11:29:01AM

01:29:01AM00:00:0105:29:01PM

06:29:01Pm

0-1

-2

-3

-46 +1 +2 +3 +4 +5 +6-511:29:01AM

01:29:01AM

00:00:01

05:29:01PM

+1

+2

+3 +4+5 +6

‘03

REPORT ANDCONSOLIDATED

ACCOUNTSSONAE INDÚSTRIA – SGPS, SA

CONSOLIDATED DATA

Economic indicators [Euro x 106] 2002 2003 03/02

Turnover 1 479.0 1 441.0 –2.6%

Operational Cash Flow 173.4 149.6 –13.7%

Operational profit 25.9 3.0 –88.4%

Financial profit –99.2 –85.1 14.2%

Profit on ordinary activities –73.3 –82.1 –12.0%

Extraordinary profit 8.6 12.9 50.2%

Associated Undertakings –1.6 –1.4 –14.8%

Profit before taxes –66.4 –70.7 6.4%

Net profit before Minority Interests1 –74.7 –73.3 –2.0%

Net profit after Minority Interests – 81.8 – 78.6 –4.0%

Financial indicators [Euro x 106] 2002 2003 03/02

Total of Net Assets 2 339 2 054 –12.2%

Capital employed 1 594 1 324 –16.9%

Shareholders’Funds1 + Minority Interests 403 352 –12.6%

Operational Working Capital on Dec. 31st 282 169 –67.0%

The formulas applied to calculate the above mentioned indicators are stated below:Capital Employed = Shareholders’ Funds + Minority Interests + Loans through MLT and ST bonds + MLT and ST debts to credit institutions + Associated undertakings MLT and ST loans + other MLT and ST loans – Negociable Bonds – Bank Deposits and Cash money – MLT and ST loans to associated undertakings.Net Borrowing = Loans contracted through MLT and ST bonds + MLT and ST debts to credit institutions + Other MLT and ST loans – Negociable bonds – Bank deposits and cash money.Interest Cover Ratio = EBITDA / Interests paid = (Operational Profit + depreciation + provisions) / Interests paid.Operational Working Capital = Stocks + Trade debtors + Trade debtors–Bills receivable + Doubtful debtors – Trade creditors – Trade creditors-Invoices under analysis – Trade creditors-Bills payable

1 As in 2001, the Goodwill was written off against reserves. If this write-off had not been performed by December 31st 2003 the intangible fixed assets and the shareholder’s funds would be EUR 169 261 118 higher and the depreciations of the year EUR14 029 084 higher.

12.5%

10.0%

7.5%

5.0%

2.5%

0.0%

EBITDA %

10.7% 10.2%

11.7%

10.4%

2000 2001 2002 2003

LABOUR PRODUCTIVITY

Person Sales/PersonBase 100:2000

150

125

100

75

50

10000

8000

6000

4000

2000

2000 2001 2002 2003

8 886

9 933

8 7127 046

1 500

1 400

1 300

1 200

1 100

1 000

TURNOVER (Million Eur)

Constant Exchange Rates

2000 2001 2002 2003

1 294

1 5021 479

1 4411 474

NET BORROWING /(Shareholders’ Funds + Minority Interests)

2000 2001 2002 2003

131%

151% 156%

188%

200%

160%

120%

80%

40%

0%

09:24:16

09:20:0112:16:31

17:58:10 -511:35:47

15:59:32

17:58:10-5

»

Réjean St-PierreMechanic·····

53 years oldMarried, two childrenHas been workingat Tafisa Canadasince 1993·····

GMT: Lac-Mégantic/Québec//CANADA-5

09:24:16

10:24:16

10:06:0109:25:31

14:21:10 -414:35:03

11:56:26

16:22:20-4

10:24:16

»

Rodinei Gomes de OliveiraProduction Operator·····

21 years oldSingleHas been workingat Tafisa Brazilsince 2001·····

GMT: Piên/Curitiba//BRAZIL-4

14:24:16

10:04:4815:16:38

12:27:29 015:14:52

17:07:49

08:39:23 0

14:24:16

»

Luis SantosMelamine Production ManagerLogistics Manager·····

39 years oldMarried, one childHas been workingat Sonae Indústriasince 1991·····

GMT: Oliveirado Hospital//PORTUGAL 0

14:24:16

11:32:5612:26:31

16:45:52 009:24:15

14:30:23

10:59:20 0

14:24:16

»

Alan WhitrowWoodyard Manager·····

36 years oldmarried, three childHas been workingat Sonae UK since 2000····

GMT: Knowsley/England//United Kingdom 0

15:24:16

17:21:1311:33:31

12:29:10 110:18:21

10:46:02

11:56:54+1

15:24:16

»

Carlos CruzAndalucía Commercial Manager·····

40 years oldMarried, three daughtersHas been working at Sonae Indústriasince 1997·····

GMT: Linares//SPAIN+1

15:24:16

08:44:3017:06:25

16:21:54 114:34:05

09:15:41

15:24:14+1

15:24:16

»

Alexandre NonyProcess Engineerand Production Manager·····

31 years oldMarriedHas been workingat Isoroy since 2000·····

GMT: Lure//FRANCE+1

15:24:16

10:56:3414:36:08

16:09:53 117:20:34

08:58:42

09:15:26+1

15:24:16

»

André VolmerLaboratory Technician·····

36 years oldSingleHas been workingat Glunz Nettgau plantsince 2002·····

GMT: Nettgau//GERMANY+1

15:24:16

15:23:3410:36:54

09:54:20 108:19:46

09:52:09

14:36:27+1

15:24:16

»

Philemon ManziniOperator (Grader)·····

36 years oldMarried, two childrenHas been workingat Sonae Novobord since 1990·····

GMT: White River//SOUTH AFRICA+1

00:00:01

»

Board of Directors’s ReportEconomic Environment 23

Business Environment 25

Consolidated Accounts and Business Review 26

Human Resources 28

Eco-efficiency 28

Information Systems 29

Outlook 30

Dividends Offer 31

Final Remarks 31

Iberian Peninsula 34

France 40

Germany 44

United Kingdom 50

Canada 54

Brazil 58

South Africa 63

Gescartão 66

Corporate Governance Report 70

Consolidated Financial Statements 82

Notes to the Consolidated Financial Statements 90

Contents

Linares//SPAIN

Knowsley/England//UNITED KINGDOM

White River//SOUTH AFRICA

Piên/Curitiba//BRAZIL

09:2

4:16

10:2

4:16

00:0

0:0

1

15:2

4:16

Lac-Mégantic/Québec//CANADA

Oliveirado Hospital//PORTUGAL

15:2

4:16

GMT

0-1-2-3-4-6-7 +1 +2 +3 +4 +5 +6-5

14:2

4:16

BRAZIL

UNITEDKINGDOM

FRANCE

GERMANY

SPAINPORTUGAL

SOUTH AFRICA

CANADA

>>

Nettgau//GERMANY

Lure//FRANCE

00:00:01

15:2

4:16

15:2

4:16

‘03

REPORT ANDCONSOLIDATED

ACCOUNTS

00:00:01

09:20:0110:56:08

12:08:44 015:46:3

09:30:5

16:25:12 0

»

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THE BOARD OF DIRECTORS’S REPORT

To the Shareholders,In accordance with legal and statutory obligations, we submit the reportand consolidated accounts for the fiscal year ended 31 December 2003.

