SNCF — FINANCIAL REPORT 2007 - A www. sncf.com MANAGEMENT REPORT 2 CONSOLIDATED FINANCIAL STATEMENTS 38 COMPANY FINANCIAL STATEMENTS 160 SNCF — FINANCIAL REPORT 2007 - 1 RMAAPPORTNAGEM ENT DEREPORT GESTION Sauf(In € millions)indication contraire, les montants sont indiqués en millions d’euros (M€) 2 - MANAGEMENT REPORT contents 1 SIGNIFICANT EVENTS OF THE YEAR 4 1-1 ENVIRONMENT 4 1-2 SIGNIFICANT EVENTS FOR THE GROUP 6 1-3 A GROUP DEMONSTRATING SOLIDARITY AND RESPONSIBILITY 11 2 SNCF GROUP ORGANISATION 13 2-1 CORPORATE STRUCTURE 13 2-2 LeGAL STRUCTURE 14 3 SNCF GROUP 15 3-1 CONSOLIDATED NET PROFIT 15 3-2 CASH POSITION AND FINANCING SOURCES 18 3-3 BALANCE SHEET 21 3-4 FINANCIAL RELATIONS WITH THE FRENCH STATE, RESEAU FERRÉ DE FRANCE AND LOCAL AUTHORITIES 22 3-5 WORKFORCE 25 4 ACTIVITY AND RESULTS BY DIVISION 26 4-1 PAsseNGER FRANCE AND EUROPe 26 4-2 LOCAL TRANSPORT 28 4-3 TRANSPORT AND LOGISTICS 30 4-4 INFRASTRUCTURE AND ENGINeeRING 33 4-5 COMMON OPERATIONS AND INVesTMENTs 35 5 CORPORATE GOVERNANCE 36 SNCF — FINANCIAL REPORT 2007 - 3 1. SIGNIFICANT EVENTS OF THE YEAR 1-1 ENVIRONMENT Inflationary pressures have also been aggravated by rising commodity food prices. On an uptrend since mid-2006, prices have soared since AN UNCERTAIN YET NEVERTHELESS the beginning of 2007 for reasons both environmental (adverse DYNAMIC ECONOMIC ENVIRONMENT weather conditions) and structural (sharp rise in demand and biofuel IN THE TRANSPORT SECTOR, production, which is reducing food acreage). Beginning in the summer, AND PARTICULARLY FOR RAIL TRANSPORT these rises are now being passed on to the consumer. Worldwide growth withstood reasonably well the turbulence of 2007: a The main source of uncertainty affecting 2008 lies in the extent and plunging US real estate market, the crisis in US subprime home loans that duration of the current liquidity crisis. A continuing liquidity shortage led to a general liquidity shortage from August, and the surge in oil prices in could hamper numerous investment decisions and the global the second half. economic slowdown would worsen. Conversely, a rapid resolution The impact of these events on the global economy should be more tangible to the crisis and consequently an easing of financing conditions, in 2008. In all countries, business investment will suffer from tighter magnified by Federal Reserve prime rate cuts in the United States, financing conditions, and the inflationary toll expected from agricultural could quickly act to stimulate growth. and energy commodities should restrict household consumption. The economic slowdown will be most felt in the United States and the United According to the most recent ECB monthly bulletin, the fundamentals Kingdom but should be more limited in the euro zone. of the euro zone economy are solid, corporate profits remain high, Euro zone growth remained steady at 2.7% in 2007. In Germany, job growth is robust and the unemployment rate has fallen to levels growth slowed to 2.5% following 2.9% in 2006. unseen in the last twenty-five years. Consequently, the rise in In this international context, the French economy has not been enti- consumer spending should continue to boost economic growth, in the rely immune to the global slowdown, the 1.9% growth rate falling wake of higher real disposable income, and investment growth should below the forecasts of early 2007. provide ongoing support. In general, because of its core businesses, SNCF Group has AN ENVIRONMENT UNDERGOING PROFOUND underscored the importance of household consumption, which CHANGE remained stable at 2.1%, close to the trend observed over the last two years. The transport sector is evolving in a context marked by significant eco- nomic trends, from a social and individual perspective, as epitomised There will only be a gradual return to normal for the money markets, by the concept of sustainable development, and the development of and it could be some time before there is an easing of the financial high-speed infrastructures in Europe. These issues represent challen- turmoil. Indeed, there remains great uncertainty in the United States ges, and presage a momentous future for the transport sector in general, as to the exact location of high-risk financial assets, such as doubtful and particularly for rail transport, due to the growing mobility needs real estate loans. Borrowing terms will therefore remain tight in the of people and goods, the saturation of road and airport infrastructures coming quarters. and the mid-term perspectives for oil. Added to these financial qualms is a dual inflationary impact. Pressures Likewise, the competitive environment must restructure itself, parti- continue to bear down on the oil markets. After