SNCF financial report A

Transcription

1 SNCF financial report A

2 sncf.com www.

3 Management report 2 consolidated financial statements 38 Company financial statements 160 SNCF financial report

4 rapport MANAGEMENT de REPORT gestion Sauf (In millions) indication contraire, les montants sont indiqués en millions d euros (M ) 2 - management report

5 contents 1 SIGNIFICANT EVENTS OF THE YEAR Environment Significant events for the Group A group demonstrating solidarity and responsibility 11 2 SNCF GROUP ORGANISATION Corporate structure Legal structure 14 3 SNCF GROUP Consolidated net profit Cash position and financing sources Balance sheet Financial relations with the French State, Reseau Ferré de France and local authorities Workforce 25 4 ACTIVITY AND RESULTS BY DIVISION Passenger France and Europe Local Transport Transport and Logistics Infrastructure and Engineering Common operations and investments 35 5 CORPORATE GOVERNANCE 36 SNCF financial report

6 1. SIGNIFICANT EVENTS OF THE YEAR 1-1 Environment An uncertain yet nevertheless dynamic economic environment in the transport sector, and particularly for rail transport Worldwide growth withstood reasonably well the turbulence of 2007: a plunging US real estate market, the crisis in US subprime home loans that led to a general liquidity shortage from August, and the surge in oil prices in the second half. The impact of these events on the global economy should be more tangible in In all countries, business investment will suffer from tighter financing conditions, and the inflationary toll expected from agricultural and energy commodities should restrict household consumption. The economic slowdown will be most felt in the United States and the United Kingdom but should be more limited in the euro zone. Euro zone growth remained steady at 2.7% in In Germany, growth slowed to 2.5% following 2.9% in In this international context, the French economy has not been entirely immune to the global slowdown, the 1.9% growth rate falling below the forecasts of early In general, because of its core businesses, SNCF Group has underscored the importance of household consumption, which remained stable at 2.1%, close to the trend observed over the last two years. There will only be a gradual return to normal for the money markets, and it could be some time before there is an easing of the financial turmoil. Indeed, there remains great uncertainty in the United States as to the exact location of high-risk financial assets, such as doubtful real estate loans. Borrowing terms will therefore remain tight in the coming quarters. Added to these financial qualms is a dual inflationary impact. Pressures continue to bear down on the oil markets. After an initial surge in September, oil prices continued to climb in October and November. These upward pressures reflect physical tension in the oil markets: demand is up sharply, notably in the Middle East and China, and OPEC is not using all its spare capacity. These pressures were exacerbated by rising geopolitical uncertainties and erratic weather conditions that disrupted oil extraction and shipment. Inflationary pressures have also been aggravated by rising commodity food prices. On an uptrend since mid-2006, prices have soared since the beginning of 2007 for reasons both environmental (adverse weather conditions) and structural (sharp rise in demand and biofuel production, which is reducing food acreage). Beginning in the summer, these rises are now being passed on to the consumer. The main source of uncertainty affecting 2008 lies in the extent and duration of the current liquidity crisis. A continuing liquidity shortage could hamper numerous investment decisions and the global economic slowdown would worsen. Conversely, a rapid resolution to the crisis and consequently an easing of financing conditions, magnified by Federal Reserve prime rate cuts in the United States, could quickly act to stimulate growth. According to the most recent ECB monthly bulletin, the fundamentals of the euro zone economy are solid, corporate profits remain high, job growth is robust and the unemployment rate has fallen to levels unseen in the last twenty-five years. Consequently, the rise in consumer spending should continue to boost economic growth, in the wake of higher real disposable income, and investment growth should provide ongoing support. An environment undergoing profound change The transport sector is evolving in a context marked by significant economic trends, from a social and individual perspective, as epitomised by the concept of sustainable development, and the development of high-speed infrastructures in Europe. These issues represent challenges, and presage a momentous future for the transport sector in general, and particularly for rail transport, due to the growing mobility needs of people and goods, the saturation of road and airport infrastructures and the mid-term perspectives for oil. Likewise, the competitive environment must restructure itself, particularly with respect to current or previous monopolies that must open to competition in ever-increasing numbers: freight rail transport, international TGVs, including cabotage, infrastructure activities, through development of public-private partnerships, rail public transport activities opened up over a longer timeframe (Public Service Obligation regulation), not to mention the increasingly fierce competition between transport means via the technical advances of truck and automobile manufacturers and continuing transformations in the airline industry. 4 - management report

