction and has come out of it with enhanced market credibility.
Following the blocking of our public tender offer for PT in March 2007, we sold 11.3 million shares representing just over 1% of its share capital, which we had acquired in 2006, generating a capital gain of 2.5 million euros. Following this sale, Sonaecom ceased to have any shareholding in PT.
On 24 April 2007, in accordance with the Senior Management changes announced at Sonae Group, Belmiro de Azevedo resigned as Chairman of the Board of Directors and the Board of Directors of Sonaecom unanimously decided to: (i) appoint Paulo Azevedo as Non-Executive Chairman of the Board and (ii) co-opt Ângelo Paupério to the Board of Directors for the remainder of the current Board mandate. In the same meeting, it was furthermore unanimously decided to appoint Ângelo Paupério as CEO of the company.
subject to the accomplishment of certain pre-agreed targets. With this acquisition, WeDo became the world leader in the revenue assurance software integration market.
On 6 November 2007, WeDo acquired the entire share capital of Praesidium Holdings Limited ("Praesidium"), a company with registered offices in England and which currently has 10 employees. Praesidium operates internationally in the risk management consultancy market, focusing on the telecommunications sector, and has been providing services to more than 100 operators, in about 70 countries, over the last 10 years. With this acquisition, WeDo increased its portfolio of services with the creation of a new horizontal business unit dedicated to Business Consultancy. It focuses on the areas of revenue assurance, fraud management, network security and business continuity. This acquisition further consolidated WeDo Consultancy's position as world leader in the revenue assurance area.
During December 2007 Sonaecom completed a reorganisation of the Executive Committee roles and responsibilities and redesigned the way our telco organisation was structured, moving from an organisational design based on technologies to one determined by customer/offer segments. The main objective behind this reorganisation was to align our organisation with the way we perceive the market today and how we expect it to evolve in the near future.
As at 31 December 2007 Sonaecom's consolidated accounts presented a positive net result of 36,777,870 euros and the Individual Accounts a negative net result of 15,334,817.09 euros. The Board of Directors proposes that the net results in the Individual Accounts be transferred to accumulated results.
Sonaecom would like to thank its Statutory External Auditor for the valuable advice and help given during 2007.
We would also like to express our gratitude to our suppliers, financial institutions and the Group's other business associates for their continuing involvement and for the confidence in our organisation they have once again demonstrated.
Sonaecom's Executive Committee would like to thank the Non-Executive Directors for their work and valuable advice.
Finally, Sonaecom expresses its gratitude to all its employees who have again worked enthusiastically during 2007 to ensure Sonaecom's continuing success, and whose efforts are clearly behind the results achieved during the year.
The following events, which took place after 31 December 2007 but before the approval of the full year accounts by the Board, should be noted:
On 21 February 2008, Sonaecom announced its three-year plan for the deployment of fibre, aimed at building the most advanced telecommunications network in Portugal. As part of this plan, Sonaecom proposed to give access to its fibre network to all interested national operators, aligning with regulatory recommendations and the best practices in Europe.
Sonaecom further announced that over a three-year period it will invest 240 million euros in developing this Next Generation Network, which will allow coverage of over one million homes and approximately 25% of the Portuguese population.
According to ANACOM, the value of the Portuguese telecom market was 7.25 billion euros in 2006 (the latest available data), representing a decline of 0.6% over the previous year. The telecommunications sector's contribution to national GDP and employment has been stable during the past years at around 5.2% and 0.3%, respectively.
Although the total telecoms market has not been growing significantly, the trend is not consistent across all types of services. Of the total 7.2 billion euros generated in 2006, 37.8% was accounted for by mobile services (a 0.9pp increase from 2005), 18.4% by fixed voice (a decrease of 1.2pp from 2005), leased lines accounted for 7.6% (0.2pp increase from 2005), Pay-TV accounts for 6.8% (an increase of 0.3pp from 2005), Data Transmission Services – which includes narrow/broadband and other services/legacy technologies – accounted for 9.7% of the market (an increase of 0.7pp from 2005) and Other Services and Revenues (including wholesale) still account for a considerable proportion of the overall market (19.6%).
Data Transmission Services has posted one of the most interesting and sustained growth rates within the Portuguese telecommunications market in the past few years. This trend is largely supported by the high growth registered in the broadband market since ADSL technologies were deployed.
Based on ANACOM's latest market data as at 3Q07, mobile market penetration in Portugal stood at 122.1% (from 115.4% at the end of 2006), above the EU average of 108.5% (June 2007 figure). This was driven by dual sim-card use, Machine-to-Machine use and mobile broadband. In 3Q07 Wireline internet broadband penetration reached 14.8% of the market compared to 13.5% at the end of 2006 and below the EU average of 21.8% in June 2007. Due to the launch of mobile broadband offers where Optimus was the pioneer with the launch of Kanguru, mobile Broadband active users reached 4.5% of the population. Wireline penetration decreased slightly to 39.3% (-0.7pp from 2006). In addition, Cable penetration (cable subscribers/population) increased slightly to 13.9% (+0.7pp from 2006).
During the first nine months of 2007, the telecommunications sector generated 5.45 billion minutes per quarter, representing an increase of 1.9% compared to the previous year. This was driven by the growth in Mobile minutes (outgoing) of 9.5%, which more than compensated for the decrease of 1.8% of wireline voice traffic and 58% decrease in internet narrowband traffic.
In the 12 month period to September 2007, total mobile subscribers increased by 8.5%. This was driven not only by growth in pre-paid customers (+5.8%), but mainly by a high growth in
post-paid subscribers (19.6%). At 3Q07, post-paid subscribers represented 21.8% of total subscribers in the market, compared to 19.8% in the previous year. During that same 12 month period the total volume of mobile traffic, expressed in minutes, increased by 6.8%, with SMS usage continuing to grow above voice traffic and registering an impressive 53% rise when compared with the same period in 2006. In fact, the combination of (i) a decline in the average number of calls and minutes per month per subscriber and (ii) an increase in the average duration of a call; may indicate that subscribers are replacing shorter calls by SMS usage. The number of monthly SMS per subscriber grew from an average 93.6 in 3Q06 to 132 in 3Q07.
Roaming-in (+11.3%) and Roaming-out (+19.8%) voice traffic increased at a higher pace than either subscriber growth or domestic outgoing traffic, primarily as a result of recent tariff reductions.
In 2007, the total number of wireline accesses decreased by 1.3% to 4.062 million accesses due to the decrease of voice-only lines, notwithstanding the growth in ADSL and the number of wireline accesses based on GSM technology. In the 12-month period to end September 2007, wireline traffic decreased by 7.8%, primarily as a result of: (i) continued migration of narrowband customers to internet Broadband solutions (ADSL, Cable and also Mobile), translated to a drop of 58.1% in narrowband traffic compared to the same period in 2006; and (ii) the 1.8% decrease of voice traffic, mainly as a result of fixed-to-mobile substitution once total voice traffic in the sector continues to increase.
During 2007, alternative wireline operators continued to gain market share against the incumbent. In 3Q07 it accounted for 30.9% of the total Portuguese voice traffic expressed in minutes (from 29.6% one year before) and achieved, approximately 30.2% of total direct accesses (from 16.2% in 3Q06). This represents a market share gain of 14 percentage points. Although the incumbent still has a dominant position in these markets, the improved regulatory and economic conditions for ULL offers and the continued growth of fixed accesses based on GSM technology, have led to the beginning of change in the wireline market in Portugal.
With respect to internet customers, in 12 months to 30 September 2007, fixed Broadband users grew by 9.2%, to more than 1.6 million mainly driven by the ADSL customer growth of 16.3%. As at 3Q07, the fixed Broadband market comprised ADSL accesses, which accounted for 58.0% of the total (from 62.4% one year before), Cable accesses for 34.9% (from 37.3% in 3Q06) and other accesses for 0.6%. Also at the end of 3Q07, PT continued to have a dominant position in the Broadband market with a market share of 69.1%. Nevertheless, with the spin-off of its cable business – PTM – during 3Q07, PT's broadband market share should be restated in order to reflect this operation. Accordingly, after the spin-off of PTM, PT has a broadband market share of 44.4% (45.6% at YE2006, on a like-for-like basis) and PTM has a
broadband market share of 24.7% (25.2% YE2006). Finally, alternative operators in aggregate (including other cable) have a market share of 30.9% (29.2% YE2006).
According to the latest data available, daily generalist paid press continued to suffer from the competitive pressure of free newspapers. Average daily paid circulation in 2007 (January to September) dropped by 2.1% when compared to the same period in 2006, which had also decreased by 4.5% compared to 2005.
During the nine month period ended September 2007, "Correio da Manhã" reinforced its market leadership by 1.8%, followed by "Jornal de Notícias" and Público, which slightly decreased its market share by 0.6pp to 12.3%.
As for the advertising market, advertising on total daily press increased by 10.4%1 for the 11 month period to end November 2007, clearly driven by free newspapers, compensating for the decrease of daily generalist paid advertising market which fell by 1.5%. During that same period, investments in advertising in the free newspapers have increased by circa 154%.
1 Source: Marktest/Media Monitor
In October 2007, ANACOM published a draft decision about mobile network termination rates that foresees the continuation of the decrease in prices and – for the first time since the launch of our mobile business – the introduction of asymmetry between TMN and Vodafone and Optimus in mobile to mobile traffic. The draft decision foresees the following termination rates:
| TMN & Vodafone | Optimus | Asymmetry | |
|---|---|---|---|
| Current | 0.11 | 0.11 | 0% |
| 01-Jan-08 | 0.08 | 0.096 | 20% |
| 01-Apr-08 | 0.075 | 0.09 | 20% |
| 01-Jul-08 | 0.07 | 0.084 | 20% |
| 01-Oct-08 | 0.065 | 0.078 | 20% |
Amounts correspond to euros per minute
The final decision is expected in 1Q08.
In March 2007, ANACOM undertook a market sounding of possible interest in the 450 MHz, 900 MHz and 1800 MHz frequencies for the provision of terrestrial mobile service in accordance with the principle of technological neutrality. This was within the scope of the public consultation on the 2007 National Frequency Allocation Plan (NFAP).
Subsequently, in October, ANACOM held a public consultation on the entry of a new mobile operator through the allocation via open tender, of frequencies in the 450 MHz band, in accordance with the principle of technological neutrality. In the final decision, adopted in February 2008, ANACOM confirmed its intention to promote a public contest for the awarding of frequencies in the 450 MHz band for the provision of mobile services to a new operator. Accordingly, the regulator announced that it intends to exclude from this public contest the operators that offer mobile services supported in GSM, UMTS as well as CDMA450.
The regulator initiated the consultation process in relation to the licensing of Broadband Wireless Access frequencies. Within the scope of these consultations, the regulator presented its proposals on (i) the frequencies to be used (3.4 GHz – 3.8 GHz), (ii) the number of blocks to be allocated per operator (four blocks of 2x28 MHz), (iii) the allocation process (via an auction) and (iv) the adjudication criteria. It is worth highlighting the intention of not authorising the participation, in the first phase of the auction, of operators with significant
market power in the broadband market, of current mobile operators or of operators with spectrum within the 3.4 GHz – 3.8 GHz range. The auction is expected to take place in 1Q08.
On 15 February 2007, ICP – ANACOM published information on the terms and conditions of the activity of mobile virtual network operators, namely the establishment of a direct relationship with the final customer, the possibility of the use of own numbering ("92" range) and open negotiations with operators for access to their network.
As a result of the August 2007 decision, ICP – ANACOM reimbursed 1,967,345.70 euros to Optimus for spectrum fees paid in excess in the period from 1998 until 2001. This reimbursement resulted from a request presented by Optimus, whose justification was based on an external audit. On the other hand, Optimus had to pay ICP – ANACOM a value of approximately 1,541,274.02 euros for additional spectrum fees in the period 2002-2004. The calculation of this value was based on an audit promoted by ICP – ANACOM.
Within the scope of the UMTS licence, Optimus undertook commitments to promote the development of the Information Society to a total amount of approximately 274 million euros. Some of those commitments have already been fulfilled and duly acknowledged by the Ministry of Public Works, Transports and Communications ("MOPTC") and by the entities specifically created to assess and validate the projects carried out for that purpose. The remaining commitments shall be carried out during the course of the remaining licence period (until 2015), in accordance with the terms recently agreed between Optimus and the MOPTC, through contributions towards the Portuguese Government's "E-Initiatives" project, and through other own projects, which qualify as contributions towards the information society. Furthermore, resulting from the agreement between the MOPTC, Optimus and the other two mobile operators, the commitments of the three operators for acquisition of the UMTS spectrum corresponding to the licence of ONIWAY Infocomunicações, S.A. was clarified and definitively and fully extinguished, with Optimus having to make a financial contribution of 8,313,298.28 euros for the creation of a Fund for the Information Society. The extinction of the obligations was also formalized by the Governmental Resolution nº 18188/2007, of 16 August.
In anticipation of the merger between Novis and Optimus, ICP – ANACOM accepted the request for transmission of all the spectrum and numbering resources rights from Optimus – Telecomunicações, S.A. to Novis Telecom, S.A. without the imposition of any additional obligation.
On 30 June 2007, the European Regulation relating to roaming services came into force. This regulation imposed a control on maximum prices, at wholesale and retail levels:
| Retail | |||
|---|---|---|---|
| Outgoing | Incoming | Wholesale | |
| 2007 | 49 | 24 | 30 |
| 2008 | 46 | 22 | 28 |
| 2009 | 43 | 19 | 26 |
| Values w/ VAT, in eurocents | |
|---|---|
| ----------------------------- | -- |
The regulation also imposed measures with a view to increasing the transparency of the international roaming service tariffs.
On 13 November 2007, the European Commission released its proposals for the review of the current regulatory framework of the communication services sector in the European Union. The proposals include:
The proposals of the Commission shall now be discussed by the European Parliament and by the Council. It is expected that this new framework will not be approved before the end of 2008 and its transposition into Portuguese law will only take place in 2010.
On the same day the Commission released the new recommendation on markets susceptible to "ex-ante" regulation. The number of markets was reduced from 18 to seven, with the wholesale market for access and call origination on mobile networks identified as one of the markets that was no longer considered susceptible to ex-ante regulation.
The regulatory activity in the Portuguese wireline market in 2007, in relation to its several offers, was characterized by the following key events:
During 2007, ICP-ANACOM responded favourably to an intervention request carried out by Sonaecom in 2006, with reference to the interconnection within PT Comunicações'
exchanges. As a result, the direct interconnection of Sonaecom with PT Group companies was approved, which will have a significant impact on the operational costs of those interconnections.
Sonaecom's full year 2007 results show solid growth and improved profitability and reflect the organisation's ability to identify and focus on specific growth opportunities across its markets. During the year Sonaecom materially increased its customer base and reinforced customer revenue growth while generating a higher EBITDA result.
| Million euros | ||||
|---|---|---|---|---|
| CONSOLIDATED INCOME STATEMENT | 2006 | 2006 R | 2007 | y.o.y |
| Turnover | 836,0 | 822,4 | 892,7 | 8,6% |
| Mobile | 610,4 | 610,4 | 619,4 | 1,5% |
| Wireline | 200,2 | 200,2 | 255,4 | 27,6% |
| Público | 36,4 | 36,4 | 33,2 | -8,9% |
| SSI | 78,8 | 65,1 | 79,5 | 22,2% |
| Other & Eliminations | -89,7 | -89,7 | -94,8 | -5,7% |
| Other Revenues | 32,0 | 5,4 | 6,4 | 19,2% |
| Operating Costs | 673,1 | 660,4 | 724,9 | 9,8% |
| COGS | 102,1 | 102,1 | 108,6 | 6,4% |
| Network Costs (1) | 256,0 | 256,0 | 298,3 | 16,5% |
| Personnel Costs | 102,5 | 94,7 | 95,0 | 0,3% |
| Marketing & Sales | 94,1 | 94,0 | 96,5 | 2,6% |
| (2) Outsourcing Services |
60,9 | 58,9 | 65,6 | 11,3% |
| General & Administrative Expenses | 46,3 | 43,6 | 47,2 | 8,5% |
| Other Operating Costs | 11,1 | 11,1 | 13,8 | 24,4% |
| Provisions and Impairment Losses | 10,6 | 10,5 | 12,2 | 16,5% |
| EBITDA | 184,3 | 156,9 | 162,0 | 3,3% |
| EBITDA Margin (%) | 22,0% | 19,1% | 18,1% | -0,9pp |
| Mobile | 169,1 | 169,1 | 153,7 | -9,1% |
| Wireline | -6,2 | -6,2 | 9,8 | - |
| Público | -8,8 | -8,8 | -3,3 | 62,7% |
| SSI | 31,8 | 4,5 | 4,6 | 2,4% |
| Other & Eliminations | -1,5 | -1,6 | -2,8 | -70,0% |
| Tender Offer Costs | 30,9 | 0,0 | 0,0 | - |
| Depreciation & Amortization | 135,7 | 135,5 | 140,0 | 3,3% |
| EBIT | 17,8 | 21,4 | 22,0 | 2,9% |
| Net Financial Results | -17,4 | -17,4 | -21,5 | -23,2% |
| Financial Income | 6,0 | 5,9 | 18,0 | - |
| Financial Expenses | 23,4 | 23,4 | 39,5 | 69,0% |
| EBT | 0,4 | 4,0 | 0,5 | -86,6% |
| Tax results | -5,3 | -5,0 | 36,6 | - |
| Net Results | -4,9 | -1,0 | 37,2 | - |
| Group Share Attributable to Minority Interests |
-13,9 9,0 |
-9,7 8,6 |
36,8 0,4 |
- -95,5% |
(1) Network Costs = Interconnection plus Leased Lines plus Content plus Other Network Operating Costs; (2) Outsourcing Services = Customer Services plus Consultants plus Subcontracts; (R) Restated to exclude Enabler's contribution in 1H06 and Tender Offer Costs.
Consolidated turnover totalled 892.7 million euros in 2007 (the highest ever achieved by Sonaecom), 8.6% above 2006R , despite the negative impact of lower roaming-in revenues of 9.4 million euros and of lower Mobile Termination Rates ("MTRs") of 11.3 million euros, registered on operator revenues at our Mobile Business.
Consolidated service revenues increased by 11.0%, to 813.6 million euros, compared to 2006R . The main drivers behind this performance were the following:
Importantly, consolidated customer revenues grew by 15.9% when compared to 2006R , driven by strong customer revenue growth at both our Wireline (48.2%) and Mobile (7.9%) Businesses. The 2007 results of the Wireline Business and consequently those of Sonaecom Consolidated include, since September, revenues generated by Tele2 Portugal and by the customers acquired from ONI. In 2007, the contribution of these two additional businesses to service revenues was of 24.8 million euros.
The 2007 results at SSI (and the consolidated results of Sonaecom) also include the contributions of Cape Technologies, Praesidium and Tecnológica, all acquired by WeDo during 2007. The contribution of these three companies to the 2007 turnover was 2.4 million euros.
Excluding the contributions mentioned above, service revenues and customer revenues would have grown by 7.3% and 10.8% respectively, compared to 2006R , on a like-for-like basis.
Total operating costs reached 724.9 million euros in 2007, an increase of 9.8% over 2006R . Total operating costs excluding COGS were 10.4% higher than in 2006R , representing 75.7% of service revenues, approximately the same level registered in the previous year. As with turnover, it should be noted that operating costs include, since the respective acquisition dates, the costs associated with the companies acquired during 2007 and the respective integration costs.
Besides the contributions of the acquired companies, it is worth noting that the higher operating costs in the year were primarily growth related:
Staff costs increased marginally (0.3%) reflecting the costs of the acquired companies' headcount, which was partially offset by the reduction of the year's average headcount. It should also be noted that the 2006R consolidated staff costs included 4.3 million euros of severance costs incurred by Público, as part of the restructuring plan implemented in that subsidiary.
Provisions and impairment losses increased by 1.7 million euros in 2007, due to a combination of higher provisions for bad debt and stock depreciation at our Telco Businesses that was partially offset by lower provisions for other risks and charges.
Consolidated EBITDA improved by 3.3% to 162.0 million euros in 2007 generating a margin of 18.1%, compared to a margin of 19.1% in 2006R . This performance was driven by strong operational results at both our Telco and SSI divisions. The breakdown of EBITDA performance by business was as follows:
b) The Wireline Business generated a record EBITDA of 9.8 million euros (16.0 million euros improvement compared to 2006R ) reflecting mainly the benefits of the continued organic growth in its direct access business
c) EBITDA at SSI increased by 2.4% to 4.6 million euros when compared to 2006R , driven by higher service revenues and by improved cost management and efficiency, despite the costs of integration and the negative contributions in 4Q07 of the companies acquired by WeDo
Net results group share were 36.8 million euros in 2007.
Depreciation and amortisation charges increased marginally to 140.0 million euros (a 3.3% increase compared to 2006). This was driven by the increased asset base resulting from our investments in expanding both our mobile and wireline networks, despite the revision of the depreciation period in respect of sites and other GSM related assets carried out in 2Q07.
Net financial charges increased by 4.1 million euros to 21.5 million euros in 2007. These higher costs resulted from the write-off of the outstanding deferred up-front fees (7.2 million euros) on Optimus's syndicated bank facility which was cancelled in September 2007. Excluding this accounting effect, net financial charges would have decreased by 17.8% reflecting: (i) higher financial expenses, up by 8.9 million euros, due to the higher average cost of debt (4.78% in 2007 compared to 3.69 % in the previous year) determined by the increase in market rates; and (ii) higher financial income, up by 12.1 million euros, mainly as a reflection of the higher average level of liquidity, higher average market rates in the year and the capital gains generated with the sale of our shareholding in "Despegar" (3.0 million euros) and with the sale of PT shares (2.3 million euros).
The tax line in 2007 showed a benefit of 36.6 million euros compared to a charge of 5.0 million euros in 2006, due to movements in deferred tax assets at our Telecoms Business unit. The tax benefit registered in 4Q07 resulted from the possibility of using deferred tax assets against future results forecasted in the new business plan for our combined Telco business unit.
| Million euros | |||
|---|---|---|---|
| CONSOLIDATED BALANCE SHEET | 2006 | 2007 | y.o.y |
| Total Net Assets | 1.720,2 | 1.758,6 | 2,2% |
| Non Current Assets | 1.343,6 | 1.353,9 | 0,8% |
| Tangible and Intangible Assets | 661,4 | 722,6 | 9,2% |
| Goodwill | 506,9 | 528,2 | 4,2% |
| Investments | 113,1 | 2,0 | -98,3% |
| Deferred Tax Assets | 61,8 | 101,1 | 63,7% |
| Others | 0,3 | 0,0 | -100,0% |
| Current Assets | 376,6 | 404,7 | 7,5% |
| Trade Debtors | 152,0 | 192,0 | 26,4% |
| Liquidity | 125,9 | 83,9 | -33,4% |
| Others | 98,7 | 128,8 | 30,5% |
| Shareholders' Funds | 909,5 | 935,4 | 2,9% |
| Group Share | 909,0 | 934,6 | 2,8% |
| Minority Interests | 0,5 | 0,9 | 83,7% |
| Total Liabilities | 810,7 | 823,2 | 1,5% |
| Non Current Liabilities | 486,1 | 422,6 | -13,1% |
| Bank Loans | 460,6 | 373,2 | -19,0% |
| Provisions for Other Liabilities and Charges | 20,1 | 30,9 | 53,8% |
| Others | 5,4 | 18,5 | - |
| Current Liabilities | 324,6 | 400,6 | 23,4% |
| Bank Loans | 0,1 | 0,6 | - |
| Trade Creditors | 162,7 | 185,3 | 13,9% |
| Others | 161,9 | 214,6 | 32,6% |
| Operating CAPEX (1) | 134,1 | 162,8 | 21,4% |
| Operating CAPEX as % of Turnover | 16,0% | 18,2% | 2,2pp |
| Total CAPEX | 253,5 | 235,8 | -7,0% |
| EBITDA - Operating CAPEX | 50,3 | -0,8 | - |
| Operating Cash Flow (2) | 51,3 | 55,5 | 8,3% |
| FCF (3) | -81,7 | 59,6 | - |
| Gross Debt | 464,0 | 393,7 | -15,2% |
| Net Debt | 338,1 | 309,8 | -8,4% |
| Net Debt/ EBITDA last 12 months | 1,8 x | 1,9 x | 0,1x |
| EBITDA/Interest Expenses (4) | 10,6 x | 5,9 x | -4,7x |
| Debt/(Debt + Shareholders' Funds) | 33,8% | 29,6% | -4,2pp |
(1) Operating CAPEX excludes Financial Investments, Provisions for sites dismantling and other non operational investments; (2) Operating Cash Flow = EBITDA - Operating CAPEX - Change in WC -Non Cash item & Other; (3) FCF Levered after Financial Expenses but before Capital Flows and Financing related up-front Costs; (4) Interest Cover.
During 2007, Sonaecom completed the negotiation of a 250 million euros committed underwritten Commercial Paper Programme (CPP) with guaranteed subscription and a final maturity of five years. This facility is being used for general corporate purposes, for financing Sonaecom Group's investments and, along with available liquidity, was used to refinance the previous 325 million euros syndicated bank facility at Optimus. As a result, consolidated gross debt is now fully contracted by Sonaecom SGPS and internal funding movements are used to allocate cash between our subsidiaries. At year-end 2007, the weighted average maturity of Sonaecom Group credit lines stood at approximately 4.5 years.
Consolidated gross debt at the end of 2007 totalled 393.7 million euros, 70.3 million euros below the level at the end of 2006. This decrease is the result of the following movements: (i) the repayment of Optimus's syndicated bank facility of 317 million euros (amount net of upfront fees); (ii) the utilisation of 225 million euros of the new CPP facility at YE07; and (iii) an increase of 20.1 million euros related to financial leasing contracts.
As a result of the refinancing process and notwithstanding FCF generated in the year (which includes the sale of our 1% shareholding in PT during 1Q07), consolidated liquidity decreased by 42.0 million euros to 83.9 million euros.
Consequently, consolidated net debt at the end of 2007 stood at 309.8 million euros, a decrease of 28.3 million euros compared to the end of 2006.
Sonaecom's capital structure remains conservative, as demonstrated by its key financial ratios at the end of 2007. Net debt to annualised EBITDA deteriorated marginally, when
compared to 2006, to 1.9x. Interest cover decreased to 5.9x, from 10.6x at the end of 2006, mainly as a result of interest paid on a loan from Sontel BV in the beginning of 2007, associated with the tender offer for PT, which was fully repaid by the end of 1Q07. The ratio of consolidated debt to total funds improved from 33.8% in 2006 to 29.6% in 2007, reflecting the movements in gross debt mentioned above and the 25.9 million euro increase in shareholders' funds. The latter resulted mainly from the net profit generated in the period, despite the negative effect of the acquisition of own shares in 1Q07 (1.89 million shares), for the purpose of hedging our Medium Term Incentive Plan, totalling 8.9 million euros.
At the end of 2007, the sum of cash and non-utilised committed credit lines at the Sonaecom Group stands at approximately 189 million euros and no amortisations of bank loans are scheduled until 2010.
Consolidated CAPEX was 235.8 million euros while operating CAPEX reached 162.8 million euros, 21.4% above 2006, and representing 18.2% of turnover.
Consolidated CAPEX in 2007 includes 10.5 million euros related with contributions to the "Information Society" programme (UMTS license obligations) and acquisition investments totalling 58.6 million euros, comprising:
The increase in Operating CAPEX was driven by higher investments at both our Wireline and Mobile Businesses. However, it should be noted that: (i) Wireline CAPEX includes the recognition of 18.3 million euros in relation to long term backbone lease contracts as financial leases thus affecting CAPEX and debt; and (ii) Mobile Business' CAPEX includes 18.6 million euros related to an agreed network equipment swap in relation to part of our radio network. This did not have any impact on free cash flow as this amount was paid in kind with other equipment that was subject to the swap. Excluding these effects, total operating CAPEX would have been 125.9 million euros, 6.1% below 2006 and representing 14.1% of consolidated turnover.
Operating CAPEX spend during 2007 was mainly applied as follows: 36% invested in the deployment of the UMTS/HSDPA network, 15% was related to the GSM network, 15% related to Information Technology/information systems investments; and approximately 11% was invested in the network to support the direct broadband business and (until 3Q07) capitalised triple play development costs.
Gross tangible and intangible assets were 1,666 million euros at the end of 2007, compared to 1,475 million euros in 2006. Cumulative depreciation and amortisation totalled 943.7 million euros, compared to 813 million euros in the previous year. Financial investments were significantly reduced to 2.0 million euros (against 113.1 million euros in 2006). This reflects the March 2007 sale of the 1% shareholding in PT which was valued at YE06, on a mark-tomarket basis, at 111.1 million euros. Goodwill increased by 4.2% to 528.2 million euros mainly as a result of the acquisitions made during 2007.
At the end of 2007, Sonaecom shareholders' funds totalled 935.4 million euros compared to 909.5 million euros at the end of 2006, reflecting: (i) the acquisition in March 2007 of a total of 1.89 million own shares valued at 8.9 million euros, on a mark-to-market basis, which led to a reduction in shareholders' funds; and (ii) the net results of 37.2 million euros generated during the year.
| Million euros | |||
|---|---|---|---|
| LEVERED FREE CASH FLOW | 2006 | 2007 | y.o.y |
| EBITDA-Operating CAPEX | 50,3 | -0,8 | - |
| Change in WC | -10,4 | 12,8 | - |
| Non Cash Items & Other | 11,4 | 43,5 | - |
| Operating Cash Flow | 51,3 | 55,5 | 8,3% |
| Financial Investments | -107,2 | 48,0 | - |
| Own shares | 0,0 | -8,9 | - |
| Public Tender Offer | -12,5 | -20,6 | -65,2% |
| Financial results | -12,1 | -14,0 | -15,4% |
| Income taxes | -1,2 | -0,5 | 61,5% |
| FCF | -81,7 | 59,6 | - |
Consolidated FCF in 2007 was positive 59.6 million euros, compared to a negative 81.7 million euros in 2006. This mostly reflects the impacts of the disposal of PT shares in 1Q07 (108 million euros) – registered in Financial Investments – and the payments related to the acquisitions of (i) ONI's residential and SOHO customers and Tele2 Portugal totalling, in aggregate and including VAT, 38.8 million euros; (ii) Cape Technologies, in the amount of 17.3 million euros; and (iii) Praesidium (0.6 million euros).
Operating cash flow was positive 55.5 million euros in 2007, up from positive 51.3 million euros in 2006, mainly driven by: (i) a deterioration of 51.1 million euros in EBITDA-Operating CAPEX and (ii) an improvement in working capital of 23.2 million euros, reflecting the higher credit from trade creditors at both the Mobile and Wireline Businesses. Excluding the above mentioned extraordinary items of 18.6 million euros, related to the network equipment swap and 18.3 million euros in relation to the backbone financial leases (both of which are reflected within Non-cash items and other), EBITDA-Operating CAPEX would have reached 36.1 million euros.
During 2007, Optimus achieved strong customer and customer revenue growth as a result of the planned investments in supporting the brand. This was particularly seen in the residential segment, in distribution and in the development of our fixed-mobile convergent product "Optimus Home" and our wireless broadband service "Kanguru". Optimus was able to sustain its leading position in wireless broadband in the residential market and achieved significant growth in overall data usage.
The development and launch of innovative products and services is a central part of the culture and image of Optimus. 2007 was again a year of considerable innovation in the residential segment.
Among the initiatives carried out during 2007, it is worth noting the various customised rate plans that were implemented in our offers addressing the specific needs of market segments, such as customers with a high volume of international traffic or high SMS usage.
Optimus has pursued superior customer retention and increased loyalty since day one of its operations. With these objectives in mind, several initiatives were launched during 2007, including the "Valentine's Day", "Summer" and "Christmas" promotions, all with clear benefits perceived by our customers. Besides these campaigns, it is worth noting the improvement of our unique "Optimus A" service (aimed at high usage customers and differentiated by its outstanding service level), with a streamlined process for handset renovation.
Optimus is a leading brand in Portugal. During 2007, several brand reinforcement initiatives were carried out, including the development of new advertising campaigns and an enhanced sponsorship policy.
Consistent with the tradition of presenting reference advertising campaigns in the market, Optimus developed several new campaigns in 2007 with above average results and a significant impact on consumers. Worth noting for its innovation and market impact was the "Optimus – Spider-Man" campaign featuring Alain Robert, known for having climbed more than 70 skyscrapers across the world; as well as the "Optimus – Rio" (Optimus River) campaign, which involved a major international production.
The sponsorship investment was significantly reinforced during 2007, namely with the return to the sponsoring of leading music festivals, such as the "Oeiras Alive" and "Super-Bock Super-Rock".
On 8 January 2008, Optimus announced the launch of a totally new brand and corporate image, in what constituted the largest rebranding operation ever undertaken in Portugal.
Optimus's new line of communication positions the brand as a dynamic organism, comprising human relationships and emotions, both internal and external, with the "Magma" as the central element. Warm, attractive, volatile, malleable, assuming multiple forms, "Magma" demonstrates the new Optimus mood, which is also expressed through its new signature "What do you need?". This demonstrates the essence of Optimus as a company focused on taking care of the customer's specific and individual needs.
During 2007, important developments occurred in our discount offer, which operates under the name "Rede4", now a well recognised brand in Portugal. Rede4's market share in its segment is currently higher than the average market share of Optimus, as a consequence of the clear value perceived by its target customers.
The base offer was kept practically unchanged, as we believe a discount operation should be perceived as valuable and simple by its target customers without major variations on product lines or pricings. The major development in the year was the signing of a partnership with Nokia for the exclusive sale, under the Rede4 offer, of the Nokia handset range.
With only three years of activity, our fixed-mobile substitution product, the "home phone with no monthly fee" (our key offer message), consolidated its position in 2007 as the second operator – or the first among the alternatives – in the wireline voice market in Portugal.
The "Optimus Home" offer showed a very significant growth in 2007. Three critical elements contributed towards its continued success and are worthy of our focus and drive:
In September 2005, Optimus launched "Kanguru", a mass-market wireless ready-to-use Broadband internet access product. It is aimed at creating a new category in the internet access market in direct competition with the traditional ISPs (ADSL and cable). Since then, "Kanguru" has become a dominant wireless broadband internet access service and has consistently led sales in the multi-operator retail category.
The leadership of "Kanguru" results from a first mover advantage in the new category of wireless internet access in Portugal, as well as from the constant innovation and pioneering in terms of product. It was the first to offer rate plans for HSDPA speeds; it was the first to launch an offer for exclusive wireless internet usage at home and it was the first to launch equipment able to be used both on portable and fixed computers. In addition to innovation, the focus on a readily available and easy-to-use service and competitive rate plans for the different types of usage patterns have been determinant for the success of this business line.
New equipment was introduced during 2007 that continued to guarantee the significant competitive advantage of the "Kanguru" product range: for example, PCMCIA cards and 7.2 Mbps Express Card, 7.2/HSUPA modem and 7.2/HSUPA modem-type pen. A Wi-Fi router with direct connection to the USB Kanguru Modem was also launched as a complementary product, thus permitting the connection to be shared by more than one user.
In addition, "Kanguru" was an integral part of the Optimus offer within the scope of the "E-Initiatives" schools programme, developed within the framework of Optimus's commitments towards the development of the Information Society in Portugal. As part of this programme, the beneficiaries (students from the 10th grade, teachers of basic and secondary education and trainees of the "Novas Oportunidades" government programme) have access to a laptop PC, to Kanguru equipment for internet access, and to internet access rate plans at very favourable conditions (initial price, for the package, range from 0 to 150 euros and rate plans are available from 5 euros per month).
In 2007, internet access has consequently become an important avenue of growth for our Wireless Business, leveraging on the reinforced investments made on the 3G/HSDPA network.
In the multimedia area, the main focus was on the key areas of music and TV services.
In 2007, Optimus continued to develop its Music Store – an innovative service that allows complete songs to be downloaded with MP3 quality, at any time and anywhere, to a mobile phone or to a PC. The Music Store includes a vast catalogue that currently contains more than one million songs, updated daily with the latest releases. The service has the advantage of being able to be accessed via mobile phone and of allowing for the acquired songs to be listened on a mobile phone, PC or other any digital gadget.
The commitment to the music area involved a number of multimedia campaigns throughout the year, associating music services, mobile phones and the latest releases from key artists. Also during 2007, a number of multimedia services were developed for the "Optimus Alive!" and "Super Bock Super Rock" music festivals, sponsored by Optimus.
It is also important to mention the partnership developed with "Blitz", a national reference magazine in the music field. A collection of the most important 500 albums in the history of rock was compiled with Blitz and made available under our offers.
In relation to mobile TV, Optimus continued its commitment to extending its channel offer, which currently comprises 27 channels: Disney, CNN, Eurosport and MTV Snax are some examples of the various channels launched during 2007.
In addition to this commitment, Optimus continued to work towards offering the Mobile TV application on a greater number of terminals. The application used places Optimus's TV offer among the best European practices. It allows customers to view television on a mobile phone with the most advanced functionalities of traditional TV: quick zapping of channels, consulting TV programmes and even, on some channels, 'forwarding' and ''replaying' programmes on a given channel, as well as going back to the start of a given programme.
The launch of the Mobile TV HD (High Definition) is also worthy of mention, which placed Optimus at the worldwide forefront of TV image and sound quality on the mobile phone.
Internet access via the mobile phone was another area of significant growth in 2007. At the end of the first half of the year, Optimus launched an application ("MiniOpera") that allows for a positive access experience on almost all handsets and, in parallel, changed its access pricing offer (currently with a maximum cost of 1 euro per day). This led to a substantially increased take up of these services by our mobile customers.
Also in relation to data, Optimus started developing initiatives in the m-advertising (mobile advertising) area jointly with advertising and media agencies, having created the conditions for the launch of several m-advertising actions at the beginning of 2008.
M-payments was another area worthy of special attention, with developments focused on "Telemultibanco", an application that offers a user experience that is very similar to that associated with traditional ATMs. In addition, the analysis of different solutions started in partnership with SIBS (the entity that owns the Portuguese inter-bank ATM system). This will lay the grounds for the future launch of different services, such as payments for goods and services through m-parking and m-ticketing.
During 2007, a significant effort was made in consolidating and reinforcing Optimus's distribution channels in terms of growth, quality of service and efficiency. In total, the Optimus retail network now has more than 3,000 points of sale.
The weight of our proprietary channels (own stores and internet) was reinforced once again. At the end of 2007, Optimus had 38 own stores and 103 Optimus exclusive stores owned by dealers. The network of Optimus stores now covers all district capitals in Continental Portugal and Madeira islands.
Even more importantly, our capacity to provide services to our customers was significantly reinforced. Examples of these improvements include the opening of an "immediate" repair centre in our new mega-store at the Colombo Shopping Centre and the opportunity to exchange points from our fidelity programme directly at our website: www.optimus.pt.
In the non-specialist retail area, additional presence and visibility (specifically through free service locations at key retail shops) was achieved during 2007. Within this area, it is also worth highlighting the launch of a new Premium service provider under the recognised brand of FNAC ("FNAC Mobile").
In 2007, Optimus Negócios ("ON"), the business unit dedicated to SMEs and SOHOs, renewed its value proposal in relation to its offer of products and services across all communication segments: mobile, fixed and internet.
Within the mobile segment, the launch of the "Redes" rate plan enabled companies to have free calls among its employees and to call fixed numbers at prices traditionally only available on wireline network operators. For those customers that wanted to focus on calls to the Optimus network, the "Pioneer" rate (the well-known pricing offer of the launch of Optimus) was reintroduced in the market.
Mobile phones are today true productivity tools, thanks to services such as Direct Access Email and internet access. In partnership with "InfoPortugal", Optimus Negócios began offering the navigation software nDrive on all PDA-phones with GPS. nDrive is the most comprehensive navigation and information system in Portugal, with complete maps of Continental Portugal, the Azores and Madeira islands.
The "Escritório Optimus Negócios" (Optimus Business Office) is the focus of ON in the Wireline segment. This product includes the offer of voice, fax, internet and POS (point-ofsale) terminals, presenting itself as a credible alternative to the traditional wireline network operators, with certain key advantages in terms of price and flexibility.
Within the internet segment, the launch of Wi-Fi roaming is worth highlighting. This solution allows for the use of Optimus's mobile broadband internet service ("Kanguru") in more than 15,000 hotspots worldwide, at a price substantially lower than traditional roaming. Optimus Negócios also launched the first Wi-Fi Router with 3.5G technology.
In 2007, Optimus Negócios sought to reinforce its brand recognition in the market with initiatives such as "Podium", which is aimed at national entrepreneurs. At the programme's launch event, which included internationally renowned speakers and more than 500 participants, the latest practices and ideas in the field of management were presented. At the end of the year, Optimus Negócios associated itself with BPI and the Universidade Nova de Lisboa in the organization of "START – Prémio Nacional de Empreendedorismo" (a national entrepreneurship prize).
Customer acquisition at our corporate business unit, which targets the largest national corporations and institutions (around 3,000 entities), was particularly successful during 2007.
Sales of data services and fixed-mobile convergence solutions grew significantly during the course of 2007, with our mobile broadband solution "Kanguru" an important driver. These services were mainly acquired by entities that, although not wanting to replace their current wireline operator completely, recognised the excellence and singularity of the solutions that Optimus provides in those areas.
Improving our customer service standards remained a priority throughout the year. We improved the "Digital Extract" service by substituting the physical dispatch of CD-ROMs with a more reliable and faster digital transfer process. Not only has this made adopting the service easier, but it has also created additional benefits such as more transparent invoicing and greater environmental efficiency.
During 2007, the Corporate business unit launched several new customised products and services. Within the mobile Broadband area, a significant increase in the upload speed of Kanguru was achieved and several roaming agreements were signed with international Wi-Fi operators, achieving greater access to our mobile internet access services in foreign countries. In cases where Wi-Fi access is not available, we made GPRS/UMTS roaming packages available to our customers. Our corporate customers also started to use mobile Broadband as a complement or substitute for wireline data transmission, notably in small representative offices or temporary facilities.
We also developed a reverse charging solution for WAP access, aimed at mobile content providers looking to increase access to their portals by bearing the respective communication costs themselves.
Another area where we introduced significant developments during 2007 was Video, where Optimus now offers a complete range of video-vigilance and videoconference solutions. The videoconferencing solutions we developed for "INEM" (the National Medical Emergency Institute) is particularly notable. Comprising a portable videoconference system, it enables emergency medical teams to access remote support during interventions.
With the launch of multiple balances in the "Plano Misto", cost allocation solutions also reported significant progress during 2007. This is an area where Optimus has already differentiated itself significantly from its competitors. Previously, an employer could define the amount it intended to recharge onto the employee's mobile phone at its expense. Now, however, the employer can differentiate any recharge according to service type, defining a different amount for professional and personal communications.
In 2007, Optimus continued to extend the international coverage of its roaming services. Following agreements with more than 350 foreign mobile operators, these services are now available in 200 international destinations. In the same period, the automatic roaming service (pre-paid) became available in 90 of these destinations.
Particular focus was placed on Data services roaming. International coverage was significantly extended during 2007 through new agreements involving GPRS, which is now available to our customers in about 130 countries; and 3G/HSPDA, which is available in more than 50 destinations.
It is also important to highlight the launch of a roaming service with "OnAir" that allows voice, SMS and data communications on-board aeroplanes. Optimus's customers were able to access this service on the very day that it went live.
| MOBILE OPERATIONAL KPI's | 2006 | 2007 | y.o.y |
|---|---|---|---|
| Customers (EOP) ('000) | 2.601,9 | 2.893,5 | 11,2% |
| Net Additions ('000) | 248,7 | 291,6 | 17,3% |
| % Pre-paid Customers | 77,8% | 73,1% | -4,7pp |
| Active Customers (1) | - | - | - |
| Data as % Service Revenues | 14,4% | 17,7% | 3,3pp |
| Total #SMS/month/user | 50,5 | 45,1 | -10,6% |
| MOU (2) (min.) | 115,9 | 118,1 | 1,9% |
| ARPU (euros) | 19,7 | 18,2 | -7,6% |
| ARPM (3) (euros) | 0,17 | 0,15 | -9,3% |
| CCPU (4) (euros) | 15,1 | 14,8 | -1,8% |
| SAC&SRC (5) (million euros) | 100,7 | 130,4 | 29,5% |
| Employees (6) | 1.055 | 977 | -7,4% |
| Shared Services Division | 776 | 748 | -3,6% |
(1) Active Customers with Revenues generated on last 90 days; (2) Minutes of Use per Customer per month; (3) Average Revenue per Minute; (4) Cash Cost per Customer = Total Operational Costs per Customer less Equipment Sales; (5) Total Acquisition & Retention Costs; (6) Includes Shared Services Division.
Optimus's customer base increased by 11.2% to 2.893 million customers at the end of 2007, compared to 2.601 million at the end of 2006, with net additions reaching 291,600 in 2007, up by 17.3% compared to 2006, clearly demonstrating the success of its growth strategy. The level of net additions in 4Q07 (132,400 customers) was the highest achieved since 2001. Active customers at the end of 2007 totalled 2.276 million, compared to 2.058 million at the end of 2006, an increase of approximately 10.6%.
Contract customers continued to increase their weight in the total customer base. At the end of 2007, pre-paid customers represented 73.1% of total customers, which compares with 77.8% at YE06.
During 2007, Optimus customers generated an ARPU of 18.2 euros, down from 19.7 euros in 2006. Of the 2007 ARPU, 13.8 euros were related to customer monthly bill and 4.4 euros to operator revenues, compared to 14.2 euros and 5.5 euros respectively in 2006. The lower ARPU is mainly explained by the decrease of 20% in operator revenues ARPU, due to the phased reductions in MTRs and, especially, due to reductions in roaming-in tariffs. The fall in the level of customer monthly bill was driven by the decrease in average revenue per minute ("ARPM"), explained by the higher price pressures on voice tariffs mainly in the SME segment, but also due to the increased weight of "Optimus Home" (our fixed-mobile convergence product) within the customer base. This was partially offset by increased usage per customer, as demonstrated by the 1.9% increase in average Minutes of Use ("MoU").
During 2007, Optimus maintained its wireless broadband leadership and was able to push up data usage, namely through the promotion of its "Kanguru" product, which is based on HSDPA technology and now offers speeds of up to 7.2 Mbps. Equally important was the launch of a specific offer in relation to Optimus's contribution to the development of the information society ("e-Initiatives" programme). This will contribute to sustaining mobile broadband market growth at a high pace.
Data revenues represented 17.7% of service revenues in 2007 (19.4% in 4Q07), a material improvement of 3.3pp over 2006, as the result of Optimus's promotional efforts to increase use of data services and the success of its wireless broadband solutions. Non-SMS related data services continued to increase their weight in data revenues, accounting for approximately 51% of total data revenues in 2007, compared to only 38% in 2006.
In 2007, total voice traffic2 was 13.5% higher than in 2006 as a result of the enlarged customer base as well as the increase in MoU per customer to 118.1 minutes (from 115.9 minutes in 2006). This reflects the continued success of Optimus's investment effort to enhance voice usage.
| Million euros | |||
|---|---|---|---|
| MOBILE INCOME STATEMENT | 2006 | 2007 | y.o.y |
| Turnover | 610,4 | 619,4 | 1,5% |
| Service Revenues | 562,2 | 579,1 | 3,0% |
| Customer Revenues | 405,7 | 437,9 | 7,9% |
| Operator Revenues | 156,5 | 141,2 | -9,8% |
| Equipment Sales | 48,1 | 40,3 | -16,3% |
| Other Revenues | 34,4 | 37,0 | 7,6% |
| Operating Costs | 466,2 | 494,8 | 6,1% |
| COGS | 71,5 | 79,7 | 11,6% |
| Interconnection & Contents | 133,2 | 137,4 | 3,2% |
| Leased Lines & Other Network Operating Costs | 52,3 | 56,4 | 7,8% |
| Personnel Costs | 51,9 | 51,5 | -0,7% |
| Marketing & Sales | 68,0 | 73,5 | 8,0% |
| Outsourcing Services (1) | 50,3 | 53,0 | 5,3% |
| General & Administrative Expenses | 29,1 | 31,3 | 7,5% |
| Other Operating Costs | 10,0 | 12,1 | 20,7% |
| Provisions and Impairment Losses | 9,5 | 7,8 | -17,7% |
| Service Margin (2) | 429,1 | 441,7 | 2,9% |
| Service Margin (%) | 76,3% | 76,3% | 0pp |
| EBITDA | 169,1 | 153,7 | -9,1% |
| EBITDA Margin (%) | 27,7% | 24,8% | -2,9pp |
| Tender Offer related costs (3) | 0,0 | 10,0 | - |
| Depreciation & Amortization | 117,4 | 115,5 | -1,5% |
| EBIT | 51,7 | 28,1 | -45,6% |
| Operating CAPEX (4) | 102,5 | 113,2 | 10,4% |
| Operating CAPEX as % of Turnover | 16,8% | 18,3% | 1,5pp |
| EBITDA - Operating CAPEX | 66,5 | 40,5 | -39,1% |
| Total CAPEX | 114,8 | 127,1 | 10,7% |
(1) Outsourcing Services = Customer Services plus Consultants plus Subcontracts; (2) Service Margin = Service Revenues minus Interconnection & Content Costs; (3) Charge out by Sonaecom SGPS regarding PT tender offer costs (4) Operating CAPEX excludes Financial Investments, Provisions for sites dismantling and other
In 2007, service revenues increased by 3.0% to 579.1 million euros compared to 562.2 million euros in 2006, driven by the 7.9% growth in customer revenues that more than compensated for the fall of 9.4 euros and 11.3 million euros due, respectively, to lower roaming-in and MTRs, respectively. Excluding the impact of the MTRs and roaming-in reductions, service revenues would have increased by 6.6% as compared to 2006. In 4Q07, service revenues were 5.1% above 4Q06, the highest quarter-on-quarter increase in the last three years.
2 Total voice traffic = total incoming traffic plus total outgoing traffic plus total Roaming out
EBITDA in 2007 reached 153.7 million euros and generated a margin of 24.8%, representing a decrease of 2.9pp, when compared to 2006. This decline was primarily the result of lower roaming-in and MTRs that led to a combined reduction of 14.2 million euros in EBITDA. Excluding these negative factors associated with regulated prices and the one-off impact from discounts from equipment suppliers registered in 2006 (3.5 million euros), EBITDA would have increased by 1.3% compared to the previous year and generated an EBITDA margin of 26.3%.
Total OPEX increased by 6.1% to 494.8 million euros and represented 79.9% of turnover, a deterioration of 3.5pp when compared to 2006. However, service margin improved by 2.9% to 441.7 million euros, representing a margin of 76.3%, in line with 2006. The higher costs were driven by:
During 2007, Sonaecom's Wireline Business strengthened its position as the leading alternative ULL direct access provider in Portugal, with a substantially enlarged customer base after the integration of ONI's residential and SOHO customers, and of Tele2's customers, further leveraging its operating structure and proprietary infrastructure network. The focus has been on transforming the acquired indirect customers to direct access, on the expansion of our double play offering, the reinforcement of IPTV and home video in the ADSL basic offer and, above all, on improving customer service.
The ambitious growth plan we set ourselves for 2007 was surpassed, driven by organic growth of the direct access customer base and by the acquisition of Tele2's commercial activity in Portugal, as well as ONI's residential and SOHO customer base.
We launched the first quadruple play (4P – voice, broadband internet, TV and video) offer in the national market at the start of 2007 (commercial tests had started one year before). For the first time, customers had integrated access to internet, voice, TV (the first IPTV offer in Portugal) and home video.
Also for the first time in Portugal, customers were able to use a complete offer of "Home Networking" – solutions for the distribution of telecommunication services within a household, including some pioneering technologies, such as the power line and Wi-Fi television.
In addition, during 4Q07, Clix added a mobile option to its offer, becoming the only operator in Portugal to offer the five services with only one brand, one contact point and one invoice.
Reinforcing its focus on content as one of the new television service's key differentiation factors, Clix has consolidated its content offering, which now includes several radio channels,
games (exclusive in Portugal), about 100 digital television channels and more than 700 titles for rental, including films, documentaries and concerts.
At the end of 2007, the IPTV user interface was completely renewed, making it more intuitive and simple to use, and with the innovate offer in the Portuguese market of useful, constantly updated content: news, weather and traffic reports, and horoscope.
In terms of distribution channel, Clix reinforced and developed its commercial team (traditional sales and telemarketing) and formed a national network of agents. With its own stands at key shopping centres in the country, Clix also maintained a strong public presence, allowing potential customer to freely test its services.
It is also important to highlight that during 2007, Clix's customer experience was significantly improved with material reductions in new customers' activation period, lower levels of breakdown incidents, reduced response time to resolve breakdowns and improved response at our call centres.
Our Wireline Business continues to be the leading alternative operator in the SME market, both in the segment of companies with five to nine employees, as well as in companies with more than ten employees.
During May 2007, Novis launched a challenge to Portuguese companies with the innovative introduction of the "Quociente Tecnológico" ("Q.t.") concept, a test to measure the "technological intelligence" of companies. With Q.t., Novis intends to reinforce the contribution towards the creation of a more competitive and technologically advanced corporate segment in Portugal, promoting the use of technology. This new concept begins with the identification of the distinctive factors that allow organisations to attain higher degrees of efficiency for comparable levels of investment in technology and measures the performance of companies in managing those factors.
As a result of its commitment towards providing direct service to this segment, at the end of 2007, Novis held a broadband market share (including customers acquired from ONI) in the SME segments above its residential market share. In the SME segment, Novis has more than doubled its market share since December 2005. Also in relation to voice services, Novis reinforced its leadership among alternative operators in all the segments in which it operates.
During 2007, Novis continued to focus on its ADSL 24Mbps offer as its main growth driver, adding new functionalities that allow customers to capture additional value from broadband. As part of this effort, the "e-services" range was reinforced with two new services: the "ecamera", a video-vigilance service and "e-roaming", a service that enables internet access via a Wi-Fi connection in more than 70 countries.
The main rate plans were reformulated in April 2007, with the aim of reinforcing the competitiveness of the overall offer, and a new product range was launched in the market, including a VPN package solution aimed at all SMEs with more than one location.
Following the acquisition of the SME and SOHO customer portfolio from ONI, the migration of the new customers to the Novis network was initiated in September, so as to enable the development of this portfolio within the scope of Novis' service offer.
During 4Q07, the first IP telephony solutions based on the IMS/IMT platform were tested, representing the first steps towards the offer of convergence solutions.
Novis continued to invest in the development of its networks of commercial partners, renewing and reinforcing its recruitment, training and incentive initiatives, having reinforced its commitment towards the "Novis Academy" (a continuous training programme for sales people), which is currently the central pillar of the support provided to this distribution channel.
2007 was marked by a sharp increase in all revenue lines in this segment, through customer acquisition and the increased usage of value-added services. One of the main drivers of this increase was the focus on sales to the larger companies, both in the private sector as well as in Public Administration. In addition, we initiated a process to gradual enter into the Managed Services business.
In relation to the mass-calling services business, the year was marked by the growth of multimedia revenues from the three national TV operators with the introduction of new formats and programmes, new call entry and selection functionalities and an enlarged reporting capacity. It should nevertheless be noted that during 4Q07, the volume of calls associated with TV programmes in general has been decreasing.
| WIRELINE OPERATIONAL KPI's | 2006 | 2007 | y.o.y |
|---|---|---|---|
| (1) Total Services (EOP) |
380,729 | 815,623 | 114.2% |
| Direct | 281,541 | 510,673 | 81.4% |
| ULL | 256,625 | 477,868 | 86.2% |
| Other | 24,916 | 32,805 | 31.7% |
| Indirect | 99,188 | 304,95 | - |
| Voice | 53,897 | 256,815 | - |
| Internet Broadband | 11,994 | 31,392 | 161.7% |
| Internet Narrowband | 33,297 | 16,743 | -49.7% |
| Total Accesses (2) | 310,338 | 551,222 | 77.6% |
| PSTN/ISDN | 167,227 | 291,603 | 74.4% |
| ULL ADSL | 131,117 | 228,226 | 74.1% |
| Wholesale ADSL | 11,994 | 31,392 | 161.7% |
| Unbundled Central Offices with transmission | 144 | 169 | 17.4% |
| Unbundled Central Offices with ADSL2+ | 137 | 161 | 17.5% |
| Direct access as % Customer Revenues | 65.6% | 70 | 4.6pp |
| (3) Total Voice Traffic ('000 Min.) |
1,435,971 | 1,743,105 | 21.4% |
| Total Internet Traffic | |||
| Narrowband ('000 Min.) | 229,431 | 91,741 | -60.0% |
| Broadband ('000 Gigabytes) | 11,355 | 23,173 | 104.1% |
| Employees | 172 | 192 | 11.6% |
(1) Services restated according to a "revenue generator unit" criteria since 1Q07; (2) Reporting criteria according to Anacom standard: ISDN services equivalent to 2 or 30 accesses depending on whether they are basic rate (BRI) or primary rate (PRI); Accesses do not include indirect voice or narrowband services and data and wholesale services; (3) Includes Wholesale and Retail traffic.
In 2007, we completed the acquisition of both ONI's residential and SOHO customer base and of Tele2 Portugal, which had an impact of an additional 370 thousand services, of which, 111 thousand were direct services.
At the end of 2007, total services reached 815,600, an increase of 114.2% compared to 2006 (17% on a like-for-like basis, i.e., excluding the impact of the acquisitions referred to above). Total direct services represented 62.6% of the Wireline Business customer base in 2007 (86% excluding recent acquisitions), compared to 73.9% in 2006. Average monthly direct net additions in 4Q07 were approximately 12,900 services and average monthly net additions of ULL accesses reached 5,300.
The Wireline Business voice traffic increased by 21.4% in 2007 to 1,743 million minutes, mainly as a result of the increase of retail traffic by 59.2%, while wholesale traffic increased by 1.0%. Retail traffic performance was a result of the increase in both direct voice and indirect voice traffic, which grew by 73.3% and 35.6%, respectively. On a like-for-like
comparison, total voice traffic increased by 6.3% supported by the growth of retail traffic of 23.8%.
| Million euros | ||
|---|---|---|
| WIRELINE INCOME STATEMENT 2006 |
2007 | y.o.y |
| Turnover 200,2 |
255,4 | 27,6% |
| Service Revenues 199,0 |
254,2 | 27,8% |
| Customer Revenues 94,4 |
140,0 | 48,2% |
| Direct Access Revenues 61,9 |
98,1 | 58,5% |
| Indirect Access Revenues 30,4 |
38,6 | 26,9% |
| Other 2,1 |
3,2 | 54,1% |
| Operator Revenues 104,5 |
114,3 | 9,4% |
| Equipment Sales 1,2 |
1,2 | -4,5% |
| Other Revenues 5,2 |
3,8 | -26,2% |
| Operating Costs 210,9 |
245,8 | 16,6% |
| COGS 1,7 |
1,4 | -17,9% |
| Interconnection 104,4 |
126,9 | 21,6% |
| Leased Lines & Other Network Operating Costs 32,0 |
42,0 | 31,3% |
| Personnel Costs 9,3 |
9,4 | 1,2% |
| Marketing & Sales 22,4 |
18,5 | -17,1% |
| Outsourcing Services (1) 30,7 |
36,8 | 19,7% |
| General & Administrative Expenses 9,0 |
9,1 | 1,2% |
| Other Operating Costs 1,3 |
1,6 | 19,4% |
| Provisions and Impairment Losses 0,7 |
3,7 | - |
| Service Margin (2) 94,5 |
127,3 | 34,7% |
| Service Margin (%) 47,5% |
50,1% | 2,6pp |
| EBITDA -6,2 |
9,8 | - |
| EBITDA Margin (%) -3,1% |
3,8% | 6,9pp |
| Tender Offer related costs (3) 0,0 |
13,3 | - |
| Depreciation & Amortization 16,8 |
28,5 | 69,6% |
| EBIT -23,0 |
-32,0 | -38,9% |
| Operating CAPEX (4) 31,5 |
49,8 | 58,2% |
| Operating CAPEX as % of Turnover 15,7% |
19,5% | 3,8pp |
| EBITDA - Operating CAPEX -37,7 |
-40,1 | -6,2% |
| Total CAPEX 31,5 |
82,6 | 161,7% |
(1) Outsourcing Services = Customer Services plus Consultants plus Subcontracts; (2) Service Margin = Service Revenues minus Interconnection Costs; (3) Charge out by Sonaecom SGPS regarding PT tender offer costs (4) Operating CAPEX excludes Financial Investments, Provisions for sites dismantling and other non
Turnover in 2007 amounted to 255.4 million euros, an increase of 27.6% over 2006, mainly due to the significant increase in customer revenues, up by 48.2%, driven by growth in direct access revenues (58.5% higher than in 2006). It should be noted that since September 2007, the Wireline Business results include the contribution of Tele2 Portugal and of the customers bought from ONI. In 2007, the total revenues contribution of these operations was of 24.8 million euros. Excluding this contribution, service revenues would have grown by 15.2% when compared to 2006.
Direct access revenues accounted for 70.1% of customer revenues in the year, an increase of 4.6pp compared to the previous year, as a result of the continued focus on the direct access business and despite the inclusion of Tele2 and ONI indirect customers from September. Mass calling services during the year contributed materially with revenues of 21.7 million euros, an increase of 13.3 million euros compared to 2006.
The Wireline Business generated a record positive EBITDA of 9.8 million euros, compared to a negative 6.2 million euros in 2006, generating a margin of 3.8%. EBITDA in 4Q07 was 5.4 million euros, representing the best quarter in terms of EBITDA performance since the launch of the company and generating a margin of 6.9%. This improvement was primarily due to the increased size of the ULL customer base achieved via organic growth that has been generating an increasingly positive contribution to profitability since the second half of 2006. In aggregate, the Tele2 and ONI customers contributed a marginally positive EBITDA in the year due to integration and related on-going outsourcing costs.
Operating costs increased by 16.6% compared to 2006, reflecting the consolidation of Tele2 Portugal, the inclusion of costs associated with the customers bought from ONI and efforts to develop and expand the direct access broadband business:
SSI continued to achieve a good set of operational and financial results, driven primarily by the performance of WeDo, which has focused on expanding its range of clients through its leading revenue assurance product ("RAID") and by the increased profitability at Mainroad and Bizdirect.
In the beginning of 4Q07, WeDo acquired Cape Technologies, a company incorporated in the Republic of Ireland and a former competitor, which operated internationally in information systems for the telecommunications industry. With this acquisition, WeDo becomes the world leader in the revenue assurance software integration market, with 349 employees spread across 15 offices worldwide, and with a customer base of 60 clients in 40 countries.
The combination of organic and non-organic growth strategies allowed WeDo to grow significantly during 2007 and meet its objectives for the year, enabling it to consolidate its position as the world leader in Revenue Assurance solutions for the telecoms sector.
As regards organic growth, the following achievements during 2007 should be noted: (i) enlargement of its international customer base of its RAID product, for example, leading telecoms operators in Holland, Greece, Dubai, Malaysia and of its roaming and churn solutions; (ii) opening of new local offices in Egypt (to support the Africa & Middle East regions) and Malaysia (to support the Asia region); (iii) completion of new partnerships with Ericsson (via its IMS Application Expert Centre in Portugal) and with Roscom (a world leader in Test Call Generation); and (iv) continuous innovation, with the launch of two new versions of RAID, its leading Revenue Assurance solution, featuring new business and service control modules, new functionalities, increased flexibility and user-friendliness and, importantly, new modules aimed at the non-telecom market.
Non-organic (M&A) growth played an important role during 2007, with WeDo taking an active role in the consolidation movements in the Revenue Assurance Market. With that objective, and consistent with its strategic objectives, the following three acquisitions were completed during 2007:
Cape Technologies Limited (based in the Republic of Ireland): it is envisaged that Cape's operation will be fully integrated into WeDo including its international operations, its employees, its customers, and its software and intellectual property. It was the largest international acquisition in the IT arena ever made by a Portuguese company and has allowed WeDo to become the world leader in Revenue Assurance
Praesidium Holdings Limited (based in the UK): this company operates internationally, providing consultancy services to telecoms operators in the area of risk management. It has a proven experience and know-how in the area as demonstrated by the services provided to more than 100 operators in 70 countries over the last ten years. With this acquisition, WeDo has expanded its portfolio of services with the creation of a new business unit dedicated to business consultancy, which has a particular focus on the areas of revenue assurance, fraud management, network security and business continuity.
These acquisitions have consolidated WeDo's position as the world leader in the revenue assurance software integration market. Through these transactions, the enlarged WeDo now has around 380 employees serving customers around the world from 11 different offices.
Mainroad achieved one of its principal growth objectives for the year by significantly increasing its customer base outside of the Sonae Group. This external growth was driven by a more focused strategy implemented during 2007 of concentrating its investments and activities in the chosen core area of business continuity. Consequently, its offer has now been centralised around the following service lines: security and business continuity, tools and processes for infrastructure management and ITIL methodologies and selective IT outsourcing. Focusing its offer in this way has led Mainroad to reassess its technological partnerships, now mostly involving Microsoft (qualifying as a "Certified Gold Partner"), Oracle and Computer Associates. These partnerships have won greater recognition for the technical capabilities of Mainroad's highly qualified employees along with improved brand awareness.
As part of its efforts to raise brand awareness among its target customers, Mainroad implemented a new communication and marketing plan during the year. The success of this plan translated into a material increase in spontaneous requests for proposals from its target market.
It is also worth highlighting that, as part of a new annual review carried out during 2007, Mainroad kept is ISO 9001 Quality Certification.
During 2007, Bizdirect focused on consolidating its business model, aiming to achieve a critical mass through an expanded customer base, leveraging on the strength of its shareholders (Sonaecom, Aitec and BPI Groups). Bizdirect's main strategic targets are to become the leader in B2B solutions in Portugal and to reinforce its competitive position as a reseller of IT products and services, specifically by partnering with key producers.
In 2007, Bizdirect reinforced its position as service provider to the National Programme for Electronic Procurement and has participated in the roll-out of test projects for electronic purchasing in several ministries (Health, Agriculture, and Environment). Within the same scope, it has delivered services to the Ministry of Culture, the Ministry of Foreign Affairs and other state entities. Through its partnership with Iwaytrade, Bizdirect also provides electronic platform services to the Ministry of Labour and to the Ministry of Education.
Bizdirect has actively participated and provided input to defining the future strategy of the State's electronic purchasing system. In this way, it has contributed to the growth and development of e-commerce within public entities, and helped to simplify their administrative processes.
Saphety, established in December 2006 following a spin-off from Sonaecom Fixed, focuses on electronic invoicing as its main strategic business area, and is aiming to become a leading Portuguese player in the area of secure B2B electronic transactions. In line with this strategy, the business has already won the trust of some of Portugal's larger retailers – including Modelo Continente, Jerónimo Martins and Auchan – to operate electronic invoicing for a total of around 3,500 suppliers. During 2007, Saphety consolidated its existing service platforms to
| SSI OPERATIONAL KPI's | 2006 | 2006R | 2007 | y.o.y |
|---|---|---|---|---|
| IT Serv Revenues/Employee( '000 euros) (1) | 106,0 | 114,8 | 110,9 | -3,4% |
| Equipment Sales as % Turnover (2) | 32,3% | 39,1% | 40,8% | 1,8pp |
| Equipment Sales/Employee (2) ( '000 euros) | 2.323,9 | 2.323,9 | 2.673,6 | 15,0% |
| EBITDA/Average Employees ( '000 euros) | 13,2 | 13,4 | 11,9 | -11,5% |
| Employees | 336 | 336 | 467 | 39,0% |
(1) Excluding employees dedicated to Equipment Sales; (2) Bizdirect; (R) Restated to exclude Enabler's contribution in 1H06 and the 25.3 million euros capital gain from the sale of Enabler in 1H06.
