Paulo Azevedo 

Throughout 2019, we continued to implement the corporate strategy outlined in recent years, materialised in an active portfolio management, namely: (i) through the investment in business areas with value creation plans already approved and whose added value is visible in its results; (ii) improving the competitive position and profitability of the businesses that are still underperforming; (iii) the placing on the market of the real estate assets, including those of developed projects, and (iv) the identification and materialisation of new business areas, enhancers of future growth.

It was in this context that we proceeded to divest our participation in the share capital of RACE, a company with a long history in our Group, but which was late in presenting adequate levels of profitability. We believe that this sale will allow the company to start a new investment cycle and to generate added value for its new shareholders and, more importantly, for its employees. Additionally, this operation allowed us to free up resources to foster our growth path and improve the competitive position of each of our business units and the portfolio, in general.

At the same time, we continued to sell real estate assets held by the Group, which fulfils the dual objective of financing the investment plans of our businesses and options for future growth. Even though it was not a year of significant sales, we maintain favourable perspectives for the coming years, given the good pace of project development and negotiations, as well as the growing recognition of the intrinsic value of our assets.

The sustainability of our operations continues to improve, not only because we maintain a Capital Structure appropriate to the type of businesses and assets held by the Group, but also due to improvements in profitability. In 2019, both the EBITDA and the EBIT of Sonae Capital Business Units continued to grow and reached 35.3 and 6.4 million euros, respectively, an increase of, approximately, 9% and 12% compared to 2018. Additionally, and more importantly for the Group's sustainability in the medium to long term, the year of 2019, as previous years, was again of strong investment. We invested, in 2019, 51.7M€ (1.5x the EBITDA achieved in 2018), after having invested 32.6M€ and 61.6M€ in 2018 and 2017, respectively.

This investment was channelled, mainly, to businesses with value creation plans already approved and where we have a team with demonstrated evidence, with deep knowledge of the sector in which it operates and, above all, with visible results in terms of profitability. This year, we invested 35.4M€ in our Energy segment, including the acquisition of Futura Energia Inversíones, which is important not only for the complementarity of offers, especially in a scenario post feed-in tariffs, but also for the contribution to the growing internationalisation of this business. A special note should be taken on the sustained steps that have been taken in the operation in Mexico, which, given the number of projects analysed, prove that we are facing a country of great opportunities in our preferred technology, the Cogeneration. Still in Energy, we will start operating the biomass-fired cogeneration power plant very soon, in Mangualde. In addition to its economic contribution, associated with the steady flow of cash-flow over the next 25 years, this facility will make an important contribution to the optimisation of forest management in the region and, consequently, to the minimisation of the risk of forest fires, as well as it will allow, with the use of sub-products of the industrial process, to promote the circular economy, with all the associated environmental benefits.

In the Fitness business, in which, we believe we have already achieved the long-awaited position of market leadership, we have invested 7.1M€, including the acquisition of the Urban Fit chain, whose integration in our portfolio and subsequent repositioning for the Pump brand, not despite the difficulties encountered, is being a success.

In the Hospitality and Tróia Operations businesses, efforts have been mainly focused on operational and customer experience improvement. During the year, we achieved significant progress: in Hospitality, after reaching the operational breakeven, in 2018, this year we more than doubled the EBIT (+1.1M€ vs. 2018) and, at the same time, we continued to invest on the opening of some units, in order to reduce the scale differential versus our biggest competitors in this market. In this context, the concession of the emblematic building of Santa Apolónia Railway Station and the acquisition of the exploration of Aqualuz Lagos, both in early 2019, as well as the recent signing of a contract for the installation of another hotel unit, on the most important avenue of the city of Porto (Avenida dos Aliados) are very significant steps. As for the Operations in Tróia, we remain fully focused on the commitment to raise the customer experience to levels of excellence, at the same time that we managed to improve the operating profitability of this segment, visible in the EBITDA growth of more than 92% compared to the previous year.

Regarding the completion of our future growth options, namely, in the new Industrial Engineering business, which materialises the announced investment theme - Portuguese Engineering Export, 2019 was well below our initial expectations. The difficulties have been substantially greater than anticipated. In effect, given the current sales levels, we are making an additional effort to reduce the fixed costs structure, to allow us to present results more in line with the ambition at the time of the acquisition. We remain confident that Adira will register, in the short and medium term, an operational and, mainly, commercial activity, in line with the value we recognise to it.

The sale of Real Estate Assets is one of the central axes of our strategy and plays a fundamental role in the materialisation of the latter. In 2019, despite the fact that we did not register any sale of the most significant projects, the global amount of sales of Real Estate Assets (including a stock of PPSAs and Reserves) stood at 68.3M€. It is worth highlighting, due to its importance, the still not concluded sale of UNOP3, for 20M€, for the development of yet another distinctive project, in the Tróia Peninsula, for reasons that we do not fully control. We are certain that the benefits of the project in question, for the Peninsula in particular, and for the Country, in general, are recognised by all the entities involved and that the proper authorisations will necessarily be obtained.

The cash flow generated in 2019 by the sale of Real Estate Assets, and the expectations of future evolution, allow us to fulfil the triple goal of financing the growth of the Business Units with a high potential for generating value, of maintaining a robust capital structure, appropriate to the type of businesses and assets held by the Group, and to propose to the Shareholders’ General Meeting the distribution of a dividend that continues to represent one of the best yields on the Portuguese stock exchange

Furthermore, I would like to highlight that, after having first reported a Sustainability report of Sonae Capital in 2018, in 2019 we were consistent and defined our priority areas of action. We have been working to make clear commitments on each axis, across all our businesses, and we are convinced that, despite the high degree of challenge we are aiming for, we will be fulfilled. We hope that, by communicating Sonae Capital's contribution to a sustainable development from an economic, social and environmental point of view, we have made this report an asset for our stakeholders. Because we want to be even more transparent in communicating our performance in terms of climate change, I would like to add that we are committed to, already in this year 2020, reporting to the CDP (Carbon Disclosure Project).

To conclude, I would like to thank our people. For their effort and dedication, which are fundamental to the various achievements of Sonae Capital throughout 2019. I also extend this acknowledgment to our customers, partners and shareholders, for believing in our commitment and our value proposition. Finally, I extend a special appreciation to all the members of our Governing Bodies, for their constant advice, challenge and attention.

Duarte Paulo Teixeira de Azevedo, 21 February 2020 (Management Report 2019)


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