7 Intramodal competition in the transport and logistics business demonstrated its momentum in 2007 and an aggressiveness that was particularly intense. Seven companies hold the safety licences and certificates required for the domestic market and five are making use of them. At the end of 2007, or barely 20 months following the opening to competition, new arrivals represent 8% of tonnage hauled. This competition is particularly active in certain market segments (agriculture, quarry products). It will rapidly intensify in the coming months under the combined impact of: new competitor capacities in terms of locomotives, and, consequently, their foreseeable positioning in new market segments with longer travel times; the purchase of the ECR parent company (EWS), number two in France, by the German company Die Bahn, making the latter the main national competitor of SNCF Group. Other major strategic developments recently observed for rail transport groups include: a general trend towards an integrated vertical structure for business segments: recent years have seen a series of such reorganisations in Europe, seeking to make management more accountable for market/ customer combinations and better adapt processes and organisation to market challenges, and also to develop additional markets either in new areas, or by extending know-how to new but related markets; a diversification of strategic positioning: alongside the arrival of specialised players such as Rail4chem or Arcelor-CFL, the upsurge in strategic models that can be described as conglomerate, as symbolised by the Deutsche Bahn mobility, network, logistics positioning. It bears noting, moreover, that the various Deutsche Bahn competitive positions are presented independently of transport means; the rapid step-up in players who already have strong positions in nondomestic markets, clearly posing the challenge of internationalisation to all players. In the first half, for example, a player in the form of Arriva announced its ambitions for the Polish market and Transdev concluded a major purchase transaction in the Netherlands, while SNCF Group pursued its development on the British market with its partner Go Ahead (see below); the emergence of new growth drivers in rail transport, such as largescale partnerships, as in the initiative between SNCF and Railteam, or acquisitions, as demonstrated by the two Deutsche Bahn transactions in the first half involving EWS and Transfesa, following those of Schenker and Bax, non-rail players, in recent years. Lastly, the likelihood of the flotation in 2008 of a minority stake in Deutsche Bahn s share capital is growing in Germany and will likely represent a major event in the European transport sector. SNCF Group, and more generally, the entire transport sector, is thus confronted with major strategic challenges and disruptions in an environment that is highly conducive to development. Grenelle Environment Round Table: an excellent opportunity for the rail sector The conclusions adopted in October 2007 at the end of the proceedings, announced a radical change in strategy with an absolute priority given to rail and waterways. Accordingly: construction of 2,000 km of high-speed lines by 2020, for freight, creation of new rail motorways for north/south-east and north/south-west routes in France, for urban transport, construction of 1,500 km of additional tramway lines in the major cities, excluding Greater Paris, creation of an ecotax by 2010 based on mileage for trucks using the French non-concessionary road network (offset by a tax decrease for French trucks), for air traffic, creation of a programme to reduce carbon dioxide emissions by 20% by 2012, and by 40% by Third railway package: agreement between the European Parliament and Council On 21 June 2007 the European Parliament and Council confirmed the conciliation agreement covering the Third railway package. Tabled by the European Parliament in March 2004, the package has been the subject of lively debate. It will finally involve two directives and a regulation governing market liberalisation for international passenger rail traffic, passenger rights and the certification of train drivers. Following the example of freight, international passenger transport will now operate based on the principle of free access, as of 1 January Domestic cabotage will be authorised but restricted, while the liberalisation of national traffic has been postponed indefinitely. The Act of 2 August 2007 on social dialogue and the continuity of public service in public land-based passenger transport The provisions of the Act of 2 August 2007 on the continuity of public service in public land-based passenger transport entered into effect SNCF financial report

8 1. SIGNIFICANT EVENTS OF THE YEAR and have been implemented by SNCF since 1 January With respect to the prevention of disputes, SNCF negotiated an addendum to its 2004 agreement on improving social dialogue. The agreement was signed with five trade unions on 13 December Pursuant to the Act, the addendum stipulates that the filing of advance notice of industrial action must be preceded by preliminary negotiations over eight clear days (so-called immediate consultation approach). In terms of service predictability, management approved a special plan on 21 December 2007, following negotiations with the trade unions. The plan is applicable as of 1 January Three high-speed projects of major significance In 2007, progress was made for three extension projects covering the high-speed network: a financing agreement for preliminary studies and work under phase two of the East European line was signed on 24 January 2007; a letter of intent for the new South Europe Atlantic line was signed on 25 January 2007 by the Minister of Transport, RFF, and the Poitou- Charentes, Aquitaine and Midi-Pyrenees regions; a rail service agreement was signed on 30 January 2007 by the Minister of Transport, SNCF, RFF and all regions concerned, in respect of the Bretagne-Pays de la Loire high-speed line. This was completed by the publication of the decree declaring the public service nature of this line in the Journal Officiel on 28 October An advance for sustainable intra-community exchanges The decrees declaring the public service nature of the work to build the French section of the new international rail link between Lyon and Turin were signed in December This link will contribute to meeting the major challenges arising from the Environment Round Table by transferring 1.35 million heavy trucks to trains between France and Italy by Significant events for the Group 2007 was a catalyst for SNCF Group Major steps towards corporate maturity First-time publication of Group consolidated financial statements according to IFRS for the period ended 30 June 2007, first annual publication as at 31 December 2007 As from 1 January 2007, SNCF is subject to international accounting regulations (IAS/IFRS) applicable to all major public issuers. Creation of the Employee Pension and Provident Fund (CPRP) as at 30 June 2007 On 11 April 2007, the SNCF Board of Directors approved an amendment to the SNCF terms of reference, presented by the Government Commissioner at the same time as the regulatory mechanism to provide the Pension and Provident Fund with independent legal status. The new employee pension and provident fund is a social security body that provides a public service for rail workers. The result of a long process of communication and consultation with trade unions and employees, the creation of the independent fund is accompanied by a continuing State contribution guaranteeing the pension fund s financial equilibrium. Debt standardisation thanks to the elimination of the Special Debt Account (SAAD) During the 1980s and 1990s, the rail system became increasingly indebted for purposes of network development, with the debt being mainly borne by SNCF until Created in 1991, the SNCF Special Debt Account (SAAD) was assigned the task of ring-fencing a portion of SNCF debt, so as to stabilise its financial position through significant debt reduction. In 2006, average outstanding amounts ring-fenced in the Special Debt Account stood at 8.2 billion. SAAD resources consisted in an annual contribution from the State, and an annual SNCF contribution equal to 2.6% of the annual State payment. A thorough Eurostat analysis based on national accounting rules led to an INSEE revision of the public debt in September 2007, to take into account the State s commitment to SNCF to continue repaying the debt borne by the SAAD Special Debt Account. The public debt was therefore automatically increased by 8.2 billion. Accordingly, the State sought a permanent and definitive solution regarding the debt s future, 6 - management report