Productivity at SSI decreased marginally as a result of the integration of the companies acquired in 2007 and their comparatively lower productivity, a natural outcome during integration phases. SSI's IT service revenues per employee reached 110,900 euros in 2007, while equipment sales per employee have increased by 15% to 2.67 million euros in 2007. Total headcount at year-end 2007 increased by 131 to 467 compared to 2006, due to: (i) the consolidation of the companies acquired by WeDo during 2007 (Tecnológica, Cape Technologies and Praesidium); (ii) the launch of Saphety; and (iii) the need for additional internal consultants to support the increased level of activity.
WeDo has achieved a significant enlargement of its international customer base, with new users in a number of different countries (11 new key accounts obtained during 2007), supported by the opening of new local offices in Egypt (to cover the Africa & Middle East regions) and Malaysia (to cover the Asia region). In parallel, WeDo continued to innovate and improve its product portfolio with the launch of new versions of its key revenue assurance solution RAID. These more user-friendly versions feature new modules targeted at the nontelecom market, new functionalities and greater flexibility.
| Million euros | ||||
|---|---|---|---|---|
| SSI CONSOLIDATED INCOME STATEMENT | 2006 | 2006R | 2007 | y.o.y |
| Turnover | 78,76 | 65,09 | 79,51 | 22,2% |
| Service Revenues | 53,33 | 39,66 | 47,05 | 18,6% |
| Equipment Sales | 25,44 | 25,44 | 32,47 | 27,6% |
| Other Revenues | 27,15 | 0,50 | 0,36 | -27,8% |
| Operating Costs | 73,87 | 61,01 | 75,07 | 23,0% |
| COGS | 24,49 | 24,49 | 31,74 | 29,6% |
| Personnel Costs | 25,04 | 17,29 | 22,24 | 28,6% |
| Marketing & Sales | 0,94 | 0,85 | 1,21 | 43,4% |
| Outsourcing Services (1) | 14,14 | 12,09 | 12,00 | -0,8% |
| General & Administrative Expenses | 9,06 | 6,14 | 7,54 | 22,7% |
| Other Operating Costs | 0,21 | 0,16 | 0,34 | 113,0% |
| Provisions and Impairment Losses | 0,26 | 0,10 | 0,22 | 113,5% |
| EBITDA | 31,78 | 4,48 | 4,58 | 2,4% |
| EBITDA Margin (%) | 40,3% | 6,9% | 5,8% | -1,1pp |
| Depreciation & Amortization | 1,45 | 1,26 | 1,73 | 37,2% |
| EBIT | 30,33 | 3,22 | 2,85 | -11,3% |
| Operating CAPEX (2) | 0,61 | 0,54 | 0,71 | 31,4% |
| Operating CAPEX as % of Turnover | 0,8% | 0,8% | 0,9% | 0.1pp |
| EBITDA - Operating CAPEX | 31,17 | 3,94 | 3,87 | -1,6% |
| Total CAPEX | 1,36 | 1,29 | 27,18 | - |
(1) Outsourcing Services = Customer Services plus Consultants plus Subcontracts; (2) Operating CAPEX excludes Financial Investments, Provisions for sites
SSI turnover increased by 22.2% in 2007 to 79.5 million euros following higher IT equipment sales, which increased by 27.6% to 32.5 million euros, and higher service revenues, up by 18.6%, mainly driven by the 24.4% increase in service revenues at WeDo (14.8% on a likefor-like basis, i.e., excluding the impact of the companies acquired in the year). During 2007, equipment sales represented 40.8% of turnover, similar to the 2006 level, driven by a positive contribution from the sale of computers at Bizdirect, mainly related to the "e-Initiatives" programme launched by the Portuguese Government.
SSI generated an EBITDA of 4.58 million euros in 2007, a 2.4% increase over 2006. All SSI operating companies contributed positively, with the exception of Saphety, a new venture included within SSI from 1Q07. This performance was achieved despite the drop in 4Q07 of WeDo's EBITDA, caused by the negative contributions and integration costs of the companies acquired in 3Q07. Excluding these effects, WeDo's EBITDA would have increased by a material 20% in 2007 and generated an EBITDA margin of 14.7%. It should also be noted that as a result of its continuous focus on efficiency, Mainroad was able to achieve a positive EBITDA margin of 11.1%, 4.8pp above 2006.
With its re-dimensioned cost structure, Público focused during 2007 on executing its new strategy aimed at top line growth based on its redesigned, all-colour newspaper, launched in mid-February. However, the market dynamics have been severe for daily paid generalist press, with circulation decreasing by 2.0%4 and advertising revenues, from January to November, decreasing by 1.5%5 compared to the same period in the previous year (this number refers to advertising space calculated at reference table figures; competitive pressures in 2007 have led to higher price discounts). During the same period, the free newspapers' advertising revenues increased by more than 1.5x.
Taking into consideration these market dynamics and as a way of leveraging its news production capacity, Público launched "Sexta" at the end of October 2007 through a 50:50 joint-venture with "A Bola", a leading daily sports newspaper. The first free weekly newspaper in Portugal, "Sexta" achieved a record production of 350,000 units. Público's 2007 financial results include, since November, 50% of the cost and revenues of "Sexta" (proportional consolidation).
| Operational data | |||
|---|---|---|---|
| PÚBLICO OPERATIONAL KPI's | 2006 | 2007 | y.o.y |
| Average Paid Circulation (1) | 44.197 | 41.765 | -5,5% |
| Market Share of Advertising (%) (2) | 15,4% | 13,8% | -1,6pp |
| Employees | 276 | 257 | -6,9% |
(1) Estimated value updated in the following quarter; (2) 4Q07 = November YTD.
Público's 2007 market share of paid circulation (YTD until September, the latest available information) was of 12.3%, an increase of 0.4pp when compared to 4Q06, the last quarter to include the "old" newspaper, indicating that the restructured product was well received by consumers. However, in 4Q07, average paid circulation decreased by 2.0% when compared to 4Q06 and by 6.0% when compared to the previous quarter, a consequence of the continuous reduction in the size of the paid press market, as well as the competitive pressures particularly from "free" newspapers (estimated to have increased circulation by around 50%). Público's advertising market share has also been under pressure, reaching an average of 13.8% during 2007, down 1.6pp as compared to 2006. Nevertheless, it is worth noting that Público's share of advertising increased by 1.1pp between 3Q07 and 4Q07.
4 Source: APCT, 9M07 vs 9M06 (latest available data)
5 Source: Marktest/Media Monitor
With the integration of its online and offline areas accelerating, Público´s online website continued to be the leader in unique visitors and visits in Portugal, recording a monthly average of 19.5 million page views, 3.6 million visitors and 2.6 million unique visitors during 20076 . Online advertising, although still small in volume and not enough to compensate the decline of newspaper advertising revenues, almost doubled when compared to 2006, with Público.pt (its online business unit) generating a positive EBITDA for the full year 2007.
"Sexta", the recently launched free weekly newspaper, is still in the initial stages of development but early circulation indicators are positive and the newspaper has been able to meet its 2007 target for advertising revenues.
| Million euros | |||
|---|---|---|---|
| PÚBLICO CONSOLIDATED INCOME STATEMENT | 2006 | 2007 | y.o.y |
| Turnover | 36,39 | 33,16 | -8,9% |
| Advertising Sales (1) | 15,58 | 14,27 | -8,4% |
| Newspaper Sales | 12,16 | 11,82 | -2,8% |
| Associated Product Sales | 8,65 | 7,07 | -18,3% |
| Other Revenues | 0,39 | 0,25 | -37,1% |
| Operating Costs | 45,49 | 36,26 | -20,3% |
| COGS | 10,39 | 8,64 | -16,8% |
| Personnel Costs | 17,37 | 11,41 | -34,3% |
| Marketing & Sales | 2,99 | 3,24 | 8,4% |
| Outsourcing Services (2) | 11,27 | 10,13 | -10,1% |
| General & Administrative Expenses | 3,45 | 2,83 | -18,0% |
| Other Operating Costs | 0,03 | 0,02 | -46,7% |
| Provisions and Impairment Losses | 0,08 | 0,41 | - |
| EBITDA | -8,77 | -3,27 | 62,7% |
| EBITDA Margin (%) | -24,1% | -9,9% | 14,2pp |
| Depreciation & Amortization | 0,76 | 0,70 | -8,1% |
| EBIT | -9,53 | -3,97 | 58,4% |
| Operating CAPEX (3) | 0,36 | 0,69 | 93,8% |
| Operating CAPEX as % of Turnover | 1,0% | 2,1% | 1,1pp |
| EBITDA - Operating CAPEX | -9,13 | -3,96 | 56,6% |
| Total CAPEX | 0,36 | 0,69 | 93,8% |
(1) Includes Contents; (2) Outsourcing Services = Customer Services plus Consultants plus Subcontracts; (3) Operating CAPEX excludes Financial Investments, Provisions for sites dismantling and other non operational investments.
During 2007, turnover decreased by 8.9% to 33.16 million euros, compared to 36.39 million euros in 2006. All revenue streams decreased compared to LY:
In terms of EBITDA, Público generated a positive result in 4Q07 for the first time since 4Q05. For the full year 2007, Público generated a negative EBITDA of 3.3 million euros, although this represented a 62.7% improvement over 2006 (which included 4.3 million of severance costs). On a like-for-like basis, not considering the severance costs and the impact of "Sexta", Público would still have improved its EBITDA performance by approximately 30%. These results were mainly derived from the restructuring plan implemented during 2006 and beginning of 2007, evidenced by the fact that all costs lines were reduced in 2007, with the exception of marketing and sales (as a result of the costs associated with campaigns to promote circulation). It should also be noted that, despite the lower number of collections, the EBITDA generated by the associated products more than doubled in 2007 when compared to 2006.
6 Source: Marktest/Netscope Dec2007
Sonaecom SGPS individual results for the years ended 31 December 2007 and 2006 can be summarised as follows:
| Sonaecom SGPS Results overview (million euros) | FY06 | FY07 | % | |
|---|---|---|---|---|
| Service Revenues | 6.2 | 6.8 | 0.6 | 9% |
| Other Operating Revenues (1) | 0.2 | 0.9 | 0.6 | 262% |
| Operating Costs (2) | (7.7) | (9.0) | (1.3) | 16% |
| EBITDA | (1.3) | (1.3) | (0.0) | 3% |
| Tender Offer results | (22.4) | 22.4 | 44.7 | - |
| EBIT | (23.8) | 21.0 | 44.7 | - |
| Dividend Received | 33.0 | 38.6 | 5.6 | 17% |
| Net Financial Activity | (0.2) | 7.5 | 7.6 | - |
| Other Financial Results | 0.0 | (82.4) | (82.4) | - |
| EBT | 9.1 | (15.3) | (24.5) | - |
| Net Income | 9.1 | (15.3) | (24.5) | - |
(1) Excluding the revenues associated with tender offer
(2) Excluding depreciation and amortisation, provisions and tender offer costs
In 2007, Sonaecom generated service revenues of 6.8 million euros, essentially comprising services provided to its subsidiaries in relation to:
Sonaecom's corporate centre employed 39 people, of which, 16 were assigned to the Shared Services Division. In 2007 total staff costs amounted to 5.2 million euros compared to the 4.7 million euros registered in 2006. At 31 December 2007, total corporate centre costs represented approximately 0.7% of Group consolidated turnover (in line with 2006). Total operating expenses (excluding depreciation and amortisation charges and provisions and tender offer costs) amounted to 9 million euros, compared to 7.7million euros for the same period of 2006. The 1.3 million euros increase was due to 2007 higher staff costs associated with higher variable remunerations driven by the 2006 KPI over performance.
EBITDA was a negative 1.3 million euros compared to a negative 1.3 million euros reported in 2006.
The extraordinary opposite impacts related to the tender offer led to a year-on-year asymmetric EBIT evolution: EBIT was a positive 21.0 million euros compared to a negative 23.8 million euros registered in 2006. During 2006, Sonaecom incurred in 22.4 million euros of extraordinary specialized consultancy services contracted to support the tender offer process for PT and during 2007, Sonaecom decided to invoice all tender offer costs to subsidiaries, specifically to those that benefited from those consultancy costs.
Sonaecom's SGPS main source of financial income was the 38.6 million euros dividends received from Optimus (4.5 million euros) and Sonae Telecom SGPS (34 million euros).
Net financial activity (interest income less interest expenses) was a positive 7.5 million euros, 7.7 million euros above 2006, driven by the fact that in 2006 Sonaecom SGPS had to account for 8.5 million euros in relation to a cash confirmation to support the tender offer process for PT.
Net results for the year were negative 15.3 million euros mainly due to the extraordinary capital loss of 82 million euros incurred in respect of the liquidation of Sonae Matrix Multimedia SGPS.
The following table summarises the major cash movements that occurred during 2007:
| Changes in Sonaecom SGPS Liquidity | million euros |
|---|---|
| Sonaecom SGPS stand-alone liquidity as at 31 December 2006 | 91.0 |
| Commercial Paper Programme (CPP) | 225.0 |
| Treasury applications from subsidiaries received (repaid) | (69.0) |
| Net Acquisitions and subordinated Shareholder Loans repaid (granted) | 220.8 |
| Acquisition of Matrix Share on Sonaecom Serviços de Comunicações | (29.0) |
| Acquisition of Tele2 | (14.6) |
| Acquisition of Own Shares | (8.9) |
| Acquisition of Artis | (0.1) |
| Proceeds from the sale of 1% of Shareholding at Portugal Telecom to Sonaecom BV | 106.2 |
| Reimbursement of Matrix SGPS Subordinated Shareholder loans | 70.3 |
| Reimbursement of Sonae Telecom SGPS Subordinated Shareholder loans | 76.5 |
| Reimbursement of Matrix Share Capital | 20.0 |
| Proceeds from the Sale of Sonae SGPS Shares | 0.4 |
| Net Shareholder loans repaid (granted) | (374.7) |
| Sonaecom Serviços de Comunicações | (190.9) |
| Sonaecom BV | (120.7) |
| Sonae Matrix SGPS | (61.3) |
| Sonaetelecom BV | (0.4) |
| Sonaecom Sistemas de Informação | (0.4) |
| Tele2 | (1.0) |
| Sonaecom financial movements | 52.7 |
| Interest paid | (11.3) |
| Dividend Received | 38.6 |
| Interest received | 13.20 |
| Operational Inflows | 43.90 |
| Operational expenses and others | (31.7) |
| Total movements in the period | 54.8 |
| Sonaecom SGPS stand-alone liquidity as at 31 December 2007 | 145.8 |
During 2007, Sonaecom's stand-alone liquidity increased 54.8 million euros and gross nominal external debt increased by 225 million euros as a result of the new commercial paper facility, which allowed us to refinance the Optimus term debt facilities and ensure improved cash management, greater financial flexibility and a material improvement in our debt maturity profile.
However, Sonaecom SGPS liquidity was also influenced by acquisition-related investments, changes in subordinated and non-subordinated shareholder loans, and Sonaecom SGPS operating free cash flow, as described below:
During 2007, Sonaecom completed the negotiation of a 250 million euros committed underwritten commercial paper programme ("CPP") with guaranteed subscription and a final maturity of five years. Sonaecom's gross debt is now fully contracted by Sonaecom SGPS and internal funding movements are used to allocate cash between our subsidiaries. As part of this new internal funding process, Sonaecom SGPS is using shareholder loans and/or treasury applications, depending on the expected maturity of amounts lent to subsidiaries.
At year end, Sonaecom SGPS' gross debt comprised two long term facilities: (1) a 150 million euros Bond issue; and (2) the 250 million euros committed underwritten CPP.
During the refinancing process, Optimus used all its outstanding treasury applications placed at Sonaecom SGPS to repay debt and improve its financial structure. Therefore, during 2007, Optimus treasury applications in Sonaecom SGPS were extinguished.
Net acquisition and subordinated shareholder loans, represented a positive inflow of 221 million euros, which were driven by movements in our portfolio that can be summarised as follows:
Major inflows:
Major outflows:
During 2007, total shareholder loans applied by Sonaecom SGPS in subsidiaries, increased by 374.7 million euros:
Sonaecom SGPS' operational and financial activity generated a net inflow of 52.7 million euros which was essentially driven by the following movements:
At Sonaecom, our people make the difference.
Throughout 2007, our Human Resources team focused on fostering a working culture in which our people feel motivated and empowered to progress their personal and professional development while remaining focused on our shared vision.
With an average age of 34, our people combine youth, dynamism, resilience and spirit with a talent for learning and willingness to innovate. Determined and tenacious, most Sonaecom employees have university degrees and thrive on the challenges posed by the educational programmes we give them at work.
During the year, we streamlined our processes to enhance the way we manage and engage our people, helping them to make an even greater contribution to our collective success by enabling them to improve their personal performance.
Sonaecom employed 1,961 people at 31 December 2007, which generated total staff costs of approximately 95 million euros. The acquisition of Tele 2 Portugal, Cape Technologies and Praesidum during 2007 resulted in a slight increase in overall employee numbers relative to 2006 alongside an increase in the number of staff located outside of Portugal (141 permanent employees).
Geographical Distribution of Employees
Technology advances, structures change, tools become more sophisticated and knowledge evolves. Companies and organisations are driven by people and processes that will only adapt and develop in a culture of continuous learning.
Better-trained employees, with stronger skills and competences, are essential to making Sonaecom a more robust company, better prepared to face the challenges posed by the market and our customers. Therefore, we continue to place great emphasis on training investment.
To this end, Sonaecom provides a diversified range of training opportunities:
(1) The Sonaecom Learning Centre (SCLC) represents a significant part of our investment in training and seeks to sustain our employees' career development in a focused and proactive manner.
The SCLC is a centralised educational facility, aggregating most training activities, aimed at all employees in the various business areas within our organisation, as well as to all our commercial partners. It acts as the principal tool for spreading our culture and values, as well as for the development of core management and technical competencies at Sonaecom.
During 2007, the SCLC organised 35 training initiatives, totalling approximately 26,000 hours and involving 626 employees.
(2) Financing of post-graduate studies, particularly MBA degrees, either in Portuguese and foreign universities, and executive training in international management schools.
Due to their nature, these programmes have a very significant impact on career development, aiming to reinforce the technical, managerial or leadership skills of our most talented employees, so that they may successfully further develop key competencies. With this objective in mind, Sonaecom maintains an incentive policy for this type of training, having backed 19 employees who attended post-graduate and/or MBA courses in 2007.
(3) Sales Academies aimed at all our Commercial Partners across our various segments, including Business and Residential, have the objective of creating the best sales force within the telecommunications sector by focusing on four main pillars: recruitment, training, motivation and evaluation.
Sonaecom also intends to add value to its training provision by developing e-learning and other technological solutions capable of encouraging the development of critical competences, while making use of the advantages created by information technology.
During 2007, Sonaecom introduced a new Human Resources management model across all organisation levels, based on a new competence model. Consequently, the company has updated its performance evaluation process, aligning it with the new competence model.
The need for continuous employee alignment to meet our business challenges has led Sonaecom to implement once again the mid-year performance evaluation process, now regularly performed at the end of the first semester.
Sonaecom has been developing a Web Interface ("HR Online") for its core Human Resources processes and information. Available across the entire organisation, its purpose is to enhance process efficiency and quality while improving the management of teams and people.
In 2007, most key Human Resources processes and information were supported by this tool, which provides managers with better organisation, control and integration. Serving everyone in Sonaecom, HR Online acts as an effective communication channel between employees and the company. It also gives them real time access to a unique and comprehensive body of HR information.
The way that our people feel about Sonaecom's social environment provides an important measure of the organisation's strengths while highlighting areas for improvement.
In total, 1,663 employees, representing 89% of the workforce, took part in the Annual Social Environment Survey conducted in April 2007. This survey is designed to evaluate employees' views on a series of critical factors such as how satisfied they are with their work team and the company; customer orientation; leadership; professional development; and compensation and benefits.
The most notable results of the 2007 survey include the high participation rate, reflecting a stronger employee involvement in this process; and a relatively high employee satisfaction index when compared to the majority of other factors analysed. This trend follows the upward trend recorded after previous surveys.
Sonaecom believes that promoting safety and health at work should be part of an integrated, global programme involving its employees. During 2007, a group of 37 employees received training aimed at consolidating the implementation of the Work Safety, Hygiene and Health (WSHH) system. This group received specific training, having been given the task of monitoring and assisting adequate execution of prevention activities within the various Sonaecom facilities.
A WSHH manual was also updated and distributed to all employees. It included guidelines for the implementation of good practices in daily work, enhancing employee communication and improving health and safety at work.
During 2007, Sonaecom continued to focus on the evolution of its network to ensure it is able to able to fulfil and exceed the requirements of the market and its customers.
New services and usage patterns are demanding ever faster data speeds, downloading and streaming video over both fixed and mobile platforms. In Sonaecom's IP based architecture network, video, voice and data become indistinguishable, while a varied set of devices – PCs, handsets, TVs, consoles, MP3 players, navigators – are capable of performing as terminals for advanced telecommunications and entertainment services, regardless of the underlying means of access (fixed or mobile).
Further reductions in operating costs were achieved during 2007, mainly by exploring infrastructure sharing opportunities with other operators and through the development of environmentally friendly projects aiming to reduce energy consumption and the use of renewable energies, with emphasis on energy micro-generation.
During 2007, several Next Generation Network (NGN) projects continued to be deployed towards a more advanced convergent network.
Sonaecom merged both fixed and mobile switching networks and migrated to an all IP switching architecture. Achieving added flexibility and significant savings, Sonaecom is using this common platform to fully exploit the capacity and capillarity of the two access networks, mobile and fixed.
Through this approach, Sonaecom is a pioneer in the use of this network architecture, and is leading the telecommunications market with technological innovations in this area. Sonaecom was the first Portuguese operator to start deploying an IMS framework (IP Multimedia Subsystem), a platform with important key advantages such as: the integration of several voice functionalities originating from different terminal devices, including computers; flexibility, due to the excellent adaptation to activities from different segments and dimensions; mobility, allowing for the convergence of fixed-mobile products; and innovation, opening the door to a number of new and revolutionary services, such as VoIP Centrex business solutions.
The next step will involve the deployment of a centralised service architecture, enabling the maximization of synergies by fully supporting the two access networks, fixed and mobile, and leveraging the development of new and convergent services.
Sonaecom's IPTV platform, the first to be launched in Portugal, was upgraded with new encoders, improving image quality while already supporting MPEG-4, the latest and most advanced sound and image compression format currently available. With this deployment, as MEPG-4 allows for higher compression ratios, Sonaecom has enlarged its IPTV addressable market and will be able to support High Definition Television (HDTV) over IPTV.
During 2007, Sonaecom continued to invest in its mobile access network, extending its UMTS coverage, deploying new sites, reinforcing network capacity, carrying out upgrades in the existing UMTS network, while updating various elements of the network to ensure widespread support of HSDPA technical evolutions, essential for the launch and massification of mobile broadband internet access with increasingly fast transmission rates.
At the end of 2007, Sonaecom had approximately 80% population coverage with UMTS and over 75% population coverage with HSDPA technology, allowing the business to offer mobile broadband services with speeds up to 7.2 Mbps.
The network upgrades in 2007 enabled the launch of services with uplink speeds up to 384 Kbps (compared to the previous 64 Kbps), significantly contributing to an improved customer experience.
Additionally, Sonaecom will soon be able to offer services with even faster uplink speeds of up to 1.54 Mbps, based on HSUPA (High Speed Uplink Packet Access), a technology already tested by Sonaecom in 2007 in two specific geographical areas.
During 2007, Sonaecom replaced significant parts of its 3G and 3.5G radio access equipment, ensuring that its network is strongly placed to benefit from upcoming technological roadmaps while optimising space usage and energy consumption.
It is also worth highlighting that, during 2007, Sonaecom, jointly with the other mobile operators, implemented a shared project to improve the coverage and quality of the service aboard the high-speed "Alfa-Pendular" trains between Porto and Lisbon. As part of this project, repeaters were installed in all train carriages, resulting in significant improvements to the voice and data services provided to all passengers
In 2007, Sonaecom extended its direct access network coverage to an additional 25 Central Offices ("CO"), reaching a total of 169 unbundled exchanges. Of these, 161 are ADSL2+-enabled, reaching approximately 1.7 million lines, equivalent to a 55% coverage of the total number of copper lines.
The additional ADSL2+-enabled COs further enlarged the addressable market for business and residential broadband and voice fixed telecommunications services. IPTV services are now available in approximately 70% of the unbundled exchanges, also expanding Sonaecom triple play coverage.
The growth in coverage and capillarity across Sonaecom's network has been partially driven by its presence in the corporate segment, as a provider of connection circuits supported over xDSL and EFM (Ethernet First Mile) technologies, and by its mobile operations, as a way of ensuring the interconnection infrastructure for the GSM and UMTS access network sites over its own network. With this approach, Sonaecom has been continuously decreasing its dependence on third parties, specifically the incumbent, and achieving significant operational cost savings associated with transmission.
Because services are requiring ever faster speeds and due to the fact that upstream speeds may become a relevant constraint for future customer experiences, Next Generation Access Networks are now starting to be deployed as more symmetrical services become reality. During 2007, Sonaecom launched a number of Fibber-to-the-Home (FTTH) tests and implementations, testing both the access technologies and several emerging Home Networking solutions.
We can group Sonaecom's information systems initiatives during 2007 into three broad categories: management of information systems assets; development of solutions for the business and operational innovation and improvements.
Of the various initiatives related to the management of information system assets, we highlight the following events:
With respect to area of development of solutions for the business, the following 2007 events should be noted:
Finally, in terms of the Operational Innovation and Improvements component, we should highlight, among the several initiatives undertaken during 2007, the following processes:
control of the installations at our customers' premises while controlling the agenda and bookings of each installer
Automatic provisioning on the Wireline Network: during 2007 we completed the automation of the provisioning of the voice and ADSL services on our Wireline network. As part of a pioneering implementation among wireline operators, services are now directly activated from the commercial systems to the network's switches and soft-switches without any human intervention.
In November 2007, Sonaecom obtained the extension of its Quality Management System (QMS) certification. This covers all business processes, specifically the mobile and wireline communication services, in our telco subsidiaries Sonaecom – Serviços de Comunicações, S.A. and Optimus Towering, S.A.
The certification audit was carried out by APCER – Associação Portuguesa de Certificação (the national certification entity), in accordance with the NP EN ISO 9001:2000 – Quality Management Systems. The team that performed this audit process highlighted some of the companies' key strengths:
The 2007 Quality Management process has been running alongside the Complaints Management project, to ensure that the requisites of the NP EN ISO 9001 standard are also fulfilled when it comes to the handling of complaints and information transmitted to our customers.
In line with the management changes proposed by the Sonae Group on 20 March 2007, Belmiro de Azevedo resigned as the Chairman of Sonaecom at Sonaecom's Board meeting held on 24 April 2007. Paulo Azevedo was elected to take over his position alongside his new role as CEO of Sonae SGPS. At the same time, Angelo Paupério was co-opted to the Sonaecom Board and elected as the new CEO of the company.
Sonaecom's Board of Directors and appointed Committees
| Executive (1) | Non-Executive (2) Independent (3) Non-Independent |
Audit and Finance Committee |
Nomination and Remuneration Committee |
|
|---|---|---|---|---|
| CHAIRMAN | ||||
| Duarte Paulo Teixeira de Azevedo | ||||
| DIRECTORS | ||||
| António Sampaio e Mello | ||||
| David Charles Denholm Hobley | ||||
| Gervais Gilles Pellisser | ||||
| Jean-François René Pontal | ||||
| Ângelo Gabriel dos Santos Paupério (CEO) | ||||
| George Christopher Lawrie | ||||
| Luís Filipe Campos Dias Reis | ||||
| Maria Cláudia Teixeira de Azevedo | ||||
| Miguel Nuno Santos Almeida |
(1) Executive Directors = members of the Board of Directors and Executive Committee, with executive management reponsibilities; (2) Non-Executive Directors = members of the Board of Directors, without executive management responsibilities; (3) independent Non-Executive Directors = directors not associated with any specific interest groups in the Company or Groups which are, under any circumstance, capable of affecting their objectiveness.
The Board of Directors' principal role is to supervise the management of Sonaecom's businesses, monitor risks and help develop the Group's goals and strategy. It is also responsible for the remuneration and other compensation policy covering the Group's employees.
The qualifications and professional experience of members of the Board of Directors are detailed in 3.1 below.
Paulo Teixeira de Azevedo
EXECUTIVE DIRECTORS Angelo Gabriel dos Santos Paupério (CEO)
Luís Filipe Reis
Christopher Lawrie (CFO)
Cláudia Teixeira de Azevedo
Miguel Nuno Almeida
NON-EXECUTIVE DIRECTORS António Sampaio e Mello
David Charles Denholm Hobley
According to CMVM Regulation no. 10/2005, there are no circumstances that may affect the Independent Non-Executive Directors' analysis or decision making capabilities and these Directors, as well as the other Non-Executive Directors, exercise an important influence over the decision-making process and the development of company strategy and policy. Sonaecom's Board of Directors exhibits a healthy balance between the total number of Non-Executive Directors and the number of Independent Non-Executive Directors.
Sonaecom's Executive Committee manages and executes Sonaecom's day-to-day operations under formal delegated powers from the Board of Directors.
In addition to the five Executive Directors named above, Sonaecom's Executive Committee also comprises the following Advisors to the Board of Directors:
Date of Birth: 16 October 1959
Academic Qualifications: Degree in Law and Master in Economic Law, both from the University of Coimbra.
Professional Experience: Member of the Board or Committees of a number of public institutions and private companies.
Date of Birth: 12 August 1964
Academic Qualifications: Degree in Electronics Engineering and Master in Engineering and Computer Science from the IST in Lisbon.
Professional Experience: Executive Director of Novis, responsible for the areas of network and systems.
The roles and responsibilities of the Executive Management Team, under the recently announced reorganisation, are detailed in the table below:
| Executive Management Team and their roles | ||||||
|---|---|---|---|---|---|---|
| CEO | Executive Director Telco |
Executive Director CFO |
Executive Director CL&R0 |
Executive Director Residential Markets |
Executive Director Corporate & Wholesale Markets |
Executive Director Media/SSI businesses |
| Ângelo Paupério | Luís Reis | Chris Lawrie | António Lobo Xavier (1) | Miguel Almeida | Pedro Carlos (1) | Cláudia Azevedo |
| Group CEO | Human Resources IT/IS Network Internal Communication |
Corporate Finance Planning&Control Internal Audit Accounting&Finance Facilities Investor Relations |
Legal Regulation Public Relations Fiscal Planning Sustainability |
Mobile & Fixed Residential Mass Business Central Marketing |
Corporate Wholesale/Roaming Customer Service Handset Sourcing & Logistics New Business/Innovation |
Media SSI |
31 December 1965 Academic Qualifications:
Degree in Chemical Engineering from the École Politechnique Federal de Lausanne; MBA from the Institute of Business Studies of Porto University.
CEO of Sonae SGPS, SA, Non-Executive Director of Sonae Indústria, CEO of Sonaecom; CEO of Optimus; Executive Director of Modelo Continente.
Chairman of the Board of Sonaecom; Chairman of the Board Nominations and Remunerations Committee.
14 September 1959 Academic Qualifications: Degree in Civil Engineering at Porto University. MBA from ISEE- Instituto Superior de Estudos Empresariais of Porto University. Professional experience: Executive Vice-President of Sonae S.G.P.S.,SA, Director of Sonae Distribuição, S.G.P.S., SA and Sonae Sierra, S.G.P.S.,SA. Invited lecturer at Instituto Superior de Estudos Empresariais of Porto University. Responsibilities at Sonaecom: CEO of Sonaecom.
29 January 1962
Degree in Medicine from the Faculty of Medicine of Coimbra University; MBA in Business Management from the Higher Institute of Business Studies of Porto University; Doctorate in Economics from the Complutense University in Madrid; attended SEP – Stanford Executive Program at Stanford University.
Executive Director of Optimus; CEO of Novis; Non-Executive Director of Sonaecom Sistemas de Informação. Previously, he has been an Executive Director of Modelo Continente; Chairman of Banco Universo; Marketing Director of Sonae Distribuição.
Responsibilities at Sonaecom: Executive Director of Sonaecom.
13 October 1957 Academic Qualifications: Degree with distinction in Business Studies and Finance from Thames University, in England. Professional experience:
Member of the Board of Directors of Sonaecom Serviços de Comunicações and WeDo. Previously advisor to the Board of Directors and to the Executive Committee of Sonaecom; worked in investment banking in the areas of M&A, general advisory, equity capital markets and debt financing (covering Southern Europe); Director at Credit Suisse First Boston in its European Telecoms Group, Director at BZW; worked in Schroders in the banking and corporate finance divisions.
Executive Director and CFO of Sonaecom.
Date of Birth: 13 January 1970 Academic Qualifications: Degree in Business Studies from the Universidade Católica do Porto and MBA from INSEAD (Fontainebleu). Professional experience: Member of the General Council of Público; Executive Director of Sonaecom Sistemas de Informação (SSI) Previously, she has been an Executive Director of Sonae Matrix Multimedia residential unit; Marketing Director of Optimus. Responsibilities at Sonaecom: Executive Director of Sonaecom – Media and SSI.
Date of Birth: 15 March 1967 Academic Qualifications: Degree in Mechanical Engineering from the Faculty of Engineering of Porto University; MBA from the INSEAD, Fontainebleau. Professional experience: Executive Director of Optimus, responsible for the areas of Marketing & Sales; Non-Executive Director of WeDo. Previously, he has been Marketing Director of Modelo Continente. Responsibilities at Sonaecom: Executive Director of Sonaecom – Residential Markets.
Phd in Economics, London Business School; MBA, Columbia University; Master In Economics, Columbia University; B.Sc in Engineering, Technical University of Lisbon.
Professional experience: Managing Director of Bank Robert Baird, Head of Corporate Finance of Banco Comercial Português; Head of Economic Research and Statistics of the Central Bank of Portugal; past president of the European Financial Management Association; Board member of the US Financial Management Association; Professor at MIT; President of the Social Sciences and Humanities Commission at the Junta Nacional de Investigação Científica e Tecnológica.
Independent Non-Executive Director of Sonaecom; Member of the Board Audit and Finance Committee.
9 December 1946 Academic Qualifications: Fellow of the Institute of Chartered Accountants of England and Wales. Professional experience: Managing Director of Deutsche Bank AG, London; Director of certain Orange Group companies. Responsibilities at Sonaecom: Non-Executive Director of Sonaecom; Member of the Board Audit and Finance Committee.
Degree in Business Law (Université Paris XI); graduation of HEC (International Management – joint program with Berkeley University and the University of Cologne).
Professional experience: Member of France Telecom Group Management Committee; Senior Vice President in charge of Finance and Spain Operations. Previously he supervised the operational and geographic integration of France Telecom's businesses in Spain; Vice Chairman of the Board of Bull.
Non-executive Director of Sonaecom.
Academic Qualifications: Degree in Engineering from the Centre d'Études Supérieures des Techniques Industrielles, in France.
Professional experience: Previously, he has been CEO of the Spanish branch of Carrefour – PRYCA; Member of the Board of Directors of Carrefour; Group Executive Vice-President in charge of Mass Market Products & Services of France Telecom; CEO of Orange.
Independent Non-Executive Director of Sonaecom; Chairman of the Board Audit and Finance Committee; Member of the Board Nominations and Remunerations Committee.
Offices held in companies in which Sonaecom is a shareholder: Be Artis, S.A. (Chairman of the Board of Directors, Non-Executive) Público – Comunicação Social, S.A. (Chairman of the General and Supervisory Board) Sonae Telecom, SGPS, S.A. (Chairman of the Board of Directors, Non-Executive) Sonaecom – Serviços de Comunicações, S.A. (Chairman of the Board of Directors, Executive) Sonaecom - Sistemas de Informação, SGPS, S.A. (Chairman of the Board of Directors, Non-Executive) WeDo Consulting, S.A. (Chairman of the Board of Directors, Non-Executive) Other offices held: Cooper Gay (Holdings) Limited (Member of the Board of Directors, Non-Executive) MDS – Corretor de Seguros, S.A. (Member of the Board of Directors, Non-Executive) Resolução SGPS, S.A. (Member of the Board of Directors, Non-Executive) Sonae SGPS, S.A. (Member of the Board of Directors, Executive) Sonae Finantial Participations B.V. (Managing Director) Sonae Investments, B.V. (Managing Director) Sonae Distribuição SGPS, S.A. (Member of the Board of Directors, Non-Executive)
Offices held in companies in which Sonaecom is a shareholder: Be Artis, S.A. (Member of the Board of Directors, Non-Executive) Sonaecom B.V. (Managing Director) Sonaecom – Serviços de Comunicações S.A. (Member of the Board of Directors, Executive) WeDo Consulting – Sistemas de Informação, S.A. (Member of the Board of Directors, Non-Executive) Other offices held: Does not hold any office in any other company
Be Artis, SA (Member of the Board of Directors – Executive) Be Towering – Gestão de Torres de Telecomunicações, SA (Chairman of the Board of Directors) Público – Comunicação Social, SA (Member of the General Council) Sonaecom B.V. – Managing Director Sonaecom – Serviços de Comunicações, SA (Member of the Board of Directors – Executive) Sonaecom – Sistemas de Informação, SGPS, SA (Member of the Board of Directors – Executive) Sonae Telecom, SGPS, SA (Member of the Board of Directors of Directors – Executive) Telemilénio – Telecomunicações, Sociedade Unipessoal, Lda (Managing Director) WeDo Consulting – Sistemas de Informação, SA (Member of the Board of Directors – Non-Executive) Other offices held: Does not hold any office in any other company.
Digitmarket – Sistemas de Informação, S.A. (Chairman of the Board of Directors) Mainroad – Serviços de Tecnologias de Informação, S.A. (Chairman of the Board of Directors) Miauger – Organização e Gestão de Leilões Electrónicos, S.A. (Chairman of the Board of Directors) Netmall, SGPS, S.A. (Chairman of the Board of Directors) Público Comunicação Social, S.A. (Member of the General Council) Saphety Level – Trusted Services, S.A. (Chairman of the Board of Directors) Sonaecom Serviços de Comunicações, S.A. (Member of the Board of Directors) Sonaecom Sistemas de Informação, S.A. (Member of the Board of Directors) WeDo Consulting, Sistemas de Informação, S.A. (Member of the Board of Directors) Other offices held: Efanor - Serviços de Apoio à Gestão, S.A. (Chairman of the Board of Directors, Non-Executive) Efanor Investimentos, SGPS, S.A. (Member of the Board of Directors, Non-Executive) Fundação Belmiro de Azevedo (Member of the Board of Directors, Non-Executive) Imparfin, SGPS, S.A. (Member of the Board of Directors, Non-Executive) Linhacom, SGPS, S.A. (Chairman of the Board of Directors, Non-Executive)
Praça Foz – Sociedade Imobiliária, S.A. (Member of the Board of Directors, Non-Executive)
Be Artis, SA (Member of the Board of Directors – Executive) Be Towering – Gestão de Torres de Telecomunicações, SA (Member of the Board of Directors – Executive) Per-Mar, Sociedade de Construções, SA (Chairman of the Board of Directors) Sonae Telecom, SGPS, SA (Member of the Board of Directors – Executive)
Sonaecom – Serviços de Comunicações, SA (Member of the Board of Directors – Executive) WeDo Consulting – Sistemas de Informação, SA (Member of the Board of Directors – Non-Executive) Other offices held: Does not hold any office in any other company.
Offices held in companies in which Sonaecom is a shareholder: Does not hold any office in any company in which Sonaecom is a shareholder. Other offices held: Nakoma Capital Management (Member of the Board of Directors) Casb (Member of the Board of Directors)
Offices held in companies in which Sonaecom is a shareholder: Does not hold any office in any company of which Sonaecom is a shareholder. Other offices held: Egyptian Company for Mobile Services SA (Member of the Board of Directors) Mobinil SA (Member of the Board of Directors) Nectar Capital LLC (Member of the Board of Directors) Orange Brand Services Limited (Member of the Board of Directors) Orange Romania SA (Member of the Board of Directors) Westgate Nominees Hall Limited (Member of the Board of Directors) Velti plc (Member of the Board of Directors) Deutsche Bank AG, London Branch (Managing Director)
Oger Telecom, Dubai (Member of the Board of Directors, Non-Executive)
In accordance with article 447 of the Portuguese Company Law.
| Shares held by the Board of Directors and respective transactions during 2007 | |
|---|---|
| Date BOARD OF DIRECTORS Duarte Paulo Teixeira de Azevedo Efanor Investimentos, SGPS, SA (1) Imparfin, SGPS, SA (5) Sale 23.07.2007 Migracom, SGPS, SA (3) Capital increase 20.11.2007 Sonae, SGPS, SA (6) Sale 22.05.2007 Shares atributted under the Medium Term Incentive Plan 01.06.2007 Sale 01.06.2007 Sonaecom, SGPS, SA Sale 29.05.2007 Ângelo Gabriel Ribeirinho dos Santos Paupério Sonae, SGPS, SA (6) Sonaecom, SGPS, SA George Christopher Lawrie Sonaecom, SGPS, SA Sale 10.05.2007 Sonae, SGPS, SA (6) Shares atributted under the Medium Term Incentive Plan 01.06.2007 Miguel Nuno Santos Almeida Sonae, SGPS, SA (6) Shares atributted under the Medium Term Incentive |
Quantity 20.000 147.376 |
Additions Valor Md. 76,45 0,00 |
Reductions Quantity 150.000 593.616 147.376 387.342 |
Valor Md. 25,75 2,03 2,17 4,95 |
31.12.2007 Quantity 1 - 69.996 3.293 - |
|---|---|---|---|---|---|
| 4.564 | |||||
| 60.070 | |||||
| 145.000 | |||||
| 63.000 | 4,90 | ||||
| 12.120 | |||||
| 12.120 | 0,00 | ||||
| - | |||||
| Plan 01.06.2007 |
16.252 | 0,00 | |||
| Sale | |||||
| 01.06.2007 | 16.252 | 2,19 | |||
| Sonaecom, SGPS, SA | 90 | ||||
| Sale 15.05.2007 |
18.813 | 5,03 | |||
| Maria Cláudia Teixeira de Azevedo | |||||
| Efanor Investimentos, SGPS, SA (1) | 1 | ||||
| Imparfin, SGPS, SA (5) | - | ||||
| Sale 10.12.2007 |
150.000 | 23,24 | |||
| Linhacom, SGPS, SA (4) | 99.996 | ||||
| Capital increase 14.12.2007 |
50.000 | 3,71 | |||
| Sonae, SGPS, SA (6) | - | ||||
| Shares atributted under the Medium Term Incentive | |||||
| Plan 01.06.2007 |
9.006 | 0,00 | |||
| Sale 19.12.2007 |
351.293 | 1,97 | |||
| Sonaecom, SGPS, SA | 170 | ||||
| Shares atributted under the Medium Term Incentive | |||||
| Plan 16.03.2007 |
11.736 | 0,00 | |||
| Exercise of Options atributted under the Medium | |||||
| Term Incentive Plan 21.03.2007 |
57.426 | 1,694 | |||
| Sale 21.03.2007 |
57.426 | 4,75 | |||
| Sale 19.12.2007 |
25.220 | 3,72 | |||
| Luís Filipe Campos Dias de Castro Reis | |||||
| Sonae, SGPS, SA (6) | - | ||||
| Shares atributted under the Medium Term Incentive | |||||
| Plan 01.06.2007 |
61.680 | ||||
| Sale 01.06.2007 |
0,00 |
Notes:
| Additions | Reductions | Balance at 31.12.2007 |
||||
|---|---|---|---|---|---|---|
| Date | Quantity | Valor Md. | Quantity | Valor Md. | Quantity | |
| (1) Efanor Investimentos, SGPS, SA | ||||||
| Sonae, SGPS, SA (6) | 658.804.424 | |||||
| Acquisition | 31.12.2007 | 14 | 1,98 | |||
| Pareuro, BV (2) | 20.000 | |||||
| Sonaecom, SGPS, SA | 1.000 | |||||
| (2) Pareuro, BV | ||||||
| Sonae, SGPS, SA (6) | 400.000.000 | |||||
| (3) Migracom, SGPS, SA | ||||||
| Imparfin, SGPS, SA (5) | 150.000 | |||||
| Acquisition | 23.07.2007 | 150.000 | 25,75 | |||
| Sonae, SGPS, SA (6) | 1.290.000 | |||||
| Acquisition | 22.05.2007 | 593.616 | 2,03 | |||
| Acquisition | 01.06.2007 | 147.376 | 2,17 | |||
| Acquisition | 31.12.2007 | 549.008 | 1,98 | |||
| Sonaecom, SGPS, SA | 387.342 | |||||
| Acquisition | 29.05.2007 | 387.342 | 4,95 | |||
| (4) Linhacom,SGPS, SA | ||||||
| Imparfin, SGPS, SA (5) | 150.000 | |||||
| Acquisition | 10.12.2007 | 150.000 | 23,24 | |||
| Sonaecom, SGPS, SA | 25.220 | |||||
| Acquisition | 19.12.2007 | 25.220 | 3,72 | |||
| Sonae, SGPS, SA (6) Acquisition |
351.293 | |||||
| (5) Imparfin, SGPS, SA | 19.12.2007 | 351.293 | 1,97 | |||
| Sonae, SGPS, SA (5) | 4.105.273 | |||||
| (6) Sonae, SGPS, SA | ||||||
| Sonaecom, SGPS, SA | 23.649 | |||||
| Sale | 02.01.2007 | 40.481.436 | 5,04 | |||
| Sale | 09.03.2007 | 1.056.177 | 4,72 | |||
| Sale | 14.03.2007 | 11.736 | 4,81 | |||
| Sale | 25.04.2007 | 5.000.000 | 4,63 | |||
| Sontel BV (7) | 500 | |||||
| (7) Sontel BV | ||||||
| Sonaecom, SGPS, SA | 184.052.872 | |||||
| Acquisition | 02.01.2007 | 183.489.681 | 5,04 | |||
| Acquisition | 19.09.2007 | 53.500 | 3,53 | |||
| Acquisition | 20.09.2007 | 40.000 | 3,48 | |||
| Acquisition | 21.09.2007 | 50.000 | 3,50 | |||
| Acquisition | 24.09.2007 | 30.000 | 3,47 | |||
| Acquisition | 25.09.2007 | 50.000 | 3,39 | |||
| Acquisition | 26.09.2007 | 52.000 | 3,32 | |||
| Acquisition | 27.09.2007 | 27.500 | 3,33 | |||
| Acquisition | 28.09.2007 | 55.000 | 3,40 | |||
| Acquisition | 01.10.2007 | 160.000 | 3,60 | |||
| Acquisition | 02.10.2007 | 45.191 | 4,01 |
In accordance with article 448 of the Portuguese Company Law.
Article 448 of the Portuguese Company Law
| Number of shares | |
|---|---|
| as of 31.12.2007 | |
| Efanor Investimentos, SGPS, SA | |
| Sonae, SGPS, SA | 658.804.424 |
| Pareuro, BV | 20.000 |
| Sonaecom, SGPS, SA | 1.000 |
| Pareuro, BV | |
| Sonae, SGPS, SA | 400.000.000 |
| Sonae, SGPS, SA | |
| Sonaecom, SGPS, SA | 23.649 |
| Sontel BV | 500 |
| Sontel BV | |
| Sonaecom, SGPS, SA | 184.052.872 |
| Wirefree Services Belgium, S.A. | |
| Sonaecom, SGPS, SA | 70.276.868 |
In compliance with sub-paragraph e), of nr 1, of the article 8 of the Securities Market Regulation Board ("Regulamento da CMVM") nº 04/2004, we declare the Qualifying Holdings as of 31 December 2007:
Qualified Holdings as of 31 December 2007
| Shareholder | Number of Shares |
% of Share Capital |
% Voting Rights |
|---|---|---|---|
| Sontel BV | 184.052.872 | 50,25% | 50,52% |
| 093X - Telecomunicações Celulares, SA | 29.150.000 | 7,96% | 8,00% |
| Migracom, SGPS, SA | 387.342 | 0,11% | 0,11% |
| Belmiro Mendes de Azevedo 1, 3 | 75.537 | 0,02% | 0,02% |
| Ângelo Gabriel Ribeirinho dos Santos Paupério 1, 2, 4 | 60.070 | 0,02% | 0,02% |
| Linhacom,SGPS, SA | 25.220 | 0,01% | 0,01% |
| Sonae, SGPS, SA | 23.649 | 0,01% | 0,01% |
| Álvaro Carmona e Costa Portela 1 | 5.000 | 0,00% | 0,00% |
| Efanor Investimentos, SGPS, SA | 1.000 | 0,00% | 0,00% |
| Total imputável | 213.780.690 | 58,37% | 58,67% |
| France Telecom, S.A. | |||
| Wirefree Services Belgium, S.A. | 70.276.868 | 19,19% | 19,29% |
| Total imputável | 70.276.868 | 19,19% | 19,29% |
| SAC Capital e CR Intrinsic 5 | 4.662.046 | 1,27% | 1,28% |
| Norges Bank 6 | 7.300.000 | 1,99% | 2,00% |
| (1) Member of the Board of Directors of Sonae, SGPS, SA (2) Member of the Board of Directors of Sonae Investments, BV (3) Member of the Board of Directors of Efanor Investimentos, SGPS, SA (4) Member of the Board of Directors of Sonaecom, SGPS, SA (5) In accordance with information on 13 December 2007 (6) DIn accordance with information on 23 July 2007 |
4.1.1. Declaration of compliance
As at 31 December 2007, Sonaecom was compliant with all the CMVM Recommendations on Corporate Governance applicable to 2007, with the exception of the second part of Recommendation IV-8 on the disclosure of the remuneration of the Board on an individual basis. In relation to Recommendation IV-9 on the independence of the Shareholders' Remuneration Committee members, we believe that we are compliant although one of the members of the Shareholders' Remuneration Committee is now represented by Duarte Paulo Teixeira de Azevedo, who is also the Chairman of the Board. Our belief is based on the fact that Duarte Paulo Teixeira de Azevedo is part of the Shareholders' Remuneration Committee in the capacity of CEO of the major shareholder of the Company, Sonae, SGPS, S.A. and not in that of Chairman of our Board, which means that he actually represents the interests of the major shareholder in the Shareholders' Remuneration Committee; this is exactly the purpose of the Shareholders' Remuneration Committee. In addition, he does not take part in any discussion or resolution where there is a conflict of interest with his role as Chairman of the Board. In particular, his own remuneration as a non-executive Chairman, which is not a significant value, is approved by the other independent member of the Shareholders' Remuneration Committee. In relation to Recommendation IV-6, on independent Non-Executive Directors, we believe that we are compliant, although one independent Non-Executive Director position has not yet been filled following the sad death of Loyola de Palacio del Valle Lersundi.
Sonaecom agrees that the remuneration of its Board of Directors should be disclosed in a transparent manner, allowing for a clear understanding of the values involved and their distribution. However, we continue to consider that individual disclosure for the Chairman and the CEO, together with separate averages and bands for the remaining Non-Executive and Executive Directors, is sufficient to assess each of the four main components of remuneration of our Board. Disclosure of the individual figures for every member of the Board of Directors is not yet current general practice in Portugal (less than 7% of listed companies in Portugal complied in their 2006 financial statements) and Sonaecom believes it is of marginal additional benefit to shareholders and the financial community. Our disclosure fully complies with the recommendations published by the Portuguese Institute of Corporate Governance in their "White Book".
| CMVM's recommendations on Corporate Governance (currently applicable) | |
|---|---|
| CMVM Recommendations | Compliance |
| I - Disclosure of information | |
| 1. The Company must ensure that permanent contact is maintained with the market, that the principle of equality among shareholders is upheld and that all investors have the same access to information. For these purposes, the Company should create an Investor Relations Department. |
Yes |
| II - The Exercise of Voting Rights and Representation Rights by Shareholders | |
| 2. The ability to exercise voting rights, whether directly, by post or by proxy, should not be restricted. For this purpose, the following examples are considered to restrict the ability to exercise voting rights: a) The requirement of a period of more then 5 working days between the deposit or blocking of shares and participation at a Shareholders' General Meeting; b) any statutory restriction on postal voting; c) a requirement that postal votes must be received more than 5 days in advance; d) failure to make available voting forms for shareholders wishing to submit their vote by post. |
Yes |
| III - Corporate Rules | |
| 3. The Company must establish an adequate internal control system, capable of detecting risks linked to its activity, to safeguarding its assets and to enhance the transparency of its corporate governance practices . |
Yes |
| 4. Measures adopted to restrict takeover bids should respect the interests of the Company and its shareholders. Measures considered contrary to these interests include defensive clauses intended to automatically reduce the value of the Company's assets in the event of a transfer of control, or changes to the composition of the Board which prove detrimental to the free transfer of shares and the free assessment by shareholders of the performance of members of the Board . |
Yes |
| IV - Board of Directors | |
| 5. The Board should be composed of a number of members who provide effective guidance for the management of the Company and to the persons responsible for that management. |
Yes |
| 5a. The Board of Directors should include a sufficient number of Non-Executive Directors, whose role is to continuously monitor and evaluate the Company's management by its Executive Board Members. Members of other corporate governance bodies may exercise complementary roles or, at the very most, replace Board Members, if their supervisory powers are equivalent and they are actually exercised. |
Yes |
| 6. The Non-Executive Members of the Board of Rirectors must include a sufficient number of Independent Members. When there is only one Non-Executive Director, he or she should also be independent. Independent Members of other corporate governance bodies may exercise complementary roles or, at the very most, replace Board Members, if their supervisory powers are equivalent and they are actually exercised. |
Yes |
| 7. The Board of Directors should create Audit Committees, with the power to assess the corporate structure and its governance. | Yes |
| 8. The remuneration of members of the board of directors should be structured in order to alow the alignement of their interests with those of the company, and should be disclosed annually in individual terms. |
No |
| 8a. An explanation of the remuneration policy as applied to the Company's corporate governance bodies should be submitted for consideration at the Shareholders' Annual General Meeting. |
Yes |
| 9. Members of the Remuneration Committee, or its equivalent, should be independent in relation to the Members of the Board of Directors. |
Yes |
| 10. A proposal to obtain the approval of share allocation plans, and/or share call options or other awards based on share price variations, that apply to Members of the Board of Directors and/or to employees, should be submitted to the Shareholders' General Meeting. The proposal should contain all information necessary to allow a fair assessment of the plan. The proposal should be accompanied by the regulations for the plan, or, if these have not yet been drafted, by detail of the general conditions applying. |
Yes |
| 10a. The Company should adopt a policy covering the reporting of alleged irregularities occurring within the Company, containing the following information: The procedure to follow internally to report irregular practices, including the persons nominated to receive such information, the manner in which such reports are processed, including maintaining the confidentialilty of the information, if so requested. The general guidelines to be followed should be disclosed in the Corporate Governance Report. |
Yes |
4.1.2. New CMVM recommendations on Corporate Governance New CMVM recommendations on Corporate Governance were issued in September 2007 and should be complied with in 2008 Corporate Governance Reports (applicable from 01 January 2008)
| NEW CMVM RECOMMENDATIONS | SONAECOM COMPLIANCE AS AT 31.12.2007 |
|
|---|---|---|
| 1. | SHAREHOLDERS' GENERAL MEETINGS | |
| 1.1. Board of the Shareholders' General Meeting | ||
| 1.1.1. | The Chairman of the Board of the Shareholders' General Meeting shall be given adequate human and logistical resources, taking the financial position of the company into consideration. |
YES |
| 1.1.2 | The remuneration of the Chairman of the Board of the Shareholders' General Meeting shall be disclosed in the annual corporate governance report. |
YES |
|---|---|---|
| 1.2. Participation at the Meeting | ||
| 1.2.1 | The requirement to deposit or block shares before the General Meeting, contained in the Articles of Association, shall not exceed 5 working days. |
YES |
| 1.2.2 | Should the General Meeting be suspended, the Company shall not require share blocking during the full period until the meeting is resumed, but shall apply the same period as for the first session. |
YES |
| 1.3. Voting and Exercising Voting Rights | ||
| 1.3.1. | Companies should not impose any statutory restriction on postal voting. | YES |
| 1.3.2. The statutory advance deadline for receiving voting ballots by post shall not exceed three working days. |
YES | |
| 1.3.3. The Company's Articles of Association shall respect the one share-one vote principle. |
YES | |
| 1.4. 1.4.1. |
Quorum and Resolutions Companies shall not set a constitutive or deliberative quorum that exceeds the minimum required by Portuguese Company Law. |
NO (We are not currently compliant, but are studying the advantages and disadvantage of reducing our quorum. We do not agree that no minimum quorum is |
| advisable) | ||
| 1.5. 1.5.1. |
Attendance Lists, Minutes and Information on Resolutions Adopted The minutes of the Shareholders' General Meetings shall be made available to shareholders on the Company's website within a five-day period, irrespective of the fact that such information may not be legally classified as material information. The lists of attendees, agendas items and resolutions adopted shall be kept in a historic file on the Company's website, covering meetings held for at least the last three years. |
NO (We are not currently compliant, but are studying the advantages and disadvantage of implementing this) |
| 1.6. | Measures Relating to Changes in Control | |
| 1.6.1. | Measures aimed at preventing the success of takeover bids, shall respect the interests of the both the Company and its shareholders. |
YES |
| 1.6.2. | In accordance with the principle established in the previous sub-paragraph, any Company that has Articles of Association with clauses that restrict or limit the number of votes that may be held or exercised by a single shareholder, either individually or acting in concert with other shareholders, shall also require that, at least once every five years, the continuation of such clauses must be ratified at a Shareholders' General Meeting, at which the quorum shall not exceed the legal minimum and all votes cast shall count, without applying any restriction. |
YES |
| 1.6.3. | Defensive measures should not be adopted that automatically lead to a serious erosion in the value of the Company's assets, when there has been a change in control or a change in the Company's management, as this prevents the free transmission of shares and the ability of shareholders to evaluate those responsible for managing the Company. |
YES |
| 2. | MANAGEMENT AND AUDIT BOARDS | |
| 2.1. General Points | ||
| 2.1.1. Structure and Duties | ||
| 2.1.1.1. | The Board of Directors shall, in its corporate governance report, assess the model adopted by the Company, by identifying any restrictions that are holding back performance and proposing actions to be taken that are judged to be appropriate to resolve them. |
YES |
| 2.1.1.2. Companies shall set up internal control systems in order to efficiently detect risks relating to the Company's activity, in order to protect its assets and keep its corporate governance transparent. |
YES | |
| 2.1.1.3. The Board of Directors and Statutory Audit Board shall establish internal regulations, which shall be disclosed on the Company's website. |
YES | |
| 2.1.2 Incompatibility and Independence |
| 2.1.2.1. The Board of Directors shall include a sufficient number of non-executive members to ensure that there is the capacity to effectively supervise, audit and assess the activity of the executive members. |
YES |
|---|---|
| 2.1.2.2. Non-executive members shall include an adequate number of independent members, taking into account the size of the Company and its shareholder structure, but this shall never be less than one quarter of the total number of Board members. |
NO (We are not currently compliant, but will be once we have filled the vacancy on our Board) |
| 2.1.3. Eligibility Criteria for Appointment | |
| 2.1.3.1. Depending on the governance model adopted, the Chairman of the Statutory Audit Board, or of the Board Audit Committee or of the Financial Matters Committee shall be independent and possess the necessary skills to perform their duties. |
YES |
| 2.1.4. Policy on the Reporting of Irregularities | |
| 2.1.4.1. The Company shall adopt a policy of reporting irregularities that allegedly occurred, which includes the following information: i) the means through which such irregularities may be reported internally, including the persons that are entitled to receive the reports; ii) how the report is to be handled, including confidential treatment, should this be requested by the reporter. |
YES |
| 2.1.4.2. General guidelines from this policy should be disclosed in the Corporate Governance Report. |
YES |
| 2.1.5. Remuneration | |
| 2.1.5.1. The remuneration of the members of the Board of Directors shall be structured to be aligned with the interests of the shareholders. In this sense: i) The remuneration of Directors carrying out executive duties should include a variable component based on performance linked to a performance assessment that shall be carried out periodically by the governance body or committee appointed for this purpose; ii) the variable component shall be consistent with the maximisation of the long-term performance of the Company, and shall be dependent on sustainability of the variables adopted to measure performance; iii) non-executive members of the Board of Directors shall only receive fixed remuneration, unless the legal requirements dictate otherwise. |
YES |
| 2.1.5.2. The Shareholders' Remuneration Committee and the Board of Directors shall present to the Shareholders' Annual General Meeting a statement of the remuneration policy applied to Statutory Governing Bodies (including the Board of Directors and Statutory Audit Board), as well as to other senior management ("dirigentes") as defined in Article 248º-B, Clause 3 of the Portuguese Securities Code. The information to shareholders shall include the criteria and main indicators proposed to be used in assessing of performance and determining the variable component, independently of whether this in the form of bonuses paid in shares, share options, annual bonuses or other awards. |
YES |
| 2.1.5.3. At least one representative of the Shareholders' Remuneration Committee shall be present at the Shareholders' Annual General Meeting. |
YES |
| 2.1.5.4. A proposal shall be submitted to the Shareholders' General Meeting to approve plans to grant shares and/or share options or award compensation based on variations in share prices, to members of the Statutory Governing Bodies.(including the Board of Directors and Statutory Audit Board), as well as to other senior management ("dirigentes") as defined in Article 248º-B, Clause 3 of the Portuguese Securities Code. The proposal shall include all information necessary for an comprehensive assessment of the plan. The proposal shall be presented together with regulation that governs the plan or if this has not yet been prepared, the general conditions that will be applied. In the same way, the main characteristics of any retirement benefit plan that benefits the Statutory Governing Bodies.(including the Board of Directors and Statutory Audit Board), as well as other senior management ("dirigentes") as defined in Article 248º-B, Clause 3 of the Portuguese Securities Code, shall also be approved at a Shareholders' General Meeting. |
YES |
| 2.1.5.5. The remuneration of the members of the Statutory Governing Bodies (including the Board of Director and Statutory Audit Board) shall be individually disclosed on an annual basis. Fixed and variable components must be disclosed separately, when applicable, as well as any other |
NO (see explanations above in respect of current recommendation IV-8) |
| remuneration received from other companies within the same Group or | ||
|---|---|---|
| from companies controlled by shareholders with qualifying share holdings. | ||
| 2.2. Board of Directors | ||
| 2.2.1. Within the limits established by Portuguese Company Law for each management and audit governance structure, and unless the Company is restricted by its size, the Board of Directors shall delegate the day-to-day running of the Company and the powers and terms of the delegation should be set out in the Corporate Governance Report. |
YES | |
| 2.2.2. | The Board of Directors shall ensure that the Company acts in accordance with its objectives, and should not delegate its own responsibilities, including: i) definition of the Company's strategy and general policies; ii) definition of the corporate structure of the Group; iii) decisions that are considered to be strategic due to the amounts, risks and special circumstances involved. |
YES |
| 2.2.3. | Should the Chairman of the Board of Directors have an executive role, the Board of Directors shall set up efficient mechanisms to co-ordinate the work of the non-executive members, to ensure that they may take decisions in an independent and informed manner, and shall also explain these mechanisms to the shareholders in the Corporate Governance Report. |
YES |
| 2.2.4. | The Annual Management Report shall include a description of the activity carried out by the non-executive Board Members and shall, in particular, report any restrictions that they encountered. |
YES |
| 2.2.5. | The governing body responsible for management (Board of Directors) should promote the rotation of the Board member responsible for financial matters (CFO) at least at the end of every two mandates. |
YES (We are currently compliant, but our CFO completes his second mandate at the 2008 AGM. We do not agree with this recommendation, which, as far as we are aware, is not even mentioned in any international corporate governance codes of guidelines on best practices) |
| of Directors | 2.3. Chief Executive Officer (CEO), Executive Committee and Executive Board | |
| 2.3.1. | When Directors, who carry out executive duties are requested by other Board | |
| Members to supply information, they shall provide answers in a timely manner with information that adequately responds to the request made. |
YES | |
| 2.3.2. The Chairman of the Executive Committee shall send the notices convening meetings and minutes of the respective meetings to the Chairman of the Board of the Directors and, when applicable, to the Chairman of the Statutory Audit Board or the Audit Committee. |
YES | |
| 2.3.3. The Chairman of the Executive Board of Directors shall send the notices convening meetings and minutes of the respective meetings to the Chairman of the General and Supervisory Board and to the Chairman of the Financial Matters Committee. |
YES | |
| 2.4. General and Supervisory Board, Financial Matters Committee, Audit Committee and Statutory Audit Board |
||
| 2.4.1. | In addition to fulfilling its supervisory and verification roles, the General and Supervisory Board shall fulfil a role of advisor, as well as monitor and continually assess the management of the Company by the Executive Board of Directors. Amongst the other matters on which the General and Supervisory Board should opine are the following: i) definition of the strategy and general policies of the Company; ii) the corporate structure of the Group; and iii) decisions that are considered to be strategic due to the amounts, risks and special circumstances involved. |
YES |
| 2.4.2. | The annual reports on the activity of the General and Supervisory Board, the Financial Matters Committee, the Audit Committee and the Statutory Audit Board shall be disclosed on the Company's website together with the financial statements. |
NO |
| 2.4.3. | The annual reports on the activity of the General and Supervisory Board, the Financial Matters Committee, the Audit Committee and the Statutory Audit Board shall include a description of the supervisory and verification work completed and shall, in particular, report any restrictions that they |
YES |
| encountered. | ||
|---|---|---|
| 2.4.4. | The Financial Matters Committee, the Audit Committee or the Statutory Audit Board (depending on the governance model adopted) shall represent the Company, for all purposes, in the relationship with the external auditor. This shall include proposing who will provide this service, their respective remuneration, and ensuring that the Company provides adequate conditions to allow them to deliver their service, as well as acting as the point of contact with the Company and being the first recipient of their reports. |
YES |
| 2.4.5. The Financial Matters Committee, the Audit Committee or the Statutory Audit Board (depending on the governance model adopted), shall assess the external auditor on an annual basis and propose to the Shareholders' General Meeting that the external auditor should be discharged, should justifiable grounds exist. |
YES | |
| 2.5. | Special Purpose or Specialised Committees | |
| 2.5.1. | Unless the Company is restricted by its size, the Board of Directors and the General and Supervisory Committee, depending on the governance model adopted, shall set up the necessary Committees in order to: i) ensure that a robust and independent assessment of the performance of the Executive Directors is carried out, as well as of its own overall performance and including the performance of all existing Committees; ii) consider the governance system adopted and assess its efficiency and propose to the respective bodies, measures to be implemented to achieve improvements. |
YES |
| 2.5.2. | Members of the Shareholders' Remuneration Committee or alike, shall be independent from the Members of the Board of Directors. |
YES (see explanations above in respect of current recommendation IV-9) |
| 2.5.3. | All Committees shall draw up minutes of the meetings they hold. | YES |
| 3. | Information and Auditing | |
| 3.1. General Disclosure Requirements | ||
| 3.1.2. | Companies shall ensure that permanent contact is maintained with the market, upholding the principle of equal treatment for all shareholders and avoiding any asymmetry in the access to information by investors. To achieve this, the Company shall set up an Investor Relations Office. |
YES |
| available in English: a) The Company, its listed company status, the registered office and the remaining information set out in Article 171 of Portuguese Company Law; b) Articles of Association; c) Identification of the members of the Statutory Governing Bodies and of the Representative for Relations with the Market; d) Investor Relations Office — its functions and contact details; e) Financial Statements; f) Half-Yearly Calendar of Company Events; g) Proposals presented to Shareholders' General Meetings; h) Notices convening Shareholders' General Meetings. |
YES | |
Sonaecom's corporate governance structure sets out clearly the roles, duties and responsibilities of its different Governing Bodies.
The Shareholders' General Meetings may only be attended by Shareholders with the right to vote based on shares they own or equivalent subscription rights, which, in the five days prior to the General Meeting, have provided confirmation of ownership to the Company, as required by Portuguese Company Law.
