passionate about innovation

Transcription

1 passionate about innovation In Review 2004

2 SONAE SIERRA IS A SPECIALIST INTERNATIONAL COMPANY WHICH INVESTS IN, DEVELOPS AND MANAGES PROPERTIES IN THE SHOPPING AND LEISURE CENTRE SECTOR. IN ALL THAT WE DO, WE STRIVE TO COMBINE IMAGINATION AND INTEGRITY TO DELIVER INNOVATIVE RESULTS. Passionate about Inn

3 Our strategy for growth Sonae Sierra aims to become one of the leading European companies in the shopping and leisure sector. Currently operating in Portugal, Spain, Italy, Germany, Greece and Brazil, our strategy for growth is based on the innovative deployment of our specialist skills organised according to a successful business model. The key to the model s success lies in its integrated structure, which reflects the three operational strands of our business: investment, development and management. Sonae Sierra also places great importance on the value of partnerships. By working with both international investors and local partners, we are able to constantly develop our financial strength, our product qualities and market knowledge and swiftly act in response to every new business opportunity. Our sector focus Sonae Sierra chooses to focus on the shopping and leisure centres sector of the property industry. Our new name reflects this policy. By moving away from the generalisations associated with the name Imobiliária which, in most Latin-rooted languages, means real estate in the broadest sense we have emphasised the precision of our focus and repositioned ourselves as an international organisation. With our emphasis on specialisation, our investment focus takes a long-term view. While we prefer to own the assets we develop, making it possible for us to foster their progression, we also invest in existing shopping centres which we know we can add value to through redevelopment and innovative active management. The financial stability which stems from this policy, coupled with our creative approach to design and construction, has earned us an enviable reputation as developers of innovative products of quality. ovation 0 Strategy 2 Highlights of Main Events of CEO s Statement 8 Partnerships Sierra Investments 20 Sierra Developments 30 Sierra Management 38 Sonae Sierra Brazil 44 Consolidated Accounts 50 Corporate Responsibility 54 Board of Directors 56 The Future 56 Prospects

4 Highlights of 2004 EBITDA increased from million to million, growth of 9.76% NAV per share increased from to a growth of 11.80% Total NAV of 1,060 million at year end Net Profit after Minorities of million Asset gearing of 28.8% Interest cover of new shopping centres plus one extension inaugurated in new shopping centres under construction at year end 1.8 million m 2 of GLA under management in Portugal, Spain, Italy and Brazil A team of 667 people with 11 different nationalities, operating in 6 countries 2004 saw Sonae Sierra consolidate its position in the shopping and leisure centres sector. During the year, we opened four new centres in Spain and another in Brazil, where we also completed the extension of an existing centre. Highlights of 2004

5 Highlights of 2004 Performance Indicators Real Estate NAV as of 31 Dec ( million) , ,060 Real Estate NAV as of 31 Dec per share ( ) GLA owned in operating centres (000 s m 2 ) ,140 1,203 1,362 GLA under management (000 s m 2 ) ,128 1,517 1,564 1,839 Number of tenant contracts under management 1,747 2,050 3,162 3,450 3,949 5,089 5,399 6,134 Consolidated EBITDA Portuguese GAAP ( million) n.a n.a n.a n.a Consolidated EBITDA IAS ( million) n.a n.a n.a Consolidated Net Profit Portuguese GAAP ( million) n.a n.a n.a n.a Consolidated Net Profit IAS ( million) n.a n.a n.a Non-audited accounts 1 The Company acquires own shares in the amount of 150 million 2 The Company sold 49.9% of Sierra Fund to third party investors Growth (as % of previous year) Real Estate NAV as of 31 Dec per share 21% 40% 17% 24% 11% 5% 12% GLA (m 2 ) owned in operating centres 14% 36% 4% 35% 44% 5% 13% GLA (m 2 ) under management 14% 43% 7% 18% 35% 3% 18% Number of tenant contracts under management 17% 54% 9% 15% 29% 6% 14% Return on equity 12.8% +86% Open Market Value (OMV) of 3,341 million +17% NAV per share of % 3

6 The Main Events of 2004 Apr 04 Opening of Avenida M40 in Madrid, Spain. Mar 04 Opening of Dos Mares in Murcia, Spain. Apr 04 Opening of Boavista Shopping in São Paulo, Brazil. The Main Events of was a significant year for our company. Operating under our former name of Sonae Imobiliária, we achieved a high level of growth. Now, with a new name and a new image, we aim to sustain our activity growth as an innovative leader in our sector. Unprecedented growth The opening of four new high quality shopping centres in Spain, and another in Brazil, in the same year is an almost unparalleled accomplishment in our sector. Our ability to undertake and conclude a significant expansion of Shopping Penha in Brazil is a further demonstration of our strength as a company. Much of this strength is derived from the underlying value of our real estate assets which, since the closing of the Sierra Fund in 2003, has been augmented by the consequent increase in the value of their financial returns. The growth we have recorded in this area is the result of the skilled professionalism of all those who work in Sierra Investments, our asset management and investment division. Sierra Developments the division which oversees all our developments in the countries we operate in, with the exception of Brazil owes much to the efforts of Sierra Investments. Backed by the financial strength they have secured, our team in Sierra Developments has brought enthusiasm and innovation to their work. Their efforts have resulted in the opening of four new centres in Spain which will do much to help us achieve our aim of becoming one of the leaders in our field in Europe. The progress we are making on development projects in Germany and Italy will also further this ambition. 4

7 The Main Events of 2004 Sept 04 Opening of Luz del Tajo in Toledo, Spain. Nov 04 Opening of Zubiarte in Bilbao, Spain. Oct 04 Opening of the expansion of Shopping Penha in São Paulo, Brazil. Enlarged Portfolio The opening of Spain s new centres has also significantly enlarged our portfolio of managed shopping centres in that country. Taking the portfolio as a whole, Sierra Management now has in excess of 1.5 million m 2 of GLA (Gross Lettable Area) under management, in Portugal, Spain and Italy. In addition to the centres developed and owned by Sonae Sierra, this division also manages properties developed by other companies, such as the Moncalieri (Torino), and Biccoca (Milan), centres in Italy, which were developed by Pirelli Real Estate and brought into the portfolio during While Portugal is still the most important country we operate in, Sierra Management is already preparing to take responsibility for the new centres opening in Germany and Greece. As an independent business, Sonae Sierra Brazil remains committed to its goal of becoming one of Brazil s top companies in its sector. The opening of the new Boavista Shopping in a prime location in São Paulo demonstrates this commitment. The Brazilian long-term debt market may create difficulties for the property industry as a whole, but we believe Sonae Sierra Brazil s innovative approach to partnerships and their imaginative development concepts will sustain their growth in its sector. We know that, in the future, we will have to work harder to sustain the overall pattern of growth achieved in But that is our aim. In line with this ambition, we spent much of 2004 engaged in a comprehensive review of our brand identity. Working closely with FutureBrand, the global branding firm of the Interpublic Group, we have developed a fresh sense of ourselves; one based on our inherent strengths of imagination and integrity. 5

8 CEO s Statement CEO s Statement Passionate about Sonae Imobiliária began trading in 1989 and completed the first of its own shopping centre developments in Since then, our pioneering concepts have been translated into innovative shopping and leisure centres which have fostered our reputation as one of the most dynamic companies operating in our target markets. Today, under the new name of Sonae Sierra, we maintain a focused and coherent strategy in all our countries of choice: Portugal, Spain, Germany, Italy, Greece and Brazil. In all that we do we are passionate about innovation. From the management of our own administrative systems to the design and construction of retail developments, we seek to achieve a combination of imagination and integrity which leads to excellent results. Rapid growth in busy year 2004 was a busy year for Sonae Sierra. Not only did we sustain the pace of our overall development by opening five new shopping centres four in Spain and one in Brazil we also completed a very large extension of Shopping Penha in Brazil. This rate of growth, which only matches our year-on-year ambition, is the result of considerable hard work of our staff. It also owes much to the high levels of commitment we have enjoyed from our development partners. Throughout the company, we know we must maintain this pattern of growth if we are to achieve our long-term objectives and become one of the leading players in the investment, development and management of shopping and leisure centres in our target markets. Mixed economic fortunes While 2004 was clearly a rewarding year for our company, our progress is all the more satisfactory for having been achieved against a background of mixed economic fortunes in the countries we operate in. Private consumption and consumer spending are the lifeblood of our business. When they are strong, they feed our tenants optimism. When they are weak, they foster caution. In Germany, private consumption was at a comparatively low level throughout the year. In Spain, consumption remained stable which helped us achieve our ambition of becoming one of the top companies in our sector. The business climate was also stable in Italy and Greece, where we shall be breaking new ground in September 2005 when we open the country s first modern shopping centre. We also saw some economic progress in Portugal, where we have achieved a very strong market position, and in Brazil, where the exchange rate has become more favourable and rising consumer spending gives us cause for optimism. Good year for Sierra Fund 2004 was a good year for the Sierra Fund, with results slightly above those we forecasted in terms of returns on investment. In its first full year of operation, the Fund has made a strong contribution to our overall activities, consolidating the financial strength needed to fund both new acquisitions and the refurbishment and expansion of existing centres. I am pleased to report that all our developments in our pipeline are progressing well, and that our relations with the investment community have been enhanced by the introduction of this new Fund. New safety and health programme We have always aspired to the highest possible standards of safety and health across our entire group. During 2004, we established a new Safety & Health Office that focuses on these disciplines on a group-wide basis and involves most of our stakeholders. This new department co-ordinates the services provided by Dupont Safety Resources which fall within the scope of our Personæ project, a joint venture between ourselves and Dupont. Personæ s mission is to develop a zero accident culture within our working environment, ensure responsible behaviour through commonly-adopted values, and leverage operational disciplines with the aim of achieving productivity and quality improvements. The Personæ project is a four year programme designed to raise our safety and health standards to the highest level by

