Notes to Consolidated Financial Statements for the Year Ended December 31, 2003 FINANCIAL STATEMENTS
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Annual Report 2003 CONSTRUCCIONES Y AUXILIAR DE FERROCARRILES, S.A. AND DEPENDENT COMPANIES THAT MAKE UP THE CAF GROUP Contents Letter from the Chairman 2 Management Report of the Consolidated Group 6 – Earnings 7 – Comercial activity 8 – Industrial activity 10 – Human resources 12 – Capital expediture in 2003 13 – Technological development 14 – Outlook 16 – Subsequent events 17 Auditor’s Report 19 Financial Statements of the Consolidated Group 23 – Balance Sheets 24 – Statements of Income 26 – Notes to Financial Statements 28 Approval by the Board of Directors 48 Resolutions submitted by the Board of Directors for Approval by the Shareholders’ Meeting 49 Proposed Distribution of Income 50 Board of Directors 51 Supplementary Information 53 – Stock market information 55 – Balance Sheets 56 – Statements of Income 58 CONSTRUCCIONES Y AUXILIAR DE FERROCARRILES, S.A. AND DEPENDENT COMPANIES THAT MAKE UP THE CAF GROUP Annual Report 2003 Translation of a report originally issued in Spanish. In the event of a discrepancy, the Spanish-language version prevails This document, which is also published in English an on CD-ROM, contains the statutory documentation of CAF and Subsidiaries. More information on CAF and its products, together with the information required by law for shareholders and investors, can be obtained on the website www.caf.net. Letter from chairman Dear Shareholder: 2003 On the occasion of the Shareholders’ Meeting to which the management report and financial statements for 2003 are submitted for approval, I would like to inform you about the highlights of 2003 and offer you some important data about the future of our ANNUAL REPORT Company. CAF Consolidated Group income for 2003 was €11.6 million, up 18% on 2002. Earnings 2 before interest, taxes, depreciation and amortization (EBITDA) were €29.03 million and cash flow stood at €27.86 million, exceeding the figures obtained in 2002 by 10.02% and 11.90%, respectively. The CAF consolidated Group’s sales amounted to €495 million in 2003, up 26.27% on the previous year. In 2003 the total volume of contracts awarded to CAF in the domestic market amounted to €486 million. The most significant of these contracts were the orders for: 40 suburban units (Civia trains) for Renfe, 39 five-car trains for the Barcelona metro, 17 light rail metro units for Guadalmetro, the concession-holder of the Seville light rail system, 10 diesel units for Serveis Ferroviaris de Mallorca and 13 units for Ferrocarrils de la Generalitat de Catalunya. Contracts worth €208 million were obtained in foreign markets and included most notably 9 diesel units for Irish Rail and 15 six-car units for the Brussels metro. In total orders worth €694 million were obtained, the highest-ever figure in the Company’s history. As a result of the commercial activity described above, the backlog at 2003 year-end reached an all time high of €1,590 million, 50% of which relates to the domestic market and 50% to foreign markets. As the most important milestones in terms of deliveries, we can point out the completion of the Washington, Sacramento and Ireland projects, the first shipments to Northern Ireland and Pittsburgh, and the forthcoming roll-out of CAF’s first high-speed, variable-gauge train. The expectations of obtaining new contracts from Renfe in connection with the Railways Infrastructure Plan and, in particular, the new high-speed lines, which were discussed in previous years, were borne out in the first months of 2004. Renfe awarded CAF the supply of 45 variable-gauge 250 km/h high-speed trains. This contract for trains capable of travelling on lines with different gauges assures CAF’s presence in the high-speed sector. The innovative technology developed by CAF will enable Renfe operate versatile trains that run on the two existing gauges without the need to stop. Also, RENFE awarded the consortium formed by CAF and another manufacturer the supply 2003 of 30 single gauge 250 km/h high-speed trains. We will closely follow the projects to develop Spain’s high-speed network and for this purpose will maintain our firm commitment to the development of our own technology and to further research for new solutions. In the foreign markets, following the success obtained in Europe with contracts in the ANNUAL REPORT United Kingdom, Ireland and Italy, we have made further progress with the award of the contract for the Brussels metro, which has consolidated our position in the European CAF market. 