9 under conditions of neutrality for the State and SNCF. Following these operations, the SAAD Special Debt Account was eliminated, and SNCF: remains indebted vis-à-vis shareholders, holds a receivable from the Public Debt Fund (Caisse de la Dette Publique (CDP)) reflecting the exact amount and characteristics of this indebtedness. As part of this operation, SNCF pledged to pay a balancing cash adjustment of 640 million. Structuring commercial initiatives for operations Commercial launch of the East European high-speed line on 9 June 2007 SNCF had welcomed seven million passengers at the end of December 2007, a sign of true popular success. One hundred TGVs serve the stations of Eastern France, as well as Switzerland, Germany and Luxembourg, transporting an average of 33,000 passengers daily. At the same time, the TER traffic offering has been increased by 20% for the associated regions. Network rescheduling in Rhone-Alpes In early December 2007, the Rhone-Alpes regional network was subject to rescheduling in order to meet a growing public transport need (35% increase in the number of passengers on the Rhone-Alpes TER in four years). The rescheduling enables the circulation of more trains each day through traffic reorganisation (100 trains created for a total of 1,200). A gradual increase is expected: 15% over three years. Through a domino effect, this reorganisation has modified 30% of train schedules throughout France (excluding Greater Paris). World rail speed record beaten on 3 April 2007 by the East European high-speed line (574.8 Km/h) This technological and human achievement will position SNCF and its partners, RFF and Alstom Transport, as long-term global leaders in high-speed rail transport. Freight structuring Implementation of the SNCF Freight action programme 2007 was marked by the definition and launch of the action programme for high-speed rail transport. The purpose of the programme is to restore the conditions necessary for permanent and profitable economic growth for SNCF Freight. It has been initiated based on certain guidelines: response to the logistical needs of customers, performance of the industrial tool, accountability of SNCF freight teams, and European goals. Industrial consolidation began in April 2007, with the appointment of five Freight directors. In 2008, virtually all traction and operational employees contributing to freight-related businesses will become specialised, prior to their integration in the Freight organisational structure. This will be characterised by a short chain of command very much attuned to customer requirements. Customer relations have been reorganised in order to assure Freight credibility and restore the confidence of customer representatives. These relations are based on logistics solutions that are more rigorous, with offerings that are often specific, designed according to customer requirements and a new form of risk sharing. The reallocation of means and standardisation of activity flows has been set in motion, particularly through the deployment of resources for the major priorities of European interest. In effect, the objective is to significantly enhance the performance and reliability of the service offering, which are crucial to rail transport viability. Finalisation of the Geodis acquisition of Wilson The acquisition of TFM (TNT Freight Management, renamed Wilson ) was finalised in February The transaction positions GEODIS among the leading freight forwarding players in Europe and was financed via a loan and a share capital increase subscribed equally by GEODIS shareholders. SNCF financial report