an initial surge in September, cularly with respect to current or previous monopolies that oil prices continued to climb in October and November. These upward must open to competition in ever-increasing numbers: freight rail pressures reflect physical tension in the oil markets: demand is up transport, international TGVs, including cabotage, infrastructure sharply, notably in the Middle East and China, and OPEC is not using all activities, through development of public-private partnerships, rail its spare capacity. These pressures were exacerbated by rising public transport activities opened up over a longer timeframe (Public geopolitical uncertainties and erratic weather conditions that disrupted Service Obligation regulation), not to mention the increasingly fierce oil extraction and shipment. competition between transport means via the technical advances of truck and automobile manufacturers and continuing transformations in the airline industry. 4 - MANAGEMENT REPORT Intramodal competition in the transport and logistics business SNCF Group, and more generally, the entire transport sector, is thus demonstrated its momentum in 2007 and an aggressiveness that was confronted with major strategic challenges and disruptions in an envi- particularly intense. Seven companies hold the safety licences and ronment that is highly conducive to development. certificates required for the domestic market and five are making use of them. At the end of 2007, or barely 20 months following “GRENELLE” ENVIRONMENT ROUND TaBLE: the opening to competition, new arrivals represent 8% of tonnage AN EXCELLENT OPPORTUNITY FOR THE RAIL hauled. This competition is particularly active in certain market segments SECTOR (agriculture, quarry products). It will rapidly intensify in the coming months under the combined impact of: The conclusions adopted in October 2007 at the end of the proceedings, – new competitor capacities in terms of locomotives, and, conse- announced “a radical change in strategy with an absolute priority given quently, their foreseeable positioning in new market segments with to rail and waterways.” Accordingly: longer travel times; – construction of 2,000 km of high-speed lines by 2020, – the purchase of the ECR parent company (EWS), number two in – for freight, creation of new rail motorways for north/south-east and France, by the German company Die Bahn, making the latter the main north/south-west routes in France, national competitor of SNCF Group. – for urban transport, construction of 1,500 km of additional tramway lines in the major cities, excluding Greater Paris, Other major strategic developments recently observed for rail transport – creation of an ecotax by 2010 based on mileage for trucks using the groups include: French non-concessionary road network (offset by a tax decrease for – a general trend towards an integrated vertical structure for business French trucks), segments: recent years have seen a series of such reorganisations in – for air traffic, creation of a programme to reduce carbon dioxide Europe, seeking to make management more accountable for market/ emissions by 20% by 2012, and by 40% by 2020. 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; THIRD RAILWAY PACKAGE: AGREEMENT – a diversification of strategic positioning: alongside the arrival of BETWEEN THE EUROPEAN PaRLIAMENT specialised players such as Rail4chem or Arcelor-CFL, the upsurge in AND COUNCIL strategic models that can be described as conglomerate, as symbolised by the Deutsche Bahn “mobility, network, logistics” positioning. It On 21 June 2007 the European Parliament and Council confirmed the bears noting, moreover, that the various Deutsche Bahn competitive conciliation agreement covering the “Third railway package”. Tabled positions are presented independently of transport means; by the European Parliament in March 2004, the package has been – the rapid step-up in players who already have strong positions in non- the subject of lively debate. It will finally involve two directives and a domestic markets, clearly posing the challenge of internationalisation regulation governing market liberalisation for international passenger to all players. In the first half, for example, a player in the form of Arriva rail traffic, passenger rights and the certification of train drivers. announced its ambitions for the Polish market and Transdev concluded Following the example of freight, international passenger transport a major purchase transaction in the Netherlands, while SNCF Group will now operate based on the principle of free access, as of 1 January pursued its development on the British market with its partner Go 2010. Domestic cabotage will be authorised