RC 2012 Construçao EN§ao_sgps_2012_en.pdfportfolio of shareholdings in the construction business...

Soares da Costa Construção, SGPS, SA I Report and Accounts I 2012 2

INDEX

MANAGEMENT REPORT 3

Highlights 3

Introduction 4

1. Soares da Costa Group 4

2. Corporate Social Responsibility 10

3. Business activity 10

3.1Overview 10

3.2Production – Business Areas 14

3.3Commercial Area 22

3.4Organisation 25

3.5Human Resources 26

4. Economic and Financial Analysis 28

4.1Individual Accounts 28

4.2Consolidated Accounts 29

5. Risk Management 34

6. Outlook for 2013 35

7. Relevant Facts Occurring Subsequent to Year End 36

8. Other legal information 36

9. Acknowledgements 36

10. Proposal for Application of Results 37

INDIVIDUAL FINANCIAL STATEMENTS 39

ACCOUNTING POLICIES AND EXPLANATORY NOTES 45

CONSOLIDATED FINANCIAL STATEMENTS 65

OPINIONS AND CERTIFICATIONS 71

EXPLANATION ADDED IN RESPECT OF THE TRANSLATION OF THE MANAGEMENT REPORT

This Management Report is a translation of the original, issued in Portuguese. In the event of discrepancies, the Portuguese versions prevail.


SOARES DA COSTA CONSTRUÇÃO, SGPS, SA

REPORT AND ACCOUNTS 2012

MANAGEMENT REPORT

HIGHLIGHTS

� Consolidated turnover was 712.5 million Euros, down 10.5% on the prior year, reflecting a sharp drop in turnover in the domestic market (-34.3%);

� Turnover in external markets grew by 1.3% to 538.9 million Euros, making up more than 75% of total turnover;

� Restructuring took place both organisationally and operationally (reallocation and reduction in staff and merger with Contacto), and financially (rescheduling of debt maturities);

� EBITDA of 29.0 million Euros (47.7 million Euros in 2011), impacted negatively by non recurring costs;

� Recurrent EBITDA margin of 6.8% improved by 0.7 percentage points compared to prior year;

� Financial charges were -28.1 million Euros (-13.3 million Euros in 2011);

� Restructuring and credit impairment costs (Portugal, Angola and the USA) significantly impacted Profits before Tax of -49.8 million Euros (+12,6 million in 2011);

� Consolidated losses attributable to the Group were 37.8 million Euros (+8,1 million Euros in 2011);

� The individual net loss totalled -8.6 million Euros (12.8 million in 2011), impacted by a financial investment impairment loss in the USA of 20.2 million Euros.

Consolidated Key Indicators in the Construction business sector

(million Euros) 2012 2011 Change

Turnover 712.5 796.2 -10.5%

Portugal 173.6 264.2 -34.3%

International Markets 538.9 532.0 1.3%

Recurrent EBITDA 50.1 49.0 2.4%

Recurrent EBITDA Margin 7.0% 6.1% +0.9p.p

Financial results -28.1 -13.3 -

Profit/Loss before Tax -49.8 12.6 -

Consolidated Net Earnings -37.8 8.1 - Note: Recurrent EBITDA is EBITDA adjusted for one irrecoverable debt and staff lay off costs


INTRODUCTION

The Board of Directors of Soares da Costa Construção, SGPS, S.A., in compliance with relevant legal and statutory requirements, submits for approval at the Shareholders General Meeting, the Management Report, the Financial Statements and the other reporting documents for the period ending 31 December 2012.

These documents provide information concerning the business, and the performance and financial position of Soares da Costa Construção, S.G.P.S., S.A and its subsidiaries, as well as of the main risks and uncertainties facing them.

The accounting information presented both for the individual and consolidated financial statements should be interpreted in the light of international accounting standards (IAS/IFRS: International Financial Reporting Standards), as adopted by the European Union.

Furthermore, as a company fully owned by Grupo Soares da Costa, SGPS, SA, a publicly quoted company, Soares da Costa Construção, SGPS, SA is not legally obliged to prepare and disclose consolidated accounts, this being the responsibility of the mother company. Thus, the consolidated accounts presented here are optional. However, they have been prepared in accordance with the international standards mentioned above, and provide an accurate picture of the size and performance of the Soares da Costa Group’s construction business.

The financial information concerning each subsidiary referred to in this report should be understood in the context of its pertinence to an appreciation of the activity and performance of construction business and not as a substitute for the financial statements that each company prepares and discloses, in accordance with the applicable law currently in force.

1. SOARES DA COSTA GROUP

Mission and Values

In its role as the coordinating entity for all of the business activity of the Soares da Costa Group directly linked to construction, Soares da Costa Construção, SGPS, SA is responsible for carrying out its mission in this business segment, one of two that are considered strategic in the Group (the other being Concessions/Services). The mission is to: “satisfy the demands of the market and of its customers, through a sustainable business model, and qualified and motivated resources, that generate economic, social and environmental value, in a manner that provides an attractive return for shareholders”.

This mission is pursued not by chance or at random, but by persistently following difficult, demanding but well directed paths, and reflected in the continuous practice of values, defined at a Group level, that are proudly shared across the company:

• Constant focus on the market and customer satisfaction;

• Effective and efficient management;

• Integrity and ethical behaviour;

• Socially responsible conduct;

• Respect for the environment.

Historical background

Soares da Costa Construção, SGPS, SA was formally founded on the 30th

of December 2002, and created by the transfer of a portfolio of shareholdings in the construction business from its sole shareholder, Grupo Soares da Costa, SGPS, SA.

The origins of what is today the Soares da Costa Group goes back to 1918. From a small company with 10 workers basically executing high quality finishes, to one of the biggest Portuguese business groups operating worldwide, the Company’s history is intimately tied to the Construction business.

Throughout its long existence, the Company has undergone a number of phases of growth, constantly adapting itself to changing conditions:


� In 1944, it became a private company with a capital of 8 million Escudos;

� In 1968, and with business activity across the whole of the north of Portugal, it became a limited liability company with a share capital of 9 million Escudos, still wholly owned by the founders’ heirs;

� In the period immediately following the 1974 Revolution, and reacting in an innovative manner to the crisis in the market, the company found the key to the continuation of its growth using a technology called the “tunnel framework”. In 1977, already with over 4,000 employees, the head office moved to a new building in the Avenida da Boavista, Porto;

� At the beginning of the 1980s, international expansion of the company began, with Venezuela and Guinea-Bissau chosen as the pioneering countries. The share capital was increased to 180 million Escudos;

� It was also in the 1980s, taking advantage of the expected explosive growth in infrastructure in Portugal as a result of joining the European Union, that the company’s business activity expanded beyond buildings to infrastructure construction;

� In 1988, and following an internal shareholder change, which did not result in the company losing it family character, it entered a period of greater exposure to the Financial Markets, and increased its share capital to 5,250,000 Escudos;

� During the 1980s and 1990s, the company’s international business diversified and the level of exports increased. Its presence in markets as wide ranging as Iraq, Macau, Egypt, Guyana, Angola, Mozambique, Guinea-Bissau, Cape Verde and Germany are examples of its acumen in the search for business opportunities and in its ability to take advantage of them;

� In 1994, the company entered the American market in the USA with the incorporation of SDC Contractor Inc.;

� In 2002, a new restructuring process led to the formal set up of the business group. Sociedade de Construções Soares da Costa, S.A. was converted into a management holding company, Grupo Soares da Costa, S.G.P.S., S.A., with a share capital of 160 million Euros, which, in turn, wholly owned the share capital of four other holding companies, each one holding the shareholdings of companies in their respective business segments. Soares da Costa Construção, S.G.P.S., S.A.’s mission was to manage the entire construction business, and was set up with a nominal share capital of 90 million Euros;

� The period from the end of 2006 to the beginning of 2007 marks another historic milestone for the company, with control over the Soares da Costa Group passing to Investifino - Investimentos e Participações S.A. group. The family nature of the company’s management and especially its image, which had existed until then, finally disappeared, leading to a new, more professional and modern management philosophy.

The Soares da Costa Group’s history in the construction market is long and complex, but in all its phases, it has always sought and been able to find the means to modernize and grow. Thus, Soares da Costa Construção S.G.P.S., S.A. has the challenge of honouring this proud heritage with its business activity, seeing in its past an example to follow, but knowing always how to find, in the present, the path that leads to the growth that will ensure its future.

Hence, with the management and development of the construction business, one of the Group’s strategic business areas, as its responsibility, the company has grown rapidly and significantly since its formal set-up. In 2008, it acquired Contacto in Portugal and Prince in Florida in the United States, as well as Clear, which it acquired from the industrial sector in Portugal.

During 2011, the company incorporated by merger Soares da Costa Indústria, S.G.P.S., S.A.. In the same year, and given the important changes in the economic environment, the lack of financing and the sharp drop in the Portuguese construction market, the management of the Soares da Costa Group decided to alter the group’s strategic plan

1. These changes focused on

the key strategic guidelines of INTERNATIONAL EXPANSION for the CONSTRUCTION BUSINESS UNIT and FINANCIAL SUSTAINABILITY for all business activities. With a view to ensuring a level of growth of the Group’s businesses compatible with external constraints (in particular those of a financial nature), to protecting levels of profitability and to achieving a significant reduction in debt by the end of the strategic plan period (2015), the following guidelines were chosen:

� Continuation of growth in Africa; � Organic development of the Brazilian market, with the goal of making an acquisition in the medium-term; � Permanent presence in the United States, focusing on profitability;

1 Please see Soares da Costa Group’s press release on the CMVM website (www.cmvm.pt)


� Postponement of investments in new businesses in Energy and the Environment; � Disposal of assets; � Concessions: minimization of capital requirements; � Reduction of structural costs.

Not all these guidelines are related to the construction business unit and so to the company to which this report relates. However, given the strategic focus on construction and the fact that this company is the Group’s holding company in this business area, it plays a key role in implementing and achieving the strategy.

Statutory Bodies

The members of the statutory bodies of Soares da Costa Construção, SGPS, SA at the beginning of 2012, and for the current term of office (2010-2012), were as follows:

GENERAL MEETING of SHAREHOLDERS BOARD Chairman Jorge Manuel Oliveira Alves Secretary Pedro Miguel Tigre Falcão Queirós

BOARD OF DIRECTORS Chairman António Manuel Pereira Caldas de Castro Henriques

Vice-Chairman Jorge Domingues Grade Mendes Members Pedro Gonçalo de Sotto-Mayor de Andrade Santos Luís Miguel Andrade Mendanha Gonçalves António José Cadete Paisana Ferreira Paulo Eugénio Peixoto Ferreira António Manuel Lima de Miranda Esteves

Paulo Jorge dos Santos Pinho Leal Carlos Alberto Príncipe dos Santos

STATUTORY AUDITOR Effective Grant Thornton & Associados – SROC, Lda Represented by Joaquim Filipe Martins de Moura Areosa Alternate José Carlos Nogueira Faria e Matos

During 2012, there were a number of changes in the Board of Directors with the resignation of the following members: � Paulo Eugénio Peixoto Ferreira (resignation by letter on 22.03.2012); � António José Cadete Paisana Ferreira (resignation by letter on 14.05.2012); � António Manuel Lima de Miranda Esteves (resignation by letter on 14.05.2012); � Paulo Jorge dos Santos Pinto Leal (resignation by letter on 14.05.2012); � Carlos Alberto Príncipe Santos (resignation by letter on 14.05.2012),

In turn, the following were nominated as members of the Board of Directors on the 1st

of June 2012 for the remainder of the 2010-2012 mandate: Daniel Hehn Pinto da Silva and Fernando Jorge Salas Nogueira.

Consequently, as at the date of this report, the members of the Board of Directors were as follows:

BOARD OF DIRECTORS


Chairman António Manuel Pereira Caldas de Castro Henriques Vice-Chairman Jorge Domingues Grade Mendes

Members Pedro Gonçalo de Sotto-Mayor de Andrade Santos Luís Miguel Andrade Mendanha Gonçalves

Daniel Hehn Pinto da Silva Fernando Jorge Sales Nogueira

The current organisational structure of the company is shown on the following chart:

Shareholders

The share capital of the company is 131,080,340 Euros, made up of 26,216,068 shares with a nominal value of 5 Euros each. The entire share capital has been owned by Grupo Soares da Costa, S.G.P.S., S.A, since the company was founded on the 31

st

of December 1982.

In compliance with paragraph d) of number 5 of article 66 of the Portuguese Companies Act, the company does not own nor transacted any own shares during the year.