Economic Environment

After several recovery and recession periods, the World Economy showed a steady dynamic evolution in 2003. Global production grew slightly (3.3% versus 2.8% in 2002), keeping pace with the international trade increase (4.0% versus 2.6% in 2002). The growth rate observed in several regions – more strikingly in Asia, the USA, United Kingdom and Eastern Europe – highlights the steady growth of the economic recovery.

Several factors contributed to this growth acceleration, namely: the adoption of adaptable economic policies; favourable financial conditions stemming from very low (and decreasing) inflation rates and low interest rates; the recovery in consumer and investor confidence; geopolitical tensions lessened after the Iraq occupation; and reforms enforcement. At the same time, the stock markets evolved positively in 2003, and the oil price stabilised, leading to a “pro-neutral effect” on growth.

However, the recovery proceeded once again unevenly in the main economic zones, reflecting diverse market situations and fiscal policies (normally an automatic stabiliser). In fact, actual GDP reached 2.9% in the USA (2.4% in 2002), improved slightly in the European Union (EU) (0.7% against 1.1%), whereas the Japanese economy recorded an unexpected growth (2.7% against 0.2%).

Springtime in the United States brought the onset of growth acceleration, stimulated by fiscal and monetary policies. Private consumption grew (+3.1%), influenced by available income earnings, resulting from tax cuts carried out by the Bush administration. Along with the investment recovery (+3.7%) driven by the productivity improvement, domestic demand increased (+3.3%), due to the military expenses influence on public expenditure growth (+3.6%). Unlike, net exports brought a negative contribution to growth (– 0.4%), although lower than in 2002 (– 0.8%), possibly due to the dollar depreciation (– 16% against the euro and – 6% against the yen, on average annual terms).

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51

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The continuation of the recovery period should keep boosting confidence levels, further stimulating private demand in the USA. On the other hand, and so far this year, the monetary sphere remained adaptable with a controlled inflation. Despite positive signs, the worsening of trade and public deficits together with the high private sector indebtdeness still remain as risk factors. The low level of interest rates (the Federal Reserve reference rate is currently 1.0%, the lowest level in the last 40 years) is inevitably subject to an upward review, according to the growth of the available capacity use and the employment rate. With regard to the fiscal situation, the deterioration of public finance will require the adoption of measures to restore the balance.

Japan recorded a sudden acceleration in growth (2.7%), driven by investment (4.4%)and demand in neighbouring markets (7.5%). However, a growth concentrated on specific sectors of the manufacturing industry, possibly, will not be strong enough either to restrain unemployment (5.3%) or the deflationary trend – as demonstrated by the consumption deflator, which fell again in 2003 (–1.4%). In addition, pressure from the yen appreciation and the risks related to the increase of public debt decelerated the expansion, therefore, the monetary policy should fight against deflation. In any case, a long-term recovery requires public deficit control and a fast restructuring of the financial sector that has been dragging on for a decade.

In the European Union, the economic activity slowdown (0.7%) frustrated early expectations, and for the third year in a row the growth rate was sluggish. Investment stagnated (–0.4% after –1.8% in 2002) and domestic demand grew slowly (1.4%). Furthermore, in the first half of the year, some Member-States slid into recession. By the end of the year, however, the outlook showed a more favourable trend. Although signs of a solid recovery are scarce, the confidence levels reaction over the business environment and stock markets is interpreted as signs of an improvement of the economic climate. This, however, does not prevent consumer and business confidence levels to remain depressed, keeping pace with the unemployment increase (from 7.7 to 8.0%) and with the unsteady pace of industrial production. Meanwhile, net exports had a negative (–0.5%) impact on growth, highlighting the fact that the EU has not benefited from the recovery in the USA. Moreover, this leading effect may be delayed, considering the strong depreciation of the USD since 2002. In line with this for 2004–2005 OECD forecasts an almost null contribution of external demand to the economic growth within the EU.

Once again, this stagnation environment raised major difficulties in meeting the public deficit established on the Stability and Growth Pact (SGP), particularly in Germany and France. A more neutral budget policy regarding the economic growth would slow down the consolidation of the EU’s public finances for the years 2004–2005. According to the OECD and the IMF, a steady recovery of the EU economies will require a stronger drive in international trade, the rebalancing of company finances and a monetary regulation attentive to the euro appreciation. Nevertheless, the same organisations affirm that public accounts rationalisation, social security rebalancing and reforms in the labour markets are crucial for a long-lasting expansion.

During 2003 the global exposure of the Sonae Indústria business activities reflected the trend of the main markets where Sonae Indústria operates. Moreover the framework in the short-term will certainly be conditioned by the uncertainty in what the worldwide economic recovery signs are concerned. Meanwhile, the internal dynamic shown by each of Sonae Indústria main markets is a key factor – mainly for the tertiary sector businesses.

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Business Environment

The weak economic recovery felt in the markets of primary demand of the sector (furniture and construction) together with an increasing competitive pressure led the wood-based panel industry mainly in Europe to engage in its own consolidation process, already started in 2002.

Mostly in the chipboard business, the excess capacity and the strong competitive environment drove to the closure or sale of less profitable plants, both in Europe and in North America. For instance:

* Closure of Hornitex’s particleboard and melamine surfacing lines (an ongoing bankruptcy process) in Nidda (Germany).

* Closure of the Kunz chipboard plant in Crailsheim (Germany).* Bankruptcy of the English company Masistar (former-Vertex) and sale of its industrial

assets to the German company Egger to set up a new plant in Russia.* Closure of six chipboard lines in North America: two in Canada (Georgia-Pacific in

Brancroft and Proboard in Atikokan) and four in the United States (Georgia-Pacific in Monticello; Oxford, Nevamar in Waverly; and Temple Inland in Mount Jewett).

* Closures in the Belgium market: one of the Spano chipboard lines in Oostrozebeke and the Agglo plant in Waregem.

* In the chipboard segment, the exceptions were the start-ups of a new line of the Kronospan group in Bischweier (Germany) and the new plant of the Swiss Krono groupin Kostromo (Russia).