Each share corresponds to one vote and, accordingly, shareholders have as many votes as the number of shares owned by them.
No Shareholders have special voting rights. Sonaecom's Board of Directors is unaware of any special shareholder voting rights and has not implemented any measures which could compromise the success of a public tender offer or the free transaction of shares.
Shareholders may attend a Shareholders' General Meeting in person or by representation. Individual Shareholders may be represented by any person they may choose, by means of a letter addressed to the Chairman of the Board of the Shareholders' General Meeting, indicating the name and address of the representative nominated, as well as the date of the meeting. Corporate Shareholders may also be represented at Sonaecom's Shareholders' General Meetings by a person designated by means of a letter addressed to the Chairman of the Board of the Shareholders' General Meetings. The authenticity of these letters is subject to scrutiny by the Chairman of Sonaecom's Board of the Shareholders' General Meeting.
Postal voting is allowed regarding all proposals for discussion and decision at a Shareholders' General Meeting, according to the terms and conditions set forth in the Company's Articles of Association. Postal voting bulletins (forms are available on Sonaecom's website) must be received at least three days before the Shareholders' General Meeting at the Company's Registered Office by means of registered mail and must be addressed to the Chairman of the Board of the Shareholder's General Meeting, who is responsible for verifying that written voting papers comply with all the requirements and for ensuring that confidentiality is kept. Electronic voting is not yet contemplated under Sonaecom's Articles of Association.
Sonaecom's Shareholders' General Meetings are organised by a Board elected by Shareholders for a four-year mandate, comprised of a Chairman and a Secretary. The current mandate is from 2004 until 2007.
The Articles of Association of Sonaecom require that a minimum of 50% of the share capital of the Company is present or represented at Shareholders' General Meetings.
Board of the Shareholders' General Meeting
João Augusto Esmeriz Vieira de Castro …………....................Chairman António Agostinho Cardoso da Conceição Guedes …………..Secretary
Shareholders' General Meetings are convened and conducted by the Chairman of its Board. Shareholders' General Meetings are held in two possible circumstances: (i) in ordinary session, at a date set by law (no later than the end of May) for the Shareholders' Annual General Meeting; (ii) in extraordinary session, whenever the Board of Directors or the Statutory Audit Board deem necessary or at the request of Shareholders, representing the legally required minimum percentage of the Company's share capital (currently 5%). During 2007, there was one Shareholders' General Meeting, held in an ordinary session on 2 May 2007, with 71.7% of the share capital represented.
The proposals for discussion and decision at Sonaecom's Shareholders' General Meetings, as well as other supporting information, are made available to shareholders at the Company's Registered Office, and are posted on Sonaecom's website - www.sonae.com - at least 15 calendar days before the respective meeting, or at the time the meeting is convened, for any proposals relating to changes to the Articles of Association.
The Chairman of the Shareholders' General Meeting receives a fixed annual fee of 5,000 euros and the Secretary a fixed annual fee of 1,500 euros.
Under Sonaecom's Articles of Association, the Board of Directors may be composed of any number of members between three and eleven, elected at a Shareholder's General Meeting. Board mandates are of four years, with the possibility of re-election. The current Board mandate covers the period from 2004 to 2007, terminating at the 2008 Annual General Meeting. The Board of Directors shall elect its Chairman.
| Board of Directors | |
|---|---|
| Duarte Paulo Teixeira de Azevedo…………….……… | Chairman |
| António Sampaio e Mello………… …… | Independent Non-Executive |
| David Charles Denholm Hobley……… | Non-Independent Non-Executive |
| Gervais Gilles Pellisser………………………………… | Non-Independent Non-Executive |
| Jean-François René Pontal…………………………… | Independent Non-Executive |
| Angelo Gabriel Ribeirinho dos Santos Paupério……… | Executive – CEO |
| George Christopher Lawrie……………………………. | Executive |
| Luís Filipe Campos Dias Reis………………………… | Executive |
| Maria Cláudia Teixeira de Azevedo………………….… | Executive |
| Miguel Nuno Santos Almeida………………………… | Executive |
Sonaecom's Board of Directors is composed of 11 members, including Executive members and Non-Executive members. However, we have not completed the process of nominating a future Independent Non-Executive Director to replace Loyola de Palacio del Valle Lersundi, who sadly passed away in December 2006. Two of the Non-Executive Directors are
independent, in the sense that they are not associated with any special interest groups connected to the Company or to its reference shareholders, in accordance with the criteria established by CMVM Regulation no. 7/2001 for Independent Directors. David Hobley does not meet the criteria set out in CMVM Regulation no. 7/2001 that would allow him to be formally classified as an Independent Director, due to the fact that he serves as an Independent Non-Executive Director within the France Telecom Group which owns a 19.2% stake in Sonaecom. However, Sonaecom regards him and considers that he acts as an independent member of the Board of Directors, given that his nomination was based on a proposal presented by Sonae SGPS, not France Telecom, and that his independence was previously assessed and accepted by Sonaecom's Board Nomination and Remuneration Committee.
According to CMVM Regulation no. 10/2005, there are no circumstances that may affect the Independent Non-Executive Directors' analysis or decision making capabilities and these Directors, as well as the other Non-Executive Directors, exercise an important influence over the decision-making process and the development of company strategy and policy. Sonaecom's Board of Directors exhibits a healthy balance between the total number of Non-Executive Directors and the number of Independent Non-Executive Directors.
Aligned with corporate governance best practice, a self-assessment of our Board was carried out in 2005, with the help of an independent external consultant. The follow-up actions identified and agreed were regularly monitored during 2006 and 2007 and have now been fully implemented. A new Board self-assessment process will be carried out during 2008, which will again be designed to evaluate corporate governance at the Board level and to review how the Board and the Board Committees function, both considering the Board "as a whole" and in terms of the individual contributions of each Board member.
The Board of Directors is responsible for assuring the management of the Company's business, monitoring risks, managing conflicts of interests and developing the organisation's goals and strategy. Sonaecom's Articles of Association permit the Board to delegate day-today company business, duties and responsibilities, as considered appropriate, to an Executive Committee (as described in more detail under the Executive Committee section below) but do not allow the Board to approve share capital increases, which must be approved at a Shareholders' General Meeting.
In order to improve the operational efficiency of the Board and to meet best practices in Corporate Governance, Sonaecom's Board has created two Board Committees: a Board Audit and Finance Committee and a Board Nomination and Remuneration Committee.
Qualifications, experience and responsibilities of individual Directors A description of the qualifications, experience and responsibilities of each member of Sonaecom's Board of Directors can be found in the Appendix to this Report. The month of the first appointment of each member of the Board of Directors is as follows:
| Duarte Paulo Teixeira de Azevedo…………….……… | September 1998 |
|---|---|
| António Sampaio e Mello………… …… | July 2006 |
| David Charles Denholm Hobley……… | September 2005 |
| Gervais Gilles Pellisser………………………………… | July 2006 |
| Jean-François René Pontal…………………………… | July 2003 |
| Angelo Gabriel Ribeirinho dos Santos Paupério……… | April 2007 |
| George Christopher Lawrie……………………………. | April 2003 |
| Luís Filipe Campos Dias Reis………………………… | March 2000 |
| Maria Cláudia Teixeira de Azevedo………………….… | April 2006 |
| Miguel Nuno Santos Almeida………………………… | April 2005 |
The date of the term of office the members of the Board of Directors is the same as for all Governing Bodies under the current four year mandate, which is from 2004 until 2007. New Governing Bodies will be elected at the 2008 Annual General Meeting.
Information on other offices held by each of the members of Sonaecom's Board of Directors can be found in the Appendix to this Report. There is neither an internal definition of incompatibilities nor a maximum number of offices held by members of the Board of Directors in other companies.
For all Directors, a register of significant and relevant outside directorships and other significant roles or activities, as well as a register of all significant shareholdings held, is maintained by the Secretary to the Board. Significant and relevant new appointments, activities and shareholdings should be disclosed in writing before being entered into. These disclosures should describe any potential conflict of interest arising, as well as any steps to be undertaken to manage or eliminate the identified conflicts. Disclosures are assessed by the Board Nomination and Remuneration Committee ("BNRC") in the case of Directorships, Roles and Activities.
Sonaecom's Board of Directors meets at least four times a year, as stipulated by its Articles of Association, and whenever its Chairman or two of its members call for a meeting. During 2007 there were seven Board meetings. The quorum for any Board Meeting requires that the majority of Directors are present or represented by proxy and decisions are taken by a majority of votes cast. During 2007, the attendance rate at Sonaecom's Board meetings was 97%.
Sonaecom's Non-Executive Directors also hold separate meetings to discuss their ability to assert their independence within the Board and to make suggestions to improve Board procedures and corporate governance in general. During 2007, there were two NED meetings and the attendance rate was 90%. There have been no restrictions on the scope of the NED's activities during 2007.
Under Sonaecom's Articles of Association, the Executive Committee is selected from the members of the Board of Directors. The Group CEO, CFO and the Executive Directors of the Group's business comprise the Executive Committee. The Executive Committee meetings are also attended by the other members of the Executive Management Team, including the Advisors to the Board of Directors, who are identified below.
| Management Team | |
|---|---|
| Angelo Gabriel Ribeirinho dos Santos Paupério… | CEO |
| Luís Filipe Campos Dias Reis……………………… | Executive Director – Telco |
| George Christopher Lawrie………………………… | CFO |
| Maria Cláudia Teixeira de Azevedo……………….… | Executive Director – SSI/Media |
| Miguel Nuno Santos Almeida…………………… | Executive Director – Residential Market |
| António Lobo Xavier………………………………… | Advisor to the Board – Legal, Regulation, PR, Fiscal |
| Pedro Ramalho Carlos……………………………… | Advisor to the Board – Corporate and Wholesale Markets |
The Executive Committee may deliberate on matters that relate to general management and not on matters that are exclusively of the competence of the Board of Directors. The Executive Committee is conferred the powers and responsibility to manage and execute Sonaecom's day to day operations, except:
(i) to appoint the Chairman of the Board;
(vi) to decide to change the registered office or to approve any share capital increases;
(vii) to decide on mergers, de-mergers, modifications to the corporate format and any other projects relating to association with other legal entities to form new companies;
To ensure that the Board of Directors is kept well informed by the Executive Committee, all significant decisions taken by the Executive Committee are systematically extracted from the minutes of their meetings and are reported, in writing, to the Board of Directors.
Sonaecom's Executive Committee normally meets at least twice every month and whenever the CEO or a majority of its members call for a meeting. There were 21 meetings of the Executive Committee in 2007 and the attendance rate was 93%. The quorum for the Executive Committee meeting requires that a majority of members are present or represented by proxy. Decisions require unanimous approval otherwise the Executive Committee must submit the matter under consideration to the Board of Directors for decision.
Sonaecom's Board Audit and Finance Committee ("BAFC") consists of three members who are appointed by and from among the members of the Board. The fourth member is the Board and Corporate Governance Officer. The Committee currently includes three Non-Executive Directors, two of whom are independent, and is chaired by an Independent Non-Executive Director.
| Board Audit and Finance Committee |
|---|
| Jean-François René Pontal………… Chairman – Independent Non-Executive Director |
| António Sampaio e Mello…………… Independent Non-Executive Director |
| David Charles Denholm Hobley…… Non-Independent Non-Executive Director |
| David Graham Shenton Bain……… Board and Corporate Governance Officer |
The BAFC operates under Terms of Reference approved by the Board and is responsible for monitoring and supervising Sonaecom's financial reporting processes, reviewing accounting policies and for evaluating risk associated with its activities on behalf of the Board, and additionally for overseeing Corporate Governance within the Company. The BAFC also meets directly with the Group's Statutory External Auditors and the Internal Audit Team. In particular, the duties of the BAFC are:
(i) to review the Company's annual and interim financial statements and reports to the market, and reporting its findings to the Board, before these documents are approved or signed by the Board;
(ii) to advise the Board on its reports to shareholders and financial markets to be included in the Company's Annual and Half-year Accounts and in the Quarterly Earnings Announcements;
The full Terms of Reference of the BAFC are available on the Company's website (www.sonae.com).
Sonaecom's BAFC reports in writing on a regular basis to the Board of Directors concerning the work accomplished, results obtained and concerns identified, thus ensuring the effectiveness of their work.
The BAFC meets at least five times a year and whenever the Chairman, the Board of Directors, the Executive Committee or, exceptionally, the Statutory External Auditor believe a meeting is necessary. Between meetings, the BAFC follows projects and monitors activity by regular conference calls. During 2007, the Committee met five times with an attendance rate of 100% and also held four conference calls.
Sonaecom's Board Nomination and Remuneration Committee ("BNRC") currently consists of two members and includes the Chairman of the Board of Directors and one Independent Non-Executive Director. The current composition is shown in the table below.
Board Nomination and Remuneration Committee
Duarte Paulo Teixeira de Azevedo …… Chairman – Non-Independent Non-Executive Jean-François René Pontal…………….. Independent Non-Executive
The BNRC operates under Terms of Reference approved by Sonaecom's Board and is responsible for identifying candidates for appointment to the Board of Directors or Senior Management positions within the Group, for supervising the preparation of proposals on remuneration and other compensation on behalf of the Board of Directors, for the succession planning and for monitoring Sonaecom's talent management and contingency planning processes. The BNRC reports in writing to the Board, whenever necessary, and liaises with Sonaecom's Shareholders' Remuneration Committee ("Comissão de Vencimentos") to obtain their approval, on behalf of Shareholders, for the remuneration and other compensation of the Board of Directors and other Statutory Governing Bodies. The BNRC may receive assistance from external entities, which are required to ensure absolute confidentiality in relation to all the information obtained.
The full Terms of Reference of the BNRC are available on the Company's website (www.sonae.com).
The BNRC meets at least twice a year and, whenever the Chairman or the Board of Directors deem necessary. There were 3 formal BNRC meetings during 2007 and the attendance record was 100%.
Sonaecom's Board and Corporate Governance Officer ("BCGO") is David Graham Shenton Bain.
Role
The BCGO officer reports to the Board of Sonaecom as a whole, through the Chairman, and also, when appropriate, through the senior independent Non-Executive Director.
In particular, the main duties of the BCGO are:
The full job description of the BGCO is available on the Company's website (www.sonae.com).
Sonaecom's Statutory Audit Board is composed of the following members:
| Statutory Audit Board | |
|---|---|
| Arlindo Dias Duarte Silva … | Chairman |
| Armando Luís Vieira de Magalhães ………………… | |
| Óscar José Alçada da Quinta ………… | |
| Jorge Manuel Felizes Morgado …………………… | Substitute |
Sonaecom's Statutory Audit Board's main responsibilities consist in auditing the Company's activities and management and supervising and monitoring compliance with the law and with the Company's Articles of Association.
The full Terms of Reference of the Statutory Audit Board are currently being finalised and will be disclosed on the Company's website (www.sonae.com).
The Statutory Audit Board meets at least once every quarter. There were 5 formal Statutory Audit Board meetings during 2007 and the attendance record was 100%.
The Chairman of the Statutory Audit Board receives an annual fee of 8.000 euros and the other 2 members fees of 6.000 each. Each member also received an annual responsibility allowance of 6.000 euros during 2007.
Sonaecom's Statutory External Auditor is Deloitte & Associados, SROC, S. A. represented by Jorge Manuel Araújo de Beja Neves, who may be substituted, if required, by João Luís Falua Costa da Silva.
The Statutory External Auditor is responsible for verifying the accounts and all the financial documents of the Company and issuing a legal certification of the accounts and an audit report.
Sonaecom's Shareholders' Remuneration Committee ("Comissão de Vencimentos") comprises Shareholders appointed by the Shareholders' General Meeting, under a four year mandate, currently 2004 to 2007.
Shareholders' Remuneration Committee
Sonae SGPS, S.A represented by.……………………………… Duarte Paulo Teixeira de Azevedo (1) Sonae Investments, BV, represented by................................. Bruno Walter Lehmann(2)
(1) CEO of Sonae, SGPS, S.A. (2) Partner – Egon Zehnder International
The Committee is responsible for approving the remuneration and other compensation of members of Sonaecom's Board of Directors and of its other Statutory Governing Bodies, on behalf of the Shareholders, following the remuneration and other compensation policies approved by shareholders at the last Shareholders' General Meeting.
Bruno Walter Lehmann does not hold any office in the Company and is independent from the Board of Directors. The professional qualifications and experience of both representatives serving on the Shareholders' Remuneration Committee allow them to carry out their responsibilities effectively and rigorously.
The representative of the major shareholder does not take part in any discussion or resolution where there is a conflict of interests with his role as Chairman of the Board. In particular, his own remuneration as a non-executive Chairman, which is not a significant value, is approved by the independent member of the Shareholders' Remuneration Committee
This Committee meets at least once a year. There were 4 meetings during 2007 and the attendance record was 100%.
The Shareholder representatives on the Shareholders' Remuneration Committee did not receive any remuneration for their services during 2007. A shareholder proposal is expected to be presented to the Shareholders' 2008 Annual General Meeting to approve a remuneration basis for this Committee.
Sonaecom's Secretary is Filipa Santos Carvalho, who may be substituted, if required, by Vera Lopes Pereira.
Role
The Company Secretary is responsible for:
During 2007, the structure and composition of Sonaecom's Governing Bodies changed as follows:
To promote initiative and build high levels of commitment, Sonaecom once again carried out its established annual performance appraisal process for all employees, during 2007, through which each individual's activity, performance and contribution to the organization's success was assessed and decisions were taken on the variable remuneration and other compensation to be attributed accordingly.
Sonaecom's remuneration policy for all employees includes two basic components:
In addition, a discretionary third component may be awarded to more senior employees (Sonaecom Group Management Levels – Grupos Funcionais or "GF" 1 to 6), on 10 March of
the following year, in the form of deferred compensation, under the Sonaecom Medium Term Incentive Plan1 ("MTIP").
Sonaecom's MTIP is described in more detail in section 4.1.5.2. below.
Annual remuneration and other elements of the compensation package are defined as a function of each employee's level of responsibility and are reviewed annually. Each employee is classified under a "Sonaecom Management Level" grid, designed using Hay's international model for classification of corporate functions to facilitate market comparisons as well as to help to promote internal equity.
During 2006, the "Sonaecom Management Levels" for senior management were reorganised and simplified and former Levels 15 to 20 are now integrated into three Management Levels (GF1 or Group Senior Executive, GF2 or Senior Executive and GF3 or Executive). The new model, although still linked to Hay's international model, introduces a system of valuation of competencies as an additional and complementary new criteria. During 2007, Sonaecom implemented this new model for all remaining employees, which were integrated in the Management Levels ("Grupos Funcionais") GF4 to GF9.
The Annual Performance Bonus is aimed at rewarding the achievement of certain pre-defined annual objectives, which are linked to both Business and Personal Key Performance Indicators ("KPIs").
The target bonus amount is based on a percentage of the employee's Fixed Remuneration, which ranges between 15% and 70%, depending on the employee's Management Level. Business KPIs (which include economic and financial indicators based on approved budgets, relative share price performance, individual business unit performance as well as the performance of the Group as a whole) drive 70% of the Annual Performance Bonus and are normally objective indicators.
The remaining 30% of the Annual Performance Bonus is based on Personal KPIs, which are a mix of objective and subjective indicators. Annual Performance Bonuses paid relate to the actual performance achieved or assessed and can represent anything from 0% to 160% of the target bonus for Business KPIs and 0% to 120% of the target bonus for Personal KPIs. Combining both components, the maximum range that can apply to any individual is 0% to 148% of the target bonus.
The Business KPIs and their weightings for 2007 were:
Business KPIs and weightings
| Indicator - Description | Weight |
|---|---|
| Turnover | 22.5% |
| EBITDA | 22.5% |
| Free Cash Flow | 22.5% |
| Operational Indicators (1) | 22.5% |
| Relative Share Price Performance | 10.0% |
(1) Various operational indicators such as Active Users, Direct Services, Paid Circulation
The MTIP is an equity-based discretionary deferred compensation plan with a three year period between the award date and the date on which the award vests. MTIP awards are made in March each year, in respect of performance during the previous financial year. The size of an award made under the MTIP is linked to an individual's Annual Performance Bonus paid for the same "performance year". Historically, the MTIP awards were made on 31 March of each year, but, for 2006 onwards, the award date has been changed to 10 March or the
1 In previous years, deferred compensation was delivered under Sonaecom Deferred Performance Bonus Plans ("DPBP"). The plan was renamed as the MTIP in 2006, but the main characteristics of the plan remain unchanged.
last working day before that date. The vesting dates for all open plans have also been adjusted to this new timing.
As the MTIP is share based, Sonaecom's Board of Directors decided that the plan should be presented to Shareholders for approval at the Shareholders' Annual General Meeting in 2007, in order to comply with best practice in corporate governance. The MTIP was approved by shareholders at the Annual General Meeting held on 2 May 2007.
Sonaecom's MTIP is aimed at enhancing employees' loyalty, aligning their interests with those of shareholders, and increasing their awareness of the importance of their performance on the overall success of the organization, as reflected by changes in Sonaecom's share price.
All Sonaecom employees with Management Levels GF1 to GF62 , are eligible to participate in the MTIP, as long they have entered the Company before the 31 December of the year being evaluated or they are promoted to GF6, or higher, at the annual review process performed in the first quarter of that year.
The value awarded is determined by applying the following percentages to the Annual Performance Bonuses paid in respect of the last financial year, according to Sonaecom Management Levels:
| Sonaecom Management Levels ("Grupos Funcionais") |
Percentage of Annual Performance Bonus |
|---|---|
| GF6 | Up to 70% |
| GF5 | Up to 80% |
| GF4 | Up to 90% |
| GF3 | Up to 100% |
| GF2 | Up to 100% |
| GF1 | Up to 100% |
For Sonaecom's most senior employees who are at Senior Executive Level or above (GF1 or GF2), up to 40% of the awards under the MTIP were linked to Sonae SGPS shares (the "Sonae SGPS Share Plans"), depending on the employee's Management Level. This link to Sonae SGPS share was introduced to promote cooperation, maximise synergies and promote the exchange of knowledge between the Company and Sonae SGPS, Sonaecom's controlling shareholder.
In the past, employees participating in the MTIP were given the alternative of choosing between deferred share options ("Sonaecom Share Options Plans") or deferred rights to shares ("Sonaecom Share Plans"). As from March 2004 (relating to 2003 performance – the "2003 Plan"), all participants have been awarded deferred rights to shares.
For the MTIP awards delivered as deferred rights to shares, the number of shares is calculated by dividing the MTIP amount awarded by the average share price in the month prior to the award date. On vesting the shares, corresponding to the initial number of shares, adjusted for dividends and other changes in issued share capital, are transferred to the beneficiaries on the third anniversary of the award date at zero cost. The Company, subject to approval from the Board Nomination and Remuneration Committee, has the option to pay the cash equivalent to the value of the shares at the vesting date.
2 Sonaecom Group Management Levels ("Grupos Funcionais" or "GF") are attributed according to Hay's international model for the classification of corporate functions. Sonaecom has defined internally that Managers with levels equal to or higher than GF3 may be Executive Committee members of Sonaecom Group companies.
The awards outstanding under the Sonaecom Share Plans in 2007 can be summarised as follows:
| Vesting period | Exercise period | At 31 December 2007 | |||||
|---|---|---|---|---|---|---|---|
| Share price at award date* |
Award date |
Vesting date |
From | To | Aggregate number of participants |
Number of options /shares |
|
| Sonaecom Options | |||||||
| 2002 Plan | 1,694 | 31-Mar-03 | 10-Mar-06 | 13-Mar-06 | 09-Mar-07 | - | - |
| 2003 Plan | - | - | - | - | - | - | - |
| 2004 Plan | - | - | - | - | - | - | - |
| 2005 Plan | - | - | - | - | - | - | - |
| 2006 Plan | - | - | - | - | - | - | - |
| Sonaecom Shares | |||||||
| 2003 Plan | 3,190 | 31-Mar-04 | 09-Mar-07 | - | - | - | - |
| 2004 Plan | 3,960 | 31-Mar-05 | 10-Mar-08 | - | - | 354 | 985.074 |
| 2005 Plan | 4,093 | 10-Mar-06 | 09-Mar-09 | - | - | 377 | 877.964 |
| 2006 Plan | 4,697 | 09-Mar-07 | 08-Mar-10 | - | - | 411 | 1.039.044 |
* Average share price for the month prior to the award date, except for the 2006 Plan for which the share price corresponds to the average share price between 3rd March and 5th April 2007. This exception was due to the timing of the end of the Portugal Telecom bid and was approved by the Board Nomination and Remuneration Committee.
The number of shares awarded, and shares and options unvested, vested, cancelled or lapsed and exercisable options under Sonaecom's MTIP in the year ended 31 December 2007, are shown in the following table:
| Sonaecom options | Sonaecom shares | Total | |||
|---|---|---|---|---|---|
| Aggregate number of participants |
Number of options |
Aggregate number of participants (1) |
Number of shares |
Corres ponding shares |
|
| Outstanding at 31.12.2006 | |||||
| Exercisable | 33 | 510,633 | - | - | 510,633 |
| Unvested | - | - | 1,123 | 3,184,774 | 3,184,774 |
| Total | 33 | 510,633 | 1,123 | 3,184,774 | 3,695,407 |
| Movements in the year | |||||
| Awarded | - | - | 422 | 1,097,470 | 1,097,470 |
| Vested | - | - | (349) (1,178,485) | (1,178,485) | |
| Vested early (2) | (3) | (111,500) | (111,500) | ||
| Exercisable | - | - | - | - | - |
| Exercised | (31) | (343,571) | - | - | (343,571) |
| Cancelled/Lapsed | (2) | (167,062) | (51) | (90,177) | (257,239) |
| Outstanding at 31.12.2007 | |||||
| Exercisable | - | - | - | - | - |
| Unvested | - | - | 1,142 | 2,902,082 | 2,902,082 |
| Total | - | - | 1,142 | 2,902,082 | 2,902,082 |
(1) The number of participants is the cumulative number for all plans. The participant in 3 plans counts as 3.
(2) For the CEO, the vesting of all deferred plans was anticipated and cash equivalents were paid on 31 December 2007, in lieu of the delivery of Sonaecom shares.
Awards under the Sonae SGPS Share Plans outstanding during 2007 can be summarised as follows:
| Vesting period | At 31 December 2007 | |||||
|---|---|---|---|---|---|---|
| Share price at award |
Award date |
Vesting date |
Aggregate number of participants |
Number of shares |
||
| Sonae SGPS Shares | date* | |||||
| 2003 Plan | 0.93 | 31-Mar-04 09-Mar-07 | - | - | ||
| 2004 Plan | 1.17 | 31-Mar-05 10-Mar-08 | 12 | 239,746 | ||
| 2005 Plan | 1.34 | 10-Mar-06 09-Mar-09 | 12 | 125,779 | ||
| 2006 Plan | 1.68 | 09-Mar-07 08-Mar-10 | 6 | 130,915 |
* The lower of the average share price for the month prior to the Annual General Meeting and the share price on the day after the Annual General Meeting, except for the 2006 Plan for which the share price corresponds to the average share price between 13rd February and 26th March 2007. This exception was due to the timing of the end of the Portugal Telecom bid and was approved by the Board Nomination and Remuneration Committee.
Sonae SGPS shares under the MTIP
| Sonae SGPS shares | ||
|---|---|---|
| Aggregate number of participants (1) |
Number of shares |
|
| Outstanding at 31.12.2006 | ||
| Unvested | 38 | 911.350 |
| Movements in the year | ||
| Awarded | 7 | 208.184 |
| Vested | (12) | (369.317) |
| Vested early (2) | (3) | (269.616) |
| Cancelled/Lapsed/Adjusted (3) | 15.839 | |
| Outstanding at 31.12.2007 | ||
| Unvested | 30 | 496.440 |
(1) The number of participants is the cumulative number for all plans. The participant in 3 plans counts as 3.
(2) For the CEO, the vesting of all deferred plans was anticipated and cash equivalents were paid on 31 December 2007, in lieu of the delivery of Sonae SGPS shares.
(3) Adjustments are made to allow for the effects of dividends paid and changes in share capital.
Sonaecom has hedged its MTIP and related obligations, up to and including the 2006 Plan. In respect of the Sonaecom shares plans, the 2004 plan is hedged through a contract with Sonae Investments BV. The 2005 and 2006 plans are hedged through own shares acquired in March 2007 and held by Sonaecom. Sonae SGPS shares plans have been hedged through a cash-settled share swap transaction, with an external party. Sonaecom has entered into agreements with its subsidiaries to recharge the corresponding hedging costs to each one of them.
The effect of the agreement relating to the 2004 Sonaecom shares plan (MTIP 2004) is that Sonaecom's liability is capped at a maximum share price of 3.22 euros per share (plus interest that accrues on payments that are deferred). The total liability as at 31 December 2007 was 3,304,474 euros, which is included under "Other Liabilities" in Sonaecom's accounts.
The 2005 and 2006 Sonaecom shares plans (MTIP 2005 and MTIP 2006), hedged through the acquisition and holding of own shares, are treated as an equity-settled plan, as it involves the delivery of Sonaecom's own shares. As such, the liability is, at 31 December 2007, accounted for in Reserves, within Shareholders' Funds, based on the share price at the award date (4.02 euros and 4.80 euros for the MTIP 2005 and MTIP 2006, respectively). At 31 December 2007, the amount included in Sonaecom accounts relating to these plans is 3,231,169 euros.
The Sonae SGPS shares plans correspond to the delivery of Sonae SGPS shares, but, as they are attributed by Sonaecom and not by Sonae SGPS, the plans are treated as cashsettled plans. Considering the cash-settled share swap transactions implemented to hedge these plans, the liability is included under "Other Liabilities" capped at a maximum share price of 2 euros, 2.10 euros and 2.1868 euros for the MTIP 2004, 2005 and 2006, respectively. At 31 December 2007, the total amount provided is 691,243 euros.
The cost of Sonaecom's MTIP is recognised in the accounts over the respective deferral period for each annual plan. As at 31 December 2007, 21.9 million euros had been expensed as a cost (5.4 million euros during 2007 and 16.5 million euros in previous years). The remaining 0.3 million euros have not yet been expensed and have been deferred and accounted for as Other Costs.
Sonaecom's Directors' compensation policy is aimed at remunerating in a fair, effective and competitive manner, taking into consideration the individual responsibilities and performance of each Director, both at a subsidiary company level and at a Sonaecom Group level.
Sonaecom's Shareholders' Remuneration Committee is responsible for the approval of the remuneration and other compensation of the Board of Directors, including both Executive and Non-Executive Directors following the remuneration and other compensation policies approved by shareholders at the Shareholders General Meeting. The composition and functioning of the Shareholders' Remuneration Committee is described in section 4.1.3. above.
Remuneration and compensation proposals for Sonaecom's Executive Directors (excluding the CEO) are based on proposals made by the CEO, which are prepared taking into account:
The Executive Directors remuneration and other compensation include Fixed Remuneration and an Annual Performance Bonus, and they also benefit from compensation under the MTIP, as described in Section 4.1.5.1. and 4.1.5.2. above.
Remuneration and other compensation for the CEO and remuneration for the Non-Executive Directors (excluding the Chairman) are based on proposals made by the Sonaecom Chairman.
The remuneration of the Chairman is decided by the other independent member of the Shareholders' Remuneration Committee.
For the CEO, the methodology used is the same as for the Executive Directors. Non-Executive Directors do not receive Annual Performance Bonuses nor do they participate in the Sonaecom MTIP.
For each Non-Executive Director, fixed remuneration assumes an agreed commitment of time during 2007, including the preparation and attendance of at least five Board Meetings each year. In addition, for External Non-Executive Directors who are Chairman of Board Committees their fixed remuneration is further increased by approximately 5%. Meeting attendance fees are payable for each meeting actually attended by each Non-Executive Director as follows: Board meetings: 800 euros, BAFC meetings: 550 euros and BNRC meeting: 330 euros. The Chairman of the Board does not receive attendance fees for Board Committee meetings.
Additionally, an annual responsibility allowance is paid to each Non-Executive Director, which amounts to 6,000 euros in the first year of Board membership, 4,000 euros in the following years and 8,000 in the last year of service on the Board
The BNRC may define additional remuneration for specific projects allocated to individual NEDs by the Board or by the Board Committees.
On resignation of any member of the Board, it is Group policy to pay whatever compensation is legally required, or to negotiate, in each situation, a value considered to be fair and appropriate by the parties involved. No additional compensation conditions exist for members of the Board who are treated in the same way as all employees.
The remuneration of Sonaecom's Directors, including fixed remuneration and annual performance bonuses (both computed on an accruals basis), was as follows during 2007 and 2006:
| 2007 | 2006 | |||||
|---|---|---|---|---|---|---|
| Annual | Annual | |||||
| Amounts in euros | Fixed | Performance | Total | Fixed | Performance | Total |
| Remuneration | Bonus | Remuneration | Bonus | |||
| Individual breakdown | ||||||
| Chairman (Non-Executive) | 60,667 | - | 60,667 | 56,000 | - | 56,000 |
| CEO (Executive) | 422,393 | 273,600 | 695,993 | 357,663 | 332,200 | 689,863 |
| Average of the remaining 4 | ||||||
| Executive Directors (4 in 2006)(1) | 223,414 | 111,950 | 335,364 | 205,700 | 130,475 | 336,175 |
| Average of the remaining 4 Non | ||||||
| Executive Directors (5 in 2006) (2) | 26,285 | - | 26,285 | 25,627 | - | 25,627 |
| Aggregate | ||||||
| Executive Directors (5 in 2007 and 5 | ||||||
| in 2006) | 1,316,049 | 721,400 | 2,037,449 | 1,180,462 | 854,100 | 2,034,562 |
| Non-Executive Directors (5 in 2007 | ||||||
| and 6 in 2006) | 165,807 | - | 165,807 | 184,136 | - | 184,136 |
| 1,481,855 | 721,400 | 2,203,255 | 1,364,598 | 854,100 | 2,218,698 |
Directors' Remuneration – Fixed Remuneration and Annual Performance Bonuses
(1) Maximum Individual Remuneration in 2007 (2006) represented 129% (133%) of average and minimum 80% (74%) of average; (2) Maximum Individual Remuneration in 2007 (2006) represented 139% (145%) of average and minimum 0% (0%) of average, as one Non-Executive Director was not remunerated.
In presenting the figures above, the proportional remuneration for each Board Member has been included, based on the time of their appointment.
Sonaecom's Non-Executive Directors do not receive annual performance bonuses. The annual performance bonuses of the Executive Directors in the table above represent the best estimates of those values for the performance during 2007. The final values will only be determined and paid at the end of March 2008, after real performance has been fully
assessed and after the resulting bonuses have been approved by the Board Nomination and Remuneration Committee, on behalf of the Board of Directors, and by the Shareholders' Remuneration Committee, on behalf of the Shareholders.
In addition to the values shown above, Sonaecom Executive Directors have been awarded compensation under the Sonaecom MTIP. Sonaecom's Non-Executive Directors do not participate in the MTIP.
The shares and options awarded to Executive Directors as part of the MTIP that vested, were exercised or remain unvested during 2007, are summarised below.
There are no performance conditions attaching to MTIP awards other than future share price performance, as these awards are based upon an individual's Annual Performance Bonus for which KPIs have already been satisfied.
Directors' other compensation – Participation in the Sonaecom MTIP (see below)
| Unvested | |||||
|---|---|---|---|---|---|
| Plan 2003 (1) | Plan 2004 | Plan 2005 | Plan 2006 | Total | |
| Award date | 31-Mar-04 | 31-Mar-05 | 10-Mar-06 | 9-Mar-07 | |
| Beginning of the exercise period | 9-Mar-07 | 10-Mar-08 | 9-Mar-09 | 10-Mar-10 | |
| End of the exercise period | 8-Mar-08 | 9-Mar-09 | 8-Mar-10 | 9-Mar-11 | |
| SONAECOM SHARES and OPTIONS | |||||
| Share price at award date (2) | 3,190 | 3,960 | 4,093 | 4,697 | |
| Share price at vesting date Share price at 31 December 2007 (3) |
4,75 - |
- 3,30 |
- 3,30 |
- 3,30 |
|
| CEO | |||||
| N. of shares at 01.01.2007 | 44.577 | 39.878 | 29.186 | - | 113.641 |
| N.of shares at 31.12.2007 (5) | - | - | - | - | - |
| Average of the remaining Executive Directors | |||||
| N. of shares at 01.01.2007 | 19.433 | 17.765 | 13.806 | - | 51.004 |
| N.of shares at 31.12.2007 | - | 17.765 | 13.806 | 19.445 | 51.016 |
| N. of options at 01.01.2007 N.of options at 31.12.2007 |
57.426 - |
- - |
- - |
- - |
57.426 - |
| N. of options exercised | 57.426 | - | - | - | 57.426 |
| Total of the remaining Executive Directors | |||||
| N. of shares at 01.01.2007 | 77.731 | 71.059 | 55.224 | - | 204.014 |
| N.of shares at 31.12.2007 | - | 71.059 | 55.224 | 77.779 | 204.062 |
| N. of options at 01.01.2007 | 57.426 | - | - | - | 57.426 |
| N.of options at 31.12.2007 | - | - | - | - | - |
| N. of options exercised | 57.426 | - | - | - | 57.426 |
| TOTAL | |||||
| N.of shares at 01.01.2007 | 122.308 | 110.937 | 84.410 | - | 317.655 |
| N. of shares at 31.12.2007 N.of options at 01.01.2007 |
- 57.426 |
71.059 - |
55.224 - |
77.779 - |
204.062 57.426 |
| N. of options at 31.12.2007 | - | - | - | - | - |
| N.of options exercised | 57.426 | - | - | - | 57.426 |
| Unvested | |||||
| Plan 2003 (1) | Plan 2004 | Plan 2005 | Plan 2006 | Total | |
| SONAE SGPS SHARES | |||||
| Sharepriceat award date | 0,93 | 1,17 | 1,34 | 1,68 | |
| Share price at vesting date | 2,16 | - | - | - | |
| Sharepriceat 31 December 2007 (4) | - | 1,98 | 1,98 | 1,98 | |
| CEO | |||||
| N.of shares at 01.01.2007 | 145.320 | 126.209 | 60.550 | - | 332.079 |
| N. of shares at 31.12.2007 (5) | - | - | - | - | - |
| Average of the remaining Executive Directors | |||||
| N. of shares at 01.01.2007 | 24.419 | 26.677 | 18.413 | - | 69.508 |
| N.of shares at 31.12.2007 | - | 27.054 | 18.673 | 23.629 | 69.356 |
| Total of the remaining Executive Directors | |||||
| N. of shares at 01.01.2007 | 97.675 | 106.706 | 73.650 | - | 278.031 |
| N. of shares at 31.12.2007 | - | 108.215 | 74.693 | 94.514 | 277.422 |
| TOTAL | |||||
| N. of shares at 01.01.2007 | 242.995 | 232.915 | 134.200 | - | 610.110 |
| N.of shares at 31.12.2007 | - | 108.215 | 74.693 | 94.514 | 277.422 |
| VALUES | |||||
| CEO | |||||
| Value at award date | 279.260 | 305.581 | 200.595 | 332.201 | - |
| Valueat vesting date (6) Value at 31 December 2007 (5) |
530.073 - |
381.491 - |
216.203 - |
296.647 - |
- - |
| Average of the remaining Executive Directors | |||||
| N. of the remaining executive directors | 4 | 4 | 4 | 4 | |
| Value at award date Value at vesting date |
85.021 145.797 |
102.001 - |
81.530 - |
131.028 - |
- - |
| Value at 31 December 2007 | - | 112.190 | 82.533 | 110.952 | 305.675 |
| Total of the remaining Executive Directors | |||||
| Value at award date | 340.086 | 408.005 | 326.120 | 524.111 | - |
| Value at vesting date | 583.188 | - | - | - | - |
| Value at 31 December 2007 | - | 448.760 | 330.131 | 443.808 | 1.222.700 |
| TOTAL | |||||
| Value at award date Value at vesting date |
619.346 1.113.260 |
713.587 381.491 |
526.716 216.203 |
524.111 296.647 |
- - |
| Value at 31 December 2007 | - | 448.760 | 330.131 | 443.808 | 1.222.700 |
(1) Vested on 15 March 2007. For three Executive Directors and for CEO, cash equivalents were paid, in lieu of the delivery of Sonaecom shares. The Sonae SGPS' shares were delivered on 1 June 2007, rather than on 15 March 2007; (2) Average share price in the month prior to the award date, except for the 2006 Plan which share price corresponds to tyhe average share price between 3rd March and 5th April 2007; (3) On 16 February 2007, the share price hit a high of 7.5 euros per share and a low of 3.25 euros per share on 17 September 2007; (4) On 2 May 2007, the share price hit a high of 2.171 euros per share and a low of 1.5 euros per share on 2 January 2007; (5) For the CEO, the vesting of all deferred plans was anticipated and cash equivalents were paid on 31 December 2007, in lieu of the delivery of Sonaecom and Sonae SGPS shares; following this payment, in 2008, the CEO acquired Sonae SGPS shares, which replace the Deferred Plans; (6) For the plans 2004, 2005 and 2006, the vesting date corresponds to the earlier vesting date (3 May 2007).
During 2007, Sonaecom Group paid the following fees to the Statutory External Auditor Deloitte and their network of companies:
| Statutory External Auditor Fees | ||||
|---|---|---|---|---|
| 2007 | 2006 | |||
| Audit | 201.213 | 81% | 183.524 | 85% |
| Tax Consultancy Services | 48.561 | 19% | 17.208 | 8% |
| Other Compliance & Assurance Services | - | 0% | 3.250 | 1% |
| Other Services | - | 0% | 12.965 | 6% |
| Total | 249.774 | 100% | 216.947 | 100% |
Sonaecom's Risk Management Policy, which is supervised by the BAFC, monitors the nonaudit services requested from the Statutory External Auditor and their respective network of companies, in order to ensure that auditor independence is not compromised. Annual fees paid by Sonaecom Group to the Deloitte Group represented less than 1% of their total global fees in Portugal. In addition, an Independence Letter is obtained each year from Deloitte confirming that they meet international guidelines on auditor independence.
Sonaecom's shares ended 2007 with a market price of 3.30 euros per share, 34% below the closing price of 5.02 euros per share at 31 December 2006. The share price reached a maximum of 7.5 euros per share on 16 February 2007 and a minimum of 3.25 euros on 17 September 2007.
At the end of 2007, Sonaecom's market capitalisation stood at approximately 1.2 billion euros. The average daily trading volume reached approximately 1,008,000 shares, an increase of more than 73% compared to 2006. The total number of Sonaecom shares traded during 2007 exceeded 257 million shares, more than 70% of the total share capital of the Company, a further indicator of the increased liquidity of our shares.
During 2007, Sonaecom's share price evolution and liquidity was driven primarily by market expectations regarding the public tender offer over PT, launched in February 2006. Our share price at the end of 2006 naturally incorporated a market expectation in relation to a positive outcome of the outstanding tender offer and the termination of the offer on 2 March 2007 had an immediate impact on our share price. This is clearly evidenced by the fact that during March 2007, our share price has decreased by circa 30% (from 6.34 at 28 February 2007 to 4.44 at 30 March 2007). In the remainder of the year, Sonaecom shares were influenced by the following news flow:
26 July 2007: release of the second quarter 2007 consolidated results;
6 August 2007: release of information in relation to the refinancing of Sonaecom's debt through a new underwritten Commercial Paper Programme;
At the Shareholders' Annual General Meeting, held on 2 May 2007, Sonaecom's shareholders approved the proposal from the Board of Directors to apply net results to legal and other reserves and retained earnings, with no dividend distribution, reflecting Sonaecom's strategy and the business opportunities available.
The Investor Relations department is responsible for managing Sonaecom's relationship with the financial community – current and potential investors, analysts and market authorities – with the goal of enhancing their knowledge and understanding of Sonaecom's businesses and activities, by providing relevant, timely and reliable information.
The department regularly prepares presentations and communications covering quarterly, half year and annual results, as well as issues announcements to the market whenever necessary, to disclose or clarify any relevant event that could influence Sonaecom's share price.
To further enhance the effective communication with the capital market and guarantee the quality of information provided, the Investor Relations department organises roadshows covering the most important financial centres of Europe and participates in various conferences. Also, a wide variety of investors and analysts have the opportunity to talk to management in one-on-one meetings or conference calls.
Any interested party may contact the Investor Relations department using the following contact details:
António Castro Investor Relations Manager Tel: (+351) 93 100 2099 Fax: (+351) 93 102 2099 Email: [email protected] / [email protected] Address: Rua Henrique Pousão, 432 – 7º Piso, 4460-841 Senhora da Hora, Portugal Website: www.sonae.com
During 2007, the Investor Relations department participated in 71 one-on-one and group meetings, two international roadshows (covering Lisbon, Madrid, London and a few cities in the USA) and five investor and telecommunications conferences, providing analysts and investors with information on Sonaecom's performance and future prospects.
The representative for relations with capital markets and the Portuguese Stock Exchange Authority is António Lobo Xavier who can be contacted by phone or e-mail:
Tel: (+351) 93 100 2270 Fax: (+351) 93 100 2229 E-mail: [email protected] / [email protected] Address: Rua Henrique Pousão, 432 – 7º Piso, 4460-841 Senhora da Hora, Portugal
In October 2004, Sonaecom's Board approved formal guidelines in relation to Share Dealing by Sonaecom Directors and "Relevant Employees". The agreed scope of coverage, including the meaning of Directors and Relevant Employees, within the Group, is the following:
These rules also apply to "Connected Persons" of Directors and Relevant Employees.
These guidelines, summarised below, are based on practice in the UK for listed companies as set out in "Chapter 16 – Directors" of the UK Listing Rules issued by the UK Listing Authority, with the exception of the notification rules, which are based on the CMVM regulations currently applying in Portugal.
Clear internal procedures have been established and communicated regarding implementation of these share dealing guidelines. The "designated officer" for Directors is the Chairman of the Board Audit and Finance Committee, Jean-François Pontal, who is an Independent Non-Executive Director.
The CMVM notification rules require notification from: (a) Directors of Sonaecom SGPS; (b) Directors of companies that control Sonaecom SGPS; (c) "Dirigentes" of Sonaecom SGPS, where "Dirigentes" means all people who have a regular access to privileged information and participate in management decisions; (d) companies controlled by any of the above Directors or "Dirigentes"; or (e) persons who act on behalf of any of the Directors or "Dirigentes" or companies above. The notification has to be made to CMVM within five working days following the transaction.
The notification must include: (a) the legal form of the acquisition or disposal and the respective date; (b) the number of shares involved and the number of shares held after the transaction; (c) the price and (d) the reason of notification.
Sonaecom has in place a set of internal guidelines that are designed to guarantee the ethical and responsible behaviour of the organisation.
The Code of Ethic deals with topics ranging from integrity, transparency, respect, social responsibility, environmental commitment, health and safety, confidentiality and use of privileged information, to managing conflicts of interests and communicating irregularities. Sonaecom's employees and suppliers, including external consultants, are required to comply with by these guidelines and to always follow them in carrying out their activities.
Under the scope of this Code of Ethics, Sonaecom has created an Ethics Committee, whose responsibility includes ensuring that any doubts are clarified and reporting and dealing with alleged violations of the Code.
The full version of the Code of Ethics may be found on Sonaecom's website (www.sonae.com).
Sonaecom has a policy and process for communicating internal irregularities, which sets out procedures to efficiently and fairly respond to alleged irregularities reported, including:
It is the responsibility of Sonaecom's Ethics Committee to review and evaluate the efficiency with which the policy and process for communicating irregularities is applied.
In addition to the general guidance from the Sonaecom Code of Conduct, the following additional policy applies at Board Level (covering "Directors" as defined below):
A Director3 , or entities in which a Director has a significant interest and/or influence, who or which enter or propose to enter into a transaction with Sonaecom SGPS, or any other company that is part of the Sonaecom Group, shall make full disclosure immediately. The fact that a transaction falls under other areas covered by separate guidance, such as Related Party Transactions, Business Gifts or Share Dealing, does not avoid the requirement for notification under this Conflicts of Interest Policy.
Such conflicts will be reported to the Board, normally via the Board Audit & Finance Committee (BAFC). The Board, on advice from the BAFC, may approve the transaction or request that such steps should be taken as are necessary and reasonable to remove any conflict of interest.
Where there are ongoing conflicts of interest, a written notice should be given to the Secretary to the Board who will maintain a Register of All Ongoing Declared Conflicts of Interest. This Register should be available at each Board meeting and will be updated with subsequent disclosures.
For all Directors, a Register of Significant and Relevant Outside Directorships and Other Significant Roles or Activities, as well as a Register of All Significant4 Shareholdings Held, should be maintained by the Secretary to the Board. Significant and relevant new appointments, activities and shareholdings should be disclosed in writing before being entered into. These disclosures should describe any potential conflict of interest arising, as well as any steps to be undertaken to manage or eliminate the identified conflicts. Disclosures should be assessed by the Board Nomination and Remuneration Committee ("BNRC") for Directorships, Roles and Activities and by the Board Audit and Finance Committee ("BAFC") for Shareholdings. The Secretary to the Board should ask all Directors to reconfirm the contents of the above register in writing once a year.
3 A "Director" for the purposes of the guidance includes all members of the Board of Directors, as well other Senior Executives who regularly attend Board meetings, Board Committee meetings or ExCom meetings.
4 "Significant" shareholding includes all shareholdings in the Group headed by Sonaecom's ultimate holding company (currently Efanor Investimentos) and any external shareholdings that represent more than 10% of the share capital or voting rights of the respective companies.
Any significant related party transactions with reference shareholders, Directors or other Company Officers (individual or accumulated transaction values greater than 10 million euros) should be disclosed in advance to the BAFC, together with the planned steps to meet market comparability tests and to manage any potential conflicts of interest (see guidance on Conflicts of Interest above). Transactions that have been contracted as a result of a competitive process and transactions between wholly owned Sonaecom companies will be exempt from pre-clearance with the BAFC but will need to be reported under the procedures mentioned below.
The BAFC should ask the Statutory External Auditor, at the twice yearly meetings held with the BAFC, to specifically report on their audit review of significant Related Party Transaction risks (as reported in the notes to the accounts) covering compliance with agreed policy and procedures. Special emphasis should be placed on any transactions in course or completed with reference to shareholders.
The Sonaecom CFO is responsible for reporting to the BAFC, on a calendar year quarterly basis, all transactions with reference shareholders that exceed 1 million euros and any other transactions that are deemed to be particularly "sensitive" by management, that exceed 1 million euros. The report should cover all relevant transactions closed in the quarter or in course at the quarter end to the extent that appropriate information is available.
An annual review of recurring and ongoing related party transactions should be included in the BAFC meeting covering the first quarter of each year. In addition, this annual review should include all significant Sonaecom Group5 related party transactions with accumulated annual values that exceed 5 million euros as an Appendix to the Board papers. The BAFC will provide feedback to the Board with details of any issues raised on related party transactions or, alternatively, confirmation that no such issues have been raised by the BAFC.
The management and monitoring of Sonaecom's main risks is achieved through the following key approaches:
Aligning the risk management cycle with the strategic planning cycle at all Sonaecom subsidiaries, allowing Sonaecom to prioritise and identify critical risks that might compromise performance and goals, and to take actions to manage those risks within defined levels through constant monitoring and by implementing corrective measures.
Implementing an internal business continuity management process to reduce the risk of business interruption caused by disasters or technical and operating failures. This approach involves five main phases: (a) business understanding; (b) devising recovery strategies; (c) developing and implementing recovery plans; (d) deploying a culture of business continuity management and; (e) testing, maintaining and auditing recovery plans. It also includes internal diagnosis and tests in relation to the physical safety of Sonaecom's critical facilities (e.g. data centres, call centres), using business continuity management to assess and manage potential risks.
Setting in place risk management cycles / processes allowing Sonaecom to mitigate identified critical risks that can affect processes, areas or entities, positioning them at the levels required by the management.
The diagrams bellow illustrate the main phases included in Sonaecom's risk management policies, which apply to all businesses in its portfolio.
5 "Sonaecom Group" includes Sonaecom SGPS, and any other company that is consolidated in the Sonaecom Group accounts.
The main focus on the management of the Group's corporate risks during 2007 was in adapting the risk management cycle to sustainability opportunities and risks on Sonaecom's telecom business (further detailed information can be found in the Sustainability Report).
During 2007, Sonaecom continued to focus on the development and consolidation of the business continuity management process. In this respect, Sonaecom undertook several actions, which will be finalised during 2008:
Pursuing our policy of assessment and management of physical security risks, diagnoses were made at facilities that are critical for business continuity purpose. The strands analysed were fire, flood and intrusion security, as well as organisational security procedures.
The possibility, in the short term, of a pandemic flu as a result of mutation of avian flu is of concern to Sonaecom. Accordingly, the Group has launched a project for the management of this pandemic flu risk, with the goal of guaranteeing that Sonaecom, its subsidiaries and employees are prepared to deal with this scenario.
The Group aims to minimise any related health problems and assure the continuity of critical services. During 2007, the focus covered:
More detailed information can be found in the company Sustainability Report.
At Sonaecom, we are dealing with certain risks associated with customer information and security. As part of a process that will continue during 2008, several initiatives were implemented during 2007, as follows:
Continuous monitoring is implemented at Sonaecom's telecommunication businesses to detect any kind of register loss between customer handset usage and invoicing, supported in RAID systems. The risk of QoS (quality of service) loss/deterioration is also mitigated when caused by integrity breach. "Alarmistic" was adapted to prevent income loss from new products / services.
In parallel, a platform upgrade was launched to include fixed-mobile convergence.
During 2007, fraud management processes were developed with the aim of controlling fixed and mobile platforms against fraud risk and malware management (mitigation of mobile handsets virus risk). It is important to highlight the following:
The risk management activities and results are shared at Sonae Group level in the Risk Management Consulting Group, allowing the transfer of knowledge and best practices.
Quarterly, Sonaecom's Audit and Risk Management Team reports to the Board Audit and Finance Committee, presenting a summary of all relevant corporate risks findings. A follow-up procedure to monitor the effective adoption of effective corrective measures for the main findings is implemented on a half-yearly basis.
No material non-operational transactions were made during the year with related parties (including Sonaecom Officers or Governing Bodies, such as Members of the Board of Directors and the Statutory External Auditor, owners of qualified shareholdings or with controlling or Group companies), with the exception of the agreements signed in 2003, 2004 and 2005 with Sonae Investments BV and Sonae SGPS, relating to the hedging of Sonaecom's MTIP as described above. In the course of the Group's normal treasury management activities, the Company transferred its excess liquidity as treasury applications with Sonae SGPS at Euribor flat, with the exception of the excess liquidity from its bond issue that is earning a higher rate of Euribor plus 20 basis points.
4.1.11. Other offices held by members of the Board of Directors Please refer to 3.2 under the "Our Management" section.
4.1.12. Article 447, 448 and qualified holdings Please refer to 3.3 under the "Our Management" section.
5.1 Sonaecom Consolidated Financial Statements
| ASSETS | Notes | December 2007 | December 2006 |
|---|---|---|---|
| NON CURRENT ASSETS: | |||
| Tangible assets | 1.d), 1.i) and 6 | 533,166,510 | 494,771,742 |
| Intangible assets | 1.e), 1.f) and 7 | 189,436,634 | 166,664,974 |
| Goodwill | 1.g) and 9 | 528,216,604 | 506,902,772 |
| Investments in associated companies | 1.b) and 4 | 747,614 | 762,437 |
| Investments available for sale | 1.h) and 10 | 1,207,320 | 112,317,225 |
| Deferred tax assets | 1.q) and 11 | 101,118,096 | 61,786,654 |
| Other non current assets | 1.s), 1.t), 1.y) and 12 | - | 348,568 |
| Total non current assets | 1,353,892,778 | 1,343,554,372 | |
| CURRENT ASSETS: | |||
| Inventories | 1.j) and 13 | 24,036,540 | 15,138,395 |
| Trade debtors | 1.k) and 14 | 192,029,940 | 151,981,914 |
| Other current debtors | 1.k) and 15 | 17,704,719 | 20,060,419 |
| Other current assets | 1.s), 1.t), 1.y) and 16 | 87,096,013 | 62,687,227 |
| Investments recorded at fair value through profit or loss | 1.h) and 17 | - | 849,375 |
| Cash and cash equivalents | 1.l) and 18 | 83,851,612 | 125,917,344 |
| Total current assets | 404,718,824 | 376,634,674 | |
| Total assets | 1,758,611,602 | 1,720,189,046 | |
| SHAREHOLDERS' FUNDS AND LIABILITIES | |||
| SHAREHOLDERS' FUNDS: | |||
| Share capital | 19 | 366,246,868 | 366,246,868 |
| Own Shares | 1.v) and 20 | (8,938,165) | - |
| Reserves | 1.u) | 540,469,726 | 556,646,226 |
| Consolidated net income/(loss) for the year | 36,777,870 | (13,883,168) | |
| 934,556,299 | 909,009,926 | ||
| Minority interests | 21 | 865,131 | 471,382 |
| Total Shareholders' Funds | 935,421,430 | 909,481,308 | |
| LIABILITIES: | |||
| NON CURRENT LIABILITIES: | |||
| Medium and long-term loans - net of short-term portion | 1.m), 1.n) and 22 | 373,213,990 | 460,600,827 |
| Other non current creditors | 1.i) and 23 | 17,916,038 | 1,614,602 |
| Provisions for other liabilities and charges | 1.p), 1.t) and 24 | 30,885,378 | 20,078,571 |
| Deferred tax liabilities | 1.q) | 284,402 | - |
| Other non current liabilities | 1.s), 1.t), 1.y) and 25 | 291,147 | 3,785,049 |
| Total non current liabilities | 422,590,955 | 486,079,049 | |
| CURRENT LIABILITIES: | |||
| Short-term loans and other loans | 1.m), 1.n), 18 and 22 | 624,457 | 74,607 |
| Trade creditors | 26 | 185,332,554 | 162,680,112 |
| Other current financial liabilities | 1.i) and 27 | 1,926,041 | 1,708,922 |
| Other creditors | 28 | 18,350,798 | 17,538,711 |
| Other current liabilities | 1.s), 1.t), 1.y), 29 and 41 | 194,365,367 | 142,626,337 |
| Total current liabilities | 400,599,217 | 324,628,689 | |
| Total Shareholders' Funds and liabilities | 1,758,611,602 | 1,720,189,046 |
The notes are an integral part of the consolidated financial statements at 31 December 2007 and 2006.
Patrícia Maria Cruz Ribeiro da Silva Duarte Paulo Teixeira de Azevedo
Ângelo Gabriel Ribeirinho Paupério
Luís Filipe Campos Dias de Castro Reis
George Christopher Lawrie
Miguel Nuno Santos Almeida
Maria Cláudia Teixeira de Azevedo
António Sampaio e Mello
Gervais Gille Pellissier
David Charles Denholm Hobley
Jean-François René Pontal
(Amounts expressed in Euro)
| September to | September to | ||||
|---|---|---|---|---|---|
| D e c e m b e r 2007 |
D e c e m b e r 2006 |
||||
| N o t e s | D e c e m b e r 2007 |
(Not audi ted) |
D e c e m b e r 2006 |
(Not audi ted) |
|
| Sales | 30 | 79,052,510 | 24,134,556 | 89,288,539 | 22,666,820 |
| Services rendered | 3 0 | 813,641,181 | 224,281,105 | 746,751,737 | 189,343,178 |
| Other operating revenues | 31 | 6,421,176 | 2,188,901 | 32,035,543 | 2,412,482 |
| 899,114,867 | 250,604,562 | 868,075,819 | 214,422,480 | ||
| Cost of sales | 1 3 | (108,621,905) | (33,901,886) | (102,115,774) | (29,701,109) |
| External supplies and services | 32 | (507,530,381) | (142,230,185) | (457,366,138) | (120,895,672) |
| Staff expenses | (95,000,392) | (25,920,379) | (102,501,059) | (25,189,054) | |
| Depreciation and amortisation | 1.d), 1.e), 6 and 7 | (139,982,820) | (38,485,608) | (135,670,907) | (35,480,638) |
| Provisions and impairment losses | 1.p), 1.w) and 24 | (12,176,960) | (2,944,485) | (10,612,459) | (2,378,237) |
| Other operating costs | 1.x) and 33 | (13,791,210) | (4,183,035) | (11,142,336) | (3,178,012) |
| (877,103,668) | (247,665,578) | (819,408,673) | (216,822,722) | ||
| Tender Offer costs | 3 4 | - | - | (30,906,602) | (30,906,602) |
| (877,103,668) | (247,665,578) | (850,315,275) | (247,729,324) | ||
| Gains and losses on associated companies | 35 | 224,427 | 312,000 | (162,483) | (41,249) |
| Gains and losses on investments available for sale | 3 5 | 5,578,307 | - | - | - |
| Other financial expenses | 1.n), 1.o), 1.w), 1.x) and 35 | (39,460,766) | (4,707,415) | (23,138,426) | (6,236,916) |
| Other financial income | 1.o), 1.w) and 35 | 12,176,948 | 554,561 | 5,931,577 | 1,403,780 |
| C u rr e n t i n c o m e / ( l o s s ) |
5 3 0 , 1 1 5 | ( 9 0 1 , 8 7 0 ) | 3 9 1 , 2 1 2 | ( 3 8 , 1 8 1 , 2 2 9 ) | |
| Income taxation | 1.q), 11 and 36 | 36,635,013 | 34,929,818 | (5,259,937) | (2,068,876) |
| Consol idated net income/( los s ) Attributed to: |
3 7 , 1 6 5 , 1 2 8 | 3 4 , 0 2 7 , 9 4 8 | ( 4 , 8 6 8 , 7 2 5 ) | ( 4 0 , 2 5 0 , 1 0 5 ) | |
| Shareholders of parent company | 4 0 | 3 6 , 7 7 7 , 8 7 0 | 3 3 , 8 4 6 , 5 0 3 | ( 1 3 , 8 8 3 , 1 6 8 ) | ( 4 0 , 3 5 4 , 2 4 9 ) |
| Minority interests | 21 | 387,258 | 181,445 | 9,014,443 | 104,144 |
| Earnings per share | |||||
| Including discontinued operations | |||||
| Basic | 0.101 | 0.09 | (0.04) | (0.11) | |
| Diluted | 0.101 | 0.09 | (0.04) | (0.11) | |
| Excluding discontinued operations | |||||
| Basic | 0.101 | 0.09 | (0.04) | (0.11) | |
| Diluted | 0.101 | 0.09 | (0.04) | (0.11) |
The notes are an integral part of the consolidated financial statements at 31 December 2007 and 2006
Patrícia Maria Cruz Ribeiro da Silva Duarte Paulo Teixeira de Azevedo
Ângelo Gabriel Ribeirinho Paupério
Luís Filipe Campos Dias de Castro Reis
George Christopher Lawrie
Miguel Nuno Santos Almeida
Maria Cláudia Teixeira de Azevedo
António Sampaio e Mello
Gervais Gille Pellissier
David Charles Denholm Hobley
Jean-François René Pontal
CONSOLIDATED MOVEMENTS IN SHAREHOLDERS' FUNDS
FOR THE YEARS ENDED AT 31 DECEMBER 2007 AND 2006
| 200 7 |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Rese rves |
|||||||||||||
| Share capit al |
Own Share s (No te 2 0) |
Lega l rese rves |
Shar e ium prem |
Othe r rese rves |
Rese rves Med ium Term Incen tive P lans |
Hedg ing Rese rve |
Rese rves of O wn shar es |
Fair v alue rese rves (Not e 10 ) |
Tota l rese rves |
Mino rity Inter ests |
Net incom e/(lo ss) |
Tota l |
|
| Balan t 31 Dec emb er 20 06 ce a |
366 ,246 ,868 |
- | 559 ,078 |
775 ,290 ,377 |
(22 5) 5,27 7,49 |
952 ,390 |
- | - | 5,12 1,87 6 |
556 ,646 ,226 |
- | (13, ) 883 ,168 |
909 ,009 ,926 |
| Appr opria tion of th nsoli date d res ult o f 20 06 e co |
- | - | 443 ,209 |
- | (14, 326 ,377 |
) - |
- | - | - | (13, 883 ,168 ) |
- | 13,8 83,1 68 |
- |
| e/(lo ss) f Cons olida ted n et in or th ded 31 D ber 2 007 com e ye ar en ecem |
- | - | - | - | - | - | - | - | - | - | - | 36,7 77,8 70 |
36, 777 ,870 |
| Acqu isitio n of share own s |
- | (8,9 65) 38,1 |
- | - | (8,9 65) 38,1 |
- | - | 8,93 8,16 5 |
- | - | - | - | (8,9 38,1 65 |
| Fair v alue reser ves |
- | - | - | - | - | - | 412 ,910 |
- | (5,1 21,8 76) |
(4,7 08,9 66) |
- | - | (4,7 08,9 66 |
| Medi um T Incen tive Plans gnitio erm reco n |
- | - | - | - | - | 2,2 34,2 88 |
- | - | - | 2,2 34,2 88 |
- | - | 2,2 34,2 88 |
| s (st tax) Reim burse ment s of incu rred in sh apita l incr expe nses are c ease amp |
- | - | - | - | 300 ,000 |
- | - | - | - | 300 ,000 |
- | - | 300 ,000 |
| Adju nts i n for eign ransl ation nd o thers stme ncy t curre reser ves a |
- | - | - | - | (11 8,65 4) |
- | - | - | - | (11 8,65 4) |
- | - | (11 8,65 4 |
| Balan t 31 Dec emb er 20 07 ce a |
366 ,246 ,868 |
(8,9 65) 38,1 |
1,0 02,2 87 |
775 ,290 ,377 |
(24 1) 8,36 0,69 |
3,1 86,6 78 |
412 ,910 |
8,9 38,1 65 |
- | 540 ,469 ,726 |
- | 36, 777 ,870 |
934 ,556 ,299 |
| Mino ntere sts |
|||||||||||||
| rity i Balan t 31 Dec emb er 20 06 ce a |
- | - | - | - | - | - | - | - | - | - | 471 ,382 |
- | 471 ,382 |
| Mino rity i ults ntere sts o n res |
- | - | - | - | - | - | - | - | - | - | 387 ,258 |
- | 387 ,258 |
| Othe r cha nges |
- | - | - | - | - | - | - | - | - | - | 6,49 1 |
- | 6,49 1 |
| Balan emb t 31 Dec er 20 07 ce a |
- | - | - | - | - | - | - | - | - | - | 865 ,131 |
- | 865 ,131 |
| Tota l |
366 ,246 ,868 |
(8,9 38,1 65) |
1,0 02,2 87 7 |
75,2 90,3 77 |
(24 8,36 0,69 |
1) 3,1 86,6 78 |
412 ,910 |
8,9 38,1 65 |
- | 540 ,469 ,726 |
865 ,131 |
36, 777 ,870 |
935 ,421 ,430 |
| Rese rves |
200 6 |
||||||||||||
| Share capit al |
Own Shar es |
Lega l rese rves |
Shar e ium prem |
Othe r rese rves |
Rese rves Med ium Term Incen tive P lans |
Hedg ing Rese rve |
Rese rves of O wn shar es |
Fair v alue rese rves (Not ) e 10 |
Tota l rese rves |
Mino rity Inter ests |
Net e/(lo ss) incom |
Tota l |
|
| Balan t 31 Dec emb er 20 05 ce a |
296 ,526 ,868 |
- | 114 ,360 |
499 ,633 ,160 |
(22 6,65 4,30 2) |
- | - | - | - | 273 ,093 ,218 |
- | 2,15 6,19 8 |
571 ,776 ,284 |
| Appr opria tion of th nsoli date d res ult o f 20 05 e co |
- | - | 444 ,718 |
- | 1,7 11,4 80 |
- | - | - | - | 2,1 56,1 98 |
- | (2,1 98) 56,1 |
- |
| Capit al inc inclu ding share ium rease prem Cons olida ted n et in or th ded 31 D ber 2 006 |
69,7 20,0 00 |
- | - | 275 ,657 ,217 |
- | - | - | - | - | 275 ,657 ,217 |
- | - 883 |
345 ,377 ,217 |
| e/(lo ss) f com e ye ar en ecem Fair v alue |
- | - | - | - | - | - | - | - | - 5,12 1,87 6 |
- 5,1 21,8 76 |
- | (13, ,168 ) |
(13 ,883 ,168 5,12 1,87 6 |
| reser ves Medi um T Incen tive Plans gnitio erm reco n |
- | - | - | - | - | - 952 ,390 |
- | - | 952 ,390 |
- | - | 952 ,390 |
|
| Adju stme nts i n for eign ncy t ransl ation nd o thers curre reser ves a |
- - |
- - |
- - |
- - |
- (33 4,67 3) |
- | - - |
- - |
- - |
(33 4,67 3) |
- - |
- - |
(33 4,67 3 |
| Balan t 31 Dec emb er 20 06 ce a |
366 ,246 ,868 |
- | 559 ,078 |
775 ,290 ,377 |
(22 5) 5,27 7,49 |
952 ,390 |
- | - | 5,12 1,87 6 |
556 ,646 ,226 |
- | (13, ) 883 ,168 |
909 ,009 ,926 |
| Mino rity i ntere sts |
|||||||||||||
| Balan t 31 Dec emb er 20 05 ce a |
- | - | - | - | - | - | - | - | - | - | 115 ,163 ,114 |
- | 115 ,163 ,114 |
| Mino rity i ults ntere sts o n res |
- | - | - | - | - | - | - | - | - | - | 9,01 4,44 3 |
- | 9,01 4,44 3 |
| Sales of gr nies oup c ompa |
- | - | - | - | - | - | - | - | - | - | (3,0 35,7 80) |
- | (3,0 35,7 80 |
| Acqu isitio n of mino rity i ntere sts |
- | - | - | - | - | - | - | - | - | - | (120 ,682 ,005 ) |
- | (120 ,682 ,005 |
| Othe r cha nges |
- | - | - | - | - | - | - | - | - | - | 11, 610 |
- | 11, 610 |
| Balan t 31 Dec emb er 20 06 ce a |
- | - | - | - | - | - | - | - | - | - | 471 ,382 |
- | 471 ,382 |
| Tota l |
366 ,246 ,868 |
- | 559 ,078 |
775 ,290 ,377 |
(22 5,27 7,49 5) |
952 ,390 |
- | - | 5,12 1,87 6 |
556 ,646 ,226 |
471 ,382 |
(13 ,883 ,168 ) |
909 ,481 ,308 |
The notes are an integral part of the consolidated financial statements at 31 December 2007 and 2006
FOR THE YEARS ENDED AT 31 DECEMBER 2007 AND 2006 (Amounts expressed in Euro)
| 31 December 2007 | 31 December 2006 | ||||
|---|---|---|---|---|---|
| Operating activities Receipts from trade debtors Payments to trade creditors |
859,288,809 (574,683,704) |
821,674,020 (554,492,890) |
|||
| Payments to employees | Cash flows from operating activities | (107,936,161) 176,668,944 |
(112,906,999) 154,274,131 |
||
| Payments/receipts relating to income taxes, net | (3,052,899) | (1,954,217) | |||
| Other payments/receipts relating to operating activities, net | Cash flows from operating activities (1) | (23,686,174) 149,929,871 |
149,929,871 | (29,255,058) 123,064,856 |
123,064,856 |
| Investing activities | |||||
| Receipts from: | |||||
| Investments | 115,310,368 | 28,375,116 | |||
| Tangible assets | 1,057,408 | 2,609,447 | |||
| Intangible assets | 6,966 | 8,235 | |||
| Interest and similar income | 11,683,303 | 128,058,045 | 5,919,370 | 36,912,168 | |
| Payments for: | |||||
| Loans granted | (1,233,597) | (4,990) | |||
| Investments | (34,864,358) | (106,702,871) | |||
| Tangible assets | (105,570,640) | (93,357,152) | |||
| Intangible assets | (33,976,535) | (175,645,130) | (18,764,014) | (218,829,027) | |
| Cash flows from investing activities (2) | (47,587,085) | (181,916,859) | |||
| Financing activities | |||||
| Receipts from: | |||||
| Loans obtained | 225,000,000 | 225,000,000 | - | - | |
| Payments for: | |||||
| Leasing | (3,251,496) | (1,820,101) | |||
| Interest and similar expenses | (36,364,867) | (18,512,975) | |||
| Own shares | (8,938,165) | - | |||
| Loans obtained | Cash flows from financing activities (3) | (324,458,200) | (373,012,728) (148,012,728) |
- | (20,333,076) (20,333,076) |
| Net cash Flows ( 4 )=( 1 )+( 2 )+( 3 ) | (45,669,942) | (79,185,079) | |||
| Effect of the foreign exchanges | 117,920 | (59,000) | |||
| Cash and cash equivalents at the beginning of the year | 128,779,177 | (205,086,816) | |||
| Cash and cash equivalents at end of the year | 83,227,155 | 125,842,737 |
The notes are an integral part of the consolidated financial statements at 31 December 2007 and 2006.