9 CEO s Statement Our new name, Sonae Sierra, gives us a new vehicle for the expression of our central driving force: our passion for innovation in all that we do. Innovation An innovative image This review of our operations is the first major document to be published since the introduction of our new name and new identity. As such, it reflects a major step forward in our development as a company. Our new image is the result of more than a year s intensive examination of our own business processes and the ways in which our activities and personality are both communicated to and perceived by our audiences in the marketplace. We believe our new name will do much to remove any ambiguity arising from the way in which Imobiliária is frequently associated with Portuguese property in its very widest sense. Our new, more international name will make it easier for us to communicate more precisely the exact focus of our business. The new name also signals a new start for our company. It provides fresh impetus for our all activities, from the way our accounting department operates to the way we do business with our partners and develop new concepts for construction. It also gives us a new vehicle for the expression of our central driving force: our passion for investing in, developing and managing innovative shopping and leisure centres specifically designed for the people who visit them. The challenges ahead With new-found energy stemming from our new name and new identity, the new year sees us facing a number of major challenges in all the countries we operate in. In Greece we look forward to the opening of the country s first-ever modern shopping centre, our first development there and one which will test our skills and capabilities as both innovators and managers. In Germany we expect to face continuing competition from established companies in our sector as we seek to improve our standing in the market. In Italy we must sustain our momentum in an industry which is undergoing considerable change as the arguments for and against shopping centres are discussed at both a central and local level. Our most important challenge, however, is the human factor. As a company operating in six different countries, we already employ people with 11 different nationalities. This gives us a global perspective backed by local experience. However, if we are to maintain the pattern of growth achieved during 2004, we must recruit more highly talented people who want to work with us. We must also recruit people who want to learn how we do business, so that they can help us achieve our goals in the future. With the right resources both human and financial I am confident we shall maintain the momentum established during the past year. Álvaro Portela Chief Executive Officer 7

10 Partnerships Partnerships Centres in Operation Partners Country Sonae Sierra ViaCatarina, Porto, Portugal ING Real Estate Netherlands 50% Centro Colombo, Lisbon, Portugal Centro Vasco da Gama, Lisbon, Portugal Grancasa, Zaragoza, Spain Max Centre, Bilbao, Spain Valle Real, Santander, Spain Zubiarte, Bilbao, Spain La Farga, Barcelona, Spain ING Real Estate Netherlands 25% GaiaShopping, Porto, Portugal CNP Assurances (25%) France 50% Arrábida Shopping, Porto, Portugal Ecureuil Vie (25%) France CascaiShopping, Cascais, Portugal Pan European (25%) U.K. 50% Trans European II (25%) U.S.A Multiplan (development) Brazil NorteShopping, Porto, Portugal TIAA-CREF U.S.A 50% MadeiraShopping, Funchal, Portugal Estevão Neves Portugal 50% Parque Atlântico, Ponta Delgada, Portugal NSL Group Portugal 50% Plaza Mayor, Malaga, Spain Castle Management (development) U.K. 100% Avenida M40, Madrid, Spain Eroski Group Spain 60% Luz del Tajo, Toledo, Spain Eroski Group Spain 65% Dos Mares, Murcia, Spain Coimbra Retail Park, Coimbra, Portugal Miller Developments U.K. 50% Estação Viana, Viana do Castelo, Portugal Estação Shopping (development) Portugal 100% Parque Principado, Oviedo, Spain LAR Grosvenor Spain 50% Parque D. Pedro, São Paulo, Brazil Enplanta Engenharia Brazil 97.9% Boavista Shopping, São Paulo, Brazil Enplanta Engenharia Brazil 97.5% Centres under Development Partners Country Sonae Sierra Setúbal Retail Park, Setúbal, Portugal Miller Developments U.K. 50% Plaza Éboli, Madrid, Spain Eroski Group Spain 65% Plaza Mayor Shopping, Malaga, Spain Castle Management U.K. 75% Aegean Park, Athens, Greece Charagionis Group Greece 50% Mediterranean Cosmos, Thessaloniki, Greece Charagionis Group (19.95%) Greece 19.95% Lamda Developments (60.1%) Greece Freccia Rossa, Brescia, Italy AIG (40%) U.S.A 50% Coimpredil (10%) Italy Alexa, Berlin, Germany Foncière Euris France 50% Other Partners Country Sonae Sierra Sierra Charagionis investment, development and management of shopping centres, Charagionis Group Greece 50% Greece Sierra Enplanta investment, development and management of shopping centres, Brazil Enplanta Engenharia Brazil 50% Mediterranean Cosmos Management of shopping centres, Greece Charagionis Group (37.5%) Greece 37.5% Lamda Group (25%) Greece SEgest Management of shopping centres, Italy Espansione Commerciale Italy 50% Sierra Fund Stichting Pensioenfonds ABP Netherlands 50.1% Caisse des Dépôts et Consignations EP France CNP Assurances France Ecureuil Vie France TIAA-CREF USA 8

11 Partnerships Centro Vasco da Gama Location: Lisbon, Portugal Partner: ING Real Estate NorteShopping Location: Porto, Portugal Partner: TIAA-CREF Luz del Tajo Location: Toledo, Spain Partner: Eroski Group Parque D. Pedro Location: São Paulo, Brazil Partner: Enplanta Engenharia CascaiShopping Location: Cascais, Portugal Partners: Pan European, Trans European II and Multiplan (development) Parque Atlântico Sonae Sierra has continued its policy of developing partnerships in all the countries in which we operate. Location: Ponta Delgada, Portugal Partner: NSL Group 9

12 SIERRA INVESTMENTS Our asset management and investment activities succeeded in sustaining the growth of our rental income during 2004, and secured a rise in the underlying value of its shopping and leisure centres.

13 2004 WAS A POSITIVE YEAR FOR SONAE SIERRA. OPERATING IN MIXED MARKET CONDITIONS, WE SUSTAINED OUR FOCUSSED STRATEGY FOR GROWTH ACROSS ALL OUR CORE ACTIVITIES OF INVESTMENT, DEVELOPMENT AND MANAGEMENT. SIERRA DEVELOPMENTS 2004 saw our development division open an unprecedented number of new shopping centres: four in Spain. Further new developments have also been embarked on in Portugal, Germany and Italy. SIERRA MANAGEMENT By the end of 2004, Sierra Management had a total of 1.58 million m 2 Gross Lettable Area (GLA) of shopping centres, retail parks and smaller gallerias under management in Portugal, Spain and Italy will see the commencement of these activities in Germany and Greece. SONAE SIERRA BRAZIL Our operations in Brazil continued to progress during 2004, with sales increasing in most of our shopping centres by more than 18%. Highlights of the year included the opening of the Boavista Shopping and the large expansion of Shopping Penha, both in São Paulo.

14 Sale of Sintra Retail Park (Sintra, Portugal) Contribution of Parque Atlântico (Azores, Portugal) to Sierra Fund Acquisition of 25% of Parque Principado (Oviedo, Spain) Significant refurbishment in La Farga (Barcelona, Spain) Increase of 429 million in the portfolio market value, a growth of 16% We have continued to consolidate and enhance the company s assets by capitalising on the introduction of the Sierra Fund and pursuing new investment opportunities in Germany and Italy. SIERRA INVESTMENTS

15 Our proactive approach to asset management ensures we have the necessary capital required to maintain and market our centres, attract new and innovative tenants and thus sustain our rental income. Ana Guedes Oliveira Sierra Investments, Managing Director Luz del Tajo Business activities Sierra Investments is responsible for the company s investment business in Europe. Its objective is to actively manage both Sonae Sierra s capital and all the company s operating shopping and leisure centres and to increase their asset value. The division contributes to the company s results through a combination of rental income and the rising market values attributable to its shopping centres. It also provides income-bearing asset management services to Sonae Sierra s co-investors. Acting on behalf of the company, the division takes a long-term view, preferring to invest in assets developed by Sierra Developments. It does, however, also invest in selected assets which have been chosen for the potential increase in their value through good control, active management and expansion/refurbishment potential. Sierra Investments holds 50.1% of the Sierra Fund, thus maintaining its position as co-owner and manager of the Fund s underlying assets Prospects After a year of reduced personal consumer confidence in Portugal, there are some signs of recovery in this market, while consumer confidence remains stable in Spain. There is more investment money available in Europe and the demand for top quality shopping and leisure centres remains high. This will certainly continue to have an impact on yields, which makes us confident we can sustain our current levels of return and capital growth. Our aim is to further improve the performance of the Sierra Fund and to broaden the scope of our portfolio through selected acquisitions in Germany and Italy. 13

16 SIERRA INVESTMENTS 2004 Performance With an increase in rental income of 12% and a further increase of 16% in the asset value of our operating properties in Spain and Portugal, we have exceeded our forecasts for The main events of the year have been the acquisition from Sierra Developments of the four new shopping centres Dos Mares (Murcia), Avenida M40 (Madrid), Luz del Tajo (Toledo) and Zubiarte (Bilbao) which opened in Spain during 2004, and the purchase of 25% of Parque Principado (Oviedo, Spain) which was acquired from the Whitehall Fund and increases Sierra Investments shareholding in this asset to 50%. After achieving a certain number of operating criteria, these assets plus Estação Viana (Viana do Castelo, Portugal) will be transferred into the Sierra Fund. Together with Parque Atlântico (Ponta Delgada, Portugal) which has already been transferred to the Sierra Fund, these new assets will considerably enhance the Fund s portfolio value. Having taken the view that retail parks are a less attractive long-term investment in Portugal than shopping centres, we also disposed of the company s Sintra Retail Park (Sintra, Portugal). Retail parks of this kind are a comparatively new concept in Portugal and have yet to become popular with consumers. They are nevertheless attractive to some specialised tenants. This situation currently offers little scope for flexibility and makes constructive asset management less rewarding. As a result, we have shifted our strategic focus and will, so far as Portugal is concerned, concentrate our financial resources on shopping centres. The shopping centre La Farga (Barcelona, Spain) went through a significant refurbishment in order to achieve a new position in the market as a convenient neighbourhood shopping centre directed to its primary catchment area. The centre had been affected by increasing competition, and only with a significant turnaround in terms of mix/tenants and restyling would it be possible to invert the negative trend. The restyling of the centre improved internal flows and communication between floors, allowed the re-anchoring with the leading fashion operator Zara, and created a new, refreshing image and decoration to drive visitors and sales growth. Property values increased The decrease in cap rates and discount rates in Portugal had a positive influence on our valuations during At the end of December 2004, the valuations we received from Cushman & Wakefield/Healey & Baker for the standing investments in our portfolio had increased by 5.4 % when compared with the same values at the end of December This is the result of a portfolio increase in value of 5.2% in Portugal and 6.0%in Spain, mainly due to the decrease in cap rates and discount rates in almost all our centres. Our aim is to sustain this performance and achieve an increase in our rental income through effective marketing, the refurbishment of centres when they show the natural signs of wear and tear, and the expansion of other centres when the market conditions are favourable. We also aim to reduce our operational costs, particularly through the introduction of efficiency and energy and water saving programmes, as well as a reduction of insurance costs achieved through the economies of scale. Our plans for optimising our financial and fiscal performance include a systematic risk management approach. NorteShopping 14