In the MDF business – a product with strong growth and innovation potential – the situation is different as the main events were:

* The acquisition of Homanit’s MDF plant in Mount Gilead (United States) by the European laminate flooring manufacturer Unilin.

* The start-up of two new raw MDF lines in Brazil: Duratex in Botucatu and Isdra in Rio Grande do Sul.

* Start-up of a Kronospan MDF line in Russia (Egorievsk).* Conclusion of Intasa’s investment increasing thus its MDF production capacity in Galicia

(Spain).* Intense investment in the MDF industry in China, mainly in continuous production lines.

Experts estimate that this country has the largest installed production capacity in the world.

The European OSB industry recorded no change in installed capacity, yet the capacity use increased among most producers. OSB is a recent product in Europe but has a long tradition in North America. However, it seems to be getting wider acceptance in the European market, replacing plywood and chipboard in many applications. In South America the market for this product has been evolving slowly and gradually.

During the second half-year, in spite of the slight recovery both of economies and of the main customer industries (furniture and construction), 2003 was still a tough year for the European wood-based panel industry. Demand in Europe was conditioned by the economic slowdown mostly felt in the driving economies in Europe – Germany and France. In the meantime, exports to markets outside the Eurozone were affected by the evolution of the Euro exchange rate against the US dollar.

Nevertheless, the wood-based panel demand was different all over Europe: stagnation in Western Europe and a steady increase in the Eastern European countries.

According to the European Panel Federation (EPF), chipboard production and consumption in Europe surpassed 2002 values. The European production achieved 36.5 million m3, 1.5% higher than in the previous year, whereas consumption grew by 1.2%.

26

MDF production in Europe reached 11.2 million m3, surpassing by 6% the 2002 figure, due to the recovery felt in the 4th quarter of 2003. For the first time, consumption exceeded the 10 million m3 milestone with a 7% growth compared with the previous year.

The OSB European industry recorded the most striking growth rates: a 14% increase in production achieving 2.4 million m3, whereas consumption grew 24% reaching 2.1 million m3.

The overall European wood-based panel production amounted to 56 million m3, a 3% growth rate compared with 2002.

In North America the excess of chipboard production capacity was partly offset by the closure of some plants, as already stated. The OSB market was quite dynamic, especially in the second half of the year, spurred by the construction sector and also by difficulties felt in the plywood industry (some plants stopped production, due to problems with raw materials supply caused by bad weather conditions, while older plants closed down).

Poor market conditions led to a decrease in prices, affecting, thus, the industry in Europe, mainly in the first half of the year. This price downward trend also occurred in North America, although at the end of the year there was a recovery of structural panels (OSB and plywood). South America was no exception, in Brazil the strong competitive climate led to a fall in prices.

Consolidated Accounts and Business Review

2003 consolidated turnover was 1,441 million euros, 2.6% lower than in the previous year. Turnover was negatively affected by the depreciation of the Canadian Dollar, Pound Sterling and Brazilian Real against the Euro, by the weak economic environment and also by the pressure on sales prices felt in most markets. Nevertheless, an improved production use enabled a growth in sales volume of around 6.5%. Considering 2002 average exchange rates and for the same scope of consolidation, consolidated turnover would have been higher about 40 million euros.

During the last quarter of the year, a new strategy has been implemented: focus on prices and margins management rather than on conquering market share in terms of volume. This new strategic concept came up as a consequence of the accomplishment of an acceptable production capacity use during the first quarters of 2003. All of this was made possible after a period of industrial assets restructuring, between 1999 and 2001, followed by the consolidation and increase in market share, a key period to gradually optimise the installed production capacity.

Along with a greater emphasis on price management, the effort to optimise operational performance at all levels is still one of Sonae Indústria’s priorities in all its geographical areas. The steady increase in productivity and industrial costs reduction helped to lessen the negative impact on the operating margins, due to the severe competitive market witha constant downward pressure on prices that only reduced from the third quarter onwards.

In consistency with the two preceding financial years, Sonae Indústria’s activity in 2003 was strongly influenced by the ongoing sector consolidation process and by a larger recession period than previously forecasted. These two factors affected in different waysthe markets where Sonae Indústria operates and combined with each industrial plant quality and competitiveness and also the specific conditions of each market explain the distinct profitability levels achieved.

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Operational cash flow amounted to 149.6 million euros, a negative variation of 13.7% compared with the previous year. According to turnover, the EBITDA margin shifted from 11.7% to 10.4%, a negative trend despite the improvement of both operational costs and production capacity use. At 2002 average exchange rates, the operational cash flow would have been higher about 4.6 million euros.

Consolidated operating profit amounted to 3.0 million euros (25.9 million euros in 2002) and profit on ordinary activities was negative 82.1 million euros (–73.3 million in 2002). The negative trend of the profit on ordinary activities is strongly influenced by the negative trend of prices in most products and markets; in some cases an almost 10% reduction was recorded. Although to a smaller extent, transport and chemical products costs were also responsible for a negative contribution to the reduction of profit on ordinary activities. The need to find alternative markets to boost the installed production capacity use led to selling beyond the natural markets and consequently transport costs increased. Unstable prices of oil derivatives were responsible for a price increase of some of the chemical products used in the production.

The financial profit had a positive trend, improving around 14 million euros. The most positive contributions came from the lower interest expenses, 11.8 million euros, and the lower weight of exchange losses, 9 million euros. On the other hand, there was a cost increase in payment discounts given and received of around 6.3 million euros. Extraordinary profit also had a positive trend, growing by 4.3 million euros. The joint effect is that the net loss after minority interests is 4% lower than in the previous year, amounting to 3.2 million euros.

From the analysis of Sonae Indústria’s 2003 consolidated Balance Sheet the most significant changes were recorded in the Working Capital and in the Debt items.

Working Capital fell from 282.2 million euros to 168.9 million euros, a decrease of 113.2 million euros. The contribution to this significant variation was:

Affiliates sale/deconsolidation during 2003 = 45.2 million euros

Affiliates operating improvements = 68.0 million euros

The change in inventories was 36.7 million euros from which 27.4 million due to sale/deconsolidation, clients accounts receivable amounted to 78.4 million euros, of which 29.1 due to sale/deconsolidation and vendor accounts payable fell by 1.9 million euros,of which 11.4 due to sale/deconsolidation.

Total Net Debt decreased from 1,190.2 million euros to 971.5 million euros, a reductionof 218.7 million euros. The main contributing inputs were:

Affiliates sale/deconsolidation during 2003 = 81.2 million euros

Improvements achieved after transactions within the affiliate = 137.4 million euros

The strong competitiveness felt in the markets where Sonae Indústria operates drives companies to constant optimisation of the costs structure and a focus on core businesses and operations. Therefore, in 2003, the Pontevedra (Spain) plant was shut down and the French plants in Lisieux, Fontenay, Épernay were sold. During 2004, the plants in Casteljaloux and Honfleur (also located in France) are expected to be sold.