Patrícia Maria Cruz Ribeiro da Silva Duarte Paulo Teixeira de Azevedo
Chief Accountant The Board of Directors
Ângelo Gabriel Ribeirinho Paupério
Luís Filipe Campos Dias de Castro Reis
George Christopher Lawrie
Miguel Nuno Santos Almeida
Maria Cláudia Teixeira de Azevedo
António Sampaio e Mello
Gervais Gille Pellissier
David Charles Denholm Hobley
Jean-François René Pontal
2 0 0 7 2 0 0 6
| (Amounts expressed in Euro) | |
|---|---|
| 1 - Acquisition or sale of subsidiaries or other businesses: | |||
|---|---|---|---|
| a) A c q u i s i t i o n s | |||
| Profimetrics - Software Solutions, S.A. | - | 150,000 | |
| Tecnológica Telecomunicações, Ltda. | 1,148,715 | - | |
| Telemilénio Telecomunicações - Sociedade Unipessoal, Lda. Cape Technologies, Limited |
13,924,227 22,149,145 |
- - |
|
| Praesidium Holdings Limited | 1,579,349 | - | |
| b) Amount to pay from the aquisition of financial investments | |||
| Tecnológica Telecomunicações, Ltda. | 917,494 | - | |
| Cape Technologies, Limited Praesidium Holdings limited |
3,070,000 578,369 |
- - |
|
| c) Amount to receive from the aquisition of financial investments | |||
| Telemilénio Telecomunicações - Sociedade Unipessoal, Lda. | 628,785 | - | |
| d) Amount of other assets and liabilities acquired | |||
| Acquisition of Sonae Indústria, S.G.P.S., S.A.shares | - | 414,842 | |
| Increases in Supplementary Capital of Profimetrics - Software Solutions, S.A. | - | 150,000 | |
| Acquisition of Portugal Telecom, S.G.P.S., S.A. Shares | - | 105,988,029 | |
| e) S a l e s | 34,864,358 | 106,702,871 | |
| Retailbox BV | - | 33,268,380 | |
| Investimento Directo, S.A. | - | 679,412 | |
| Sale of Sonae Indústria, S.G.P.S., S.A.shares | - | 247,274 | |
| Sale of Portugal Telecom, S.G.P.S., S.A. shares | 108,461,474 | - | |
| Sale of Sonae, S.G.P.S., S.A. Shares Outsystem Software em Rede, S.A. |
385,979 87,790 |
- - |
|
| Despegar.com Inc | 2,904,245 | - | |
| Profimetrics Software Solutions, S.A. | 300,000 | - | |
| f) Amounts received of sales from previous years | |||
| Retailbox BV | 3,320,880 | - | |
| g) Amount to be paid related to financial investments sold | |||
| Profimetrics Software Solutions, S.A. | 150,000 | ||
| Retailbox BV | - | 5,819,950 | |
| 115,310,368 | 28,375,116 | ||
| h) Amounts of cash and cash equivalents in the subsidiary sold | |||
| Retailbox BV | - | 247,394 | |
| Enabler - Informática, S.A. | - | 3,166,663 | |
| Enabler Brasil, Lda. | - | 116,001 | |
| Enabler Retail & Consult, Gmbh Enabler UK, Limited |
- - |
17,900 570,900 |
|
| Enabler France | - | 155,860 | |
| i) | Amounts of other assets and liabilities sold | ||
| Retailbox BV Fixed assets |
- | 611,599 | |
| Trade debtors and other current debtors | - | 6,490,798 | |
| Investments recorded at fair value through profit or loss | - | 391,216 | |
| Trade creditors and other creditors | - | (2,416,842) | |
| 2 - Details of cash and cash equivalents: | |||
| Cash in hand | 581,803 | 143,380 | |
| Cash at bank | 4,431,889 | 6,173,117 | |
| Treasury applications | 78,837,920 | 119,600,847 | |
| Overdrafts | (624,457) | (74,607) | |
| Cash and cash equivalents Overdrafts |
83,227,155 624,457 |
125,842,737 74,607 |
|
| Cash assets | 83,851,612 | 125,917,344 | |
| The difference between Cash and cash equivalents at 31 December 2006 and Cash and cash equivalents at the beginning of the year relates to the change of the consolidation perimeter and the detail is as follows: |
|||
| Cash and cash equivalents at 31 December 2006 | 125,842,737 | ||
| Changes on the consolidation perimeter: | |||
| Tecnológica Telecomunicações, Ltda. | 384 | ||
| Telemilénio Telecomunicações - Sociedade Unipessoal, Lda. Cape Technologies Limited |
338,480 2,157,457 |
||
| Cape Asia Pac PTY Limited | 3,638 | ||
| Cape Poland Sp Z.o.o. | 5,905 | ||
| Cape Technologies (UK) Limited | 13,809 | ||
| Cape Technologies Americas, Inc | 35,213 | ||
| Praesidium Holdings Limited Praesidium Services Limited |
497 381,057 |
||
| Cash and cash equivalents at the beginning of the year ended on 31 December 2007 | 128,779,177 | ||
| 3 - Description of non monetary financing activities | |||
| a) Bank credit granted and not used | 104,611,398 | 225,141,177 | |
| b) Purchase of company through the issue of shares | Not applicable | Not applicable | |
| c) Conversion of loans into shares | Not applicable | Not applicable |
| Cash flow | Cash flow | Cash flow | Net | |
|---|---|---|---|---|
| from operating | from investing | from financing | Cash | |
| Activity | activities | activities | activities | Flows |
| Telecommunication | 188,741,151 | (135,098,163) | (340,551,509) | (286,908,521) |
| Multimedia | (3,696,917) | (748,124) | (15,415) | (4,460,456) |
| Information Systems | (19,036,526) | (18,710,340) | (227,416) | (37,974,281) |
| Others | (16,077,837) | 106,969,542 | 192,781,612 | 283,673,316 |
| 149,929,871 | (47,587,085) | (148,012,728) | (45,669,942) |
The notes are an integral part of the consolidated financial statements at 31 December 2007 and 2006.
Patrícia Maria Cruz Ribeiro da Silva Duarte Paulo Teixeira de Azevedo
Chief Accountant The Board of Directors
Ângelo Gabriel Ribeirinho Paupério
Luís Filipe Campos Dias de Castro Reis
George Christopher Lawrie
Miguel Nuno Santos Almeida
Maria Cláudia Teixeira de Azevedo
António Sampaio e Mello
Gervais Gille Pellissier
David Charles Denholm Hobley
Jean-François René Pontal
5.2 Notes to the Consolidated Financial Statements
(Amounts expressed in Euro)
SONAECOM, S.G.P.S., S.A. (hereinafter referred to as "the Company" or "Sonaecom") was established on 6 June 1988, under the name Sonae – Tecnologias de Informação, S.A. and has its head office at Lugar de Espido, Via Norte, Maia – Portugal. It is the parent company of the group of companies listed in Notes 2 and 4 ("the Group").
Pargeste, S.G.P.S., S.A.'s subsidiaries in the communications and information technology area were transferred to the Company through a demerger-merger process, executed by public deed dated 30 September 1997.
On 3 November 1999 the Company's share capital was increased, its articles of association were modified and its name was changed to Sonae.com, S.G.P.S., S.A.. Since then the Company's corporate object has been the management of investments in other companies. Also on 3 November 1999, the Company's share capital was re-denominated to Euro, being represented by one hundred and fifty million shares with a nominal value of 1 Euro each.
On 1 June 2000, the Company carried out a Combined Share Offer, involving the following:
A Retail Share Offer of 5,430,000 shares, representing 3.62% of the share capital, made in the domestic market and aimed at: (i) employees of the Sonae Group; (ii) customers of the companies controlled by Sonaecom; and (iii) the general public.
An Institutional Offering for sale of 26,048,261 shares, representing 17.37% of the share capital, aimed at domestic and foreign institutional investors.
In addition to the Combined Share Offer, the Company's share capital was increased under the terms explained below. The new shares were fully subscribed for and paid up by Sonae, S.G.P.S., S.A. (a shareholder of Sonaecom, hereinafter referred to as "Sonae"). The capital increase was subscribed for and paid up on the date the price of the Combined Share Offer was determined, and paid up in cash, 31,000,000 new ordinary shares of 1 Euro each being issued. The subscription price for the new shares was the same as that fixed for the sale of shares in the aforementioned Combined Share Offer, which was Euro 10.
In addition, Sonae sold 4,721,739 Sonaecom shares under an option granted to the banks leading the Institutional Offer for Sale and 1,507,865 shares to Sonae Group managers and to the former owners of the companies acquired by Sonaecom.
By decision of the Shareholders' General Meeting held on 17 June 2002, Sonaecom's share capital was increased from Euro 181,000,000 to Euro 226,250,000 by public subscription reserved for the existing shareholders, 45,250,000 new shares of 1 Euro each having been fully subscribed for and paid up at the price of Euro 2.25 per share.
On 30 April 2003, the Company's name was changed by public deed to SONAECOM, S.G.P.S., S.A..
By decision of the Shareholders' General Meeting held on 12 September 2005, Sonaecom's share capital was increased in Euro 70,276,868, from Euro 226,250,000 to Euro 296,526,868, by the issuance of 70,276,868 new shares of 1 Euro each and with a share premium of Euro 242,455,195, fully subscribed by France Telecom. The corresponding public deed was executed on 15 November 2005.
By decision of the Shareholders General Meeting held on 18 September 2006, Sonaecom's share capital was increased in Euro 69,720,000, from Euro 296,526,868 to Euro 366,246,868, by the issuance of 69,720,000 new shares of 1 Euro each and with a share premium of Euro 275,657,217,
subscribed by 093X – Telecomunicações Celulares, S.A. (EDP) and Parpública – Participações Públicas, SGPS, S.A.(Parpública). The corresponding public deed was executed on 18 October 2006.
The Group's business consists essentially of:
The Group operates in Portugal and has some subsidiaries (in the information systems consultancy area) in Brazil, the United Kingdom, Ireland, Poland, Australia and the United States of America.
Since 1 January 2001 all Group companies based in the Euro zone have adopted the Euro as their base currency for processing, systems and accounting.
The consolidated financial statements are also presented in Euro, rounded at unit, and the transactions in foreign currencies are included in accordance with the accounting policies detailed below.
The accompanying financial statements are the Sonaecom Group's consolidated financial statements and have been prepared on a going concern basis, based on the accounting records of the companies included in the consolidation (Notes 2 and 4) in accordance with International Financial Reporting Standards ("IAS/IFRS") as adopted by the European Union ("EU"). These financial statements were prepared based on the acquisition cost, except for the revaluation of financial instruments.
For Sonaecom, there are no differences between IFRS as adopted by European Union and IFRS published by the International Accounting Standards Board.
Sonaecom adopted "IAS/IFRS" for the first time according to SIC 8 (First time adoption of IAS) on 1 January 2003.
In 2007, there were no changes in accounting policies in relation to those used for the consolidated financial statements as of 31 December 2006. In 2007, Sonaecom applied for the first time the IFRS 7 - "Financial instruments: disclosures", mandatory for the years beginning on or after 1 January 2007 and the revised IAS 1 - "Presentation of Financial Statements". Application of these standards resulted in an increase in the disclosures regarding financial instruments used by the Group (Notes 1. ab), 8, 14, 15, 22, 26, 28 and 35).
On 29 March 2007, with mandatory effect as from 1 January 2009, but with early adoption allowed, the IASB issued a revised IAS 23 – "Borrowing Costs", which in relation to the previous version, eliminated the possibility of immediate recognition in the statement of profit and loss of borrowing costs relating to assets that require a substantial period of time to be ready for use or sale. Sonaecom already adopted the procedure of capitalising such costs as part of the cost of the related assets and, consequently, the revision of this standard did not have any impact on the consolidated financial statements of the Group.
Additionally, in 2007, five interpretations were issued: (i) IFRIC 7 - "Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies", (ii) IFRIC 8 - "Scope of IFRS 2 ", (iii) IFRIC 9 -" Reassessment of Embedded Derivatives", (iv) IFRIC 10 -" Interim Financial Reporting and Impairment ", and (v) IFRIC 11 -" IFRS 2 - Group and Treasury Share Transactions". Application of these interpretations did not have a significant effect on the consolidated financial statements as of 31 December 2007.
Finally, at the at time of issuing these financial statements, the following standards and interpretations had been issued, application of which was not mandatory and which had not yet been endorsed by the European Union:
-Review of IFRS 3 – "Business concentration" – (mandatory at 1 July 2009);
IFRS 8 – "Operating Segments" – (mandatory at 1 January 2009);
IFRIC 12 "Service Concession Arrangements" (mandatory at 1 January 2008);
At 31 December 2007, the Group had already applied IFRIC 13, the other standards and interpretations not having a significant effect on the Group's consolidated financial statements.
The main accounting policies used in the preparation of the accompanying consolidated financial statements were as follows:
Investments in companies in which the Group has direct or indirect voting rights at Shareholders' General Meetings, in excess of 50%, or in which it has control over the financial and operating policies (definition of control used by the Group) were fully consolidated in the accompanying consolidated financial statements. Third party participations in the shareholders' equity and net results of those companies are recorded separately in the consolidated balance sheet and in the consolidated statement of profit and loss, respectively, under the caption 'Minority interests'.
When losses attributable to minority shareholders exceed minority interests in shareholders' funds of the subsidiaries, the Group absorbs the excess together with any additional losses, except when the minority shareholders have the obligation and are able to cover those losses. If subsidiaries subsequently report profits, the Group appropriates all the profits until the amount of the minority interests in the losses absorbed by the Group is recovered.
In the acquisition of subsidiaries, the purchase method is applied. The results of subsidiaries bought or sold during the year are included in the statement of profit and loss as from the date of acquisition (or of control acquisition) or up to the date of sale (or of control cession). Intra Group transactions, balances and dividends are eliminated.
The expenses incurred with the acquisition of investments in Group companies are considered as part of the acquisition cost.
The fully consolidated companies are listed in Note 2.
Investments in associated companies (generally investments representing between 20% and 50% of a company's share capital) are recorded using the equity method.
In accordance with the equity method, investments are adjusted annually by an amount corresponding to the Group's share of the net results of associated companies, against a corresponding entry to gain or loss for the year, and by the amount of dividends received, as well as by other changes in the equity of the associated companies, which are recorded by a corresponding entry to the caption 'Other reserves'. An assessment of the investments in associated companies is performed annually, with the aim of detecting possible impairment situations.
When the Group's share of accumulated losses of an associated company exceeds the book value of the investment, the investment is recorded at nil value, except when the Group has assumed commitments to the associated company, in which case a provision is recorded under the caption 'Provisions for other liabilities and charges'.
Investments in associated companies are listed in Note 4.
The financial statements of companies jointly controlled have been consolidated in the accompanying financial statements, as from their acquisition date, in accordance with the proportional consolidation method,. In accordance with this method, assets, liabilities, income and costs of these companies have been included into the consolidated financial statements, caption by caption, in proportion to the control attributed to the Group.
. The excess of cost inrelation to the fair value of identifiable assets and liabilities of the jointly controlled companies at the time of their acquisition is recorded as Goodwill (Note 9). If the difference between cost and the fair value of the net assets and liabilities acquired is negative, it is recognised as income for the period, after reconfirmation of the fair value of the identifiable assets and liabilities.
Transactions, balances and dividends distributed between Group companies and jointly controlled companies are eliminated in the proportion attributable to the Group.
Classification of investments in jointly controlled companies is determined, among other matters, based on shareholders' agreements governing the joint control.
Details of jointly controlled companies are included in Note 3.
Tangible assets are recorded at their acquisition cost less accumulated depreciation and less estimated accumulated impairment losses.
Depreciation is provided on a straight-line monthly basis as from the date the assets are available for use in the necessary conditions to operate as intended by the management, by a corresponding charge to the statement of profit and loss caption 'Depreciation and amortisation'.
Impairment losses detected in the realization value of tangible assets are recorded in the year in which they arise, by a corresponding charge to the caption 'Depreciation and amortisation' of the statement of profit and loss.
The annual depreciation rates used correspond to the estimated useful life of the assets, which are as follows:
| Years of useful life |
|
|---|---|
| Buildings | 50 |
| Other constructions | 10 - 20 |
| Network | 10 - 20 |
| Other plant and machinery | 8 |
| Vehicles | 4 |
| Fixtures and fittings | 3 - 10 |
| Tools | 5 - 8 |
| Other tangible assets | 4 - 8 |
Current maintenance and repair costs of fixed assets are recorded as costs in the year in which they occur. Improvements of significant amount, which increase the estimated useful life of the assets, are capitalised and depreciated in accordance with the remaining estimated useful life of the corresponding assets.
The estimated costs related with the mandatory dismantling and removal of tangible assets, incurred by the Group, are capitalised and amortised according to the useful life of the corresponding assets.
Work in progress corresponds to fixed assets still in the construction/development stage which are recorded at their acquisition cost. These assets are depreciated as from the moment they are in condition to be used and when they operate as intended by the management. Good conditions in terms of network coverage and/or necessary quality and technical reliability to ensure minimum services are examples of conditions evaluated by the management.
During the year ended at 31 December 2007 the Group reassessed, on a prospective basis, the useful life of certain assets recorded under 'Tangible assets', (Note 6), based on reports of independent specialised entities.
'Intangible assets' are recorded at their acquisition cost less accumulated amortisation and less estimated accumulated impairment losses. Intangible assets are only recognised if it is likely that they will bring future economic benefits to the Group, if the Group controls them and if their cost can be reasonably measured.
Intangible assets correspond, essentially, to software (excluding the one included in tangible assets – telecommunication sites' software), industrial property, costs incurred with the mobile network operator licenses (GSM and UMTS) and the fixed network operator licenses as well the costs incurred with the acquisition of customers portfolios (amount attributed in the allocation of the purchase price under business combinations).
Amortisation is provided on a straight-line monthly basis, over the estimated useful life of the assets (three to six years) as from the month in which the corresponding expenses are incurred. Mobile and fixed network operator licences are amortised over the period for which they were granted (15 years). The UMTS license is being amortised on a straight-line basis for an 11 year period, which corresponds to the period between the commercial launch date and the maturity date of the license. Additional licence costs, namely costs relating to the commitments assumed under the UMTS license, regarding the contributions to the "Information Society", are amortised from the moment they are incurred up to the end of the license. Customers portfolios are amortised on a straight-line basis over the estimated average period of customer retention.
Internally-generated intangible assets, namely research and development expenditures, are recognised in net income when incurred. Development expenditures can only be recognised initially as an intangible asset if the Group demonstrates the ability to complete the project and is able to put it in use or available for sale.
Amortisation for the year is recorded in the statement of profit and loss under the caption 'Depreciation and amortisation'.
Brands and patents are recorded at their acquisition cost and are amortised on a straight-line basis over their respective estimated useful life. Where the period of useful life is undefined, they are not subject to depreciation, but rather to annual impairment tests.
Differences between the cost of investments in subsidiaries and associated companies and the amount attributed to the fair value of their identifiable assets and liabilities at the time of their acquisition, when positive, are recorded under the caption 'Goodwill', and, when negative, after a reapreciation of its calculation, are recorded directly in the statement of profit and loss. Until 1 January 2004, 'Goodwill' was amortised over the estimated period of recovery of the investments, usually ten years, and the amortisation was recorded in the statement of profit and loss under the caption 'Depreciation and amortisation'. Since 1 January 2004 and in accordance with the IFRS 3 – "Business Combinations", the Group has stopped the amortization of the 'Goodwill'. Impairment losses of goodwill are recorded in the statement of profit and loss for the year under the caption 'Depreciation and amortisation'.
In subsequent acquisitions of financial investments already held by the Group, an amount of Goodwill is registered equal to the difference between the acquisition cost of such financial investment and the proportional amount of the shareholders funds of the acquired company.
The Group classifies its investments in the following categories: 'financial assets at fair value through profit or loss', 'loans and receivables', 'held-to-maturity investment', and 'available-for-sale financial assets'. The classification depends on the purpose for which the investments were acquired.
The classification of the investments is determined at the initial recognition and re-evaluated every quarter.
a) 'Financial assets at fair value through profit or loss'
This category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or loss at inception. A financial asset is classified in this category if it is acquired principally for the purpose of selling in the short term or if the adoption of this method allows reducing or eliminating an accounting mismatch. Derivatives are also registered as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if they are either held for trading or are expected to mature within twelve months of the balance sheet date.
b) 'Loans and receivables'
Loans and receivables are non-derivative financial assets with fixed or variable payments that are not quoted in an active market. These financial investments arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivable.
Loans and receivables are recognised at amortised cost, using the effective interest rate method less any impairment.
Loans and receivables are recorded as current assets, except when its maturity is greater than twelve months from the balance sheet date, situation when they are classified as non-current assets. Loans and receivables are included in the caption 'trade debtors' and 'other current debtors' in the balance sheet.
c) 'Held-to-maturity investments'
Held-to-maturity investments are non-derivative financial assets with fixed or variable payments and with fixed maturities that the Group's management has the positive intention and ability to hold till its maturity.
d) 'Available-for-sale financial assets' Available-for-sale financial assets are non-derivatives investments that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose it within twelve months of the balance sheet date.
Purchases and sales of investments are recognised on trade-date – the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. The financial assets at fair value through profit or loss are initially recognised at fair value and the transaction costs are recorded in the income statement. Investments are derecognised when the rights to receive cash flows from the investments have expired or have been transferred substantially all the risks and rewards of its ownership.
Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value.
Loans and receivables and held-to-maturity investments are carried at amortised cost using the effective interest method.
Realised and unrealised gains and losses arising from changes in the fair value of financial assets classified at fair value through profit or loss are recognised in the income statement. Realised and unrealised gains and losses arising from changes in the fair value of non-monetary securities classified as available-for-sale are recognised in equity. When securities classified as available-forsale are sold or impaired, the accumulated fair value adjustments are included in the income statement as gains or losses from investment securities.
The fair value of quoted investments are based on curr ent bid prices. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include the use of recent arm's length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models refined to reflect the issuer's specific circumstances. The fair value of listed investments is determined based on the closing Euronext share price at the balance sheet date.
The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In case of equity securities classified as available for sale, a significant or prolonged decline (decrease of over 25% in two consecutive quarters) in the fair value of the security below its cost is considered in determining whether the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is removed from equity and recognised in the income statement. Impairment losses recognised in the income statement on equity instruments are not reversed through the income statement.
The lease contracts are classified as financial leases, if, in substance, all risks and rewards associated with the detention of the leased asset are transferred by the lease contract or as operational leases, if, in substance, there is no transfer of risks and rewards associated with the detention of the leased assets.
The lease contracts are classified as financial or operational in accordance with the substance and not with the form of the respective contracts.
Fixed assets acquired under finance lease contracts and the related liabilities are recorded in accordance with the financial method. Under this method the tangible assets, the corresponding accumulated depreciation and the liability are recorded in accordance with the contractual financial plan at fair value or, if less, at the present value of payments. In addition, interest included in lease payments and depreciation of the tangible assets are recognised as expenses in the statement of profit and loss for the year to which they relate.
Assets under long term rental contracts are recorded in accordance with the operational lease method. In accordance with this method, the rents paid are recognised as an expense, over the rental period.
Inventories are stated at their acquisition cost, net of any impairment losses, which reflects their estimated realisable value.
Accumulated inventory impairment losses reflect the difference between the acquisition cost and the realisable amount of inventories, as well as the estimated impairment losses due to low turnover, obsolescence and deterioration (Note 24).
Trade and other current debtors are recorded at their realisable value and do not include interests, as the discount effect is not considered to be significant.
These financial investments arise when the Group lends money, supplies goods or renders services directly to a debtor without the intention of trading the receivable.
. Trade and other current debtors are stated net of any impairment losses. Future recovery of impairment losses recognised earlier are credited to the statement of profit and loss caption 'Other operating revenues'.
Amounts included under the caption 'Cash and cash equivalents' correspond to amounts held in cash and term bank deposits and other treasury applications where the risk of any change in value is insignificant.
The consolidated cash flow statement has been prepared in accordance with IAS 7, using the direct method. The Group classifies, in the caption 'Cash and cash equivalents', investments that mature in less than three months, for which the risk of change in value is insignificant. The caption 'Cash and cash equivalents' in the cash flow statement also includes bank overdrafts, which are reflected in the balance sheet caption 'Short-term loans and other loans'.
The cash flow statement is classified by operating, financing and investing activities. Operating activities include collections from customers, payments to suppliers, payments to personnel and other captions relating to operating activities. Cash flows from investing activities include the acquisition and sale of investments in associated and subsidiaries companies and receipts and payments resulting from the purchase and sale of fixed assets. Cash flows from financing activities include payments and receipts relating to loans obtained and finance lease contracts.
All amounts included under this caption are able to be realised in the short term and are not subject to any onus or guarantee.
Loans are recorded as liabilities by the "amortised cost". Any expenses incurred in setting up loans are recorded as a deduction to the nominal debt and recognised during the period of the financing, based on the effective interest rate method. The interests incurred but not yet due are added to the amount of the loans until they are liquidated.
Financial expenses relating to loans obtained are generally recognised as expenses at the time they are incurred. Financial expenses relating to loans obtained directly for the acquisition, construction or production of fixed assets are capitalised as part of the cost of the assets. These expenses are capitalised starting from the time of preparation for the construction or development of the asset. The capitalization is inter rupted when the assets are operating or at the end of the production or construction phases or when the associated project is suspended.
The Group only uses derivatives in the management of its financial risks to hedge against such risks. The Group does not use derivatives for trading purposes.
The cash flow hedges used by the Group are related to interest rate swap operations to hedge against interest rate risks on loans obtained. The amounts, interest payment dates and repayment dates of the underlying interest rate swaps are similar in all respects to the conditions established for the contracted loans. Changes in the fair value of cash flow hedges are recorded in assets or liabilities, against a corresponding entry under the caption 'Hedging reserves' in shareholders' funds.
In the cases where the hedge instrument is not effective, the amounts that arises from the adjustments to fair value are recorded directly in the profit and loss statement.
Provisions are recognised when, and only when, the Group has a present obligation (either legal or implicit) resulting from a past event, the resolution of which is likely to involve the disbursement of funds by an amount that can be reasonably estimated. Provisions are reviewed at the balance sheet date and adjusted to reflect the best estimate at that date.
Provisions for restructurings are only registered if the Group has a detailed plan and if that plan was already communicated to the parties involved.
Contingent liabilities are not recognised in the consolidated financial statements but are disclosed in the notes, provided that the possibility of a cash outflow affecting future economic benefits is remote.
Contingent assets are not recognised in the consolidated financial statements but are disclosed in the notes when future economic benefits are likely to occur.
Income tax for the year is determined based on the taxable results of the companies included in the consolidation and takes into consideration deferred taxation.
Current income tax is determined based on the taxable results of the companies included in the consolidation, in accordance with the tax regulations in force in the location of the head office of each Group company.
Deferred taxes are calculated using the liability method and reflect the timing differences between the amount of assets and liabilities for accounting purposes and the respective amounts for tax purposes.
Deferred tax assets are only recognised when there is reasonable expectation that sufficient taxable profits will arise in the future to allow such deferred tax assets to be used. At the end of each year a review is made of the recorded and unrecorded deferred tax assets and they are reduced whenever their realisation ceases to be probable, or recorded if it is probable that taxable profits will be generated in the future to enable them to be recovered (Note 11).
Deferred taxes are calculated with the tax rate that is expected to be in effect at the time the asset or liability is used.
Whenever deferred taxes derive from assets or liabilities directly registered in Shareholders' funds, its recording is also made in Shareholders' funds. In all other situations, deferred taxes are always registered in the profit and loss statement.
Subsidies awarded to finance personnel training are recognised as income during the period on which the Group incurs the associated costs and those are included in the profit and loss statement as a deduction to such costs.
Subsidies awarded to finance investments in tangible assets are registered as deferred income and are included in the profit and loss statement during the estimated useful life of the corresponding assets, as a deduction to Amortisation and depreciation costs.
Expenses and income are recorded in the year to which they relate, regardless of their date of payment or receipt. Estimated amounts are used when actual amounts are not known.
The captions of 'Other non current assets', 'Other current assets', 'Other non current liabilities' and 'Other current liabilities' include expenses and income relating to the current period, where payment and receipt will occur in future periods, as well as payments and receipts in the current period but which relate to future periods. The latest ones will be included by the corresponding amount in the results of the periods that they relate to.
Revenue from telecommunications services is recognised in the period in which it occurs. Such services are invoiced on a monthly basis. Revenues not yet invoiced, from the last invoicing cycle to the end of the month, are estimated and recorded based on actual traffic. Differences between the estimated and actual amounts, which are usually not material, are recorded in the following period.
Sales revenues are recognised in the consolidated profit and loss statement when the significant risks and rewards associated with the ownership of the assets are transferred to the buyer and the amount of the corresponding revenue can be reasonably quantified. Sales are recognised net of taxes and discounts.
The income related to pre-paid cards is recognised whenever the minutes are used. At the end of each period the minutes still to be used are estimated and the amount of income associated with those minutes is deferred.
Costs relating to customer loyalty programmes, under which points are awarded by the subsidiary Sonaecom – Serviços de Comunicações, S.A., are calculated taking in consideration the probability of the redemption of the points, and are recognised, as a deduction to income, at the time the points are generated, by a corresponding entry in the caption 'Other current liabilities'.
Revenues and costs on information systems projects are recognised in each period based on the percentage of completion.
Non-current financial assets and liabilities are recorded at fair value and, in each period, the financial actualisation to the fair value is recorded in the statement of profit and loss under the caption 'Financial results'.
Dividends are recognised when the right of the shareholders to receive such amounts is appropriately established and communicated.
Assets and liabilities due in more than one year from the date of the balance sheet are classified, respectively, as non-current assets and non-current liabilities.
In addition, considering their nature, the deferred taxes and the provisions for other liabilities and charges, are classified as non current assets and liabilities (Notes 11 and 24).
Share premium relates to premiums obtained on the issuance of capital or in capital increases. In accordance with Portuguese legislation, the amounts included in this caption are subject to the rules applicable to the 'Legal reserve', that is they are not distributable, except in case of liquidation of the company, but can be used to absorb losses, after the other reserves have been exhausted, or to increase capital
Portuguese commercial legislation requires that at least 5% of annual net profit must be appropriated to a legal reserve, until such reserve reaches at least 20% of the share capital. This reserve is not distributable, except in the case of liquidation of the Company, but it may be used to absorb losses, after all the other reserves are exhausted, or to increase the share capital.
In accordance with IFRS 2, the liability for equity settled plans is recognised in the caption 'Medium Term Incentive Plan Reserves' and cannot be distributed or used to absorb losses.
The Hedging reserve reflects the changes in fair value of "cash flow" hedging derivates that are considered as effective (Note 1.o) and is not distributable or can be used to absorb losses.
The own shares reserve reflects the cost of own shares and is subject to the same requirements as the legal reserve.
Under Portuguese legislation, the distributable amount of reserves is determined based on the individual financial statements of the Company, prepared in accordance with IAS/IFRS. Therefore Sonaecom, SGPS, S.A.'s only distributable reserves are its other reserves, which amount to Euro 8,189,905.
Own shares are recorded at cost and reflected as a decrease in shareholders' funds. Gains or losses on the sale of own shares are recorded under the caption "Other Reserves".
All assets and liabilities expressed in foreign currency were translated into Euro using the exchange rates in force on the balance sheet date.
Favourable and unfavourable foreign exchange differences resulting from changes in the rates in force at transaction date and those in force at the date of collection, payment or at the balance sheet date are recorded as income and expenses in the consolidated profit and loss statement of the year, in financial results.
Entities operating abroad with organisational, economic and financial autonomy are treated as foreign entities.
Assets and liabilities of the financial statements of foreign entities are translated into Euro using the rates of exchange in force on the balance sheet date, while expenses and income in such financial statements are translated into Euro using the average rate of exchange for the year. The resulting exchange differences are recorded in the shareholders' funds caption 'Other reserves'.
Goodwill and adjustments to fair value generated in the acquisitions of foreign entities reporting in a functional currency other than Euro are translated into Euro using the exchange rates prevailing on the balance sheet date.
The following rates were used to translate into Euro the financial statements of foreign subsidiaries:
| 2006 | |||
|---|---|---|---|
| 31.12.07 | Average | 31.12.06 | Average |
| 1.36361 | 1.46209 | 1.48920 | 1.46704 |
| 0.38516 | 0.37577 | 0.35564 | 0.36658 |
| 0.67930 | 0.73080 | - | - |
| 0.27828 | 0.26445 | - | - |
| 0.59677 | 0.61203 | - | - |
| 2007 |
Impairment tests are performed at the date of each balance sheet and whenever an event or change of circumstances indicates that the recorded amount of an asset may not be recoverable. Whenever the book value of an asset is greater than the amount recoverable, an impairment loss is recognised and recorded in the statement of profit and loss under the caption 'Depreciation and amortisation' in the case of fixed assets and goodwill, under the caption 'Other financial expenses' in the case of financial investments and under the caption 'Provisions and impairment losses', in relation to the other assets. The amount recoverable is the greater of the net selling price and the value of use. Net selling price is the amount obtainable upon the sale of an asset in a transaction within the capability of the parties involved, less the costs directly related to the sale. The value of use is the present amount of the estimated future cash flows expected to result from the continued use of the asset and of its sale at the end of its useful life. The recoverable value is estimated for each asset individually or, if this is not possible, for the cash-generating unit to which the asset belongs.
Evidence of the existence of impairment in accounts receivable exists when:
Impairment of certain categories of financial assets for which impairment cannot be determined on an individual basis is determined on a collective basis. Objective evidence of impairment of a portfolio of accounts receivable may include past collection experience, increasing number of delays in collections, as well as changes in national or local economic conditions relating to the ability to collect.
For Goodwill and Financial Investments, the recoverable amount is determined based on business plans duly approved by the Board of Directors of the Group and supported by reports prepared by independent entities. For accounts receivables, the Group uses historical and statistic information to estimate the amounts in impairment. For inventories, the impairment is calculated based on market evidence and several indicators of stock rotation.
The Accounting Treatment of Medium Term Incentive Plans is based on IFRS 2 – "Share-based Payments".
Under IFRS 2, when the settlement of plans established by the Group involves the delivery of Sonaecom's own shares, the estimated responsibility is recorded, as a credit entry, under the caption 'Reserves – Medium Term Incentive Plans', within the heading 'Shareholders' funds' and is charged as an expense under the caption 'Staff expenses' in the profit and loss statement.
The quantification of this responsibility is based on fair value and is recognised over the vesting period of each plan (from the award date of the plan until its vesting or settlement date). The total responsibility, at any point of time, is calculated based on the proportion of the vesting period that has "elapsed" up to the respective accounting date.
When the responsibilities associated with any plan are covered by a hedging contract, i.e., when those responsibilities are replaced by a fixed amount payable to a third party and when Sonaecom is no longer the party that will deliver the Sonaecom shares, at the settlement date of each plan, the above accounting treatment is subject to the following changes:
Equity-settled plans to be liquidated through the delivery of shares of the parent company are recorded as if they were settled in cash, which means that the estimated liability is recorded in the balance sheet captions 'Other non current liabilities' and 'Other current liabilities' by a corresponding entry to the income statement caption 'Staff expenses', for the cost relating to the deferred period elapsed. The liability is quantified based on the fair value of the shares as of each balance sheet date.
When the liability is covered by a hedging contract, it is recognised in the same way described above, but with the liability being quantified based on the amount fixed in the contract.
In 2003, the Group signed a hedging contract under which, through the establishment of the payment of a fixed amount, it transferred its liability relating to the Sonaecom share plan to an entity outside the Sonaecom Group. At 31 December 2007 only one of the existing plans was covered by hedging contracts. Therefore, the impacts of the share plans of the Medium Term Incentive Plans are recognised in the balance sheet captions 'Other cur rent assets' and 'Other current liabilities' for the plans covered by hedging contracts, and in the caption 'Reserve - Medium Term Incentive Plans' for the other two plans. The cost is recognised in the income statement caption 'Staff expenses'.
In relation to the plans which will be liquidated through the delivery of shares of the parent company, the Group signed contracts with an external entity, under which the price for the acquisition of those shares was fixed. The responsibility associated to those plans is recorded based on that fixed price, in proportion to the period of time elapsed from the date the benefit is attributed to the date it is recorded.
Events occurring after the date of the balance sheet which provide additional information about conditions prevailing at the time of the balance sheet (adjusting events) are reflected in the consolidated financial statements. Events occurring after the balance sheet date that provide information on post-balance sheet conditions (non adjusting events), when material, are disclosed in the notes to the consolidated financial statements.
The most significant accounting estimates reflected in the consolidated financial statements as at 31 December 2007 and 2006, are as follows:
Estimates used are based on the best information available during the preparation of consolidated financial statements and are based on the best knowledge of past and present events. Although future events, are not controlled by the Group neither foreseeable, some could occur and have
impact on the estimates. Changes to the estimates used by the management that occur after the approval date of these consolidated financial statements, will be recognised in net income, in accordance with IAS 8, using a prospective methodology.
The main estimates and assumptions in relation to future events included in the preparation of these consolidated financial statements are disclosed in the correspondent notes.
The Group's activities expose it to a variety of financial risks as market risk, liquidity risk and credit risk.
Those risks arise from the unpredictability of financial markets that affect the capacity of project cash flows and profits. The Group financial risk management, subject to a perspective of long term ongoing, seeks to minimize potential adverse effects that derive from that uncertainty, using, every time that is possible and advisable, derivative financial instruments to hedge certain risks exposure ( Note 1. o)).
The Group operates internationally, having subsidiaries that operate in Brazil, United Kingdom, Ireland, Poland, United States of America and Australia and so it is exposed to foreign exchange rate risk.
Foreign exchange risk management seeks to minimize the volatility of investments and transactions made in foreign currency and contributes to reduce the sensitivity of Group results to changes in foreign exchange rates.
Whenever possible, the Group uses natural hedges to manage exposure, by offsetting credits granted and credits received expressed in the same currency. When such procedure is not possible, the Group adopt derivatives financial hedging instruments.
The Group's exposure to exchange rate risk results mainly from the fact that some of its subsidiaries report in currencies other than the Euro, the risk relating to the operations being insignificant.
The Euro amounts of the Group's foreign currency assets and liabilities are as follows:
| Assets | Liabilities | |||
|---|---|---|---|---|
| 31.12.07 | 31.12.06 | 31.12.07 | 31.12.06 | |
| Pounds Sterling | 520,785 | - | 141,875 | - |
| Brazilian Real | 17,910,518 | 11,400,844 | 13,176,664 | 5,743,749 |
| American Dollar | 19,781 | - | 7,503 | - |
| Zloti (Poland) | 128,134 | - | 81,695 | - |
| Australian Dollar | 32,115 | - | 67,565 | - |
The Group sensitivity to changes in foreign exchange rates is summarized as follows (increases/(decreases)):
| 2007 | 2006 | ||||
|---|---|---|---|---|---|
| Shareholders' | Shareholders' | ||||
| Variation | Results | Funds | Results | Funds | |
| Pounds Sterling | 1% | (577) | 4,813 | - | - |
| Brazilian Real | 1% | 310 | 18,744 | 15,496 | 20,022 |
| American Dollar | 1% | (336) | 41 | - | - |
| Zloti (Poland) | 1% | (105) | (111) | - | - |
| Australian Dollar | 1% | (386) | 405 | - | - |
| (1,094) | 23,892 | 15,496 | 20,022 |
The table details the possible impact on the Group's consolidated financial statements of the translation of the foreign currency financial statements of subsidiaries, due to variations in exchange rates.
In 2007, the Group was exposed to the risk of price variations on investments recorded at fair value through profit and loss and part of investments available for sale. In the first case, that caption is made up of Sonae S.G.P.S., S.A. shares, acquired to hedge the Group's liability under the Medium Term Incentive Plans granted to its employees (Note 1. y) and 41) and therefore the variation in the price of those shares was compensated by the variation in the liability of the respective plan. In the case of the investments available for sale, the amount reflected in this caption consists mainly of Portugal Telecom S.G.P.S., S.A. shares.
During 2007 both the securities were sold (Notes 10 and 17), the Medium Term Incentive Plans relating to Sonae SGPS SA shares now being hedged through contracts with an external entity.
Sonaecom's total debt is indexed to variable rates, exposing the total cost of debt to a high risk of volatility. The impact of this volatility on the Group's income and shareholders' equity is mitigated by the effect of the following factors (i) relatively low level of financial leverage; (ii) possibility of using interest rate hedging derivative instruments, as explained below; (iii) possible correlation between the market interest rate levels and economic growth, the latter having a positive effect on other lines of the Group's consolidated results (particularly operational), thus partially offsetting the increased financial costs ("natural hedge"); and (iv) the availability of consolidated liquidity or cash, also remunerated at variable rates.
The Group only uses derivatives or similar transactions to hedge those interest rate risks considered as significants. Three main principles are respected in all instruments selected and used to hedge interest rate risk:
As all Sonaecom's borrowings (Note 22) are at variable rates, interest rate swaps and other derivatives are used to hedge future changes in cash flow relating to interest payments. Interest rate swaps have the financial effect of converting the respective borrowings from floating rates to fixed rates. Under the interest rate swaps, the Company agrees with third parties (banks) to exchange, in pre-determined periods, the difference between the amount of interest calculated at the fixed contract rate and the floating rate at the time of re-fixing, by reference to the respective agreed notional amounts.
The counterparties of the derivative hedging instruments are limited to highly rated financial institutions, being the Group's policy, when contracting such instruments, to give preference to financial institutions that form part of its financing transactions. In order to select the counterparty for occasional operations, Sonaecom requests proposals and indicative prices from a representative number of banks in order to ensure adequate competitiveness of these operations.
In determining the fair value of hedging operations, the Group uses certain methods, such as option valuation and discounted future cash flow models, using assumptions based on market interest rates prevailing at the balance sheet date. Comparative financial institution quotes for the specific or similar instruments are used as a benchmark for the valuation.
The fair value of the derivatives contracted, that are considered as fair value hedges or the ones that are considered not sufficiently effective for cash flow hedge (in accordance with the provisions established in IAS 39), is recognised under borrowings captions and changes in the fair value of such derivatives are recognised directly in the profit and loss statement for the year. The fair value of derivatives of cash flow hedge, that are considered effective according to IAS 39, is recognised under borrowing captions and changes in the fair value are recognised in equity.
Sonaecom's Board of Directors approves the terms and conditions of the funding with a significant impact on the Group, based on an analysis of the debt structure, the inherent risks and the different options in the market, particularly as regards the type of interest rate (fixed / variable ). Under this policy, the Executive Committee is responsible for decisions regarding the contracting of occasional interest rate hedging derivative financial instruments, through monitoring the conditions and alternatives existing in the market.
The existence of liquidity in the Group requires the definition of some parameters for the efficient and secure management of liquidity, enabling maximisation of the return obtained and minimisation of the opportunity costs relating to the liquidity.
Liquidity risk management has a threefold objective: (i) Liquidity, that is to ensure permanent access in the most efficient way to sufficient funds to cover current payments on the respective maturity dates, as well as any unexpected requests for funds; (ii) Safety, that is minimisation of the probability of default in the repayment of any application of funds; and (iii) Financial Efficiency, that is ensuring that the Companies maximise the value / minimise he opportunity cost of holding excess liquidity in the short term.
The main parameters underlying such a policy correspond to the type of instruments allowed, the maximum acceptable level of risk, the maximum amount of exposure by counterparty and the maximum periods for investment.
The liquidity of each company should be applied as follows, by order of priority:
Application in the market is limited to eligible counterparties that comply with ratings previously established by Management, limited to maximum amounts established by counterparty.
Definition of maximum amounts by counterparty is intended to ensure that liquidity is applied prudently considering the principles of management of banking relationships.
The maturity of the applications should coincide with the projected payments (or be sufficiently liquid, in case of investments, to enable urgent unexpected payments to be made), including a margin to cover possible forecasting errors. The required margin of error depends on the reliability of the treasury forecasts and should be determined by the business. The reliability of the treasury forecasts is a determinant variable in quantifying the amounts and maturity of the funds obtained/applied in the market.
A maturity analysis of each financial liability instrument is presented in Notes 15,18 and 28, considering amounts not discounted and the worst case scenario, that is the shortest period that the liability can become due.
The Goup's exposure to credit risk is mainly associated with the accounts receivable related to current operational activities. The credit risk on financial operations is mitigated by the fact that the Group only negotiates with high credit quality entities.
The management of this risk seeks to guarantee that the amounts owing are effectively collected within the periods negotiated without impacting the financial health of the Group. The Group uses credit rating agencies and has specific departments responsible for risk control, collections and management of processes in litigation, which all contribute to the mitigation of credit risk.
The amount of trade debtors and other debtors in financial statements, which is net from impairment losses, represents the maximum exposure of the Group to credit risk.
Group companies included in the consolidation through full consolidation method, their head offices, main activity, shareholders and percentage of share capital held at 31 December 2007 and 2006, are as follows:
| 2007 | Percentage of share capital held | 2006 | |||||
|---|---|---|---|---|---|---|---|
| Company (Commercial Brand) |
Head Office | Main activity | Shareholder | Direct | Effective* | Direct | Effective* |
| Parent company: | |||||||
| SONAECOM, S.G.P.S., S.A. ("Sonaecom") |
Maia | Management of shareholdings. | - | - | - | - | - |
| Subsidiaries: | |||||||
| Digitmarket – Sistemas de Informação, S.A. ("Digitmarket" – using the brand name "Bizdirect") |
Maia | Development of management platforms and commercialisation of products, services and information, with the internet as its main support. |
Sonae.com Sistemas de Informação |
75.10% | 75.10% | 75.10% | 75.10% |
| Mainroad – Serviços em Tecnologias de Informação, S.A. ("Mainroad") |
Maia | Rendering of consultancy services in IT areas. |
Sonae.com Sistemas de Informação |
100% | 100% | 100% | 100% |
| Miauger – Organização e Gestão de Leilões Electrónicos, S.A. ("Miauger") |
Maia | Organisation and management electronic auctions of products and services on-line. |
of Sonaecom |
100% | 100% | 100% | 100% |
| M3G – Edições Digitais, S.A. ("M3G") |
Lisbon | Digital publishing, electronic publishing and production of Internet contents. |
Público | 100% | 100% | 100% | 99% |
| Sonaecom - Serviços de Comunicações, S.A. |
Maia | Implementation, operation, exploitation and offer of networks and rendering |
Sonaecom | 53.54% | 53.54% | 58.33% | 58.33% |
| ("Novis" and "Optimus") (a) |
services of electronic comunications and related resources; offer and commercialisation of products and |
Sonae Matrix | - | - | 41.67% | 41.67% | |
| equipments of electronic communications. |
Sonae Telecom | 37.94% | 37.94% | - | - | ||
| Sonaecom BV | 8.52% | 8.52% | - | - | |||
| Optimus – | Maia | Rendering of mobile telecommunications | Sonae Telecom | 49.06% | 49.06% | ||
| Telecomunicações, S.A. ("Optimus") |
services and the establishment, management and operation of telecommunications networks. |
Sonaecom | Merged | 50.94% | 50.94% | ||
| Per-Mar – Sociedade de Construções, S.A. ("Per-Mar") |
Maia | Purchase, sale, renting and operation of property and commercial establishments. |
Sonaecom Serviços de Comunicações |
100% | 100% | - | - |
| Optimus | - | - | 100% | 100% | |||
| Público – Comunicação Social, S.A. ("Público") |
Oporto | Editing, composition and publication of periodical and non-periodical material. |
Sonaetelecom BV |
100% | 100% | 99% | 99% |
| Optimus Towering – Exploração de Torres de Telecomunicações, S.A. |
Maia | Implementation, installation and exploitation of towers and other sites for the instalment of telecommunications |
Sonaecom Serviços de Comunicações |
100% | 100% | - | - |
| ("Optimus Towering" ) | equipment. | Optimus | - | - | 100% | 100% | |
| * Sonaecom effective participation |
| Percentage of share capital held | |||||||
|---|---|---|---|---|---|---|---|
| 2007 | 2006 | ||||||
| Company (Commercial Brand) |
Head Office | Main activity | Shareholder | Direct | Effective* | Direct | Effective* |
| Saphety Level – Trusted Services, S.A. (Saphety) |
Maia | Rendering services, training, consultancy services in the area of communication, process and electronic certification of data; trade, development and representation of software. |
Sonae.com Sistemas de Informação |
100% | 100% | 100% | 100% |
| Sonae Matrix Multimédia, S.G.P.S., S.A. ("Sonae Matrix") (b) |
Maia | Management of shareholdings in the area of multimedia trade. |
Sonaecom | (Liquidated) | 100% | 100% | |
| Sonae Telecom, S.G.P.S., S.A. ("Sonae Telecom") |
Maia | Management of shareholdings in the area of mobile telecommunications. |
Sonaecom | 100% | 100% | 100% | 100% |
| Sonae.com - Sistemas de Informação, S.G.P.S., S.A. ("Sonae.com Sistemas de Informação") |
Maia | Management of shareholdings in the area of corporate ventures and joint ventures. |
Sonaecom | 100% | 100% | 100% | 100% |
| Sonaecom BV | Amsterdam | Management of shareholdings. | Sonaecom | 100% | 100% | 100% | 100% |
| Sonaetelecom BV | Amsterdam | Management of shareholdings. | Sonaecom | 100% | 100% | 100% | 100% |
| Tecnológica Telecomunicações, LTDA. ("Tecnológica") (c) |
Rio de Janeiro |
Rendering of consultancy and technical assistance in the area of IT systems and telecommunications. |
We Do Brasil | 99.99% | 99.90% | - | - |
| We Do Consulting – Sistemas de Informação, S.A. ("We Do") |
Maia | Rendering of consultancy services in the area of information systems. |
Sonae.com Sistemas de Informação |
100.00% | 100.00% | 97.66% | 97.66% |
| Wedo do Brasil Soluções Informáticas, Ltda. ("We Do Brazil") |
Rio de Janeiro |
Commercialisation of software and hardware. Rendering of consultancy and technical assistance related to information technology and data processing. |
We Do | 99.91% | 99.91% | 99.91% | 97.57% |
| Telemilénio Telecomunicações - Sociedade Unipessoal, Lda. ("Tele2") (d) |
Lisbon | Rendering of mobile telecommunications services, including fixed telecommunications and internet service. |
Sonaecom | 100% | 100% | - | - |
| * Sonaecom effective participation |
| Percentage of share capital held | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2007 | 2006 | |||||||
| Company (Commercial Brand) |
Head Office | Main activity | Shareholder | Direct | Effective* | Direct | Effective* | |
| Optimus Artis - Concepção, Construção e Gestão de Redes de Comunicações, S.A. ("Artis") (e) |
Maia | Design, construction, management and exploitation of electronic communications networks and their equipment and infrastructure,management of technologic assets and rendering of related services. |
Sonaecom | 100% | 100% | - | - | |
| Cape Technologies Limited ("Cape Technologies") (f) |
Dublin | Rendering of consultancy services in the area of information systems. |
We Do | 100% | 100% | - | - | |
| Cape Poland Sp. Z.o.o. ("Cape Poland") (f) |
Posnan | Rendering of consultancy services in the area of information systems. |
Cape Technologies |
100% | 100% | - | - | |
| Cape AsiaPac PTY Limited ("Cape Asia") (f) |
New South Wales |
Rendering of consultancy services in the area of information systems. |
Cape Technologies |
100% | 100% | - | - | |
| Cape Technologies Americas, Inc ("Cape America") (f) |
Delaware | Rendering of consultancy services in the area of information systems. |
Cape Technologies |
100% | 100% | - | - | |
| Cape Technologies (UK) Limited ("Cape UK") (f) |
Cardiff | Rendering of consultancy services in the area of information systems. |
Cape Technologies |
100% | 100% | - | - | |
| Praesidium Holdings Limited ("Praesisium Hld") (f) |
Berkshire | Management of shareholdings. | We Do | 100% | 100% | - | - | |
| Praesidium Services Limited ("Praesidium Services") (f) |
Berkshire | Rendering of consultancy services in the area of information systems. |
Praesidium Hld | 100% | 100% | - | - | |
| Praesidium Technologies Limited ("Praesidium |
Berkshire | Rendering of consultancy services in the area of information systems. |
Praesidium Hld | 100% | 100% | - | - |
* Sonaecom effective participation
Technologies") (f)
(a) At 1 November 2007, occured the merger through incorporation of Optimus - Telecomunicações, S.A. in Novis Telecom, S.A., which changed its corporate name to Sonaecom - Serviços de Comunicações, S.A. ( Sonaecom Serviços de Comunicações)
(b) Company liquidated in December 2007.
(c) Company acquired in April 2007.
(d) Company acquired in September 2007.
(e) Company established in October 2007.
(f) Companies acquired in October 2007.
All the above companies were included in the consolidation in accordance with the full consolidation method under the terms of IAS 27 (majority of voting rights, through the ownership of shares in the companies).
At 31 December 2007, the Group had joint control and consolidated using the proportional method the following companies:
| Percentage of share capital held | |||||||
|---|---|---|---|---|---|---|---|
| 2007 | 2006 | ||||||
| Company (Commercial Brand) |
Head Office | Main activity | Shareholder | Direct | Effective* | Direct | Effective* |
| Vipu Ace ("Sexta") (a) | Lisbon | Optimization of resources for activity of editing of periodic contents for revisions in paper to digital media, video or TV. |
Público | 50% | 50% | - | - |
(a joint venture established in October 2007 * Sonaecom effective participation
The main impact of this company on the Group's consolidated financial statements is as follows (debit/ (credit)):
| 2007 | |
|---|---|
| Non current assets | 13,973 |
| Current assets | 161,079 |
| Current liabilities | (183,446) |
| Net results | 139,795 |
| Total revenues | (137,640) |
| Total costs | 277,435 |
At 31 December 2007 and 2006, this caption included investments in associated companies, which head offices, main activities, shareholders, percentage of share capital held and book value was as follows:
| Percentage of share capital held | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2007 | 2006 | Book value | |||||||
| Company (Commercial brand) |
Head Office | Main activity | Shareholder | Direct | Effective* | Direct | Effective* | 2007 | 2006 |
| Associated companies: | |||||||||
| Net Mall, S.G.P.S., S.A. ("Net Mall") |
Maia | Management of shareholdings. |
Sonae.Com Sistemas de Informação |
39.51% | 39.51% | 39.51% | 39.51% | (a) | (a) |
| Sociedade Independente de Radiodifusão Sonora, S.A. ("S.I.R.S." – using the brand name " Rádio Nova") |
Oporto | Sound broadcasting. Radio station. |
Público | 45% | 45% | 45% | 45% | (a) | (a) |
| Unipress – Centro Gráfico, Lda. ("Unipress") |
V.N. Gaia | Trade and industry of graphic design and publishing. |
Público | 40% | 40% | 40% | , 40% |
747,614 | 762,437 |
| Profimetrics – Software Solutions, S.A. (Profimetrics) |
Maia | Development of software solutions to optimize the retail sales. |
Sonae.com Sistemas de Informação |
(Sold) | 30% | 30% | - | (a) | |
| * Sonaecom effective participation (a) Investment recorded at a nil book value |
747,614 | 762,437 |
The only change in investments in associated companies in the years ended 31 December 2007 and 2006 was the effect of applying the equity method to the investment in Unipress.
The associated companies were included in the consolidated financial statements in accordance with the equity method, as referred in Note 1. b). It was not necessary to make any adjustment to make the accounting policies of the associated companies comply with those of the Group, as there were no significant differences.
At 31 December of 2007, the assets, liabilities, total revenues and net results of associated companies were as follows:
| Total | ||||
|---|---|---|---|---|
| Company | Assets | Liabilities | revenues | Net results |
| Unipress - Centro Gráfico, Lda (1) Sociedade Independente de Radiodifusão |
5,027,507 | 3,198,883 | 2,934,954 | 52,945 |
| Sonora, S.A. | 652,698 | 696,790 | 1,302,377 | 53,245 |
| Netmall, S.G.P.S., S.A. | 14,637 | 20,354 | - | (1,576) |
(1) Values at 31.12.2006
.
During the years ended 31 December 2007 and 2006 the following changes occurred in the composition of the Group:
| 2007 | |||||||
|---|---|---|---|---|---|---|---|
| Purchaser | Subsidiary | Date | % acquired | Current % shareholding |
|||
| Sonae.com SI | We Do | Jan-07 | 0.70% | 98.36% | |||
| Sonae.com SI | We Do | Feb-07 | 0.66% | 99.02% | |||
| Sonae.com SI | We Do | Mar-07 | 0.06% | 99.08% | |||
| Sonae.com SI | We Do | Apr-07 | 0.14% | 99.22% | |||
| We Do Brasil | Tecnológica | Apr-07 | 99.99% | 99.99% | |||
| Sonae.com SI | We Do | May-07 | 0.10% | 99.32% | |||
| Sonae.com SI | We Do | Jul-07 | 0.09% | 99.41% | |||
| Sonae.com SI | We Do | Aug-07 | 0.03% | 99.44% | |||
| Sonae.com SI | We Do | Sep-07 | 0.00% | 99.44% | |||
| Sonaecom | Tele2 | Sep-07 | 100.00% | 100.00% | |||
| Sonae.com SI | We Do | Oct-07 | 0.02% | 99.46% | |||
| We Do | Cape Technologies Limited |
Oct-07 | 100.00% | 100.00% | |||
| We Do | Praesidium Holdings Limited |
Oct-07 | 100.00% | 100.00% | |||
| Sonae Telecom BV | Público | Nov-07 | 1.00% | 100.00% | |||
| Sonae.com SI | We Do | Dec-07 | 0.54% | 100.00% |
During the year ended 31 December 2007 and as a result of the above mentioned acquisitions, additional Goodwill of Euro 21,313,832 was recorded (Note 9).
Goodwill of the main acquisitions made during 2007 was calculated as follows:
Cape Group – (Business: Rendering of consultancy services in the information systems area):
| Book value before the acquisition |
|
|---|---|
| Acquired Assets: | |
| Tangible and Intangible assets | 429,411 |
| Trade debtors | 692,880 |
| Other debtors | 1,863,987 |
| Other current assets | 2,291,926 |
| Cash and cash equivalents | 2,216,022 |
| 7,494,226 | |
| Acquired Liabilities: | |
| Short-term loans and other loans | 1,228,597 |
| Other financial liabilities | 260,304 |
| Provisions for other liabilities and charges | 80,706 |
| Trade creditors | 945,562 |
| Other creditors | 613,792 |
| Other current liabilities | 2,088,066 |
| 5,217,027 | |
| Total net assets acquired | 2,277,199 |
| Acquisition price net of loans | 22,149,146 |
| Goodwill | 19,871,947 |
Praesidium Group – (Business: Rendering of consultancy services in the information systems area):
| Acquired Assets: | |
|---|---|
| Tangible and Intangible assets | 26,868 |
| Other current assets | 307,164 |
| Cash and cash equivalents | 381,554 |
| 715,586 | |
| Acquired Liabilities: | 286,065 |
| Total net assets acquired | 429,521 |
| Acquisition price | 1,579,349 |
| Goodwill | 1,149,828 |
Goodwill in Cape and Praesidium Groups relates ,essentially, to the amount of the future cash flows that will result from the operations of these subsidiaries and so no adjustments to the fair value of the assets and liabilities acquired were noted.
Tele2 – (Business: Rendering of telecommunications services, namely fixed telecommunications and internet services ):
In accordance with IFRS3 - " Business Combinations," the acquisition of Tele 2, in September 2007, was recorded based on provisional amounts, as the fair value of the assets and liabilities acquired
was not fully determined. Allocation of the purchase price was adjusted at 31 December 2007, the amount of Euro 14,709,468 which was allocated to the customers portfolio, having been recorded in the intangible assets caption "Industrial property and other rights". This amount is being amortised over a period of four years (Note 1. e).
| Book value before | Adjustments to fair | ||
|---|---|---|---|
| the acquisition | value | Fair Value | |
| Acquired Assets: | |||
| Tangible and Intangible assets | 7,138,322 | 14,709,468 | 21,847,790 |
| Inventories | 106,090 | - | 106,090 |
| Trade debtors | 4,677,059 | - | 4,677,059 |
| Other debtors | 1,836,530 | - | 1,836,530 |
| Other current assets | 5,897,657 | - | 5,897,657 |
| Cash and cash equivalents | 338,480 | - | 338,480 |
| 19,994,138 | 14,709,468 | 34,703,606 | |
| Acquired Liabilities: |
|||
| Provisions for other liabilities and charges | 6,106,524 | - | 6,106,524 |
| Trade creditors | 8,231,622 | - | 8,231,622 |
| Other creditors | 121,215 | - | 121,215 |
| Other current liabilities | 6,299,621 | - | 6,299,621 |
| 20,758,982 | - | 20,758,982 | |
| Total net assets acquired | ( 7 6 4 , 8 4 4 ) | 14,709,468 | 13,944,624 |
| Acquisition price | 13,944,624 | ||
Goodwi l l -
The cost of these entities includes the following costs directly associated with the aquisitions:
| Cape | Praes idium | Tele 2 | |
|---|---|---|---|
| Base Price | 22,962,296 | 1,500,040 | 13,771,215 |
| Acquisition Costs | 415,447 | 79,309 | 173,409 |
| Acquisition price |
23,377,743 | 1,579,349 | 13,944,624 |
The impact of the acquisition of these companies on free cash flow was as follows:
| Cape | P r a e s i d i u m | Tele2 | |
|---|---|---|---|
| Acquisition base price | 22,962,296 | 1,500,040 | 13,771,215 |
| Cash and cash equivalents acquired | (2,216,022) | (381,554) | (338,480 |
| Deferred Price | (3,000,000) | (510,000) | - |
| Impacts on free cash flow | 17,746,274 | 608,486 | 13,432,735 |
The contribution of the acquired companies to the consolidated operating revenues and to the net result for the year ended 31 December 2007, from the acquisition date to 31 December 2007, was as follows (amounts in thousands of Euros):
| Cape | Praes idium | Tele 2 | |
|---|---|---|---|
| Operating revenues | 1,947 | 248 | 16,438 |
| Net result | (1,476) | 45 | (523) |
Amounts in thousands of Euros
If these companies had been acquired in the beginning of the year, the contribution to consolidated operating revenues and net result would have been as follows (amounts in thousands of Euros):
| Cape | Praes idium | Tele 2 | |
|---|---|---|---|
| Operating revenues | 11,802 | 1,300 | 58,273 |
| Net result | (5,895) | 539 | (14,407) |
Amounts in thousands of Euros
No contingent liabilities or intangible assets were identified in the companies acquired during 2007.
| 2006 | ||||
|---|---|---|---|---|
| Purchaser | Subsidiary | Date | % acquired | Current % shareholding |
| Sonae.com SI | We Do | Mar-06 | 0.99% | 96.46% |
| Sonae.com SI | We Do | Apr-06 | 0.07% | 96.53% |
| Sonae.com SI | We Do | May-06 | 0.09% | 96.62% |
| Sonae.com SI | We Do | Jun-06 | 0.09% | 96.71% |
| Sonae.com SI | We Do | Jul-06 | 0.12% | 96.83% |
| Sonae.com SI | We Do | Aug-06 | 0.17% | 97.00% |
| Sonae.com SI | We Do | Sep-06 | 0.58% | 97.58% |
| Sonae.com SI | We Do | Oct-06 | 0.04% | 97.62% |
| Sonaecom | Optimus | Oct-06 | 30.76% | 50.94% |
| Sonae.com SI | We Do | Nov-06 | 0.04% | 97.66% |
During 2006 and as a result of the above mentioned acquisitions, additional Goodwill of Euro 225,108,379 was recorded (Note 9).
| Current % | |||||
|---|---|---|---|---|---|
| Year | Shareholder | Subsidiary | Date | Amount | shareholding |
| 2007 | Público | Vipu, ACE | Oct-07 | - | 50% |
| 2007 | Sonaecom - | Artis | Oct-07 | 50,000 | 100% |
| Serviços de | |||||
| Comunicações (1) | |||||
| 2006 | Sonaecom | Sonaecom BV | Feb-06 | 100,000 | 100% |
| 2006 | Sonae.com SI | Profimetrics | Mar-06 | 500,000 | 30% |
| 2006 | Novis | Saphety | Dec-06 | 50,000 | 100% |
(1) Founded by Optimus, which was merged into Novis, which changed its corporate name to Sonaecom – Serviços de Comunicações, S.A.
| Year | Seller | Subsidiary | Date | % Sold | % Shareholding |
|---|---|---|---|---|---|
| 2007 | Sonae.com SI | Profimetrics | Nov-07 | 30.00% | - |
| 2006 | Net Mall | Global S, SGPS, SA | Jan-06 | 64.73% | - |
| 2006 | Sonaetelecom BV | Retailbox BV | Jun-06 | 68.47% | - |
The sale of Profimetrics in 2007 generated a capital gain of Euro 458,000.