17 Rents & Sales of owned shopping centres Fixed rents Variable rents Total rents % 04/03 rents Sales % 04/03 sales total like-for-like total like-for-like Portugal 145, ,262 10,927 11, , , % 5.9% 1,784,537 1,669, % 3.6% Spain 45,705 39,107 1, ,550 40, % 3.1% 603, , % 10.6% CascaiShopping Economic Factors The general economic situation in Portugal, which is still our most important market, had an impact on local consumer confidence during the year. As a result, some tenants took the prudent view and postponed some of their business plans. Nevertheless, despite the slight stagnation in the market as operators come to terms with the intricacies of the new legislation affecting the pace of store openings in Portugal, we have recorded a satisfactory level of income growth. Portugal s staging of Euro 2004 had a generally negative impact on our sales, other than in those centres more exposed to foreign tourists, where the impact was positive. Signs of recovery In Portugal, the market sentiment appears increasingly optimistic, with an improved economic outlook. There were some signs of economic recovery and of increasing consumer confidence, which will certainly have a positive impact on the retail sector. In Spain, the outlook for the market is for a slowdown in the rate of rental growth, although the sector is expected to remain active, notably on the investment side. The recent downward shift in yields possibly means that a further short-term fall is unlikely, although there is still room for a greater convergence between shopping centre yields and those in the high street over the longer term. With more money available in Europe, we anticipate an increased demand for high quality shopping centres, which should be to our benefit. Our objective is to increase our presence as an investor in our target markets, and thus improve our rental income, either by the acquisition of operating assets which offer scope for development through expansion or refurbishment, improved management or through joint ventures. Occupancy Rate Portugal 97% 96% Spain 95% 91% The value of our tenants The quality of our shopping centres guarantees our status as preferred partner for many retailers. Having taken space in our developments, they know they will share in our success. Main tenants Iberia 2004 Fixed Rents Tenant Name Brands % 1 Inditex Zara; Pull & Bear; Bershka; Kiddy s Class; Massimo Dutti; Stradivarius; Oysho; Often; Zara Home 9.3% 2 SONAE Distribuição Modelo; Bonjour; Vobis; Sport Zone; Worten; Modalfa; Max Mat 3.5% 3 Cortefiel Cortefiel; Douglas; Women Secret s; Milano; Springfield 3.3% 4 Warner Lusomundo Warner Lusomundo 3.2% 5 Ibersol Pizza Hut; Pans & Company; KFC; Pasta Café; Iber; Goody s; Ó Kilo; Burger King; Quiosque Buondi 2.9% 15

18 SIERRA INVESTMENTS Asset Market Values As a property company, we continue to assess the performance of our real estate assets through the evolution of their open market value (OMV) as per the independent valuations performed every year by Cushman & Wakefield/Healey & Baker. Open Market Value ( 000) Shopping Centres in Operation % Sonae Sierra* Open Market Value OMV Variation 31 Dec Dec Dec Total 04/03 % 04/03 AlgarveShopping 100% 98,100 87,518 10,582 12% Arrábida Shopping 50% 64,028 63, % CascaiShopping 50% 133, ,455 4,855 4% Centro Colombo 50% 297, ,873 14,083 5% Centro Vasco da Gama 50% 108, ,061 4,667 4% CoimbraShopping 100% 34,803 32,949 1,854 6% Coimbra Retail Park 50% 8,278 7, % Estação Viana 100% 67,440 60,848 6,592 11% GaiaShopping 50% 67,346 63,494 3,852 6% GuimarãeShopping 100% 39,700 36,031 3,669 10% MadeiraShopping 50% 35,385 34, % MaiaShopping 100% 53,687 52,137 1,550 3% NorteShopping 50% 155, ,776 8,180 6% Parque Atlântico 50% 28,431 25,355 3,076 12% ViaCatarina 50% 34,966 34, % Edifício Grandela 100% 5,059 4, % Gare do Oriente 100% % ClérigoShopping 1 100% 581 Sintra Retail Park 2 14,850 Total Portugal 1,234,167 1,183,335 50,833 Avenida M % 60,050 Dos Mares 4 65% 23,741 Grancasa 50% 69,008 65,750 3,258 5% La Farga 25% 12,193 11, % Luz Del Tajo 4 65% 48,230 Max Centre 50% 69,588 64,750 4,838 7% Parque Principado 3 50% 67,532 32,000 Plaza Mayor 100% 79,045 78,000 1,045 1% Valle Real 50% 38,089 34,300 3,789 11% Zubiarte 4 50% 52,410 Total Spain 519, , ,732 Total 1,754,051 1,469, ,565 * In Centres owned by SIERRA Fund, it means control 1 ClérigoShopping was written-off during Sintra Retail Park was sold during Acquisition of an additional share of 25% during Opening during ,390 2,672 3,101 Open Market Value of Centres in Operation ( millions) Total Value Sonae Sierra Stake , , ,802 1, , , ,

19 Sierra Fund The Sierra Fund was launched and closed in 2003 with a total capital equity of 1.08 billion Sierra Investments holds 50.1% of the Fund and manages its assets In last year, the Fund s performance has exceeded expectations The objective of the Sierra Fund is to provide its investors with dividends and capital appreciation derived from investments in high quality, actively managed shopping centres in Sonae Sierra s targeted markets in Portugal, Spain, Italy, Germany and Greece. Our five partner investors in the Fund are Stichting Pensioenfonds ABP of the Netherlands, the French companies of Caisse des Dépôts et Consignations EP, CNP Assurances and Ecureuil Vie, and TIAA-CREF which is based in the USA. The commitment of these experienced and knowledgeable international institutional investors not only validates the quality of Sonae Sierra s existing assets and development programme, but also provides new knowledge sources which will help Sonae Sierra improve its performance going forward. The performance of the Sierra Fund exceeded expectations during In particular, its operating income was in line with its budget and despite, the revaluation of the centres it currently invests in was somewhat higher than expected due to the decrease in cap rates. During the year, the Fund disposed of its assets in the Sintra Retail Park (Sintra, Portugal) and acquired interests in Parque Atlântico (Ponta Delgada, Portugal) and committed to acquire 50% interest in Parque Principado (Oviedo, Spain). The assets of the Dos Mares (Murcia), Avenida M40 (Madrid), Luz del Tajo (Toledo) and Zubiarte (Bilbao), shopping centres in Spain all of which opened during 2004 and Estação Viana (Viana do Castelo, Portugal) are scheduled to be acquired by the Sierra Fund during In addition to the contribution expected from our pipeline developments, the Fund has been engaged in the intensive assessment of new opportunities with a view to selecting appropriate investments in Italy and Germany, where we expect to conclude the successful acquisition of new schemes for the portfolio during this coming year. Parque Atlântico 17

20 SIERRA INVESTMENTS 2004 Financial Report Retail operating income of 133 million EBITDA increased by 22% to million Value created on properties of 65 million Net profit of 61.4 million The company consolidates the Sierra Fund in full, given that it holds effective control with 50.1% of the capital. Direct Profits The direct profits of Sierra Investments come from the operation of shopping and leisure centres that are part of its portfolio, including those assets that are in the Sierra Fund. The growth in turnover over 2003 is largely the result of growth in the portfolio through acquisition from Sierra Developments during 2004 of projects which began operations in the year, and of the acquisition of a further 25% of the Parque Principado (Oviedo, Spain). In addition, rents in Portugal were affected by the sale of Sintra Retail Park (Sintra, Portugal) which took place in February Shopping centre operational profits grew by 20%. The amount of depreciation corresponds to the amortisation of goodwill on the acquisition of the former Filo portfolio (Spain) and of 25% of Plaza Mayor (Malaga, Spain). Under IAS, Investment Properties are not depreciated. Net financial costs rose considerably compared to 2003 due to an increase in bank debt from 666 million to a total of 870 million. This increase is largely the result of the acquisition of assets during 2004 and of the refinancing operations of Centro Vasco da Gama (Lisbon, Portugal) and NorteShopping (Porto, Portugal). Indirect Profits Indirect profits arise either from the change in value of the investment properties or the realisation of capital gains on the sale of assets and/or shareholding positions. The value created on investment properties reached 65 million in 2004, of which 51 million relate to value creation on assets in Portugal and the remaining 14 million on asset value creation in Spain. Capital gains on property sales amounted to 3.1 million and mainly came from the sale of Sintra Retail Park (Sintra, Portugal) in February 2004 and the sale of Parque Atlântico (Ponta Delgada, Portugal) to the Sierra Fund in August The sale prices were based on the respective independent evaluations without any deduction of deferred taxes. Since the accounts published by the company had a deduction for deferred taxes on potential gains, the sale yielded a gain which broadly corresponds to this amount. Corporation tax fell from 17.7 million to 13.1 million, mainly as a result of a fall in the tax rate in Portugal. In 2004, deferred tax reached 38.3 million compared to a negative amount of 20.8 million in This difference is the result of a gain made in 2003 due to recognition of the reduction of the tax rate in Portugal that led to an adjustment to deferred taxes in that year. Minority interests of 38.3 million correspond mainly to 49.9% of the profit of the Sierra Fund. Sierra Investments contributed 61.4 million to the consolidated profit of Sonae Sierra. Luz del Tajo 18

21 AlgarveShopping Sierra Investments Consolidated Profit & Loss Account ( 000) % 04/03 Fixed rental income 112,003 95,973 17% Turnover rental income 8,018 7,559 6% Key-money 8,402 8,644-3% Other income 4,781 3,718 29% Retail operating income 133, ,893 15% Property management services 7,526 6,342 19% Letting & promotion 1,876 1,872 0% Capital expenditure 3,478 5,624-38% Other costs 10,716 11,066-3% Retail operating costs 23,596 24,904-5% Retail operating margin 109,608 90,989 20% Parking operating margin 3,527 3,326 6% Co-generation operating margin 1, % Shopping centre net operating margin 114,144 95,124 20% Offices operating margin % Overheads 6,173 6,382-3% EBITDA 108,292 89,053 22% Depreciation 3,734 3,311 13% Provisions % Recurrent net financial costs/(income) 35,214 30,561 15% Non-recurring costs/(income) 1,046 (1,929) 154% Direct profit before taxes 67,918 56,551 20% Corporate tax 13,149 17,655-26% Direct profit 54,769 38,896 41% Gain on sale of properties 3, ,995-97% Value created on properties 65,002 59,746 9% Indirect income 68, ,741-61% Deferred tax 23,160 (20,777) 211% Indirect profit 44, ,518-77% Net profit before minorities 99, ,413-57% Minorities 38,300 40,026-4% Net profit 61, ,388-68% Non-audited accounts Sierra Investments Consolidated Balance Sheet ( 000) var. 04/03 Investment properties & others 1,844,598 1,481, ,375 Tenants 7,813 8,595 (782) Deferred taxes 14,261 8,054 6,207 Other assets 90,115 69,144 20,970 Deposits & short term investments 438, ,535 (179,689) Total assets 2,395,633 2,185, ,081 Net worth 761, ,408 (71,103) Minorities 221, ,472 38,584 Bank loans 870, , ,964 Shareholder loans 96, ,579 (26,910) Deferred taxes 285, ,752 40,261 Other liabilities 161, ,180 25,286 Total liabilities 1,413,271 1,170, ,600 Net Worth, minorities and liabilities 2,395,633 2,185, ,081 Non-audited accounts 19