Ongoing investments and Own SharesSonae Indústria has no significant ongoing investments. The only ones foreseen for 2004 are an optimisation of the investments already concluded. In 2003 Sonae Indústria did not transact any own shares and at 31 December 2003 hold no own shares.

28

Human Resources

During 2003, Sonae Indústria’s human resources strategy focused on two key drivers: restructure and productivity. The concept of an organisational culture based on resilience, competence and rigour was also added to the strategy.

As a consequence several companies reduced the number of employees and increased productivity. In December 2003, Sonae Indústria employed 7,046 people, less 19% (1,666 employees) than in the previous year. This reduction was partly due to the deconsolidation of the Plywood business (1,193 employees), however a significant part was due to a deep review of working processes, supported by retraining programmes and various social measures such as employability aids and anticipated retirements, as well as to the restructure of the affiliates’ central services.

This reduction in the number of employees decreased personnel costs by 6.3%. Accumulated personnel costs at December 2003 were 251,502,000 euros (of which around 13.7 million euros from the Plywood business). Compared with 268,512,582 euros in 2002, there is a reduction of 17,010,582 euros.

On top of this restructuring effort, several other actions were accomplished, aiming at strengthening the teams and their leadership, and assuring the sustained developmentof the affiliates. Among them, the following should be highlighted:

* The enhancement of corporate processes for human resources planning and performance appraisals. This process helps companies to assess skills needed, internal talents and to provide career development opportunities.

* The enhancement of a corporate compensation policy for Managers, aiming at improving internal equity and the affiliates external competitiveness in the labour markets where they operate.

* The organisation of an International Management Meeting in Tróia, involving almost 130 top managers from all countries where Sonae Indústria is present.

* The development of a strong organisational culture by focusing on internal communication and implementing a role model of professional skills.

Investment in training and development of all employees involved in 2003 almost 55 thousand hours worldwide, and will proceed as a major priority, in order to provide teams with appropriate skills to tackle the growing business demands.

Eco-efficiency

During 2003, Sonae Indústria created a global coordination for the “Environment and Eco-efficiency” function, reporting directly to the Executive Committee. This action was intended to improve the operational component of this function and clarify both corporate and local management teams responsibilities in what the implementation of environmental management and eco-efficiency policies and goals are concerned.

The implementation process of environmental management systems under ISO 14001 was successfully concluded in the plants of Lac-Mégantic in Canada and Kaisersesch in Germany. Thus, the quality and environmental certification process was concluded in all German plants. A special reference to the fact that the plants in Auxerre and Chatellerault, both in France, were also certified according to ISO 9001.

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The French plants in Casteljaloux and Ussel and the Eiweiler plant in Germany were certified under PEFC (Programme for the Endorsement of Forest Certification schemes) for the chain-of-custody of forest products. This independent certification stands for the contribution to the sustainable use of forest resources. Already in January 2004 the Auxerre, Saint-Dizier and Chatellerault plants were also certified under PEFC.

With regard to the progress made with the international initiative for the development of a common rules framework for the chain-of-custody, the conclusion of the process and its presentation to the two major certification umbrellas (PEFC and FSC) is expected to occur by 2005.

It should be recalled that, at the beginning of the year, the efforts to improve the environmental features of the Lac-Mégantic particleboard line (in Canada) was recognised by the EPP (Environmentally Preferred Product) certification. The low formaldehyde content of the final product and the 100% use of sawmill by-products were crucial to this outcome.

In Sines (Portugal) the formaldehyde and synthetic resin plant already running at full capacity carried out its first environmental diagnosis.

In France, a life-cycle analysis was performed to the ‘Stepisorel’ product (an insulating board used as an underlay for carpets) produced in Casteljaloux. This kind of study shows the environmental impact of each stage of the product life cycle – from raw materials supply until the final product disposal, after its service life.

A special reference to the fact that the White River and George plants in South Africa achieved in May and October, respectively, the threshold of 500 thousand man-hours (almost two years of operational activity) without a disabling injury.

Finally, a highly positive remark to the ongoing work carried out by the European Confederation of Woodworking Industries, CEI-Bois, outlining a strategy for the future of the sector – the Roadmap 2010. The preliminary results were presented on November 2003 at the last European Wood Day in Brussels, where Sonae Indústria played an active role, besides sponsoring the event. One of the Roadmap 2010 focus areas is the assessment of the environmental credentials of wood-based products, creating potential competitive advantages in the building sector and the decoration markets.

Information Systems

In line with the strategy defined for renewal, unification and consolidation of Sonae Indústria’s worldwide information systems, during 2003 the implementation of the new information system architecture at the plants (Logistics, Planning and Production Management), particularly in Germany (Glunz), proceeded. The new architecture is largely based on SAP technology and is meant to progressively replace the software developed in the 1990’s.

After the European implementation and unification of the SAP model in the accounting, financial and commercial management areas, the Opera model is being installed to manage the supply chain in the plants. The Opera model is the outcome of integrating several systems in the areas of production planning (SAP PP and APO), Shop Floor Control and SCADA (Supervisory Control and Data Acquisition) systems.

30

After a period of significant investment in building and developing the new information system architecture, during 2003 the technology information function was assessed and redesigned at the European level to fit in the current circumstances. Several rationalisation and consolidation actions were taken either in human resources and technical support infrastructures leading to a significant reduction in the operational costs.

Outlook

2004 will bring many events that will most certainly impact the worldwide business climate. In Europe, 2004 will stand for the enlargement of the European Union to ten new countries from Eastern Europe. The United States will be holding Presidential elections. In general terms, 2004 is expected to be the consolidation year for the recovery of the world’s leading economies, already started in 2003, with the United States driving growth in the world economy. Forecasts for 2004 point to a 4% growth in the American GDP, a 2% economic growth in Japan and a positive trend of about 1.5% economic growth in the Eurozone. With a reasonably steady start, the world economy has a reason to feel more cheerful.

In what the longed-for economic recovery is concerned, there are still some risks that should be taken into account. The overcapacity levels suggest that 2004 will maintain a low inflation environment, also due to the current euro appreciation trend that may have a negative impact on the economic growth within the Eurozone. On the other hand, the “twin deficits” faced by the American economy, the consequent currency markets volatility and the geopolitical uncertainty are the major threats to the economic recovery.

As mentioned before, the trend in the last quarter of 2003 was quite satisfactory, with a small recovery in profitability.