The sale of Retailbox BV in 2006 generated a gain in Sonaecom Group of Euro 25,370,915 which was recorded in the profit and loss statements under the caption 'Other operating revenues'.
| Year | Shareholder | Subsidiary | Date | % Shareholding |
|---|---|---|---|---|
| 2007 | Sonaecom | Matrix | Dec-07 | 100.00% |
| 2006 | Optimus | SESI | Feb-06 | 9.75% |
These dissoluctions did not have a significant impact on the accompanying consolidated financial statements.
On 1 November 2007 Optimus was merged into Novis, that is merger of the mobile and wireline telecommunications divisions. This operation represents an internal reorganisation that is nothing more than the natural development of an integrated telecommunications strategy which is intended to: (i) reinforce the Group's growth strategy both in organic and non-organic terms; (ii) better position the organisation to anticipate and react to market trends that are progressively moving towards Wireline/Mobile convergence; (iii) provide for the development of new products and services; and (iv) improve operating efficiency and reduce costs.
The movement in tangible assets and in the corresponding accumulated depreciation and impairment losses in the years ended 31 December 2007 and 2006 was as follows:
| L a n d | Buildings and other c o n s t r u c t i o n s |
Plant and m a c h i n e r y |
V e h i c l e s | Fixtures and f i t t i n g s |
T o o l s | Other tangible a s s e t s |
Work in progress | T o t a l | |
|---|---|---|---|---|---|---|---|---|---|
| GROSS ASSETS | |||||||||
| Balance at 31.12.2006 | 1 , 3 9 1 , 5 9 3 | 2 2 3 , 1 3 3 , 1 6 5 | 7 4 4 , 2 0 9 , 0 7 9 | 5 3 , 2 7 1 | 1 3 4 , 0 7 5 , 5 4 1 | 1 , 0 8 7 , 8 3 9 | 2 , 5 6 7 , 5 9 9 | 2 2 , 5 6 0 , 3 5 7 | 1 , 1 2 9 , 0 7 8 , 4 4 4 |
| New Companies (Nota 5.a)) | - | 491,711 | 7,090,488 | 74,852 | 1,288,385 | - | - | - | 8,945,436 |
| Additions | - | 4,292,180 | 12,661,578 | 91,200 | 4,540,131 | 3,816 | 17,322 | 130,672,281 | 152,278,508 |
| Disposals | - | (964,385) | (21,533,950) | (109,098) | (2,216,455) | (342) | (39) | (28,439) | (24,852,708) |
| Transfers and writte-offs | - | 8,263,439 | 100,555,831 | 19,321 | 5,744,434 | 5,607 | 143,500 | (116,357,399) | (1,625,268) |
| Balance at 31.12. 2007 | 1 , 3 9 1 , 5 9 3 | 2 3 5 , 2 1 6 , 1 1 0 | 8 4 2 , 9 8 3 , 0 2 6 | 1 2 9 , 5 4 6 | 1 4 3 , 4 3 2 , 0 3 6 | 1 , 0 9 6 , 9 2 0 | 2 , 7 2 8 , 3 8 2 | 3 6 , 8 4 6 , 8 0 0 | 1 , 2 6 3 , 8 2 4 , 4 1 3 |
| ACCUMULATED DEPRECIATION | AND | IMPAIRMENT LOSSES: | |||||||
| Balance at 31.12. 2006 | - | 1 0 8 , 9 8 7 , 1 5 3 | 4 1 8 , 8 0 0 , 7 7 3 | 4 8 , 7 6 8 | 1 0 3 , 2 8 0 , 2 1 4 | 1 , 0 2 1 , 7 9 4 | 2 , 1 6 8 , 0 0 0 | - | 6 3 4 , 3 0 6 , 7 0 2 |
| New Companies (Nota 5.a)) | - | 478,833 | 930,227 | 39,572 | 816,573 | - | - | - | 2,265,205 |
| Depreciation for the year | - | 14,320,573 | 77,117,292 | 8,145 | 14,229,789 | 18,754 | 206,137 | - | 105,900,690 |
| Reversal of impairment losses in the year |
- | (319,710) | (120,207) | - | (27,136) | (228) | (16) | - | (467,297) |
| Disposals | - | (482,087) | (4,199,948) | (2,325) | (1,384,790) | (171) | (27) | - | (6,069,348) |
| Transfers and writte-offs | - | (4,934,419) | (38,203) | - | (302,393) | (21) | (3,013) | - | (5,278,049) |
| Balance at 31.12. 2007 | - | 1 1 8 , 0 5 0 , 3 4 3 | 4 9 2 , 4 8 9 , 9 3 4 | 9 4 , 1 6 0 | 1 1 6 , 6 1 2 , 2 5 7 | 1 , 0 4 0 , 1 2 8 | 2 , 3 7 1 , 0 8 1 | - | 7 3 0 , 6 5 7 , 9 0 3 |
| Net value | 1 , 3 9 1 , 5 9 3 | 1 1 7 , 1 6 5 , 7 6 7 | 3 5 0 , 4 9 3 , 0 9 2 | 3 5 , 3 8 6 | 2 6 , 8 1 9 , 7 7 9 | 5 6 , 7 9 2 | 3 5 7 , 3 0 1 | 3 6 , 8 4 6 , 8 0 0 | 5 3 3 , 1 6 6 , 5 1 0 |
| Buildings and | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| other | Plant and | Fixtures and | Other tangible | ||||||
| L a n d | c o n s t r u c t i o n s | m a c h i n e r y | V e h i c l e s | f i t t i n g s | T o o l s | a s s e t s | Work in progress | T o t a l | |
| GROSS ASSETS | |||||||||
| Balance at 31.12.2005 | 1 , 3 9 1 , 5 9 3 | 1 9 3 , 8 0 2 , 1 8 6 | 6 6 9 , 9 4 6 , 8 0 2 | 1 6 8 , 7 8 5 | 1 3 2 , 4 6 3 , 1 7 6 | 1 , 0 4 6 , 9 1 2 | 2 , 7 6 9 , 1 5 3 | 1 1 , 9 1 4 , 4 4 4 | 1 , 0 1 3 , 5 0 3 , 0 5 1 |
| Companies no longer | |||||||||
| consolidated (Note 5. c)) | - | - | (2,414,413) | (89,507) | (546,614) | - | (268,965) | - | (3,319,499) |
| Additions | - | 13,308,281 | 3,202,673 | 67,537 | 1,705,097 | 1,466 | 60,575 | 109,067,709 | 127,413,338 |
| Disposals | - | (972,878) | (439,332) | (160,115) | (2,742,020) | (2,933) | (1,763) | (208,946) | (4,527,987) |
| Transfers and writte-offs | - | 16,995,576 | 73,913,349 | 66,571 | 3,195,902 | 42,394 | 8,599 | (98,212,850) | (3,990,459) |
| Balance at 31.12.2006 | 1 , 3 9 1 , 5 9 3 | 2 2 3 , 1 3 3 , 1 6 5 | 7 4 4 , 2 0 9 , 0 7 9 | 5 3 , 2 7 1 | 1 3 4 , 0 7 5 , 5 4 1 | 1 , 0 8 7 , 8 3 9 | 2 , 5 6 7 , 5 9 9 | 2 2 , 5 6 0 , 3 5 7 | 1 , 1 2 9 , 0 7 8 , 4 4 4 |
| ACCUMULATED DEPRECIATION AND IMPAIRMENT LOSSES: | |||||||||
| Balance at 31.12.2005 | - | 8 9 , 4 0 8 , 2 6 3 | 3 5 0 , 3 6 0 , 8 8 3 | 1 0 2 , 9 1 3 | 9 3 , 0 5 9 , 2 8 5 | 1 , 0 1 0 , 0 0 3 | 2 , 1 2 9 , 3 2 9 | - | 5 3 6 , 0 7 0 , 6 7 6 |
| Companies no longer consolidated (Note 5. c)) |
- | - | (2,109,812) | (18,153) | (366,872) | - | (253,855) | - | (2,748,692) |
| Depreciation for the year | - | 19,826,075 | 71,481,827 | 12,658 | 14,978,197 | 16,175 | 335,352 | - | 106,650,284 |
| Reversal of impairment losses | |||||||||
| in the year Disposals |
- - |
(1,187) (139,609) |
(386) (239,325) |
- (51,466) |
(34,302) (2,532,879) |
- (2,933) |
(60) (559) |
- - |
(35,935) (2,966,771) |
| Transfers and writte-offs | - | (106,389) | (692,414) | 2,816 | (1,823,215) | (1,451) | (42,207) | - | (2,662,860) |
| Balance at 31.12.2006 | - | 1 0 8 , 9 8 7 , 1 5 3 | 4 1 8 , 8 0 0 , 7 7 3 | 4 8 , 7 6 8 | 1 0 3 , 2 8 0 , 2 1 4 | 1 , 0 2 1 , 7 9 4 | 2 , 1 6 8 , 0 0 0 | - | 6 3 4 , 3 0 6 , 7 0 2 |
The additions to Tangible assets during the year includes: assets associated with the UMTS operation (Universal Mobile Telecommunications Service); HSDPA (Kanguru Express); ULL assets (unbundling of the local loop); and assets related with the Triple Play project. It also includes an amount of Euro 17,679,922 related to the agreements for backbone rental which were classified as financial leases and therefore were recorded in tangible assets.
The disposals of the year includes circa Euro 18,6 million related to the replacement of some equipments associated to UMTS network the new equipment having been recorded as additions for the year.
The reversal of impairment losses was recorded as 'Other operating income".
The acquisition cost of Tangible assets held by the Group under finance lease contracts amounted to Euro 24,936,767 and Euro 9,378,039 as of 31 December 2007 and 2006, respectively and their net book value as of those dates amounted to Euro 21,083,522 and Euro 5,564,239, respectively.
The revision made in the year ended 31 December 2007 (Note 1.d)), of the useful life of certain assets related to the telecommunications sites and other GSM related assets, resulted in a decrease of around Euro 13,3 million in the depreciation charges for the year, in comparison to the amount that would have been recorded if the previous useful lives were used.
At 31 December 2007, the caption 'Tangible assets' does not include any asset pledged in guarantee of the repayment of loans or liabilities, except for assets under financial lease.
Tangible assets in progress at 31 December 2007 and 2006 were made up as follows:
| 2007 | 2006 | |
|---|---|---|
| Development of mobile network | 32,044,146 | 13,135,575 |
| Development of fixed network | 2,594,034 | 6,138,254 |
| Information systems | 44,341 | 3,091,141 |
| Other projects in progress | 2,164,279 | 195,387 |
| 36,846,800 | 22,560,357 | |
At 31 December 2007 and 2006, the amounts of commitments to third parties relating to investments to be made were as follows:
| 2007 | 2006 | |
|---|---|---|
| Network | 15,389,209 | 21,798,493 |
| Information systems | 3,376,440 | 6,717,515 |
| 18,765,649 | 28,516,008 |
In the years ended 31 December 2007 and 2006, the movement in Intangible assets and in the corresponding accumulated amortisation and impairment losses, was as follows:
| Brands and patents | Intangible assets in | |||
|---|---|---|---|---|
| and other rights | Software | progress | Total | |
| GROSS ASSETS: | ||||
| Balance at 31.12.2006 | 147,400,303 | 190,159,744 | 7,986,808 | 345,546,855 |
| New companies (Note 5.a)) | 14,988,405 | 2,428,836 | - | 17,417,241 |
| Additions | 22,137,088 | 765,246 | 20,235,791 | 43,138,125 |
| Disposals | (13,034) | (23,113) | (11,420) | (47,567) |
| Transfers and writte-offs | 103,667 | 19,520,677 | (23,199,881) | (3,575,537) |
| Balance at 31.12.2007 | 184,616,429 | 212,851,390 | 5,011,298 | 402,479,117 |
| Net value | 136,555,886 | 47,869,450 | 5,011,298 | 189,436,634 |
|---|---|---|---|---|
| Balance at 31.12.2007 | 48,060,543 | 164,981,940 | - | 213,042,483 |
| Transfers and writte-offs | 80 | 51,886 | - | 51,966 |
| Disposals | (11,835) | (10,004) | - | (21,839) |
| Reversal of impairment losses in the year |
(236) | (131,636) | - | (131,872) |
| Amortisation for the year | 16,215,118 | 17,867,012 | - | 34,082,130 |
| New companies (Note 5.a)) | 180,217 | - | - | 180,217 |
| Balance at 31.12.2006 | 31,677,199 | 147,204,682 | - | 178,881,881 |
| Brands and patents | Intangible assets in | |||
|---|---|---|---|---|
| and other rights | Software | progress | Total | |
| GROSS ASSETS: | ||||
| Balance at 31.12.2005 | 147,155,167 | 172,425,905 | 7,085,344 | 326,666,416 |
| Companies no longer consolidated (Note 5. c)) |
(32,035) | (386,943) | - | (418,978) |
| Additions | 252,545 | 225,264 | 18,414,103 | 18,891,912 |
| Disposals | (6,853) | (17,600) | (434,262) | (458,715) |
| Transfers and writte-offs | 31,479 | 17,913,118 | (17,078,377) | 866,220 |
| Balance at 31.12.2006 | 147,400,303 | 190,159,744 | 7,986,808 | 345,546,855 |
| ACCUMULATED AMORTISATION AND IMPAIRMENT LOSSES: | ||||
| Balance at 31.12.2005 | 18,483,941 | 132,907,337 | - | 151,391,278 |
| Companies no longer consolidated (Note 5. c)) |
(22,740) | (355,446) | - | (378,186) |
| Amortisation for the year | 13,241,891 | 15,778,732 | - | 29,020,623 |
| Reversal of impairment losses in the year |
(1,220) | (882,356) | - | (883,576) |
| Disposals | (1,725) | (1,941) | - | (3,666) |
| Transfers and writte-offs | (22,948) | (241,644) | - | (264,592) |
| Balance at 31.12.2006 | 31,677,199 | 147,204,682 | - | 178,881,881 |
| Net value | 115,723,104 | 42,955,062 | 7,986,808 | 166,664,974 |
The additions for the year ended at 31 December 2007 include: (i) the amount of circa Euro 5,4 million related to the acquisition of customers portfolio from ONI; (ii) Euro 4,6 million relating to the amount of the no competition clause with Oni; and (iii) Euro 10,5 million relating to commitments assumed under the Information Society program ("Iniciativas-E"). The 'New companies' include Euro 14,7 million relating to Tele 2's customers portfolio of Tele2 (Note 5. a)).
At 31 December 2007 and 2006, the Group has recorded under the heading 'Intangible assets' the amounts of Euro 111,732,870 and Euro 114,996,798 , respectively, that correspond to the investments net of depreciations made in the development of the UMTS network, including: (i) Euro 72,006,914 (amount of Euro 81,007,779 in 2006) related to the license; (ii) Euro 24,060,150 (amount of Euro 27,067,669 in 2006) related to the agreement signed in 2002 between Oni Way and the other three mobile telecommunication operators in Portugal with UMTS licenses; (iii) Euro 7,389,598 related to a contribution to the Information Society Fund, established in 2007, under an agreement entered into between the Ministry of Public Works, Transport and Communications ('Ministério das Obras Públicas, Transportes e Comunicações') and the three mobile telecommunication operators in Portugal; and (iv) Euro 2,123,896 relating to the "Iniciativas E" program, the latter last relating to commitments assumed by the Group in the Information Society Fund (Note 45).
The intangible assets in progress, at 31 December 2007 and 2006, were mainly composed by software development.
Intangible and tangible assets include interest and other financial expenses incurred, directly related to the construction of certain items of work in progress. At 31 December 2007 and 2006 such expenses amounted to Euro 14,365,760 and Euro 13,096,510, respectively. The amount capitalised on the years ended 31 December 2007 and 2006 were Euro 1,269,250 and Euro 642,909, respectively. An interest capitalization rate of 4.77% was used in 2007 (3.65% in 2006), which corresponds to the average interest rate supported by the Group.
At 31 December 2007 and 2006, the classes of financial instruments were as follows:
| 2 0 0 7 | |||||||
|---|---|---|---|---|---|---|---|
| Investments recorded at fair value throught profit and loss |
Loans and receivables |
Held-to maturity investments |
Investments available for sale |
Subtotal | Others not covered by IFRS 7 |
Total | |
| Non current Assets | |||||||
| Investments available for sale | - | - | - | 1,207,320 | 1,207,320 | - | 1,207,320 |
| - | - | - | 1,207,320 | 1,207,320 | - | 1,207,320 | |
| Current Assets | |||||||
| Trade debtors | - | 192,029,940 | - | - | 192,029,940 | - | 192,029,940 |
| Other trade debtors | - | 7,919,281 | - | - | 7,919,281 | 9,785,438 | 17,704,719 |
| Cash and cash equivalents | - | 83,851,612 | - | - | 83,851,612 | - | 83,851,612 |
| - | 283,800,833 | - | - | 283,800,833 | 9,785,438 | 293,586,271 | |
| 2 0 0 6 | |||||||
| Investments recorded at fair value throught profit and loss |
Loans and receivables |
Held-to maturity investments |
Investments available for sale |
Subtotal | Others not covered by IFRS 7 |
Total | |
| Non current Assets | |||||||
| Investments available for sale | - | - | - | 112,317,225 | 112,317,225 | - | 112,317,225 |
| - | - | - | 112,317,225 | 112,317,225 | - | 112,317,225 | |
| Current Assets | |||||||
| Trade debtors | - | 151,981,914 | - | - | 151,981,914 | - | 151,981,914 |
| Other trade debtors | - | 9,218,633 | - | - | 9,218,633 | 10,841,786 | 20,060,419 |
| Investments recorded at fair | |||||||
| value through profit and loss Cash and cash equivalents |
849,375 - |
- 125,917,344 |
- - |
- - |
849,375 125,917,344 |
- - |
849,375 125,917,344 |
| 849,375 | 287,117,891 | - | - | 287,967,266 | 10,841,786 | 298,809,052 | |
| 2007 | |||||||
|---|---|---|---|---|---|---|---|
| Liabilities recorded at fair value through profit and loss |
Derivatives | Liabilities recorded at amortised cost |
Other financial liabilities |
Subtotal | Others not covered by IFRS 7 |
Total | |
| Non current liabilities Medium and long-term loans - net of short-term portion Other non current financial |
- | (412,910) | 373,626,900 | - | 373,213,990 | - | 373,213,990 |
| liabilities | - | - | - | 17,916,038 | 17,916,038 | - | 17,916,038 |
| - | (412,910) | 373,626,900 | 17,916,038 | 391,130,028 | - | 391,130,028 | |
| Current Liabilities |
|||||||
| Short-term loans and other loans | - | - | 624,457 | - | 624,457 | - | 624,457 |
| Trade creditors | - | - | - | 185,332,554 | 185,332,554 | - | 185,332,554 |
| Other financial liabilities | - | - | - | 1,926,041 | 1,926,041 | - | 1,926,041 |
| Other creditors | - | - | - | 11,407,495 | 11,407,495 | 6,943,303 | 18,350,798 |
| - | - | 624,457 | 198,666,090 | 199,290,547 | 6,943,303 | 206,233,850 | |
| 2006 | |||||||
| Liabilities recorded at fair value through profit and loss |
Derivatives | Liabilities recorded at amortised cost |
Other financial liabilities |
Subtotal | Others not covered by IFRS 7 |
Total | |
| Non current liabilities Medium and long-term loans - net |
|||||||
| of short-term portion | - | 107,462 | 460,493,365 | - | 460,600,827 | - | 460,600,827 |
| Other non current financial liabilities |
- | - | - | 1,614,602 | 1,614,602 | - | 1,614,602 |
| - | 107,462 | 460,493,365 | 1,614,602 | 462,215,429 | - | 462,215,429 | |
| Current Liabilities |
|||||||
| Short-term loans and other loans | - | - | 74,607 | - | 74,607 | - | 74,607 |
| Trade creditors | - | - | - | 162,680,112 | 162,680,112 | - | 162,680,112 |
| Other financial liabilities | - | - | - | 1,708,922 | 1,708,922 | - | 1,708,922 |
| Other creditors | - | - | - | 6,954,626 | 6,954,626 | 10,584,085 | 17,538,711 |
| - | - | 74,607 | 171,343,660 | 171,418,267 | 10,584,085 | 182,002,352 | |
Considering the nature of the amounts payable to and receivable from the State and other public entities, they were considered not to be covered by IFRS 7. Also, the captions of 'Other current assets' and 'Other current liabilities' were not included in this breakdown, as the amounts are not covered by IFRS 7.
At 31 December 2007 and 2006, the movements occurred in goodwill were as follows:
| 2007 | 2006 | |
|---|---|---|
| Opening balance | 506,902,772 | 285,468,452 |
| Increase of participations (Note 5. a)) | 21,313,832 | 225,108,379 |
| Sale of participations (Note 5. c)) | - | (3,674,059 |
| Closing balance | 528,216,604 | 506,902,772 |
The increase in participations in 2007 corresponds, mainly, to goodwill generated on the acquisition of Cape group (Euro 19,871,947) and the Praesidium group (Euro 1,149,828).
In accordance with IFRS 3, the Group suspended the amortization of the 'Goodwill' at 1 January 2004.
Goodwill at 31 December 2007 and 2006 was made up as follows:
| 2007 | 2006 | |
|---|---|---|
| Sonaecom - Serviços de Comunicações ("Optimus") | 389,902,620 | 389,902,620 |
| Sonaecom - Serviços de Comunicações ("Novis") | 95,189,755 | 95,189,755 |
| Público | 20,000,000 | 20,000,000 |
| Cape | 19,871,947 | - |
| WeDo | 1,971,668 | 1,679,611 |
| Praesidium | 1,149,828 | - |
| SIRS | 72,820 | 72,820 |
| Permar | 47,253 | 47,253 |
| Optimus Towering | 10,713 | 10,713 |
| 528,216,604 | 506,902,772 |
Determination of the existence or not of impairment losses on the main items of goodwill was made based on business plans with projected cash flows for periods of 5 years. The discount rates used are based on the estimated weighted average cost of capital, which depends on the business segment of each company. The Group considered a growth rate in perpetuity of around 3%.
At 31 December 2007 and 2006, this caption included investments classified as available for sale and was made up as follows:
| 2007 | 2006 | ||||||
|---|---|---|---|---|---|---|---|
| Accumulated impairment losses |
Accumulated impairment losses |
||||||
| % | Gross amount | (Note 24) | Net amount | Gross amount | (Note 24) | Net amount | |
| Portugal Telecom, S.G.P.S., S.A. | 1.00% | - | - | - | 111,109,905 | - | 111,109,905 |
| Despegar.com | 5.50% | - | - | - | 2,539,229 | (2,539,229) | - |
| Altitude, SGPS, S.A. | 11.54% | 1,000,000 | - | 1,000,000 | 1,000,000 | - | 1,000,000 |
| Lusa – Agência de Notícias de Portugal, S.A. |
1.37% | 197,344 | - | 197,344 | 197,344 | - | 197,344 |
| Others | - | 9,976 | - | 9,976 | 9,976 | - | 9,976 |
| 1,207,320 | - | 1,207,320 | 114,856,454 | (2,539,229) | 112,317,225 | ||
At 31 December 2007, these investments correspond to participations of immaterial amount, in unlisted companies in which the Group does not have significant influence, the book value of which is a reasonable approximation of their fair value, adjusted where applicable, by the respective impairment losses.
| Shareholders | ||||
|---|---|---|---|---|
| Gross Debt | Turnover | results | Net results | |
| 6,314 | 2,329 | 22,391 | 1,788 | 610 |
| 7,311 | 11,115 | 18,348 | 1,974 | 1,058 |
| Assets 17,237 23,787 |
fund's |
Values expressed in thousands Euros at 31-12-06
During the years ended 31 December 2007 and 2006, the movements in "Investments available for sale" were as follows:
| 2007 | 2006 | |
|---|---|---|
| Opening balance | 112,317,225 | 1,207,320 |
| Acquisitions | - | 105,988,029 |
| Fair value adjustments recorded in reserves | (5,121,876) | 5,121,876 |
| Sales | (111,566,336) | - |
| Capital gain recorded under profit and loss statement (Note 35) | 5,578,307 | - |
| Closing balance | 1,207,320 | 112,317,225 |
During the year ended 31 December 2007, the movements occurred in this caption were related to the sale of 1% of the share capital of Portugal Telecom, S.G.P.S., S.A., in March 2007, to the sale of 1.5% of Outsystems, in July 2007 and to the sale of shares representative of 5.50% of Despegar, in August 2007. As a result of these sales, the Group recognised capital gains of Euro 2,473,445, Euro 87,792 and Euro 3,017,070, respectively.
In addition, in accordance with IAS 39, the gains deferr ed in prior years in equity, relating to fair value adjustments in investments available for sale (Euro 5,121,876), were transferred to the profit and loss statement at the time of the sale.
Deferred tax assets at 31 December 2007 and 2006, in the amount of Euro 101,118,096 and Euro 61,786,654, respectively, arise mainly from timing differences relating to tax losses carried forward, non tax deductible provisions and differences between the accounting and tax amount of some fixed assets.
The movements in deferred tax assets in the years ended 31 December 2007 and 2006 were as follows:
| 2007 | 2006 | |
|---|---|---|
| Opening balance | 61,786,654 | 66,239,165 |
| Impact on results | ||
| Tax losses carried forward | (3,966,246) | (9,423,815 |
| Adjustments to the estimated taxable income of prior year | 143,501 | - |
| Deferred tax assets not recorded in previous years, as it was not expected its utilization (essentially Novis Euro 7,000,000 and Digitmarket Euro 631,000) |
8,613,498 | 10,132,525 |
| Movements in provisions not deductible for tax purposes and on tax benefits |
681,621 | (1,555,435 |
| Temporary differences between the tax and the accounting amount of certain fixed assets |
35,258,598 | (946,852 |
| Impairment of deferred tax assets recorded in previous years(Público) |
(1,373,788) | - |
| Adjustments due to the changes occured in the rate and on the computation of Municipal Surcharges |
- | (2,270,047 |
| Sub-total effect on results (Note 36) | 39,357,184 | (4,063,624 |
| Others (including Retailbox sub-group sale in 2006) | (25,742) | (388,887 |
| Closing balance | 101,118,096 | 61,786,654 |
The changes in the temporary differences between the accounting and tax amounts of certain fixed assets in the year ended 31 December 2007 result mainly from the sale (made in 2007, based on market values determined by independent entities) of the technological equipment of Sonaecom - Serviços de Comunicações, S.A. assigned to the GSM/GPRS network to Artis. Although the results of this transaction were eliminated in the consolidated financial statements, a difference was generated between the accounting and the tax amounts.
At 31 December 2007 and 2006, assessments were made of the deferred taxes to be recognised. Potential deferred tax assets were recorded to the extent that future taxable profits were expected to be generated against which the tax losses and deductible tax differences could be used. These assessments were made based on the business plans of the Group companies involved, periodically reviewed and updated, which were corroborated by independent external analysts (Investment Banks).
The rates used at 31 December 2007 and 2006 to calculate the deferred tax assets relating to tax losses carried forward were 25%. The rates used to calculate deferred tax assets resulting from temporary differences were 26.5% at 31 December 2007 and 2006.
In accordance with the tax returns and other information prepared by the companies that have registered deferred tax assets, the detail of such defer red tax assets by nature at 31 December 2007 was as follows:
| Sonaecom | ||||||
|---|---|---|---|---|---|---|
| Serviços de | ||||||
| Nature | Comunicações | We Do | Digitmarket | Mainroad | Praesidium | Total |
| Tax losses: | ||||||
| To be used until 2008 | - | - | 97,944 | - | - | 97,944 |
| To be used until 2009 | - | - | 447,096 | - | - | 447,096 |
| To be used until 2010 | - | - | 257,298 | - | - | 257,298 |
| To be used until 2011 | - | 12,308 | 210,662 | - | - | 222,970 |
| To be used until 2012 | 530,399 | - | - | 100,393 | - | 630,792 |
| To be used until 2013 | - | - | - | 131,607 | - | 131,607 |
| Unlimited Utilization | - | - | - | - | 77,726 | 77,726 |
| 530,399 | 12,308 | 1,013,000 | 232,000 | 77,726 | 1,865,433 | |
| Tax provisions not accepted | ||||||
| and other temporary differences |
8,361,312 | 402,245 | - | - | - | 8,763,557 |
| Adjustments in the conversion to IAS/ IFRS |
40,089,987 | 5,182 | - | - | - | 40,095,169 |
| Differences between the tax and accounting amount of |
||||||
| certain fixed assets and others | 50,393,937 | - | - | - | - | 50,393,937 |
| Total | 99,375,635 | 419,735 | 1,013,000 | 232,000 | 77,726 | 101,118,096 |
At 31 December 2007 and 2006, the Group has other situations where potential deferred tax assets could be recognised but since it was not expected that sufficient taxable profits could be generated in the future to cover those losses, such deferred tax assets were not recorded:
| 2007 | 2006 | |
|---|---|---|
| Tax losses | 92,944,433 | 90,267,543 |
| Temporary differences (mainly provisions not accepted for tax | ||
| purposes) | 18,520,485 | 20,896,545 |
| Adjustments in the conversion to IAS/IFRS | 892,611 | 2,251,861 |
| 112,357,529 | 113,415,949 |
At 31 December 2007, tax losses carried forward for which deferred tax assets were not recognised, must be used by the following dates:
| 2008 | 2007 |
|---|---|
| 26,753,197 | |
| 2009 | 10,186,641 |
| 2010 | 5,849,663 |
| 2011 | 13,058,434 |
| 2012 | 16,918,590 |
| 2013 | 19,501,290 |
| Unlimited | 676,618 |
| 92,944,433 |
The reconciliation between the earnings before taxes and the taxes recorded in the years ended 31 December 2007 and 2006 is as follows:.
| 2007 | 2006 | |
|---|---|---|
| Earnings before taxes | 530,115 | 391,212 |
| Income tax rate (25% and 27.5%) | (132,529) | (107,583 |
| Deferred tax assets not recognised in the individual accounts and/or | ||
| resulting from consolidation adjustments and other adjustments to | ||
| taxable income | (6,820,152) | (12,067,980 |
| Deferred tax assets not recognised in previous years | 8,613,498 | 10,132,525 |
| Record of deferred tax liabilities | (284,402) | - |
| Adjustments due to the changes occured in the rate and computation of Municipal Surcharges |
- | (2,270,047) |
| Movements i n the temporary differences between the tax and |
||
| accounting amount of certain fixed assets | 35,258,598 | (946,852 |
| Income taxation recorded in the years (Note 36) | 36,635,013 | (5,259,937 |
Portuguese Tax Authorities can review the income tax returns of the Company and of its subsidiaries for a period of four years (ten years for Social Security till 31 December 2000 and five years after that date),except when tax losses have been generated, tax benefits have been granted or when any review, claim or impugnation is in course, in which circumstances, the periods are extended or suspended. Consequently, tax returns of each year, since the year 2004 (inclusive) are still subject to such review. The Board of Directors believe that any correction that may arise as a result of such review would not produce a significant impact in the accompanying consolidated financial statements.
The Group's Board of Directors believes, supported by its lawyers and tax consultants, that the Group does not have significant tax assets or contingencies not provided for in the accounts or that should be disclosed in the Notes to the consolidated financial statements as of 31 December 2007.
At 31 December 2006 the amount recorded under this caption in an amount of Euro 348,568 relates with the Medium Term Incentive Plans (Note 1. y) and 41).
At 31 December 2007 and 2006 this caption was made up as follows:
| 2007 | 2006 | |
|---|---|---|
| Raw materials | 1,839,957 | 1,970,796 |
| Merchandise | 30,860,286 | 19,289,684 |
| 32,700,243 | 21,260,480 | |
| Accumulated impairment losses on inventories (Note 24) | (8,663,703) | (6,122,085 |
| 24,036,540 | 15,138,395 |
The cost of goods sold in the years ended 31 December 2007 and 2006 amounted to Euro 108,621,905 and Euro 102,115,774, respectively, and was determined as follows:
| 2007 | 2006 | |
|---|---|---|
| Opening Inventories | 21,260,480 | 30,346,914 |
| New companies | 106,090 | - |
| Purchases | 126,935,458 | 95,830,142 |
| Inventory adjustments | (6,979,880) | (2,800,802 |
| Closing inventories | (32,700,243) | (21,260,480 |
| 108,621,905 | 102,115,774 | |
The amounts recorded under the caption 'Inventory adjustments' at 31 December 2007 and 2006 correspond, essentially, to the transfer of telecommunications handsets from the caption 'Inventories' to the caption 'Tangible assets', as a result of the rental contracts agreements signed with customers by the subsidiary Sonaecom –Serviços de Comunicações, S.A..
At 31 December 2007 and 2006 this caption was made up as follows:
| 2007 | 2006 | |
|---|---|---|
| Trade Debtors: | ||
| Telecommunications | 173,394,341 | 139,710,370 |
| Information Systems | 11,743,693 | 6,731,609 |
| Multimedia and others | 6,891,906 | 5,509,136 |
| 192,029,940 | 151,951,115 | |
| Bills receivable | - | 30,799 |
| Doubtful debtors | 65,641,188 | 60,832,530 |
| 257,671,128 | 212,814,444 | |
| Impairment losses in accounts receivable (Note 24) | (65,641,188) | (60,832,530 |
| 192,029,940 | 151,981,914 | |
At 31 December 2007 and 2006, the accumulated impairment losses by segment are made up as follows:
| 2007 | 2006 | |
|---|---|---|
| Impairment losses in accounts receivable | ||
| Telecommunications | 62,141,724 | 57,215,951 |
| Information Systems | 770,023 | 727,670 |
| Multimedia and others | 2,729,441 | 2,888,909 |
| 65,641,188 | 60,832,530 |
The Group's exposure to credit risk is mainly related to accounts receivable arising from its operational activity. The amounts included in the balance sheet are net of cumulative doubtful debtors impairment losses that were estimated by the Group, taking into consideration its past experience and an assessment of the current macroeconomic environment. The Board of Directors believes that the book value of the accounts receivable does not differ significantly from its fair value.
Trade debtors by age at 31 December 2007 and 2006 were as follows:
| 2007 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Due without impairment | Due and with impairment | ||||||||
| Total | Not due | Till 30 days | From 30 to 90 days |
More than 90 days |
Till 90 days From 90 to 180 days |
From 180 to 360 days |
More than 360 days |
||
| Trade debtors | 257,671,128 | 69,205,465 | 19,759,858 | 8,265,381 | 39,652,184 | 35,983,219 | 8,845,605 | 5,997,673 | 69,961,743 |
| 257,671,128 | 69,205,465 | 19,759,858 | 8,265,381 | 39,652,184 | 35,983,219 | 8,845,605 | 5,997,673 | 69,961,743 | |
| 2006 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Due without impairment | Due and with impairment | ||||||||
| Total | Not due | Till 30 days | From 30 to 90 days |
More than 90 days |
Till 90 days From 90 to 180 days |
From 180 to 360 days |
More than 360 days |
||
| Trade debtors | 212,814,444 | 69,615,187 | 15,408,696 | 2,348,702 | 38,545,094 | 12,692,092 | 5,865,719 | 3,017,733 | 65,321,221 |
| 212,814,444 | 69,615,187 | 15,408,696 | 2,348,702 | 38,545,094 | 12,692,092 | 5,865,719 | 3,017,733 | 65,321,221 | |
At 31 December 2007, impaired accounts receivable overdue more than 6 months, net VAT that the Group expects to recover, were fully provided for.
Credit risk, which is monitored continuously, is made up as follows:
The amounts receivable from operators are subject to review on an individual basis. The maximum exposure to risk is determined for each operator and the impairment adjustment is calculated based on the age of each balance, the existence of claims and the financial situation of the operator.
Agents are classified, in terms of risk, based on the regularity of the services rendered and their financial situation, the impairment adjustment is calculated by applying of an uncollectible percentage, based on historical data, to the accounts receivables overdue.
In the case of regular customers, impairment adjustment is calculated by applying of an uncollectible percentage based on historical data regarding collections, to the accounts receivables overdue.
In the case of the remaining accounts receivable, impairment adjustments are determined in a stand alone basis, based on the age of the receivables, net of the amounts payable.
Guarantees and pledges obtained from some operators and agents are not material.
15. Other current debtors
At 31 December 2007 and 2006, this caption was made up as follows:
| 2007 | 2006 | |
|---|---|---|
| Other debtors | 6,673,662 | 8,975,397 |
| Advances to suppliers | 1,771,739 | 470,861 |
| State and other public entities | 9,785,438 | 10,841,786 |
| Accumulated impairment losses in accounts receivable | (526,120) | (227,625) |
| 17,704,719 | 20,060,419 |
At 31 December 2007 and 2006 the caption 'Other debtors' refers essentially to accounts receivables from the subsidiary Sonaecom – Serviços de Comunicações, S.A. (Euro 4,858,053), and from Optimus (Euro 7,499,432) and Novis (Euro 442,979), respectively.
At 31 December 2007 and 2006, the caption 'State and other public entities' includes reimbursement requests of VAT from Sonaecom – Serviços de Comunicações, S.A. in an amount of Euro 1,353,032, at 2007 and from Sonaecom and Novis, at 2006 , amounting to Euro 2,096,589 and to Euro 3,433,391, respectively.
Other debtors and advances to suppliers by age at 31 December 2007 and 2006 are as follows:
| 2007 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Due without impairment | Due and with impairment | ||||||||
| Total | Not due | Till 30 days | From 30 to 90 days |
More than 90 days |
Till 90 days From 90 to 180 days |
From 180 to 360 days |
More than 360 days |
||
| Other debtors Advances to |
6,673,662 | 756,947 | 2,463,179 | 1,193,920 | 1,709,198 | 152,220 | - | - | 398,198 |
| suppliers | 1,771,739 | 33,532 | 34,602 | 188,094 | 1,515,511 | - | - | - | - |
| 8,445,401 | 790,479 | 2,497,781 | 1,382,014 | 3,224,709 | 152,220 | - | - | 398,198 |
| 2006 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Due without impairment | Due and with impairment | ||||||||
| Total | Not due | Till 30 days | From 30 to 90 days |
More than 90 days |
Till 90 days From 90 to 180 days |
From 180 to 360 days |
More than 360 days |
||
| Other debtors Advances to |
8,975,397 | 313,380 | 3,932,723 | 2,498,484 | 2,003,185 | 42,918 | 184,707 | - | - |
| suppliers | 470,861 | 451,075 | 5,283 | - | 14,503 | - | - | - | - |
| 9,446,258 | 764,455 | 3,938,006 | 2,498,484 | 2,017,688 | 42,918 | 184,707 | - | - |
The amounts due and without impairment correspond to group companies and other entities, without credit risk.
At 31 December 2007 and 2006, this caption was made up as follows:
| 2007 | 2006 | |
|---|---|---|
| Invoices to be issued to clients for services rendered | 44,816,553 | 32,522,665 |
| Invoices to be issued to operators | 22,920,309 | 20,579,967 |
| Specialised work paid in advance | 7,748,244 | 4,037,048 |
| Other costs paid in advance | 6,485,364 | 1,356,984 |
| Other accrued income | 1,979,854 | 217,548 |
| Rappel discounts (annual quantity discounts) | 1,567,391 | 1,423,478 |
| Prepaid rents | 1,302,925 | 1,042,892 |
| Medium Term Incentive Plan (Note 1. y) and 41) | 275,373 | 1,506,645 |
| 87,096,013 | 62,687,227 |
The results of projects carried out by the information systems area are recognised based on the percentage of completion of each project, which calculation is based on the percentage of costs incurred on the work performed to date in relation to the total estimated costs of the project, except where this does not represent of the stage of completion of the project.
At 31 December 2007, projects in progress were as follows:
| 2007 | |
|---|---|
| Number of projects in progress | 332 |
| Total costs recognised | 15,977,401 |
| Total revenues recognised | 24,941,448 |
| Total deferred revenues | 4,611,748 |
| Total accrued revenues | 1,904,875 |
During the years ended 31 December 2007 and 2006, the movements in this heading were as follows:
| 2007 | 2006 | |
|---|---|---|
| Balance at the beginning of the year | 849,375 | 1,321,690 |
| Acquisitions in the year | - | 414,842 |
| Disposals in the year | (1,128,864) | (1,237,987 |
| Increases/ reductions to fair value (Note 35) | 279,489 | 350,830 |
| - | 849,375 |
At 31 December 2007, 'Investments recorded at fair value through profit and loss' refers to 562,500 shares of Sonae, S.G.P.S., S.A., acquired to fulfil future obligations under the Medium Term Incentive Plans and which were recorded based on the closing share price of Euronext at the balance sheet date. During the year ended at 31 December 2007, 369,317 shares were issued to employees and 193,183 shares were sold, generating a capital gain of Euro 154,160.
At 31 December 2007 and 2006, the detail of cash and cash equivalents was as follows:
| 2007 | 2006 | |
|---|---|---|
| Cash | 581,803 | 143,380 |
| Bank deposits repayable on demand | 4,431,889 | 6,173,117 |
| Treasury applications | 78,837,920 | 119,600,847 |
| Cash and cash equivalents | 83,851,612 | 125,917,344 |
| Bank overdrafts (Note 22) | (624,457) | (74,607) |
| 83,227,155 | 125,842,737 |
At 31 December 2007 and 2006, the heading 'Treasury applications' had the following breakdown:
| 2007 | 2006 |
|---|---|
| - | 90,000,004 |
| 77,740,000 | - |
| - | 875,000 |
| 567,920 | 2,105,843 |
| 365,000 | - |
| 90,000 | - |
| - | 26,620,000 |
| 75,000 | - |
| 78,837,920 | 119,600,847 |
During the year ended at 31 December 2007, the above referred treasury applications bear interests at an average rate of 3.873% (2.94% in 2006).
At 31 December 2007 and 2006 the share capital of Sonaecom was comprised by 366,246,868 ordinary bearer shares of 1 Euro each. At those dates, the shareholder structure was as follows:
| 2007 | 2006 | ||||
|---|---|---|---|---|---|
| Number of shares | % | Number of shares | % | ||
| Sontel BV Shares traded on the Portuguese Stock |
184,052,872 | 50.25% | - | - | |
| Exchange (´Free float´) | 80,848,153 | 22.07% | 76,649,353 | 20.92% | |
| Wirefree Services Belgium, S.A. | 70,276,868 | 19.19% | 70,276,868 | 19.19% | |
| 093X (EDP) | 29,150,000 | 7.96% | 29,150,000 | 7.96% | |
| Own Shares | 1,894,326 | 0.52% | - | - | |
| Sonae | 23,649 | 0.01% | 46,572,998 | 12.72% | |
| Efanor Investimentos, S.G.P.S., S.A | 1,000 | 0.00% | 1,000 | 0.00% | |
| Sonae Investments BV | - | - | 143,596,649 | 39.21% | |
| 366,246,868 | 100.00% | 366,246,868 | 100.00% | ||
The Group's capital Structure is analysed in the Management report.
All the shares have the same rights and each share corr esponds to one vote. During 2007, Sonaecom acquired 1,894,326 own shares to cover its responsibility under the Medium Term Incentive Plans.
During the year ended 31 December 2007, Sonaecom acquired a total of 1,894,326 own shares, representative of 0.52% of its share capital, at an average acquisition price of Euro 4,72, to hedge the responsibilities associated with Medium Term Incentive Plans.
Minority interests at 31 December 2007 and 2006 are made up as follows:
| 2007 | 2006 | |
|---|---|---|
| Digitmarket | 864,933 | 472,655 |
| Others | 198 | (1,273) |
| 865,131 | 471,382 |
22. Loans
At 31 December 2007 and 2006, the heading Loans had the following breakdown:
a) Medium and long-term loans net of short-term portion
| Type of | Amount outstanding | |||||
|---|---|---|---|---|---|---|
| Subsidiary | Issue denomination | Limit | Maturity | reimbursement | 2007 | 2006 |
| Sonaecom SGPS | "Obrigações Sonaecom SGPS 2005" | 150,000,000 | Jun-13 | Final | 150,000,000 | 150,000,000 |
| Costs associated with setting-up the financing |
- | - | - | (2,879,021) | (3,373,693) | |
| Interests incurred but not yet due | - | - | - | 260,883 | - | |
| Fair value of swaps | - | - | - | 56,194 | - | |
| 147,438,056 | 146,626,307 | |||||
| Sonaecom SGPS | Commercial paper | 250,000,000 | Jul-12 | - | 225,000,000 | - |
| Costs associated with setting-up the financing |
- | - | - | (545,505) | - | |
| Interests incurred but not yet due | - | - | - | 1,790,543 | - | |
| Fair value of swaps | - | - | - | (469,104) | - | |
| 225,775,934 | - | |||||
| Optimus | European Investment Bank (a) | 324,458,200 | Jun-09 | 30% - Jun 08 70% - Jun 09 |
- | 324,458,200 |
| Costs associated with setting-up the financing |
- | - | - | - | (10,591,142) | |
| Fair value of swaps | - | - | - | - | 107,462 | |
| - | 313,974,520 | |||||
| 373,213,990 | 460,600,827 |
a) As a guarantee of the EIB loans, the banks participating in the Optimus syndicated credit facility have issued a bank guarantee in favour of the EIB (cancelled in 2007 with the reimbursement of the loan).
| Lender | Type | 2007 | 2006 | |
|---|---|---|---|---|
| Various | Bank overdrafts | 624,457 | 74,607 | |
| 624,457 | 74,607 | |||
| Amount outstanding |
In July 2007, Sonaecom contracted a Program of Commercial Papper issuance of a maximum amount of Euro 250 million with a subscription grant and a maturity of five years, organized by Banco Santander de Negócios Portugal and by Caixa – Banco de Investimento.
The placing guarantee syndicate is composed by the following institutions: Banco Santander Totta, Caixa Geral de Depósitos, Banco BPI, Banco Bilbao Vizcaya Argentina (Portugal), Banco Comercial Português and BNP Paribas (in Portugal).
In September 2007, the subsidiary Optimus – Telecomunicações, S.A., reimbursed its financing from European Investment Bank (BEI), in an amount of Euro 324 million.
This facility contracted by Sonaecom results in a significant extension in the maturity dates contracted and elimination of a series of contractual, financial and operating restrictions, under more favourable market conditions, of Optimus' previous syndicated loan, and greater efficiency in managing consolidated liquidity.
These loans bear interest at market rates, indexed to the Euribor for the respective terms and were all contracted in Euros. Consequently, it is estimated that the fair value of those loans does not differ significantly from their market value.
The spread on the medium and long term loans is established between 22.5 and 87.5 basis points.
All of the above loans are unsecured and the fulfilment of the obligations under these loans is exclusively guaranteed by the underlying activities and the companies respective cash flows.
At 31 December 2007 and 2006, the repayment schedule of medium and long term loans and of interests, as well for the bonds and commercial paper was as follows:
| 2007 | ||||||
|---|---|---|---|---|---|---|
| N+1 | N+2 | N+3 | N+4 | N+5 | After N+5 | |
| Bond Loan | ||||||
| Reimbursements | - | - | - | - | - | 150,000,000 |
| Interests | 7,873,575 | 7,873,575 | 7,873,575 | 7,873,575 | 7,873,575 | 7,873,575 |
| Commercial paper | ||||||
| Reimbursements | - | - | - | 75,000,000 | 150,000,000 | - |
| Interests | 8,149,750 | 8,149,750 | 8,149,750 | 7,837,250 | 7,602,875 | - |
| 16,023,325 | 16,023,325 | 16,023,325 | 90,710,825 | 165,476,450 | 157,873,575 | |
| 2006 | ||||||
| N+1 | N+2 | N+3 | N+4 | N+5 | After N+5 | |
| Bond Loan | ||||||
| Reimbursements | - | - | - | - | - | 150,000,000 |
| Interests | 6,116,775 | 6,116,775 | 6,116,775 | 6,116,775 | 6,116,775 | 6,116,775 |
| European Investment Bank | ||||||
| Reimbursements | - | 97,337,460 | 227,120,470 | - | - | - |
| Interests | 11,842,724 | 9,905,709 | 3,770,204 | - | - | - |
| 17,959,499 | 113,359,944 | 237,007,449 | 6,116,775 | 6,116,775 | 156,116,775 |
Although the commercial paper issues mature in six months, the counterparties have assumed the commitment to place and maintain these limits for a period of five years.
At 31 December 2007 and 2006 the available credit lines were as follows:
| 2 0 0 7 | ||||||
|---|---|---|---|---|---|---|
| Maturity | ||||||
| More | ||||||
| Amount | Amount | Until 12 | than 12 | |||
| Subsidiary | Credit | Limit | outstanding | available | months | months |
| Sonaecom SGPS | Commercial paper | 250,000,000 | 225,000,000 | 25,000,000 | x | |
| Sonaecom SGPS | Commercial paper | 70,000,000 | - | 70,000,000 | x | |
| Sonaecom SGPS | Overdraft facilities | 5,000,000 | - | 5,000,000 | x | |
| Sonaecom SGPS | Bond Loan | 150,000,000 | 150,000,000 | - | x | |
| Público | Overdraft facilities | 1,496,394 | - | 1,496,394 | x | |
| Público | Overdraft facilities | 1,500,000 | - | 1,500,000 | x | |
| Público | Authorized Overdrafts | 1,246,995 | - | 1,246,995 | x | |
| WeDo Brasil | Overdraft facilities | 368,009 | - | 368,009 | x | |
| 479,611,398 375,000,000 104,611,398 |
| 2 0 0 6 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Maturity | ||||||||
| From 6 | More | |||||||
| Amount | Amount | to 12 | than 12 | |||||
| Subsidiary | Credit | Limit | outstanding | available | months | months | ||
| Optimus | European Investment Bank | 324,458,200 | 324,458,200 | - | x | |||
| Optimus | Revolving | 125,541,800 | - | 125,541,800 | x | |||
| Optimus | Overdraft facilities | 4,987,979 | - | 4,987,979 | x | |||
| Sonaecom SGPS | Bound loan | 150,000,000 | 150,000,000 | - | x | |||
| Sonaecom SGPS | Commercial paper | 70,000,000 | - | 70,000,000 | x | |||
| Sonaecom SGPS | Caution accounts | 20,000,000 | - | 20,000,000 | x | |||
| Público | Overdraft facilities | 1,496,394 | - | 1,496,394 | x | |||
| Público | Overdraft facilities | 1,500,000 | - | 1,500,000 | x | |||
| Público | Authorized overdrafts | 1,246,995 | - | 1,246,995 | x | |||
| WeDo Brasil | Overdraft facilities | 368,009 | - | 368,009 | x | |||
| 699,599,377 474,458,200 225,141,177 |
| Subsidiary | Hedged loan | Notional amount | Expiry date | Base rate | Fixed rate contracted |
Fair value of the derivative instruments |
|
|---|---|---|---|---|---|---|---|
| Sonaecom | Commercial paper | 110,000,000 | Mar-09 | Euribor 6m | 4.365% | (469,104) | - |
| Sonaecom | Bond Loan | 75,000,000 | Jun-09 | Euribor 6m | 4.565% | 56,194 | - |
| Optimus | European Investment Bank |
55,000,000 | Dec-07 | Euribor 3m | 4,75% (a) 3,68% (b) |
- | (107,462) |
| (412,910) | (107,462) |
(a) This rate corresponds to the cap (maximum rate) contracted and effective after 15 September 2006. The rate effectively paid corresponds to the simple average of the 2 year swap rates verified during the period (3.767% in the last period of exchange). (b) This rate corresponds to the cap (maximum rate) contracted and effective until 15 September 2006 inclusive.
In September 2007, Sonaecom contracted an interest rate swap with a notional amount of Euro 110 million, for a period of 18 months, re-fixed half yearly, to fully cover the interest rate risk of one commercial paper lot issued on 13 September 2007, for the same amount and the same period. This lot will be renewed for the same amount and for the same period until at least 13 March 2009, the maturity date of this new interest rate swap.
In December 2007 Sonaecom contracted an interest rate swap, with a notional amount of Euro 75 milion, for a period of 18 months, re-fixed half yearly, to fully cover 50% of the interest rate risk on the bonds issued by Sonaecom in June 2005, in the amount of Euro 150 million for the period of eight years, re-fixed half yearly. Interest on the bonds and swap is paid simultaneously, the latter being paid net.
The changes in 2007 in the fair value of the swap relating to the European Investment Bank loan in the amount of Euro 107,462, were recorded in the profit an loss statement for the year as the hedging instrument is not considered as effective (Note 22). The changes in fair value of the swaps relating to the Commercial Paper proram in the amount of 469,104 Euros, and bonds in the amount of 56,194 Euros, were recorded in reserves, as the hedges were considered as effective in accordance with IAS 39.
As a result of contracting of these derivative financial instruments, at 31 December 2007 approximately 46% of gross indebtedness was indirectly subject to fixed interest rates. The remaining 54% of gross indebtedness was exposed to changes in the interest rates.
Based on gross indebtedness exposed to variable interest rates at 31 December 2007, including the finance lease liability, considering the applications and bank balances at that date, if interest rates increase (decrease) an average of 75 bp in 2008, the interest cost for that year would be increased (decreased) by approximately Euro 1 million. However, considering that under the contractual terms interest rates are fixed until the refixing dates, the impact in 2008 would only be of around Euro 0.5 million.
At 31 December 2007 and 2006, this caption was made up of accounts payable to fixed assets suppliers related to leasing contracts that are due in more than one year in the amount of Euro 17,916,038 and Euro 1,614,602, respectively.
| 2006 | ||||
|---|---|---|---|---|
| Lease payments | Present value of lease payments |
Lease payments | Present value of lease payments |
|
| - | - | 1,812,615 | 1,708,922 | |
| 2,875,757 | 1,926,041 | 959,885 | 908,212 | |
| 2,389,062 | 1,522,619 | 477,035 | 457,943 | |
| 2,070,704 | 1,266,085 | 228,719 | 220,614 | |
| 1,869,068 | 1,124,586 | 27,909 | 27,833 | |
| 1,885,669 | 1,196,417 | - | - | |
| 1,677,995 | 1,043,570 | - | - | |
| 14,996,915 | 11,762,761 | - | - | |
| 27,765,170 | 19,842,079 | 3,506,163 | 3,323,524 | |
| (7,923,091) | - | (182,639) | - | |
| 19,842,079 | 19,842,079 | 3,323,524 | 3,323,524 | |
| - | (1,926,041) | - | (1,708,922) | |
| 19,842,079 | 17,916,038 | 3,323,524 | 1,614,602 | |
| 2007 |
At 31 December 2007 and 2006, accounts payable to fixed assets suppliers related to leasing contracts are due as follows:
As these lease contracts bear interest at market rates, their fair value is estimated not to differ significantly from their book value.
The medium and long term agreements made with the suppliers of the fibre optic network capacity, under which the Group has the right to use that network, which is considered as a specific asset, are recorded as finance leases in accordance with IAS 17 – "Leases" and IFRIC 4 – "Determining whether an ar rangement contains a Lease". These contacts have a maturity between 15 and 20 years.
The movements in provisions and in accumulated impairment losses in the years ended 31 December 2007 and 2006 were as follows:
| 2007 | |||||||
|---|---|---|---|---|---|---|---|
| Opening | New | Closing | |||||
| Heading | balance | Companies | Transfers | Increases | Utilisations | Decreases | balance |
| Accumulated impairment losses on accounts receivables (Notes 14 and 15) |
61,060,155 | 5,975,780 | (949,642) | 8,316,573 | (8,096,333) | (139,225) | 66,167,308 |
| Accumulated impairment losses on inventories (Note 13) |
6,122,085 | - | - | 2,541,618 | - | - | 8,663,703 |
| Accumulated impairment losses on investments available for sale (Note 10) |
2,539,229 | - | - | - | (2,539,229) | - | - |
| Provisions for other liabilities and charges |
20,078,571 | 5,708,383 | 949,642 | 5,175,929 | (211,807) | (815,340) | 30,885,378 |
| 89,800,040 | 11,684,163 | - | 16,034,120 | (10,847,369) | (954,565) | 105,716,389 |
| 2006 | |||||||
|---|---|---|---|---|---|---|---|
| Heading | Opening balance |
Companies no longer consolidated |
Transfers | Increases | Utilisations | Decreases | Closing balance |
| Accumulated impairment losses on accounts receivables (Note 14 and 15) |
64,905,431 | (158,854) | (189,820) | 5,575,466 | (8,570,655) | (501,413) | 61,060,155 |
| Accumulated impairment losses on inventories (Note 13) |
7,134,249 | - | - | 1,631,000 | (2,643,164) | - | 6,122,085 |
| Accumulated impairment losses on investments available for sale (Note 10) |
2,685,477 | - | - | - | (146,248) | - | 2,539,229 |
| Accumulated impairment losses on other non current assets and in associated companies investments (Notes 3 and 12) |
986,956 | - | - | 5,000 | (991,956) | - | - |
| Provisions for other liabilities and charges |
5,092,476 | (339,409) | 428,283 | 15,623,073 | (626,318) | (99,534) | 20,078,571 |
| 80,804,589 | (498,263) | 238,463 | 22,834,539 | (12,978,341) | (600,947) | 89,800,040 |
The increase of 'Provisions for other liabilities and charges' includes the amount of Euro 3,857,160 associated with the dismantling of sites (Euro 12,222,080 in 2006), as foreseen in IAS 16 (Note 1.d.)). As such, the total amount included under increase of provisions and of impairment losses, registered against a corresponding entry in the profit and loss statement, corresponds to Euro 12,176,960 (Euro 10,612,459 in 2006).
The heading utilisations refers, essentially, to the use of provisions by the subsidiary Sonaecom – Serviços de Comunicações, S.A., which were registered against an entry in customers' current accounts.
At 31 December 2007 and 2006, the breakdown of the provisions for other liabilities and charges were as follows:
| 2007 | 2006 | |
|---|---|---|
| Dismantling of sites | 18,888,140 | 15,105,140 |
| Several contingencies | 6,594,725 | 981,148 |
| Legal processes in progress | 1,945,403 | 2,419,933 |
| Indemnities | 379,432 | 575,780 |
| Others | 3,077,678 | 996,570 |
| 30,885,378 | 20,078,571 | |
The caption 'Several contingencies' corresponds to probable liabilities arising from transactions carried out in previous years, the outflow of funds being probable.
As regards the provisions for legal processes in progress and for other risks and charges, given the uncertainty of such processes, the Board of Directors is unable to reliably estimate the time that such provisions will be used.
At 31 December 2007 and 2006, this caption, in the amounts of Euro 291,147 and Euro 3,785,049, respectively, corresponds to the medium and long term portion associated with the Medium Term Incentive Plans (Note 41).
At 31 December 2007 and 2006 this caption have the following composition and maturity plans:
| 2007 | ||||||
|---|---|---|---|---|---|---|
| From 90 to | More than | |||||
| Total | Till 90 days | 180 days | 180 days | |||
| Suppliers - current account | 141,378,871 | 141,378,871 | - | - | ||
| Fixed assets suppliers Suppliers - invoices pending |
35,620,058 | 35,620,058 | - | - | ||
| approval | 8,333,625 | 8,333,625 | - | - | ||
| 185,332,554 | 185,332,554 | - | - |
| 2006 | ||||||
|---|---|---|---|---|---|---|
| From 90 to | More than | |||||
| Total | Till 90 days | 180 days | 180 days | |||
| Suppliers - current account | 106,888,885 | 106,888,885 | - | - | ||
| Fixed assets suppliers | 53,648,257 | 53,173,443 | 474,814 | - | ||
| Suppliers - invoices pending | ||||||
| approval | 2,142,970 | 2,142,970 | - | - | ||
| 162,680,112 | 162,205,298 | 474,814 | - |
At 31 December 2007 and 2006, this caption included balances payable to suppliers resulting from the Group's operations and the acquisition of fixed assets. The Board of Directors believes that the difference between the fair value of these balances and its book value is not significant.
At 31 December 2007, this caption includes the amount of Euro 1,926,041 (Euro 1,708,922 in 2006) related to the short term portion of lease contracts (Note 23).
At 31 December 2007 and 2006 this caption was made up as follows:
| 2007 | 2006 | |
|---|---|---|
| Other Creditors | 11,407,495 | 6,954,626 |
| State and other public entities | 6,943,303 | 10,584,085 |
| 18,350,798 | 17,538,711 |
The liability to other creditors matures as follows:
| 2007 | |||||
|---|---|---|---|---|---|
| From 90 to | More than | ||||
| Total | Till 90 days | 180 days | 180 days | ||
| Other creditors | 11,407,495 | 11,407,495 | - | - |
| 2006 | |||||
|---|---|---|---|---|---|
| Total | Till 90 days | From 90 to 180 days |
More than 180 days |
||
| Other creditors | 6,954,626 | 6,954,626 | - | - |
The liability to other creditors does not incorporate interest. The Board of Directors believes that the difference between the fair value of these balances and its book value is not significant.
At 31 December 2007 and 2006, the caption 'State and other public entities' related essentially to Taxes payables (Value Added Tax, Corporate Income Tax, Social Security contributions and withholdings of Personal Income Tax) from the following subsidiaries:
| 2007 | 2006 | |
|---|---|---|
| Sonaecom - Serviços de Comunicações, S.A. (Novis in 2006) | 1,530,114 | 542,439 |
| Público | 919,835 | 1,056,339 |
| WeDo | 1,006,032 | 1,197,369 |
| Situs | 873,246 | - |
| WeDo Br | 859,254 | - |
| Sonaecom | 629,421 | - |
| Optimus | - | 5,597,492 |
| Others | 1,125,401 | 2,190,446 |
| 6,943,303 | 10,584,085 | |
At 31 December 2007 and 2006 this caption was made up as follows:
| 2007 | 2006 | |
|---|---|---|
| Costs: | ||
| Invoices to be inssued by operators | 67,830,456 | 42,801,688 |
| Personnel Costs | 24,997,829 | 25,145,801 |
| Tangible assets to be invoiced | 23,507,993 | 983,187 |
| Costs related to Public Tender Offers (Note 34) | - | 16,185,850 |
| Commissions | 8,478,963 | 10,481,089 |
| Other external suppliers and services | 10,749,316 | 4,366,871 |
| Specialised works | 7,235,652 | 2,625,515 |
| Medium Term Incentive Plans (Note 41) | 3,749,061 | 4,448,113 |
| Advertising and promotion | 7,233,546 | 4,247,475 |
| Rappel discounts (annual quantity discounts) | 2,527,552 | 2,603,357 |
| Maintenance and repairs | 1,521,079 | 781,025 |
| Other Costs | 7,443,083 | 4,408,363 |
| 165,274,530 | 119,078,334 | |
| Deffered Income: | ||
| Customer advance payments | 28,325,600 | 23,262,734 |
| Other deferred income | 765,237 | 285,269 |
| 29,090,837 | 23,548,003 | |
| 194,365,367 | 142,626,337 |
The heading 'Customer advance payments' is associated, mainly, with the recharges of mobile phones and the acquisition of pre-paid minutes which were not yet used, by the customers of the subsidiary Sonaecom – Serviços de Comunicações, S.A..
The heading 'Tangible assets to be invoiced' includes invoices to be issued by suppliers of fixed assets and the amount of Euro 8,313,000 related to the contribution to the the Information Society Fund (Note 7).
At 31 December 2007 and 2006 the caption 'Sales and services rendered' was made up as follows:
| 2007 | 2006 |
|---|---|
| 816,142,423 | 751,575,016 |
| 33,177,338 | 35,758,402 |
| 42,827,045 | 48,239,841 |
| 546,885 | 467,017 |
| 892,693,691 | 836,040,276 |
At 31 December 2007 and 2006 the caption 'Other operating revenues' was made up as follows:
| 2007 | 2006 | |
|---|---|---|
| Supplementary Income | 3,297,103 | 3,853,525 |
| Reversal of provisions (Note 24) | 954,565 | 600,947 |
| Operating Subsidies | - | 401,085 |
| Others | 2,169,508 | 27,179,986 |
| 6,421,176 | 32,035,543 | |
At 31 December 2006, the heading 'Others' includes, mainly, capital gains generated by the sale of tangible assets and by the gains generated on the sale of Retailbox (Euro 25,370,915 – Note 5.c)).
'External supplies and services' for the years ended 31 December 2007 and 2006 are made up as follows:
| 2007 | 2006 | |
|---|---|---|
| Interconnection costs | 230,469,011 | 200,603,352 |
| Commissions | 54,925,505 | 58,144,594 |
| Specialised works | 52,068,856 | 46,760,511 |
| Advertising and promotion | 41,527,503 | 35,625,198 |
| Leased lines | 29,855,471 | 19,873,355 |
| Rents | 29,457,665 | 30,879,521 |
| Others subcontracts | 22,464,345 | 21,992,713 |
| Energy | 8,303,022 | 7,071,431 |
| Maintenance and repairs | 6,799,572 | 5,836,512 |
| Communications | 5,411,410 | 4,662,466 |
| Travelling costs | 4,619,237 | 5,464,890 |
| Fees | 3,087,843 | 3,512,346 |
| Others | 18,540,941 | 16,939,249 |
| 507,530,381 | 457,366,138 | |
The commitments assumed by the Group in 31 December 2007 related with operational leases are as follows:
| Minimum payments of operational leases | 2007 |
|---|---|
| 2008 | 9,087,335 |
| 2009 | 6,815,307 |
| 2010 | 4,930,436 |
| 2011 | 3,373,779 |
| 2012 | 1,340,785 |
| 2013 | 92,295 |
| Renewable by períods of 1 year | 1,527,939 |
| 27,167,876 |
During the year ended at 31 December 2007, an amount of Euro 12,376,281 was recorded in the heading ' External supplies and services' related with operational leasing rents (exception of the leased lines).
The rent of leased space consists mainly of a contract for the lease of the Sonaecom building, completed during 2007, for a period of 5 years with the possibility of annual renewal. The rent is updated at the end of the first cycle of the contract, that is after the first five years.