10 1. SIGNIFICANT EVENTS OF THE YEAR Renewal of the strategic-financial partnership with the Ermewa group On 30 May 2007, the secondary LBO was carried out in accordance with the memorandum of agreement signed by SNCF Participations and IPE in December SNCF Group sold its direct interest in Ermewa France, and now holds 49.6% of the group s holding company, Financière Ermewa. Renewed and updated commitments New long-term management agreement signed with RFF On 25 May 2007, RFF and SNCF signed a new agreement for the management of traffic and circulation on the national rail network and the maintenance of this network. Covering a four-year term ( ), the agreement clarifies the respective responsibilities of RFF and SNCF and specifically defines the services to be rendered and the objectives to be met. Ongoing renewal of agreements with Organising Authorities Ten new TER agreements came into force as of 1 January 2007: three were signed in 2006 (PACA, Franche-Comté, and Languedoc- Roussillon) and seven in 2007 (Centre, Picardie, Rhône Alpes, Poitou Charentes, Bourgogne, Bretagne and Lorraine). The Basse Normandie agreement was signed in January 2008 and the Nord Pas de Calais agreement was approved in February 2008 by the Board of Directors, for application as of 1 January These new agreements reinforce the partnership-based contractual model. With respect to Transilien, on 13 February 2008 the Board of Directors approved a contract that will affiliate the company with STIF (Syndicat des Transports d Ile-de-France) for the period. The contract represents annual business volume of approximately 2.5 billion for SNCF, or 10 billion by It grants greater priority to passenger concerns, particularly in regard to service reliability and customer information, through the definition of clear objectives and the set-up of adequate funding. Finalisation of the Keolis group share capital restructuring Initiated in September 2006 and completed during the first half of 2007, the KEOLIS group share capital restructuring brought in AXA Private Equity and Caisse de Dépôt et Placement du Québec as stake holders via a joint venture, along with SNCF Participations and management. SNCF Group maintains its 45% interest and remains the core industrial shareholder. SNCF now holds Keolis through the new holding company Kuvera Développement. With stable share ownership, the Keolis group will now find support for its French and international development projects. Labour unrest Results for fiscal year 2007 were particularly affected by the impact of the national strikes in the last quarter, over reform of special pension schemes, which significantly hindered production. Some events SNCF, official partner of the Rugby World Cup The Rugby World Cup marked the first time trains were used for team travel in an international competition. For SNCF, the stakes were substantial: increasing the prestige of high-speed, demonstrating solid reliability in a global sporting event, and promoting expertise and knowhow. In addition to mobilising teams and equipment, all activities, TGV and Téoz, Transilien and TER, were also involved in the transport of nearly one million supporters. In terms of sustainable development, the choice of rail to transport teams and spectators significantly reduced CO 2 emissions. By way of illustration, the French Environment and Energy Management Agency calculated that the use of trains rather than automobiles for a single match at Lens saved 13 CO 2 equivalent tonnes. 70 years of SNCF In honour of its 70th anniversary, SNCF presented the L art entre en gare exhibition at the Grand Palais in Paris at the end of December, and in 18 cities throughout France in January. And at the beginning of 2008 Reform of the special pension scheme for SNCF qualifying employees The decree of 15 January 2008 covering the special pension scheme for SNCF employees reiterates the fundamental principles set forth in the Government guidelines and most of the pension settlement items that were adopted as part of negotiations between SNCF management and the union organisations. The decree confirms the entry into effect of the reform on 1 July 2008 and covers two phases: the implementation of common harmonisation principles and the implementation of measures arising from company negotiations. Renewal of the Board of Directors and appointment of Mr Guillaume Pépy as Chairman of SNCF The decree appointing the French State representatives to the SNCF Board of Directors and the individuals chosen for their expertise was 8 - management report

11 signed on 20 February Employee representatives were elected during a vote held on 5 February On 27 February 2008, Mr Guillaume Pépy was appointed Chairman of SNCF by decree of the Council of Ministers, to replace Mrs. Anne-Marie Idrac. Acquisition of Rohde & Liesenfeld by Geodis On 3 January 2008, the Geodis acquisition of the German group Rohde & Liesenfeld was finalised. The Geodis network s main partner since 2002, Rohde & Liesenfeld is an international air and maritime forwarding agent. This operation will enhance the geographical coverage of the Geodis Wilson network and provide Geodis with additional expertise in terms of industrial projects. First dividend payment to the French State Most major public corporations pay an annual dividend to the State. This is also true for companies whose parent company is a public institution such as Caisse des dépôts et consignations since the early 1990s and La Poste this year. The payment of such a dividend, as currently stipulated in the provisions of Article 79 of the Amending Finance Act of 31 December 2003, reflects the fact that the public corporation s financial position is solid and that the public shareholder may naturally receive a share in current or future profits. The legal framework governing dividends paid by public corporations under State authority stems from Article 79 of the 2001 Amending Finance Act ( of 28 December 2001), amended by Article 88 of the 2003 Amending Finance Act ( of 30 December 2003), presented in title II of the 2001 Amending Finance Act relating to permanent provisions. This article grants the State the general possibility of receiving a dividend from its public institutions. Among other items, Article 79 of the Amending Finance Act specifies that: the dividend is first deducted from distributable earnings of the year, within the meaning of Article L of the French Commercial Code, and can be deducted from available reserves; the amount of the dividend payable to the French State is determined by decision of the ministers responsible for the economy and budget, following review of the financial position of the public institution and confirmation of distributable amounts, based on the report of its Board of Directors, Supervisory Board or its deliberating body as the case may be. In return, Article 79 of the 2001 Amending Finance Act put an end to the previous mechanisms for remunerating capital charges. In 2007, the SNCF consolidated financial statements were completely revised as part of the adoption of IFRS, which the State has actively accompanied. SNCF fully confirmed the financial revolution launched at the end of 2003 and early 2004 and its ability to deliver a growing net profit from recurring operations year after year, to fund its equityfinanced investments, with a free cash flow of 302 million at the end of 2007, and to build a solid financial structure, as reflected in a debt/ equity ratio of 0.5 at the end of 2007, even though the financial position of certain divisions has still to be restored or consolidated. The contrast between this ability, as demonstrated yearly over the past five years, and the prior situation existing since 1937, is demonstrated by the fact that SNCF does not currently pay income tax due to prior year tax losses, amounting to 7.6 billion at the end of Moreover, encouraged by its future course, SNCF decided to begin recognising deferred tax assets in In agreement with the public authorities, it therefore seemed appropriate for the company to go a step further in normalising the SNCF public corporation s relationship with its shareholder, through the implementation of a mechanism for paying an annual dividend. This reinforces company-shareholder solidarity in the creation of a major public transport group in full development, with a financial discipline guaranteeing the sound management of receipts from customers and public partners in compensation for services rendered. It is the company s express wish that the dividend payment be focused on rail considerations and purposes and it has asked the public authorities to consider channelling the dividend towards the financing of rail sector development. The public authorities have just recently confirmed that nearly 40% of the dividend ( 50 million) will indeed be used to reinforce the rail investment policy. Once the principle of a dividend was set, it was necessary to determine the calculation method. External practices have demonstrated that: dividends are generally calculated on the basis of consolidated results, which therefore was the option proposed; dividend rates average 33.33% for listed companies and are variable for public companies according to activity sectors. On this issue, the State and the company agreed on a rate of 20% only; as the adoption of IFRS introduced volatility into the accounts, particularly because of the greater weight accorded to asset valuations, which can have a material positive or negative impact on the financial statements without any cash flow, and the fact that the company recognised material deferred tax assets, which also represent non-cash accounting entries, the company proposes the use of net profit from SNCF financial report