Company Organisational Structure

Soares da Costa Construção, S.G.P.S., S.A., as the entity responsible for the management of the construction business segment, carries out its activity managing its shareholdings in the various companies in the business of carrying out civil construction, engineering and infrastructure works.

All the members of the Board of Directors have executive functions, and divide among themselves the coordination of the various subsidiaries of the company.

New shareholdings and changes to the consolidation perimeter during 2012

i) Merger by incorporation of the company “Contacto – Sociedade de Construções, S.A.” into “Sociedade de Construções Soares da Costa, S. A.”.

ii) Inclusion in the consolidation perimeter of the company Linha 3 Cezarina – Construções, Ltda, a company governed by Brazilian law in which the group has a 50% shareholding, whose stated corporate purpose is to promote the design, planning, development and execution of construction works for the line 3 project of the Cezarina Cement Factory in the municipality of Cezarina in Goías State.

The company’s shareholding structure is presented below:


95%

VSL, SAGrupul Portughez de

Constructii

17,9% 50%

VORTAL, SGPS, SA

50%SDC América, INC100%

SDC Construção,

SGPS, SA

Porto ConstructionGroup, LLC

60%

80%

100%

11,3%

7,24%

100%

(1) Adicionalmente, a Sociedade de Construções Soares da Costa, S.A. detém uma participação de 1% no capital social da MTA – Máquinas e Tractores de Angola, Lda.

Prince, LLC100%

SDC Construction

Services, LLC

SDC Contractor, LLC

MTA, LDA.(1)

CLEAR

ANGOLA, SA

GCF, ACE

40%

Três ponto dois, ACE

Estádio Coimbra, ACE

ASSOC-Estádio de

Braga, ACE

TRANSMETRO, ACE

SdC e Lena, ACE

NORMETRO, ACE

50%

60%

28,57%

50%

Somague-SDC, ACE

40% Estádio de BragaAcabamentos, ACE

Teatro Circo, ACE

50%

50%

Nova Estação, ACE25%

GCVC, ACE

Matosinhos, ACE28,57%

28,57%

HidroAlqueva, ACE50%

Israel Metro Builders30%

CAET XXI, ACE50%

Método Integral Método Proporcional E. Patrimonial Custo de aquisição

95%

Construtora - S.José-

Caldera, SAConstrutora - S.José-

Ramon, SA.

17%

100%

LGC – Linha de

Gondomar, ACE

GACE – Gondomar,

ACE

30%

24%

CFE – Indústria

de Condutas, S.A,33,33%

SDC Emirates, LLC

CLEAR, SA

SDC ConstruccionesCentro Americanas, SA

49%

Coordenação & SDC

100%

LGV, ACE17,25%

33%

SDC S. Tomé e Príncipe,

Construções, Lda.

80%SDC Moçambique, SARL

100%

100%

Carta Angola, Lda99%

100%CARTA, LDA

GEC – Guiné Ecuatorial

Construcciones

51%

SDC/Contacto, ACE

Soc. ConstruçõesSoares da Costa, SA

1%

100%

45%

40%

60%

5%

100%

SOCOMETAL, SA

SOMAFEL, SA

100%

OFM, SA

Somafel,Ltda.(Brasil)

Somafel e Ferrovias.,ACE

Alsoma, AEIE

Traversofer, SARL50%

CERENNA, SA51%

Soares da Costa Brasil, Ltda

41,12%58,88%

50%Terceira Onda, Lda

SANTOLINA Holding B.V

100%

Linha 3 - Cezarina, Ltda50%

Soares da Costa CS, LLC100%


2. CORPORATE SOCIAL RESPONSIBILITY

The strategy for corporate social responsibility and the initiatives taken in this area have been implemented based on the guidelines set out for the Grupo Soares da Costa, S.G.P.S., S.A., the Group holding company, of which the construction business area is part. The performance of the company in this area and the relevant facts pertaining to the year 2012 are described in detail in the report and accounts of Grupo Soares da Costa, S.G.P.S., S.A., in which are highlighted initiatives focused on internal social responsibility (aimed at employees of the company and their families), external social responsibility (implemented together with external entities and the surrounding communities in those areas and countries in which Soares da Costa carries out its business) and environmental responsibility.

3. BUSINESS ACTIVITY

3.1. OVERVIEW

General

Worldwide, the year 2012 continued the trend shown in the previous year of a weakening of growth coupled with continued major uncertainty and demanding challenges in various areas and economic zones around the world. Worldwide GDP, according to forecasts made in October 2012 by the International Monetary Fund, grew by 3.3%

2 driven again by emerging

economies led by Asia. In contrast in the advanced economies, in particular in Europe and the United States, the inability to rebuild confidence on a robust basis in the medium term continues against a background of pursuit of policies of fiscal consolidation and a financial system that is still showing weaknesses preventing it from functioning effectively.

The United States economy grew by 2.2% in the year with a slowdown in growth possible in 2013 (+1.7%). After the presidential election that resulted in the re-election of Barack Obama, difficult talks and negotiations took place concerning budgeting policy and the need to reach a political consensus to avoid the so called “fiscal cliff”. Establishing a credible strategy of budgetary consolidation and public debt sustainability (which in the short term avoids automatic spending cuts) continues to be an important challenge for 2013. On the positive side, the process of correcting imbalances in the real estate market is beginning to show signs of being close to completion with a fall in the housing stock and a better price trend.

In 2012, economic activity in the Euro Zone was severely constrained, impacted by the intensification of the sovereign debt crisis and by budget deficits especially in southern countries. GDP fell by -0.4%, as a result of tenuous growth in Germany, virtual stagnation in France and falls of between 2 and 3% in Spain, Italy and Portugal, without mentioning Greece, the epicentre of the crisis where the debt of private creditors was restructured and a second loan required, and where GDP fell by over 6%. This situation is not expected, again according to the IMF, to improve significantly in 2013.

Portuguese Economy

Over the last year, the economic situation in the country has been dominated by the implementation of measures and the related consequences of the Economic and Financial Assistance Programme (EFAP) formally agreed by the Portuguese government, the International Monetary Fund and the European Union in 2011. This has taken place amid a strongly deflationary and pro-cyclical budgetary policy and against a background of restrictive financial and monetary conditions.

The freezing of public investment and the measures taken to increase the tax burden with a view to fiscal consolidation have led to a sharp contraction in internal consumption. Meanwhile, high levels of financial gearing among businesses in the country conflict with the inability of the financial system, either to promote investment, which is still fragile, or to support cash flow, both in volume and under satisfactory conditions (the highest interest rates among European countries) in a situation in which the impact of the measures undertaken to tackle macroeconomic and structural imbalances clearly has a

2 IMF – World Economic Outlook, October 2012


more extended timeframe.

Investment continued to fall sharply to the lowest levels since 1995.

With the exception of exports which are still performing strongly, the year 2012 was thus characterised by a deeper recession than expected even by international observers, leading to a high number of bankruptcies and sharp downsizing in company organisations to adapt to the substantial fall in internal demand experienced in the economy in general and in certain specific sectors, such as engineering and civil construction.

Against this background, there was a steep fall in GDP and a significant increase in unemployment.

The Bank of Portugal in its Winter News Bulletin3 thus indicated a contraction of 3% in the Portuguese economy in 2012,

forecasting a further fall of 1.9% in 2013 (more severe than the fall of 1% forecast by the government in its budget, which has meanwhile been publicly revised to 2%) and growth of GDP in 2014 (+1.3%), a scenario however based on a number of relatively favourable assumptions concerning factors outside Portugal. More recent data published by the INE (National Statistics Institute) indicate an even more negative contraction in GDP in 2012 of -3.2% as a result of a greater fall recorded in the 4

th quarter (-3.8% compared to the same period of last year)

4.

At the same time, progress has clearly been made in the “adjustment process”, in particular improvement and even rebalancing of the capital and current accounts with growth of exports of +4.1% (albeit tending to show a decelerating trend), indicating real gains in market share, and a sharp fall in imports (-6.9%). As far as the budget deficit is concerned, and taking into consideration the impact of extraordinary measures implemented, the objective of limiting this to 5% of GDP, the revised commitment agreed with the troika, may have been achieved.

Against a background in Europe still characterised by some uncertainty regarding the ability of the European Monetary Union authorities to respond in dealing with the problem of sovereign debt and to distance itself from the contagious impact of the banks, the perception of the risk among external investors regarding the Portuguese economy showed some signs of improvement; these signs were further strengthened in 2013 by the results achieved by the medium term government bond issues made in January, heralding the country’s return to the international financial markets at an earlier date than that previously predicted.

In terms of inflation, in 2012 the Consumer Price Index posted an average rate of 2.8% (3.7% in the previous year). A lower increase in energy product prices contributed towards this slowdown (with the index for these products falling from a rate of 12.7% in 2011 to 9.6% in 2012) and also a fall of 4.1 p.p. in the average inflation rate for health products which was 0.4% in 2012, driven by downward changes in the price of drugs and medicines. The Standardised Consumer Price Index rate was also 2.8% in 2012 (3.6% in 2011).

5

Unemployment continued to show a worrying trend, with Portugal recording the third highest rate (after Spain and Greece) among the 27 countries of the European Union and continued to show a rising trend in 2012.

Recent data published by the INE6 puts the rate of unemployment in the 4th quarter of 2012 at 16.9%, up 1.1 percentage

points on the previous quarter and 2.9 percentage points higher than the same quarter of last year. This deterioration means that the annual average unemployment rate in 2012 was 15.7%, an increase of 2.9 percentage points over the previous year. Thus, at the end of the year, there were some 860.1 thousand unemployed people in Portugal, an increase of 21.8% over the prior year (up by 154.0 thousand people). The total of employed people fell in the year by 4.2% (down by 202.3 thousand).

Internal market: the Construction Sector

In 2012, production indicators for the construction sector, whether for the public or private area, consistently worsened to successively historically low levels. The average annual rate of change of the construction production index was -17.0% (in 2011 there was a fall of 10.7%), with a change of -18.1% in the civil engineering segment and a less pronounced fall but still very significant of -15.7% in building construction

7.

3 Winter Economic Bulletin 2012, Bank of Portugal, 15 January 2013 4 Quarterly National Accounts – Rapid Estimate 4th quarter 2012, INE, 14 February 2013 5 Consumer Price Index, December 2012, INE 11 Jan 2013 6Employment Statistics – 4th quarter 2012 – 13 February 2013 7 Production, Employment and Remuneration Indices in Construction, December 2012, INE, 11 February 2013


This deep recession is reflected in the fall in consumption of cement in Portugal, which was only 26.9% of that of the previous year and the lowest figure since 1973.

The problem of the fall in investment is not one which arose just in 2012. Analysing reports published by the Bank of Portugal based on data from the National Statistics Institute, Gross Fixed Capital Formation has been consistently falling since 2002 with periodic variations dependent on the timing of elections.

Gross Fixed Capital Formation in Construction – Annual Rate of Change

The real problem becomes worse when weak growth in GDP over the last decade (or even negative growth in 2003 and in the most recent years) has been accompanied by a systematic fall in the share of construction (since 2002 onwards).

The deepening of this recessionary cycle inevitably leads to a fall in employment with the average rate of change over the last twelve months being -17.1%, or practically proportional to the fall in the production index (-17.0%).

This recessionary environment is set to continue, based on the fall that has taken place in the value of public procurement tenders and contracts awarded (1,695.9 million Euros and 1,174.4 million Euros, respectively, reflecting falls of 44.4% and 51.6% in the first eleven months of the year)

8. Similarly, there were substantial falls in licences for new construction (for all

types of building: residential and commercial, for transport and communications and for tourism) and even for refurbishment and demolition licences, proof that not even the urban refurbishment and upgrade segment has enough life in it to offer any kind of relief.

External Market

We now briefly describe the macroeconomic background to the main markets abroad where the company has been operating directly:

• ANGOLA

In May 2012, after the sixth evaluation, the Stand-By Programme, approved in November 2009, was successfully approved and concluded between the International Monetary Fund and the Angolan government, which resulted in the last tranche of financing being provided.

The election held on the 31st

of August resulted in a victory with an absolute majority in Parliament for the incumbent party (MPLA) with 72% of the vote, thus renewing the mandate of the President of the Republic, José Eduardo dos Santos.

Forecasts made by the IMF9 for the Angolan economy point to growth in GDP in real terms of 6.8% in 2012 and of 5.5% in

2013, with growth rates in the petroleum sector in the region of 6.0% e 6.8% for the same periods. The construction, energy

8 Construction sector environment, number 66, January/2013, FEPICOP 9 Regional Economic Outlook: Sub-Saharan Africa – Maintaining Growth in an Uncertain World, IFM, oct.12

-20.0%

-10.0%

0.0%

10.0%

20.0%

Formação Bruta de Capital Fixo em ConstruçãoTaxa de Variação Anual


and transport sectors will be the main drivers of the growth in non petroleum GDP, benefitting from public investment and the payment of overdue unpaid invoices.