At 31 December 2007 and 2006 the caption 'Other operating costs' was made up as follows:
| 2006 | |
|---|---|
| 12,574,556 10,634,282 |
|
| 508,054 | |
| 11,142,336 | |
| 1,216,654 13,791,210 |
The caption 'Taxes' at 31 December 2007 and 2006 includes, essentially, the fees paid by the subsidiary Sonaecom – Serviços de Comunicações, S.A. to ANACOM, calculated based on the number of its active customers. This obligation was included in the terms of the GSM operator license granted to that subsidiary.
At 31 December 2006, this caption includes all the costs incurred (invoiced and not invoiced but which legal obligation was generated during 2006) with the public tender offers for the acquisition of the shares of Portugal Telecom S.G.P.S., S.A. and of PT – Multimédia – Serviços de Telecomunicações, S.G.P.S., S.A.. These costs were recorded in 'Other non current assets' because, until that date, the probability of success of the offers was high and the costs incurred would be considered as part of the cost of acquiring those financial investments. After the end of the offers, those costs were fully recognised in the consolidated statement of profit and loss accounts in last quarter of 2006.
Net financial results for the years ended 31 December 2007 and 2006 are made up as follows:
| 2007 | 2006 | |
|---|---|---|
| Financial results related to associated companies | ||
| Losses on associated companies | (14,822) | (239,249) |
| Gains on associated companies | - | 76,766 |
| Gains on disposal of shareholdings in associated companies | 239,249 | - |
| 224,427 | (162,483) | |
| Gains and losses on Investments available for sale (Note 10) | 5,578,307 | - |
| Other financial expenses: | ||
| Interest expenses | ||
| Bank loans | (19,498,500) | (16,786,452) |
| Set up costs | (282,620) | - |
| Other loans | (6,509,514) | (3,048) |
| Swap interests | (195,730) | (389,464) |
| Leasing | (968,893) | (204,078) |
| Bank overdrafts and others | (130,318) | (74,891) |
| (27,585,575) | (17,457,933) | |
| Foreign exchange losses | (437,836) | (101,915) |
| Adjustments to fair value on investments recorded at fair value | ||
| through profit and loss (Note 17) | - | (16,875) |
| Other financial expenses | ||
| Set up costs (Note 22) | (11,074,426) | (4,846,439) |
| Swap fair value (Note 22) | 107,462 | (108,952) |
| Others | (470,391) | (606,312) |
| (11,437,355) | (5,561,703) | |
| (39,460,766) | (23,138,426) | |
| Other financial income: | ||
| Interest income | 11,613,672 | 5,281,255 |
| From related parties | 2,091,718 | 2,896,367 |
| From others | 9,521,954 | 2,384,888 |
| Foreign exchange gains | 283,787 | 125,483 |
| Adjustments to fair value on investments recorded at fair value | ||
| through profit and loss (Note 17) | 279,489 | 350,830 |
| Other financial income | - | 174,009 |
| 12,176,948 | 5,931,577 |
The 'Interest income' includes, mainly, interests earned on the treasury applications granted to Sonae and on bank deposits (Note 18).
At 31 December 2007, the set-up costs in the amount of Euro 11,074,426, corresponded mainly to the recognition of the full amount of costs incurred with the syndicated loan of Optimus, which was refinanced in 2007.
Income taxes recognised during the years ended 31 December 2007 and 2006 are made up as follows (costs)/gains:
| 2007 | 2006 | |
|---|---|---|
| Current tax | (2,437,769) | (1,196,313) |
| Deferred tax asset (Note 11) | 39,357,184 | (4,063,624) |
| Deferred tax liability | (284,402) | - |
| 36,635,013 | (5,259,937 |
During the years ended 31 December 2007 and 2006, the balances and transactions with related parties mainly relate to the normal operational activity of the Group (providing communications and consultancy services) and to the concession and obtainance of loans.
The most significant balances and transactions with related parties at 31 December 2007 and 2006 were as follows:
| Balances at 31 December 2007 | |||||
|---|---|---|---|---|---|
| Accounts receivable |
Accounts payable |
Treasury applications |
Accruals | Loans obtained |
|
| Sonae | 96,973 | 215,936 | - | 391 | - |
| Modelo Continente | |||||
| Hipermercados, S.A. | 888,974 | 439,935 | - | 192,066 | - |
| Worten | 5,750,544 | 2,237,511 | - | (1,019,247) | - |
| France Telecom | 4,525,809 | 3,585,926 | - | (13,649,802) | - |
| Sonae Investments BV | - | - | - | (3,304,474) | - |
| 11,262,300 | 6,479,308 | - | (17,781,066) | - |
| Balances at 31 December 2006 | |||||
|---|---|---|---|---|---|
| Accounts receivable |
Accounts payable |
Treasury applications |
Accruals | Loans obtained |
|
| Sonae | 34,455 | 68,267 | 90,000,004 | 101,731 | - |
| Modelo Continente | |||||
| Hipermercados, S.A. | 3,920,522 | 196,471 | - | 289,165 | - |
| France Telecom | 1,448,363 | 3,885,223 | - | 398,650 | - |
| Sonae Investments BV | - | - | - | (5,517,065) | - |
| 5,403,340 | 4,149,961 | 90,000,004 | (4,727,519) | - | |
| Transactions at 31 December 2007 | ||||||
|---|---|---|---|---|---|---|
| Interest and Sales and Supplies and similar |
||||||
| services | services | income/ | Supplementary | |||
| rendered | received | (expense) | income | |||
| Sonae | 367,473 | 139,312 | 2,091,349 | 78,653 | ||
| Modelo Continente | ||||||
| Hipermercados, S.A. | 6,005,553 | 1,779,942 | - | 615,638 | ||
| Worten | 5,910,046 | 1,819,408 | - | - | ||
| France Telecom | 12,943,185 | 8,428,837 | - | - | ||
| 25,226,257 | 12,167,499 | 2,091,349 | 694,290 |
| Transactions at 31 December 2006 | ||||
|---|---|---|---|---|
| Interest and | ||||
| Sales and | Supplies and | similar | ||
| services | services | income/ | Supplementary | |
| rendered | received | (expense) | income | |
| Sonae | 336,115 | 331,390 | 2,848,505 | - |
| Modelo Continente | ||||
| Hipermercados, S.A. | 12,866,646 | 2,245,900 | - | 245,279 |
| France Telecom | 3,041,726 | 5,625,713 | - | - |
| 16,244,487 | 8,203,003 | 2,848,505 | 245,279 |
The transactions between Group companies were eliminated in consolidation, and therefore are not mentioned in this note.
Accounts receivable from and payable to related companies, will be settled in cash and are not covered by guarantees. During the years ended at 31 December 2007 and 2006, no impairment losses on accounts receivable from related entities were recognized.
A complete list of the Sonaecom Group's related parties is presented in an appendix to this report.
Guarantees provided to third parties at 31 December 2007 and 2006 were as follows:
| Company | Beneficiary | Description | 2007 | 2006 |
|---|---|---|---|---|
| Optimus | European Investment Bank | Loan | - | 324,458,200 |
| Sonaecom | BBVA – Portugal, ING Belgium Portugal and Millennium BCP |
Commercial paper | 320,000,000 | 70,000,000 |
| Optimus | ANACOM | UMTS License | - | 2,493,989 |
| Sonaecom - Serviços de Comunicações, Público and Sonaecom |
Direcção de Contribuições e Impostos (Portuguese tax authorities) |
VAT Reimbursements | 6,064,286 | 126,372 |
| Sonaecom - Serviços de Comunicações |
Direcção de Contribuições e Impostos (Portuguese tax authorities) |
IRC - Tax assessment | 1,650,000 | - |
| Sonaecom - Serviços de Comunicações and Público |
Direcção de Contribuições e Impostos (Portuguese tax authorities) |
VAT - Impugnation process | 598,000 | 580,000 |
| Sonaecom - Serviços de Comunicações and Tele2 |
Direcção Geral do Tesouro (Portuguese tax authorities) |
IRC – Witholding tax on payments to non-residents |
470,954 | 164,000 |
| Sonaecom - Serviços de Comunicações |
Câmara Municipal de Coimbra, Lisboa, Braga, Elvas e Caldas da Rainha (Coimbra, Lisbon, Braga, Elvas and Caldas da Rainha Municipalities) |
Performance bond - works | 287,494 | 280,565 |
| Público | Tribunal de Trabalho de Lisboa (Lisbon Labour Court) |
Execution action n. 199A/92 | 271,511 | 271,511 |
| Público | Fazenda Pública do Porto (Oporto Public Treasury) |
Tax process n. 3190/98 | 209,493 | 209,493 |
| WeDo | API (Portuguese Investment Agency) | Application to PRIME subsidies | 184,004 | 184,004 |
| Sonaecom - Serviços de Comunicações |
Governo Civil de Lisboa (Lisbon Government Civil) |
Guarantee the fulfilment of legal obligations |
161,474 | 98,195 |
| Sonaecom - Serviços de Comunicações and Digitmarket |
Hewlett Packard | Finance lease and services provider contracts |
159,859 | 212,790 |
| Sonaecom - Serviços de Comunicações |
Beiralusa | Performance bond - works | 147,809 | - |
| Sonaecom - Serviços de Comunicações |
Governo Civil de Santarém (Santarém Local Government) |
Guarantee the fulfilment of legal obligations |
119,703 | 119,703 |
| WeDo | Digi Telecomunications | Guarantee the fulfilment of contracts |
116,262 | - |
| Various | Others | 838,327 331,279,177 |
541,219 399,740,041 |
At 31 December 2007 and 2006, the Group's Board of Directors believes that the outcome of the legal and tax processes in progress will not have a significant effect on the accompanying consolidated financial statements.
The following business segments were identified for the years ending 31 December 2007 and 2006:
As a result of the merger between Optimus and Novis (Note 5.e)) (mobile and fixed telecommunications businesses), in 2007 the Group decided to change the form of presenting the segment information, grouping the two above mentioned business areas into a single area called "Telecommunications". As required by IAS 8, the information for 2006 was restated considering this change.
The remaining activities of the Group and corporate services have been classified as unallocated.
Inter-segment transactions at 31 December 2007 and 2006 were eliminated in the consolidation process.
Due to the immateriality of the assets and transactions of the Group outside Portugal, segment information by geographical markets is not presented.
Inter-segment transfers or transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties and are mainly related to interconnection, interest on treasury applications and management fees.
Overall information by business segment at 31 December 2007 and 2006 can be summarised as follows:
| Tele comu |
nicat ions |
Multi medi |
a | Infor matio n Sy |
stem s (*) |
Othe r |
Sub- total |
Elimi natio |
ns | Tota l |
||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Dece mber -200 7 |
Dece mber -200 6 |
Dece mber -200 7 |
Dece mber -200 6 |
Dece mber -200 7 |
Dece mber -200 6 |
Dece mber -200 7 |
Dece mber -200 6 |
Dece mber -200 7 |
Dece mber -200 6 |
Dece mber -200 7 |
Dece mber -200 6 |
Dece mber -200 7 |
Dece mber -200 6 |
|
| Reve nues : |
||||||||||||||
| Sales and ices rende red serv |
817, 216,4 58 |
752, 653,2 46 |
33,1 54,87 0 |
36,3 94,11 6 |
79,5 12,20 9 |
78,9 51,99 7 |
7,54 7,991 |
6,90 0,34 3 |
937, 431,5 29 |
874, 899,7 02 |
(44,7 8) 37,83 |
(38,8 6) 59,42 |
892, 693,6 91 |
836, 040,2 76 |
| Othe rating r ope reve nues |
10,9 55,21 8 |
9,13 8,675 |
247, 408 |
394, 549 |
359, 081 |
27,1 45,14 4 |
24,3 14,73 2 |
427, 780 |
35,8 76,43 9 |
37,1 06,14 8 |
(29,4 55,26 3) |
(5,07 0,604 ) |
6,42 1,176 |
32,0 35,54 3 |
| l rev Tota enue s |
828, 171,6 76 |
761, 791,9 21 |
33,4 02,27 8 |
36,7 88,66 5 |
79,8 71,29 0 |
106, 097, 141 |
31,8 62,72 3 |
7,32 8,123 |
973, 307,9 68 |
912, 005,8 50 |
(74,1 1) 93,10 |
(43,9 0) 30,03 |
899, 114,8 67 |
868, 075,8 19 |
| Tend er Of fer c osts |
- | - | - | - | - | - | - | (30,9 06,60 2) |
- | - | - | - | - | (30,9 06,60 2) |
| Depre ciatio d am ortisa tion n an |
(144 ,035, 273) |
(134 ,154, 018) |
(696 ,094) |
(757 ,042) |
(1,73 0,709 ) |
(1,68 3,755 ) |
(244 ,096) |
(323 ,785) |
(146 ,706, 172) |
(136 ,918, 599) |
6,72 3,352 |
1,24 7,692 |
(139 ,982, 820) |
(135 ,670, 907) |
| Net o perat ing in /(los s) fo r the ent come segm |
(3,44 4,320 ) |
28,9 19,30 7 |
(3,96 6,068 ) |
(9,53 1,890 ) |
2,85 3,227 |
30,4 84,39 2 |
21,1 52,71 5 |
(32,2 06,55 8) |
16,5 95,55 4 |
17,6 65,25 1 |
5,41 5,645 |
95,2 93 |
22,0 11,19 9 |
17,7 60,54 4 |
| Net i ntere sts |
(14,3 78,84 1) |
(10,8 20,28 3) |
(274 ,826) |
(321 ,293) |
438,7 35 |
690, 454 |
(1,38 9,727 ) |
(1,63 4,812 ) |
(15,6 04,65 9) |
(12,0 85,93 4) |
(367 ,246) |
(90,7 44) |
(15,9 71,90 5) |
(12,1 76,67 8) |
| Gains and loss es in ociat ed c nies ass ompa |
- | - | - | - | - | - | (82,0 8) 74,25 |
- | (82,0 8) 74,25 |
- | 82,2 98,68 5 |
(162 ,483) |
224,4 27 |
(162 ,483) |
| Othe r fina ncial resul ts |
(10,7 0) 35,00 |
(4,70 8,891 ) |
(12,6 01) |
(16,4 55) |
2,95 0,60 3 |
(104 ,651) |
11,2 97,44 5 |
33,0 55,26 3 |
3,50 0,447 |
28,2 25,26 6 |
(9,23 ) 4,054 |
(33,2 7) 55,43 |
(5,73 ) 3,607 |
(5,03 ) 0,171 |
| Incom e ta xatio n |
39,2 67,96 0 |
(4,98 6,398 ) |
(1,39 4,799 ) |
(162, 651) |
(1,21 1,860 ) |
(103 ,608) |
(26,2 86) |
(7,28 0) |
36,6 35,01 5 |
(5,25 9,937 ) |
(2) | - | 36,6 35,01 3 |
(5,25 9,937 ) |
| Cons olidat ed n et in /(los s) fo r the come yea r |
10,70 9,799 |
8,40 3,735 |
(5,64 8,294 ) |
(10,0 32,28 9) |
5,03 0,705 |
30,9 66,58 7 |
(51,0 40,11 1) |
(793 ,387) |
(40,9 47,90 1) |
28,5 44,64 6 |
78,1 13,02 9 |
(33,4 13,37 1) |
37,1 65,12 8 |
(4,86 8,725 ) |
| Attrib utabl e to: Share holde rs of Pare nt Co mpan y |
1 0 , 7 0 9 , 7 9 9 |
8 , 4 0 3 , 7 3 5 |
( 5 , 6 4 8 , 2 9 4 ) |
( 1 0 , 0 3 2 , 2 8 9 ) |
3 7 , 4 9 8 4 , 6 |
3 0 , 9 6 6 , 5 8 7 |
( 5 1 , 0 4 0 , 1 |
1 1 ) ( 7 9 3 , 3 8 7 ) |
( 4 1 , 3 4 0 9 ) 1 , 1 |
2 8 , 5 4 4 , 6 4 |
7 8 , 1 1 8 , 9 7 9 6 |
( 4 2 , 4 2 7 , 8 |
1 4 ) 3 6 , , 8 7 7 7 7 |
0 ( 1 3 , 8 8 3 , 1 |
| Minor ity in teres ts |
- | - | - | - | 393, 207 |
- | - | - | 393, 207 |
- | (5,94 9) |
9,01 4,443 |
387,2 58 |
9,01 4,443 |
| Asse ts: |
||||||||||||||
| Fixed nd G oodw ill ets a ass |
724, 305,3 83 |
670, 189,9 12 |
2,09 5,621 |
2,10 4,453 |
65,1 81,39 0 |
41,9 75,35 3 |
1,90 7,139 |
2,09 1,992 |
793, 489,5 33 |
716, 361,7 10 |
457, 330,2 15 |
451, 977,7 78 |
1,25 0,819 ,748 |
1,16 8,339 ,488 |
| Inven torie s |
21,2 70,04 3 |
13,1 94,07 2 |
1,79 4,957 |
1,92 5,796 |
971, 540 |
18,5 27 |
- | - | 24,0 36,54 0 |
15,1 38,39 5 |
- | - | 24,0 36,54 0 |
15,1 38,39 5 |
| Finan cial inves tmen ts |
1,282 ,025 |
1,28 2,025 |
1,09 7,695 |
1,09 7,695 |
907, 494 |
1,06 2,485 |
1,22 0,716 ,956 |
1,33 0,735 ,802 |
1,22 4,004 ,170 |
1,33 4,178 ,007 |
(1,22 ,236) 2,049 |
(1,22 ,344) 1,098 |
1,95 4,934 |
113,0 79,66 2 |
| Othe ent a ssets r non curr |
100,9 59,81 4 |
60,2 43,97 7 |
- | 1,38 1,592 |
1,74 2,461 |
2,37 3,279 |
510, 187,9 74 |
364, 245,0 29 |
612, 890,2 49 |
428, 243,8 77 |
(511 153) ,772, |
(366 655) ,108, |
101, 118,0 96 |
62,1 35,22 2 |
| Othe rent asset s of the s nt r cur egme |
279, 876,6 52 |
319, 753,6 33 |
8,74 4,178 |
7,86 3,320 |
34,6 94,95 2 |
55,2 67,61 4 |
227, 214,1 53 |
211, 471,5 87 |
550, 529,9 35 |
594, 356,1 54 |
(169 651) ,847, |
(232 875) ,859, |
380, 682,2 84 |
361, 496,2 79 |
| 1,127 ,693, 917 |
1,06 4,663 ,619 |
13,7 32,45 1 |
14,3 72,85 6 |
103, 497,8 37 |
100, 697,2 58 |
1,96 0,026 ,222 |
1,90 8,544 ,410 |
3,20 4,950 ,427 |
3,08 8,278 ,143 |
(1,44 6,338 ,825) |
(1,36 8,089 ,096) |
8,611 ,602 1,75 |
1,72 0,189 ,046 |
|
| Liabi lities : |
||||||||||||||
| Liabil ities of th ment e seg |
747,7 27,32 9 |
686, 589,0 07 |
14,5 33,02 2 |
14,8 25,13 3 |
47,6 50,29 3 |
24,0 63,15 4 |
636, 734,2 16 |
436, 153,4 58 |
1,44 6,644 ,860 |
1,16 1,630 ,752 |
(623 688) ,454, |
(350 014) ,923, |
823, 190,1 72 |
810, 707,7 38 |
| 747,7 27,32 9 |
686, 589,0 07 |
14,5 33,02 2 |
14,8 25,13 3 |
47,6 50,29 3 |
24,0 63,15 4 |
636, 734,2 16 |
436, 153,4 58 |
1,44 6,644 ,860 |
1,16 1,630 ,752 |
(623 ,454, 688) |
(350 ,923, 014) |
823, 190,1 72 |
810, 707,7 38 |
|
| CAPE X |
209, 636,9 21 |
146, 344,5 93 |
693, 291 |
357, 077 |
27,1 84,49 5 |
1,35 4,009 |
255, 767,1 46 |
597, 799,0 59 |
493, 281,8 52 |
745, 854,7 38 |
(257 ,446, 499) |
(492 ,379, 403) |
235, 835,3 53 |
253, 475,3 35 |
(*) Since January 2007, the Information System segment includes the company Sonae.com - Sistemas de Informação, S.G.P.S., S.A.. The comparatives were restated.
Despite the merger occurred in 2007, of some balance sheet and of profit and loss statement captions, the Group's Board of Directors decided to continue separating the business as follows:
| Mobile Network | Fixed Network and internet | Eliminations | Telecommunications | |||||
|---|---|---|---|---|---|---|---|---|
| December 07 | December 06 | December 07 | December 06 | December 07 | December 06 | December 07 | December 06 | |
| Income: | ||||||||
| Services rendered | 619,368,772 | 610,384,810 | 255,426,850 | 200,187,750 | (57,579,164) | (57,919,314) | 817,216,458 | 752,653,246 |
| Other operational income | 37,003,173 | 34,392,109 | 3,808,503 | 5,160,126 | (29,856,458) | (30,413,560) | 10,955,218 | 9,138,675 |
| Total Revenues | 656,371,945 | 644,776,919 | 259,235,353 | 205,347,876 | (87,435,622) | (88,332,874) | 828,171,676 | 761,791,921 |
| Depreciation and amortisation | (115,546,228) | (117,355,937) | (28,489,045) | (16,798,081) | - | - | (144,035,273) | (134,154,018) |
| Operational Results of segments | 28,140,571 | 51,696,514 | (31,999,336) | (23,038,709) | 414,445 | 261,502 | (3,444,320) | 28,919,307 |
| Assets | ||||||||
| Tangible assets and Goodwill | 552,368,912 | 565,244,652 | 171,940,013 | 104,849,963 | (3,542) | 95,297 | 724,305,383 | 670,189,912 |
| Inventories | 19,340,721 | 11,472,556 | 1,929,322 | 1,721,516 | - | - | 21,270,043 | 13,194,072 |
| Financial Investments | 1,282,025 | 1,282,025 | - | - | - | - | 1,282,025 | 1,282,025 |
| Increases in tangible assets | 127,075,613 | 114,768,373 | 82,561,308 | 31,545,258 | - | 30,962 | 209,636,921 | 146,344,593 |
During the years ended at 31 December 2007 and 2006, the inter-segments sales and services were as follows:
| 2 0 0 7 | ||||
|---|---|---|---|---|
| Information | ||||
| Telecommunications | Multimedia | Systems | Others | |
| Telecommunications | - | - | 36,162,830 | 6,652,727 |
| Multimedia | 588,209 | - | 414,914 | 180,000 |
| Information Systems | 406,267 | 25,029 | - | 140,047 |
| Sonaecom others | 79,559 | 46,290 | 75,228 | - |
| Others | 816,142,423 | 33,083,551 | 42,859,238 | 575,217 |
| 817,216,458 | 33,154,870 | 79,512,209 | 7,547,991 |
| 2 0 0 6 | ||||
|---|---|---|---|---|
| Information | ||||
| Telecommunications | Multimedia | Systems | Others | |
| Telecommunications | - | 627,635 | 29,862,134 | 5,961,470 |
| Multimedia | 548,900 | - | 218,332 | 252,469 |
| Information Systems | 459,579 | 5,537 | - | 170,233 |
| Sonaecom others | 69,752 | 2,542 | 89,083 | - |
| Others | 751,575,015 | 35,758,402 | 48,782,448 | 516,171 |
| 752,653,246 | 36,394,116 | 78,951,997 | 6,900,343 |
Earnings per share, basic and diluted, are calculated by dividing the consolidated net income of the year attributable to the Group (Euro 36,777,870 in 2007 and Euro 13,883,168 in 2006) by the average number of shares outstanding during the years ended at 31 December 2007 and 2006, net of own shares (364,668,263 in 2007 and 313,956,868 in 2006).
In June 2000, Sonaecom Group created a discretionary Medium Term Incentive Plans for more senior employees, based on Sonaecom options and shares and Sonae S.G.P.S., S.A. shares. The vesting occurs three years after the award of each plan, assuming that the employees are still employed in the Group. In some annual plans, beneficiaries can chose between options or shares. Options are valued using the Black Scholes options pricing Model.
The Sonaecom plans outstanding at 31 December 2007 can be summarized as follows:
| Vesting period | Exercise period | 31- Dec-2007 | ||||||
|---|---|---|---|---|---|---|---|---|
| Aggregate | Number of | |||||||
| Share price at | number of | options/ | ||||||
| award date * | Award date | Vesting date | From | To | participations | shares | ||
| Sonaecom options | ||||||||
| 2002 Plan | 1.694 | 31-Mar-03 | 10-Mar-06 | 13-Mar-06 | 09-Mar-07 | - | - | |
| 2003 Plan | - | - | - | - | - | - | - | |
| 2004 Plan | - | - | - | - | - | - | - | |
| 2005 Plan | - | - | - | - | - | - | - | |
| Sonaecom shares | ||||||||
| 2003 Plan | 3.19 | 31-Mar-04 | 09-Mar-07 | - | - | - | - | |
| 2004 Plan | 3.96 | 31-Mar-05 | 10-Mar-08 | - | - | 354 | 985,074 | |
| 2005 Plan | 4.093 | 10-Mar-06 | 09-Mar-09 | - | - | 377 | 877,964 | |
| 2006 Plan | 4.697 | 09-Mar-07 | 08-Mar-10 | - | - | 411 | 1,039,044 | |
| Sonae SGPS shares | ||||||||
| 2003 Plan | 0.93 | 31-Mar-04 | 09-Mar-07 | - | - | - | - | |
| 2004 Plan | 1.17 | 31-Mar-05 | 10-Mar-08 | - | - | 12 | 239,746 | |
| 2005 Plan | 1.34 | 10-Mar-06 | 09-Mar-09 | - | - | 12 | 125,779 | |
| 2006 Plan | 1.68 | 09-Mar-07 | 08-Mar-10 | - | - | 6 | 130,915 |
* Average share price in the month prior to the award date, for Sonaecom shares and the lower of the average share price for the month prior to th Annual General Meeting and the share price on the day after the Annual General Meeting, for Sonae SGPS shares. However, for the 2006 Plans the share price was: Sonaecom shares - the average share price between 3rd March and 5th April 2007; Sonae SGPS shares - he average share price between 13rd February and 26th March 2007. This exception was due to the timing of the end of the Portugal Telecom bid and was approved by the Board Nomination and Remuneration Committee.
In 2007, 343,571 options were exercised at an average price of Euro 5.67 and a 167,062 options, related to the plan of 2002, were extinguished, as follows:
| Sonaecom Options | Sonaecom shares | Sonae SGPS shares | ||||
|---|---|---|---|---|---|---|
| Aggregate number of pa r t i c ipa t ions |
Number of options |
Aggregate number of pa r t i c ipa t ions |
Number of s h a r e s |
Aggregate number of pa r t i c ipa t ions |
Number of s h a r e s |
|
| Outstanding at 31.12.2006 | ||||||
| Exercisable | 33 | 510,633 | - | - | - | - |
| Unvested | - | - | 1,123 | 3,184,774 | 38 | 911,350 |
| Total | 33 | 510,633 | 1,123 | 3,184,774 | - | - |
| Movements in year | ||||||
| Awarded | - | - | 422 | 1,097,470 | 7 | 208,184 |
| Vested | - | - | (349) | (1,178,485) | (12) | (369,317) |
| Advance vested | - | - | (3) | (111,500) | (3) | (269,616) |
| Exercisable | - | - | - | - | - | - |
| Exercised | (31) | (343,571) | - | - | - | - |
| Cancelled/Lapsed* | (2) | (167,062) | (51) | (90,177) | - | 15,839 |
| Outstanding at 31.12.2007 | ||||||
| Exercisable | - | - | - | - | - | - |
| Unvested | - | - | 1,142 | 2,902,082 | 30 | 496,440 |
| Total | - | - | 1,142 | 2,902,082 | 30 | 496,440 |
* Corrections are made according to the dividend paid or by changes in the capital.
Sonaecom signed agreements to cover the execution and hedging of its Medium Term Incentive Plans and related obligations and acquired own shares with the same purpose. The agreements and the acquisitions means that Sonaecom's liabilities are limited to a maximum of Euro 7,226,886.
Sonaecom has entered into mirror agreements with its subsidiaries to transfer the corresponding liabilities to each subsidiary.
For the Sonaecom's share plans attributed in 2006 and in 2007, the Group acquired own shares in order to cover the execution and hedging. The total responsibility calculated with the share price at award date date is Euro 3,186,678 and was recorded in 'Reserves for Medium Term Incentive Plans'. For the Sonaecom, S.G.P.S. shares plan awarded in 2005, and for the Sonae S.G.P.S. shares the
Group signed hedging contracts with external entities, and the liability is calculated based on the price agreed on that contract and was recorded under the headings of 'Other current liabilities' and 'Other non current liabilities'.
The costs of the Option and Share Plans are recognised in the accounts over the period between the award and the vesting date of those shares and options. The costs recognised in previous years and in the year ended at 31 December 2007, were as follows:
| Amount | |
|---|---|
| Costs recognised in previous years | 16,537,840 |
| Costs recognised in the year | 5,412,980 |
| Costs of plans from subsidiary Exit (no longer consolidated) | (8,882) |
| Costs of plans vested in previous year | (9,145,896) |
| Costs of plans vested in the year | (5,844,529) |
| Other non current and current assets (Deferred costs not yet recognised) (Note 16) | 275,373 |
| Total cost of the plans | 7,226,886 |
| Recorded in Other current liabilities (Note 29) | (3,749,061) |
| Recorded in Other non current liabilities (Note 25) | (291,147) |
| Reserves | (3,186,678) |
Total costs recognized in the year include Euro 4,378,427 relating share-based payment plans, settled with own shares.
The remuneration of directors and other members of key management during the years ended 31 December 2007 and 2006 were as follows:
| 2007 | 2006 | |
|---|---|---|
| Short term employee benefits | 2,943,670 | 2,958,352 |
| Share based payments | 2,522,131 | 2,054,667 |
| 5,465,801 | 5,013,020 |
The amounts above related to short term employee benefits, were calculated on an accruals basis and includes Fixed Remuneration and Performance Bonus. The Share based payments for 2007 and 2006 corresponds to the value of the Medium Term Incentive Plans awarded in 2004, in respect of performance during 2003 (and the Medium Term Incentive Plans awarded in 2003 in respect of performance during 2002, for the 2006 values), whose shares, or the cash equivalent, were delivered on March 2007 and March 2006, and valued based on the share price of the delivery date (9 March 2007 and 10 March 2006, respectively). This amount also includes cash paid during 2007, corresponding to the early settlement of the awarded Plans in 2005, 2006 and 2007, attributed to the Chairman of the Executive Board, following the changes in the composition of the Board of Directors during the year, explained in the Management Report.
Full details on the Sonaecom group remuneration policy are disclosed in the Corporate Governance Report.
During the years ending 31 December 2007 and 2006 the companies included in the consolidation employed an average number of 2,054 and 2,069 employees, respectively. At 31 December 2007, the number of employees was 1,961.
(i) As of 31 December 2007, accounts receivable from customers and payable to suppliers include Euro 37,139,253 and Euro 29,913,608, respectively, and 'Other current assets' and 'Other current liabilities' include Euro 411,649 and Euro 6,856,200, respectively, resulting from a dispute between
the subsidiary Optimus and the operator TMN – Telecomunicações Móveis Nacionais, S.A., in relation to interconnection tariffs, already recorded on the year ended 31 December 2001. The Company has considered the most penalising tariffs in the consolidated financial statements. In the lower court, the decision was favourable to Optimus but the higher courts decided that the case should be tried again. At the moment, it is in course the period to TMN to appeal from that decision.
(ii) In the Arbitration Court proceeding imposed to resolve the conflict between Maxistar and the other shareholders of Sonaecom – Serviços de Comunicações, S.A. ( at the time Optimus) - for breach of a clause of the Shareholders' Agreement, Maxistar was condemned to pay an indemnity of Euro 2,344,350 plus legal interest calculated until the date of payment or, alternatively, to subject itself to a purchase option over its participation in Sonaecom – Serviços de Comunicações at 70% of its actual value. Maxistar has appealed against the decision of the Arbitration Court but that appeal was already rejected in the lower courts. In consequence of this rejection, Maxistar appeals to the 'Tribunal da Relação de Lisboa'.
As a way to execute the amounts due to be paid by Maxistar, and after having informed Maxistar of their preference for the payment in cash, some shareholders have proposed an execution action. Before the decision of the Arbitration Court, Maxistar paid those shareholders, as a way of avoiding the execution, a total amount of Euro 4,068,048 (capital plus interest), of which Euro 2,183,899 was paid to Sonaecom.
The Lisbon Court (Tribunal da Relação de Lisboa) rejected the appeal lodged by Maxistar, confirming the sentence appealed against.
The Maxistar can still appeal against the ruling but management continues to belief that the chances of any appeal are low.
Upon being given the UMTS Licence, Optimus (now Sonaecom – Serviços de Comunicações) assumed commitments in the area of promotion of the Information Society, totalling Euro 274 million, to be complied with up to the end of the licence period (2015).
In accordance with the Agreement established on 5 June 2007 with the Ministry of Public Works, Transport and Communications ( "MOPTC"), part of these commitments, up to Euro 159 million will be realised through own projects which qualify as contributions to the Information society and incurred under the normal activities of Sonaecom – Serviços de Comunicações, S.A. (investments in the network and technology, not resulted from the beed to comply with the obligations assumed under the UMTS License, and activities relating to research, development and promotion of services, contents and applications), which must be recognized by the MOPTC and by entities created especially for this purpose. At the date of approval of the financial statements, 64 million euros were realised in previous years and have already been validated by these entities, the remainder being in the phase of evaluation or not yet realised. These costs are being recognised as the projects are carried out.
The remaining commitments, up to 116 million euros, will be realised as agreed between Sonaecom-Serviços de Comunicações and MOPTC, through contributions to the "Initiatives E" project (offer of modems, discounts on tariffs, cash contributions, among others , assigned to the widespread use of broadband internet for students and teachers), the contributions being made through an Open fund, called Information Society Fund (Fundo para a Sociedade de Informação), to be created by the three mobile operators operating in Portugal. Contributions under this project will be recorded, at their present value, as intangible fixed asset as an additional cost of the UMTS licence, for its discounted value, and will be amortized on a straight-line basis over the remaining period of the license. Success of the project, which was initiated in the end of 2007, depends on the beneficiaries participation in the various initiatives (e-opportunities, e-school and e-teacher) and will determine an possible need for a revision of the current conditions of the project, to a new model of contributions, to be determined after at least 12 months from the beginning of the project. Therefore,, considering that: (i) the Open fund has not yet been created and so no financial flows have been made with the Fund and the operators; (ii) the contract establishing the specific conditions for implementation of the project "Initiatives E" has still not be signed, (iii) the liability to be recognized depends on uncertain future events, not totally under the control of the company,
relating to uncertainty, at this time as to the success and level of participation in the various iniciatives, and consequently, uncertainty regarding the present value of the liability to be recognised; and (iv) if the participation in the iniciatives is not sufficient, the current contract conditions can be reviewed to a new model of contributions (after 12 months after the beginning of the contract) which can take the form of own projects which qualify as contributions to the Information society and carried out under the company's normal activity, as explained above, it therefore not being possible to estimate and quantify the correspondent impact on the financial statements; the Board of Directors believes that there is insufficient information to make a sufficiently reliable estimate of the total liability. Therefore, the company, up to 31 December 2007, the Group has recognized in intangible assets only the liability relating to the participations already occurred, which amount to 2.1 million Euros (Note 7).
Also by agreement between MOPTC, Optimus (now Sonaecom- Serviços de Comunicações) and the other mobile operators, the commitments of three operators relating to the acquisition of the rights of use UMTS frequencies corresponding to ONIWAY - Infocomunicações, S.A.'s licence have been definitively and fully clarified and extinguished, Optimus being responsible for contributing the amount of Euro 8,313,298.28 to establish the Information Society Fund (Note 7). However, this commitment has been guaranteed by the shareholders of Oniway as of that date.
On 21 February 2008, Sonaecom announced a 3 year investment plan in the amount of 240 million Euros, to develop a New Generation Network, with the aim of building the most advanced telecommunications network in Portugal.
These consolidated financial statements were approved and authorized for publication by the Board of Directors on 28 February 2008.
These financial statements are a translation of financial statements originally issued in Portuguese in accordance with International Financial Reporting Standards (IAS/IFRS) and the format and disclosures required by those Standards, some of which may not conform to or be required by generally accepted accounting principles in other countries. In the event of discrepancies, the Portuguese language version prevails.
At 31 December 2007, the related parties of Sonaecom Group are as follows:
| Key management personnel | ||||
|---|---|---|---|---|
| Álvaro Carmona e Costa Portela | Jean François Pontal | |||
| Álvaro Cuervo Garcia | Luís Filipe Campos Dias Castro Reis | |||
| Angêlo Gabriel Ribeirinho dos Santos Paupério | Luís Filipe Palmeira Lampreia | |||
| António Bernardo Aranha da Gama Lobo Xavier | Maria Cláudia Teixeira de Azevedo | |||
| António de Sampaio e Mello | Michel Marie Bom | |||
| Belmiro de Azevedo | Miguel Nuno Santos Almeida | |||
| David Hobley | Nuno Manuel Moniz Trigoso Jordão | |||
| Duarte Paulo Teixeira de Azevedo | Nuno Miguel Teixeira Azevedo | |||
| George Christopher Lawrie | Paulo Jorge Henriques Pereira | |||
| Gervais Pellissier | Pedro Miguel Freitas Ramalho Carlos |
| Sonae Group Companies | |
|---|---|
| 3DO Holding GmbH | Aserraderos de Cuellar,S.A. |
| 3DO Shopping Centre GmbH | Atlantic Ferries-Tráf.Loc,Flu.e Marít,S.A. |
| 3shoppings - Holding,SGPS, S.A. | Avenida M-40 B.V. |
| Aegean Park,S.A. | Avenida M-40,S.A. |
| Agepan Eiweiler Management GmbH | Azulino Imobiliária, S.A. |
| Agepan Flooring Products, S.A.RL | Bertimóvel - Sociedade Imobiliária, S.A. |
| Agepan Tarket Laminate Park GmbH Co. KG | Best Offer-Prest. Inf. p/Internet,S.A. |
| Agloma Investimentos, Sgps, S.A. | Bikini, Portal de Mulheres,S.A. |
| Agloma-Soc.Ind.Madeiras e Aglom.,S.A. | Bloco Q-Sociedade Imobiliária,S.A. |
| Águas Furtadas - Imobiliária, S.A. | Bloco W-Sociedade Imobiliária,S.A. |
| Airone - Shopping Center, Srl | Boavista Shopping Centre BV |
| ALEXA Administration GmbH | Box Lines Navegação,S.A. |
| ALEXA Holding GmbH | Campo Limpo, Lda |
| ALEXA Shopping Centre GmbH | Canasta-Empreendimentos Imobiliários,S.A. |
| Alexa Site GmbH & Co. KG | Carnes do Continente-Ind.Distr.Carnes,S.A. |
| Algarveshopping- Centro Comercial, S.A. | CarPlus – Comércio de Automóveis, S.A. |
| Andar - Sociedade Imobiliária, S.A. | CaS.A. Agrícola de Ambrães, S.A. |
| Aqualuz - Turismo e Lazer, Lda | CaS.A. Agrícola João e A. Pombo, S.A. |
| Aquapraia - Investimentos Turísticos,S.A. | CaS.A. da Ribeira - Hotelaria e Turismo,S.A. |
| Arrábidashopping- Centro Comercial, S.A. | Fozmassimo - Sociedade Imobiliária, S.A. |
| Cascaishopping- Centro Comercial, S.A. | Freccia Rossa- Shopping Centre S.r.l. |
| Cascaishopping Holding I, SGPS, S.A. | Friengineering International Ltda |
| Centro Colombo- Centro Comercial, S.A. | Fundo de Invest. Imobiliário Imosede |
| Centro Residencial da Maia,Urban.,S.A. | Fundo Invest.Imob.Shopp. Parque D.Pedro |
| Centro Vasco da Gama-Centro Comercial,S.A. | Gaiashopping I- Centro Comercial, S.A. |
| Change, SGPS, S.A. | Gaiashopping II- Centro Comercial, S.A. |
| Chão Verde-Soc.Gestora Imobiliária,S.A. | GHP Gmbh |
|---|---|
| Choice Car - Comércio de Automóveis, S.A. | Gli Orsi - Shopping Centre, Srl |
| Choice Car SGPS, S.A. | Global S-Hipermercado,Lda |
| Cia.de Industrias e Negócios,S.A. | Glunz AG |
| Cinclus Imobiliária,S.A. | Glunz Service GmbH |
| Citorres-Sociedade Imobiliária,S.A. | Glunz UK Holdings Ltd |
| Clérigoshopping- Gestão do C.Comerc.,S.A. | Glunz Uka Gmbh |
| Coimbrashopping- Centro Comercial, S.A. | Golf Time-Golfe e Invest. Turísticos, S.A. |
| Colombo Towers Holding, BV | Guerin – Rent a Car (Dois), Lda. |
| Contacto Concessões, SGPS, S.A. | Guimarãeshopping- Centro Comercial, S.A. |
| Contacto-SGPS,S.A. | Hornitex Polska Sp z.o.o |
| Contacto-Sociedade de Construções,S.A. | Iberian Assets, S.A. |
| Contibomba-Comérc.Distr.Combustiveis,S.A. | IGI-Investimento Imobiliário,S.A. |
| Contimobe-Imobil.Castelo Paiva,S.A. | Igimo-Sociedade Imobiliária,S.A. |
| Continente Hipermercados, S.A. | Iginha-Sociedade Imobiliária,S.A. |
| Contry Club da Maia-Imobiliaria,S.A. | IM Impregnation Management GmbH |
| Cronosaúde - Gestão Hospitalar, S.A. | Impaper Europe GmbH & Co. KG |
| Cumulativa - Sociedade Imobiliária, S.A. | Imoareia - Invest. Turísticos, SGPS, S.A. |
| Darbo S.A.S | Imobiliária da Cacela, S.A. |
| Developpement & Partenariat Assurances, S.A. | Imoclub-Serviços Imobilários,S.A. |
| Difusão-Sociedade Imobiliária,S.A. |
Imoconti- Soc.Imobiliária,S.A. |
| Distrifin-Comercio y Prest.Servicios,S.A. | Imodivor - Sociedade Imobiliária, S.A. |
| DMJB, SGPS, S.A. | Imoestrutura-Soc.Imobiliária,S.A. |
| Dortmund Tower GmbH | Imoferro-Soc.Imobiliária,S.A. |
| Dos Mares - Shopping Centre B.V. | Imohotel-Emp.Turist.Imobiliários,S.A. |
| Dos Mares-Shopping Centre, S.A. | Imomuro-Sociedade Imobiliária,S.A. |
| Ecociclo - Energia e Ambiente, S.A. | Imopenínsula - Sociedade Imobiliária, S.A. |
| Ecociclo II - Energias, S.A. | Imoplamac Gestão de Imóveis,S.A. |
| Efanor Investimentos, SGPS, S.A. | Imoponte-Soc.Imobiliaria,S.A. |
| Efanor Serviços de Apoio à Gestão, S.A. | Imoresort - Sociedade Imobiliária, S.A. |
| Efanor-Design e Serviços,S.A. | Imoresultado-Soc.Imobiliaria,S.A. |
| Efanor-Indústria de Fios,S.A. | Imosedas-Imobiliária e Seviços,S.A. |
| El RoS.A.l Shopping, S.A. | Imosistema-Sociedade Imobiliária,S.A. |
| Empreend.Imob.Quinta da Azenha,S.A. | Imosonae II |
| Equador & Mendes,Lda | Implantação - Imobiliária, S.A. |
| Espimaia -Sociedade Imobiliária,S.A. | |
| Infofield-Informática,S.A. | |
| Estação Oriente-Gest.de Galerias Com.,S.A. | Inparsa - Gestão Galeria Comercial, S.A. |
| Estêvão Neves-Hipermercados Madeira,S.A. | Insulatroia - Sociedade Imobiliária, S.A. |
|---|---|
| Etablissement A. Mathe, S.A. | Integrum-Serviços Partilhados,S.A. |
| Euro Decorative Boards,Ltd | Interclean, S.A. |
| Euromegantic,Lteé | Interlog-SGPS,S.A. |
| Euroresinas-Indústrias Quimicas,S.A. | Inventory-Acessórios de Casa,S.A. |
| Finlog - Aluguer e Comércio de Automóveis, S.A. | Investalentejo, SGPS, S.A. |
| Fozimo-Sociedade Imobiliária,S.A. | Invsaude - Gestão Hospitalar, S.A. |
| Isoroy SAS | Ipaper-Industria Papeis Impregnados,S.A. |
| La Farga - Shopping Center, SL | ISF - Imobiliário, Serviços e Participaç |
| Larissa Develop. Of Shopping Centers, S.A. | OSB Deustchland Gmbh |
| Lazam Corretora, Ltda. | KLC Holdings XII SA |
| Le Terrazze - Shopping Centre S.r.l. | Paracentro - Gest.de Galerias Com., S.A. |
| Lembo Services Ltd (Euro) | Pareuro, BV |
| Libra Serviços, Lda. | Pargeste SGPS, S.A. |
| Lidergraf - Artes Gráficas, Lda. | Park Avenue Develop. of Shop. Centers S.A. |
| Lima Retail Park, S.A. | Parque Atlântico Shopping - C.C., S.A. |
| Loureshopping- Centro Comercial, S.A. | Parque D. Pedro 1 B.V. |
| Luso Assistência - Gestão de Acidentes, S.A. | Parque D. Pedro 2 B.V. |
| Luz del Tajo - Centro Comercial S.A. | Parque de Famalicão - Empr. Imob., S.A. |
| Luz del Tajo B.V. | Parque Principado SL |
| Madeirashopping- Centro Comercial, S.A. | Partnergiro - Empreend. Turísticos, Lda |
| Maiashopping- Centro Comercial, S.A. | Pátio Boavista Shopping Ltda. |
| Maiequipa-Gestão Florestal,S.A. | Pátio Penha Shopping Ltda. |
| Marcas MC, ZRT | Pátio São Bernardo Shopping Ltda |
| Marimo -Exploração Hoteleira Imobiliária | Pátio Sertório Shopping Ltda |
| Marina de Tróia S.A. | Peixes do Continente-Ind.Dist.Peixes,S.A. |
| Marinamagic-Expl.Cent.Lúdicos Marít,Lda |
PHARMACONTINENTE - Saúde e Higiene, S.A. |
| Marmagno-Expl.Hoteleira Imob.,S.A. | PJP - Equipamento de Refrigeração, Lda |
| Martimope - Sociedade Imobiliária, S.A. | Plaza Eboli B.V. |
| Marvero-Expl.Hoteleira Imob.,S.A. | Plaza Eboli - Centro Comercial S.A. |
| MC Property Management S.A. | Plaza Mayor Holding, SGPS, S.A. |
| MDS Corretor de Seguros, S.A. | Plaza Mayor Parque de Ócio B.V. |
| Mediterranean Cosmos Shop. Centre Investments, | Plaza Mayor Parque de Ocio,S.A. |
| S.A. | |
| Megantic BV | Plaza Mayor Shopping B.V. |
| MJLF-Empreendimentos Imobiliários, S.A. | Plaza Mayor Shopping, S.A. |
| Modalfa-Comércio e Serviços,S.A. | Ploiesti Shopping Center (Euro) |
| Modelo - Dist.de Mat. de Construção,S.A. | Poliface Brasil, Ltda |
| Modelo Continente - Oper.Retalho SGPS,S.A. | Poliface North America |
| Modelo Continente Hipermercados,S.A. | Porturbe-Edificios e Urbanizações,S.A. |
|---|---|
| Modelo Continente, SGPS,S.A. | Praedium II-Imobiliária,S.A. |
| Modelo Hipermergados Trading, S.A. | Praedium III-Serviços Imobiliários,S.A. |
| Modelo Hiper Imobiliária,S.A. | Praedium SGPS, S.A. |
| Modelo.com-Vendas p/Correspond.,S.A. | Predicomercial-Promoção Imobiliária,S.A. |
| Monselice Centre Srl | Prédios Privados Imobiliária,S.A. |
| Movelpartes-Comp.para Ind.Mobiliária,S.A. | Predisedas-Predial das Sedas,S.A. |
| Mundo Vip - Operadores Turisticos, S.A. | Pridelease Investments, Ltd |
| NAB, Sociedade Imobiliária,S.A. | Profimetrics - Software Solutions, S.A. |
| NA-Comércio de Artigos de Desporto, S.A. | Proj. Sierra Germany 1 - Shop.C. GmbH |
| NA-Equipamentos para o Lar, S.A. | Proj. Sierra Germany 4 (four)-Sh.C.GmbH |
| Net Mall SGPS, S.A. | Proj. Sierra Italy 2 - Dev.of Sh.C. Srl |
| Norscut - Concessionária de Scut Interior Norte, S.A. |
Proj.Sierra 1 - Shopping Centre GmbH |
| Norte Shop. Retail and Leisure Centre BV | Project Sierra Germany Shop. Center 1 BV |
| Norteshopping-Centro Comercial, S.A. | Project Sierra Germany Shop. Center 2 BV |
| Nova Equador Internacional,Ag.Viag.T,Ld | Proj.Sierra Germany 2 (two)-Sh.C.GmbH |
| Nova Equador P.C.O. e Eventos | Proj.Sierra Germany 3 (three)-Sh.C.GmbH |
| Novobord (PTY) Ltd. | Proj.Sierra Hold. Portugal V, SGPS,S.A. |
| Oeste Retail Park - Gestão G.Comerc., S.A. | Proj.Sierra Italy 1 -Shop.Centre Srl |
| Operscut - Operação e Manutenção de Auto | |
| estradas, S.A. | Proj.Sierra Italy 2 -Dev. Of Sh.C.Srl |
| Pátio Campinas Shopping Ltda | Proj.Sierra Italy 3 - Shop. Centre Srl |
| Pátio Goiânia Shopping Ltda | Project Sierra Italy 5 Srl |
| Pátio Londrina Empreend. e Particip. Ltda | Project Sierra One Srl |
| Project 4, Srl | Project Sierra Srl |
| Proj.Sierra Portugal IV-C.Comerc.,S.A. | Proj.Sierra Portugal I- C.Comerc., S.A. |
| Proj.Sierra Portugal V-C.Comercial,S.A. | Proj.Sierra Portugal II-C.Comerc.,S.A. |
| Proj.Sierra Portugal VI-C.Comercial,S.A. | Proj.Sierra Portugal III-C.Comerc.,S.A. |
| Proj.Sierra Portugal VII - C. Comerc.,S.A. | Sic Indoor - Gestão de Suportes Publicitários, S.A. |
| Proj.Sierra Portugal VIII - C.Comerc.,S.A. | Sierra Asset Management-Gest. Activos,S.A. |
| Project SC 1 BV | Sierra Asset Management Luxemburg, Sarl |
| Project SC 2 BV | Sierra Brazil 1 B.V. |
| Project Sierra 1 B.V. | Sierra Charagionis Develop.Sh. Centre S.A. |
| Project Sierra 2 B.V. | Sierra Charagionis Propert.Management S.A. |
| Project Sierra 3 BV | Sierra Corporate Services- Ap.Gestão, S.A. |
| Project Sierra 4 BV | Sierra Corporate Services Holland, BV |
| Project Sierra 5 BV | Sierra Develop.Iberia 1, Prom.Imob.,S.A. |
| Project Sierra 6 BV | Sierra Developments Germany Holding B.V. |
| Project Sierra 7 BV | Sierra Development Greece, S.A. |
| Project Sierra Brazil 1 B.V. | Sierra Developments Germany GmbH |
|---|---|
| Project Sierra Charagionis 1 S.A. | Sierra Developments Holding B.V. |
| Project Sierra Spain 1 B.V. | Sierra Developments Italy S.r.l. |
| Project Sierra Spain 2 B.V. | Sierra Developments Spain-Prom.C.Com.SL |
| Project Sierra Spain 2-Centro Comer. S.A. | Sierra Developments, SGPS, S.A. |
| Project Sierra Spain 3 B.V. | Sierra Developments Services Srl |
| Project Sierra Spain 3-Centro Comer. S.A. | Sierra Developments-Serv. Prom.Imob., S.A. |
| Project Sierra Spain 5 BV | Sierra Enplanta Ltda |
| Project Sierra Two Srl | Sierra European R.R.E. Assets Hold. B.V. |
| Project Sierra Three Srl | Sierra GP Limited |
| Promessa Sociedade Imobiliária, S.A. | Sierra Investimentos Brasil Ltda |
| Promosedas-Prom.Imobiliária,S.A. | Sierra Investments (Holland) 1 B.V. |
| Prosa-Produtos e serviços agrícolas,S.A. | Sierra Investments (Holland) 2 B.V. |
| Publimeios-Soc.Gestora Part. Finan.,S.A. | Sierra Investments Holding B.V. |
| Racionaliz. y Manufact.Florestales,S.A. | Sierra Investments SGPS, S.A. |
| Resoflex-Mob.e Equipamentos Gestão,S.A. | Sierra Italy Holding B.V. |
| Resolução, SGPS, S.A. | Sierra Man.New Tech.Bus.-Serv.Comu.CC,S.A. |
| Rio Sul - Centro Comercial, S.A. | Sierra Management Germany GmbH |
| River Plaza Mall, Srl | Sierra Management II-Gestão de C.C. S.A. |
| Project Sierra Srl | Sierra Management Italy S.r.l. |
| S. C. Setler Mina Srl | Sierra Management Portugal-Gest. CC,S.A. |
| S.C. Microcom Doi Srl | Sierra Management Spain-Gestión C.Com.S.A. |
| Rochester Real Estate,Limited | Sierra Management, SGPS, S.A. |
| Saúde Atlântica - Gestão Hospitalar, S.A. | Sierra Management Hellas SA |
| SC Aegean B.V. | Sierra Property Management, Srl |
| SC Insurance Risks Services, SGPS, S.A. | Sierra Portugal Fund, Sarl |
| SC Mediterraneum Cosmos B.V. | SII - Soberana Invest. Imobiliários, S.A. |
| SC-Consultadoria,S.A. | SIRS - Sociedade Independente de Radiodifusão Sonora, S.A. |
| SC-Eng. e promoção imobiliária,SGPS,S.A. | Sistavac-Sist.Aquecimento,V.Ar C.,S.A. |
| SCS Beheer,BV | SKK-Central de Distr.,S.A. |
| Selfrio,SGPS,S.A. | SKKFOR - Ser. For. e Desen. de Recursos |
| Selfrio-Engenharia do Frio,S.A. | SM Empreendimentos Imobiliários, Ltda |
| Selifa-Empreendimentos Imobiliários,S.A. | SMP-Serv. de Manutenção Planeamento |
| Sempre à Mão - Sociedade Imobiliária,S.A. | Soc.Inic.Aproveit.Florest.-Energias,S.A. |
| Sempre a Postos - Produtos Alimentares e | |
| Utilidades , Lda | Sociedade de Construções do Chile, S.A. |
| Serra Shopping - Centro Comercial, S.A. | Sociedade Imobiliária Troia - B3, S.A. |
| Sesagest-Proj.Gestão Imobiliária,S.A. | Société de Tranchage Isoroy S.A.S. |
| Sete e Meio - Invest. Consultadoria, S.A. | Sonae Turismo Gestão e Serviços,S.A. |
| Sete e Meio Herdades-Inv. Agr. e Tur.,S.A. | Sonae Turismo-SGPS,S.A. |
|---|---|
| Shopping Centre Colombo Holding, BV | Sonae UK,Ltd. |
| Shopping Centre Parque Principado B.V. | Sonaegest-Soc.Gest.Fundos Investimentos |
| Shopping Penha B.V. | Sondis Imobiliária,S.A. |
| Siaf-Soc.Iniciat.Aprov.Florestais,S.A. | Sontaria-Empreend.Imobiliários,S.A. |
| Sol Retail Park - Gestão G.Comerc., S.A. | Sontel Bv |
| Solaris Supermercados, S.A. | Sontur BV |
| Solinca III-Desporto e S.A.úde,S.A. | Sonvecap BV |
| Solinca-Investimentos Turísticos,S.A. | Sopair, S.A. |
| Solinfitness - Club Malaga, S.L. | Sótaqua - Soc. de Empreendimentos Turist |
| Soltroia-Imob.de Urb.Turismo de Tróia,S.A. | Spanboard Products,Ltd |
| Somit Imobiliária,S.A. | Modelo Cont. Seguros-Soc. De Mediação, Lda |
| Somit-Soc.Mad.Ind.Transformadas,S.A. | Spinarq,S.A. |
| Sonae Capital Brasil, Lda | Spinveste - Promoção Imobiliária, S.A. |
| Sonae Capital,SGPS,S.A. | Spinveste-Gestão Imobiliária SGII,S.A. |
| Sonae Financial Participations BV | Sport Zone-Comércio Art.Desporto,S.A. |
| Sonae Ind., Prod. e Com.Deriv.Madeira,S.A. | Société des Essences Fines Isoroy |
| Sonae Indústria Brasil, Ltda | Sociéte Industrielle et Financére Isoroy |
| Sonae Industria de Revestimentos,S.A. | Socijofra-Sociedade Imobiliária,S.A. |
| Sonae Indústria-SGPS,S.A. | Sociloures-Soc.Imobiliária,S.A. |
| Sonae International, Ltd | Soconstrução BV |
| Sonae Investments,BV | SodeS.A., S.A. |
| Sonae Novobord (PTY) Ltd | Soflorin,BV |
| Sonae RE, S.A. | Soira-Soc.Imobiliária de Ramalde,S.A. |
| Sonae Retalho Espana-Servicios Gen.,S.A. | SRP-Parque Comercial de Setúbal, S.A. |
| Sonae SGPS, S.A. | SRP Development, SA |
| Sonae Serviços de Gestão, S.A. | Star-Viagens e Turismo,S.A. |
| Sonae Sierra Brasil Ltda | Tableros Tradema,S.L. |
| Sonae Sierra Brazil B.V. | Tafiber,Tableros de Fibras Ibéricas,SL |
| Sonae Sierra, SGPS, S.A. | Tafibras Participações, S.A. |
| Sonae Tafibra (UK),Ltd | TafiS.A. Brasil, S.A. |
| Sonae Tafibra Benelux, BV | TafiS.A. Canadá Societé en Commandite |
| Taiber,Tableros Aglomerados Ibéricos,SL | TafiS.A. France, S.A. |
| Tarkett Agepan Laminate Flooring SCS | TafiS.A. UK,Ltd |
| Tavapan,S.A. | TafiS.A.-Tableros de Fibras, S.A. |
| Tecmasa Reciclados de Andalucia, SL | Troiaverde-Expl.Hoteleira Imob.,S.A. |
| Teconologias del Medio Ambiente,S.A. | Tulipamar-Expl.Hoteleira Imob.,S.A. |
| Textil do Marco,S.A. | Unipress - Centro Gráfico, Lda |
| Tlantic Sistemas de Informação Ltdª | Unishopping Administradora Ltda. |
| Tlantic Portugal-Sist. de Informação, SA | Unishopping Consultoria Imob. Ltda. |
| Todos os Dias-Com.Ret.Expl.C.Comer.,S.A. | Vastgoed One - Sociedade Imobiliária, S.A. |
|---|---|
| Tool Gmbh | Vastgoed Sun - Sociedade Imobiliária, S.A. |
| Torre Colombo Ocidente-Imobiliária,S.A. | Venda Aluga-Sociedade Imobiliária,S.A. |
| Torre Colombo Oriente-Imobiliária,S.A. | Via Catarina- Centro Comercial, S.A. |
| Torre São Gabriel-Imobiliária,S.A. | World Trade Center Porto, S.A. |
| TP - Sociedade Térmica, S.A. | Worten-Equipamento para o Lar,S.A. |
| Troiaresort-Investimentos Turísticos, S.A. | Worten España, S.A. |
| Urbisedas-Imobiliária das Sedas,S.A. | Zubiarte Inversiones Inmob,S.A. |
| Valecenter Srl | |
| Valor N, S.A. |
| FT Group Companies | |
|---|---|
| France Telecom, S.A. | Wirefree Services Belgium, S.A. |
5.3 Sonaecom individual financial statements
BALANCE SHEETS AT 31 DECEMBER 2007 AND 31 DECEMBER 2006 AND BALANCE SHEET "PRO-FORMA" AT 31 DECEMBER 2006
(Amounts expressed in Euro)
| ASSETS | Notes | December 2007 | December 2006 "Pro-forma" |
December 2006 POC |
|
|---|---|---|---|---|---|
| NON CURRENT ASSETS: | |||||
| Tangible assets | 1.a), 1.e) and 2 | 181,562 | 141,032 | 233,064 | |
| Intangible assets | 1.b) and 3 | 71,121 | 92,811 | 779 | |
| Investments in group companies | 1.c) and 5 | 920,727,475 | 852,656,668 | 852,656,668 | |
| Other non current assets | 1. c), 1.l), 1.m), 4, 6 and 21 | 492,695,948 | 352,053,002 | 352,018,202 | |
| Total non current assets | 1,413,676,106 | 1,204,943,513 | 1,204,908,713 | ||
| CURRENT ASSETS: | |||||
| Other current debtors | 1.d), 1.f), 4 and 8 | 9,022,179 | 110,737,578 | 110,737,577 | |
| Other current assets | 1.l), 1.m) and 9 | 3,766,451 | 1,353,113 | 4,678,538 | |
| Investments recorded at fair value through profit or loss | 1.d), 4 and 10 | - | 849,375 | 675,000 | |
| Cash and cash equivalents | 1.g), 4 and 11 | 145,779,175 | 90,973,527 | 90,973,527 | |
| Total current assets | 158,567,805 | 203,913,593 | 207,064,642 | ||
| Total assets | 1,572,243,911 | 1,408,857,106 | 1,411,973,355 | ||
| SHAREHOLDERS' FUNDS AND LIABILITIES | |||||
| SHAREHOLDERS' FUNDS: | |||||
| Share capital | 12 and 13 | 366,246,868 | 366,246,868 | 366,246,868 | |
| Own shares | 1.n), 1.o) and 14 | (8,938,165) | - | - | |
| Reserves | 1.n) and 13 | 794,137,940 | 784,407,241 | 784,407,239 | |
| Net income/(loss) for the year | (15,334,817) | 9,121,625 | 8,864,185 | ||
| Total Shareholders' Funds | 1,136,111,826 | 1,159,775,734 | 1,159,518,292 | ||
| LIABILITIES: | |||||
| NON CURRENT LIABILITIES: | |||||
| Medium and long-term loans - net of short-term portion | 1.h), 4 and 15.a) | 373,680,136 | 146,626,307 | 150,000,000 | |
| Provisions for other liabilities and charges | 1.j) and 16 | 23,706 | 31,979 | 31,979 | |
| Other non current liabilities | 1.l), 1.m), 1.r) 17 | 129,379 | 639,405 | - | |
| Total non current liabilities | 373,833,221 | 147,297,691 | 150,031,979 | ||
| CURRENT LIABILITIES: | |||||
| Short-term loans and other loans | 1.h), 4, and 15.b) | 17,860,473 | 86,750,000 | 86,750,000 | |
| Other creditors | 4 and 18 | 41,292,121 | 4,078,027 | 4,078,025 | |
| Other current liabilities | 1.l), 1.m), 1.r) and 19 | 3,146,270 | 10,955,654 | 11,595,059 | |
| Total current liabilities | 62,298,864 | 101,783,681 | 102,423,084 | ||
| Total Shareholders' Funds and liabilities | 1,572,243,911 | 1,408,857,106 | 1,411,973,355 |
The notes are an integral part of the financial statements at 31 December 2007 and "pro- forma" at 31 December 2006.
Patrícia Maria Cruz Ribeiro da Silva Duarte Paulo Teixeira de Azevedo
Ângelo Gabriel Ribeirinho Paupério
Luís Filipe Campos Dias de Castro Reis
George Christopher Lawrie
Miguel Nuno Santos Almeida
Maria Cláudia Teixeira de Azevedo
António Sampaio e Mello
Gervais Gille Pellissier
David Charles Denholm Hobley
Jean-François René Pontal
PROFIT AND LOSS ACCOUNT BY NATURE
FOR THE YEAR AND THE QUARTER ENDED AT 31 DECEMBER 2007 AND "PRO-FORMA" FOR THE YEAR AND QUARTER ENDED AT 31 DECEMBER 2006 AND
FOR THE YEAR ENDED AT 31 DECEMBER 2006
(Amounts expressed in Euro)
| Services rendered | N o t e s 2 0 |
December 2007 6,776,984 |
September to December 2007 (Not audi ted) 2,228,281 |
December 2006 " P r o - f o r m a " 6,197,055 |
September to December 2006 " P r o - f o r m a " (Not audi ted) 1,255,818 |
December 2006 P O C 6,197,055 |
|---|---|---|---|---|---|---|
| Other operating revenues | 2 0 | 24,183,266 30,960,250 |
551,723 2,780,004 |
245,910 6,442,965 |
80,805 1,336,623 |
245,908 6,442,963 |
| External supplies and services Staff expenses Depreciation and amortisation Provisions and impairment losses Other operating costs |
2 1 29 and 30 1.a), 1.b), 1.q), 2 and 3 1.j), 1.q) and 16 |
(4,658,695) (5,170,239) (72,718) - (76,530) |
(914,294) (1,495,266) (19,685) - (15,273) |
(2,940,845) (4,704,238) (71,351) (706) (104,582) |
(684,360) (1,449,431) (17,226) (706) (55,278) |
(24,994,941) (4,708,633) (71,351) (706) (80,994) |
| Tender Offer costs | 2 2 | (9,978,182) - (9,978,182) |
(2,444,518) - (2,444,518) |
(7,821,722) (22,387,200) (30,208,922) |
(2,207,001) (22,387,200) (24,594,201) |
(29,856,625) - (29,856,625) |
| Gains and losses on group companies Other financial expenses Other financial income |
2 3 1.d), 1.h), 1.q), 15 and 23 1.d), 15 and 23 |
(43,481,386) (13,283,729) 20,460,321 |
(43,481,386) (4,201,866) (31,303,621) |
33,000,000 (8,709,010) 8,603,364 |
33,000,000 (2,431,070) 2,355,111 |
33,000,000 (9,129,146) 8,128,938 |
| Curr ent income / ( los s ) |
( 1 5 , 3 2 2 , 7 2 6 ) | ( 7 8 , 6 5 1 , 3 8 7 ) | 9 , 1 2 8 , 3 9 7 | 9 , 6 6 6 , 4 6 3 | 8 , 5 8 6 , 1 3 0 | |
| Extraordinary results Income taxation |
1.k) and 7 | - (12,091) |
- 368,259 |
- (6,772) |
- (1,912) |
285,705 (7,650) |
| Net income/ ( los s ) |
( 1 5 , 3 3 4 , 8 1 7 ) | ( 7 8 , 2 8 3 , 1 2 8 ) | 9 , 1 2 1 , 6 2 5 | 9 , 6 6 4 , 5 5 2 | 8 , 8 6 4 , 1 8 5 | |
| Earnings per share Including discontinued operations Basic Diluted |
2 6 | (0.04) (0.04) |
(0.21) (0.21) |
0.03 0.03 |
0.03 0.03 |
0.03 0.03 |
| Excluding discontinued operations Basic Diluted |
(0.04) (0.04) |
(0.21) (0.21) |
0.03 0.03 |
0.03 0.03 |
0.03 0.03 |
The notes are an integral part of the financial statements at 31 December 2007 and "pro- forma" at 31 December 2006.