Along 2004, Sonae Indústria will proceed with the strategic changes introduced in 2003, based on three pillars:

(1) Organisational DevelopmentIn order to strengthen Sonae Indústria management, significant changes were introduced in the Board of Directors composition, both by appointing new, independent, non-executive directors, and by creating board committees – Audit and Finance; Social Responsibility and Environment; Remuneration and Nomination – to ensure the compliance with best practices of corporate governance. During 2004 the Board of Directors will pursue this course of action.

The Board of Directors also intends to build an organisation focused on the operations.The purpose is to ensure a decentralised decision-making power in each country where Sonae Indústria operates, yet consistent with the policies and procedures defined by the Executive Committee.

(2) Improvement of the operating performanceOnce achieved an acceptable capacity use, capable of ensuring a reasonable level of assets rotation, priority should be given to sale prices and to the product mix enhancement, rather than to the market share increase.

Programmes on operational costs reduction and sharing of best practices in industrial and logistics processes will continue, as well as those on rational and responsible use of forest resources, fostering the use of residues.

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Further to the intense investment in information systems and in the creation of a back-office knowledge centre, during 2004 all necessary actions will be taken, in order to increase productivity in these corporate centre functions.

(3) Financial restructuringLosses accumulated during the past few years have weakened shareholders’ funds and hurt the financial structure of Sonae Indústria. Several actions are currently underway, aimed at strengthening Sonae Indústria’s balance sheet:

– Improve operational cash-flow (EBITDA) generation. – Strengthen long term funds structure, rescheduling long-term debt and increasing

shareholders’ capital. – Optimise capital employed, through operations based on real estate assets, receivables

and non-core assets.

Dividends Offer

The Board of Directors of Sonae Indústria SGPS SA proposes to the Shareholders General Meeting not to distribute any kind of dividend, either by cash, or by confering shares to shareholders of Sonae Indústria SGPS SA’s share capital.

Final Remarks

The Board of Directors is obliged to all customers for preferring Sonae Indústria’s range of products, and is also grateful to all suppliers, financial institutions and official authorities for their trust and support.

A word of recognition to the Statutory Auditor for the cooperation in reviewing the Sonae Indústria business activity.

Finally, the Board of Directors acknowledges all the effort and commitment to the restructuring process and business consolidation performed by Sonae Indústria’s employees.

Maia, March, 11th 2004

The Board of Directors

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Economic EnvironmentThe economic growth in Spain with a rate of 2.3% stands out in the Iberian Peninsula, keeping pace with rates of 2.8% in 2001 and 2% in 2002. Spain was, therefore, one of the developed economies that went through this recession period with better global results. Currently, in what appears to be the end of this period, the Spanish economy had an output gap (deviation towards potential product) of only 0.5%, a figure comparing quite favourably with the 2.2% average in the Euro area.

One of the strongest points of the Spanish economy is the surplus in public expenditure – an excellent achievement at the end of a recession period. On the contrary, external accounts are gradually worsening, with imports growing at an increasingly higher rate than exports (4.1% and 7.1%, respectively, in 2003), leading the current account to a deficit of around 3.6% in GDP.

Another less favourable result has to do with the inflation rate that, since 2000, has remained above the average rate in the Euro area. This leads to a systematic increase in prices in the Spanish economy – responsible for the expected deficit growth in the current account in the next few years. However, growth will still be high (2.9% in 2004), supported by a strong domestic demand, both public and private. As in the United Kingdom, the Spanish economy is facing an overheated real estate market with risks potential.

Contrary to the situation in Spain, the Portuguese economy has been particularly depressed, with a GDP growth rate of –0.8%. Strong contributions to this situation werea 1% decrease in private and public consumption and a 9% decrease in gross investment (the latter for the second year in a row, after a 5.3% decrease in 2002). These circumstances led to a sharp growth of unemployment.

The most positive point for the Portuguese economic evolution lies on the deficit correction of the current account with foreign countries, which may not have exceeded 4.9% of GDP, about half the figure achieved in the beginning of this century. In 2003, the import of goods and services fell 3%, while exports rose by 3.3% – these figures were achieved, due to the GDP result, the same is expected for 2004, with growth depending to a great extent on exports, since domestic demand is extremely depressed.

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Inflation recorded a favourable behaviour, getting closer now to the average rate of the Euro area, after having systematically surpassed it in the last years. On the contrary, public deficit showed no signs of improvement and will continue to affect the Portuguese economic growth in the next few years (growth rate forecasted for public consumption are–1% for 2004 and –0.9% for 2005).

Sector EnvironmentThe demand for wood-based panels in the Iberian Peninsula has grown by about 2%, this evolution being slightly higher for MDF products and lower for particleboard and hardboard--based products. In 2003, there was no significant increase of the installed capacity inthis market. In fact, the only noticeable change was the start-up of a 200,000 m3 MDF linein Galicia.

Facing an annual consumption of 5 million m3, the installed capacity currently exceeds demand by 1.4 million m3. This is the main reason for the Iberian manufacturers’ need to export about 1 million m3 every year. However, export moves of Iberian companies have been slowed down in 2003 by the economical crisis of European markets and the strength of the EURO against the USD. This caused an important reduction of the margins and the need to sell more in the Iberian Peninsula, with the consequent effect on prices. This price reduction was particularly noticed on particleboard-based products, with also some significant effect on MDF prices during 2003’s second semester. In addition, prices have also been hit by a stronger pressure from central European producers eager to sell in Spain their surplus stocks of faced particleboard and MDF.

In terms of wood-based panels’ demand, 2004 will be quite similar to 2003, with an expected growth close to 2%. The available volume on offer may also be similar to the previous year, as there are no expected start-ups of any new production line. Price evolution will remain strongly linked to the relation EURO/USD and to the economical situation in Europe. In a scenario of a strong EURO and weak economies, the export difficulties will persist and overcapacity in the Iberian Peninsula will keep driving prices down.

Wood-based panels demand is naturally linked, both in Portugal and Spain, to the evolution of the building sector (doors, flooring, shuttering) and of the furniture industry (kitchen & bath, domestic, office and flat-pack). These two sectors showed, in 2003, quite different behaviours in Spain and Portugal.

In Spain, housing construction has shown a spectacular performance in the last decade, going from about 300,000 completed houses per year in the early nineties to more than 550,000 houses per year completed in the period 1999–2003. Last year may have marked a record figure of completed houses, with an estimated 6% growth compared to 2002. The forecast for 2004 is, however, of a certain slowing down to about 500,000 new houses. In Portugal, 2003 was the worst year of the last decade, in construction terms. In fact, the estimated figure of 87,000 completed houses represents a decrease of 10% compared with 2002.