However, external uncertainties, such as the financial crisis in Europe and the recovery of growth in the USA, continue, which may impact on the global consumption of petroleum and at the same time on Angolan exports.

On the other hand, the coordinated implementation of fiscal and monetary policies and the stability of the exchange rate will be key factors for the stability of prices in the Angolan economy. The rate of inflation in the month of August for the first time was in single digits and the rate is forecast to stay within the goal established by the government of 10% for the year.

• MOZAMBIQUE

In this country, the IMF, contrary to the growth forecasts made for the majority of advanced and emerging economies, raised the forecast for economic growth in 2012 and 2013 to 7.5%

10 and 8.4% respectively (from a previous forecast of 6.7% and

7.2%).

This acceleration of the pace of growth in the Mozambique economy has been due to advances made through direct foreign investment in developing the mining sector (especially coal and gas), but there has been a generally positive trend in various sectors of activity, such as agriculture (which continues to be the main sector, making up around 30% of the country’s GDP), commerce and repair services, construction, transport and communications, all showing strong signs of growth leveraged by high levels of public and private investment.

The weakness of the transport sector, which constitutes a barrier to the potential development of the extractive industry, emphasises the need to increase investment in modernising the infrastructure of this sector.

The control over inflation exercised over the last few months, the good performance of the agriculture sector and the relatively stable exchange rate of the metical, has enabled annual average inflation to slow down, currently at 2.6%.

Despite all these positive indicators, it is important to note that the country is still heavily dependent on international aid and that it is necessary to continue with the strategy of reducing poverty. In this context, fighting poverty and generating more inclusive growth are the priorities of the Mozambique government in the 2013 state budget.

• UNITED STATES

As stated above, the US economy grew in 2012 by 2.2% and forecasts for 2013 of the growth rate for the American economy are generally below this level. Of high relevance here is progress in budget policy, an area where automatic cuts in Federal programmes are possible as from March, in particular in Defence costs, also involving possible cuts in employee numbers.

In the construction sector, the outlook for 2013 prepared by the AGC of America (The Associated General Contractors of

America) is positive overall, although with two different trends in evidence: growing optimism about the development of projects in the private sector while construction companies are much more cautious about the trend of demand in the public sector. Employment prospects in the sector are already improving.

Despite the less optimistic mood concerning the forecast trend of demand in the public sector, a gradual increase in public/private partnerships is expected, a type of contract that is being used increasingly for building infrastructure as a means of overcoming the constraints of public financing.

• ROMANIA

In 2012, Romania’s GDP grew by some 0.8%, according to estimates made by Eurostat, with faster growth in 2013 forecast of 2.2%.

10 8.0% at the end of the 1st half of 2012, according to comments made by the Governor of the Bank of Mozambique in the official speech about the full year 2012.


The construction sector was relatively dynamic in 2012, showing growth of 2.6% and 9.7% in the 1st

and 2nd

quarters of 2012 compared to the same quarters of last year, but with a somewhat erratic trend demonstrated by the negative growth (-1.4%) recorded in the 3

rd quarter.

• BRAZIL

During 2012, growth of Brazilian GDP was rather disappointing. Data for the 3rd

quarter of 2012 reveal growth of 0.6% compared to the 2

nd quarter of the same year, taking seasonal adjustments into account in the trend. Compared to the same

period of 2011, GDP grew by 0.9%. Looking at the four quarters ending with the third quarter of 2012, there was growth of 0.9% compared to the previous four quarter period. For the cumulative 2012 year to date period up to September, GDP increased by 0.7% compared to the same period of 2011

11.

These data led to lower expectations as far as growth for 2013 is concerned, which is now estimated to be below 4%.

• SÃO TOMÉ AND PRÍNCIPE

The rate of real growth for the economy of São Tomé and Príncipe in 2012 is reckoned to be in the region of 4%. The latest forecasts for 2013 indicate growth of 4.5%.

The macroeconomic, structural and socio-economic weaknesses of São Tomé and Príncipe are severe and are reflected in an economy which is very dependent on the exterior, a chronic balance of payments deficit and very high levels of external debt.

The main highlight of the economic situation in 2012 was the fall in cumulative inflation which ran at 10.4% (11.9% in 2011). This rate is still high and mirrors the volatility of internal prices driven by the scarcity of essential goods at certain times of the year. For 2013, the Central Bank expects inflation to be below 10%, a goal which it has been following since 2011.

With a ratio of exports to imports of less than 5%, the country is highly dependent on external aid.

3.2 PRODUCTION – BUSINESS AREAS

PORTUGAL

The companies included in the Construction business, which are fully consolidated and with significant business activities in the country, are:

� Sociedade de Construções Soares da Costa, SA; � Clear – Instalações Electromecânicas, SA; � Construções Metálica Socometal, SA.

Furthermore, several complementary groups of companies (ACEs) are in operation (consolidated by the proportional method), in which the first company mentioned above is involved. Two shareholdings in railway and maritime construction projects also exist, which are consolidated using the proportional method: Somafel and OFM.

The construction market in Portugal is in a deep recession. Public investment has been sharply cut to the very smallest levels since mid-2011. A symbolic expression of this climate of gloom has been the suspension of the construction of the high-speed railway line between Poceirão and Caia, approval for which was refused at the beginning of the year to which this report relates by the Portuguese Accounts Tribunal.

At the same time, the confidence of private investors has become negative and the climate of uncertainty in which we are living has led to historically low levels of private investment.

In addition, Portugal is entering this crisis after two decades of overheating in the construction market, which has led to a huge and unsustainable level of installed production capacity. This available capacity in the face of a fall in investment and demand inevitably leads to price degradation and excessive competition based on the need for survival.

11 Quarterly National Accounts, 3rd Quarter/2012 – Brazilian Institute of Geography and Statistics (IBGE)


Given this unfavourable scenario, the business activity in Portugal of Sociedade de Construções Soares da Costa, SA, including the contribution of complementary groups of companies of which it forms part, has suffered a significant fall in activity over the last few years but interestingly has made gains in market share.

Among the construction projects completed in 2012 are the following highlights: � Increase in power output of the Alqueva dam; � Opening of various stretches of the Transmontana motorway; � The Jorjais and Tinhela road bridges.

Also of significant relevance in terms of production volume in the Portuguese production market in 2012 were the following construction works:

� Road accesses to the Lisbon North logistics centre on the sub-section Vila Franca de Xira / Junction A1 – of the Northern Motorway for Brisa;

� Construction of the extension and upgrade for 2x3 lanes of the sub-section Maia/Santo Tirso of the A3 – motorway Porto/Valença for Brisa;

� Serra da Estrela Inn in Covilhã, a project involving the redevelopment of the former Penha da Saúde sanatorium into a hotel building as part of the “Pousadas de Portugal” (Inns of Portugal) programme, currently managed by the Pestana Group in partnership with ENATUR.

The restart of the Moura-Safar pipeline should also be mentioned, a project which had been suspended due to certain difficulties, which have now been overcome.

As for the geographical distribution of work in Portugal carried out by Sociedade de Construções Soares da Costa, SA, the market in Madeira was completely stagnant (1% of business in 2011, compared to 4% in 2010 and 14% in 2009), and a high concentration of business in the north of the country. Important to note is the fact that this high concentration is due in particular to the Transmontana motorway that makes up a major part of this share.

In Portugal, the geographical distribution in 2012 was particularly high in the north of the country (76%), the remaining 24% distributed between the south of the country (3/4) and Madeira (1/4). The last mentioned figure was funded through private investment, since the two public works contracts already awarded in that region have been suspended.

Activity in Portugal in 2012 – Distribution by Geographical Area

As far as the different activity segments of work carried out are concerned, the vast majority was on engineering and infrastructure projects, making up 87.0%, with civil construction only accounting for 13%.

Specifically and within this segment, road infrastructure (roads and bridges) make up the biggest share (76%), while worthy of note is the very small percentage of work in the environmental sector (water and sewage treatment plants), which was almost non-existent in the business mix. In this sub-segment in particular, there are a number of tenders apparently on hold due to lack of funds for investment from the State or local councils.


Business activity in Portugal in 2012 – Engineering / Infrastructure: Breakdown by Segment

In relation to the complementary groups of companies (ACEs) of which the company was part, worthy of mention in this report as being the most significant activity carried out in 2012. Over and above the CAET XXI (50%), the object of which is the design, development, construction , increase in the number of lanes and refurbishment of various projects relating to the Transmontana motorway concession, there was Hidroalqueva (50%), the general construction contract for increasing the power output of the Alqueva dam for EDP, and two ACEs (28.57%), set up in order to carry out construction of the required infrastructure for the investment plans of Indáqua Matosinhos and Indáqua Vila do Conde

12.

As far as the High Speed Rail Line (LGV) is concerned, an ACE (17.25%) was set up to execute at a fixed price and date and with a non-revisable contract, all works to design, plan, carry out expropriations, construct, supply and install equipment for the building of rail infrastructure of the high speed Lisbon/Madrid rail line section from Poceirão to Caia, in accordance with the general construction contract signed on the 8

th of May 2010 with Elos – Ligações de Alta Velocidade, S.A., the

concessionary company for the section of the line concerned. In due course, the continuity of the work of the ACE was affected, and after around two years of various requests for clarification, remodelling of the contract and various extension requests for analysis, the Accounts Tribunal finally and officially refused to approve the contract on the 16

th of April 2012.

With this decision concerning the LGV project work taken, the ACE restarted negotiations to terminate the contractor’s contract with Elos.

Clear is another subsidiary of the company with business activity in Portugal and also in Angola, in the latter case through its subsidiary Clear Angola.

In Portugal, there was a significant fall in business, as a result of the lack of construction work and the postponement of the start-up of a number of customer projects.

Even so, the company worked on a number of relevant projects, the highlights being: � Cidadela Pousada (Inn) in Cascais, inaugurated in March 2012, with involvement in hydraulic, mechanical and

electrical installations; � Quinta do Lord Resort in Caniçal, Madeira, where Clear executed work on special facilities, namely mechanical and

hydraulic installations, the project being concluded in January 2013; � Seixal Organic Waste Recovery and Treatment Plant, a contract won in 2010 for the installation of hydraulic

facilities. The project, which involves the construction of a plant that allows biodegradable organic waste from urban waste collection to be transformed into organic compost for use in agriculture, as well as the ability to manufacture biogas for electricity generation, was an attractive challenge for the company, since it offered the chance to acquire know-how and the opportunity for diversification of the business to an area with growth potential for the future. Although the pace of work on the project was slowed down during 2012, it is expected that the plant will be fully operational in 2013, and once again the contribution of Clear has been crucial.

� Serra da Estrela Posada in Covilhã - Clear is responsible for executing work on special facilities (Electrical, Hydraulic, Air Conditioning and Management Installations). This is a hotel unit with a 91 room capacity, including restaurant areas, a SPA and cultural activities. In the same way as the Cidadela Pousada in Cascais, this type of building fits into the kind of construction work for which Clear has wide experience and where the effort and focus are not only

12 Entre parêntesis a percentagem de participação da Sociedade.


on new building work but also the preservation of a heritage site with a consequent increase in the degree of technical difficulty involved in carrying out the work.

Turning to Socometal, it was impossible for the company’s business activity during the year to avoid the recessionary environment and the level of business was below installed capacity. The most significant metal work carried out was as follows: overpass 6.2 in Vila Real, consisting of the supply, manufacture, anti-corrosive protection and finishing, transport and erection of a metal structure for an overpass on the A24 motorway in Vila Real and Bridge over the River Corgo and Access Viaducts in Vila Real, both part of CAET XXI; the supply, manufacture, machining, painting and transport of structures for a quay container gantry in Leixões port; conclusion of the structural design, supply and erection of a roofing metallic structure providing shade for Warehouse 08 (Gran Cruz Porto, SA). In the export market, worthy of note was the supply and manufacture, including machining, of interlinking parts, making up the metallic roof structure of the new Nice stadium for the company Fargeot Lamellé Collé, a subsidiary of Vinci, as well as involvement in two projects in Algeria: Viaduct PK 28+650 and Viaduct PK 36+600 for the “modernisation of the railway line Thenia/Tizi-Ouzu” for Teixeira Duarte, SA.

