SIMPLY CLEVER CARS AND PEOPLE ŠkodaAuto 2007 ANNUAL REPORT INVENTIVE SPIRIT Jens Manske (Head of Design), Lada Dlabolová (interior designer) – posing in front of an interior model at the Škoda Auto Design Centre Jana Bonková, Věra Vasická – matching colour and upholstery samples in the background Long before a new model is designed, the technical development department begins to work on the first conceptual sketches. Upon compiling draft designs, the overall vehicle concept is ready for further elaboration. We have a lot of new ideas for products that we are developing with enthusiasm and great ambition. We are a motivated and efficient team ambitiously working on each new project whole-heartedly and with great determination. Jens Manske, Head of Design ŠKODA SUPERB CHANGE YOUR SENSE OF SPACE ŠKODA OCTAVIA RS EVERYDAY LIFE. TURBOCHARGED ŠKODA ROOMSTER FIND YOUR OWN ROOM ŠKODA FABIA LOVE AT FIRST DRIVE Škoda stands for top quality, smart solutions, roominess, attractive designs and characteristic style. Of course, the same applies for its flag-ship, the Superb. This makes the Superb the ideal limousine for people who know what they want, who are conscious about what they expect from products and brands, and who are, in this sense, very demanding. NO COMPROMISE IN SPACE AND COMFORT With its imposing interior space offer, its outstanding room in the rear passenger compartment, its smart and useful details and overall elegance, the Škoda Superb offers a consequential “big plus” in comfort, space and smart solutions. The car therefore brings a rewarding driving experience not only for the driver but also for the passengers. At last a car which brings fun and practicality. A car that offers the best of both worlds: it is practical for shopping, and fun to drive to the favourite club. PRACTICAL AND FUN The Octavia RS differs from its competitors by the “two sides” of its personality: it offers an outstanding ratio of practicality and fun. Thanks to the large luggage compartment and powerful engines it appeals to the dual needs of its target customers: rational and emotional. It is the positive attitude of Roomster owners towards life and its daily turnarounds that make them special. People driving a Roomster look forward to every day and all the new perspectives it will bring. FOR NEW PERSPECTIVES IN LIFE With the Roomster they have a car that ideally expresses their curiosity. By its roominess and flexibility it gives them the freedom to enjoy new experiences to the full – day in, day out. Looking for a new car is a bit like looking for a partner. One can choose between various alternatives. Mr. Show-off, Ms. Boring, the cute one, the sunny girl etc. But in the end everybody is looking for Mr. or Ms. Right. This one and only person that fits perfectly to oneself. YOUR PERFECT PARTNER Of course, the new Fabia is a good-looking car with an appearance full of character. It is also a car with personal qualities and skills. The look and feel of its high-quality interior, its unexpected spaciousness and its attractive design provide the reassurance of having the partner that fits perfectly to you. The new Fabia Combi is ideal for young, active people. Combining substance, style and roominess, it is the perfect family partner. CONTENTS Selected Data and Financial Figures According to IFRS 3 Letter from the Chairman 4 2007 Milestones 6 Škoda Auto Group Profile 8 Who We Are 8 Whence We Come 9 Where We Stand 9 Statutory and Supervisory Bodies of Škoda Auto 10 Board of Directors 10 Supervisory Board 14 Report of the Supervisory Board 17 Škoda Auto Corporate Governance 20 Declaration of Compliance with Codex of Corporate Governance Recommendations 20 Degree of Compliance with Codex of Corporate Governance Recommendations 20 Škoda Auto Social Responsibility 23 Report on the Operations of Škoda Auto Group and ŠKODA AUTO a.s. 26 Macroeconomic and Market Development 26 Risk Management System 30 Financial Situation 36 Financial Situation of Škoda Auto Group 36 Financial Situation of Individual Group Companies 39 Value-oriented Management 43 Technical Development 46 Purchasing 48 Production and Logistics 50 Quality 54 Sales and Marketing 58 Human Resources 62 Sponsorship and Corporate Citizenship 68 The Environment 70 Where We’re Headed 74 Strategy 74 Short-term and Medium-term Outlook 76 Financial Section 78 Auditor’s Report on the Annual Report and the Report on