12 1. SIGNIFICANT EVENTS OF THE YEAR recurring operations as the calculation base, as it does not include these volatile and exceptional items not reflected by cash flows, rather than net profit attributable to equity holders of the parent. Consequently, the State indicated its intention to deduct a dividend corresponding to 20% of consolidated net income from recurring operations of SNCF, or 20% of 656,839,000, i.e. 131,367,800. Accordingly, the company will record entries for the payment of this dividend in the 2008 company and consolidated financial statements, which will have the following impact on reserves presented in these financial statements for the year ended 31 December 2007: in euros Financial statements Company 31/12/2007 Consolidated 31/12/2007 Net profit for the year Net profit attributable to equity 996,527,662 1,042,324,000 holders of the parent Retained earnings 920,180,062 1,875,423,000 Consolidated reserves Available reserves 1,916,707,724 2,917,747,000 Net accumulated profit attributable to equity holders of the parent Dividends to be distributed in ,367, ,367,800 Dividends to be distributed in 2008 Retained earnings after distribution 1,785,339,924 2,786,379,200 Net accumulated profit attributable to equity holders of the parent after distribution Overall, the payment of the first dividend by SNCF demonstrates the permanent turnaround of the SNCF economic model, reflecting a global performance which is now solid thanks to the efforts of rail workers and all employees, and represents a major sign of confidence in the profitable development of the company. Reduced restrictions on use of the national rail network Decree of 18 February 2008 expands the conditions governing use of the national rail network. Public authorities and their groups, as well as public corporations can now claim rights of way, provided they are for freight transport purposes. As of 14 December 2008, the Regional Councils and the Syndicat des Transports d Ile de France (STIF) will also be entitled to these rights of way as public corporations organising a public transport service for passengers on the national rail network management report

13 SNCF obtains safety certification Under decree of 19 October 2006 relating to rail traffic safety and rail system interoperability, which follows in the wake of European regulations, SNCF must demonstrate its ability to satisfy regulatory safety requirements and manage the risks relating to the exercise of this rail activity. Accordingly, SNCF Infrastructure and Engineering developed a safety management system (SGS) in close cooperation with RFF. The approval of this SGS by the Etablissement Public de Sécurité Ferroviaire (French rail safety public authority), enabled SNCF to obtain its safety certification on 27 February 2008 for a period of five years. SNCF is one of the very first networks to obtain this certification in Europe. Billboard contracts New operating contracts for 34,000 SNCF and RFF billboards were signed in early March 2008 by JCDecaux and Metrobus (Publicis subsidiary). 1-3 A group demonstrating solidarity and responsibility Train accessibility In order to further improve train travel accessibility, SNCF has created Accès Plus, a new service offered free of charge to the disabled so they may better prepare each step of their trip. The Accès Plus service is available in 3 stations in Paris, 12 stations in the Central region and 25 stations in the Provence-Alpes-Côte d Azur region, as well as in the East European TGV stations. This service will be available in more than 400 stations in early Sustainable development: environmental protection SNCF Group has implemented the following environmental protection practices: Reduced use of pesticides On 16 March 2007, SNCF, Réseau Ferré de France, the Ministry of Agriculture and the Ministry of Ecology and Sustainable Development signed a three-year framework agreement setting forth the overall structure for common interest actions covering the use of pesticides for the weeding of tracks and surrounding areas and the reduction of the impact on water quality. Waste sorting SNCF is currently testing selective waste sorting in some ten major stations. The objective is to gain experience prior to implementation in a large number of stations and trains in Eurostar launches the Green Travel programme Eurostar has set up a Green Travel programme aimed at a 25% reduction in CO 2 emissions by 2012 per trip and passenger, thanks to the reduced electricity consumption of rolling stock (installation of energy meters, set up of new controls for lighting, heating and air conditioning), better use of train capacity, and optimised quality of electricity used. Eurostar thus intends to become the first rail company in the world to offer CO 2 neutral travel without any additional cost for customers. Eurostar has also implemented an action plan to mitigate other impacts on the environment (particularly reduced use and recycling of paper, recycling of old uniforms and all waste produced on board, assurance that disposable articles are biodegradable or 100% recyclable, use of SNCF financial report