The rail transport sector, one in which the subsidiary Somafel specialises in, continued to deteriorate as a result of the severe budgetary limitations of state rail organisations imposed by the government. In effect, the total value provided to REFER for the whole year 2012 for new work across the entire rail network was only 2.3 million Euros, and only for small and occasional refurbishment or upgrade work on the railway lines. As a result, the company’s business activity in the Portuguese market was insignificant, and it has focused on export markets, in particular in countries in North Africa (Morocco and Algeria), where it has managed since 2005 and 2007 to increase business, and has also undertaken intense commercial activity in high potential markets such as Brazil and Mozambique.

In the harbour and port sector, a target area of the company OFM, the construction works to refurbish and modify the “Pedrouços Dock – Maritime Works – Volvo Ocean Race” were completed, the goal of this project being to stage this event and later to provide a dock concession; also concluded was the maritime infrastructure construction works to improve shelter for the fishing fleet at Praia on the island of Graciosa in the Azores.

Overall, consolidated turnover for the construction business in Portugal was 173.6 million Euros, a fall of 34.3% compared to a figure of 264.2 million Euros in the previous year.

ANGOLA

The Angolan market, in which the company has been operating continuously for more than three decades, continues to be of fundamental and strategic importance for the development of the company’s businesses. The company has managed to achieve and consolidate its recognised prestige and reputation, namely in the building construction segment, where it has undertaken highly important and significant construction projects in a range of sub-segments: residential, commercial and office buildings.

The infrastructure market is also seen as an important area of focus in order to diversify and broaden the business portfolio, with the company already achieving significant operational importance in the country in this area and a growing share of the business.

Among the most significant production works during the year in the buildings segment were the following: � 1st Congress Tower (BESA) (“Torre do 1º Congresso”); � Bayview – TTA2 Office Building (with provisional acceptance); � Dipanda Towers Building; � INE – New Building; � Luanda Towers Project; � AAA – New Office Building; � Science and Technology Museum – GOE; � Forçauto – Island Hotel (“Hotel da Ilha”); � Armed Forces Museum (completed); � “Shopping Fortaleza” project.

The Bayview - TTA2 Office Building project saw a multi-disciplinary team working together, since, in addition to the construction, Clear had significant involvement in electricity, HVAC, hydraulics and BMS, while Socometal worked in the aluminium area.


In terms of regional diversification, the “Private Residential Housing” project should be noted being built in Soyo, Zaire province. It is a project for the construction of a condominium to house technicians from the natural gas plant, Angola LNG, with a budget of around 220 million Dollars and where the company is working in a consortium with MSF.

Business has also been started in Huambo with two important projects in the city: the Huambo Cultural Centre and the refurbishment of the S.José de Cluny School.

As for infrastructure, in addition to the renovation work on the waterfront road (in a 2nd phase of execution) for the Luanda Bay Company, the “Renovation of the Sambizana and Boavista Hillsides” project is noteworthy because of its relevance and scope with a budget of around 90 million Dollars. This project is part of the renovation of the urban environment of Luanda and when completed will provide a big area for the future growth of the city.

Clear Angola, after generally strong growth in previous years, posted turnover in 2012 of 56.5 million Euros, much the same as 2011, which strengthens and consolidates the high level of business activity already achieved.

In effect, in 2012, Clear was actively involved in the majority of major residential and office projects being undertaken in Luanda. In addition to its involvement in the “Total Building”, a project carried out under rigorous safety and quality standards and advanced technology, and which demonstrated the capacity of the company to overcome challenges of great complexity, the conclusion of the Parking Lot building for SONIP should also be noted, where the company’s HVAC and hydraulic skills were employed, as well as the BMS development and the “Sonangol Distribuidora” building. Its involvement in the “Futungo Cazenga and Sambizanga Hospitals” allowed the company to demonstrate its range of skills and capability to execute work of quality in a demanding environment, such as that of a hospital.

In the activity mix, electricity made up 58% of the output (41% in the previous year), hydraulics 21% (compared to 27% a year earlier) and air conditioning 16%. Finally maintenance generated income 5%, a higher percentage than the previous year (3%). However, the growth in revenues from all specialities when compared to the previous year should be stressed.

Socometal has also sought to increasingly gain access to this market, albeit for the time being as a sub-contractor of Sociedade de Construções Soares da Costa, SA, and was involved as mentioned above in the new Total office building in Luanda. Meanwhile the merger completed in 2013 opens the door to a more general and effective international expansion of this area.

Beyond the restricted scope of production, developing and implementing a network of effective relationships and cooperation with government and local business entities, the logistical support structure and finally, but no less important, the recruitment, training and especially the retention of local qualified staff, are some of the key factors to be taken into consideration in the specific situation of the Angolan market, which are and will continue to be permanent challenges for study, evaluation and action by Group companies in implementing the most appropriate solutions.

MOZAMBIQUE

Mozambique is also a market where Soares da Costa has been operating for a long time. Over and above the business generated through the fixed premises of Sociedade de Construções Soares da Costa, SA, business is also carried out through a company founded in Mozambique, Soares da Costa Moçambique, SARL, in which the Group has an 80% shareholding through the company which is the subject of this report, with the remaining shares held by the Mozambique state.

This market has become increasingly important over the last few years, not just because of its turnover and profitability but also because of the relevance, quality and importance of the construction works and projects that have been and are being undertaken.

During 2012, the business activity in Mozambique of Sociedade de Construções Soares da Costa, SA was mainly concentrated on the important construction work to renovate and upgrade the N221 road between Combomune and Chicualaquala and the building of the Bridge over the river Zambeze in Tete; both projects went ahead normally and at the planned rate of execution.

The subsidiary Soares da Costa Moçambique, SARL had a busy year in 2012 with the conclusion of the following construction works:

� Construction of the Administrative Tribunal Building; � Construction of New Premises for INNOQ (Standards and Quality Institute); � Construction of Supply Centres for Petromoc in Songo and Maputo; � Renovation of premises for the Mozabanco branch in Xai-Xai (Tete);


� Renovation of premises for the Mozabanco branch in Avenida do Trabalho in Maputo; � Construction of the District Hospital in Quissico – Inhambane; � Construction of the Production Centre of Radio Mozambique in Xai-Xai (Gaza); � Construction of the INSS Building – Tete; � Demolition of existing buildings on land of Ex-Facim; � Construction of a Parking Lot for the Hotel Vip Inn – Beira.

And work has begun on the following projects: � Construction of 15 houses for the HCB – Hydroelectric plant of Cahora Bassa (Songo); � Refurbishment of 4

th Loft and Landscaping of HCB - Cahora Bassa Hydraulic Plant – 2

nd Phase (Songo);

� Partial refurbishment of Ex-Salvador Caetano (Toyota) premises in Matola; � Construction of the Bus Terminal in Zimpeto, Maputo; � Refurbishment and Expansion of Pemba Airport; � Gas Network Installation Works at the Machava Petromac Station; � Construction of Hydraulic Crossings and Drainage on the Combumune -Chicualacuala (Gaza) road; � Construction of the New Hospital at Mapai (Gaza); � Construction of the New MCT Iron-Chromium Terminal: Matola Cargo Terminal in Matola; � Construction and Refurbishment of the Water Supply Network in Ribaué, Nampula; � Construction of 2

nd Phase of the ISDB : Dom Bosco in Maputo;

� Expansion of the Gate & Refurbishment of Internal Roads and Streets of the Port of Maputo; � Construction of the U.E.M Health Centre on the Maputo University Campus; � Construction of the P.V. Factory – Voltaic Panels in Beluluane in Maputo; � Refurbishment and Expansion of the Ponta Gêa Secondary School in Beira (Sofala); � Refurbishment of the Bank of Mozambique Building in Beira (Sofala).

The subsidiary OFM, one of the goals of which is to target business in the port and maritime construction sector, began and concluded in Mozambique a construction project to “extend access to the quay of the port of Pemba” consisting of the construction of an extension of one hundred metres in length, in order to advance the quay into the water to reach the necessary depths for port operation. In Africa, besides Mozambique, this company also did business in 2012 in markets such as Algeria and Cape Verde.

UNITED STATES

Prince is the Soares da Costa Group’s main company in the construction business in the United States. Acquired in 2008, the company operates in the road infrastructure sector in the states of Florida and Georgia, and is an important player in the construction market in the South East of the USA (10th biggest general construction company in terms of turnover according to the ENR magazine ranking).

Prince’s focus of business continues to be the building of roads (new or upgrades) and bridges for a range of public customers, namely the Department of Transport of Florida (FDOT) and Georgia (GDOT).

The main construction works completed in 2012 were the following: � SR408 – widening from Oxalis Drive to Goldenrod Road (Florida): a 21 million dollar project, involving widening and

construction of accesses, including widening of four concrete bridges over a length of 1 mile; � SR50 from Avalon Road to SR 429 (Florida): an 18 million dollar design-build project, transforming a road with 5

contiguous lanes into an expressway with 2x3 lanes over a 3 mile stretch; � Widening of the US27 (SR25) (Florida): a 21 million dollar design-build project, transforming a rural road of 4 lanes

into an expressway of 2 x 3 lanes over a 3.8 mile stretch; � SR93 I-275 Hillsborough County North (Florida): a 22 million dollar project, upgrade of 4 miles of motorway,

including 26 bridges; � Fall Line Freeway between Augusta and Columbus (Georgia) with a budget of 29 million dollars, and construction

of 7.5 miles of road with 4 lanes.

Prince continued during the year with 12 active construction projects. The following most significant projects were begun or continued during the year:


• I-595 Corridor Improvement Segments A and B (Express Toll Lanes) (Florida) – located in the Fort Lauderdale area with a value of 98 million dollars, it involves the upgrade and reconstruction of a section of the toll motorway over 4.3 miles;

• I-75 Tampa – motorway widening between SR56 and Fowler Road (Florida), with a value of 95 million dollars, involving the reconstruction and widening of 11 miles of the I-75 interstate motorway in the Tampa area, including the building of 19 bridges. It has a time limit for completion of 1,500 days, but it is expected that the works will be completed in around 600 days less than this limit;

• I-75 from South of Pierce Ave. to North of Arkwright Dr. (Georgia), with a value of 59 million dollars, widening of 3.65 miles of the I-75 in the Atlanta-Macon corridor, including the reconstruction of 5 bridges and the refurbishment of another two.

OTHER INTERNATIONAL MARKETS

In addition to the core markets: Portugal, Angola, Mozambique and the United States, a summary is given below of the main highlights of the company’s operations in other international markets in which the company does business through its subsidiaries: Romania, Brazil, S. Tomé e Príncipe, Sultanate of Oman, Venezuela, Costa Rica and Israel.

• ROMANIA

In this country, the following construction works were completed in 2012:

• Accesses to the wind farm of Casimcea in Tulcea for the customer SC CAS Regenerible (Verbund – Austria) with a contract value of approximately 6 million RON (around 1.38 million Euros);

• Accesses to the Alpha Wind farm in Tulcea, Romania for the customer SC Alpha Wind (Verbund – Austria), the value of the contract being in the region of 3.3 million RON (around 770 thousand Euros).

Currently under construction is the project “Constructia Variantei de Ocoure Tecuci” with a contract value of 49 million RON (11.1 million Euros), the official adjudication of which was made on the 18th of June 2012 by the Romanian national roads authority (CNADNR - Compania Nationala de Autostrazi si Drumuri National din Romania S.A.).

• BRAZIL

Brazil is considered one of the priority markets for the international expansion of the company, based on the Group’s strategic plan.

In 2012, through a shareholding of 50% in a specific purpose company “Terceira Onda Planejamento e Desenvolvimento Ltda”, civil construction works were completed to the total satisfaction of the customer in October 2012 for the building of an entire cement production unit of 5,000 tons per day in Rio Branco do Sul (Paraná) for Votorantim Cimentos.

Also of note was the work done by the subsidiary Soares da Costa Brasil. Ltda for the company Linha 3 Cezarina – Construções Ltda on the project to build line 3 of the Cezarina-GO Cement Factory, a line for production of 2,000 tons of cement per day for CIMPOR BRASIL. Work was begun in April 2012 and is scheduled for completion in June 2013. At the end of 2012, this company also began construction works for the expansion of the Viracopos International Airport in Campinas, São Paul for the construction consortium Viracopos (CCV).

• S. TOMÉ AND PRÍNCIPE

Soares da Costa, STP Construções, Ltd, a subsidiary of the company, has underway a project for the expansion of the headquarters building of the International Bank of São Tomé and Príncipe in a project that involves the construction of a building of five floors next to one already existing, and for which the ground floor is linked to the existing building via the bank branch, which will be extended. The remaining floors will hold the various back office services of the Bank as well as the Board of Directors and management. In addition to the initial contract awarded, a number of other works were added, in particular the refurbishment of the bank branch in the old building which is connected to the old one, and the landscaping of the surrounding area.