On the other hand, in the furniture-manufacturing sector, that represents about 70% of the wood-based panels consumption in the Iberian Peninsula, Spain is responsible for about 91% of the industry sales and Portugal 9%. As usually, the sector is much concentrated in some key geographical areas and Valencia, Barcelona and Madrid represent about 52% of the Spanish furniture production. In Spain, the furniture sector showed, in 2003, a positive evolution, with an estimated annual growth of 4%. In 2004, similar growth is expected.

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Business ReviewAn extremely adverse market situation, with an aggressive price policy from Iberian and non-Iberian competition, together with the reduction of Sonae Indústria’s current assets, increases in capacity use focused mainly on chipboard plants.

Compared to 2002, there was a 3% increase in the particleboard panel production, whereas MDF production lines kept total use of the production capacity.

The joint effort to coordinate the industrial area and raw material procurement enabled to proceed with the improvement of the variable costs structure, both by reducing specific consumption and by cutting raw materials costs. Therefore, in what wood supply is concerned it was possible to maintain and in some cases even reduce unit costs. Moreover, the increase in the use of recycled wood should be highlighted. In the chipboard production, recycled wood consumption rose from 20% to 36%, thanks to the creation of wood waste collection and first stage processing centres. During 2003 EuroResinas proceeded with the process of logistics optimisation, enabling the supply of all industrial plants in the Iberian Peninsula, and consequently increasing the chemical production volume by 5.5%.

Along 2003, there was also a rationalisation process to adjust headcount to the needs of the operations, and therefore the number of employees was reduced by 6%.

The plant at Pontevedra (Spain) ceased production at the end of 2003. There is an investment underway in a flooring plant in Pontecaldelas (Pontevedra).

Throughout 2004, Sonae Indústria will proceed with the effort of consolidating its position in the Iberian market and to increase the plants profitability by a rational use of the industrial assets, improvement of the mix of sold products – specially by accounting with the growing importance of surfaced panels and HPL (High Pressure Laminates) –, proper management of the raw materials supply chain, and tight control of fixed costs and working capital.

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Economic EnvironmentThroughout 2003, the French economic trend was much similar to the German’s, in fact the economic performance of these two countries is increasingly integrated. Their growth rates are almost identical (0.1%), the difference lies on a slightly better performance in private and public consumption (with growth rates of 1.6% and 2%, respectively), and in a worse performance of the resource balance, with exports falling 2.2%, affected by the markets downturn and the euro appreciation.

Like Germany, France failed to comply with the Stability Pact, recording a public deficit of 4% of GDP. However, France with a better kick-off position could find a margin for a higher public consumption growth (as already did in 2002 and 2001).

The 1.7% growth rate foreseen for 2004 is mostly based on the domestic market, since it is expected a further worsening of the resource balance, with exports and imports rising by 4.6% and 5%, respectively. The surplus in the current account is capable of accommodating this slight deterioration in the balance of payments, whereas it seems rather difficult to sustain the public consumption growth once again forecasted.

Like in Germany, the economic growth in France expected for 2004 will not be enough to bring any employment growth, therefore unemployment rates are once again likely to rise. In the United States, however, employment levels shall very likely have steadly risen in 2003, with the consequent decrease of unemployment rates.

Sector EnvironmentDuring the last quarter of 2003, the building activity fell about –0.9 % compared to last year (–1.5 % year average). This figure outlines a slight improvement for this market. The recovery of the building market recorded over the past few months should be further reinforced in the very short term on the back of both renovation and new building markets’ improvement. Although corporate investments are depressed by on-going poor economic conditions, the renovation market should benefit from the anticipated recovery of the economy.

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The panel market experiences a favourable trend compared to the prior quarter although the demand is still below prior year. The overall market of panels suffers from demand’s decline with underlying discrepancies between products’ lines: while the MDF experienced a sharp decline of demand, the decrease of the MFC market and, to a lesser extent, the white MFC market, was smoother.

The furniture market is decreasing in France. However, this trend is not homogeneous for each segment. The kitchen market increased about 4% between 2002 and 2003 while movables registered the strongest decrease: about –10% between 2002 and 2003.

The trade channel turnover is strongly linked to building industry (mainly for generalists) and to fitting/joinery (mainly for wood specialists). Its turnover increased by 1.8% in 2003. This trend should be confirmed at the end of the first quarter of 2004 with a forecasted growth of 2.4% (12 last months).

Business ReviewAlong 2003 the business activity was developed in a context of overcapacity towards demand and a strong pressure on the products sale prices. In this adverse environment, Isoroy increased its sales in the French market by 5%.

Despite this growth in sales, turnover in the French market only rose 1%, reflecting a less favourable trend in prices and product mix, although OSB sales increased by 30%. Export sales increased in about 4.5%, despite a significant fall in MDF sales – particularly in the German market. This trend, due to both the Euro appreciation and the additional competition from Eastern European countries, had a negative impact on the operation profitability.

The strong impact of the sale prices decrease was to a large extent offset by a highly positive evolution of industrial costs. A 9.5% increase in the production of the six strategic plants (Auxerre, Lure, St. Dizier, Ussel, Le Creusot and Chatellerault), together with an improvement in the press average efficiency enabled a better dilution of fixed costs.

Although in some plants the business activity was above expectations, the optimisation process allowed a 3% cut in the average number of employees.

Throughout 2003, structural changes were implemented at Isoroy and a significant positive impact is to be expected soon. In line with this, more resources were allocated to strategic management areas where central coordination is needed, namely: Procurement, Logistics, Marketing, Health and Safety, Environment and Corporate Communication. There were also important savings in procurement and significant improvements in the quality of service, while Isoroy’s corporate image was fully reviewed.

The commercial structure underwent major changes: the export activity was centralised at an European level, and the most relevant processes within the distribution channels management were reviewed, to ensure greater efficiency and quality of service.

Investments amounted to approx. 9 million euros, a special reference to the acquisition of equipment that will help to boost the volume of value-added products produced at Lure and Le Creusot.

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Economic EnvironmentContrary to the United States trend, German GDP recorded zero growth in 2003. Private consumption did not exceed 0.7% and it was virtually the same as the public consumption growth, constrained by the budget deficit (however, it is known that Germany with a public deficit slightly over 4% of GDP missed the Stability Pact limit). Non-residential private investment fell again by 1.7%, after decreases of 2.9% and 7.2% in 2001 and 2002. Affected by the poor situation of the international markets, the resource balance presented a negative contribution to growth, with export and import growth rates of 0.3% and 2.9%, respectively.

In spite of these bad results, expectations improved gradually throughout 2003, as the outcome of confidence surveys addressed to businessmen and consumers reveals. Another source is the composite leading indicator, published each month by the OECD, showing a considerable improvement from mid 2003.