22 Four shopping centres opened in Spain: Dos Mares (Murcia), Avenida M40 (Madrid), Luz del Tajo (Toledo) and Zubiarte (Bilbao) Four new projects started construction: Rio Sul (Seixal) and CovilhãShopping (Covilhã) in Portugal; Alexa (Berlin) in Germany and Freccia Rossa (Brescia) in Italy Construction continued at three projects: LoureShopping (Loures, Portugal), Plaza Éboli (Pinto, Spain) and Mediterranean Cosmos (Thessaloniki, Greece) Commercial licence was obtained for Plaza Mayor Shopping (Malaga, Spain) A new partnership was set up with Foncière Euris to develop Alexa (Berlin, Germany) As well as opening four new centres in Spain, we have begun work on both, Alexa in Berlin and our Freccia Rossa development in Brescia. SIERRA DEVELOPMENTS

23 Completing and opening four new centres in Spain in one year presented us with major challenges. It is rewarding to have inaugurated all these centres on time. Fernando Guedes Oliveira Sonae Sierra Executive Director, Developments Europe Avenida M40 Business activities Sierra Developments is responsible for the development of the company s new shopping and leisure centres in Europe. Our work encompasses land procurement, as well as concept creation, construction management and all other managerial activities necessary to accomplish successful shopping centre developments. Sierra Developments contributes significantly to Sonae Sierra s consolidated income through project management services supplied by us to our development partners during the course of the concept creation and construction process, as well as through the value added during the development phase. Each project s full asset value is realised on its completion, when the entire property is sold to Sierra Investments. It is in the development of shopping and leisure centres that the most added value is created. The constant recycling of capital enables the company to invest in innovative assets, backed up by a rigorous procurement policy and excellent management standards. Effective marketing and letting are other factors which are key to the success of our projects under development. These services are contracted out to our sister division, Sierra Management Prospects We look forward to a year in which we will successfully open more new shopping centres in Portugal, Spain and Greece. We also expect Europe s economic climate and the availability of funds for property investment to generate an increasing interest in shopping centre developments. Encouraged by this, we shall continue our search for new opportunities in our target markets so that we can feed our development pipeline and fulfil our five-year strategic plan. We plan to improve our overall performance by both adding to our staffing levels and enhancing our capabilities. We aim to be more selective in our choice of development opportunities, and yet be even more innovative in terms of the design and construction of new centres and the mix of tenants and services we choose to offer. We also aim to capitalise on the benefits of being part of an integrated company with a long-term business strategy. This not only guarantees us an investor who will take ownership of the property at the end of each development program, it also enables us to improve the quality of our product through interaction with both the investment and management arms of the Sonae Sierra business. We also derive enormous benefit from the company s marketing, leasing, administrative, accounting, legal and finance specialists. 21

24 SIERRA DEVELOPMENTS 2004 Performance Profits improved during 2004, although our profit from development services varied across the countries in which we operate. New centres, new projects Sierra Developments year was marked by the completion and opening of four new shopping centres in Spain and the transfer of these properties, at open market value (OMV), to Sierra Investments. During the same period, we also commenced work on the construction of four new centres in Portugal, Germany and Italy. By the end of 2004, the two component parts of Sierra Developments profits the direct profit derived from project management services, and the indirect profit arising from value creation during a project s development phase had contributed to Sonae Sierra s overall business in varying ways, according to the countries we operate in. Our direct profits were lower than expected in Germany, Italy and Greece, caused by unexpected delays to the start of our new developments in those countries. By contrast, our indirect profits were higher in Spain and Portugal, mainly as a result of lower real estate yields, the skills of our project managers and our successful leasing of space within various projects while they were still under development, which led to higher OMV on completion. The lowering of real estate yields in Spain and Portugal also had a positive impact on the open market value of all the projects we still have under development, which lead to higher OMV on completion. Dos Mares Luz del Tajo 22

25 New starts in Portugal In Portugal, we began work on two developments: Rio Sul (Seixal) and CovilhãShopping (Covilhã). They represent a total investment of 92 million offering 57,500 m 2 of GLA. Both centres are expected to open in spring During the coming year, we expect to open the LoureShopping centre in Loures. The marketing of this 111 million investment is already successful, with 83% of the 38,700 m 2 of GLA already let. LoureShopping will have 106 shops and create more than 1,000 jobs. Setúbal Retail Park (Setúbal), is the company s third investment of this type in Portugal. It is a joint venture with Miller Developments, the company s partner for the retail park business in Portugal and Spain. It is estimated that the investment will total around 23 million.» CovilhãShopping Location Covilhã, Portugal Opening Date Spring 2006 Catchment Area 109,000 inhab GLA (m 2 ) 17,800 No. of parking spaces 900 Shops 86 Gross Investment ( million) 28 Developer Sonae Sierra Owner Sonae Sierra» LoureShopping Location Loures, Portugal Opening Date Autumn 2005 Catchment Area 641,000 inhab GLA (m 2 ) 38,700 No. of parking spaces 2,100 Shops 106 Gross Investment ( million) 111 Developer Sonae Sierra Owner Sonae Sierra» Rio Sul» Setúbal Retail Park Location Seixal, Portugal Location Setúbal, Portugal Opening Date Spring 2006 Catchment Area 326,000 inhab GLA (m 2 ) 39,700 No. of parking spaces 2,300 Shops 140 Gross Investment ( million) 64 Developer Sonae Sierra Owner Sonae Sierra Opening Date Autumn 2006 Catchment Area 154,000 inhab GLA (m 2 ) 20,300 No. of parking spaces 880 Shops 18 Gross Investment ( million) 23 Developers Sonae Sierra / Miller Developments Owners Sonae Sierra (50%) / Miller Developments (50%) 23

26 Spanish achievement The opening of four new centres in Spain in nine months marked a new stage in our development as a company. Controlling all four projects at once called for exceptional levels of skill and dedication, which our staff delivered admirably. Dos Mares, a 36.5 million investment located between Alicante and Cartagena, was the first to open. It was jointly developed by Sonae Sierra and the Eroski Group. Created by a multidisciplinary team of skilled professionals, it was designed to fit into its urban and rural surroundings and evoke the spirit of the Mediterranean through the use of colours, materials and natural lighting. With a catchment of 64,000 people within 10 minutes drive, and a total of 73,000 less than 20 minutes away, Dos Mares expects some five million visits per year. Avenida M40 in Madrid opened on April 20th. With a GLA of 49,400 m 2, it offers a huge variety of shops and bars, including an Eroski hypermarket, a multiplex cinema and branches of Zara, H&M, Sfera and Burger King, as well as Benetton and McDonald s. A joint venture between Sonae Sierra and the Eroski Group, this 117 million investment anticipates over nine million visits a year and will generate a total of more than 1,500 jobs. Luz del Tajo (Toledo), also in partnership with Eroski Group, opened its doors in September. This 78 million development in Toledo features 130 shops and ten cinemas and expects to receive 6.5 million visitors each year. Forty-three of the shops are occupied by local tenants, with major brands such as Zara, Forum, Mediamix and Sfera represented alongside an Eroski Hypermarket. Luz del Tajo also offers consumers a choice of 22 bars and restaurants. Our fourth new centre in Spain Zubiarte in Bilbao is a 90 million development in conjunction with ING Real Estate Development offering 76 shops and, in the leisure area, eight cinemas capable of seating 1,800 people. Visitor levels have been forecast at nine million a year. We are on schedule to open another centre in Madrid Plaza Éboli in the Pinto district in March The centre, in partnership with the Eroski Group, represents an investment of 56 million. It will have 32,000 m 2 of GLA with 101 shops and parking for about 1,000 cars. In Malaga, we expect to begin the construction of Plaza Mayor Shopping during the second half of 2005, immediately after obtaining the construction license. This joint venture with Castle Management represents a 45 million investment with 18,800 m 2 of GLA.» Plaza Éboli» Plaza Mayor Shopping Location Madrid, Spain Location Malaga, Spain Opening Date 16 March 2005 Catchment Area 156,000 inhab GLA (m 2 ) 32,000 No. of parking spaces 1,000 Shops 101 Gross Investment ( million) 56 Developers Sonae Sierra / Eroski Group Owners Sonae Sierra (65%) / Eroski Group (35%) Opening Date Autumn 2006 Catchment Area 990,000 inhab GLA (m 2 ) 18,800 No. of parking spaces 1,000 Shops 61 Gross Investment ( million) 45 Developers Sonae Sierra / Castle Management Owners Sonae Sierra (75%) / Castle Management (25%) 24

27 Italian developments Our Freccia Rossa centre (Brescia) is a 114 million joint investment between Sonae Sierra, AIG (USA) and Coimpredil (Italy). With a total GLA of 29,000 m 2 and 130 shops, it is due to open early During 2004 we have agreed terms to purchase a large plot of land in Torino, subject to getting the necessary licenses to develop a large shopping and leisure centre. We have been working to obtain the necessary licenses for a regional shopping centre of 86,000 m 2 of GLA in two levels, anchored by a large hypermarket and a cinema complex saw the start of our first development in Italy at Brescia.» Freccia Rossa» Caselle Location Brescia, Italy Location Torino, Italy Opening Date Spring 2007 Catchment Area 580,000 inhab GLA (m 2 ) 29,000 No. of parking spaces 2,500 Shops 130 Gross Investment ( million) 114 Developers Sonae Sierra / AIG / Coimpredil Owners Sonae Sierra (50%) / AIG (40%) / Coimpredil (10%) Opening Date Autumn 2007 Catchment Area 1,750,000 inhab GLA (m 2 ) 86,000 No. of parking spaces 7,000 Shops 300 Gross Investment ( million) 248 Developer Sonae Sierra Owner Sonae Sierra 25

28 New ground broken in Germany In October 2004 we announced the first groundbreaking moves in the development of our Alexa shopping centre in Berlin. This 266 million project is a joint venture between Sonae Sierra and France s, Foncière Euris. Being built on a 3.2 hectare site, this shopping and leisure centre will accommodate approximately 180 tenants, a large covered car park and entertainment facilities complete with multiple restaurants and bars. We continued our works on the design, licensing and contracting for the 68,600 m 2 GLA of 3DO, in Dortmund, and have already started the pre-leasing activity. We are convinced that during the first half of 2005 all those activities will be completed so that construction on site begins before year-end. Due for completion in the Autumn of 2006, Alexa (Berlin) named in honour of Berlin s adjacent Alexanderplatz has been designed as a fundamental piece in a larger multi-use development featuring offices, hotels and housing.» Alexa» 3 DO Location Berlin, Germany Location Dortmund, Germany Opening Date Autumn 2006 Catchment Area 1,800,000 inhab GLA (m 2 ) 58,800 No. of parking spaces 1,600 Shops 180 Gross Investment ( million) 266 Developer Sonae Sierra Owners Sonae Sierra (50%) / Foncière Euris (50%) Opening Date Autumn 2008 Catchment Area 3,400,000 inhab GLA (m 2 ) 68,600 No. of parking spaces 2,000 Shops 200 Gross Investment ( million) 272 Developer Sonae Sierra Owner Sonae Sierra 26