In September 2012, in partnership with Sociedade de Construções Soares da Costa, SA, construction works to upgrade the National Road number 1 – Coastal Protection, began, which will continue over a period of eighteen months.

In March 2012, an important development was the formal constitution of a branch office of Clear in the country with the immediate goal of carrying out the special installations of the contract for the International Bank of S. Tomé and Príncipe.

• SULTANATE OF OMAN

As a result of the successful investment made commercially in this country in previous years, the Group, through the local branch office of Sociedade de Construções Soares da Costa, SA, is part of a consortium with a local company to prepare projects and carry out construction work on road transport infrastructure and associated infrastructure networks in an area located between the international airport of Masqat and the expressway of the same city; the contract was awarded at the beginning of 2012 and the work is now fully underway.

• VENEZUELA

A brief note is in order to inform that the construction works “Ampliación y Modernización del Puerto de La Guaira” (Expansion and Modernisation of the Port of La Guaira), being carried out by OFM in the country, is now progressing well, the biggest construction project ever executed by this subsidiary.

• COSTA RICA

Construction work in this country is carried out by the subsidiary Sociedade de Construciones Centro-Americanas, S.A.

With the “San José – Caldera” project concluded (for which some refurbishment and guarantee works have been carried out) and another project “San José-San Ramón” still to start up (pending the finalisation of negotiation details between the Government of Costa Rica and the concessionary company Autopistas del Valle), business activity in 2012 was insignificant.

• ISRAEL

In Israel, Soares da Costa Construção’s involvement in the country is through working with the Group’s concessionary area as part of the Televive Metro project. In addition to the branch office of Sociedade de Construções Soares da Costa, SA, the company has a 30% shareholding in the construction consortium “Israel Metro Builders” (IMB).

This project, as has been pointed out in previous reports, was suspended by the owner of the construction works in 2010, who unilaterally terminated the concessionary contract, and a process of international arbitration is now under way which will decide the outcome of this conflict.

The company shares the view of the concessionary entity, the direct party to the process, that there were no grounds for unilateral termination of the contract and awaits the Arbitration Court‘s decision on the dispute. It recognizes however that the recovery of the assets relating to this project, namely those resulting from the company’s investment in IMB, may be dependent on the direction that this decision takes.

3.3 COMMERCIAL AREA

Enough has been said in previous sections about the recessionary environment in the market in Portugal. Another feature of this situation is the general scarcity of competitive tenders, which inevitably leads to price degradation, and also a lower decision rate to go ahead for those tenders launched. Portuguese construction companies cannot therefore base their future over the next few years on activity in Portugal, and that future has to be focused on international business to be sustainable.

Nonetheless, in view of their significance the following contracts awarded in 2012 in Portugal should be highlighted: � Gas pipeline Mangualde-Celorico-Guarda (REN);


� Sewage Treatment Plant at Paços de Sousa (Simdouro); � National Road EN 234 – Upgrade of the CRIZ (I and II) and S. João das Areias (Estradas de Portugal) Bridges.

In Angola, a major highlight because of its scale and relevance has been the award of a contract for a project for “planning and construction of the social buildings of staff of Angola LNG (1st phase) in Soyo, one with a completion timeframe of 36 months and a contract value awarded of 252 million dollars. It involves the construction of 317 homes of various types, covering a residential area of some 10,000 m

2, and a range of support infrastructure and equipment (social, environmental

and leisure).

Near to the end of the year, a contract for basic infrastructure work on the Fútila Industrial Centre in the province of Cabinda was won by a consortium of which Sociedade de Construções Soares da Costa, SA (and Edifer Angola, SA) is part.

In this market, the following contracts awarded in 2012 are highlighted: � Talatona Data Center for Movicel; � Upgrades of Operational Bases in Soyo for Schlumberger; � Huambo Cultural Centre for the Provincial Government of Huambo; � Refurbishment and equipping of the S. José de Cluny School Complex (phase 1) for the Provincial Government of

Huambo; � Construction of provincial services of the INE in Malanje and Benguela; � Construction of Fortaleza Shopping in Luanda.

The construction works mentioned above are a clear indication of the considerable extent of the company’s business activity in the country, which requires very significant cooperative and focused efforts in terms of organisation and logistics.

In Mozambique, during 2012, a construction works contract was won for bridges over the rivers Sangaze, Pompwe, Macuca and Chidge in Sofala province and over the rivers Muira, Tsanzabue and Nhagucha in the province of Manica. The contract awarded by the National Road Network Administration for a value of 21.7 million Euros involves the design/construction of nine works of art (with six of them on bridge decks of reinforced and pre-stressed concrete of variable lengths), the redirection of access roads and various other related works.

The exceptional commercial activity carried out by the subsidiary Soares da Costa Moçambique Sarl should be noted, which has led to a considerable number of contracts being won during the year 2012 and excellent prospects for 2013.

In effect, with the goal of increasing the potential for winning new contracts, sales activity has been extended to almost the entire country, so that by the end of the year in question we were present in the provinces of Maputo, Gaza, Inhambane, Sofala, Tete and Cabo Delgado.

In addition, and as general policy, a selective approach has continued to be taken in relation to potential business, opting especially to compete for projects of customers who are well placed to offer us guarantees of secure payment.

In 2012, the most significant contracts won were the following: � Renovation of a building for the new branch office of the Bank Of Mozambique in Beira; � Construction of 15 type 3 houses in the Songo district; � Refurbishment and extension of Pemba airport for Aeroportos de Moçambique, E.P.; � Construction of a building of 8 floors on the Costa do Sol; � Construction of rainwater runoff drainage on the Gaza road; � Construction of the Mapai District Hospital (in consortium).

Finally, it is important to note that it has been company policy to cultivate customer loyalty through its hard work and professionalism. The steady volume of contracts awarded by the ANE/Fundo de Estradas, Petromoc, HCB, VIP Group and MozaBanco, among others, is a good indication of the effectiveness of this approach in the marketplace.

Taking advantage of the installed capacity in Mozambique, a consortium, in which Sociedade de Construções Soares da Costa, SA has a 50% shareholding, has received news of the intended award of a contract for a project in Swaziland, involving the building of a road of around 12 kilometres in length, including two bridges, for a total value of 17.6 million Euros.

In 2012, Somafel began significant sales and commercial activity in this important emerging market. Following a request made by Vale S.A (Companhia do Vale do Rio Doce), the company presented some proposals for the entire renovation of the


railway line in the Nacala corridor on an existing stretch in the north of the country between the border with Malawi and the port of Nacala in Índico (a length of approximately 580 Km).

Also, in the African market, more specifically in S. Tomé and Príncipe, in addition to the construction works for the upgrade of the national road number 1 that have already begun, a new project will be the construction of the future head office building of the Central Bank of S. Tomé and Príncipe, with four floors and a gross construction area of 4.2 mil m2, and a contract value of 6.5 million Euros.

In the United States the main highlight in the commercial area has been the award to Prince of a contract from the Florida Department of Transportation (FDOT) for a project involving the design and construction of I-75 accesses to the International Airport of Southwest Florida in Fort Myers, Florida. The project, for a total value of 54 million dollars, has a contract construction period running until September 2014 and consists of a new direct connection of the I-75 to the Mid.Field Terminal of the International Airport of Southwest Florida. The project includes the building of five viaducts/bridges, around 8 miles of access roads, and a new access road to the terminal on the I-75.

Over and above this project, Prince was also awarded another project by the FDOT involving road transport infrastructure (I-275 Tampa, Hillsborough County South) for a value of 30 million dollars and for the upgrade of around four miles of road and sixteen bridges. The work is expected to be completed in July 2014.

The pipeline of expected projects, namely in Florida, means that the future is bright, as far as the order backlog and profitability margins are concerned.

In Brazil, a construction market which is not easy for foreign companies to penetrate, significant steps were taken in 2012 for the group to achieve this, namely in terms of obtaining recognition of its capabilities and observance of the technical and economic requirements for compliance with requirements for credentials, imposed by the regulations for public tender applications for public projects in the country.

Commercial activity in 2012 was therefore directed foremost at private customers with proposals being made for various projects and involvement in a public tender open to foreign companies. Formal contracts were signed for two new construction works which are currently underway: one with the customer Cimpor Brasil – the project for line 3 of the Cezarina Cement Factor in Goiás, a line that will produce 2,000 tons/day – and another with the construction consortium Viracopos – a contract for the expansion of the airport terminal at the International Airport of Viracopos-Campinas in São Paulo with Conector, Holdroom and others. Both will be carried out by the company “Linha 3 Cesarina – Construções Lda”, in which Soares da Costa Brasil – Construções Ltda, a wholly owned subsidiary of the group, has a shareholding of 50%.

Somafel has already obtained the necessary qualifications and credentials necessary in this market, in various states and for a variety of technical skills, and has been undertaking intense commercial activity to win contracts in the railway transport segment, of which a highlight has been the start up of manufacturing, specialising in railway tracks, with the electrical welding of rails for the Supervia Concessionária (Concessionary Superhighway). Based on positive feedback from railway maintenance carried out, although on a reduced scale, agreement has been reached and is currently being formalised with the Supervia-Concessionária of the Rio de Janeiro Suburban Network for a contract to provide maintenance services for sidings using heavy equipment on the Belford Roxo section made up of a length of 26 km of two way track.

In Romania, commercial efforts have been focused on projects related to renewable energy (wind farms and photovoltaic energy plants) for private customers, a segment in which the company has managed to achieve some success over the last few years. However, it was in the road network infrastructure sector where the most relevant contract was won, awarded by the CNADNR-Compania Nationala de Autostrazi si Drumuri National din Romania S.A. (national road network authority in Romania), for the project: “Constructia Variantei de Ocolire Tecuci”, valued at 49 million RON (around 11.1 million Euros), the award for the work being made in June 2012. The contractual period for execution of the project is 18 months and the completion date at the end of 2013.

Despite concentrating commercial efforts mainly on core markets of the company, a highlight, which reflects the hard work done in previous years was the award of contract to a consortium of which the company is part (together with a local company) for a construction project in the Sultanate of Oman, involving the planning and construction work for road


network infrastructure, covering stretches of road, five overhead viaducts for road junctions and related infrastructure networks, to be built in an area located between the international airport of Masqat and the express highway of the same city. The project has a total contract value of 48 million Euros with a completion period of 654 days, and, as already referred to in the production chapter, is already fully under way.

The summary above would therefore indicate that sustainable levels of business activity can be continued into the near future, although the even sharper fall in the company’s activity in Portugal that will occur with the completion of the Transmontana motorway during the first part of 2013, means that the sales effort must be continued in a highly focused, efficient and pertinent manner.

Order Book

With the above summary of markets and companies completed, the following table shows the company’s order backlog for the construction sector and its trend between the two years 2011 and 2012.

Order Book

(Euros) Dec.2012 % Dec.2011 % Change

Total 1,047,991 100.0% 1,404,603 100.0% -25.4%

Portugal 210,276 20.1% 482,566 34.4% -56.4%

Angola 414,962 39.6% 467,044 33.3% -11.2%

USA 149,339 14.3% 201,677 14.4% -26.0%

Mozambique 119,988 11.4% 131,574 9.4% -8.8%

Costa Rica 42,519 4.1% 43,357 3.1% -1.9%

Brazil 6,537 0.6% 5,365 0.4% 21.8%

Romania 11,029 1.1% 0,035 0.0% -

Other Countries 93,340 8.9% 72,985 5.2% 27.9%

The impact of the elimination from the order book of the project for the construction of a section of the high speed railway line between Poceirão and Caia between Lisbon and Madrid should be noted, which results in a substantial fall in the order book, with a particularly marked impact on the Portuguese market. Excluding this impact (or in other words eliminating this project from the value of orders in 2011), the fall in the backlog was 12.3%.

3.4 ORGANISATION

A company’s organisational structure is made up of a range of means and resources with which business is carried out in a coordinated and controlled manner, operating in a certain context or environment with the objective of attaining pre-determined goals by efficiently using these resources. The demands imposed by the market and today’s dynamic society mean that companies must have a permanent and systematic ability to anticipate and respond through adapting its resources (and possibly revising its objectives), not only to changes that have taken place, but also crucially to those forecast and not sometimes anticipated in the external environment (with inherent risks for strategic evaluation).

The appropriate response to these requirements by organisations involve management and control tools, the optimisation of support systems and technologies, and complemented by specific training for staff across the entire organisation.