Patrícia Maria Cruz Ribeiro da Silva Duarte Paulo Teixeira de Azevedo
Ângelo Gabriel Ribeirinho Paupério
Luís Filipe Campos Dias de Castro Reis
George Christopher Lawrie
Miguel Nuno Santos Almeida
Maria Cláudia Teixeira de Azevedo
António Sampaio e Mello
Gervais Gille Pellissier
David Charles Denholm Hobley
Jean-François René Pontal
| (Am ts e ssed in Euro ) oun xpre |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 200 7 |
|||||||||||
| Res erve s |
|||||||||||
| Sha re ital cap |
Own Sha res (Not e 14 ) |
Sha re ium prem |
Leg al res erve s |
Res erve s Med ium Term Ince ntiv e Pl ans (Not e 27 ) |
Ow n Sh ares rese rves |
Hed ging res erve s |
Oth er Res erve s |
Tot al res erve s |
Net inco me/ (los s) |
Tota l |
|
| Bala at 3 1 De ber 200 6 nce cem |
366 ,246 ,868 |
- | 775 ,290 ,377 |
559 ,078 |
108 ,132 |
- | - | 8,4 49,6 54 |
784 ,407 ,241 |
9,1 21,6 25 |
1,1 59,7 75,7 34 |
| App iatio n of ult o f 20 06 ropr res (los s) f Net inco me/ or t he y end ed 3 1 De ber 200 7 ear cem uisit ion of o shar Acq wn es Fair valu e re serv es |
- - - - |
- - (8,9 65) 38,1 - |
- - - - |
443 ,209 - - - |
- - - - |
- - 8,9 38,1 65 - |
- - - 412 ,910 |
8,6 78,4 16 - (8,9 65) 38,1 - |
9,1 21,6 25 - - 412 ,910 |
(9,1 21,6 25) (15, ) 334 ,817 - - |
- (15 ) ,334 ,817 (8,9 65) 38,1 412 ,910 |
| Med ium Term Inc enti ve P lans ition rec ogn Bala at 3 1 De ber 200 7 nce cem |
- 366 ,246 ,868 |
- (8,9 38,1 65) |
- 775 ,290 ,377 |
- 1,0 02,2 87 |
196 ,164 304 ,296 |
- 8,9 38,1 65 |
- 412 ,910 |
- 8,1 89,9 05 |
196 ,164 794 ,137 ,940 |
- (15 ,334 ,817 ) |
196 ,164 1,1 36,1 11,8 26 |
| 200 6 Res erve s |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Sha re ital cap |
Own Sha res |
Sha re ium prem |
Leg al res erve s |
Res erve s Med ium Term Ince ntiv e Pl ans |
Ow n Sh ares res erve s |
Hed ging res erve s |
Oth er Res ervs |
Tot al res erve s |
Net (los s) inco me/ |
Tota l |
|
| Bala at 3 1 De ber 200 5 nce cem |
296 ,526 ,868 |
- | 499 ,633 ,160 |
114 ,360 |
- | - | - | (30, ) 226 |
499 ,717 ,294 |
8,9 24,5 98 |
805 ,168 ,760 |
| App iatio n of ult o f 20 05 ropr res me/ (los s) f Net inco or t he y end ed 3 1 D mbe r 20 06 ear ece Fair valu e re serv es |
- - |
- - |
- - |
444 ,718 - |
- - 108 ,132 |
- - |
- - |
8,4 79,8 80 - |
8,9 24,5 98 - 108 ,132 |
(8,9 24,5 98) 9,1 21,6 25 |
- 9,1 21,6 25 108 ,132 |
| Oth ers Bala at 3 1 De ber 200 6 nce cem |
- 69, 720 ,000 366 ,246 ,868 |
- - - |
- 275 ,657 ,217 775 ,290 ,377 |
- - 559 ,078 |
- 108 ,132 |
- - - |
- - - |
- - 8,4 49,6 54 |
275 ,657 ,217 784 ,407 ,241 |
- - 9,1 21,6 25 |
345 ,377 ,217 1,1 59,7 75,7 34 |
The notes are an integral part of the financial statements at 31 December 2007, and pro-forma at 31 December 2006.
(Amounts expressed in Euro)
| 31 December 2007 | 31 December 2006 | ||||
|---|---|---|---|---|---|
| Operating activities | |||||
| Payments to employees | (4,637,963) | (4,752,892) | |||
| Cash flows from operating activities | (4,637,963) | (4,752,892) | |||
| Payments/receipts relating to income taxes, net | (492,261) | (111,353) | |||
| Other payments/receipts relating to operating activities, net | 17,136,161 | (6,861,140) | |||
| Cash flows from operating activities (1) | 12,005,937 | 12,005,937 | (11,725,385) | (11,725,385) | |
| Investing activities | |||||
| Receipts from: | |||||
| Investments | 273,470,063 | 49,414,847 | |||
| Tangible assets | 5,762 | - | |||
| Interest and similar income | 13,179,899 | 7,983,956 | |||
| Dividends | 38,592,872 | 325,248,596 | 33,000,000 | 90,398,803 | |
| Payments for: | |||||
| Investments | (104,947,682) | (134,032,871) | |||
| Tangible assets | (92,082) | (10,458) | |||
| Intangible assets | (2,503) | (14,817) | |||
| Loans granted | (313,314,109) | (418,356,376) | (41,447,021) | (175,505,167) | |
| Cash flows from investing activities (2) | (93,107,780) | (85,106,364) | |||
| Financing activities | |||||
| Receipts from: | |||||
| Loans obtained | 225,000,000 | 225,000,000 | - | - | |
| Payments for: | |||||
| Interest and similar expenses | (11,264,818) | (7,711,158) | |||
| Own Shares | (8,938,165) | - | |||
| Loans obtained | (68,993,000) | (89,195,983) | 19,125,001 | 11,413,843 | |
| Cash flows from financing activities (3) | 135,804,017 | 11,413,843 | |||
| Net cash Flows ( 4 )=( 1 )+( 2 )+( 3 ) | 54,702,174 | (85,417,906) | |||
| Effect of the foreign exchanges | - | - | |||
| Cash and cash equivalents at the beginning of the year | 90,973,527 | 176,391,433 | |||
| Cash and cash equivalents at end of the year | 145,675,702 | 90,973,527 |
The notes are an integral part of the financial statements at 31 December 2007 and "Pro-forma" at 31 December 2006.
Patrícia Maria Cruz Ribeiro da Silva Duarte Paulo Teixeira de Azevedo
Ângelo Gabriel Ribeirinho Paupério
Luís Filipe Campos Dias de Castro Reis
George Christopher Lawrie
Miguel Nuno Santos Almeida
Maria Cláudia Teixeira de Azevedo
António Sampaio e Mello
Gervais Gille Pellissier
David Charles Denholm Hobley
Jean-François René Pontal
2 0 0 7 2 0 0 6 1 - Acquisition or sale of subsidiaries or other businesses a) Amount of other assets and liabilities acquired Sonae Indústria, S.G.P.S., S.A. shares - 414,842 Sonaecom BV share capital subscription - 20,000 Coverage of losses in Miauger - Organização e Gestão de Leilões Electrónicos, S.A. - 110,000 Coverage of losses in Sonae Matrix Multimédia S.G.P.S., S.A. 61,344,670 - Delivery of supplementary capital to Sonaecom - Serviços de Comunicações, S.A. (ex - Novis Telecom, S.A.) - 27,500,000 Portugal Telecom, S.G.P.S., S.A. shares - 105,988,029 Telemilénio Telecomunicações - Sociedade Unipessoal, Lda. 14,553,012 - Sonaecom - Serviços de Comunicações, S.A. 29,000,000 - Optimus Artis - Concepção, Construção e Gestão de Redes de Comunicações, S.A. 50,000 - 104,947,682 134,032,871 b) S a l e s Sonae Indústria,S.G.P.S., S.A. shares - 247,275 Delivery of Sonae S.G.P.S., S.A. shares 385,980 268,845 Delivery of Sonae Indústria, S.G.P.S., S.A. shares - 81,725 Portugal Telecom, S.G.P.S., S.A. shares 106,253,492 - Liquidation of Sonae Matrix Multimédia S.G.P.S., S.A. 20,000,000 - 126,639,472 597,845 c) Other Bus ines s act ivi t ies Reimburse of supplementary capital from Sonae Telecom S.G.P.S., S.A. 76,450,000 23,493,501 Reimburse of supplementary capital from Sonae Matrix S.G.P.S.,S.A. 70,380,591 1,880,000 Reimburse of supplementary capital from Optimus Telecomunicações S.A. - 23,443,501 146,830,591 48,817,002 2 - Details of cash and cash equivalents Cash in hand 9,674 10,940 Cash at bank 38,951 27,583 Treasury applications 145,730,550 90,935,004 Overdrafts (103,473) - Cash and cash equivalents 145,675,702 90,973,527 Overdrafts 103,473 - Cash assets 145,779,175 90,973,527 3 - Description of non monetary financing activities a) Bank credit granted and not used 100,000,000 90,000,000 b) Purchase of company through the issue of shares Not applicable Not applicable c) Conversion of loans into shares Not applicable Not applicable (Amounts expressed in Euro)
The notes are an integral part of the financial statements at 31 December 2007 and "Pro-forma" at 31 December 2006.
| Chief Ac countant |
The Board of Directors | |
|---|---|---|
| Patrícia Maria Cruz Ribeiro da Silva | Duarte Paulo Teixeira de Azevedo | |
| Ângelo Gabriel Ribeirinho Paupério | ||
| Luís Filipe Campos Dias de Castro Reis | ||
| George Christopher Lawrie | ||
| Miguel Nuno Santos Almeida | ||
| Maria Cláudia Teixeira de Azevedo | ||
| António Sampaio e Mello | ||
| Gervais Gille Pellissier | ||
| David Charles Denholm Hobley | ||
| Jean-François René Pontal |
5.4 Notes to the Sonaecom individual financial statements
(Amounts expressed in Euro)
SONAECOM, S.G.P.S., S.A., (hereinafter referred to as "the Company" or "Sonaecom") was incorporated on 6 June 1988 under the name Sonae – Tecnologias de Informação, S.A. and has its head office at Lugar de Espido, Via Norte, Maia – Portugal.
On 30 September 1997, in accordance with a public deed, the investments of Pargeste, S.G.P.S., S.A. in entities connected with the communications and information technology areas were demerged and merged into the Company.
On 3 November 1999, the Company's share capital was increased and its articles of association modified, which led to the change of its corporate name to Sonae.com, S.G.P.S., S.A.. Since then the Company's corporate object has been the management of investments in other companies. The nominal value of its share capital was changed to Euro and its share capital was composed of one hundred and fifty million shares with a nominal value of 1 Euro each.
On 1 June 2000, the Company made a Combined Share Offering, which involved the following:
In addition to the Combined Share Offering, the Company's share capital was increased as explained below. The new shares were subscribed for and fully paid up in cash by Sonae, S.G.P.S., S.A. (Sonaecom's shareholder, hereinafter referred to as "Sonae") on the date the price for the Combined Share Offering was determined, giving rise to the issuance of 31,000,000 new dematerialised ordinary shares with a nominal value of 1 Euro each. The subscription price for the new shares was equal to the price determined for the sale of shares in the Combined Share Offering (Euro 10).
In addition, Sonae sold 4,721,739 Sonaecom shares under an option granted to the banks leading the Institutional Offer for Sale and 1,507,865 shares to Sonae Group managers and to the former owners of the companies acquired by Sonaecom.
The Company's share capital was increased from Euro 181,000,000 to Euro 226,250,000 in accordance with a decision of the Shareholders' General Meeting held on 17 June 2002. Under that increase, 45,250,000 new shares of 1 Euro each were issued at the price of 2.25 Euros per share.
On 30 April 2003, by public deed the corporate name was changed to SONAECOM, S.G.P.S., S.A..
By decision of the Shareholders' General Meeting held on 12 September 2005, Sonaecom's share capital was increased in Euro 70,276,868, from Euro 226,250,000 to Euro 296,526,868, by the issuance of 70,276,868 new shares of 1 Euro each and with a share premium of Euro 242,455,195, fully subscribed by France Telecom. The corresponding public deed was executed on 15 November 2005.
By decision of the Shareholders General Meeting held on 18 September 2006, Sonaecom's share capital was increased in Euro 69,720,000, to Euro 366,246,868, by the issuance of 69,720,000 new shares of 1 Euro each and with a share premium of Euro 275,657,217, subscribed by 093X – Telecomunicações Celulares, S.A. (EDP) and Parpública – Participações Públicas, SGPS, S.A. (Parpública). The corresponding public deed was executed on 18 October 2006.
The financial statements are presented in Euro, rounded at unit.
The financial statements have been prepared on a going concern basis from the Company's accounting records in accordance with International Financial Reporting Standards ("IAS/IFRS") as adopted by the European Union ("EU").
The adoption of the International Financial Reporting Standards ("IFRS") as adopted by the European Union occurred for the first time in 2007 and as defined by IFRS1 – "First time adoption
of International Financial Reporting Standards", 1 January 2006 was the date of transition from generally accepted accounting principles in Portugal to those standards.
For Sonaecom, there are no differences between IFRS as adopted by European Union and IFRS published by the International Accounting Standards Board.
The reconciliation between shareholders' funds at 31 December 2006 and the Net results for the year then ended, in accordance with generally accepted accounting principles in Portugal (POC) and in accordance with International Financial Reporting Standards (IAS/IFRS), is disclosed in Note 13.
Sonaecom applied IFRS 7 – "Financial instruments: disclosures", mandatory for periods beginning on or after 1 January 2007 and revised IAS 1- "Presentation of Financial Statements". These applications resulted in increased of disclosures regarding the financial instruments used by the Company.
On 29 March 2007, with mandatory effect as from 1 January 2009, but with early adoption permitted, the IASB issued a revised IAS 23 – "Borrowing Costs". Additionally, in 2007, were also issued, five interpretations: (i) IFRIC 7 - "Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies", (ii) IFRIC 8 - "Scope of IFRS 2 ", (iii) IFRIC 9 -" Reassessment of Embedded Derivatives", (iv) IFRIC 10 -" Interim Financial Reporting and Impairment ", and (v) IFRIC 11 -" IFRS 2 - Group and Treasury Share Transactions". Application of these interpretations did not have a significant effect on the financial statements as of 31 December 2007.
Finally, at the time of issuing these financial statements, the following standards and interpretations had been issued, application of which was not mandatory or which had not yet been endorsed by the European Union:
-IFRIC 14 – "IAS 19 –The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction" – (mandatory at 1 January 2008).
These standards and interpretations will not have a significant effect on the Company's financial statements.
The main accounting policies used in the preparation of the accompanying financial statements were as follows:
Tangible assets are recorded at their acquisition cost less accumulated depreciation and less estimated accumulated impairment losses.
Depreciation is provided on a straight-line monthly basis as from the date the assets are available for use in the necessary condition to operate as intended by the management, by a corresponding charge to the statement of profit and loss caption 'Depreciation and amortisation'.
Impairment losses detected in the realisation value of tangible assets are recorded in the year in which they arise, by a corresponding charge to the caption 'Depreciation and amortisation' of the statement of profit and loss.
The annual depreciation rates used correspond to the estimated useful life of the assets, which are as follows:
| Years of useful life |
|
|---|---|
| Buildings | 10 - 20 |
| Plant and machinery | 6 |
| Tools | 2 |
| Fixtures and fittings | 3- 10 |
Current maintenance and repair costs of fixed assets are recorded as costs in the year in which they occur. Improvements of significant amount, which increase the estimated useful life of the
assets, are capitalised and depreciated in accordance with the remaining estimated useful life of the corresponding assets.
Intangible assets are recorded at their acquisition cost less accumulated amortisation and less estimated accumulated impairment losses. Intangible assets are only recognised, if it is likely that they will bring future economic benefits to the Company, if the Company controls them and if their cost can be reasonably measured.
Intangible assets correspond, essentially, to software and industrial property.
Amortisation is provided on a straight-line monthly basis, over the estimated useful life of the assets (three years) as from the month in which the corresponding expenses are incurred.
Amortisation for the year is recorded in the statement of profit and loss under the caption 'Depreciation and amortisation'.
Investments in companies in which the Company has direct or indirect voting rights at Shareholders' General Meetings, in excess of 50%, or in which it has control over the financial and operating policies are recorded under the caption 'Investments in Group companies', at their acquisition cost, in accordance with IAS 27, as Sonaecom presents, separately, consolidated financial statements in accordance with those standards.
Loans and supplementary capital granted to affiliated companies with maturities, estimated or defined contractually, greater than one year, are recorded, at their nominal value, under the caption 'Other non current assets'.
Investments and loans granted to Group companies are evaluated whenever an event or change of circumstances indicates that the recorded amount may not be recoverable or impairment losses recorded in previous years no longer exist.
Impairment losses estimated for investments and loans granted to Group companies are recorded, in the year that they are estimated, under the caption 'Other financial costs' in the statement of profit and loss.
The expenses incurred with the acquisition of investments in Group companies are considered as a part of the acquisition cost.
The Company classifies its investments in the following categories: 'Financial assets at fair value through profit or loss', 'Loans and receivables', 'Held-to-maturity investments' and 'Available-forsale financial assets'. The classification depends on the purpose for which the investments were acquired.
The classification of the investments is determined at the initial recognition and re-evaluated every quarter.
a) 'Financial assets at fair value through profit or loss'
This category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or loss at inception. A financial asset is classified in this category if it is acquired principally for the purpose of selling in the short term or if the adoption of this method allows reducing or eliminating an accounting mismatch. Derivatives are also registered as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if they are either held for trading or are expected to be realised within twelve months of the balance sheet date.
b) 'Loans and receivables'
Loans and receivables are non-derivative financial assets with fixed or variable payments that are not quoted in an active market. These financial investments arise when the Company provides money, goods or services directly to a debtor with no intention of trading the receivable.
Loans and receivables are recorded at amortised cost using the effective interest rate method less any impairment.
Loans and receivables are recorded as current assets, except when its maturity is greater than twelve months from the balance sheet date, situation when they are classified as non-current assets. Loans and receivables are included in the caption 'Other current debtors' in the balance sheet.
Purchases and sales of investments are recognised on trade-date – the date on which the Company commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. The financial assets at fair value through profit or loss are initially recognised at fair value and the transaction costs are recorded in the income statement. Investments are derecognised when the rights to receive cash flows from the investments have expired or have been transferred substantially all the risks and rewards of its ownership.
Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value.
Loans and receivables and held-to-maturity investments are carried at amortised cost using the effective interest method.
Realised and unrealised gains and losses arising from changes in the fair value of financial assets classified at fair value through profit or loss are recognised in the income statement. Realised and unrealised gains and losses arising from changes in the fair value of non-monetary securities classified as available-for-sale are recognised in equity. When securities classified as available-forsale are sold or impaired, the accumulated fair value adjustments are included in the income statement as gains or losses from investment securities.
The fair value of quoted investments is based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Company establishes fair value by using valuation techniques. These include the use of recent arm's length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models refined to reflect the issuer's specific circumstances. The fair value of listed investments is determined based on the closing Euronext share price at the balance sheet date.
The Company assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In case of equity securities classified as available for sale, a significant or prolonged decline (decrease of over 25% in two consecutive quarters) in the fair value of the security below its cost is considered in determining whether the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is removed from equity and recognised in the income statement. Impairment losses recognised in the income statement on equity instruments are not reversed through the income statement.
The lease contracts are classified as financial leases, if, in substance, all risks and rewards associated with the detention of the leased asset are transferred by the lease contract or as operational leases, if, in substance, there is no transfer of risks and rewards associated with the detention of the leased assets.
The lease contracts are classified as financial or operational in accordance with the substance and not with the form of the respective contracts.
Fixed assets acquired under finance lease contracts and the related liabilities are recorded in accordance with the financial method. Under this method the tangible assets, the corresponding accumulated depreciation and liability are recorded in accordance with the contractual financial
plan at fair value or, if less, at the present value of payments. In addition, interest included in lease payments and depreciation of the tangible assets are recognised as expenses in the statement of profit and loss for the year to which they relate.
Assets under long term rental contracts are recorded in accordance with the operational lease method. In accordance with this method, the rents paid are recognised as an expense, over the rental period.
'Other current debtors' are recorded at their net realisable value, and do not include interests, as the discount effect is not considered to be significant.
These financial investments arise when the Company lends money or renders services directly to a debtor without the intention of trading the receivable.
'Other current debtors' are stated net of any impairment losses. Future recovery of impairment losses recognised earlier is credited to the statement of profit and loss caption 'Other operating revenues'.
Amounts included under the caption 'Cash and cash equivalents' correspond to amounts held in cash, demand and term bank deposits and other treasury applications where the risk of any change in value is insignificant.
The cash flow statement has been prepared in accordance with IAS 7, using the direct method. The Company classifies, in the caption 'Cash and cash equivalents', investments that mature in less than three months, for which the risk of change in value is insignificant. The caption 'Cash and cash equivalents' in the cash flow statement also includes bank overdrafts, which are reflected in the balance sheet caption 'Short-term loans and other loans'.
The cash flow statement is classified by operating, financing and investing activities. Operating activities include payments to personnel and other captions relating to operating activities.
Cash flows from investing activities include the acquisition and sale of investments in associated and subsidiaries companies and receipts and payments resulting from the purchase and sale of fixed assets.
Cash flows from financing activities include payments and receipts relating to loans obtained and finance lease contracts.
All amounts included under this caption are able to be realised in the short term and are not subject to any onus or guarantee.
Loans are recorded as liabilities by the "amortised cost". Any expenses incurred in setting up loans are recorded as a deduction to the nominal debt and recognised during the period of the financing, based on the effective interest rate method. The interests incurred but not yet due are added to the amount of the loans until they are liquidated.
The Company only uses derivatives in the management of its financial risks to hedge against such risks. The Company does not use derivatives for trading purposes.
The cash flow hedges used by the Company are related to interest rate swap operations to hedge against interest rate risks on loans obtained. The amounts, interest payment dates and repayment dates of the underlying interest rate swaps are similar in all respects to the conditions established for the contracted loans. Changes in the fair value of cash flow hedges are recorded in assets or liabilities, against a corresponding entry under the caption 'Hedging reserves' in shareholders' funds.
In the cases where the hedge instrument is not effective, the amounts that arise from the adjustments to fair value are recorded directly in the profit and loss statement.
Provisions are recognised when, and only when, the Company has a present obligation (either legal or implicit) resulting from a past event, the resolution of which is likely to involve the disbursement of funds by an amount that can be reasonably estimated. Provisions are reviewed at the balance sheet date and adjusted to reflect the best estimate at that date.
Provisions for restructurings are only registered if the Company has a detailed plan and if that plan was already communicated to the parties involved.
Contingent liabilities are not recognised in the financial statements but are disclosed in the notes, provided that the possibility of a cash outflow affecting future economic benefits is remote.
Contingent assets are not recognised in the financial statements but are disclosed in the notes when future economic benefits are likely to occur.
Income tax for the year is determined based on the taxable results in accordance with the tax regulations in force, taking into consideration deferred taxation.
Deferred taxes are calculated using the liability method and reflect the timing differences between the amount of assets and liabilities for accounting purposes and the respective amounts for tax purposes.
Deferred tax assets are only recognised when there is reasonable expectation that sufficient taxable profits will arise in the future to allow such deferred tax assets to be used. At the end of each year a review is made of the recorded and unrecorded deferred tax assets and they are reduced whenever their realisation ceases to be probable, or recorded if it is probable that taxable profits will be generated in the future to enable them to be recovered (Note 7).
Deferred taxes are calculated with the tax rate that is expected to be in effect at the time the asset or liability is used.
Whenever deferred taxes derive from assets or liabilities directly registered in Shareholders' funds, its recording is also made in Shareholders' funds. In all other situations, deferred taxes are always registered in the profit and loss statement.
Expenses and income are recorded in the year to which they relate, regardless of their date of payment or receipt. Estimated amounts are used when actual amounts are not known.
The captions of 'Other non current assets', 'Other curr ent assets', 'Other non current liabilities' and 'Other current liabilities' include expenses and income relating to the current period, where payment and receipt will occur in future periods, as well as payments and receipts in the current period but which relate to future periods. The latest ones will be included by the corresponding amount in the results of the periods that they relate to.
Non-current financial assets and liabilities are recorded at fair value and, in each period, the financial actualisation to the fair value is recorded in the statement of profit and loss under the caption 'Other financial expenses' or 'Other financial income'.
Dividends are recognised when the right of the shareholders to receive such amounts is appropriately established and communicated.
Assets and liabilities due in more than one year from the date of the balance sheet are classified, respectively, as non-current assets and non-current liabilities.
In addition, considering their nature, the deferred taxes and the provisions for other liabilities and charges, are classified as non current assets and liabilities (Notes 7 and 16).
Portuguese commercial legislation requires that at least 5% of annual net profit must be appropriated to a legal reserve, until such reserve reaches at least 20% of the share capital. This reserve is not distributable, except in the case of liquidation of the Company, but may be used to absorb losses, after all the other reserves are exhausted, or to increase the share capital.
Share premium relates to premiums obtained on the issuance of capital or in capital increases. In accordance with Portuguese legislation, the amounts included in this caption are subject to the rules applicable to the 'Legal reserves', that is they are not distributable, except in case of liquidation of the Company, but can be used to absorb losses, after the other reserves have been exhausted or to increase capital.
In accordance with IFRS 2, the liability for equity settled plans is recognised in the caption 'Reserves Medium Term Incentive Plans', and cannot be distributed or used to absorb losses.
The Hedging reserve reflects the changes in fair value of "cash flow" hedging derivates that are considered as effective (Note 1.i) and is not distributable or can be used to absorb losses.
The own shares reserve reflects the cost of the own shares and is subject to the same requirements as the 'Legal reserve'.
Under Portuguese legislation, the distributable amount of reserves is determined based on the individual financial statements of the Company, presented in accordance with IAS/IFRS. Therefore, Sonaecom, SGPS, SA's only distributable reserves are its other reserves, which amount to Euro 8,189,905.
Own shares are accounted based on the acquisition cost as a deduction of shareholders funds. Gains or losses related to the sale of own shares are recorded under the heading "Other Reserves".
All assets and liabilities expressed in foreign currency were translated into Euro using the exchange rates in force on the balance sheet date.
Favourable and unfavourable foreign exchange differences resulting from changes in the rates in force at transaction date and those in force at the date of collection, payment or at the balance sheet date are recorded as income and expenses in the profit and loss statement of the year, in financial results.
The following rates were used for the translation into Euro:
| 2007 | 2006 | |||
|---|---|---|---|---|
| 31.12.2007 | Average | Average | ||
| Pounds Sterling | 1.36361 | 1.46209 | 1.4892 | 1.46704 |
| American Dollar | 0.6793 | 0.7308 | 0.7593 | 0.79717 |
| Brazilian Real | - | - | 0.35564 | 0.36658 |
Impairment tests are performed at the date of each balance sheet and whenever an event or change of circumstances indicates that the recorded amount of an asset may not be recoverable. Whenever the book value of an asset is greater than the amount recoverable, an impairment loss is recognised and recorded in the statement of profit and loss under the caption 'Depreciation and amortisation' in the case of fixed assets and goodwill, under the caption 'Other financial expenses' in the case of financial investments and under the caption 'Provisions and impairment losses', in relation to the other assets. The amount recoverable is the greater of the net selling price and the value of use. Net selling price is the amount obtainable upon the sale of an asset in a transaction within the capability of the parties involved, less the costs directly related to the sale. The value of use is the present value of the estimated future cash flows expected to result from the continued use of the asset and its sale at the end of its useful life. The recoverable value is estimated for each asset individually or, if this is not possible, for the cash-generating unit to which the asset belongs.
For Financial investments, the recoverable amount is determined based on business plans duly approved by the Board of Directors of the Company and corroborated by reports prepared by independent entities.
Evidence of the existence of impairment in accounts receivables exists when:
The accounting treatment of Medium Term Incentive Plans is based on IFRS 2 – "Share-based Payments".
Under IFRS 2, when the settlement of plans established by the Company involves the delivery of Sonaecom's own shares, the estimated responsibility is recorded, as a credit entry, under the caption 'Reserves – Medium Term Incentive Plans', within the heading 'Shareholders' funds' and is charged as an expense under the caption 'Staff expenses' in the profit and loss statement.
The quantification of this responsibility is based on fair value and is recognised over the vesting period of each plan (from the award date of the plan until its vesting or settlement date). The total responsibility, at any point of time, is calculated based on the proportion of the vesting period that has "elapsed" up to the respective accounting date.
When the responsibilities associated with any plan are covered by a hedging contract, i.e., when those responsibilities are replaced by a fixed amount payable to a third party and when Sonaecom is no longer the party that will deliver the Sonaecom shares, at the settlement date of each plan, the above accounting treatment is subject to the following changes:
recorded, in the balance sheet as either 'Other non current assets' or 'Other current assets';
Equity-settled plans to be liquidated through the delivery of shares of the parent company are recorded as if they were settled in cash, which means that the estimated liability is recorded in the balance sheet caption 'Other non current liabilities' and 'Other current liabilities' by a corresponding entry to the income statement caption 'Staff expenses', for the cost relating to the deferred period elapsed. The liability is quantified based on the fair value of the shares as of each balance sheet date.
When the liability is covered by a hedging contract, it is recognised in the same way described above, but with the liability being quantified based on the amount fixed in the contract.
In 2003, the Company signed a hedging contract under which, through the establishment of the payment of a fixed amount, it transferred its liability relating to the Sonaecom share plan to an entity outside the Sonaecom Group. At 31 December 2007 only one of the existing plans was covered by hedging contracts. Therefore, the impacts of the share plans of the Medium Term Incentive Plans are recognised in the balance sheet captions 'Other current assets' and 'Other current liabilities' for the plan covered by hedging contracts, and in the caption 'Reserve - Medium Term Incentive Plans' for the other two plans. The cost is recognised in the income statement caption 'Staff expenses'.
In relation to the plans which will be liquidated through the delivery of shares of the parent company, the Company signed contracts with an external entity, under which the price for the acquisition of those shares was fixed. The responsibility associated to those plans is recorded based on that fixed price, proportionally to the period of time elapsed since the award date till the date it is recorded.
Events occurring after the date of the balance sheet which provide additional information about conditions prevailing at the time of the balance sheet (adjusting events) are reflected in the financial statements. Events occurring after the balance sheet date that provide information on post-balance sheet conditions (non adjusting events), when material, are disclosed in the notes to the financial statements.
The most significant accounting estimates reflected in the financial statements as at 31 December 2007 and pro-forma at 31 December 2006, include mainly impairment analysis of assets, particularly financial investments in Group companies.
Estimates used are based on the best information available during the preparation of financial statements and are based on the best knowledge of past and present events. Although future events, are not controlled by the Company neither foreseeable, some could occur and have impact on the estimates. Changes to the estimates used by the management that occur after the date of approval of these financial statements, will be recognised in net income, in accordance with IAS 8, using a prospective methodology.
The main estimates and assumptions in relation to future events included in the preparation of financial statements are disclosed in the correspondent notes.
The Company's activities expose it to a variety of financial risks as market risk, liquidity risk and credit risk.
Those risks arise from the unpredictability of financial markets that affect the capacity of project cash flows and profits. The Company financial risk management, subject to a perspective of long term ongoing, seeks to minimize potential adverse effects that derive from that uncertainty, using, every time that is possible and advisable, derivative financial instruments to hedge certain risks exposure ( Note 1. i)).
Foreign exchange risk management seeks to minimize the volatility of investments and transactions made in foreign currency and contributes to reduce the sensitivity of results to changes in foreign exchange rates.
Whenever possible, the Company uses natural hedges to manage exposure, by offsetting credits granted and credits received expressed in the same currency. When such procedure is not possible, the Company adopt other derivatives financial hedging instruments.
Considering the reduced values of assets and liabilities in foreign currency, the impact of a change in exchange rate will not have significant impacts in the financial statements.
The Company, during 2006, was exposed to the risk of price variations on investments recorded at fair value through profit and loss and part of investments available for sale. In the first case, that caption is made up of Sonae S.G.P.S., S.A. shares, acquired to hedge the Company's liability under the Medium Term Incentive Plans granted to its employees (Note 1. r) and 27) and therefore the variation in the price of those shares was compensated by the variation in the liability of the respective plan. In the case of the investments available for sale, the amount registered in that heading was mostly comprised by Portugal Telecom S.G.P.S., S.A. shares, which were sold to a subsidiary before 31 December 2006.
During 2007, the Sonae S.G.P.S., S.A. shares were sold (Note 10), the Medium Term Incentive Plans relating to Sonae SGPS SA shares now being hedged through contracts with an external entity.
Sonaecom's total debt is indexed to variable rates, exposing the total cost of debt to a high risk of volatility. The impact of this volatility on the Company's income and shareholders' funds is mitigated by the effect of the following factors (i) relatively low level of financial leverage; (ii) possibility of using interest rate hedging derivative instruments, as explained below; (iii) possible correlation between the market interest rate levels and economic growth, the latter having a positive effect on other lines of the Company's results (particularly operational), thus partially offsetting the increased financial costs ("natural hedge"); and (iv) the availability of liquidity, also remunerated at variable rates.
. The Company only uses derivatives or similar transactions to hedge those interest rate risks considered as significant. Three main principles are respected in all instruments selected and used to hedge interest rate risk:
As all Sonaecom's borrowings (Note 15) are at variable rates, interest rate swaps and other derivatives are used to hedge future changes in cash flow relating to interest payments. Interest rate swaps have the financial effect of converting the respective borrowings from floating rates to fixed rates. Under the interest rate swaps, the Company agrees with third parties (banks) to exchange, in pre-determined periods, the difference between the amount of interest calculated at the fixed contract rate and the floating rate at the time of re-fixing, by reference to the respective agreed notional amounts.
The counterparties of the derivative hedging instruments are limited to highly rated financial institutions, being the Company's policy, when contracting such instruments, to give preference to financial institutions that form part of its financing transactions. In order to select the counterparty for occasional operations, Sonaecom requests proposals and indicative prices from a representative number of banks in order to ensure adequate competitiveness of these operations.
In determining the fair value of hedging operations, the Company uses certain methods, such as option valuation and discounted future cash flow models, using assumptions based on market interest rates prevailing at the balance sheet date. Comparative financial institution quotes for the specific or similar instruments are used as a benchmark for the valuation.
The fair value of the derivatives contracted, that are considered as fair value hedges or the ones that are considered not sufficiently effective for cash flow hedge (in accordance with the provisions established in IAS 39), is recognised under bor rowings captions and changes in the fair value of such derivatives are recognised directly in the profit and loss statement for the year. The fair value of derivatives of cash flow hedge, that are considered effective according to IAS 39, is recognised under borrowing captions and changes in the fair value are recognised in equity.
Sonaecom's Board of Directors approves the terms and conditions of the funding with significant impact on the Company, based on the analysis of the debt structure, the inherent risks and the different options in the market, particularly as regards the type of interest rate (fixed /variable). Under this policy, the Executive Committee is responsible for decisions regarding the contracting of occasional interest rate hedging derivative financial instruments, through monitoring the conditions and alternatives existing in the market.
The existence of liquidity in the Company requires the definition of some parameters for the efficient and secure management of the liquidity, enabling maximisation of the return obtained and minimisation of the opportunity costs relating to the liquidity.
Liquidity risk management has a threefold objective: (i) Liquidity, that is to ensure permanent access in the most efficient way to sufficient funds to cover current payments on the respective maturity dates, as well as any unexpected requests for funds; (ii) Safety, that is minimisation of the probability of default in the repayment of any application of funds; and (iii) Financial Efficiency, that is ensuring that the Company maximises the value / minimise the opportunity cost of holding excess liquidity in the short term.
The main parameters underlying such a policy correspond to the type of instruments allowed, the maximum acceptable level of risk, the maximum amount of exposure by counterparty and the maximum periods for investments.
The Company's liquidity should be applied as follows, by order of priority:
Application in the market is limited to eligible counterparties, that comply with ratings previously established by the Board, limited to maximum amounts established by counterparty.
Definition of maximum amounts by counterparty is intended to ensure that liquidity is applied prudently considering the principles of management of banking relationships.
The maturity of the applications should coincide with the projected payments (or be sufficiently liquid, in the case of investments, to enable urgent unexpected payments to be made), including a margin to cover possible forecasting errors. The required margin of error depends on the reliability of the treasury forecasts and should be determined by the business. The reliability of the treasury forecasts is a determinant variable in quantifying the amounts and maturity of the funds obtained/applied in the market.
A maturity analysis of each financial liability instrument is presented in Notes 15 and 20, considering amounts not discounted and the worst case scenario. that is the shortest period that the liability can become due).
The Company's exposure to credit risk is mainly associated with the accounts receivable related to current operational activities. The credit risk on financial operations is mitigated by the fact that the Company only negotiate with high credit quality entities.
The management of this risk seeks to guarantee that the amounts owing are effectively collected within the periods negotiated without impacting the financial health of the Company.
The amounts of other debtors in financial statements, which is net from impairment losses, represents the maximum exposure of the Company to credit risk.
The movement in Tangible assets and in the corr esponding accumulated depreciation and impairment losses in the years ended 31 December 2007 and 2006 was as follows:
| 2007 | |||||||
|---|---|---|---|---|---|---|---|
| Buildings and other con s t r u c t ions |
Plant and m a c h i n e r y |
V e h i c l e s | T o o l s | Fixtures and fi t t i n g s |
Other tangible a s s e t s |
T o t a l | |
| GROSS ASSETS | |||||||
| Balance at 31.12.2006 | 313,312 | 4,365 | - | - | 157,283 | 2 | 474,962 |
| Additions | 8,551 | 21,079 | 902 | 171 | 60,084 | 103 | 90,890 |
| Disposals | - | - | (902) | - | (5,678) | - | (6,580) |
| Transfers and writte-offs | - | - | - | - | - | (2) | (2) |
| Balance at 31.12.2007 | 321,863 | 25,444 | - | 171 | 211,689 | 103 | 559,270 |
| ACCUMULATED DEPRECIATION AND IMPAIRMENT LOSSES: |
|||||||
| Balance at 31.12.2006 | 196,720 | 1,098 | - | - | 136,111 | 2 | 333,931 |
| Depreciation for the year | 31,167 | 1,232 | - | 7 | 16,110 | 9 | 48,525 |
| Disposals | - | - | - | - | (4,748) | - | (4,748) |
| Balance at 31.12.2007 | 227,887 | 2,330 | - | 7 | 147,473 | 1 1 | 377,708 |
| Net value | 93,976 | 23,114 | - | 164 | 64,216 | 9 2 | 181,562 |
| 2006 | |||||||
|---|---|---|---|---|---|---|---|
| Buildings and | |||||||
| other | Plant and | Fixtures and | Other tangible | ||||
| con s t r u c t ions | m a c h i n e r y | V e h i c l e s | T o o l s | fi t t i n g s | a s s e t s | T o t a l | |
| GROSS ASSETS | |||||||
| Balance at 31.12.2005 | 300,139 | 4,100 | - | - | 155,147 | 2 | 459,388 |
| Additions | 13,173 | 265 | - | - | 5,049 | - | 18,487 |
| Transfers and writte-offs | - | - | - | - | (2,913) | - | (2,913) |
| Balance at 31.12.2006 | 313,312 | 4,365 | - | - | 157,283 | 2 | 474,962 |
| ACCUMULATED DEPRECIATION AND |
|||||||
| IMPAIRMENT LOSSES: | |||||||
| Balance at 31.12.2005 | 166,104 | 273 | - | - | 125,306 | 2 | 291,685 |
| Depreciation for the year | 30,616 | 825 | - | - | 13,712 | - | 45,153 |
| Transfers and writte-offs | - | - | - | - | (2,908) | - | (2,908) |
| Balance at 31.12.2006 | 196,720 | 1,098 | - | - | 136,110 | 2 | 333,930 |
| Net value | 116,592 | 3,267 | - | - | 21,173 | - | 141,032 |
In the years ended 31 December 2007 and 2006, the movement in Intangible assets and in the corresponding accumulated amortisation and impairment losses, was as follows:
| 2007 | ||||
|---|---|---|---|---|
| Brands and | ||||
| patents and other | Intangible assets | |||
| rights | Software | in progress | Total | |
| GROSS ASSETS: | ||||
| Balance at 31.12.2006 | 4,982 | 167,051 | 13,917 | 185,950 |
| Additions | 1,527 | 976 | - | 2,503 |
| Balance at 31.12.2007 | 6,509 | 168,027 | 13,917 | 188,453 |
| ACCUMULATED DEPRECIATION AND IMPAIRMENT LOSSES: |
||||
| Balance at 31.12.2006 | 4,203 | 88,936 | - | 93,139 |
| Amortisation for the year | 641 | 23,552 | - | 24,193 |
| Balance at 31.12.2007 | 4,844 | 112,488 | - | 117,332 |
| Net value | 1,665 | 55,539 | 13,917 | 71,121 |
| 2006 | ||||
| Brands and | ||||
| patents and other | Intangible assets | |||
| rights | Software | in progress | Total | |
| GROSS ASSETS: | ||||
| Balance at 31.12.2005 | 4,439 | 166,693 | - | 171,132 |
| Additions | 543 | 358 | 13,917 | 14,818 |
| Balance at 31.12.2006 | 4,982 | 167,051 | 13,917 | 185,950 |
| ACCUMULATED AMORTISATION AND IMPAIRMENT LOSSES: |
||||
| Balance at 31.12.2005 | 3,595 | 63,346 | - | 66,941 |
| Amortisation for the year | 608 | 25,590 | - | 26,198 |
| Balance at 31.12.2006 | 4,203 | 88,936 | - | 93,139 |
| Net value | 779 | 78,115 | 13,917 | 92,811 |
The intangible assets in progress were mainly composed by software development.
At 31 December 2007 and 2006, the classes of financial instruments were as follows:
| 2 0 0 7 | |||||||
|---|---|---|---|---|---|---|---|
| Investments | |||||||
| recorded at fair value |
Investments | Investments | Others not | ||||
| through profit and loss |
Loans and receivables |
held to maturity |
available for sale |
Subtotal | covered by IFRS 7 |
Total | |
| Non current Assets | |||||||
| Other non current assets | - - |
492,695,948 492,695,948 |
- - |
- - |
492,695,948 492,695,948 |
- - |
492,695,948 492,695,948 |
| Current Assets | |||||||
| Other trade debtors Cash and cash equivalents |
- - |
8,004,994 145,779,175 |
- - |
- - |
8,004,994 145,779,175 |
1,017,185 - |
9,022,179 145,779,175 |
| - | 153,784,169 | - | - | 153,784,169 | 1,017,185 | 154,801,354 | |
| 2 0 0 6 | |||||||
| Investments | |||||||
| recorded at fair value |
Investments | Investments | Others not | ||||
| through profit | Loans and | held to | available for | covered by | |||
| and loss | receivables | maturity | sale | Subtotal | IFRS 7 | Total | |
| Non current Assets | |||||||
| Other non current assets | - - |
352,053,002 352,053,002 |
- - |
- - |
352,053,002 352,053,002 |
- - |
352,053,002 352,053,002 |
| Current Assets | |||||||
| Other trade debtors Investments recorded at fair value |
- | 107,716,264 | - | - | 107,716,264 | 3,021,314 | 110,737,578 |
| through profit and loss | 849,375 - |
- | - | 849,375 | - | 849,375 | |
| Cash and cash equivalents | - | 90,973,527 849,375 198,689,791 |
- - |
- - |
90,973,527 199,539,166 |
- 3,021,314 |
90,973,527 202,560,480 |
| 2007 | |||||||
| Liabilities | |||||||
| recorded at | Liabilities | ||||||
| fair value | recorded at | Other | Others not | ||||
| through profit | amortized | Financial | covered by | ||||
| and loss | Derivatives | cost | Liabilities | Subtotal | IFRS 7 | Total | |
| Non current liabailities | |||||||
| Medium and long-term loans - net | |||||||
| of short-term portion | - | (412,910) | 374,093,046 | - | 373,680,136 | - | 373,680,136 |
| - | (412,910) | 374,093,046 | - | 373,680,136 | - | 373,680,136 | |
| Current Liabilities |
|||||||
| Short-term loans and other loans | - | - | 17,860,473 | - | 17,860,473 | - | 17,860,473 |
| Other creditors | - | - | - | 40,662,700 | 40,662,700 | 629,421 | 41,292,121 |
| - | - | 17,860,473 | 40,662,700 | 58,523,173 | 629,421 | 59,152,594 | |
| 2006 | |||||||
| Liabilities | |||||||
| recorded at | Liabilities | ||||||
| fair value | recorded at | Other | Others not | ||||
| through profit and loss |
Derivatives | amortized cost |
Financial Liabilities |
Subtotal | covered by IFRS 7 |
Total | |
| Non current liabailities | |||||||
| Medium and long-term loans - net | |||||||
| of short-term portion | - | - | 146,626,307 | - | 146,626,307 | - | 146,626,307 |
| - | - | 146,626,307 | - | 146,626,307 | - | 146,626,307 | |
| Current Liabilities |
|||||||
| Short-term loans and other loans | - | - | 86,750,000 | - | 86,750,000 | - | 86,750,000 |
| Other creditors | - | - | - | 3,808,616 | 3,808,616 | 269,411 | 4,078,027 |
| - | - | 86,750,000 | 3,808,616 | 90,558,616 | 269,411 | 90,828,027 | |
Considering the nature of the amounts payable and receivable to/from the State and other public entities they were considered not to be covered by IFRS 7. Also, the captions of 'Other current
assets' and 'Other current liabilities' were not included in this note, as the amounts are not covered by IFRS 7.
At 31 December 2007 and 2006, this caption included the following investments in Group companies:
| Company | 2007 | 2006 | |
|---|---|---|---|
| Sonaecom Serviços de Comunicações, S.A. | 749,628,393 | 141,872,487 | |
| ("Sonaecom SC", ex Novis Telecom, S.A.) | |||
| Optimus Telecomunicações S.A. ("Optimus") | - | 551,255,906 | |
| Sonae Telecom, S.G.P.S., S.A. ("Sonae Telecom") | 105,799,987 | 105,799,987 | |
| Sonaetelecom BV | 44,209,902 | 4,209,902 | |
| Sonae Matrix Multimédia, S.G.P.S., S.A ("Sonae Matrix") | - | 40,782,208 | |
| Sonae.com – Sistemas de Informação, S.G.P.S., S.A.("Sonae.com SI") | 26,641,587 | 26,641,587 | |
| Miauger – Organização e Gestão de Leilões Electrónicos, S.A. ("Miauger") |
4,568,100 | 4,568,100 | |
| Telemilénio, Telecomunicações, Sociedade Unipessoal, Lda. ("Tele 2") | 178,409 | - | |
| Sonaecom BV | 100,000 | 100,000 | |
| Optimus Artis – Concepção, Construção e Gestão de Redes de | 50,000 | - | |
| Comunicações, S.A. ("Optimus Artis") | |||
| 931,176,378 | 875,230,177 | ||
| Impairment losses (Note 16) | (10,448,903) | (22,573,509 | |
| Total investments in Group companies | 920,727,475 | 852,656,668 |
The movements occurred in investments in Group companies, during the years ended 31 December 2007 and 2006 were as follows:
| Balance at | Transfers and | Balance at | |||
|---|---|---|---|---|---|
| Company | 31.12.2006 | Additions | Disposals | writte-offs | 31.12.2007 |
| Sonaecom SC | 693,128,393 | 29,000,000 | - | 27,500,000 | 749,628,393 |
| Sonae Telecom | 105,799,987 | - | - | - | 105,799,987 |
| Sonaetelecom BV | 4,209,902 | 40,000,000 | - | - | 44,209,902 |
| Sonae Matrix | 40,782,208 | - | (40,782,208) | - | - |
| Sonae.com SI | 26,641,587 | - | - | - | 26,641,587 |
| Miauger | 4,568,100 | - | - | - | 4,568,100 |
| Tele 2 | - | 178,409 | - | - | 178,409 |
| Sonaecom BV | 100,000 | - | - | - | 100,000 |
| Optimus Artis | - | 50,000 | - | - | 50,000 |
| 875,230,177 | 69,228,409 | (40,782,208) | 27,500,000 | 931,176,378 | |
| Impairment losses | (22,573,509) | - | - | 12,124,606 | (10,448,903 |
| 852,656,668 | 69,228,409 | (40,782,208) | 39,624,606 | 920,727,475 |
| Balance at | Transfers and | Balance at | |||
|---|---|---|---|---|---|
| Company | 31.12.2005 | Additions | Disposals | writte-offs | 31.12.2006 |
| Sonaecom SC | 20,092,718 | - | - | 121,779,769 | 141,872,487 |
| Optimus | 219,944,790 | 331,311,116 | - | - | 551,255,906 |
| Sonae Telecom | 105,799,987 | - | - | - | 105,799,987 |
| Sonaetelecom BV | 4,209,902 | - | - | - | 4,209,902 |
| Sonae Matrix | 22,620,000 | - | - | 18,162,208 | 40,782,208 |
| Sonae.com SI | 1,220,000 | - | - | 25,421,587 | 26,641,587 |
| Miauger | 1 | 110,000 | - | 4,458,099 | 4,568,100 |
| Sonaecom BV | - | 100,000 | - | - | 100,000 |
| 373,887,398 | 331,521,116 | - | 169,821,663 | 875,230,177 | |
| Impairment losses | (22,573,509) | - | - | - | (22,573,509 |
| 351,313,889 | 331,521,116 | - | 169,821,663 | 852,656,668 |
The merger of Optimus Telecomunicações, S.A. into Novis Telecom, S.A. was completed in 2007. After the merger, Novis changed its corporate name to Sonaecom - Serviços de Comunicações, S.A..
Before the merger, Novis used 'Supplementary capital' contributions of Euro 27,500,000 to cover accumulated losses and to reinforce 'Legal reserves'. Additionally, the Company acquired 2.21% of Sonaecom SC from the subsidiary Sonae Matrix, for the amount of Euro 29,000,000.
During 2007, the increase of Euro 40,000,000 in Sonaetelecom BV related to an increase in 'Shareholders' funds'.
During 2007, the increase of Euro 178,409 relates to the acquisition of Tele 2, a company acquired for an amount of 13,944,624, of which Euro 13,766,215 relates to Supplementary capital (Note 6).
During 2007, the amount reflected corresponds to Sonae Matrix liquidation in December 2007.
During 2007, the amount related to Impairment losses was transferred to 'Other non current assets' (Note 6).
During 2006, the increase of Euro 331,311,116 relates to the acquisition of 5.04% in Optimus from Parpública – Participações Públicas, SGPS, S.A. (Parpública) and 25.72% from 093X – Telecomunicações Celulares, S.A. (EDP), through the exchange of the shares of that subsidiary by participations in Sonaecom of 3.118% to Parpública and of 15.918% to EDP.
The column 'Transfers and Write-off' includes the conversion of Supplementary capital contributions into share capital in Group companies in an amount of Euro 169,821,663.
The Company presents separate consolidated financial statements at 31 December 2007, in accordance with International Financial Reporting Standards (IAS/IFRS) as adopted by the European Union, which presents total consolidated assets of Euro 1,758,611,602 total consolidated liabilities of Euro 823,190,172, consolidated operational revenues of Euro 899,114,867 and Consolidated Shareholders' funds of Euro 935,421,430, including a consolidated net profit (attributable to the shareholders of the parent company – Sonaecom, S.G.P.S., S.A.) of Euro 36,777,780.
At 31 December 2007 and 2006, the main financial information regarding the owned subsidiaries is as follows (values in accordance with IAS/IFRS):
| 2007 | 2006 | ||||||
|---|---|---|---|---|---|---|---|
| Shareholders' | Net profit/ | Shareholders' | Net profit/ | ||||
| Company | Head Office | % holding | funds | (loss) | % holding | funds | (loss) |
| Sonaecom SC (ex Novis | |||||||
| Telecom, S.A.) | Maia | 53.54% | 530,109,469 | 115,966,397 | 58.33% | 22,688,952 | (26,312,670) |
| Optimus | Maia | - | - | - | 50.94% | 399,036,412 | 34,181,090 |
| Sonae Telecom | Maia | 100% | 175,004,793 | 72,667,381 | 100% | 212,787,412 | (10,816) |
| Sonae Matrix | - | - | - | - | 100% | 90,368,597 | 40,625 |
| Sonaecom SI | Maia | 100% | 46,796,086 | 13,151,148 | 100% | 33,644,938 | 20,751 |
| Miauger | Maia | 100% | 448,781 | 234,950 | 100% | 213,831 | 186,647 |
| Sonaetelecom BV | Amesterdam | 100% | 3,568,002 | (43,811,459) | 100% | 7,379,461 | 26,546,170 |
| Tele2 | Lisbon | 100% | (2,101,150) | (14,741,900) | - | - | - |
| Sonaecom BV | Amesterdam | 100% | (11,931,959) | (3,469,512) | 100% | (3,608,035) | (8,562,447) |
| Optimus Artis | Maia | 100% | (4,295,170) | (4,345,170) | - | - | - |
In 2007, Sonaecom owned, indirectly, through Sonae Telecom and Sonaecom BV, an additional shareholding of 37.94% and 8.52% in Sonaecom - Serviços de Comunicações, respectively.
In 2006, the Company owned an indirect stake of 41.67% in Novis, through Sonae Matrix, and an additional shareholding of 49.06% in Optimus, through Sonae Telecom.
At 31 December 2007 and 2006 this caption was made up as follows:
| 2007 | 2006 | |
|---|---|---|
| FINANCIAL ASSETS: | ||
| Medium and long-term loans granted to Group companies | ||
| Sonaecom SC (ex Novis) | 262,795,000 | 71,900,000 |
| Sonaecom BV | 120,660,000 | - |
| Sonaetelecom BV | 70,175,000 | 69,767,673 |
| Sonae.com SI | 390,000 | - |
| Tele 2 | 961,782 | - |
| 454,981,782 | 141,667,673 | |
| Supplementary capital: | ||
| Sonae.com SI | 33,574,187 | 33,574,187 |
| Sonae Telecom SGPS | 30,964,467 | 107,414,467 |
| Tele 2 (Note 5) | 13,766,215 | - |
| Sonae Matrix | - | 70,327,971 |
| Sonaecom SC (ex Novis) | - | 27,500,000 |
| 78,304,869 | 238,816,625 | |
| Accumulated impairment losses (Note 16) | (40,590,703) | (28,466,097) |
| NON FINANCIAL ASSETS: | ||
| Medium Term Incentive Plans (Notes 1.r) and 27) | - | 34,801 |
| - | 34,801 | |
| 492,695,948 | 352,053,002 |
During 2007 and 2006, the loans granted to Group companies bore interest at market rates, with an average interest rate of 5.0875% and 4.629%, respectively. Supplementary capital is non interest bearing.
The increase in Loans granted to Sonaecom SC results from the fact that the Sonaecom Group's external funding has been concentrated in the Company, the funding being transferred to the subsidiaries through shareholders' loans.
During the year ended 31 December 2007, the impairment losses were transferred from the caption of Investments in Group companies.
As the loans granted to group companies and the Supplementary capital do not have a defined maturity, no information about the aging is presented.
The detail of deferred tax assets by nature at 31 December 2007 were as follows:
| Provisions not | |||||
|---|---|---|---|---|---|
| Year which were | Adjustments to | acceptable for | Deferred tax | ||
| originated | Tax losses | IAS/IFRS | tax purposes | Total | assets |
| 2001 | - | - | 3,463,000 | 3,463,000 | 917,695 |
| 2002 | 28,183,484 | - | 11,431,819 | 39,615,303 | 10,075,303 |
| 2003 | - | - | 31,154,781 | 31,154,781 | 8,256,017 |
| 2004 | - | - | 9,662,981 | 9,662,981 | 2,560,690 |
| 2005 | 2,176,736 | - | (3,033,899) | (857,163) | (259,799 |
| 2006 | 24,341,554 | (257,437) | (149,858) | 23,934,259 | 5,977,455 |
| 2007 | 54,308,569 | 81,031 | (433,114) | 53,956,486 | 13,483,841 |
| 109,010,343 | (176,406) | 52,095,710 | 160,929,647 | 41,011,202 | |
Following a conservative approach and because its recovery is uncertain, the Company did not recognise the deferred tax assets related to the tax losses carried forward, as well as the deferred tax assets related to temporary differences in the total amount of Euro 41,011,202.
The rate used at 31 December 2007 to calculate the deferred tax assets relating to tax losses carried forward was 25% and to calculate deferred tax assets resulting from temporary differences was 26.5%.
Portuguese Tax Authorities can review the income tax returns of the Company for a period of four years (ten years for Social Security till 31 December 2000 and five years after that date), except when tax losses have been generated, tax benefits have been granted or when any review, claim or impugnation is in course. Consequently, tax returns of each year, since the year 2004 (inclusive) are still subject to such review. The Board of Directors believe that any correction that may arise as a result of such review would not produce a significant impact in the accompanying financial statements.
The Board of Directors believes, supported by its lawyers and tax consultants, that there are no significant tax assets or contingencies not provided for in the accounts or that should be disclosed in the Notes to the financial statements as of 31 December 2007.
At 31 December 2007 and 2006 this caption was made up as follows:
| 2 0 0 7 | 2 0 0 6 | |
|---|---|---|
| Trade debtors | 8,005,800 | 107,717,070 |
| State and other public entities | 1,017,185 | 3,021,314 |
| Accumulated impairment losses on accounts receivables (Note 16) | (806) | (806) |
| 9,022,179 | 110,737,578 |
The amount registered in the caption 'Other debtors' corresponds mainly to debit notes issued in December 2007 and 2006 relating to interest receivable from subsidiaries on shareholders' loans, interest on treasury applications and services rendered. The amount at 31 December 2006 also includes Euro 106,253,492 relating to the sale of a 1% participation in Portugal Telecom, S.A. to the subsidiary Sonaecom BV.
The amount included in the caption 'State and other public entities' at 31 December 2007 and 2006 corresponds to payments on account of income tax, amounts withheld by third parties tax recoverable.
At 31 December 2007 and 2006, the aging of Trade debtors was as follows:
| 2007 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Due without impairment | Due and with impairment | ||||||||
| From 30 to | More than | From 90 to | From 180 to | More than | |||||
| Total | Not due | Till 30 days | 90 days | 90 days | Till 90 days | 180 days | 360 days | 360 days | |
| Trade debtors | 8,005,800 | 7,482,232 | (260,808) | 147,661 | 634,950 | - | - | - | 1,764 |
| 8,005,800 | 7,482,232 | (260,808) | 147,661 | 634,950 | - | - | - | 1,764 | |
| 2006 | |||||||||
| Due without impairment | Due and with impairment | ||||||||
| From 30 to | More than | From 90 to | From 180 to | More than | |||||
| Total | Not due | Till 30 days | 90 days | 90 days | Till 90 days | 180 days | 360 days | 360 days | |
| Trade debtors | 107,717,070 | 1,463,515 | 106,251,548 | - | 2,007 | - | - | - | - |
The balances with the 'State and other public entities' are not financial assets and therefore they have not been detailed above.
107,717,070 1,463,515 106,251,548 - 2,007 - - - -
At 31 December 2007 and 2006 this caption was made up as follows:
| 2 0 0 7 | 2 0 0 6 | |
|---|---|---|
| Accrued income | ||
| Interest receivable | 3,333,843 | 903,133 |
| Invoices to be issued | 338,654 | 126,646 |
| Other accrued income | 1,398 | 2,826 |
| 3,673,895 | 1,032,605 | |
| Deferred costs | ||
| Insurance | 40,936 | 69,065 |
| Medium Term Incentive Plans (Note 1.r)) | - | 177,795 |
| Rents | 1,620 | 18,264 |
| Other deferred costs | 50,000 | 55,384 |
| 92,556 | 320,508 | |
| 3,766,451 | 1,353,113 |
During the years ended at 31 December 2007 and 2006, the movements in this heading were as follows:
| 2007 | 2006 | |
|---|---|---|
| Opening balance | 849,375 | 1,321,690 |
| Acquisitions | - | 414,842 |
| Sales | (1,128,864) | (1,237,987 |
| Changes in fair value (Note 23) | 279,489 | 350,830 |
| - | 849,375 |
At 31 December 2007, 'Investments recorded at fair value through profit and loss' refers to 562,500 shares of Sonae, S.G.P.S., S.A., acquired to fulfil future obligations under the Medium Term Incentive Plans and which were recorded based on the closing share price of Euronext at the balance sheet date. In 2007, 369,317 shares were issued to employees and 193,183 shares were sold, generating a capital gain of Euro 154,160.
These shares were classified, as 'Investments recorded at fair value through profit and loss' as from their date of acquisition, because they were acquired to hedge the liability under the Medium Term Incentive Plans.
At 31 December 2007, these plans were hedged through contracts with an external entity.
At 31 December 2007 and 2006, the detail of cash and cash equivalents was as follows:
| 2007 | 2006 |
|---|---|
| 9,674 | 10,940 |
| 38,951 | 27,583 |
| 145,730,550 | 90,935,004 |
| 145,779,175 | 90,973,527 |
| 2007 | 2006 | |
|---|---|---|
| Funds placed in Sonae | - 90,000,004 | |
| Short term applications | ||
| Banco Espírito Santo | 77,620,000 | - |
| Sonaecom - Serviços de Comunicações (ex Novis) | 55,467,900 | - |
| Wedo | 10,629,650 | - |
| Público | 1,893,000 | 935,000 |
| Banco BPI | 120,000 | - |
| 145,730,550 | 90,935,004 |
During the year ended at 31 December 2007, the above referred Treasury applications bear interests at an average rate of 5.225% (3.394% in 2006).
At 31 December 2007 and 2006 the share capital of Sonaecom consisted of 366,246,868 ordinary dematerialised bearer shares of 1 Euro each. At those dates, the shareholder structure was as follows:
| 2007 | 2006 | ||||
|---|---|---|---|---|---|
| Number of Shares | % | Number of Shares | % | ||
| Sontel BV | 184,052,872 | 50.25% | - | - | |
| Shares traded in the stock market | 80,848,153 | 22.07% | 76,649,353 | 20.92% | |
| Wirefree Services Belgium, S.A. | 70,276,868 | 19.19% | 70,276,868 | 19.19% | |
| 093X (EDP) | 29,150,000 | 7.96% | 29,150,000 | 7.96% | |
| Sonaecom (Own shares) | 1,894,326 | 0.52% | - | - | |
| Sonae, S.G.P.S., S.A. | 23,649 | 0.01% | 46,572,998 | 12.72% | |
| Efanor Investimentos, S.G.P.S., S.A. |
1,000 | 0.00% | 1,000 | 0.00% | |
| Sonae Investments BV | - | - | 143,596,649 | 39.21% | |
| 366,246,868 | 100.00% | 366,246,868 | 100.00% |
The Company's capital Structure is analysed in the Management Report.
All shares have the same rights and each share corresponds to one vote. During 2007, Sonaecom acquired 1,894,326 own shares to hedge the responsibilities under the Medium Term Incentive Plans.
13. Reconciliation between shareholders' funds at 31 December 2006 between the Generally Accepted Accounting Principles in Portugal ("POC") and IAS/IFRS and Net income for the year ended 31 December 2006, obtained according to Generally Accepted Accounting Principles in Portugal ("POC") and IAS/IFRS.
The adjustments between shareholders funds at 31 December 2006 and the Net results of the year ended at 31 December 2006 in accordance with Generally Accepted Accounting Principles in Portugal ("POC"), and in accordance with International Financial Reporting Standards ("IFRS"), are as follows:
| Initial | |||
|---|---|---|---|
| adjustments | |||
| to IAS/FRS | Net Result | Total | |
| Adjustments made on the conversion to IAS/IFRS for the | |||
| opening balance of 2006 (1 January 2006): | - | - | - |
| Adjustments made on the conversion to IAS/IFRS for the net | |||
| result of 2006: | |||
| Charges related with loans obtained, recorded using the | |||
| amortised cost | - | 83,065 | 83,065 |
| Fair value on the investments recorded at fair value | |||
| through profit and loss | - | 174,375 | 174,375 |
| Total adjustments made on the conversion to IAS, reported at | |||
| 31 December 2006 | - | 257,440 | 257,440 |
The adjustments made on the conversion to IAS/IFRS with impact in Shareholders' funds and in the Net results, as set out above, relate mainly to the recording of Sonae SGPS shares acquired to hedge the liability under the Medium Term Incentive Plans at fair value.
During the year ended 31 December 2007, Sonaecom acquired a total of 1,894,326 own shares, representative of 0.52% of its share capital, at an average acquisition price of Euro 4.72, to hedge the responsibilities associated with Medium Term Incentive Plans.
At 31 December 2007 and 2006, the heading Loans had the following breakdown:
| Type of | Amount outstanding | ||||
|---|---|---|---|---|---|
| Issue denomination | Limit | Maturity | reimbursement | 2007 | 2006 |
| "Obrigações Sonaecom SGPS 2005" | 150,000,000 | Jun-13 | Final | 150,000,000 | 150,000,000 |
| Costs associated with setting-up the financing |
- | - | - | (2,879,021) | (3,373,693) |
| Interests incurred but not yet due | - | - | - | 260,883 | - |
| Fair value of swaps | - | - | - | 56,194 | - |
| 147,438,056 | 146,626,307 | ||||
| Commercial paper | 250,000,000 | Jul-12 | - | 225,000,000 | - |
| Costs associated with setting-up the financing |
- | - | - | (79,359) | - |
| Interests incurred but not yet due | - | - | - | 1,790,543 | - |
| Fair value of swaps | - | - | - | (469,104) | - |
| 226,242,080 | - | ||||
| 373,680,136 | 146,626,307 |
In July 2007, Sonaecom contracted a Program of Commercial Papper issuance of a maximum amount of Euro 250 million with a subscription grant and a maturity of five years, organized by Banco Santander de Negócios Portugal and by Caixa – Banco de Investimento.
The placing guarantee syndicate is composed by the following institutions: Banco Santander Totta, Caixa Geral de Depósitos, Banco BPI, Banco Bilbao Vizcaya Argentina (Portugal), Banco Comercial Português and BNP Paribas (in Portugal).
The facility contracted by Sonaecom enabled Optimus to repay the loan of approximately Euro 324 million from the European Investment Bank (EIB), enabling the Group to significantly extend the maturity dates contracted and eliminate a series of contractual, financial and operating restrictions imposed under Optimus' previous syndicated loan, under more favourable market conditions and manage consolidated liquidity more efficiently.
These loans bear interest at market rates, indexed to the Euribor for the respective terms and were all contracted in Euros. Consequently, it is estimated that the fair value of those loans does not differ significantly from their market value.
The spread on the medium and long term loans is established between 22.5 and 87.5 basis points.
All of the above loans are unsecured and the fulfilment of the obligations under these loans is exclusively guaranteed by the underlying activities and the company respective cash flows.
At 31 December 2007 and 2006, the repayment schedule of medium and long term loans and of interests, as well for the bonds and commercial paper was as follows:
| 2007 | ||||||
|---|---|---|---|---|---|---|
| N+1 | N+2 | N+3 | N+4 | N+5 | After N+5 | |
| Bond Loan | ||||||
| Reimbursements | - | - | - | - | - | 150,000,000 |
| Interests | 7,873,575 | 7,873,575 | 7,873,575 | 7,873,575 | 7,873,575 | 7,873,575 |
| Commercial paper | ||||||
| Reimbursements | - | - | - | 75,000,000 | 150,000,000 | - |
| Interests | 8,149,750 | 8,149,750 | 8,149,750 | 7,837,250 | 7,602,875 | - |
| 16,023,325 | 16,023,325 | 16,023,325 | 90,710,825 | 165,476,450 | 157,873,575 |
| 2006 | ||||||
|---|---|---|---|---|---|---|
| N+1 | N+2 | N+3 | N+4 | N+5 | After N+5 | |
| Bond Loan | ||||||
| Reimbursements | - | - | - | - | - | 150,000,000 |
| Interests | 6,116,775 | 6,116,775 | 6,116,775 | 6,116,775 | 6,116,775 | 6,116,775 |
| 6,116,775 | 6,116,775 | 6,116,775 | 6,116,775 | 6,116,775 | 156,116,775 |
Although the commercial paper issues mature in six months, the counterparties have assumed the commitment to place and maintain these limits for a period of five years.