29 New centre for Greece 2005 will mark the culmination of our development work in Thessaloniki, Greece, when Mediterranean Cosmos the first modern shopping centre ever built in Greece opens to the public. This has been an arduous project for Sierra Charagionis, our joint venture with Charagionis Group for the Greek market, since the Greek retail sector has no previous experience of large shopping centres with international standards. We are, however, confident that Mediterranean Cosmos will be a success and that this 110 million project, developed by Sierra Charagionis and LAMDA Development Group, will pave the way for Aegean Park, in Athens, the second development of Sierra Charagionis, for which we are still awaiting planning consents.» Mediterranean Cosmos» Aegean Park Location Thessaloniki, Greece Location Athens, Greece Opening Date Autumn 2005 Catchment Area 210,000 inhab GLA (m 2 ) 46,500 No. of parking spaces 2,600 Shops 226 Gross Investment ( million) 110 Developers Sierra Charagionis / Lamda Developments Owners Sierra Charagionis (39.9%) / Lamda Developments (60.1%) Opening Date Autumn 2007 Catchment Area 1,100,000 inhab GLA (m 2 ) 51,000 No. of parking spaces 2,500 Shops 155 Gross Investment ( million) 152 Developer Sierra Charagionis Owners Sonae Sierra (50%) / Charagionis Group (50%) 27

30 SIERRA DEVELOPMENTS 2004 Financial Report Development services rendered of 10.5 million Value created on assets of 32.2 million Net profit of 21.9 million Sierra Developments contributed 21.9 million to the consolidated profit of Sonae Sierra compared to 8.0 million in The profit has two essential components: the first results from the normal activity of development, with project management fees designated as direct profit; the second corresponds to the value created during the development process and is captured under indirect profits. Direct Profit Development services, resulting from real estate development management services capitalised on projects in progress in Europe, grew 53% compared to 2003 due to new projects in Portugal, Spain, Italy and Germany. Operational costs increased 17% over the previous year, as a result of exploring new business opportunities internationally and an increase in the number of staff. Indirect Profit In the shopping centres opened in Spain during Dos Mares (Murcia), Avenida M40 (Madrid), Luz del Tajo (Toledo), and Zubiarte (Bilbao) which were sold to Sierra Investments, the value created up to the opening date was 18.7 million, of which 10.7 million have been recognised in prior years. The increase in Open Market Value (OMV) of the shopping centres sold to Sierra Investments in 2003 led to a price adjustment of 7.6 million. The value created in centres under development, where a construction license has been obtained, reached 16.5 million in Luz del Tajo A total amount of 280 million was invested during

31 AlgarveShopping Sierra Developments Consolidated Profit & Loss Account ( 000) % 04/03 Development services rendered 10,533 6,899 53% Operating costs 20,610 17,573 17% EBITDA (10,076) (10,674) 6% Depreciation and provisions % Net financial costs/(income) 1,946 (210) Non-recurring costs/(income) Direct profit before taxes (12,539) (10,910) -15% Corporate tax (1,793) (1,621) -11% Direct profit (10,746) (9,290) -16% realised on investments 15,619 6, % Value created on properties under development 16,532 11,106 49% Indirect profit 32,151 17,326 86% Net profit before minorities 21,406 8, % Minorities (511) Net profit 21,916 8, % Non-audited accounts Sierra Developments Consolidated Balance Sheet ( 000) var. 04/03 Properties under development 221, ,129 27,540 Goodwill 10,938 10,938 Tenants 2,750 8,151 (5,401) Other assets 67, ,485 (34,528) Deposits 12,640 10,136 2,504 Total assets 315, ,901 1,053 Net worth 62,080 45,791 16,289 Minorities 19,764 9,975 9,789 Bank loans 18,020 36,032 (18,012) Shareholder loans 127, ,879 (50,010) Deferred taxes 10, ,277 Other liabilities 77,346 44,626 32,720 Total liabilities 234, ,136 (25,025) Net worth, minorities and liabilities 315, ,901 1,053 Non-audited accounts NorteShopping 29

32 Three new centres being let in Portugal Six new properties under management in Spain, making us the leading Shopping Centre Property Manager in Iberia Consolidation of our Italian operation, with the opening of the expansion of OrioCenter, (Bergamo), and two new centres being managed Launch of our Greek operation Several prizes won at the ICSC Marketing Awards, both in Europe and in USA Set against the backdrop of Europe s overall economic climate, the performance of most of our shopping centres was very satisfactory. We outperformed the competition. SIERRA MANAGEMENT

33 Our major goal is to increase our efficiency by taking full advantage of the economies of scale which exist in the property management business. We have a variety of ways of achieving this. Pedro Caupers Sonae Sierra Executive Director, Property Management Europe AlgarveShopping Business activities Sierra Management is responsible for both letting and managing a wide range of shopping and leisure centres, either owned by Sonae Sierra or by third parties, in Portugal, Spain and Italy. The division also has letting activities in Greece and Germany, where it will start management activities during the next couple of years. Our role is to maintain vital links between owners and tenants and thus contribute to Sonae Sierra profits through the various management services we provide in the shopping centres we are responsible for. As a pioneer in our sector, we have long recognised that services like these must be maintained at the highest levels if the shopping centres in our care are to increase in value over time. This approach is particularly important in matters relating to tenant mix, where we have achieved some notable successes Prospects We expect to see a positive performance from all the centres presently managed by Sierra Management. We also expect to make further progress in letting the company s new centres currently under development in Portugal, Spain, Italy and Germany. The opening of our new centre in Greece will not only introduce the Greek people to their first experience of modern shopping centres in their own country, but also stand as a milestone in our development as a company. Its success will add fuel to our ambition of becoming the most acclaimed centre management company in Europe. 31

34 SIERRA MANAGEMENT 2004 Performance With the retail properties now under management in Portugal and Spain, we are recognised as the leading Iberian company in our chosen field. While the focus of our activities remains concentrated on shopping and leisure centre management, marketing and letting, the scope of our business has broadened geographically during the past year. We now have a larger portfolio of properties under management particularly in Spain and Italy and we have begun letting activities in Greece and Germany. Our Spanish activities now encompass the management of five new centres in key locations across Spain. These include the recently opened Avenida M40, in Madrid, Dos Mares, between Alicante and Cartagena, Luz del Tajo, in Toledo, and Zubiarte, in Bilbao, all of which are either owned or co-owned by Sonae Sierra. We also started managing MN4, a Valencia centre which is owned by a third party. This third party management contract is mirrored by others we have for the management of the OrioCenter in Bergamo, Italy, which is owned by CGI and expanded in 2004, and two new centres in Italy Moncalieri (Torino) and Biccoca (Milan) which Pirelli Real Estate has developed more recently. As a result of our expansion in Spain and Italy, we finished 2004 with an operational portfolio composed of 19 shopping centres, two retail parks and some smaller galleries in Portugal, 13 centres and one retail park in Spain and three centres in Italy. When we include the seven centres under management in Brazil, our portfolio now exceeds 1.85 million m 2 of Gross Leasing Area. This makes us one of the leading European companies in the Shopping Centre management business. Successful campaigns Marketing is central to our success as a company. It is our job to ensure that the centres developed by Sonae Sierra are fully tenanted, and that our tenants enjoy the custom of contented consumers. During the past year, several of our marketing campaigns won industry awards. For example, we were awarded three Merit Certificates at the ICSC Jean Louis Solal Awards, presented in Rome last April. We also won one Award and one Merit Certificate at the MAXI Awards of the ICSC in the USA, which were presented in late September in San Antonio. We have also developed and enlarged the scope of our two web portals which provide information on our existing centres and those still under development. Our consumer portal, SierraCentres.Com, which brings together all the web sites of our main centres, now hosts a total of 39 centres (six more than in December 2003), while our business-tobusiness portal at SierraCentres.Net, which provides services for our tenants, is now covering a total of 97 centres and galleries (up by seven on December 2003). This commitment to technology is further reflected in the fact that customers in our nine largest centres in Portugal are now provided with wireless internet connectivity. A growing business The success of our portfolio under management is directly affected by our ability to manage, market and let the properties in our care. The following tables give an indication of the success we have achieved over the past years. Estação Viana NorteShopping 32

35 Sales and Visits of portfolio under management Visits % 04/03 Sales % 04/ total like-for-like total like-for-like Portugal 270, , % 0.8% 2,003,770 1,850, % 4.0% Spain 65,693 55, % 1.7% 669, , % 10.2% Italy 7,257 7, % 0.3% 147, , % 2.1% Sales in 000 Visits in thousands Portfolio under management Portugal Spain Italy GLA owned GLA third-party Portfolio under management Collections Rate Letting (no. of contracts) % 99.8% 98.0% 98.9% 99.0% 97.9% ,015 1,293 1,342 1, Portugal Spain Italy Portugal Spain Italy GLA (000 m 2 ) No. of Contracts Collections 2004 Collections 2003 Centres in Operation New Projects Portugal Following the opening of Parque Atlântico (Ponta Delgada), Coimbra Retail Park (Coimbra) and Estação Viana (Viana do Castelo) during the latter part of 2003, our portfolio of shopping centres under management in Portugal was unchanged during However, we have started the letting programmes for a further three centres LoureShopping (Loures), Rio Sul (Seixal), and CovilhãShopping (Covilhã) all of which are currently under construction. So far, the market reaction has been positive. We are confident that the current situation will lead to our letting objectives being met. 33

36 Spain During the year, our portfolio of properties under management in Spain rose from 8 shopping centres to 13 shopping centres and one retail park which, by any standards, represents significant growth. In general terms, these properties performed very positively, with the exception of La Farga (Barcelona) where the performance was affected by the ongoing refurbishment works, La Morea (Pamplona) which faced strong competition from new opposition during the last quarter of 2004, and Avenida M40, which is also facing strong competition in the South of Madrid. Avenida M40 Zubiarte Italy The OrioCenter (Bergamo) expansion was inaugurated as fully let on 25th November, making it the largest shopping centre in Italy. Performance during the year was quite good, taking into consideration the expansion works which temporarily affected the centre s car parking capacity. We also signed property management contracts for two new centres Biccoca (Milan) and Moncalieri (Torino) which have been developed by Pirelli Real Estate and which will be opening in phases until their completion during the first half of