In this respect, 2012 was a demanding year for the company and its subsidiaries in its efforts to ensure the economic and financial sustainability of operations, efforts which involved re-sizing the organisational structure, rationalising costs and improving management tools, basically to make sure that the business is in suitably equipped to achieve its mission in an efficient and effective manner.


Especially important in this regard was the merger between Contacto – Sociedade de Construções SA and Sociedade de Contruções Soares da Costa, SA, the latter company as the incorporating entity, which took place on the 28th of June 2012, leading to the subsequent integration and adaptation of organisational structures and management tools. In the same way, begun at the end of 2012 and completed in 2013, the formal merger of the Group subsidiary in the iron, aluminium and metalworking sector, Socometal, took place, also by incorporation into Sociedade de Construções Soares da Costa, SA.

This process ensures that skills, technologies and knowhow that are important to preserve are kept within the group, while also enabling organisational costs to be reduced by avoiding duplication, thus helping to improve the economic and financial strength and solidity of the company and at the same time organisational flexibility.

Important steps to redeploy and retrain employees were taken in 2012 to drive this process of adjustment that was begun at the end of 2011 and which it is hoped to finalise in the first few months of 2013.

Internal mobility either in functional or in geographical terms has been the preferred route, but understandably the sheer size of the challenges and requirements, in view of the drastic fall in demand in the Portuguese market, has meant that there has had to be a considerable number of staff layoffs (see the chapter on Human Resources).

The year 2012 therefore has been one of hard work involving resizing, rationalisation and implementing organisational adjustment measures, pretty much across all areas of the company (back-office, building sites, production, commercial and sales areas, strengthening of resources in branch offices/ fixed premises overseas by transferring employees of the company with the appropriate profiles, etc.), carried out with the conviction that this process will leave the company in better shape to face the challenges of the future.

3.5 HUMAN RESOURCES

In the Human Resources area, of particular importance in 2012 was the process of resizing the organisational structure which began at the end of the previous year. As mentioned in the management report for 2011, Sociedade de Construções Soares da Costa, SA, was declared a company undergoing restructuring by decree of the Portuguese Secretary of State of Employment on the 7th of December 2011, under the terms of and for the purposes specified in paragraph d) of sections 2 and 4 of article 10 of Decree Law 220/2006, dated the 3

rd of November. This process was carried out in a careful and

systematic manner in compliance with the law in force, and, although a painful process, fully compatible with the company’s principles of social responsibility that permeate the entire organisation across all of the company’s business activities. Albeit with a lower level of impact, this human resources restructuring process also affected other companies in the construction area.

Recruitment and Personnel Selection

Focused on aligning the company’s human resources with the development of its organisational strategy, our vision of recruitment and selection in 2012 was based on a strategy of mobilising employees to work in other geographical areas where the activity of the Group, evidenced by growth in turnover, is becoming more important.

Internal recruitment was the preferred approach in 2012 to fill any vacancies, one that helps career management, resulting in increased employee motivation, as well as allowing the costs of external recruitment and integration of new staff to be reduced.

However, in situations where the needs identified indicate job profiles that do not exist within the various companies of the Group, a process of External Recruitment is carried out, so that new employees with experience suited to the nature and demands of the Soares da Costa Group business portfolio, in particular interest in international careers, join the company.

In this respect, nine jobs, whose skills profile could not be found internally, were identified and new staff recruited for some subsidiary companies, in particular Clear Angola Lda. The main goal of this recruitment was to substitute employees and strengthen certain teams.

Training


Among the various companies involved, some 8,086 hours of training were given at a cost of 23,574 Euros, covering some 2,326 staff.

An analysis of the number of hours of training by job category shows that the biggest number was for senior staff and qualified employees.

By Professional Category (hours) 2012

Management 10

Senior Staff 3,079

Mid-level Staff 651

Intermediate-level Staff 490

Qualified Professionals 3,680

Semi-qualified Professionals 13

Unqualified Professionals 141

Trainees and Apprentices 22

Total 8,086

The subject group “Quality, Environment and Safety” had the highest number of training hours in 2012 (2093 hours), followed by “Civil Construction and Civil Engineering” (1385.5) hours and in third place was “Management and Administration” (1580.5 hours).

By Subject (hours) 2012

Social Sciences – Continuous Training 312

Civil Construction and Civil Engineering 1385

Law 5

Electricity and Energy 14

Engineering 175

Management and Administration 1,580

Computing from the User’s Perspective 1,749

Languages and foreign literature 570

Environmental Protection 25

Quality, Environment and Safety 2,093

Health 116

Miscellaneous 62

Total 8,086

In the course of implementing the Group’s training plan for 2012, various actions in relation to training were taken, the following being the highlights:

� Project Management Initial Programme: a training course that has three modules (Project Management for Professionals – Techniques, Tools and Methodologies, MS Project to support construction site management, and Analysis and Evaluation of Investment Projects) and is targeted at young managers in the Group. It was administered making using of internal resources for the design and implementation of two modules, and in partnership with an external training organisation for the module “Project Management for Professionals – Techniques, Tools and Methodologies”. It is a course that is part of the Knowledge Academy’s portfolio, and can be repeated in future years.

� Construction Site Financial Management: a training programme designed by the Catholic Porto Business School and tailored to the specific circumstances of the Soares da Costa Group with the help of internal staff who are specialists in the financial area. The training course was given in the head offices for 18 senior managers of the Group (SdC, Clear and Socometal).


� Leadership and Leading Work Teams: the objective of this training is to develop team management skills, and the target audience are foremen from Group companies (Soares da Costa, Clear and Socometal), a job category that has an important impact on product quality and achieving goals.

� English: in order to prepare employees for the international expansion of the Group, two English language training programmes were given, aimed at different levels of ability and knowledge. One of them, “English - Civil Engineering & Internationalization”, was the result of a partnership with the Wall Street Institute, and constitutes a programme that is adapted to the specific needs of the group’s business, the overriding goal of which is to develop oral skills in the English language.

Internships

Through the implementation of the Group’s social responsibility policy, a programme of vocational internships has been developed as well as welcoming a range of curricular internees. The vocational internship offered by Sociedade de Construções Soares da Costa in 2011/2012 resulted from the Talent Prize initiative. Over a period of six months, the winner of the prize, Vanessa Fernandes Silva, had the opportunity to work on the subject “Analysis of Risk – Parameterization and Mitigation Measures” in a working environment.

In the Construction business, 12 curricular internees were welcomed during the year 2012. 9 internships were offered in the Technical Department, 2 in the Technical –Commercial Department and 1 in the Production Department. Through these internships, young students were able to gain knowledge and develop their skills in a working environment with highly qualified professionals. Among the organisations promoting these academic internships were CICCOPN, the Fundão Professional Training School, the Higher College of Technology and Management of the Beja Polytechnic Institute, the Higher Institute of Viana do Castelo, Polytechnic Institute of Guarda, Professional School of Sernancelhe, and APRODAZ- Association for the Promotion and Development of the Azores.

Evaluation of Potential

The goal of evaluating potential and talent management is to gather in a systematic, objective and reliable manner a range of information allowing high potential employees to be identified, and from these data, manage, leverage and retain from a strategic viewpoint the talent that we have among our human capital.

In this respect, eighteen employees from job grade eight were identified and evaluated in 2012, and evaluation reports issued, with the objective of increasing knowledge concerning the skills, interests, availability and career paths of employees.

Number of Employees

In 2012, the average number of employees working for companies consolidated using the full consolidation method was 4,621 (compared to 5,318 employees the previous year).

The holding company has three employees (five in the previous year).

Consolidated personnel costs were 132.7 million Euros, the same as last year (132.8 million Euros), the 2012 costs reflecting 10.0 million Euros of staff layoff costs (1.3 million Euros in 2011).


4. ECONOMIC AND FINANCIAL ANALYSIS

4.1 INDIVIDUAL ACCOUNTS

In relation to the portfolio of shareholdings, the most significant events during the year were the merger by incorporation of Contacto into Sociedade de Construções Soares da Costa, SA and the disposal of Socometal also to “Sociedade de Construções Soares da Costa, SA”, which is also a subsidiary of the company, as a preparatory step leading to the merger process which will formally and definitively take place on the 1

st of March 2013.

The value of the shareholding that Soares da Costa Construção, SGPS, SA held in Contacto, is now duly reflected in Sociedade de Construção Soares da Costa, with no change in the (joint) value of the shareholdings.

The results show the prevalence of financial charges, which totalled -7.8 million Euros (compared to financial income of +3.0 million Euros in 2011), with the main impacts, which to some extent offset each other, as follows:

(i) dividend income from shareholdings, totalling 19.0 million Euros from the following companies:

Subsidiary company (thousands of Euros) 2012 2011

Sociedade de Construções Soares da Costa 9,600 6,500

Clear 6,220 -

Contacto-Sociedade de Construções 2,950 3,000

Soares da Costa Moçambique 228 137

Vortal - 121

Total 18,998 9,758

(ii) impairment losses relating to the investment in Soares da Costa America Inc, which amounted to -20.2 million Euros.

(iii) net financing costs of -6.2 million Euros, similar to the -6.7 million Euros posted in 2011.

Operating losses were lower (-0.4 million Euros) than the previous year (-0.9 million Euros) as a result of lower personnel costs and third party supplies and services.

Net losses after taxes totalled -8.6 million Euros (Net Profit of +4.1 million Euros in 2011).

The individual accounts balance sheet as at 31 December 2012 differs substantially from that at the end of previous year, due to the increase that took place in the debts of group, associated and affiliate companies. Current assets therefore moved from 7.3 million Euros to 34.2 million, while “Third Party Debts – Group, Associated and Affiliate Companies” in current liabilities increased from de 141.6 to 166.1 million Euros.

Financial investments, mainly impacted by the loss in value mentioned above of the affiliate company in the United States, fell from 290.8 million Euros to 274.4 million Euros.

Shareholders’ Funds at the end of 2012 fell due to the impact of the net losses of -8.6 million Euros and to the dividends distributed to Grupo Soares da Costa, SGPS, SA, the sole shareholder, for the previous year’s results, totalling 3.3 million Euros. Equity still totalled a robust 142.0 million Euros, equivalent to a solvency ratio of 45.8%.

4.2 CONSOLIDATED ACOUNTS

Although not legally obliged to publish consolidated accounts, given that it is owned by the company Grupo Soares da Costa, SGPS, S.A, a publicly quoted company and leader of the Group, and that it is this latter company’s responsibility to prepare and publish them, the consolidated accounts give pertinent and highly relevant information about the progress of the company and its affiliates. It is therefore in relation to the consolidated accounts of Sociedade de Construções Soares da Costa, S.G.P.S, S.A., prepared in accordance with the IAS/IFRS standards, that we present the following information and analysis:


TURNOVER

The following table shows the breakdown of consolidated turnover of the construction business by geographical area:

Turnover by Geographical Area

Market (thousands of Euros) 2012 % 2011 % Change

Portugal 173,608 24.4% 264,201 33.2% -34.3%

Angola 336,507 47.2% 327,633 41.1% 2.7%

United States 125,883 17.7% 114,198 14.3% 10.2%

Mozambique 55,928 7.8% 72,104 9.1% -22.4%

Brazil 10,248 1.4% 4,161 0.5% 146.3%

Romania 305 0.0% 6,630 0.8% -95.4%

Other Countries 10,060 1.4% 7,280 0.9% 38.2%

Total 712,539 100.0% 796,208 100.0% -10.5%

Construction business turnover totalled 712.5 million Euros in 2012, a fall of some 10.5% compared to the previous year, and explained by the sharp fall in business in the domestic market (-34.3%).

In effect, the fall in turnover in Portugal of 90.6 million Euros exceeded the overall drop of -83.7 million Euros, with international business growing 1.3% to 538.9 million Euros (from 532.0 in 2011) and now making up more than 75% of total turnover.

In Angola, turnover increased by 2.7% compared to 2011, while in Mozambique, which had significant business activity in 2012, turnover fell below that of the extraordinary level of the previous year.

In the USA, turnover grew by more than 10% over 2011, which had already reached a historic maximum in that year, with the key factor being the road transport infrastructure projects.

Worthy of special mention is Brazil where turnover was more than 10 million and where the Group is focusing on increasing sales, as well as in other areas particularly Oman, Venezuela and other African countries (S. Tomé and Príncipe and North African countries).

