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S.COSTA : Grupo Soares da Costa, SGPS, SA informs on Strategic Plan Update

11/28/2011 | 04:17am US/Eastern

Material Information | Porto | November 28, 2011

Strategic Plan Update

The deep aggravation of the economic and sector context and the deterioration of the financing availability and conditions in Portugal created the necessity for an update/ adaptation of Soares da Costa Group's (SDC) strategic plan.
The adequacy of the strategic plan presented on September 2010 is, in general, based on a strong focus on the construction activity and on the Group's core markets or geographies. Therefore, strategic guidelines are now mainly orientated to INTERNACIONALIZATION, CONSTRUCTION business area and FINANCIAL SUSTAINABILITY of our activities:
Maintain growth in Africa
The Group maintains as target to establish a partnership in the Angolan market which will leverage SDC's experience in a market with a solid growth potential. We also maintain the diversification to the infra-structures and to other regions beyond Luanda goals, which in fact are already in place.
Concerning other African markets, the Group is investing in a sustainable growth in Mozambique, taking into consideration our position in the market and this economy's positive growth prospects, and in an opportunistic presence in other African markets.
Organic Growth in the Brazilian market, with and acquisition planned in the medium term
In accordance with the strategy presented last year, SDC has already been awarded two works in Brazil, which are being developed, but simultaneously continuing to search for additional opportunities in a market with high growth potential and attractive margins. This initial activity, and its future organic growth, will allow the Group to gather experience and operational knowledge of the market and its players. As previously highlighted, the entrance in the Brazilian market creates an additional geographical platform to the Group, enhancing diversification from risk exposure to the African markets, which will be intensified with an acquisition, in the medium term, of a local company.
Continue Operating in the U.S., with a focus on profitability
The Group will continue to invest in its activity growth in the North American market, namely in the infra-structures segment, for which there are good prospects, based on the public/ government
spending plans. Strategy for this market will continue to be based on geographical expansion of Prince's

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activity beyond the Florida: Georgia State, in which the company is already operating with several works, and Texas, in which commercial activity was already initiated. Nevertheless, management's focus is now on the improvement of the operational activity profitability. Additionally to the good opportunities foreseen, SDC considers that the exposure to this more developed and mature market is a positive feature to the constitution of a more balance business portfolio.
Postponement of new investments in Energy and Environment
The investment in new business in the energy and environment areas was one of the strategic guidelines announced in 2010, with some achievements since then: acquisition of a majority position in a ESCO (Energy Service COmpany), Selfenergy, and the award of four mini-hydraulic dams exploitation concessions in Portugal. However, further investments in these areas are for now postponed. Investments in the waste and building materials should not also be realised by the Group.
Alienation of Assets
SDC maintains as a strategic guideline the alienation of non strategic/ core and/ or nature assets, already initiated in 2010 and from which resulted, inter alia, the sale of a minority stake in BAI.
Minimization of capital needs in Concession projects
Although recognising the role on this business area as a contributor to the construction, and leveraging of the technical skills developed by the Group, management wants to have an active presence in the infra-structure concessions market. Nonetheless, will be given priority to the development of alternative financing models for concession projects: search for financial partners, preference for projects with a structure that allow a limited equity investment from the Group.
Reduction of Structure Costs
Although implicit to the strategic plan previously announced, taking into consideration its current strategic nature, management decided to include the reduction of structure costs explicitly as a guideline. Given the rapid deterioration of the domestic construction market, the Group will intensify the reduction of structure costs/ fixed costs in the construction business area, also including shared and corporate services areas, reduction/ reallocation of workers and cutback of other operational costs (external supplies, etc.)
With these updated strategic guidelines, management expects to assure a growth pace to the Group's activity compatible with the external conditions, namely financial conditions, protecting profitability level and allowing, by the end of the implementation period of the plan, to attain an expressive
indebtness level reduction.

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The Group's turnover evolution show reflect these strategic choices, being expected by 2015 a turnover with a dominantly international profile (more than 80% of the consolidated turnover), based on the construction activity and with a growth prospect expressed in a CAGR 2010-15E slightly above 5%.
Is also management's explicit goal to reduce net debt (namely through the reduction of the recourse net debt), currently above the sector's reference figures, and to extend its maturity profile. This reduction should be more expressive from 2013 onwards, targeting a net debt to EBITDA ratio of 5.6x by 2015.
Grupo Soares da Costa, SGPS, SA

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