14 1. SIGNIFICANT EVENTS OF THE YEAR food products from local suppliers in Great Britain, France or Belgium whenever possible, more frequent use of organic farming and equity commerce products, reutilisation of the water used to clean trains and rain water collection project, recycling of 80% of waste by 2009). This ambitious and demanding project will require close cooperation between suppliers, contracting parties and partners. Its implementation in the three countries will take three to five years. A full environmental audit of the group is under way, to ensure that all aspects are considered. Vehicles powered by natural gas On 18 December 2007, SNCF received 62 natural gas vehicles to be used by personnel responsible for network monitoring and maintenance. This delivery is the first step of an overall process for renewing the company s automobile fleet, which will number over 1,200 clean vehicles by Human resources 2007 wage agreement The company s management and four trade unions signed a wage agreement for the fourth consecutive year. The agreement calls for a general wage hike of 1.5% for 2007 accompanied by a special measure tied to the solid economic results already achieved by the company. A one-time performance bonus will be paid to all employees when gross profit exceeds the annual objective. In terms of low wages, special measures undertaken during the year have increased SNCF entrylevel wages to a level 8% higher than the index-linked minimum wage (SMIC). Prevention and reinsertion On 21 February 2007, SNCF and the Ministry of Justice signed a national partnership agreement encouraging the use of prevention measures and measures aimed at reducing repeat offences. The agreement formalises a cooperative responsibility programme for juvenile delinquents and persons ordered to perform community service that has already been set up in six regions since 2005 and is now applicable in the 23 SNCF regions. First Equality and skills forum in 2007 with higher education The forum took place on 13 February at Université Paris 13 (Villetaneuse). Following the exchange, 45 candidates were directly integrated in the SNCF hiring process for management positions throughout France. Meeting day with the world of education A special day, 16 January 2007, was devoted to commitments arising from the Corporate charter for equal opportunity in education, signed on 13 December by SNCF. First edition of the national Passenger and citizen contest In October 2007, SNCF launched a major national initiative, the Passenger and citizen contest open to 15,000 grade four and five classes and 6,800 junior high schools in France. The objective is to offer teachers the opportunity of working on rail safety and civic duty issues with their students. Agreement to promote employment and professional integration Signed on 19 January 2007 with the Greater Paris Employment Agency (ANPE), this regional agreement further extends the cooperation between SNCF and ANPE, in the spirit of the three-year national agreement signed in March management report

15 2. SNCF GROUP ORGANISATION 2-1 Corporate structure SNCF passengers FRANCE EUROPE LOCAL TRANSPORT TRANSPORT and LOGISTICS INFRAstructure and engineering Common operations and Investments TGV, Corail, Stations, Sales, Distribution TER, Transilien, Corail Intercités SNCF Freight Infrastructure Engineering Equipment, Traction, Transversal Functions Thalys, Eurostar, VSC.com, idtgv A2C Keolis, Effia TLP Systra, AREP, Inexia, SNCF Intern. ICF, SNEF, Seafrance, SNCF Participations Geodis SNCF FINANCIAL REPORT

16 2. SNCF GROUP ORGANISATION 2-2 Legal structure SNCF Eurofima Semapa FRP GIE Eurail Test ICF Novedis ESH Socrif ICF SNEF Group Seafrance ORFEA GIE Financière Sceta SPFRD SCI Ney SCI du Cercle SCI Vézelay SNC Monceau SNCF Conseil COMMON OPERATIONS AND INVESTMENTS AREP Ville AREP Architecture AREP SNCF International Financière Systra Systra Group Inexia INFRASTRUCTURE AND ENGINEERING Naviland Cargo Novatrans Rouch intermodal Froidcombi Sefergie Districhrono Ceretif Ecorail Logistra Edifret Stesimaf CWS Cie Modalhor Express Holding France Wagons CTC SGW SEGI SARI Transinformatique STSI SNCFP TLP Sealogis Group VFLI Group Financière Ermewa Ermewa Group STVA Group TRANSPORT AND LOGISTIC Geodis Group Calberson SA Bourgey Montreuil Geodis Logistics Züst Ambrosetti Vitesse United Distribution G. Geodis Wilson Full consolidation Proportionate consolidation Equity accounted Not consolidated Voyageurs France Europe Partners PASSENGERS FRANCE EUROPE Kuvera Groupe EFFIA French Railways Ltd French Rail Inc. Rail Europe Groupe Ltd Rail Europe Benelux Lyria Thalys International VFE Commerce GEIE Sysrail/Data idtgv CRM Services A2C Alleo RE 4A Elipsos Artesia Railteam BV Eurostar Group Transmanche Night Travel Ltd Intercapital Regional Rail Ltd Rail Europe Group Inc. Rail Europe Espagne SRL Rail Europe Suisse Rail Europe Deutschland Rail Europe Italia L Agence Voyagessncf.com Voyagessncf.com VSC Technologies Parvis SAM Valga Rail Plus Keolis GROUP LOCAL TRANSPORT 14 - MANAGEMENT REPORT