RESULTS

For a better analysis of the results, there now follows a table of the main accounting lines, suitably aggregated, for the results of the accounting year 2012 with a comparison to the figures of the previous year:

(thousands of Euros) 2012 % OR 2011 % OR Change

Turnover 712,539 101.4% 796,208 99.7% -10.5%

Change in Stocks -17,928 -2.6% -21,902 -2.7% -18.1%


Other Operational Income 8,338 1.2% 24,529 3.1% -66.0%

Operating Revenues (OR) 702,949 100.0% 798,834 100.0% -12.0%

Cost of Goods Sold and Materials Consumed 145,849 20.7% 182,158 22.8% -19.9%

Third Party Supplies and Services 368,296 52.4% 416,646 52.2% -11.6%

Personnel Costs 132,683 18.9% 132,768 16.6% -0.1%

Other Operating Costs 27,120 3.8% 19,541 2.5% 38.8%

EBITDA 29,001 4.1% 47,722 6.0% -39.2%

Amortisations, Provisions and Adjustments. (net of reversals) 36,998 5.3% 18,291 2.3% 102.3%

Operating Profit/Loss (EBIT) -7,997 -1.1% 29,431 3.7% -

Financial Charges -41,851 -6.0% -16,877 -2.1% -

Profit/Loss before Tax -49,847 -7.1% 12,554 1.6% -

Income Tax 12,812 1.8% -4,476 -0.6% -

Consolidated Profit/Loss for the period -37,036 - 8,078 1.0% -

Profit/Loss attributable to the Group -37,763 - 7,405 0.9% -

While turnover fell by 10.5%, the sum of the lines Cost of Goods Sold and Third Party Supplies and Services fell even more (14.1%); nonetheless, this was offset by Personnel Costs, which, impacted by staff layoff costs (10.0 million Euros in 2012 compared to 1.3 million Euros in 2011), could not yet be reduced significantly.

The EBITDA margin, calculated using the total of operational revenues, suffered a fall from 6% to 4.1% but, recalculated excluding the impact of staff layoff costs and irrecoverable debts of a subsidiary in the USA that significantly increased Other Operational Costs, would have been around 7.1%, an increase over 2011.

Impairment losses significantly affected the year’s performance by more than doubling the value of the line “Amortizations, Provisions and Adjustments (net of reversals)” (37.0 million Euros) from 18.3 million Euros in the previous year. Of particular significance were losses on a part of the goodwill on acquisition of Contacto, and on third party credit claims, as a result of the generally adverse economic environment, which has led to deterioration in solvency conditions and the liquidity of many companies, and thus to worsening credit collection conditions and an increase in litigation proceedings.

As a result of the above, operating losses were 8.0 million Euros, comparing unfavourable with the Operating Profit of 29.4 million Euros posted in 2011.

Financial charges also worsened significantly, impacted negatively by the increase in the net costs of financing with the difference between interest received and paid being some -25.1 million Euros in 2012 compared to a figure of -12.5 million in the previous year. The net impact of exchange rate differences was limited to a loss of -1.4 million Euros, but far from the favourable result achieved in 2011 of +6.4 million Euros, a situation which also contributed towards the worsening of net financial income/charges for the year.

The combination of the factors mentioned above led to a loss before tax of -49.8 million Euros, an abnormal result in the history of the company, and which has meant a difficult year with specific constraints. However, the company is optimistic that it can now steadily and persistently follow a path that will put it in a situation in which it can tackle and overcome the challenges that it currently faces.

In relation to taxes, the consolidated loss attributable to the Group was -37.8 million Euros, compared to a profit of 7.4 million Euros in 2011.

BALANCE SHEET: ASSETS

The consolidated financial statements show that current assets fell from 861.3 to 712.2 million Euros, while non-current assets continued at similar levels to the previous year (from 295.7 to 291.0 million Euros), there being no variances that deserve special mention.

The fall in current assets is explained by the drop in inventories, debtors and other third party debtors, the latter relating to debts due from companies connected with the group but outside the consolidation perimeter of the Construction Business Area.


On the contrary, the other current assets, mainly relating to the stage of completion of construction works running over several years, increased by 22.6 million Euros, the most significant company contributing to this increase being Sociedade de Construções Soares da Costa SA (+21.7 million Euros).

SHAREHOLDERS EQUITY

Shareholders’ equity as at 31 December 2012 continued to be at a robust level (139.7 million Euros) and above the value of the share capital (131.1 million Euros) but was negatively impacted by the net loss for the year (-37.8 million Euros). Over and above this loss, the detail of changes to shareholders’ equity show a dividend distribution of 3.3 million Euros to the only shareholder (Grupo Soares da Costa, SA) pertaining to the results for 2011 and other changes, in particular the exchange rate conversion reserve that had an impact on equity of -0.8 million Euros.

LIABILITIES

Mirroring the fall seen in assets (153.9 million Euros), although at a lower level, analysis of the balance sheets between 2011 and 2012 show a fall from 975.4 million Euros to 863.4 million Euros (-111.9 million Euros).

The fall was particularly significant in terms of current liabilities (-174.5 million Euros), with a substantial drop in other current liabilities and other debts to third parties, while non-current liabilities increased (+62.5 million Euros).

An event which impacted the structure of liabilities was the signing of a framework agreement at the end of November 2012 between the company (and other Group companies) and six financial institutions for the rescheduling of bank loans totalling some 275 million Euros. The operation involves an extended reimbursement period (9-year maturity with a 3-year grace period for capital repayments) and is remunerated at a moderate interest rate.

The consolidated net debt of the construction area was 342.2 million Euros at the end of 2012.

INDIVIDUAL PERFORMANCE OF THE AFFLIATED COMPANIES

In the report above, the structure of company shareholdings, their performance during the year, and the trend of the situation in the company’s main geographical markets have been explained. In the last section, an analysis was made of the key consolidated indicators.

The table on the following page gives a summary of the contribution of the different companies consolidated in terms of: turnover, EBITDA, EBIT, net financial income/charges and net profits/losses, which explain how the consolidated results are built up by affiliate.


Summary table of the key indicators of affiliates of Construction Business Area in 2012

Affiliated Companies (Euros) Turnover EBITDA EBIT Financial

Income/Charges Net

Profit/Loss

Soc. Construções Soares da Costa, SA (*) 520,046,624 26,274,469 -2,216,099 -28,134,111 -24,335,741

Soares da Costa América, Inc. 287,666 -872,147 -872,147 -2,898,059 3,545,168

Prince Contracting, LLC 125,074,380 -584,378 -2,929,867 -318,757 -3,248,626

Soares da Costa Construction Services, LLC 700,695 -12,868,136 -11,168,467 -1,063,889 -12,232,357

Soares da Costa Contractor, INC 433,775 -94,627 -96,415 -9,439 -105,854

Porto Construction Group, LLC 0 -14,171 -18,082 0 -18,081

Consolidation Eliminations USA -673,017 0 0 0 7,233

United States 125,823,499 -14,433,459 -15,084,978 -4,290,144 -12,052,517

CLEAR - Instalações Electromecânicas, S.A. 14,511,633 -106,649 -1,000,847 7,290,069 3,960,183

CLEAR ANGOLA, S.A. 56,462,387 17,398,039 16,869,744 -1,813,914 15,055,830

Consolidation Eliminations between Clear and Clear Angola -6,242,732 516,943 516,943 -8,702,917 -8,933,141

Clear + Clear Angola 64,731,288 17,808,333 16,385,840 -3,226,762 10,082,872

Soares da Costa Moçambique, SARL 20,186,904 1,608,254 1,218,195 -119,913 683,962

Carta - Restauração e Serviços, Lda 8,554,731 124,106 -486,713 -119,793 -578,506

OFM - Obras Públicas, Ferroviárias e Marítimas, S.A. 7,856,586 577,077 256,073 -127,063 -4,832

Linha 3 Cezarina - Construções LTDA. 5,153,278 768,569 767,256 34,538 550,002

SOMAFEL - Engenharia e Obras Ferroviárias, S.A., SA 4,773,759 -1,333,215 -2,381,239 58,640 -1,791,948

Terceira Onda Planejamento e Desenvolvimento, Ltda. 4,547,363 534,784 534,477 -101,237 289,617

Construções Metálicas SOCOMETAL, S.A. 4,504,511 -1,851,319 -2,230,288 -172,000 -1,841,179

Soares da Costa S. Tomé e Príncipe - Construções, Lda. 1,181,136 82,560 19,711 -18,132 1,579

Soares da Costa Brasil - Construções Ltda. 640,858 -169,054 -170,001 622,293 452,294

Israel Metro Builders – a Registered Partnership 233,754 166,962 166,954 -166,954 0

SDC Construções SGPS, SA 228,000 -371,162 -371,242 -7,844,825 -8,600,644

Somafel - Obras Ferroviárias e Marítimas Ltda. 117,393 -125,974 -127,539 418 -127,123

Soares da Costa Construcciones Centro Americanas, SA 22,438 -492,974 -514,029 444,185 114,633

Othe affiliated companies 0 -167,256 -167,256 17,954 -141,807

Consolidated eliminations -56,063,559 -3 -3,596,051 1,292,227 -463,485

Overall Total Construction 712,538,563 29,000,698 -7,996,929 -41,850,679 -37,762,823

(*) Includes, in proportion to the interests of the Company, shareholdings in Complementary Groups of Companies.


Detail of Complementary Groups of Companies (ACEs) Turnover EBITDA EBIT Financial

Income/Charges Net

Profit/Loss

CAET XXI - Construções, ACE 84,035,604 -6,518,540 -7,248,233 159,433 -7,107,577

HidroAlqueva, ACE 11,377,734 305,979 38,914 -38,915 -5,838

LGV, Engenharia e Const.de Linhas de Alta Veloc., ACE 9,689,977 8,662,077 484,995 -50,461 433,919

Mota-Engil, SDC, MonteAdriano - Matosinhos, ACE 2,642,704 -8,737 -9,990 9,990 0

GCVC, ACE 2,242,686 -6,830 -6,830 6,830 0

GACE - Gondomar, ACE 2,028,906 3,122 3,122 -3,122 0

Soares da Costa/Contacto - Modernização de Escolas, ACE 583,579 5,169 5,169 -5,170 0

Remodelação Teatro Circo - S.C., A.B.B., D.S.T., ACE 225,021 1 1 0 0

TRANSMETRO - Construção do Metropolitano do Porto, ACE 179,242 -48,993 -48,993 9,101 -39,891

GCF - Grupo Construtor da Feira, ACE 68,990 0 0 0 0

Nova Estação, ACE 35,604 4,343 2,558 -2,559 0

Soares da Costa e Lena, ACE 21,027 6,921 6,921 -3 6,918

Normetro - Agrupamento do Metropolitano do Porto, ACE 5,090 -12,135 -12,135 12,135 0

LGC - Linha de Gondomar, Construtores, ACE 1,703 -111,511 -62,608 357,156 294,549

Other complementar group of companies (ACEs) 176 -19,079 88,645 194 88,838

Total ACEs 113,138,043 2,261,787 -6,758,464 454,609 -6,329,082

5. RISK MANAGEMENT

Soares da Costa Construção, SGPS, S.A., as the company responsible for the management and development of the construction business, one of the strategic businesses of the Group, carries out its business activity managing the shareholdings in the various companies, executing civil construction, engineering and infrastructure projects.

The companies, which make up the shareholdings of Soares da Costa Construção, SGPS, S.A., as shown in the various documents of this Report and Accounts, carry out their business in various different countries.

In this respect, the company and its affiliates are exposed to various risks which can be categorised as follows:

• Business Risks:

• Operational risks: those which can affect the efficiency and effectiveness of operational processes and the provision of group services, the satisfaction of customers and the reputation of companies;

• Integrity risks: those connected with internal and external fraud, to which group companies can be exposed;

• Management and human resources risks: risks related to, among other areas, management, leadership, limits of authority, relocation, local employment, etc.

• Financial risks: namely exchange rate risks, interest rate risks, liquidity risks and credit risks;

• Information Risks

• Operating and financial information and that related to strategic evaluation;

• Contextual Risks

• Competition;

• Political, economic, legal and fiscal context;

• Regulation and changes in the sector.

From an organisational standpoint, a risk management and analysis department, providing skills and competence across the Group, operates as part of the Group’s corporate centre, of which the construction sub holding is part. The goal of this risk


management unit is to ensure the efficiency and effectiveness of the Group’s operations, protect its assets, the reliability of financial information and ensure compliance with standards and laws.

Risk analysis is carried out by various Group corporate departments. Work is done on the prior identification and prioritisation of risks classified as being the most critical (determined by a combination of the probability of occurrence and potential impact and shown on a risk matrix), and Risk Management strategies are defined with a view to implementing control procedures that reduce risks to an acceptable level. In this respect, the Group has implemented control activities that help mitigate the risks. The goal is to maximise the trade-off between risks and business margins in order to achieve the strategic objectives of the Group in a sustained manner.