37 Greece We have begun hiring and training the staff who will manage the Mediterranean Cosmos centre, which is due to open in Thessaloniki in the Autumn of Letting is also under way. The main challenge we face is the fact that no real modern shopping centres exist in Greece. This makes it difficult to explain the real advantages of being a tenant in a regional shopping centre. Nevertheless, we are confident our potential tenants will come to understand the benefits offered by Mediterranean Cosmos, Thessaloniki, during the course of the year. Germany The major focus of our work during 2004 was on the letting of the anchor stores for the Alexa project in Berlin and the 3DO project in Dortmund. The market reaction has been positive in both cases, and we expect to sign deals with the most important tenants by the end of the first quarter of We have also decided to launch the future property management company, which will begin trading as a separate entity early in

38 SIERRA MANAGEMENT 2004 Financial Report Income from management services of 25.9 million EBITDA of 7.3 million Net profit of 4.8 million Total income grew 13% overall between 2003 and 2004 as a result of an increase in business activity, both through new centre openings in Spain and the start up of management of centres owned by third parties such as MN4 (Valência) in Spain and OrioCentre (Bergamo), Moncalieri (Torino) and Biccoca (Milan) in Italy. The increase in the portfolio under management which took place in 2003 also contributed towards the increase in income. Operating costs including staff costs, which are an important component of costs in this service activity, grew by 23% in This growth during 2004, above that of income, was due to the start up of operations in Italy, and the set up of management teams in Greece. The impact of economies of scale will be felt in the future particularly in terms of the back office with the increase in the portfolio under management in these countries. As a result of the growth of the Sierra Management structure, operational profits (EBITDA) fell 6% between 2003 and Corporate tax fell by 34%, as a result of the reduction in the tax rate in Portugal from 33% to 27.5%. ViaCatarina Plaza Mayor Sierra Management contributed 4.8 million to the consolidated profit of Sonae Sierra, an increase of 17%. 36

39 Centro Vasco da Gama Sierra Management Consolidated Profit & Loss Account ( 000) % 04/03 Property management fees 19,407 16,454 18% Letting fees 4,534 4,565-1% Other income 1,913 1,777 8% Income from prop. management services 25,854 22,796 13% Operating costs 18,534 15,045 23% EBITDA 7,320 7,750-6% Depreciation 1,277 1,439-11% Net financial costs/(income) (695) (614) -13% Non-recurring costs/(income) % Profit before taxes 6,647 6,818-3% Corporate tax 1,794 2,728-34% Net profit before minorities 4,853 4,090 19% Minorities 50 1 Net profit 4,803 4,089 17% Non-audited accounts Sierra Management Consolidated Balance Sheet ( 000) var. 04/03 Net fixed assets (271) Goodwill 8,412 9,484 (1,071) Tenants 9,649 10,873 (1,224) Deferred taxes Other assets 4,247 4,276 (29) Deposits 27,130 26, Total assets 50,400 51,889 (1,489) Net worth 7,893 7, Minorities Shareholder loans 8,846 9,870 (1,024) Other liabilities 33,603 34,898 (1,295) Total liabilities 42,449 44,768 (2,319) Net worth, minorities and liabilities 50,400 51,889 (1,489) Non-audited accounts 37

40 Total portfolio open market value (OMV) of Sonae Sierra Brazil reached million, an increase of 23.1% compared to 2003 Boavista Shopping in São Paulo opened in April 2004 Expansion of Shopping Penha completed in October 2004; Sonae Sierra Brazil now owns 64.7% of this asset Parque D. Pedro consolidated its market position and was visited by more than 17 million consumers; sales grew by 19.2% By opening our new Boavista Shopping and extending Shopping Penha, both in São Paulo, we have taken further steps towards our goal of becoming one of the best companies in our sector. SONAE SIERRA BRAZIL

41 Our ambition for 2005 is to increase our standing in the market by starting two new shopping centre developments and acquiring another for refurbishment and subsequent management. João Pessoa Jorge Sonae Sierra Executive Director, Brazil Parque D. Pedro Business activities Sonae Sierra s strategic aim is to become a significant presence in the Brazilian shopping centre market. Sonae Sierra Brazil is an independent business operation set up by Sonae Sierra to fulfil this limited aim. Its professional skills cover all aspects of the investment in, development and management of shopping centres. The principal objective is to create a strong business in a market with high potential, either by improving the performance of the shopping centres we own, or through the development of new projects. The establishment of partnerships with local or foreign investors is a key part of this expansion programme Prospects Consumer confidence and spending power is strengthening in Brazil, particularly in the urban areas which our business serves. We anticipate that this improvement in the country s economic health will encourage more companies to take up tenancies in shopping centres and thus help increase our rental income. We are constantly looking for opportunities to either develop new shopping centres or acquire established centres whose performance we believe we can improve. We aim to begin work on two new projects of our own during 2005, and acquire an existing shopping centre with a view to refurbishing it and taking over its management. 39

42 SONAE SIERRA BRAZIL 2004 Performance The opening of the 20 million Boavista Shopping not only increased our total GLA under management by 23,800 m 2, it also provided some 1,800 new jobs in São Paulo. The highlight of 2004 for Sonae Sierra Brazil was the opening of our new Boavista shopping centre in São Paulo. This property the result of a 20 million investment by Sonae Sierra and Sierra Enplanta offers 23,800 m 2 of GLA arranged to accommodate a total of 167 stores comprised of four anchor stores, 140 satellite stores, and 23 fast food restaurants. The centre also features parking for over 1,000 vehicles. Boavista Shopping (São Paulo) opened in April During the year, we also completed the expansion of Shopping Penha in São Paulo. This property now has a GLA of 29,800 m 2, created by a combination of vertical and horizontal enlargement, made possible by the purchase of neighbouring spaces. The centre features a total of 250 stores: 6 anchor stores, 225 satellite stores and 19 fast food restaurants. There is parking for 2,000 vehicles. The completion of these projects against a background of only a slight recovery of consumer confidence demonstrates our commitment to a long-term perspective. They also bring our total of shopping centres to 7. In addition to Boavista Shopping and Shopping Penha, both in São Paulo, we own and manage Parque D. Pedro (Campinas, SP), Pátio Brasil (Brasilia, DF), Shopping Metrópole (São Bernardo do Campo, SP), Tivoli Shopping (Santa Bárbara D Oeste, SP) and Franca Shopping (Franca, SP). Together, these developments offer a total GLA of 260,000 m 2. A challenging year There is no doubt, the political and macroeconomic events in Brazil affected our performance during In macro-economic terms, the Brazilian economy performed better than expected. The value of the Real increased against the US$ and it was stable against the Euro. The major problem remains high interest rates. The consolidation of Brazil economic growth depends crucially on maintaining strict policies concerning inflation and control of the public deficit. On the letting side, some of our tenants experienced lower sales which led to some difficulties. However, business confidence is improving and we expect to reduce the number of vacant units in our properties in the near future. For the time being, we have cancelled a new project in Curitiba, mainly due to the uncertainty of the Brazilian economy and the large size of the project. Looking ahead, we know we must remain committed to innovation, concentrate on the renewal of tenancies and do all that we can to help our tenants achieve better. We must sustain our investment in our image, maintain our focus through market analysis and look for new opportunities for growth through the development of innovative shopping centres and the acquisition of others which have the potential for improvement. Our objective is to be one of the best companies in this sector in Brazil. Our economies of scale are very important in this process. It is also important for our offer to be attractive to future tenants, in particular brands which can become anchor stores. We believe we have the abilities needed to attract foreign partners to the shopping centre business in Brazil, either as developers or investors. We are in discussions with our present partners in other markets, and in new ones, who could embark on joint ventures with us, trusting our expertise and track record. The long-term debt market is underdeveloped and very expensive in Brazil. Our aim is to be innovative in this area, looking either for alternative funding opportunities or equity investors. 40

43 The relationship between rents, occupancy, sales and visits Our success in the market is governed as much by our ability to market and let our properties as it is by our skill in creating attractive developments. The tables below show how rents, occupancy rates, sales and customer visits all interact with each other. Rents Fixed rents Variable rents Total rents % 04/03 rents total like-for-like Brazil 21,006 18,764 1,541 1,475 22,547 20, % 7.0% Rents in 000 Sales and Visits Visits % 04/03 Sales % 04/ total like-for-like total like-for-like Brazil 67,253 59, % 7.2% 391, , % 10.4% Sales in 000 Visits in thousands Occupancy Rate Brazil 81.7% 84.9% Open market value The table below provides a comparison between the Open Market Value of properties owned by Sonae Sierra Brazil at the end of 2003 and at the end of Tivoli Shopping Open Market Value ( 000) Shopping Centres in % Sonae Sierra Open Market Value OMV Variation Operation 31 Dec Dec Dec Total 04/03 % 04/03 Shopping Penha % 18, Shopping Metrópole 5.0% 1,421 1, % Tivoli Shopping 12.5% 1,292 1,369 (77) -6% Franca Shopping 48.8% 2,670 2, % Pátio Brazil Shopping 5.2% 2,103 1, % Parque D. Pedro 97.9% 110, ,790 4,933 5% Boavista Shopping % 17,314 Total 153, ,460 40,067 1 Increase of participation share during Opening during

44 SONAE SIERRA BRAZIL 2004 Financial Report Shopping centre operating margin grew by 20% Direct profit reached 4.5 million Investment of 19 million during 2004 Sonae Sierra Brazil s contribution to the consolidated profits of Sonae Sierra was negative, as a result of indirect losses made in On the other hand, direct profits from the operational activity of Sonae Sierra Brazil grew from 562,000 to 4.5 million due to growth in the portfolio. Direct Profit In the investment business, fixed rents grew by 28% compared to 2003, due to an increase in the occupancy rate of Parque D. Pedro (Campinas, SP), the start up of Boavista Shopping (São Paulo), the acquisition of an additional shareholding position in Shopping Penha (São Paulo) and the conclusion of its expansion, and the acquisition, during 2003, of an additional shareholding position in Franca Shopping (Franca, SP). During 2004, there was a 20% increase in operating margin. In the development business, the income fell from 608,000 to 248,000 as a result of the opening of two centres under development during In the management business, the income fell 19% during 2004, due to a decrease in letting activity due to the opening of Boavista Shopping and the completion of the expansion of Shopping Penha during the period. The fall in corporate tax was largely due to interests on capital paid by Parque D. Pedro to the shareholders being considered tax deductible, in accordance with recently implemented Brazilian tax law. Indirect Profit Value created on properties was positive at 1.2 million as a result of the valuation of all investment properties. Value created on properties developed was negative at 6.9 million as a result of the impairment of the investment made in the Curitiba project, which has been cancelled. In addition, the open market value (OMV) of Boavista Shopping was below expectations, resulting in a negative margin on the project. Boavista Shopping Investment properties reached million a 14% increase. 42