3 Also, the new member countries of the EU, which need to develop their railways and metro networks, represent medium-term target markets to which we will devote our attention and efforts. As a result of the commercial activity subsequent to 2003 year-end, the volume of the backlog at the end of February reached a new record high of €2,406 million. This significant figure will enable us to not only to carry on our normal industrial activities over the next few years, but also to engage in our commercial activity with a more long- term perspective. I would like to end this letter by once again acknowledging and expressing my gratitude for the contribution of all CAF’s employees without whose efforts and dedication it would not have been possible to achieve the results we have obtained. We can only rise to meet the considerable challenges awaiting us in the near future with the renewed efforts of all the individuals who are part of our Company and we have every confidence that we will achieve this. I would like to thank you and the other shareholders for the trust you have placed in our Company and finally to confirm our commitment to continue to work with the same motivation and dedication to achieve the targets we have set ourselves. Thank you very much. José María Baztarrica Garijo Chairman and CEO CITY/SUBURBAN Metros · Bilbao · Barcelona · Brussels · Madrid · Hong Kong · Washington · Sao Paulo · Mexico · Rome · Seville · Valencia Articulated light rail vehicles · Pittsburgh (USA) · Sacramento (USA) · Amsterdam (Holland) · Monterrey (Mexico) · Coastal train (Argentina) Regional Trains · Red Nacional de Ferrocarriles Españoles (RENFE) · Eusko Trenbideak-Ferrocarriles Vascos (ET/FV) · Ferrocarrils de la Generalitat de Catalunya (FGC) · Ferrocarriles Españoles de Vía Estrecha (FEVE) · SFM de Mallorca · Finnish Railways (VR Ltd) · Caminhos de Ferro Portugueses · Hong-Kong Lar Airport · Heathrow Express · Northern Spirit · Irish Rail · Northern Ireland Railways Trams · Valencia · Lisbon · Bilbao With a track record of more than one hundred years, CAF is an international benchmark in the railroad industry due to its state-of-the-art technology, the Con una trayectoriaquality of de its más products and its personalized customer de cien años,service. CAF es un referente internacional de la industria ferroviaria por su avanzada tecnología, calidad de sus productos y personalizada atención al cliente. MAJOR LINES Intercity trains · Compartments and luxury lounge · Sleeping cars and couchettes · Restaurant and cafeteria cars · High-speed electric trains High-speed trains · High-speed trains for the Madrid-Seville line · High-speed trains for the future Madrid-French border line · Shuttle trains (RENFE) · Variable Gauge powered trains Management Report of the Consolidated Group Earnings The statement of income for 2003 The CAF Group’s 2003 financial results were as follows: 2003 shows after-tax income amounting · Income after taxes amounted to €11,605 thousand, up approximately 18% on 2002. to €11,605 thousand, approximately · The depreciation and amortization charge of €13,458 18% higher than in 2002. thousand, plus the income for the year before taxes, generated a cash flow of €27,861 thousand. ANNUAL REPORT · Net sales totaled €495,479 thousand. CAF · The backlog of €1,590,002 thousand as of December 7 31, 2003, which exceeded the 2002 year-end figure, will enable the Company to continue to pursue its normal business activities. · The proposed distribution of €3,737 thousand of the Parent Company’s income after taxes to pay dividends and €6,668 thousand to voluntary reserves supports the policy of prior years of strengthening the Parent Company's net worth. · The proposed allocation of income to reserves, if Earnings and Cash Flow before taxes approved, will increase the Parent Company's (thousand of euros) shareholders’ equity to €132,579 thousand. 30,000 · Lastly, as required by law, CAF declares that neither it 24,899 27,861 24,113 25,000 23,133 nor its subsidiaries purchased or held any treasury 20,693 20,765 20,489 stock in 2003. 20,000 15,000 14,403 12,569 12,375 11,732 11,233 11,347 11,269 10,000 5,000 0 97 98 99 00 01* 02* 03* * Consolidated data 2001, 2002 and 2003 Earnings Cash Flow Shareholders' Equity Evolution of dividends/shares (thousand of euros) (in euros) 150,000 1.4 1.2 120,000 1.09 1.09 1.09 1.09 1.01 1.01 1.01 132,579 125,912 1.0 121,002 115,569 90,000 109,937 0.8 104,456 99,071 0.6 60,000 0.4 30,000 0.2 0 0.0 97 98 99 00 01 02 03 97 98 99 00 01 02 03 Commercial activity The backlog amounted to €1,590 In 2003 the contracts obtained by CAF amounted to € 2003 694 million, of which 70% related to the domestic million at year-end, up 14% on the market. At 2003 year-end the Group’s backlog stood at €1,590 million. previous year. This backlog, which exceeded the 2002 figure by 14%, is the highest ever reached by CAF and evidences a substantial increase in its share of the domestic market ANNUAL REPORT which, at 50%, equals that of the export market.