At 31 December 2007 and 2006, the available credit lines were:
| 2007 | |||||
|---|---|---|---|---|---|
| Maturity | |||||
| Amount | Amount | Until 12 | More than | ||
| Credit | Limit | outstanding | available | mo nths | 12 months |
| Commercial paper | 250,000,000 | 225,000,000 | 25,000,000 | x | |
| Commercial paper | 70,000,000 | - | 70,000,000 | x | |
| Overdarfts facilities | 5,000,000 | - | 5,000,000 | x | |
| Bond Loan | 150,000,000 | 150,000,000 | - | x | |
| 475,000,000 | 375,000,000 | 100,000,000 | |||
| 2006 | |||||
|---|---|---|---|---|---|
| Maturity | |||||
| Amount | Amount | Until 12 | More than | ||
| Credit | Limit | outstanding | available | mo nths | 12 months |
| Bond Loan | 150,000,000 | 150,000,000 | - | x | |
| Commercial paper | 70,000,000 | - | 70,000,000 | x | |
| Overdarfts facilities | 20,000,000 | - | 20,000,000 | x | |
| 240,000,000 | 150,000,000 | 90,000,000 |
.
| The following interest rate hedging instruments were outstanding at 31 December 2007 and 2006: | ||
|---|---|---|
| Fair value of the | |||||
|---|---|---|---|---|---|
| Fixed rate | derivative | ||||
| Hedged loan | Notional amount | Due date | Base rate | contracted | instruments |
| Commercial paper | 110,000,000 | Mar-09 | Euribor 6m | 4.365% | (469,104 |
| Bond Loan | 75,000,000 | Jun-09 | Euribor 6m | 4.565% | 56,194 |
| (412,910 |
In September 2007, Sonaecom contracted an interest rate swap, with a notional amount of Euro 110 million, for a period of 18 months re-fixed half yearly, to fully cover the interest rate risk of one commercial paper lot issued on 13 September 2007, for the same amount and the same period. This lot will be renewed for the same amount and for the same period until at least 13 March 2009, the maturity date of this new interest rate swap.
In December 2007 Sonaecom contracted an interest rate swap, with a notional amount of Euro 75 millions, for a period of 18 months re-fixed half yearly, to cover 50% of the interest rate risk on the bonds issued by Sonaecom in June 2005, in the amount of Euro 150 million for the period of eight years, re-fixed half yearly. Interest on the bonds and swap is paid simultaneously, the latter being paid net.
The changes in the fair value of the swaps relating to the Commercial Paper Program in the amount of Euro 469,104 and bonds in the amount of 56,194 Euros were recorded in reserves as the hedges were considered to be effective in accordance with IAS 39.
As a result of contracting these derivative financial instruments, at 31 December 2007 approximately 49% of gross indebtedness was indirectly subject to fixed interest rates. The remaining 51% of gross indebtedness was exposed to changes in the interest rates.
Based on gross indebtedness exposed to variable interest rates at 31 December 2007, including the finance lease liability, less the applications and bank balances at that date, if interest rates increase (decrease) an average of 75 bp in 2008, the interest cost for that year would be increased (decreased) by approximately Euro 1 million. However, considering that under the contractual terms interest rates are fixed until the refixing dates, the impact in 2008 would only be of around Euro 0.5 million. In addition, considering the loans to Group companies that bear interest at market rates, if interest rates increase (decrease) an average of 75 bp in 2008 interest income net of interest cost for the year would be increased (decreased) by approximately Euro 3 million.
The caption 'Short-term loans and other loans', at 31 December 2007 and 2006, include an amount of Euro 17,860,473 and Euro 86,750,000, respectively, related to Treasury applications received from subsidiaries and overdrafts, and was composed as follows:
| 2007 | 2006 | |
|---|---|---|
| Optimus Towering - Gestão de Torres de Telecomunicações, S.A. | ||
| ("Optimus Towering") | 6,570,000 | - |
| Tele 2 | 4,177,000 | - |
| Digitmarket - Sistemas de Informação, S.A. ("Digitmarket") | 2,095,000 | 1,820,000 |
| Sonae.com SI | 2,900,000 | 100,000 |
| Mainroad - Serviços em Tecnologias de Informação, S.A. ("Mainroad") | 1,500,000 | - |
| Miauger | 515,000 | 270,000 |
| Optimus | - | 68,910,000 |
| WeDo | - | 8,050,000 |
| Sonaecom SC (ex Novis) | - | 7,600,000 |
| 17,757,000 | 86,750,000 | |
| Amount outstanding | |||
|---|---|---|---|
| Funding Entity | Type | 2007 | 2006 |
| Banco BPI | Overdrafts | 103,473 | - |
| 103,473 | - |
The Treasury applications received from Group companies are payable in less than three months and earn interests at marketable rate. During the years ended at 31 December 2007 and 2006, the Treasury applications bore interests at rates between 3.559% to 4.784% and 2.340% to 3.544%, respectively.
The movements in provisions and in accumulated impairment losses in the years ended at 31 December 2007 and 2006 were as follows:
| 2007 | ||||||
|---|---|---|---|---|---|---|
| Opening | Closing | |||||
| Heading | balance | Increases | Transfers | Utilisations | Decreases | balance |
| Accumulated impairment losses on accounts receivables (Note 8) |
806 | - | - | - | - | 806 |
| Accumulated impairment losses on investments in Group companies (Note 5) |
22,573,509 | - | (12,124,606) | - | - | 10,448,903 |
| Accumulates impairment losses on other non current assets (Note 6) |
28,466,097 | - | 12,124,606 | - | - | 40,590,703 |
| Provisions for other liabilities and charges |
31,979 | - | - | - | (8,273) | 23,706 |
| 51,072,391 | - | - | - | (8,273) | 51,064,118 |
| 2006 | ||||||
|---|---|---|---|---|---|---|
| Opening | Closing | |||||
| Heading | balance | Increases | Transfers | Utilisations | Decreases | balance |
| Accumulated impairment losses on accounts receivables (Note 8) |
806 | - | - | - | - | 806 |
| Accumulated impairment losses on investments in Group companies (Note 5) |
22,573,509 | - | - | - | - | 22,573,509 |
| Accumulates impairment losses on other non current assets (Note 6) |
28,466,097 | - | - | - | - | 28,466,097 |
| Provisions for other liabilities and charges |
54,772 | 706 | - | (23,499) | - | 31,979 |
| 51,095,184 | 706 | - | (23,499) | - | 51,072,391 |
This caption, in the amounts of Euro 129,379 and Euro 639,405, at 31 December 2007 and 2006, respectively, corresponds to the medium and long term amounts associated with the Medium Term Incentive Plans.
At 31 December 2007 and 2006 this caption was made up as follows:
| 2007 | 2006 | |
|---|---|---|
| Capital subscribed | 40,000,000 | - |
| State and other public entities | 629,421 | 269,411 |
| Interests payable | 492,350 | 699,472 |
| Other creditors | 170,350 | 3,109,144 |
| 41,292,121 | 4,078,027 | |
The amount of Capital subscribed relates to Supplementary capital granted to Sonaetelecom BV, and was realised on 2 January 2008.
The other creditors, excluding 'State and other public entities' had the following maturity plan:
| From 90 to | More than | |||
|---|---|---|---|---|
| Total | Till 90 days | 180 days | 180 days | |
| 2007 | 40,662,700 | 40,662,700 | - | - |
| 2006 | 3,808,616 | 3,808,616 | - | - |
At 31 December 2007 and 2006 this caption was made up as follows:
| 2007 | 2006 |
|---|---|
| 1,222,205 | 1,256,664 |
| 535,579 | 727,316 |
| 242,572 | 154,982 |
| 194,697 | 439,181 |
| 5,109 | 7,669,688 |
| 4,743 | 4,180 |
| 828,575 | 281,143 |
| 3,033,480 | 10,533,154 |
| 112,500 | 162,500 |
| 290 | 260,000 |
| 112,790 | 422,500 |
| 3,146,269 | 10,955,654 |
Sales and services rendered for the years ended 31 December 2007 and 2006 correspond to management fees charged to subsidiaries.
At 31 December 2007 and 2006 the caption 'Other operating revenues' was made up as follows:
| 2007 | 2006 | |
|---|---|---|
| Recharge of consultancy costs | 23,519,585 | - |
| Recharge of spaces and facitities | 326,697 | 170,684 |
| Recharge of personnel | 53,078 | - |
| Reversal of provisions | 8,273 | - |
| Disposals of fixed assets | 3,931 | - |
| Other operating income | 271,702 | 75,226 |
| 24,183,266 | 245,910 |
The recharge of consultancy costs is related to the consultancy cost incurred by Sonaecom during the tender offer on Portugal Telecom, in 2007 and 2006, which were recharged to subsidiaries Optimus and Sonaecom - Serviços de Comunicações (ex Novis).
At 31 December 2007 and 2006 this caption was made up as follows:
| 2007 | 2006 | |
|---|---|---|
| Specialized work | 2,686,194 | 968,609 |
| Fees | 392,925 | 434,405 |
| Travel and accommodation | 320,761 | 322,910 |
| Rents and traveling expenses | 312,141 | 407,927 |
| Electricity | 293,428 | 33,511 |
| Other external supplies and services | 653,246 | 773,483 |
| 4,658,695 | 2,940,845 | |
At 31 December 2006, this caption includes all the costs incurred (invoiced and not invoiced but which legal obligation was generated during 2006) with the public tender offers for the acquisition of the shares of Portugal Telecom S.G.P.S., S.A. and of PT – Multimédia – Serviços de Telecomunicações, S.G.P.S., S.A.. These costs were recorded in 'Other non current assets' because, until that date, the probability of success of the offers was high and the costs incurred would be considered as part of the cost of acquiring those financial investments. After the end of the offers, those costs were fully recognised in the statement of profit and loss accounts in last quarter of 2006.
Net financial results for the years ended 31 December 2007 and 2006 are made up as follows:
| 2007 | 2006 | |
|---|---|---|
| Gains and losses on investments in Group companies | ||
| Losses related to Group companies | (82,074,258) | - |
| Gains related to Group companies | 38,592,872 | 33,000,000 |
| (43,481,386) | 33,000,000 | |
| Other financial expenses: | ||
| Interest expenses | ||
| Bank loans | (2,391,116) | (182,669 |
| Other loans | (10,280,462) | (7,924,482 |
| Overdrafts and others | (33,547) | (413) |
| (12,705,125) | (8,107,564 | |
| Foreign currency exchange losses | (13) | (28) |
| Other financial expenses | ||
| Charges of setting-up the financing | (444,862) | (529,687 |
| Others | (133,729) | (71,731 |
| (578,591) | (601,418 | |
| (13,283,729) | (8,709,010 | |
| Other financial income: | ||
| Interest income | 20,157,603 | 7,935,287 |
| Foreign currency exchange gains | 23,229 | 15,952 |
| Fair value adjustments of investments recorded at fair value | ||
| through profit and loss (Note 10) | 279,489 | 350,830 |
| Other financial income | - | 301,295 |
| 20,460,321 | 8,603,364 | |
At 31 December 2007 the caption 'Losses related to Group companies' were related to the loss with Matrix liquidation. This loss did not result from previous years Sonae Matrix impairment loss. This loss is a consequence of the merge between Optimus and Novis, which resulted in the attribution to the previous shareholders of Optimus and Novis (including Sonae Matrix) of Sonaecom Serviços de Comunicações' shares, based on the proportion of the shareholder's funds of each company at the date of the merger, instead the proportion of the market value of each one.
At 31 December 2007, the caption 'Gains related to Group companies' were comprised by dividends received from Sonae Telecom and Optimus (Euro 34,000,000 and Euro 4,592,872, respectively). At 31 December 2006 this caption was comprised by dividends received from Sonaetelecom BV.
The most significant balances and transactions with related parties at 31 December 2007 and 2006 were as follows:
| Balances at 31 December 2007 | |||||
|---|---|---|---|---|---|
| Accounts receivable |
Accounts payable |
Treasury applications |
Accruals | Loans granted/ (obtained) |
|
| Sonaecom Serviços de Comunicações (ex Novis) |
4,743,144 | (238,453) | 55,467,900 | 2,038,954 | 262,795,000 |
| Sonaecom BV | 1,625,857 | (80,000) | - | 606,162 | 120,660,000 |
| Sonaetelecom BV Wedo |
868,083 52,498 |
(40,000,000) - |
- 10,629,650 |
329,350 109,983 |
70,175,000 - |
| Público | 32,702 | (2,405) | 1,893,000 | 249,813 | - |
| Tele 2 | 9,473 | - | - | (17,914) | (3,215,218) |
| Miauger | 5,899 | (12,761) | - | (753) | (515,000) |
| Saphety | 5,088 | - | - | - | - |
| Optimus Towering | 4,400 | - | - | (101,383) | (6,570,000) |
| Digitmarket | 3,292 | (74,316) | - | (2,221) | (2,095,000) |
| Stelecom SGPS | 2,229 | (374,973) | - | - | - |
| M3G | 120 | - | - | - | - |
| SonaecomSI | (187) | (27,278) | - | (353) | (2,510,000) |
| Permar | (450) | - | - | - | - |
| Mainroad | (5,153) | (10,932) | - | (2,317) | (1,500,000) |
| 7,346,995 | (40,821,118) | 67,990,550 | 3,209,321 | 437,224,782 |
| Accounts receivable |
Accounts payable |
Treasury applications |
Accruals | Loans granted/ (obtained) |
|
|---|---|---|---|---|---|
| Sonaecom BV | 106,253,492 | (80,000) | - | - | - |
| Sonaecom Serviços de Comunicações (ex Novis) |
1,050,534 | (376) | - | 214,640 | 64,300,000 |
| Sonaetelecom BV | 263,286 | - | - | 119,152 | 69,767,673 |
| Optimus Towering | 34,241 | - | - | 122 | - |
| Enabler | 33,896 | - | - | - | - |
| SonaecomSI | 19,637 | (17,238) | - | (3,266) | (100,000) |
| Mainroad | 17,099 | (1,641) | - | 281 | - |
| Miauger | 16,142 | (2,691) | - | (314) | (270,000) |
| Optimus | 14,102 | (895,453) | - | (83,749) | (68,910,000) |
| Sonae Matrix | 6,673 | - | - | 38,848 | - |
| Stelecom SGPS | 4,694 | - | - | 26 | - |
| Digitmarket | 901 | (32,865) | - | (2,093) | (1,820,000) |
| Retailbox BV | 241 | - | - | - | - |
| Wedo | 226 | (91,971) | - | 12,980 | (8,050,000) |
| M3G | 207 | - | - | 18 | - |
| Público | 89 | (160) | 935,000 | 340,261 | - |
| Permar | (157) | - | - | 41 | - |
| 107,715,303 | (1,122,393) | 935,000 | 636,947 | 54,917,673 |
| Transactions at 31 December 2007 | ||||
|---|---|---|---|---|
| Interest and | ||||
| Sales and | Supplies and | similar | ||
| services | services | income/ | Supplementary | |
| rendered | received | (expense) | income | |
| Optimus | 3,541,667 | 891,335 | (327,114) | 10,601,955 |
| Sonaecom Serviços de | 2,883,820 | 87,451 | 6,365,083 | 13,462,499 |
| Comunicações (ex Novis) | ||||
| Público | 174,512 | 45,136 | 273,848 | 5,838 |
| Wedo | 116,537 | (3,061) | (123,310) | 4,615 |
| Miauger | 19,923 | - | (15,371) | 6,374 |
| Mainroad | 8,996 | 18,060 | (13,419) | 4,089 |
| Stelecom SGPS | 6,649 | - | (441,145) | 20 |
| Optimus Towering | 6,440 | (27,276) | (164,348) | 64,032 |
| Digitmarket | 5,328 | 3,793 | (86,924) | 2,423 |
| SonaecomSI | 4,981 | 42,595 | (16,671) | 136 |
| Saphety | 4,205 | - | - | 1,110 |
| Sonae Matrix | 1,748 | - | 28,032 | - |
| SIRS | 1,512 | - | - | 346 |
| M3G | 548 | - | - | 69 |
| Net Mall | 107 | - | - | - |
| Permar | 12 | - | - | - |
| Sonae SGPS | - (15,455) |
2,091,718 | 860 | |
| Sonaecom BV | - - |
6,149,108 | - | |
| Sonaetelecom BV | - - |
3,157,899 | - | |
| Tele 2 | - - |
(6,769) | - | |
| Equador | - 213,681 |
- | - | |
| Sontária | - 27,133 |
- | - | |
| Efanor | - 21,000 |
- | - | |
| MDS | - 1,723 |
- | - | |
| SC-Consultadoria,SA | - 8,574 |
- | - | |
| Solinca | - 2,631 |
- | - | |
| Sonae Turismo | - 817 |
- | - | |
| 6,776,984 | 1,318,137 | 16,870,617 | 24,154,366 |
| Transactions at 31 December 2006 | ||||
|---|---|---|---|---|
| Sales and services rendered |
Supplies and services received |
Interest and similar income/ (expense) |
Supplementary income |
|
| Optimus | 4,214,206 | 944,725 | (1,844,702) | 90,742 |
| Sonaecom Serviços de Comunicações (ex Novis) |
1,524,058 | (142,893) | 3,254,579 | 86,234 |
| Público | 252,084 | (1,201) | 308,582 | - |
| Wedo | 92,307 | (3,060) | (183,623) | (2,952) |
| Miauger | 42,709 | - | (3,561) | 22,548 |
| SonaecomSI | 30,659 | 41,601 | (8,762) | - |
| Enabler | 28,013 | - | - | - |
| Mainroad | 17,203 | 13,642 | - | 3,667 |
| Stelecom SGPS | 4,138 | - | - | - |
| SIRS | 3,038 | - | - | - |
| Optimus Towering | 2,406 | (27,508) | - | 44,420 |
| Net Mall | 2,145 | - | - | - |
| Digitmarket | 2,051 | 3,188 | (37,488) | - |
| Sonae Matrix | 1,375 | 4,074 | 57,509 | - |
| Retailbox BV | 601 | - | - | - |
| M3G | 385 | - | - | - |
| Permar | 330 | - | - | - |
| Sonae SGPS | - | - | 2,851,126 | - |
| Sonaetelecom BV | - | - | 1,483,841 | - |
| MCH | - | - | - | 1,250 |
| Equador | - | 234,817 | - | - |
| Solinca | - | 2,712 | - | - |
| Sontária | - | 29,980 | - | - |
| Sonae Indústria | - | (626) | - | - |
| Exit | - | 5,116 | - | - |
| MDS | - | 925 | - | - |
| Investimento Directo | (3,289) | - | - | - |
| 6,214,419 | 1,105,492 | 5,877,501 | 245,909 | |
Guarantees provided to third parties at 31 December 2007 and 2006 were as follows:
| Beneficiary | Description | 2007 | 2006 |
|---|---|---|---|
| BBVA – Portugal, ING Belgium Portugal e Millennium BCP |
Commercial paper | 320,000,000 | 70,000,000 |
| Direcção de Contribuições e VAT Reimbursements Impostos (Portuguese tax authorities) |
6,064,286 | - | |
| 326,064,286 | 70,000,000 |
Earnings per share, basic and diluted, are calculated by dividing the net income of the year (Euro 15,334,817 negative in 2007 and Euro 9,121,625 in 2006) by the average number of shares outstanding during the years ended at 31 December 2007 and 2006, net of own shares (364,668,263 in 2007 and 313,956,868 in 2006).
In June 2000, the Company created a discretionary Medium Term Incentive Plan for more senior employees, based on Sonaecom options and shares and Sonae S.G.P.S., S.A. shares. The vesting occurs three years after the award of each plan, assuming that the employees are still employed in the Company. In some annual plans, beneficiaries can chose between options or shares. Options are valued using the Black Scholes options pricing Model.
The Sonaecom plans outstanding at 31 December 2007 can be summarized as follows:
| Vesting period | Exercise period | 31- Dec-2007 | |||||
|---|---|---|---|---|---|---|---|
| Share price at award date * |
Award date | Vesting date | From | To | Aggregate number of participants |
Number of options/ shares |
|
| Sonaecom options | |||||||
| 2002 Plan | 1.694 | 31-Mar-03 | 10-Mar-06 | 13-Mar-06 | 09-Mar-07 | - | - |
| 2003 Plan | - | - | - | - | - | - | - |
| 2004 Plan | - | - | - | - | - | - | - |
| 2005 Plan | - | - | - | - | - | - | - |
| Sonaecom shares | |||||||
| 2003 Plan | 3.19 | 31-Mar-04 | 09-Mar-07 | - | - | - | - |
| 2004 Plan | 3.96 | 31-Mar-05 | 10-Mar-08 | - | - | 18 | 105,455 |
| 2005 Plan | 4.093 | 10-Mar-06 | 09-Mar-09 | - | - | 21 | 90,796 |
| 2006 Plan | 4.697 | 09-Mar-07 | 08-Mar-10 | - | - | 20 | 116,911 |
| Sonae SGPS shares | |||||||
| 2003 Plan | 0.93 | 31-Mar-04 | 09-Mar-07 | - | - | - | - |
| 2004 Plan | 1.17 | 31-Mar-05 | 10-Mar-08 | - | - | 4 | 132,843 |
| 2005 Plan | 1.34 | 10-Mar-06 | 09-Mar-09 | - | - | 4 | 79,712 |
| 2006 Plan | 1.68 | 09-Mar-07 | 08-Mar-10 | - | - | 4 | 100,907 |
* Average share price in the month prior to the award date, for Sonaecom shares and the lower of the average share price for the month prior to th Annual General Meeting and the share price on the day after the Annual General Meeting, for Sonae SGPS shares. However, for the 2006 Plans the share price was: Sonaecom shares - the average share price between 3rd March and 5th April 2007; Sonae SGPS shares - he average share price between 13rd February and 26th March 2007. This exception was due to the timing of the end of the Portugal Telecom bid and was approved by the Board Nomination and Remuneration Committee.
Sonaecom signed agreements to cover the execution and hedging of its Medium Term Incentive Plans and related obligations and acquired Sonaecom SGPS shares with the same purpose. The agreement means that Sonaecom's liabilities are limited to a maximum of Euro 969,254.
For the Sonaecom's share plans attributed in 2006 and in 2007, the Company acquired own shares in order to cover the execution and share price variation. The total responsibility calculated with the share price at award date is Euro 304,296 and was recorded in 'Reserves for Medium Term Incentive Plans'. For the Sonaecom, S.G.P.S. shares plan awarded in 2005, and for the Sonae S.G.P.S. shares the Company entered into hedging contracts with external entities, and the liability is calculated on the price agreed and recorded under the headings of 'Other current liabilities' and 'Other non current liabilities'.
During the year ended at 31 December 2007, the movements occurred in the number of options and shares related to Medium Term Incentive Plans were as follows:
| Sonaecom Options | Sonaecom shares | Sonae SGPS shares | ||||
|---|---|---|---|---|---|---|
| Aggregate number of pa r t i c ipa n t s |
Number of options |
Aggregate number of pa r t i c ipa n t s |
Number of s h a r e s |
Aggregate number of pa r t i c ipa n t s |
Number of s h a r e s |
|
| Outstanding at 31.12.2006 | ||||||
| Exercisable | - | - | - | - | - | - |
| Unvested | - | - | 57 | 431,027 | 15 | 646,866 |
| Total | - | - | 57 | 431,027 | - | - |
| Movements in year | ||||||
| Awarded | - | - | 21 | 159,347 | 5 | 178,594 |
| Vested | - | - | (16) | (163,717) | (5) | (254,062) |
| Advance vested | - | - | (3) | (111,500) | (3) | (269,616) |
| Exercisable | - | - | - | - | - | - |
| Exercised | - | - | - | - | - | - |
| Cancelled/Lapsed* | - | - | - | (1,995) | - | 11,680 |
| Outstanding at 31.12.2007 | ||||||
| Exercisable | - | - | - | - | - | - |
| Unvested | - | - | 59 | 313,162 | 12 | 313,462 |
| Total | - | - | 59 | 313,162 | 12 | 313,462 |
* The adjustments are made for dividends paid and for share capital changes.
The costs of the Option and Share Plans are recognised in the accounts over the period between the award and the vesting date of those shares and options. The costs recognised on previous years and in the year ended at 31 December 2007, are as follows:
| 2 0 0 7 | 2 0 0 6 | |
|---|---|---|
| Costs recognised in previous years | 2,728,759 | 2,080,001 |
| Costs recognised in the year | 450,324 | 648,758 |
| Costs of plans vested on previous years | (1,466,501) | (510,879 |
| Costs of plans vested in the year | (772,809) | (955,622 |
| Deffered costs not recognised | 29,481 | 212,595 |
| 969,254 | 1,474,853 | |
| Reserves | 304,296 | 108,132 |
| Accrued costs | 664,958 | 1,366,721 |
The remuneration of directors and other members of key management during the years ended 31 December 2007 and 2006 were as follows:
| 2 0 0 7 | 2 0 0 6 | |
|---|---|---|
| Short term employee benefits | 2,222,639 | 2,257,286 |
| Share based payments | 2,255,325 | 1,588,385 |
| 4,477,964 | 3,845,671 |
The values above relate to short term employee benefits, were calculated on an accruals basis and include Fixed Remuneration and Performance Bonus. The Share based payments for 2007 and 2006 corresponds to the value of the Medium Term Incentive Plan awarded in 2004, in respect of performance during 2003 (and the Medium Term Incentive Plan awarded in 2003 in respect of performance during 2002, for the 2006 values), whose shares, or the cash equivalent, were delivered on March 2007 and March 2006, and valued based on the share price of the delivery date (9 March 2007 and 10 March 2006, respectively). This amount also includes cash paid in 2007, corresponding to the early settlement of Plans awarded in 2005, 2006 and 2007, attributed to the Chairman of the Executive Board, following changes in the composition of the Board of Directors during the year, as explained in the Management Report.
During the years ended at 31 December 2007 and 2006 the Company had an average of 41 and 39 employees, respectively. As of 31 December 2007 the Company had 40 employees.
(i) In the Arbitration Court proceeding imposed to resolve the conflict between Maxistar and the other shareholders of Sonaecom – Serviços de Comunicações, S.A. (Optimus in that date) - for breach of a clause of the Shareholders' Agreement, Maxistar was condemned to pay an indemnity of Euro 2,344,350 plus legal interest calculated until the date of payment or, alternatively, to subject itself to a purchase option over its participation in Optimus at 70% of its actual value. Maxistar has appealed against the decision of the Arbitration Court but that appeal was already rejected in the lower courts. In consequence of this rejection, Maxistar appeals to the 'Tribunal da Relação de Lisboa'.
As a way to execute the amounts due to be paid by Maxistar, and after having informed Maxistar of their preference for the payment in cash, some shareholders have proposed an execution action. Before the decision of the Arbitration Court, Maxistar paid those shareholders, as a way of avoiding the execution, a total amount of Euro 4,068,048 (capital plus interest), of which Euro 2,183,899 was paid to Sonaecom.
The Lisbon Court (Tribunal da Relação de Lisboa) rejected the appeal lodged by Maxistar, confirming the sentence appealed against.
Maxistar can still appeal against the ruling but Management continues to believe that the chances of any appeal are low.
These financial statements were approved and authorized for publication by the Board of Directors on 28 February 2008.
These financial statements are a translation of financial statements originally issued in Portuguese in accordance with International Financial Reporting Standards (IAS/IFRS) and the format and disclosures required by those Standards, some of which may not conform to or be required by generally accepted accounting principles in other countries. In the event of discrepancies, the Portuguese language version prevails.
As at 31 December 2007, the related parties of Sonaecom, S.G.P.S, are as follows:
| Key management personnel | ||
|---|---|---|
| Álvaro Carmona e Costa Portela | Jean François Pontal | |
| Álvaro Cuervo Garcia | Luís Filipe Campos Dias Castro Reis | |
| Angêlo Gabriel Ribeirinho dos Santos Paupério | Luís Filipe Palmeira Lampreia | |
| António Bernardo Aranha da Gama Lobo Xavier | Maria Cláudia Teixeira de Azevedo | |
| António de Sampaio e Mello | Michel Marie Bom | |
| Belmiro de Azevedo | Miguel Nuno Santos Almeida | |
| David Hobley | Nuno Manuel Moniz Trigoso Jordão | |
| Duarte Paulo Teixeira de Azevedo | Nuno Miguel Teixeira Azevedo | |
| George Christopher Lawrie | Paulo Jorge Henriques Pereira | |
| Gervais Pellissier | Pedro Miguel Freitas Ramalho Carlos |
| Sonaecom Group Companies | |
|---|---|
| Optimus Artis-Conc.,Const.G.Redes Com,SA | Praesidium Services Limited |
| Cape Technologies (Patents) Limited | Praesidium Technologies Limited |
| Cape AsiaPac PTY Limited | Público - Comunicação Social, S.A. |
| Cape Technologies (Holdings) Limited | Saphety Level - Trusted Services, S.A. |
| Cape Poland Sp. Z.o.o. | Sonae.com - Sist. Infor., S.G.P.S., S.A. |
| Cape Technologies (UK ) Limited | VIPU ACE |
| Cape Technologies Americas, Inc | Optimus Towering -Ges.Torres Telecom, SA |
| Clixgest - Internet e Conteúdos, S.A. | SIRS-Soc.Ind.RadiodifusãoSonoraSA |
| Digitmarket - Sistemas de Informação, SA | SonaeCom, S.G.P.S., S.A. |
| M3G - Edições Digitais, S.A. | Sonaecom, B.V. |
| Mainroad - Serviços Tec. Informação, S.A | Sonae Telecom BV |
| Sonae Matrix Multimédia, S.G.P.S., S.A. | Sonae Telecom , S.G.P.S., S.A. |
| Miauger - Org. Gest. Leilões Elect., S.A | Tecnológica Telecomunicações LTDA. |
| Sonaecom - Serviços de Comunicações, S.A | Telemilénio-Telecomun.Soc.Unipessoal,Lda |
| Optimus - Telecomunicações, S.A. | WeDo Consulting - Sist. Informação, S.A. |
| Permar - Sociedade de Construções, S.A. | WeDo do Brasil - Soluções Infor., Ltda |
| Praesidium Holdings Limited | XS-Informação, comunicação e lazer,S.A |
| Sonae Group |
Companies |
|---|---|
| 3DO Holding GmbH 3DO Shopping Centre GmbH |
Aserraderos de Cuellar,S.A. Atlantic Ferries-Tráf.Loc,Flu.e Marít,S.A. |
| 3shoppings - Holding,SGPS, S.A. | Avenida M-40 B.V. |
| Aegean Park,S.A. | Avenida M-40,S.A. |
| Agepan Eiweiler Management GmbH | Azulino Imobiliária, S.A. |
| Agepan Flooring Products, S.A.RL | Bertimóvel - Sociedade Imobiliária, S.A. |
| Agepan Tarket Laminate Park GmbH Co. KG | Best Offer-Prest. Inf. p/Internet,S.A. |
| Agloma Investimentos, Sgps, S.A. | Bikini, Portal de Mulheres,S.A. |
| Agloma-Soc.Ind.Madeiras e Aglom.,S.A. | Bloco Q-Sociedade Imobiliária,S.A. |
| Águas Furtadas - Imobiliária, S.A. | Bloco W-Sociedade Imobiliária,S.A. |
| Airone - Shopping Center, Srl | Boavista Shopping Centre BV |
| ALEXA Administration GmbH | Box Lines Navegação,S.A. |
| ALEXA Holding GmbH | Campo Limpo, Lda |
| ALEXA Shopping Centre GmbH | Canasta-Empreendimentos Imobiliários,S.A. |
| Alexa Site GmbH & Co. KG | Carnes do Continente-Ind.Distr.Carnes,S.A. |
| Algarveshopping- Centro Comercial, S.A. | CarPlus – Comércio de Automóveis, S.A. |
| Andar - Sociedade Imobiliária, S.A. | CaS.A. Agrícola de Ambrães, S.A. |
| Aqualuz - Turismo e Lazer, Lda | CaS.A. Agrícola João e A. Pombo, S.A. |
| Aquapraia - Investimentos Turísticos,S.A. | CaS.A. da Ribeira - Hotelaria e Turismo,S.A. |
| Arrábidashopping- Centro Comercial, S.A. | Fozmassimo - Sociedade Imobiliária, S.A. |
| Cascaishopping- Centro Comercial, S.A. | Freccia Rossa- Shopping Centre S.r.l. |
| Cascaishopping Holding I, SGPS, S.A. | Friengineering International Ltda |
| Centro Colombo- Centro Comercial, S.A. | Fundo de Invest. Imobiliário Imosede |
| Centro Residencial da Maia,Urban.,S.A. | Fundo Invest.Imob.Shopp. Parque D.Pedro |
| Centro Vasco da Gama-Centro Comercial,S.A. | Gaiashopping I- Centro Comercial, S.A. |
| Change, SGPS, S.A. Chão Verde-Soc.Gestora Imobiliária,S.A. |
Gaiashopping II- Centro Comercial, S.A. GHP Gmbh |
| Choice Car - Comércio de Automóveis, S.A. | Gli Orsi - Shopping Centre, Srl |
| Choice Car SGPS, S.A. | Global S-Hipermercado,Lda |
| Cia.de Industrias e Negócios,S.A. | Glunz AG |
| Cinclus Imobiliária,S.A. | Glunz Service GmbH |
| Citorres-Sociedade Imobiliária,S.A. | Glunz UK Holdings Ltd |
| Clérigoshopping- Gestão do C.Comerc.,S.A. | Glunz Uka Gmbh |
| Coimbrashopping- Centro Comercial, S.A. | Golf Time-Golfe e Invest. Turísticos, S.A. |
| Colombo Towers Holding, BV | Guerin – Rent a Car (Dois), Lda. |
| Contacto Concessões, SGPS, S.A. | Guimarãeshopping- Centro Comercial, S.A. |
| Contacto-SGPS,S.A. | Hornitex Polska Sp z.o.o |
| Contacto-Sociedade de Construções,S.A. | Iberian Assets, S.A. |
| Contibomba-Comérc.Distr.Combustiveis,S.A. | IGI-Investimento Imobiliário,S.A. |
| Contimobe-Imobil.Castelo Paiva,S.A. | Igimo-Sociedade Imobiliária,S.A. |
| Continente Hipermercados, S.A. | Iginha-Sociedade Imobiliária,S.A. |
| Contry Club da Maia-Imobiliaria,S.A. Cronosaúde - Gestão Hospitalar, S.A. |
IM Impregnation Management GmbH Impaper Europe GmbH & Co. KG |
| Cumulativa - Sociedade Imobiliária, S.A. | Imoareia - Invest. Turísticos, SGPS, S.A. |
| Darbo S.A.S | Imobiliária da Cacela, S.A. |
| Developpement & Partenariat Assurances, S.A. | Imoclub-Serviços Imobilários,S.A. |
| Difusão-Sociedade Imobiliária,S.A. | Imoconti- Soc.Imobiliária,S.A. |
| Distrifin-Comercio y Prest.Servicios,S.A. | Imodivor - Sociedade Imobiliária, S.A. |
| DMJB, SGPS, S.A. | Imoestrutura-Soc.Imobiliária,S.A. |
| Dortmund Tower GmbH | Imoferro-Soc.Imobiliária,S.A. |
| Dos Mares - Shopping Centre B.V. | Imohotel-Emp.Turist.Imobiliários,S.A. |
| Dos Mares-Shopping Centre, S.A. | Imomuro-Sociedade Imobiliária,S.A. |
| Ecociclo - Energia e Ambiente, S.A. | Imopenínsula - Sociedade Imobiliária, S.A. |
| Ecociclo II - Energias, S.A. | Imoplamac Gestão de Imóveis,S.A. |
| Efanor Investimentos, SGPS, S.A. | Imoponte-Soc.Imobiliaria,S.A. |
| Efanor Serviços de Apoio à Gestão, S.A. | Imoresort - Sociedade Imobiliária, S.A. |
| Efanor-Design e Serviços,S.A. | Imoresultado-Soc.Imobiliaria,S.A. |
| Efanor-Indústria de Fios,S.A. | Imosedas-Imobiliária e Seviços,S.A. |
| El RoS.A.l Shopping, S.A. | Imosistema-Sociedade Imobiliária,S.A. |
| Empreend.Imob.Quinta da Azenha,S.A. Equador & Mendes,Lda |
Imosonae II Implantação - Imobiliária, S.A. |
| Espimaia -Sociedade Imobiliária,S.A. | Infofield-Informática,S.A. |
| Estação Oriente-Gest.de Galerias Com.,S.A. | Inparsa - Gestão Galeria Comercial, S.A. |
Estação Viana- Centro Comercial, S.A. Inparvi SGPS, S.A.
Estêvão Neves-Hipermercados Madeira,S.A. Insulatroia - Sociedade Imobiliária, S.A. Etablissement A. Mathe, S.A. Integrum-Serviços Partilhados,S.A. Euro Decorative Boards,Ltd Interclean, S.A. Euromegantic,Lteé Interlog-SGPS,S.A. Euroresinas-Indústrias Quimicas,S.A. Inventory-Acessórios de Casa,S.A. Finlog - Aluguer e Comércio de Automóveis, S.A. Investalentejo, SGPS, S.A. Fozimo-Sociedade Imobiliária,S.A. Invsaude - Gestão Hospitalar, S.A. Isoroy SAS Ipaper-Industria Papeis Impregnados,S.A. La Farga - Shopping Center, SL ISF - Imobiliário, Serviços e Participaç Larissa Develop. Of Shopping Centers, S.A. OSB Deustchland Gmbh Lazam Corretora, Ltda. KLC Holdings XII SA Le Terrazze - Shopping Centre S.r.l. Paracentro - Gest.de Galerias Com., S.A. Lembo Services Ltd (Euro) Pareuro, BV Libra Serviços, Lda. Pargeste SGPS, S.A. Lidergraf - Artes Gráficas, Lda. Park Avenue Develop. of Shop. Centers S.A. Lima Retail Park, S.A. Parque Atlântico Shopping - C.C., S.A. Loureshopping- Centro Comercial, S.A. Parque D. Pedro 1 B.V. Luso Assistência - Gestão de Acidentes, S.A. Parque D. Pedro 2 B.V. Luz del Tajo - Centro Comercial S.A. Parque de Famalicão - Empr. Imob., S.A. Luz del Tajo B.V. Parque Principado SL Madeirashopping- Centro Comercial, S.A. Partnergiro - Empreend. Turísticos, Lda Maiashopping- Centro Comercial, S.A. Pátio Boavista Shopping Ltda. Maiequipa-Gestão Florestal,S.A. Pátio Penha Shopping Ltda. Marcas MC, ZRT Pátio São Bernardo Shopping Ltda Marimo -Exploração Hoteleira Imobiliária Pátio Sertório Shopping Ltda Marina de Tróia S.A. Peixes do Continente-Ind.Dist.Peixes,S.A. Marinamagic-Expl.Cent.Lúdicos Marít,Lda PHARMACONTINENTE - Saúde e Higiene, S.A. Marmagno-Expl.Hoteleira Imob.,S.A. PJP - Equipamento de Refrigeração, Lda Martimope - Sociedade Imobiliária, S.A. Plaza Eboli B.V. Marvero-Expl.Hoteleira Imob.,S.A. Plaza Eboli - Centro Comercial S.A. MC Property Management S.A. Plaza Mayor Holding, SGPS, S.A. MDS Corretor de Seguros, S.A. Plaza Mayor Parque de Ócio B.V. Mediterranean Cosmos Shop. Centre Investments, S.A. Plaza Mayor Parque de Ocio,S.A. Megantic BV Plaza Mayor Shopping B.V. MJLF-Empreendimentos Imobiliários, S.A. Plaza Mayor Shopping, S.A. Modalfa-Comércio e Serviços,S.A. Ploiesti Shopping Center (Euro) Modelo - Dist.de Mat. de Construção,S.A. Poliface Brasil, Ltda Modelo Continente - Oper.Retalho SGPS,S.A. Poliface North America
Modelo Continente Hipermercados,S.A. Porturbe-Edificios e Urbanizações,S.A. Modelo Continente, SGPS,S.A. Praedium II-Imobiliária,S.A. Modelo Hipermergados Trading, S.A. Praedium III-Serviços Imobiliários,S.A. Modelo Hiper Imobiliária,S.A. Praedium SGPS, S.A. Modelo.com-Vendas p/Correspond.,S.A. Predicomercial-Promoção Imobiliária,S.A. Monselice Centre Srl Prédios Privados Imobiliária,S.A. Movelpartes-Comp.para Ind.Mobiliária,S.A. Predisedas-Predial das Sedas,S.A. Mundo Vip - Operadores Turisticos, S.A. Pridelease Investments, Ltd NAB, Sociedade Imobiliária,S.A. Profimetrics - Software Solutions, S.A. NA-Comércio de Artigos de Desporto, S.A. Proj. Sierra Germany 1 - Shop.C. GmbH NA-Equipamentos para o Lar, S.A. Proj. Sierra Germany 4 (four)-Sh.C.GmbH Net Mall SGPS, S.A. Proj. Sierra Italy 2 - Dev.of Sh.C. Srl Norscut - Concessionária de Scut Interior Norte, S.A. Proj.Sierra 1 - Shopping Centre GmbH Norte Shop. Retail and Leisure Centre BV Project Sierra Germany Shop. Center 1 BV Norteshopping-Centro Comercial, S.A. Project Sierra Germany Shop. Center 2 BV Nova Equador Internacional,Ag.Viag.T,Ld Proj.Sierra Germany 2 (two)-Sh.C.GmbH Nova Equador P.C.O. e Eventos Proj.Sierra Germany 3 (three)-Sh.C.GmbH Novobord (PTY) Ltd. Proj.Sierra Hold. Portugal V, SGPS,S.A. Oeste Retail Park - Gestão G.Comerc., S.A. Proj.Sierra Italy 1 -Shop.Centre Srl Operscut - Operação e Manutenção de Autoestradas, S.A. Proj.Sierra Italy 2 -Dev. Of Sh.C.Srl Pátio Campinas Shopping Ltda Proj.Sierra Italy 3 - Shop. Centre Srl Pátio Goiânia Shopping Ltda Project Sierra Italy 5 Srl Pátio Londrina Empreend. e Particip. Ltda Project Sierra One Srl Project 4, Srl Project Sierra Srl Proj.Sierra Portugal IV-C.Comerc.,S.A. Proj.Sierra Portugal I- C.Comerc., S.A. Proj.Sierra Portugal V-C.Comercial,S.A. Proj.Sierra Portugal II-C.Comerc.,S.A. Proj.Sierra Portugal VI-C.Comercial,S.A. Proj.Sierra Portugal III-C.Comerc.,S.A. Proj.Sierra Portugal VII - C. Comerc.,S.A. Sic Indoor - Gestão de Suportes Proj.Sierra Portugal VIII - C.Comerc.,S.A. Sierra Asset Management-Gest. Activos,S.A. Project SC 1 BV Sierra Asset Management Luxemburg, Sarl Project SC 2 BV Sierra Brazil 1 B.V. Project Sierra 1 B.V. Sierra Charagionis Develop.Sh. Centre S.A. Project Sierra 2 B.V. Sierra Charagionis Propert.Management S.A. Project Sierra 3 BV Sierra Corporate Services- Ap.Gestão, S.A. Project Sierra 4 BV Sierra Corporate Services Holland, BV Project Sierra 5 BV Sierra Develop.Iberia 1, Prom.Imob.,S.A. Project Sierra 6 BV Sierra Developments Germany Holding B.V. Project Sierra 7 BV Sierra Development Greece, S.A.
Publicitários, S.A.
Project Sierra Brazil 1 B.V. Sierra Developments Germany GmbH Project Sierra Charagionis 1 S.A. Sierra Developments Holding B.V. Project Sierra Spain 1 B.V. Sierra Developments Italy S.r.l. Project Sierra Spain 2 B.V. Sierra Developments Spain-Prom.C.Com.SL Project Sierra Spain 2-Centro Comer. S.A. Sierra Developments, SGPS, S.A. Project Sierra Spain 3 B.V. Sierra Developments Services Srl Project Sierra Spain 3-Centro Comer. S.A. Sierra Developments-Serv. Prom.Imob., S.A. Project Sierra Spain 5 BV Sierra Enplanta Ltda Project Sierra Two Srl Sierra European R.R.E. Assets Hold. B.V. Project Sierra Three Srl Sierra GP Limited Promessa Sociedade Imobiliária, S.A. Sierra Investimentos Brasil Ltda Promosedas-Prom.Imobiliária,S.A. Sierra Investments (Holland) 1 B.V. Prosa-Produtos e serviços agrícolas,S.A. Sierra Investments (Holland) 2 B.V. Publimeios-Soc.Gestora Part. Finan.,S.A. Sierra Investments Holding B.V. Racionaliz. y Manufact.Florestales,S.A. Sierra Investments SGPS, S.A. Resoflex-Mob.e Equipamentos Gestão,S.A. Sierra Italy Holding B.V. Resolução, SGPS, S.A. Sierra Man.New Tech.Bus.-Serv.Comu.CC,S.A. Rio Sul - Centro Comercial, S.A. Sierra Management Germany GmbH River Plaza Mall, Srl Sierra Management II-Gestão de C.C. S.A. Project Sierra Srl Sierra Management Italy S.r.l. S. C. Setler Mina Srl Sierra Management Portugal-Gest. CC,S.A. S.C. Microcom Doi Srl Sierra Management Spain-Gestión C.Com.S.A. Rochester Real Estate,Limited Sierra Management, SGPS, S.A. Saúde Atlântica - Gestão Hospitalar, S.A. Sierra Management Hellas SA SC Aegean B.V. Sierra Property Management, Srl SC Insurance Risks Services, SGPS, S.A. Sierra Portugal Fund, Sarl SC Mediterraneum Cosmos B.V. SII - Soberana Invest. Imobiliários, S.A. SC-Consultadoria,S.A. SIRS - Sociedade Independente de Radiodifusão Sonora, S.A. SC-Eng. e promoção imobiliária,SGPS,S.A. Sistavac-Sist.Aquecimento,V.Ar C.,S.A. SCS Beheer,BV SKK-Central de Distr.,S.A. Selfrio,SGPS,S.A. SKKFOR - Ser. For. e Desen. de Recursos Selfrio-Engenharia do Frio,S.A. SM Empreendimentos Imobiliários, Ltda Selifa-Empreendimentos Imobiliários,S.A. SMP-Serv. de Manutenção Planeamento Sempre à Mão - Sociedade Imobiliária,S.A. Soc.Inic.Aproveit.Florest.-Energias,S.A. Sempre a Postos - Produtos Alimentares e Utilidades , Lda Sociedade de Construções do Chile, S.A. Serra Shopping - Centro Comercial, S.A. Sociedade Imobiliária Troia - B3, S.A. Sesagest-Proj.Gestão Imobiliária,S.A. Société de Tranchage Isoroy S.A.S. Sete e Meio - Invest. Consultadoria, S.A. Sonae Turismo Gestão e Serviços,S.A.
228
Sete e Meio Herdades-Inv. Agr. e Tur.,S.A. Sonae Turismo-SGPS,S.A. Shopping Centre Colombo Holding, BV Sonae UK,Ltd. Shopping Centre Parque Principado B.V. Sonaegest-Soc.Gest.Fundos Investimentos Shopping Penha B.V. Sondis Imobiliária,S.A. Siaf-Soc.Iniciat.Aprov.Florestais,S.A. Sontaria-Empreend.Imobiliários,S.A. Sol Retail Park - Gestão G.Comerc., S.A. Sontel Bv Solaris Supermercados, S.A. Sontur BV Solinca III-Desporto e S.A.úde,S.A. Sonvecap BV Solinca-Investimentos Turísticos,S.A. Sopair, S.A. Solinfitness - Club Malaga, S.L. Sótaqua - Soc. de Empreendimentos Turist Soltroia-Imob.de Urb.Turismo de Tróia,S.A. Spanboard Products,Ltd Somit Imobiliária,S.A. Modelo Cont. Seguros-Soc. De Mediação, Lda Somit-Soc.Mad.Ind.Transformadas,S.A. Spinarq,S.A. Sonae Capital Brasil, Lda Spinveste - Promoção Imobiliária, S.A. Sonae Capital,SGPS,S.A. Spinveste-Gestão Imobiliária SGII,S.A. Sonae Financial Participations BV Sport Zone-Comércio Art.Desporto,S.A. Sonae Ind., Prod. e Com.Deriv.Madeira,S.A. Société des Essences Fines Isoroy Sonae Indústria Brasil, Ltda Sociéte Industrielle et Financére Isoroy Sonae Industria de Revestimentos,S.A. Socijofra-Sociedade Imobiliária,S.A. Sonae Indústria-SGPS,S.A. Sociloures-Soc.Imobiliária,S.A. Sonae International, Ltd Soconstrução BV Sonae Investments,BV SodeS.A., S.A. Sonae Novobord (PTY) Ltd Soflorin,BV Sonae RE, S.A. Soira-Soc.Imobiliária de Ramalde,S.A. Sonae Retalho Espana-Servicios Gen.,S.A. SRP-Parque Comercial de Setúbal, S.A. Sonae SGPS, S.A. SRP Development, SA Sonae Serviços de Gestão, S.A. Star-Viagens e Turismo,S.A. Sonae Sierra Brasil Ltda Tableros Tradema,S.L. Sonae Sierra Brazil B.V. Tafiber,Tableros de Fibras Ibéricas,SL Sonae Sierra, SGPS, S.A. Tafibras Participações, S.A. Sonae Tafibra (UK),Ltd TafiS.A. Brasil, S.A. Sonae Tafibra Benelux, BV TafiS.A. Canadá Societé en Commandite Taiber,Tableros Aglomerados Ibéricos,SL TafiS.A. France, S.A. Tarkett Agepan Laminate Flooring SCS TafiS.A. UK,Ltd Tavapan,S.A. TafiS.A.-Tableros de Fibras, S.A. Tecmasa Reciclados de Andalucia, SL Troiaverde-Expl.Hoteleira Imob.,S.A. Teconologias del Medio Ambiente,S.A. Tulipamar-Expl.Hoteleira Imob.,S.A. Textil do Marco,S.A. Unipress - Centro Gráfico, Lda Tlantic Sistemas de Informação Ltdª Unishopping Administradora Ltda. Tlantic Portugal-Sist. de Informação, SA Unishopping Consultoria Imob. Ltda. Todos os Dias-Com.Ret.Expl.C.Comer.,S.A. Vastgoed One - Sociedade Imobiliária, S.A. Tool Gmbh Vastgoed Sun - Sociedade Imobiliária, S.A. Torre Colombo Ocidente-Imobiliária,S.A. Venda Aluga-Sociedade Imobiliária,S.A. Torre Colombo Oriente-Imobiliária,S.A. Via Catarina- Centro Comercial, S.A. Torre São Gabriel-Imobiliária,S.A. World Trade Center Porto, S.A. TP - Sociedade Térmica, S.A. Worten-Equipamento para o Lar,S.A. Troiaresort-Investimentos Turísticos, S.A. Worten España, S.A. Urbisedas-Imobiliária das Sedas,S.A. Zubiarte Inversiones Inmob,S.A. Valecenter Srl
Valor N, S.A.
| FT Group Companies | ||
|---|---|---|
| France Telecom, S.A. | Wirefree Services Belgium, S.A. |
Statement under the terms of Article 245, paragraph 1, c) of the Securities Code
The signatories individually declare that, to their knowledge, the Management Report, the Consolidated and Individual Financial Statements and other accounting documents required by law or regulation were prepared meeting the standards of the applicable International Financial Reporting Standards, giving a truthful (fairly) and appropriate image, in all material respects, of the assets and liabilities, financial position and the consolidated and individual results of the issuer and that the Management Report faithfully describes the business evolution and position of the issuer and of the companies included in the consolidation perimeter and contains a description of the major risks and uncertainties that they face.
The Board of Directors
Duarte Paulo Teixeira de Azevedo Ângelo Gabriel Ribeirinho Paupério Luís Filipe Campos Dias de Castro Reis George Christopher Lawrie Miguel Nuno Santos Almeida Maria Cláudia Teixeira de Azevedo António Sampaio e Mello Gervais Gille Pellissier David Charles Denholm Hobley Jean-François René Pontal
5.5 Legal certification of accounts and audit report
To the Shareholders of Sonaecom, SGPS, S.A.
1 - Report
In compliance with applicable legislation and the mandate given to the Statutory Audit Board, we hereby submit our Report and Opinion, which covers the work carried out by the Statutory Audit Board and the consolidated and individual documents of accounts of Sonaecom, SGPS, S.A., for the year ended at 31 December 2007, which are the responsibility of the Company's Board of Directors.
The Statutory Audit Board has accompanied the evolution of the Company and its main affiliates' business, the timely writing up of their accounting records and their compliance with statutory and legal requirements and the efficiency and integrity of the internal control and management risk systems. The Statutory Audit Board held meetings with the Board of Directors, with the adequate time and the appropriated scope, having obtained from the Board of Directors and personnel of the Company and its main affiliated companies, included in the consolidated accounts, all the information and explanations required, namely for a properly understanding of the main balance sheet and results variation.
In performing it work, the Statutory Audit Board examined the consolidated and individual Balance sheets at 31 December 2007, the consolidated and individual Statements of profit and loss by nature, of changes in equity and of cash flows, for the year ended on that date and the related Notes.
Additionally, the Statutory Audit Board examined the Management report for the year 2007, has supervised the independence and work of the Company's Independent Auditors and Statutory Auditor, and reviewed the Statutory Audit Report and the Auditor's Report issued by the Statutory Auditor, and agreed with its content.
Considering the above, the Statutory Audit Board is of the opinion that the consolidated and individual financial statements were prepared in accordance with the applicable accounting standards and give a true and fair view, of the assets and liabilities, financial position and results of Sonaecom, SGPS, SA and the main companies included in consolidation perimeter and that the Management report faithfully describes the business performance and position of the issuer and of the companies included in the consolidation perimeter and contains a description of the major risks and uncertainties that they face.
a) That the Management report, the consolidated and individual Balance sheets at 31 December 2007, the consolidated and individual Statements of profit and loss by nature, of changes in equity and of cash flows, for the year ended on that date and the related Notes can be approved;
b) That the application of results proposal can be approved.
The Statutory Audit Board wish to thank the Company's Board of Directors and personnel of the Group companies for the assistance provided to the Statutory Audit Board.
Maia, 20 March 2008
| The Statutory Audit Board: | Arlindo Dias Duarte Silva |
|---|---|
| Óscar José Alçada da Quinta | |
| Armando Luís Vieira de Magalhães |
Sonaecom shares have been listed since June 2000, on the Portuguese Stock Exchange – Euronext Lisbon – with the symbol SNC. The following table provides the main statistics related to Sonaecom's 2007 stock performance.
Sonaecom shares on the stock market
| Stock market | Euronext Lisbon |
|---|---|
| Ticker | SNC |
| ISIN | PTSNC0AE0006 |
| Bloomberg Code | SNC PL Equity |
| Reuters Code | SNC.LS |
| Number of shares outstanding | 366.246.868 |
| Share Capital | 366.246.868 |
| Stock Price as of last day December (euros) | 3,3 |
| Stock Price - High (euros) | 7,5 |
| Stock Price - Low (euros) | 3,25 |
| Average Daily Volume - 2007 (euros) | 1.008.154 |
| Average Daily Volume - 2006 (euros) | 581.726 |
| Market Capitalization as of last day December (euros) |
1.208.614.664 |
6.2. Share price evolution during 2007
The European Stock Telecommunications index, DJ Euro Stoxx Telecoms, ended 2007 showing an increase of circa 17%, due mainly to an overall improvement in market sentiment towards the telecommunications sector, particularly in the second half of the year (the index actually ended the first semester of 2007 on the same level registered at the end of 2006). The relative outperformance during the second half, after the "subprime" crisis, was driven mainly by the market perception of telecoms as a non-cyclical sector and comprised large operators with strong balance sheets, thereby well positioned in market downturns and during deteriorated economic expectations.
As regards the Portuguese market, the main local stock index (PSI20) ended 2007 with a gain of circa 16%. The positive evolution of the market in the first half of the year was driven primarily by the two large tender offers launched during 2006 (over PT and BPI), by improved results of listed companies and by signs of some economic recovery. The sentiment in the second half of 2007 deteriorated as the market was clearly influenced by the global financial and liquidity turmoil caused by the "subprime" crisis, although some recovery was achieved in the later part of the year, mainly driven by specific events that influenced the share price of some of the larger companies in terms of market capitalisation.
The Portuguese stock market's (Euronext Lisbon) turnover increased during 2007 by more than 80% to a record level of more than 98 billion euros, driven by M&A speculation, the developments around the two large tender offers and the listing of 3 new companies.
During 2007, Sonaecom's share price decreased by circa 34%, down from 5.02 euros per share at the end of 2006, that incorporated high market expectations as a result of our public tender offer for PT, launched in February 2006. Our share price at the end of 2006 naturally incorporated a market expectation in relation to a positive outcome of the outstanding tender offer and the termination of the offer on 2 March 2007 determined an immediate reaction in our share price. This is clearly evidenced by the fact that during March 2007, our share price decreased by circa 30% (from 6.34 at 28 February 2007 to 4.44 at 30 March 2007). In the remainder of the year, Sonaecom shares were basically influenced by the following news flow:
26 April 2007: release of the first quarter 2007 consolidated results;
17 May 2007: confirmation of on-going negotiations with ONITELECOM Infocomunicações, S.A. (ONI) for the acquisition of part of the business of that company;
Sonaecom relative performance in 2007 35% 55% 75% 95% 115% 135% 155% 175% Sonaecom PSI20 DJ Euro Stoxx Telecoms
Sonaecom's shares ended 2007 with a market price of 3.30 euros per share, 34% below the closing price of 5.02 euros per share at 31 December 2006. The share price hit a maximum of 7.5 euros per share on 16 February 2007 and a minimum of 3.25 euros on 17 September 2007.
At the end of 2007, Sonaecom's market capitalization stood at approximately 1,2 billion euros.
It is worth highlighting that the average daily trading volume reached approximately 1,008 thousand shares, an increase of more than 73% compared to 2006 (581 thousand shares). The total number of Sonaecom shares traded during 2007 exceeded 257 million shares, more than 70% of the total share capital of the company, a further indicator of the increased liquidity of our shares. The major reason for this significant increase in trading volumes was the result of higher than normal investor interest in Sonaecom shares as a result of our tender offer for PT and subsequent M&A speculation on alternative consolidation expectations.
In accordance with the Portuguese Securities Code, shareholdings amounting to or exceeding the thresholds of 2%, 5%, 10%, 15%, 20%, 25%, 33.33%, 50%, 66.66% and 90% of the total share capital must be reported to the Portuguese Securities Market Commission
and disclosed to the capital market. Reporting is also required if the shareholdings fall below the same percentages.
During 2007, the following notifications were made to Sonaecom:
| Date | Shareholder | Type of Announcement | Number shares held | % Shareholding at notification date |
|---|---|---|---|---|
| 27 February 2007 | Credit Suisse Securities Ltd | Loss of Qualified Participation | 6,295,919 | 1.72% |
| 22 March 2007 | C.R. Intrinsic Investment | Qualified Participation | 9,335,664 | 2.55% |
| 3 April 2007 | Brahman Capital | Loss of Qualified Participation | 0 | 0.00% |
| 15 June 2007 | Norges Bank | Qualified Participation | 8,362,372 | 2.28% |
| 19 July 2007 | Norges Bank | Loss of Qualified Participation | - | < 2% |
| 13 December 2007 | C.R. Intrinsic Investment | Loss of Qualified Participation | 4,663,623 | 1.27% |
Sonaecom's largest shareholders continue to be Sonae SGPS, a Portuguese multinational Group with interests in real estate, retail, shopping centres and tourism, with a shareholding position of circa 50.3%, and France Telecom, one of the biggest telecom operators in the world, with a 19.2% stake in Sonaecom.
The free float (% of shares not held or controlled by the reference shareholders and EDP as at 31 December 2007, excluding own shares) now stands at approximately 22.1%.
During 2007, there were no changes to the number of shares issued by Sonaecom.
Between 5 and 6 March 2007, Sonaecom acquired a total of 1.89 million own shares, representing 0.52% of the share capital, at an average price of 4.71 euros per share. These acquisitions were carried out to cover obligations under Sonaecom's Medium Term Incentive Plan ("MTIP") attributed to employees.
As at 31 December 2007, Sonaecom holds the same number of own shares. These shares will be rendered to the respective employees, in accordance with the terms of the MTIP, annually in March 2009 and March 2010.
| 3G | Term used to describe a mobile communication system generation coming after the second generation (2G) GSM cellular network. It is an evolution in communications based on circuit switching to high-speed mobile broadband networks, whereby data is transmitted over packages. |
|---|---|
| ADSL | Asymmetric Digital Subscriber Line – is the asymmetric transmission technology that became widely used within the xDSL family. An ADSL connection provides a high-speed downstream channel (receiving) (more than 1.5 Mbps) and a lower speed upstream channel (sending) (16 to 640 Kbps), apart from the regular telephone service in the low frequency range. It is a modem technology that converts the existing twisted-pair telephone lines into high-speed digital lines for, for instance, a fast internet access. |
| B2B | Business-to-Business – a way to describe a market (electronic or otherwise) for transactions between two companies. |
| Backbone | Set of circuits, mostly high-speed circuits, forming the main segments of a communications network to which the secondary segments are connected. |
| BSC | Base Station Controller – the BSC is responsible for managing the radio resources of one or several BTS's in all its aspects. The BSC is also the connection between the mobile station and the MSC. |
| Central Offices | Local phone exchanges (held in Portugal by PT), used to perform local loop unbundling. |
| Customer churn | Number of customers who discontinue a service during a specified time period. |
| DTT | Digital Terrestrial Television. |
| DWDM | Dense Wavelength Division Multiplexing – a fundamental technology for evolution of the current transmission. This system allows combining several wavelengths in a light signal to be transmitted in just one optical fibre. |
| FWA | Fixed Wireless Access – Radio fixed-access technology allowing operators to supply to their customers direct connection to their telecommunications network through a fixed radio connection from the premises of the latter to the local operator station, instead of a copper wire or optical fibre connection. |
| Gigabit Ethernet | Data transmission through Ethernet technology with a speed up to 1000 Mbps. Ethernet refers to the type of cable and access mode to a network. It is the most commonly used local network in companies. It supports several communication speeds, according to the used Ethernet standard. |
| GPRS | General Packet Radio Service – GSM system evolution, based on package switching, allowing for a transmission at a speed up to 115 Kbps. |
| GPS | Global Positioning System. |
| GSM | Global Standard for Mobile Communications – standard used in 2G digital mobile communications systems, which specifies how data through the spectrum is codified and transferred. |
| HSDPA | High-Speed Downlink Packet Access over W-CDMA networks – technology improving UMTS data transfer rate, and therefore also been referred to as the third and a half generation (3.5G). |
|---|---|
| HSUPA | High-Speed Uplink Packet Access over W-CDMA networks – a technology, similar to HSDPA but relates to the sending of information from the mobile terminal to the network ("upload"), which improves the UMTS data transfer rate. The Uplink transfer rate is expected to be lower than the Downlink one at short-medium term. |
| IMS | IP Multimedia Subsystem – an architectural framework for delivering internet protocol (IP) multimedia to mobile users. It was originally designed by the wireless standards body 3rd Generation Partnership Project (3GPP), and is part of the vision for evolving mobile networks beyond GSM. |
| ISP | Internet Service Provider – Internet access supplier. |
| ITIL Methodologies | Information Technology Infrastructure Library (ITIL) is a set of best practices used to deliver high quality IT services. |
| Kbps | Digital information transmission speed measuring unit which corresponds to 1024 in thousand of bits per second. |
| Mega / Mbps | Digital information transmission speed measuring unit which corresponds to 1024 kbps. |
| MMS | Multimedia Messaging Service – multimedia messaging service combining text, image and sound operating in GPRS and 3G networks. |
| MPEG | Codification and compression systems approved by the moving picture experts group. |
| MSC | Mobile Switching Centres – control and switching centres, being the key component of a GSM network, acting as a connection / interconnection node between the cellular network and all the other types of network. |
| MTRs | Mobile Termination Rates – fees mobile phone companies charge other carriers to terminate calls on their networks. |
| MVNO | Mobile Virtual Network Operator. |
| Nodes-B | Base transmission element of an UMTS network. |
| Network capillarity | Network extension and reach to support telecommunication services. |
| PCMCIA | Personal Computer Memory Card International Association (or PC Card) – peripheral standard format. There are PCMCIA models that can be used to connect a mobile telephone to a portable computer allowing for data and fax transmission. |
| PSTN | Public Switched Telephone Network –a set of telecommunications infrastructures allowing analogical connections between terminal points, to support a wide range of telecommunications services, such as telephone and video conference. |
| SDH | Synchronous Digital Hierarchy – hierarchic specification of high-speed digital signal interfaces transmitted in optical fibre. The allowed synchronic signal allows direct access to its tributaries, avoiding therefore processing by several multiplex levels. One of the main |
characteristics of a SDH network is to deliver a wide range of services through information recovery and protection mechanisms.
| SHDSL | Symmetric High-Bit-Rate Digital Subscriber Line – allows for a bidirectional communication with speeds from 192 kbits to 2.31 megabits using a twisted pair copper wire (in other words, a common telephone cable), even over great distances. |
|---|---|
| SMS | Short Messaging Service – service to exchange short messages, common in mobile networks. |
| Softswitching | Switching terminals, using VoIP technology, allowing not only a greater flexibility in the offer of products but also a greater capacity per cost unit. |
| Triple Play | Integrated voice, internet and television offer. |
| SOHO | Small Offices, Home Offices, a segment of the corporate market. |
| ULL | Unbundling of the Local Loop – choice for access network consisting in unbundling the local loop, allowing other licensed operators to use the local loop pertaining to the incumbent operator, for service rendering. |
| ULL Reference Offer | Unbundling Local Loop Reference Offer- it regulates the unbundling of the local loop. This offer enables alternative operators to provide direct access offers (voice, Internet broadband and video services) to their customers based on PT Comunicações' copper access network. |
| UMTS | Universal Mobile Telecommunications System – one of the 3rd generation mobile communication systems used, namely in Europe, integrating a larger family (IMT-2000). |
| VoIP | Voice over IP – technology allowing converting analogue audio signals into digital signals, subject of being transmitted through the internet and gain converted into analogue signals. The combination, in just one channel, of voice and data, encourages the creation of communication services with possibilities that go far beyond the so called telephony. |
| Wholesale Line Rental Reference Offer |
Regulates the wholesale offer in connection with the creation of a single bill to indirect access customers. It enables any provider of pre-selection services and/or ADSL services to bill and collect PT's monthly fee directly from their customers. |
| Wi-Fi | A wireless-technology brand owned by the Wi-Fi Alliance, which promotes certain standards with the aim of improving the interoperability of wireless local area network products. |
This document may contain forward-looking information and statements, based on management's current expectations or beliefs. Forward-looking statements are statements that are not historical facts.
These forward-looking statements are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements, including, but not limited to, changes in regulation, the telecommunications industry and economic conditions; and the effects of competition. Forward-looking statements may be identified by words such as "believes", "expects", "anticipates", "projects", "intends", "should", "seeks", "estimates", "future" or similar expressions.
Although these statements reflect our current expectations, which we believe are reasonable, investors, analysts and, generally, the recipients of this document are cautioned that forward-looking information and statements are subject to various risks and uncertainties, many of which are difficult to predict and generally beyond our control, that could cause actual results and developments to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements. You are cautioned not to put undue reliance on any forward-looking information or statements. We do not undertake any obligation to update any forward-looking information or statements.
Report available in Sonaecom's institutional website www.sonae.com
Media and Investor Contacts
Isabel Borgas Public Relations Manager [email protected] Tel: 351 93 100 20 20
António Castro Investor Relations Manager [email protected] Tel: 351 93 100 20 99
Sonaecom SGPS, SA Rua Henrique Pousão, 432 – 7th 4460-841 Senhora da Hora Portugal
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