45 Parque D. Pedro Boavista Shopping Sonae Sierra Brazil Consolidated Profit & Loss Account ( 000) % 04/03 Fixed rental income 10,844 8,449 28% Turnover rental income % Key-money 1, % Other income % Retail operating income 13,631 10,082 35% Property management services % Letting & promotion services 1, % Other costs 3,462 2,038 70% Retail operating costs 4,891 2,808 74% Parking operating margin % Shopping centre net operating margin 8,754 7,294 20% Income from project development services % Income from property management services 1,257 1,554-19% Income from services rendered 1,504 2,162-30% Overheads 3,843 3,112 24% EBITDA 6,415 6,344 1% Depreciation % Provisions % Net financial costs/(income) 2,770 2,902-5% Non-recurring costs/(income) 142 1,671-92% Direct profit before taxes 2, % Corporate tax (1,674) 124 Direct Profit 4, Value created on properties 1,238 14,295-91% Value created on properties under development (6,854) 857 Indirect income (5,615) 15, % Deferred tax (191) 5, % Indirect profit (5,424) 9, % Net profit before minorities (876) 10, % Minorities 41 Net profit (917) 10, % Non-audited accounts Sonae Sierra Brazil Consolidated Balance Sheet ( 000) var. 04/03 Properties 153, ,804 18,723 investments 153, ,459 40,068 under development 21,345 (21,345) Tenants 3,897 3,898 (1) Deferred taxes 4,131 3, Other assets 2,651 1, Deposits 1, Total assets 165, ,593 20,622 Net worth (33,021) (35,087) 2,065 Minorities 2,518 2, Bank loans Shareholder loans 164, ,685 15,939 Deferred taxes 20,703 19, Other liabilities 9,618 8,360 1,258 Total liabilities 195, ,559 18,159 Net worth, minorities and liabilities 165, ,593 20,622 Non-audited accounts 43

46 Consolidated Accounts 22% increase in Direct Net Profits from 41.6 million to 50.8 million 9.8% increase in EBITDA from 98.1 million to million Total Net Profit After Minorities of 82.3 million Net Asset Value (NAV) increased by 112 million, a growth of 11.8% Bank debt grew from 764 million to 934 million, increasing the net asset gearing from 24% to a still conservative 28.8% Interest cover ratio maintained at a comfortable 2.67 level Reduction of the average cost of debt to 5%, the majority of which is at fixed rate Project financed Luz del Tajo (Toledo, Spain) and Plaza Mayor Shopping (Malaga, Spain) and re-financed Centro Vasco da Gama (Lisbon, Portugal), NorteShopping (Porto, Portugal), Avenida M40 (Madrid, Spain) and La Farga (Barcelona, Spain) Our limited recourse mortgagedbacked project finance formula continues to be the cornerstone of our financial policy. Gearing and re-gearing our assets will be key to our company s continuing growth. SONAE SIERRA CONSOLIDATED ACCOUNTS

47 Consolidated Accounts Turnover continued to grow in 2004 with direct income increasing by 18.7 million to a total of million. All business areas contributed to this growth. Edmundo Figueiredo Sonae Sierra Executive Director, CFO Our financial partnerships are key to our success. During the year, we have deepened relations with our core bankers and embarked on a programme designed to enhance our relationships with local banks in Germany, where we are talking to HSH Nordbank, Helaba, and SEB, in Italy, where we are working with Unibanco Mediocredito Centrale, and in Greece with Emporiki Bank. Leveraged assets We have also continued to leverage the company s assets by, for example, refinancing Lisbon s Centro Vasco da Gama (Lisbon, Portugal) so that the total debt associated with the project has increased from 110 million to 130 million. We have similarly refinanced NorteShopping (Porto, Portugal) increasing its total debt from 62 million to 200 million. Both these refinancing were helped by low interest rates during the year, which also led to a reduction on the average interest rate in our loan portfolio. In both cases, the company more than recovered its initial equity investment through the refinancing operations and, effectively, transformed in liquidity part or all of the valuation gain booked on those properties in accordance with IAS 40. As a consequence, it is not entirely correct to say that, under IAS, there is a cash profit and a non-cash profit the valuation gain since, through either sales or refinancing, the valuation gain can be monetised. Sustaining our financial performance depends on the positive interaction of a number of disciplines. For example, value is created in the development process and again through the active management of our properties in operation. It is also created by the dynamics of the investment markets, through changes in valuations and, finally, by the way we manage our debt. The objective at all times is to minimise our costs within an environment of increasing debt. In all these areas, rigorous financial monitoring and the use of hedging instruments helps our managers achieve value creation in a sustained way. We also make a considerable investment in the personnel and systems we employ in financial reporting. Improved Returns Our objective for the year ahead is to increase the asset gearing of the company, which stood at a conservative level of 28.8% at the end of 2004, with the aim of achieving an improved return on equity. This will be done mainly through the refinancing of existing operating assets. At the same time, we shall closely monitor our interest rate risk, always choosing the most suitable hedging instrument. We anticipate that the terms for the financing facilities for a number of projects LoureShopping (Loures, Portugal) CovilhãShopping (Covilhã, Portugal), Rio Sul (Seixal, Portugal), Alexa (Berlin, Germany), 3DO (Dortmund, Germany), Freccia Rossa (Brescia, Italy), Mediterranean Cosmos (Thessaloniki, Greece) will all be agreed and signed off during We plan to make additional investments in our back office facilities in Germany, Italy and Greece during the coming year. Our objective is not only to increase our staff levels in these countries, but also to install new IT systems that mirror those we have in place in Portugal, Spain and Brazil. The aim here is to further harmonise our shopping centre management, planning, reporting and accounting procedures with a view to gaining greater operational efficiencies. 45

48 Consolidated Accounts Net Asset Value (NAV) Starting in 2001, the company decided to adopt International Accounting Standards (IAS) in the preparation of its consolidated accounts. The IAS led to the open-market value of the investment properties being reflected in the company s balance sheet. However, the company does not believe that the Net Asset Value resulting from such a balance sheet truly reflects its value, for two reasons. In the first instance, under IAS rules, properties being developed and properties held for sale are not booked at market value. In the case of Sonae Sierra, shopping centres under development are therefore booked at historic cost. The undervaluation of these assets can be significant. In the second instance, under IAS rules, deferred taxes on unrealized gains on investment properties are accounted for in the balance sheet. From the company s point of view, the deduction of this deferred tax is arguable, as the transaction of Sintra Retail Park (Sintra, Portugal) and Parque Atlântico (Ponta Delgada, Portugal) has once again confirmed. When a property is sold, the market practice is not to sell the property as such, but to sell the holding company that owns it. And, in fact, in various jurisdictions, capital gains arising from the sale of shares are sheltered from tax. For these reasons, the company calculates and publishes a Net Asset Value that results from valuing all its properties at open market value and does not include a deduction for deferred taxes on unrealized capital gains. The NAV does not include either the value of its operating businesses other than that resulting from acquisitions. The calculation now presented is consistent with the NAV calculation published in previous years. The NAV, on 31 December 2004, of the properties attributable to Sonae Sierra was 1,060 million, against 948 million on 31 December The NAV per share of the properties attributed to the Company is against on 31 December 2003, an increase of 11.8%. 643 Dec Dec 00 NAV ( 000) 934 Dec 01 1,037 Dec Dec 03 1,060 Dec 04 Consolidated Profit and Loss Account Sonae Sierra had a net consolidated profit of 82 million, million in However, last year s figure was impacted both by the set up of the Sierra Fund in September 2003 and by the sale, in March 2003, of 50% of Centro Vasco da Gama (Lisbon, Portugal), and the effect of the reduction, in Portugal, of the corporate tax rate, from 33% to 27.5%. Excluding these effects, 2003 net profit would have been 77.4 million, 6% below the 2004 net profit. This 2004 result was essentially due to two factors: (i) improvement in the company operational level with more shopping centres in operation following the openings during 2004; and (ii) positive change in the market value of assets. Turnover continued to grow in 2004 with direct income increasing by 18.7 million to a total of million. All business areas contributed to this growth Dec Dec 00 NAV per share ( ) 24.9 Dec Dec Dec Dec 04 Net financial costs increased significantly mainly due to the following factors: (i) increase in the debt of AlgarveShopping (Albufeira, Portugal) and of the company owning the Gran Casa (Saragoza, Spain), Max Center (Bilbao, Spain) and Valle Real (Santander, Spain) shopping centres; (ii) refinancing operations of Centro Vasco da Gama (Lisbon, Portugal) and NorteShopping (Porto, Portugal); and (iii) financing of shopping centres opened in Spain during Dos Mares (Murcia), Avenida M40 (Madrid), Luz del Tajo (Toledo) and Zubiarte (Bilbao). The company realised a gain of 1.6 million as a result of the following: (i) sale of Sintra Retail Park (Sintra, Portugal) (ii) sale of Parque Atlântico (Ponta Delgada, Portugal) to Sierra Fund; (iii) recognition of a loss on the investment made in the Curitiba project (Brazil). 46

49 Consolidated Accounts As a result of the transactions that took place in 2004, the company s position was once again confirmed, the open market value (OMV) of its assets, less company liabilities, without the deduction of deferred taxes, corresponds to the Net Asset Value (NAV). The company made a gain of million in 2004 through the increase in value of investment properties. This gain corresponds to the increase in valuation of operating shopping centres and the valuation gain of those properties opened during the year. In 2004, yields fell considerably in the Portuguese and Spanish markets which led to a sharp increase in the value of its properties. Sierra Developments recognises as income the increase in value of the centres under development. These non-realised gains on revaluation are excluded from the consolidated accounts of Sonae Sierra since, under IAS, value created is only recognised at the time of opening. Minority interests reached 44.5 million and correspond almost entirely to direct and indirect profits attributable to the external investors in the Sierra Fund and to Eroski Group, our strategic partner in Spain. Centro Vasco de Gama Sonae Sierra Consolidated Profit and Loss Account ( 000) % 04/03 Direct Income from Investments 184, , % Operating costs 71,462 60,765 18% Other costs 5,481 7,039-22% Direct costs from investments 76,943 67,805 13% EBITDA 107,643 98, % Depreciation 6,161 5,624 10% Recurrent net financial costs 39,230 31,862 23% Direct profit before taxes 62,252 60,581 3% Corporate tax 11,497 18,938-39% Direct profit 50,755 41,643 22% realised on properties 1, ,089-98% Value created on investments 113,376 86,065 32% Indirect income 115, ,154-41% Deferred tax 39,022-11,279 - Indirect profit 76, ,434-63% Net profit before minorities 126, ,077-49% Minorities 44,511 40,409 10% Net profit 82, ,668-61% Non-audited accounts 47