The matrix is built up from the general guidelines of the strategic plan currently in force, the goals that have been set, the kind of business activity carried out and the countries that are the preferred locations for doing business under stable conditions. Then, following these overall guidelines, a number of parameters are defined that guide the strategic objectives of risk taking and determine the monitoring needed to check that the risks effectively taken conform to those objectives.

In order to appreciate and later monitor the situation through its internal organisation, the different management areas of the Group (Business Development, Financial Department, Management Control, Human Resources, Legal Services, etc.) identify and evaluate the risks that the decisions, which they take in their various specialist areas of intervention, involve and suggest measures to anticipate and minimise them. Based on this analysis, and monitored critically by the central risk management department, decisions are taken concerning the business, country or project under consideration, namely as to whether to accept and sign a contract and the relevant contractual conditions.

The risk analysis and management system is an interactive process that covers all phases of a project from initial data and information gathering at the times of sales prospecting through to the post mortem phase, when all the responsibilities related to the project have ceased to exist. Some broader key decision making milestones are of course set, both to evaluate the potential risks and how the manner of dealing with them is compatible with the strategic profile defined, and to check if the control mechanisms and procedures are being observed and if they are satisfactory. In terms of management, detailed information procedures are set up with content that is appropriate for each phase, which will permit timely follow up of the various changes, and prompt action when problems arise. The entire process is open to suggestions for revision and improvement that any organisation puts forward and is subject to periodic reflection and evaluation both by support services and operational areas.

At the same time, internal audits are carried out from time to time on the main operational activities of the various companies of the Group by the Internal Audit Department, a unit that is part of the Group’s corporate centre, the goal of which is to improve the efficiency of internal controls and related business processes. Thus, the intention is to monitor risks in each of the operations, implement appropriate means to mitigate the risks detected and follow up on the manner in which they develop.

6. OUTLOOK FOR 2013

In view of the business situation, the backlog of orders and the risks and uncertainties (in particular the economic background), which have been pointed out throughout this report, we nonetheless remain confident in our ability to overcome the difficulties and in the path that the company has mapped out for the future. The signs are also positive that the 2013 budget for Soares da Costa Construção, SA, in terms of key consolidated indicators, albeit demanding, can be achieved.

During the first few months of the year, it is expected that the process of adjusting the level of human resources begun in 2011 and worked on heavily in 2012 can be completed among the main affiliate companies governed by Portuguese law, thus resizing the organisation to a size appropriate to current and future expected market conditions.

As far as turnover is concerned, another fall in business is expected in 2013 in Portugal where, in view of the advanced stage of construction of the Transmontana motorway with completion expected in the summer, the fall is expected to be significant.


At the same time, an important increase is expected in business in Portuguese speaking African countries, namely in Angola and Mozambique. In the USA, business activity reached the highest levels ever recorded in 2012, and the ambitious goal in 2013 is to maintain turnover close to these levels, while improving profitability.

The objective in 2013, again ambitious, is to maintain contributions to turnover from other markets in Africa (in particular Oman) at levels close to those of last year.

Given the greater share of international business and the significant part played in results by non-recurrent costs in 2012, it is reasonable to set a goal of improvement in the EBITDA to Turnover margin in 2013, despite the current aggressive competitive environment.

7. RELEVANT FACTS OCCURING SUBSEQUENT TO YEAR END

On the 1st

of March 2013, the official merger by incorporation took place definitively between Sociedade de Construções Soares da Costa, SA (acquiring company) and Construções Metálicas Socometal, SA (acquired company), and for accounting purposes as from 1

st of January 2013. The objectives of this transaction, justified by the important slowdown in construction

activity in Portugal, are to rationalise operations and costs, and also facilitate the international expansion of Socometal’s business as part of the internationalisation of the operations of Sociedade de Construções Soares da Costa, S.A. In view of the fact that both companies were already part of the holding company’s consolidation perimeter, there is no impact on the consolidated financial statements because of this transaction.

8. OTHER LEGAL INFORMATION

Debts to the State and the Social Security

As of the date of the balance sheet, the company had no debts outstanding payable to the Portuguese state neither for taxes nor for Social Security contributions.

Business with the company

During the year, no business dealings worthy of note between the company and its Board Directors were recorded.

9. ACKNOWLEDGEMENTS

We offer our thanks to all those who helped contribute towards the performance of the company during the year as described in this report.

We also thank the members of other statutory bodies of the company as well as our auditors for the manner in which they have carried out their duties.


10. PROPOSAL FOR APPLICATION OF RESULTS

The Board of Directors of Soares da Costa Construção, S.G.P.S., S.A., taking into account the Financial Results annexed to this report, propose, according to paragraph f) of article 66 of the Portuguese Companies Act, and in compliance with applicable legislation in relation to the distribution of corporate assets, in particular articles 32 and 33 of the same act, that the individual net loss of -8.600.644 Euros of the company in the year ending 31 December 2012 should be transferred to Retained Earnings.

Porto, 25 March 2013

The Board of Directors,

António Manuel Pereira Caldas de Castro Henriques, Jorge Domingues Grade Mendes, Pedro Gonçalo de Sotto Mayor de

Andrade Santos, Luís Miguel Andrade Mendanha Gonçalves, Daniel Hehn Pinto da Silva, Fernando Jorge Sales Nogueira


ANNEX TO THE MANAGEMENT REPORT

(Articles 448-4th

and 447-5th

of the Corporate Code)

Shareholders with stake above 10% of the share capital

Grupo Soares da Costa, SGPS, SA holds 26,216,068 shares or 100.00% of the share capital.

Members of the Board of Directors and Supervisory Board

The members of the board of directors and supervisory board do not hold any shares of the company.


INDIVIDUAL FINANCIAL STATEMENTS

INDIVIDUAL FINANCIAL POSITION STATEMENT as of December 31, 2011 and 2012

(Euro)

ASSETS Notes 31.12.2012 31.12.2011

NON CURRENT

Fixed tangible assets:

Administrative equipment 5 240 321

240 321

Financial investments

Participations in subsidiaries 6 and 17 212,798,628 213,171,864

Loans granted to subsidiaries 6 and 17 34,346,697 50,238,393

Participations in associated companies 6 24,191,790 24,191,790

Loans granted to associated companies 6 29,187 29,187

Other financial investments 6 3,014,810 3,135,372

274,381,112 290,766,606

Deferred taxes (assets) 0 1,974,777

Total non-current assets 274,381,352 292,741,703

CURRENT

Accounts receivable

Customers 9 76,760 147,632

Group and associated companies and subsidiaries 9 34,233,068 7,338,646

Other accounts receivable 9 969,575 642,640

35,279,403 8,128,918

Other current assets 10 496 1,069

Cash and equivalents 11 51,496 6,156

Total current assets 35,331,395 8,136,143

Total assets 309,712,747 300,877,846


INDIVIDUAL FINANCIAL POSITION STATEMENT as of December 31, 2011 and 2012

(Euro)

SHAREHOLDERS EQUITY AND LIABILITIES Notes 31.12.2012 31.12.2011

SHAREHOLDERS EQUITY

Share capital 12 131,080,340 131,080,340

Reserves and retained earnings

Issue premiums 12,926,618 12,926,618

Legal reserves 2,729,271 2,522,794

Retained Earnings 3,840,132 3,217,065

Net earnings (8,600,644) 4,129,545

Total shareholders’ equity 141,975,718 153,876,362

LIABILITIES

CURRENT

Loans:

Bank loans 14 75,925 2,774,008

75,925 2,774,008

Accounts payable:

Suppliers 90,113 197,990

State and other public entities 15 30,967 73,681

Group and associated companies and subsidiaries 15 166,132,164 141,620,832

Other accounts payable 15 1,374,835 2,243,472

167,628,079 144,135,975

Other current liabilities 16 33,026 91,501

Total current liabilities 167,737,030 147,001,484

Total liabilities 167,737,030 147,001,484

Total shareholders’ equity and liabilities 309,712,747 300,877,846


SEPARATE INDIVIDUAL INCOME STATEMENT for the period ended December 31, 2012 and 2011

(Euro)

INCOME STATEMENT Notes 2012

2011

Turnover 18 228,000 360,000

Other gains 19 149,639 41

Total operating income 377,639 360,041

External supplies 21 (130,462) (354,290)

Staff costs 20 (536,954) (935,852)

Depreciation, amortisation and imparity losses (80) (80)

Other operational costs

Taxes (14,305) (6,540)

Other costs 19 (67,081) (50)

Total operating costs (748,882) (1,296,812)

Operational results (from continued activities) (371,243) (936,771)

Net financing costs:

Interest received 22 7,762,004 1,540,189

Interest paid 22 (13,998,795) (8,273,591)

(6,236,790) (6,733,403)

Other financial income/costs:

Other financial income 22 658,574 1,136,713

Income from equity investments 22 18,998,413 9,757,782

Other financial losses 22 (21,265,021) (1,181,186)

(1,608,034) 9,713,309

Financial results 22 (7,844,824) 2,979,907

Earnings before taxes (8,216,068) 2,043,136

Income tax 23 (384,577) 2,086,409

Net earnings (8,600,644) 4,129,545

Earnings per share of continued activities: 24

Basic (0.328) 0.158

Diluted (0.328) 0.158

Earnings per share:

Basic (0.328) 0.158

Diluted (0.328) 0.158


STATEMENT OF INDIVIDUAL COMPREHENSIVE INCOME for the period ended December 31, 2012 and 2011

(Euro)

Notes 31.12.2012

31.12.2011

Net earnings (8,600,644) 4,129,545

Other comprehensive income

Foreign exchange differences from the translating the financial statements denominated in foreign currency - -

Change on fair value of derivatives - -

Change on deferred taxes from derivatives - -

Other changes - -

Total comprehensive income for the period (8,600,644) 4,129,545

STATEMENT OF CHANGES IN EQUITY for the period ended December 31, 2012 and 2011

(Euro)

Notes Equity capital Reserves and

retained earnings

Coverage derivatives

Issue premiums

Other Total equity

Balance as of 01.01.2012 12 131,080,340 22,796,022 - - - 153,876,362

Dividends 13 - (3,300,000) - - - (3,300,000)

Own shares - - - - - -

Other - - - - - -

Integrated consolidated earnings - (8,600,644) - - - (8,600,644)

Balance as of 31.12.2012 131,080,340 10,895,378 - - - 141,975,718

Equity capital Reserves and

retained earnings

Coverage derivatives

Issue premiums

Other Total equity

Balance as of 01.01.2011 90,000,000 15,328,711 - - - 105,328,711

Dividends - - - - - -

Own shares - - - - - -

Other 41,080,340 3,337,766 - - - 44,418,106

Integrated consolidated earnings - 4,129,545 - - - 4,129,545

Balance as of 31.12.2011 131,080,340 22,796,022 - - - 153,876,362


INDIVIDUAL CASH FLOWS STATEMENTS for the period ended December 31, 2012 and 2011

(Euro)

2012 2011

Operating activities:

Receipts from customers 381,280 219,600

Payments to suppliers (106,816) (449,040)

Payments to staff (421,808) (593,278)

(147,344) (822,719)

Payments/ receipts of income tax 1,814,613 1,144,434

Other payments/ receipts related with oper. activities (5,110,470) (740,138)

(3,295,857) 404,296

Cash flow from operating activities (3,443,201) (418,422)

Investment activities:

Receipts from:

Financial investments 21,043,959 85,549,881

Dividends 18,770,000 39,813,959 9,695,602 95,245,483

Payments related with:

Financial investments 127,766,978 41,176,688

Tangible fixed assets 0 127,766,978 0 41,176,688

Cash flow from investment activities (87,953,019) 54,068,796

Financing activities:

Receipts from:

Loans 207,760,659 87,313,321

Interest received 12,584 207,773,243 1,535,842 88,849,163

Payments related with:

Loans 110,917,091 130,897,030

Dividends 3,300,000 3,659,000

Interest paid 2,114,690 116,331,781 7,955,180 142,511,210

Cash flow from financing activities 91,441,462 (53,662,047)

Change in cash and cash equivalents 45,242 (11,674)

Effect of foreign exchange differences 99 (11,412)

Cash and cash equivalents at the beginning of the period 6,155 29,242

Cash and cash equivalents at the end of the period 51,496 6,155

RC 2012 Construçao EN§ao_sgps_2012_en.pdfportfolio of shareholdings in the construction business...

Documents

Transcript of RC 2012 Construçao EN§ao_sgps_2012_en.pdfportfolio of shareholdings in the construction business...