The estimated growth rate for the German economy in 2004 amounts to 1.4%, driven by private business investment and by an improved foreign trade, with exports growing once again more than imports. To better assess the estimated growth rate, one should bear in mind that the growth of German potential output (full-employment level of GDP) is clearly lower than that of the United States, therefore a 1.4% growth rate is reasonably close to the potential output rate.

If the euro appreciation against the dollar, and consequently against the Asian currencies, proceeds this growth scenario may be jeopardised. However, considering the expectations for the German economy, it should be recalled that the extremely low inflation rate and growth of production costs in recent years gave Germany a competitive advantage vis-a--vis its main European competitors, that may help to boost the country’s growth during the recovery period.

Sector EnvironmentIn the first half of 2003, the German woodworking and furniture industry lost in total circa 4% in turnover, the furniture industry alone decreased by 3.1%. This negative development continued also in the second half of the year; the furniture industry incurred a loss of up to 2% and the wood industry reckons a 3% decline in turnover. About 18,000 employees were laid off in the first six months of 2003 alone. While domestic sales dropped, exports rose by 6.6% compared to the same period of last year. Importing countries are mainly

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in Eastern Europe and in the European Union. The average furniture export prices almost doubled since 2000. High-grade furniture is increasingly in demand by the export sector. Furniture exports to Eastern Europe rose by 8.4% to 425 million Euro. For 2004 a sales growth of approx. 2% is forecasted to the German wood and furniture industry.

Today, more than 10% of exports go to the Eastern European region, with the Czech Republic, Poland and Hungary being the main markets. German furniture imports amounted to a total of 5 billion Euro, equalling to a plus of 2.9% and come mainly from Eastern Europe. Also imports from Asia continued to rise, by 30 %, causing additional pressure on the lower price segments. Imports from EU countries fell by almost 10%. The export rate of the domestic furniture industry now amounts to 25 %, thus posting an increase of 2%.

The reduced volume of demand for particleboard among the German furniture industry has stabilized towards the end of the year. In 2003, production capacities were reduced, yet rock-bottom prices had to be faced in summer. Very lively demand for OSB, replacing particleboard, with tongue and groove profile caused sales of this latter product range to reduce even further. Also the number of insolvencies among furniture producers in Germany indicates a consolidation of the market. As furniture manufacturers are outsourcing their production to Eastern markets this signals changes about the product mix (higher quality level) among German producers of furniture and wood-based materials. Demand for particleboard may be expected to pick up in 2004, while at the same time additional production capacities will enter the market that will result from an expected expansion of production plants.

Sales of medium-density fibreboards (MDF) proved to be very difficult in 2003. Especially the market situation faced by furniture producers in Germany caused a 4 to 5% drop in average annual sales volumes and prices. Again, market shares were generated by worthy competitors with new production capacities. MDF still is a product offering a development potential, as is reflected by the new products and product ideas having been presented on this market in 2003. The construction branch is thought to offer a special potential, but also the furniture branch offers rather promising solutions that in turn might serve as replacement products for particleboards and plywood. In spite of the stagnation of laminate flooring (HDF) during the summer months, in 2003 a record sales volume of 63 million m2 was achieved. Especially those producers who by making use of their own refining capacities are converting MDF into laminate flooring succeeded to participate in this growth.

Starting with the second half of 2003 the installation of production capacities for Oriented Stranded Boards (OSB) in Europe proved the right step. Since that time, OSB producers in Europe have been enjoying a full utilisation of capacities. The current order intake as well as delivery times would indicate a stable development of demand during the months ahead. Growth rates of approx. 10% were achieved in 2003, and the same growth is expected in 2004. These growth rates also allowed for higher prices as there has been no slow-down in demand for OSB.

Business ReviewAlthough the market was in recession and extremely competitive, Glunz managed to increase turnover by 2.5%. This trend was due to a good performance in the second half, both in sales – especially OSB – and in a slight recovery of OSB and chipboard prices.

With regard to destination markets, the most relevant remained the domestic, the Scandinavian, Swiss and Austrian markets. Sales for Russia and other Eastern European countries represent already approx. 7% of Glunz turnover; OSB sales to the USA evolved positively.

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The improvements felt in the market were strengthened by the implementation of an optimisation and cost reduction plan, started in the 2nd quarter of the year. The processes optimisation, namely by using more efficient information technology tools, allowed a 50 employees reduction (not directly involved in production).

In what concerns variable costs, a special reference has to be made to the negative trend of wood cost from the 2nd half onwards – in some cases, increases of approx. 33%. The reason for this was the significant increase of long-fibre species demand required by OSB plants and to the start-up of a pulp and paper mill in Eastern Germany. In order to overcome the negative impacts, a larger quantity of short-fibre species is expected to be incorporated into the wood mix.

The Kaisersesch plant was acknowledged with the Environmental Management Certification (ISO 14001) in October. All plants in Germany are now certified under ISO 9001 and ISO 14001.

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Economic EnvironmentIn the United Kingdom the economy grew 1.9%, which meant a positive differential of 1.5% compared to growth recorded in Euro area economies.

The main driver of this growth lies on domestic demand, notably because of an expansionist fiscal policy since the beginning of the recession, either by increasing expenditure, or by reducing the tax burden. Public consumption and investment increased by 3.4% and 19.3%, respectively; backed on the tax burden reduction, private consumption grew 2.4%, pushing the British economy to a 1.9% growth rate. Despite the poor foreign trade performance (exports falling by 0.9% and imports rising by 1.1%) and the modest increase of private investment (no more than 1.5%).

Due to this fiscal policy, the British economy is now facing “twin deficits” both in public expenditure (a GDP deficit of 2.9% in an economy that, in 2002, had a 0.7% of GDP surplus in public expenditure) and in its current account balance (representing now a 2.7% deficit of GDP, and getting worse). A 2.8% inflation rate is added both to consumption prices and GDP deflator, reflected in a 4.2% growth rate in nominal wages with a consequent 2.2% worsening of unit labour costs.

All these developments led the Bank of England to increase its intervention rates in November for the first time in the last four years. Despite the negative potential of this rise on the real estate market, already overheated and with risk potential.

Sector EnvironmentUncertainty in the property market in the closing months of 2003 caused some difficulties for furniture sales, and the 2004 outlook remains unsettled. This followed earlier months of relatively healthy demand, with 30% of furniture outlets reporting year-on-year increases in October and November respectively. Consumer demand in the three months to December drove total high street sales up by 3.2% compared with a year earlier. Total retail sales volumes expanded by 4%. However, 2003 saw several furniture manufacturers exiting the market due to heavy pressures from the retail sector and imports from Asia.