17 3. SNCF GROUP 3-1 Consolidated net profit Confirmed growth for all Group results in 2007 In millions Change pro forma pro forma Revenue 23,691 21,957 21,965 1,733 8 % Purchases, sub-contracting and other external expenses 11,151 9,806 9,800 1, % Employee benefits expense 8,895 8,731 8, % Taxes and duties other than income tax % Other operating income and expenses % Gross profit 2,770 2,517 2, % Depreciation and amortisation, net of grants 1,198 1,209 1, % (Charge to) / reversal of provisions NS Current operating profit 1,547 1,323 1, % Net proceeds from asset disposals NS Impairment losses NS Operating profit 1, , NS Net borrowing costs % Finance cost of employee benefits (1) , % Finance costs , % Net profit before tax from ordinary activities of consolidated companies NS Share of profit of associates NS Income tax expense % Net profit from ordinary activities 1, NS Net profit from discontinued operations 0 NS Net profit for the year 1, NS Attributable to equity holders of the parent 1, NS Attributable to minority interests NS Net profit from recurring operations (1) NS (1) Net profit for the year ( 1,109 million) less the change in impairment losses ( 21 million), net proceeds from asset disposals ( 118 million) and deferred tax assets ( 355 million), or 657 million in SNCF financial report

18 3. SNCF GROUP In millions pro forma 2006 Current operating profit / Revenue 6.5% 6.0% 8.0% Net profit from recurring operations / Revenue 2.8% 1.5% 0.5% ROCE = Current operating profit / capital employed (2) 7.5% 6.5% 6.3% ROE = Recurring net profit / average «strict» equity (2) 10.1% 7.8% 7.3% (2) Equity is adjusted for the temporary impact of pension and provident obligations. Comparability of financial statements First annual publication under IFRS The financial statements for the year ended 31 December 2007 represent the first annual publication of the Group financial statements according to IFRS. For comparison purposes, the 2006 financial statements are also presented according to IFRS. The main differences between French GAAP and IFRS are described below. Opening equity as at 1 January 2006 As at 1 January 2006, equity amounted to 4.8 billion in the French GAAP publications. Under IFRS, equity stood at 24.9 billion as at 1 January 2006, due to the following impacts: 31.8 billion for employee benefits (including 30.9 billion for Pension and Provident Fund benefits), 0.7 billion for financial instruments (including the SAAD Special Debt Account), billion for non-current assets billion with the changes in Group structure. Excluding the impact of commitments no longer existing as of the second half of 2007 following the incorporation of the Pension and Provident Fund as an independent legal entity ( 30.9 billion), equity stood at billion as at 1 January Net profit Net profit for the year published under French GAAP amounted to 652 million. IFRS restatements to this result had a total impact of 484 million, wholly in terms of the portion attributable to equity holders of the parent. Restatements mainly had the following impacts: 354 million for employee benefits, with a positive impact on the employee benefits expense of 997 million and a negative impact on finance costs of 1,351 million, 201 million for non-current assets, + 60 million for financial instruments (including the SAAD Special Debt Account) net profit under IFRS therefore amounts to 168 million. Excluding the impact of commitments no longer existing as of the second half of 2007 due to the incorporation of the Pension and Provident Fund as an independent legal entity ( 366 million of the 354 million impact in respect of employee benefits presented above), net profit would have amounted to 534 million. Closing equity as at 31 December 2007 Group equity returned to the black as at 31 December 2007 in the amount of 7.9 billion following the incorporation of the Pension and Provident Fund as an independent legal entity (impact of billion). The creation of an independent Pension and Provident Fund is reflected as follows on the 31 December 2007 balance sheet: a reversal of the total commitment ( 116,446 million) recognised in opening balance sheet liabilities as at 1 January 2006 and updated as at 30 June 2007, a reversal of offsetting entries in assets, corresponding to the equalisation payment defined by Article 30 of the SNCF terms of reference ( 85,130 million), the removal of other assets and liabilities of the Pension and Provident Fund, offset by a 31,052 million increase in reserves pro forma For information purposes, changes between the 2007 figures and the 2006 pro forma figures are presented. Compared to the 2006 figures presented in IFRS, this data was restated as follows: cancellation of 6 months of employee benefits, inclusion of the impacts of the Pension and Provident Fund s independent legal status as at 30 June, inclusion of the change in management rules. Comparison between 2006 and 2007 The comparison of 2007 annual results with those of 2006 is affected by a major change in Group structure: the consolidation of Wilson by Geodis in early February The impact on revenue is million. The acquisition of Wilson weighed on Geodis group operating profit as a result of consolidation costs of million, but the initial synergy impacts contributed additional income of approximately 3 million MANAGEMENT REPORT