Relations 79 Auditor’s Report on the Consolidated Financial Statements 80 Consolidated Financial Statements for the Year Ended 31 December 2007 81 Auditor’s Report on the Separate Financial Statements 123 Separate Financial Statements for the Year Ended 31 December 2007 124 Report on Relations 164 Glossary of Terms and Abbreviations 169 List of Non-Consolidated Capital Holdings of ŠKODA AUTO a.s. 170 Persons Responsible for the Annual Report and Post-Balance Sheet Events 171 Key Figures and Financial Results at a Glance 172 Škoda Auto Organisation Chart 174 2 SELECTED DATA AND FINANCIAL FIGURES ACCORDING TO IFRS Škoda Auto Group Škoda Auto (company) 2005 2006 2007 2005 2006 2007 Volume Data* Deliveries to Škoda customers vehicles 492,111 549.667 630,032 492,111 549,667 630,032 Sales vehicles 498,467 562,251 619,635 493,119 555,202 623,085 Sales of Škoda cars vehicles 496,387 559,821 617,269 493,119 555,202 623,085 Production vehicles 494,127 556,347 623,291 494,637 556,433 623,529 Production of Škoda cars vehicles 494,127 556,347 622,811 494,637 556,433 623,529 Number of employees persons 26,742 27,680 29,141 26,014 26,738 27,753 of which: temporary persons 3,460 3,879 4,680 3,460 3,704 4,194 Profit and Loss Account Sales CZK millions 187,382 203,659 221,967 177,822 189,816 211,026 Gross profit CZK millions 23,644 28,023 36,493 18,635 22,107 30,161 % of sales 12.6 13.8 16.4 10.5 11.6 14.3 Operating profit CZK millions 10,860 14,602 19,784 10,004 13,776 19,021 % of sales 5.8 7.2 8.9 5.6 7.3 9.0 Profit before income tax CZK millions 10,073 14,198 19,860 9,440 13,560 19,446 Profit before income tax-to-sales ratio % of sales 5.4 7.0 8.9 5.3 7.1 9.2 Profit after income tax** CZK millions 7,893 11,062 15,982 7,363 10,882 15,892 Profit after income tax-to-sales ratio % of sales 4.2 5.4 7.2 4.1 5.7 7.5 Balance Sheet/Financing Fixed assets CZK millions 55,424 54,292 56,767 55,023 53,936 56,903 Current assets CZK millions 34,331 50,920 59,014 28,956 43,499 48,658 of which: lendings CZK millions 11,200 23,950 25,554 11,200 23,950 25,554 Equity** CZK millions 46,757 58,321 67,034 46,483 58,007 66,532 Non-current liabilities CZK millions 12,837 12,354 13,940 11,685 9,457 10,281 of which: nominal value of bonds CZK millions 5,000 2,000 2,000 5,000 2,000 2,000 Current liabilities CZK millions 30,161 34,537 34,807 25,811 29,971 28,748 of which: nominal value of bonds CZK millions 0 3,000 0 0 3,000 0 Total assets CZK millions 89,755 105,212 115,781 83,979 97,435 105,561 Cash flow from operating activities CZK millions 23,550 27,420 28,454 21,421 24,203 28,146 Cash flow from investing activities CZK millions (11,566) (11,090) (13,785) (11,299) (10,910) (13,913) Cash flow from financing activities CZK millions (14,670) (156) (11,387) (11,298) 68 (11,259) R&D expenditure CZK millions 5,414 4,701 5,459 5,414 4,701 5,459 Investment ratio % 4.7 4.1 4.9 4.8 4.3 4.9 Net liquidity CZK millions 4,911 21,157 27,403 6,070 19,352 25,154 Equity ratio % 52.1 55.4 57.9 55.4 59.5 63.0 Equity-to-fixed assets ratio % 84.4 107.4 118.1 84.5 107.5 116.9 * Volume figures are defined in the Glossary of Terms and Abbreviations, p. 169. ** The figure for the consolidated group includes minority shares. 3 LETTER FROM THE CHAIRMAN Dear friends and well-wishers of the winged arrow brand, Allow me to give you a synopsis of 2007 and briefly outline the outlook for future years. In 2007, Škoda Auto Group posted the best performance results in Company history, and it did so in all areas of the business. Also, record numbers of vehicles produced and sold were reflected in an excellent earnings result. We also made progress in the field of social responsibility where, in particular, the adoption of the Codex of Corporate Governance brings a further shift in Škoda Auto’s transparency and information openness. And the newly opened Na Karmeli Education Centre will contribute to the development of the region’s educational profile. Our attention in 2007 was focused on the Fabia model line. In the spring, we unveiled the new-generation Fabia to the public at the Geneva Motor Show. Shortly after launch, this vehicle received the prestigious automotive award Zlatý volant (“Golden Steering Wheel”) for the best new small car of the year. Later in the year, the new-generation Fabia Combi (estate) model was introduced at the IAA Frankfurt Motor Show, and our customers will be able to buy it starting in 2008.