50 Consolidated Accounts Consolidated Balance Sheet The company consolidates the Sierra Fund in full given that it holds effective control with 50.1% of the capital and management function. The company holds total assets of 2,639 billion at the end of 2004, of which around 245 million corresponds to cash and shortterm investments. Although there was a significant increase in debt during 2004 due to its refinancing policy for operating investment properties in particular NorteShopping (Porto, Portugal) and Centro Vasco da Gama (Lisbon, Portugal) and the financing of shopping centres opened in 2004 in particular Dos Mares (Murcia, Spain), Avenida M40 (Madrid, Spain), Luz del Tajo (Toledo, Spain) and Zubiarte (Bilbao, Spain) the company nonetheless has a solid financial position. Gearing, measured as net indebtedness as a percentage of total assets less cash and equivalents, reached a conservative 28.8%. Development risk, measured as amount invested and to be invested to conclude projects under development in percentage of total assets plus amounts needed to conclude the same projects, increased from 31.0% to 33.4% due to new committed projects in Italy. Sonae Sierra Consolidated Balance Sheet ( 000) Var. 04/03 Investment properties 1,984,733 1,582, ,427 Properties under development and others 246, ,088 15,029 Goodwill 18,989 9,484 9,506 Deferred taxes 18,885 17,513 1,371 Other assets 125, ,044 (8,838) Deposits 245, ,267 (45,055) Total assets 2,639,142 2,264, ,440 Net worth 821, ,220 74,597 Minorities 250, ,630 55,447 Bank loans 933, , ,192 Shareholder loans from minorities 95, ,966 (40,861) Deferred taxes 315, ,253 50,554 Other liabilities 222, ,854 65,511 Total liabilities 1,567,247 1,322, ,396 Net worth, minorities and liabilities 2,639,142 2,264, ,440 Non-audited accounts Ratios Gearing 28.8% 24.0% Interest Cover Development Risk 33.4% 31.0% Sonae Sierra had a consolidated net profit of 82.3 million. 48

51 Consolidated Accounts 49

52 Corporate Responsibility Corporate Responsibility Sonae Sierra s mission is to create value for shareholders while taking into account its social responsibilities towards other important stakeholders, including our partners, retailers, employees and the local communities we serve. Achieving this balance is crucial to the sustained development of our company. Sonae Sierra s corporate culture is closely aligned with the basic principles of corporate responsibility. Our core values include responsibilities towards our employees and the community, and for political independence. We are conscious of the inter-relationship between the economy, society and the environment, believing that our long-term business success depends on outstanding performances in relation to all three. We recognise that this requires a thoughtful approach to doing business which can only be achieved through vigilant risk management and a modern attitude towards new opportunities. Our goal is to be at the forefront of the industry in relation to corporate responsibility. We are committed to continuously challenging the status quo in order to find innovative and more sustainable ways of developing and managing shopping centres. We are also dedicated to being a learning organisation, testing our performance against demanding standards in order to achieve continuous improvement. Our aim is to nurture strong and lasting relationships with all our stakeholders, always honouring our commitments while maintaining our reputation for consistency and excellence. As a contributor to everyday life, we play a proactive role in trying to change society through education and awareness-raising campaigns, and by capitalising on our ability to communicate with the public who visit our shopping and leisure centres. This all-embracing Corporate Responsibility policy has the full endorsement of the Executive Board and will be implemented through the achievement of more detailed objectives and targets across key impact areas. This particular policy is accompanied by stand-alone policies for both Environment and Safety & Health. Álvaro Portela Chief Executive Officer 50

53 Corporate Responsibility It s about Value... Further information on Sonae Sierra s management of Corporate Responsibility and its detailed performance in practice can be found in the separate document accompanying this Annual Review

54 Corporate Responsibility Our Corporate Responsibility objectives During the course of 2004, we made significant progress in formalising our approach to Corporate Responsibility (CR). We have developed an overarching CR policy and identified a set of long-term CR objectives which reflect the most significant economic, social and environmental issues affecting our business. Our approach to CR management is underpinned by our corporate values and based on a model which seeks to achieve continuous improvement over time. We have set ourselves a number of objectives designed to help us achieve the commitments set out in our CR policy. These are: To make a positive contribution to economic prosperity We seek to achieve this by:» delivering outstanding financial returns through the implementation of a long-term business strategy, setting realistic yet challenging objectives;» conducting business in an honest and reliable manner, operating to the highest standards of propriety and transparency;» identifying, prioritising and attentively managing significant business risks and complying with strict standards of corporate governance;» improving local economic conditions in and around investment properties by creating new employment opportunities and providing high quality facilities for local retailers and shopkeepers; To ensure that our core business activities improve the quality of life of those they affect We seek to achieve this by:» anticipating and preventing all safety and health risks affecting our sustainable growth, with the ultimate goal of achieving zero accidents;» respecting and valuing all our employees by investing in their professional and personal development and ensuring they feel empowered to contribute to our business decisions;» delivering a high quality service and experience to both tenants and visitors, and proactively engaging with them on environmental and safety concerns;» being sensitive to, and investing in, local communities where we operate;» fostering loyalty amongst frequently used suppliers, seeking to help and encourage them to adopt more responsible business practices;» listening to, and responding to, the needs and concerns of all stakeholders and communicating openly about our CR performance. To safeguard the environment for both current and future generations We are committed to:» the progressive use of ecological efficiency as a reference point for management and competitiveness;» conceiving, implementing and operating undertakings in an environmentally responsible way;» continuously improving the environmental performance of our undertakings, products, processes and activities;» ensuring conformity with environmental legislation and other environmentally applicable regulations, adopting responsible standards in cases in which legislation is incomplete or non-existent;» defining our environmental objectives and targets, which include the improvement of environmental information, the revaluation of environmental resources, the prevention of pollution and reduction of polluting emissions and the development, disclosure and participation of those involved. 52

55 Corporate Responsibility Monitoring our performance These CR objectives are accompanied by a set of annual targets which we have set ourselves for the purposes of further improving both our management and performance across key impact areas. Our performance is measured by a set of key performance indicators carefully selected to reflect both the nature and scale of our business activities. Environmental Management We have an Environmental Management System (EMS) in place since Its procedures cover the most significant environmental impacts arising from our business activities. These include:» Investment» Design and architecture» Construction» Operational management Internal audits for the implementation of the EMS are undertaken at all operational shopping centres and all sites under development. In addition to minimising our own adverse environmental impacts, we are keen to help and encourage tenants, visitors and suppliers to protect and preserve the natural environment through their own actions. Safety & Health Programme Our Personæ Programme is a four-year project, introduced in 2004, with the strategic objective of accelerating and developing social responsibility through education and knowledge transfer. The Programme is being managed in association with Dupont Safety Resources and has five principal objectives:» to develop a culture which increases social responsibility awareness and minimises risks;» to ensure responsible behaviour through commonly adopted values;» to leverage resulting operational discipline into productivity and quality;» to achieve alignment of all Sonae Sierra businesses;» to enhance Sonae Sierra s image, and thereby increase shareholder value. By the end of 2004 the Programme had a team of three full-time staff drawn from Sonae Sierra plus five full-time consultants from Dupont Safety Resources who had begun the implementation process across all the countries we operate in. With three distinct phases, Foundation, Performance and Recognition, the Programme has over 200 deliverables. Risk management Our Risk Management policy covers all our business operations. During the year we undertook due diligence activities in connection with the Sierra Fund which included technical, legal, fiscal, financial, environmental and insurance audits on the shopping centres which have been acquired by the Fund and in the centres opened in 2003 and These include Parque Atlântico (Ponta Delgada, Portugal), Estação Viana (Viana do Castelo, Portugal), Avenida M40 (Madrid, Spain) and Dos Mares (Murcia, Spain). We also carried out security and safety audits in all these centres. In Portugal external assessments at our Centro Colombo (Lisbon), NorteShopping (Porto), GaiaShopping (Gaia), CoimbraShopping (Coimbra), MaiaShopping (Maia), and ViaCatarina (Porto), were conducted by GE GAPS to identify the potential for property loss and assist with loss prevention efforts. Our aim is to nurture strong and lasting relationships with all our stakeholders, always honouring our commitments while maintaining our reputation for consistency and excellence. MedeiraShopping AlgarveShopping 53

56 Board of Directors Board of Directors The Board of Directors of Sonae Sierra remained unchanged in 2004 in terms of the number of members. There are nine Directors on the Board, of whom four are non-executive: Non-Executive Directors from left to right Belmiro de Azevedo Non Executive Chairman Ângelo Paupério Non Executive Director Jeremy Newsum Non Executive Director Neil Jones Non Executive Director Executive Directors from left to right Álvaro Portela CEO with direct responsibility for investments, institutional relations, environment, safety and health and corporate communications João Pessoa Jorge Director, responsible for all the company s business in Brazil, where he resides José Edmundo Figueiredo Director, responsible for finance, management control, legal, mergers and acquisitions and back office Pedro Caupers Director, responsible for all the company s operations, including shopping centre management, marketing and letting Fernando Guedes Oliveira Director, responsible for expansion, design, architecture and development in Europe 54

57 Board of Directors Senior Managers from left to right Ana Guedes Oliveira Responsible for investment and asset management in Europe Adrian Ford Responsible for new business in Germany, Italy and Greece Joaquim Pereira Mendes Responsible for legal, mergers and acquisitions José Quintela Responsible for conceptual development and architecture Luís Marques Responsible for back-office and human resources João Correia Sampaio Responsible for shopping centre management in Portugal Pietro Malaspina Responsible for Sierra in Italy, where he resides Ted Kupchevsky Responsible for developments in Germany, where he resides José Falcão Mena Responsible for developments in Iberia 55

58 Future and Prospects The Future The outlook for growth in Europe remains positive although recovery is slow. The year 2005 will be one of sustained growth in all the company s key business indicators, based on a continued policy of management excellence of those assets both in operation and owned by third parties, investment in the development of new shopping centres, and investment in acquisition in markets where the company is present. Luz del Tajo The business will continue to follow the strategic plan of growth and internationalisation conceived to apply up to This consistent course of action should lead to sustained results even in circumstances of economic uncertainty. Prospects Sonae Sierra will continue to be a shopping and leisure centre specialist which takes an integrated approach to its business. It will stay focused on the markets where it is already present, with the objective of delivering innovative, modern and spirited high quality products. In this way, Sonae Sierra aims to be the best international shopping and leisure centre specialist and to achieve a leading position in all the markets in which it operates. Luz del Tajo 56