19 Revenue Group revenue amounted to 23,691 million for 2007, up + 1,733 million compared to The 8% increase is attributable for 806 million to the acquisition of Wilson and for the remainder (+ 4.3%) to increased activity in the various divisions: Passenger France and Europe: million, + 6%; Local Transport: million, + 4%; Transport and Logistics: + 1,049 million, + 16% (+ 243 million excluding Wilson revenue); Infrastructure and Engineering: + 87 million, + 2%. Gross profit Gross profit comprises revenue and related income less charges directly related to operations (purchasing, subcontracting, other external services, employee benefits expense, taxes and duties other than income tax and other items including disposals of current assets). Employee benefits are recorded on the balance sheet as employee rights vest. In terms of the income statement, the net cost is presented: in gross profit, under employee benefits expense for the portion corresponding to service costs (+ 624 million for 2007), in finance costs for the portion corresponding to the interest expense ( 695 million for 2007). Standing at 2,770 million in 2007, gross profit increased by 252 million, or 10%. As a percentage of revenue, the gross profit rate increased by 0.2 basis points from 11.5% to 11.7%. The improvement is due to limited growth in internal expenses (employee benefits expense and purchasing and external charges). This increase is 3% excluding the impact of Wilson. The increase in external expenses is more significant (+8%). It is related to higher energy costs and infrastructure fees paid to RFF. However, the increase in the latter item was limited in 2007, due to the decrease in Eurotunnel fees following the end of the Minimum User Charge (MUC) on 30 November Excluding the temporary impact of Pension and Provident Fund benefits, gross profit stood at 2.2 billion, up 8%, and the gross profit rate was steady at 9.4%. Current operating profit In addition to gross profit, current operating profit includes mostly noncash items (depreciation, amortisation, provisions, etc.). This balance most truly reflects the Group s current operating performance. Current operating profit stood at 1,547 million, up 224 million compared to 2006, or 17%. The rate of conversion of revenue to current operating profit increased from 6.0% in 2006 to 6.5% in 2007, an increase of 0.5 basis points. Excluding the temporary impact of Pension and Provident Fund benefits, current operating profit amounted to nearly 1 billion, up 16%, and the current operating profit rate rose 0.3 basis points to 4.2%. Operating profit Compared to current operating profit, operating profit includes unusual transactions, in terms of occurrence and amount (impact of change in asset values and proceeds from asset disposals in particular). Standing at 1,644 million, 2007 operating profit exceeded that of 2006 by 745 million. Operating profit for 2006 stood at 899 million, primarily affected by the recognition of provisions for impairment losses within the Transport and Logistics Division for million. Proceeds from asset disposals recorded in 2007 of 118 million mainly comprise: capital gains on real estate sales by Geodis, SNCF and Novedis for a total of 84 million, and proceeds from disposal of Ermewa shares as part of the renewal of the Ermewa financial partnership ( 17 million). Finance costs The finance costs presented by the Group includes the impacts of financing transactions and breaks down into two main components: the cost of net indebtedness, which includes interest paid on Group borrowings (including the SAAD debt), income from the RFF receivable, income from SAAD debt repayment entitlement and interest received on available cash; the finance cost of employee benefits, which corresponds to the interest recorded on actuarial obligations with respect to all post-employment benefits. Consolidated net finance costs for the period were 872 million, a slight improvement over 2006 ( 966 million). The interest expense in respect of the employee benefits provision remained stable at million, compared to 705 million in These costs mainly comprise parent company items: a million charge corresponding to benefits relating to the Pension and Provident Fund. The charge was recognised solely for the first half of Following the incorporation of the fund as an independent legal entity as of 29 June, this type of charge will no longer exist in 2008; SNCF FINANCIAL REPORT

20 3. SNCF GROUP a - 45 million charge corresponding to work-related accidents and social welfare initiatives. This type of charge will continue to be generated. The cost of net indebtedness decreased (- 174 million compared to - 261million in 2006), primarily because of the following parent company items which had contrasting impacts: decrease in the average long-term debt charge due to an interest rate impact and interest on the cash balance (double impact: rate and volume), volatility impact generated by trading derivatives giving rise to a decrease in finance costs. The decrease is nevertheless limited by the cost of financing set up by Geodis to acquire Wilson, and by Ermewa as part of the secondary LBO. Share of profit of associates The share of profit of associates amounts to 37 million, compared to 23 million for This profit includes the stable contribution of Eurofima and the higher Keolis contribution (+ 17 million), but no longer includes the SHEM contribution. Income tax The positive tax impact is related to the recognition of a deferred tax asset as at 31 December 2007 of 355 million. In fact, because of a positive overall profit forecast, the Group has recognised a deferred tax asset since the 31 December 2006 year-end, based on parent company tax loss carry-forwards and calculated in line with three-year financial forecasts. Net profit from recurring operations Net profit from recurring operations corresponds to net income for the period adjusted for non-recurring items (gain or loss on asset disposals, impairment losses and parent company deferred tax assets). This balance most truly reflects the Group s overall performance. Overall net profit from recurring operations doubled to stand at 657 million in The increase (+ 333 million) reflects the Group s commercial momentum and efforts to limit internal expenses, despite year-end strike costs of approximately 260 million. Net profit for the year attributable to equity holders of the parent Following all these changes, net profit for the year attributable to equity holders of the parent is positive at 1,042 million, compared to 368 million in 2006, after recognition of minority interests of 67 million. Excluding the temporary impact of Pension and Provident Fund benefits: the ROCE (1) (calculated on current operating profit) increased from 6.5% to 7.5%; the ROE (2) (calculated on net profit from recurring operations) also rose (+ 2.3 basis points) from 7.8% to 10.1%. 3-2 Cash position and financing sources Cash available after financing growth through operations In millions Change Cash flow from operations (A) 1,880 1, Equity-financed investments 1,935 1, Disposals of tangible assets Net equity-financed investments (B) 1,577 1, Free cash flow Difference (A) (B) (1) ROCE or Return on Cash Employed represents the ratio between current operating profit and capital employed (equity and net debt). Equity for 2006 was restated for the Pension and Provident Fund impacts. (2) ROE or Return on Equity represents the ratio between net profit from recurring operations and equity. Equity for 2006 was restated for the Pension and Provident Fund impacts MANAGEMENT REPORT