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Household finances have come under increasing pressure from subdued earnings growth compared to previous years and rising interest rates, spending will inevitably be trimmed. But the outlook for Britain’s manufacturing looks brighter, with export markets beginning to pick up in some sectors. Official figures for November show that in the latest three months, output of kitchen furniture was up 1.2% on a year earlier and office and shop furniture was 6.4% higher, but production of chairs and seats was 1.9% lower and other wooden furniture fell 3.1%.

Total imports of wooden furniture were 9% higher than a year earlier, although office furniture dropped 15%. Bedroom and kitchen furniture imports were up 14% and 25% respectively. The annual rise in the cost of materials and fuels bought by British furniture manufacturers in December was 2%. At the factory gate the price of bedroom, dining and living room furniture for the domestic market rose by 8% in the year to December, and kitchen furniture prices were up 20% higher.

Distribution has seen a series of acquisitions and mergers and thus some concentration, although this has led to the development of a number of much smaller distributors newto the market. The number of end users being serviced directly by the manufacturerhas increased. Business ReviewIn 2003, turnover kept pace with the previous year, with a 5.1% growth.

In operational terms, significant improvements were achieved in productivity, product quality and customer support services. The ongoing effort to cut operational costs was maintained, improving the rate of recycled wood use by over 20%, compared to 2002.The ISO 9001 and ISO 14001 certifications achieved by the Knowsley plant in previous years were kept unchanged.

Despite the adverse economic environment and the pressure especially on prices, there was a slight recovery from the 3rd quarter onwards, a sign that 2004 will stand for the year of economic recovery in the United Kingdom. The Irish market showed a strong demand and prices were still attractive. For 2004 a growth in flooring products is expected, based on a possible wider range of products available. Companies’ innovation and accountability will set the key to maintain sustainability in the British market.

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Economic EnvironmentThe Canadian economy went through the recession period (about to be over), with satisfactory growth rates (1.8% in 2003, after 3.3% and 1.9% recorded in 2002 and 2001). These GDP growth rates were supported by strong increases both in housing public and private investment (respectively 6.4% and 5.9% in 2003, notably slowing down compared with double rates in 2002 and 2001), and in private and public consumption (with 2003 growth rates of 3.4% and 3.1% respectively).

Private business investment recorded a far more modest performance (1.3% growth in 2003, after having fallen by 6% in the previous year), in addition to the unfavourable behaviour of the balance of goods and services. In 2003, the Canadian dollar appreciation against the US dollar, which year on year was around 20%, helps to explain this poor performance of the Canadian economy regarding foreign trade.

Contrary to the “twin deficits” of the American neighbour, a very low inflation rate, helped by the exchange rate appreciation, is expected to lead to an interest rates decrease in the short term – but probably unsufficient to erase completely the appreciation of an upward currency trend due to fundamentals like a positive balance of current accounts, despite the currency appreciation, and to public expenditure with a surplus of 2% of GDP.

The outlook for 2004 is positive and the return to a 3% growth rate of GDP is expected.

Sector EnvironmentThe shipments from the North American chipboard plants were 5.7% lower in 2003, compared with 2002, at their lowest level of the last 4 years and 9.6% lower than 1999, an all time record. The explanation for this reduction lies with low customer confidence and increase of wood furniture imports from China. For the first 10 months of the year, wood furniture imports into the USA from China, increased 31% over the first 10 months of 2002 to reach 3.4 B$. In comparison, during the same period, the imports from Canada into the USA raised by 1% to reach 2.0 B$. The imports from China are fuelled by additional furniture production capacity and the Chinese currency being pegged to the USD. However, when comparing the quarters, it appears a strong improvement in the fourth quarter, as shipments were 7.0% above 2002 giving the perspective of a good start for 2004.

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Significant production capacity was removed during the year. The closure of 6 particleboard factories removed 1.4 million m3 capacity from the market. Low prices and increased cost in operation, mainly chemical costs and wood fibre costs were to blame for those closures.

During 2003, prices bottomed at a 12 year low as demand from the furniture industry staged due to higher, than ever, offshore imports. However, prices increase by 20% during the latter part of the year to reach September 2001 prices.

Fibre supply has been a key issue in our industry and continues to shadow our expectations for the future. The principal wildcard continues to be the fate of countervailing and antidumping duties on exports of soft wood lumber from Canada into the United States. Recent decisions by the WTO and NAFTA panels have opened the door to a reduction of the duty levels. However, litigation processes are lengthy and could easily stretch late into 2004. Canadian sawmills are also impacted by the appreciation of the Canadian dollar and the historically low prices of lumber in the United States. These impacts have forced many sawmills to curtail operations to various degrees, therefore reducing the amount of residues they generate.

Business ReviewThe Canadian operation results were considerably higher than those of previous years. Turnover grew more than 24% compared to 2002, with an output volume rising more than 30%. With this increase in sales volume, market penetration both in Canada and in the United States rose to record figures in the history of Tafisa Canada.

About 50% of sales go straight to the United States market into large furniture manufacturers. During 2003, due to the Canadian dollar appreciation against the US dollar, turnover has decreased when converted into local currency. This impacted approximately 6% in turnover. The Canadian dollar depreciation against the euro led to an 8% reduction in turnover. However, if the two exchange rates did not have an adverse performance against the euro, Tafisa Canada would have seen a 30% turnover growth instead of 24%, compared to 2002.

Despite the geographical location and the competitive markets where Tafisa Canada operates, 2004 outlook is quite positive. Macro-economic forecasts for a recovery in 2004 and expected growths, especially in the United States, suggest that 2004 might be a good year for the Tafisa Canada plant.

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Economic EnvironmentThroughout 2003 the Brazilian economy had to deal with structural imbalances at monetary and financial levels. By an agreement with the International Monetary Fund, the Central Bank and Treasury settled as key priority combating inflation, therefore, tight fiscal and monetary policies have been adopted. The Central Bank interest rate hit a highof 26.5% between February and May, having progressively decreased until the current 16%.

Until this moment, however, results have been fairly modest, as the inflation rate fell just from 12.5% recorded in 2002 to 10% in 2003, but impact on GDP growth was very negative and the Brazilian economy grew only 0.5%, after a 1.5% growth rate in 2002.

The constraint on domestic demand improved both the balance of goods and services and the balance of current accounts, this latter is nearly balanced, one of the goals agreed with the International Monetary Fund. This improvement may not be sufficient to avoid a new Real crawling depreciation in the coming months that will depend on the outcome of the combat against inflation and on the domestic interest rate decrease. In addition there were considerable changes in the financial balance. Brazil was affected by a confidence decrease of international investors, mainly in direct investment.

The growth rate forecasted for 2004 is 3%, with inflation falling to 7% and public deficit improving from 4% to 3% of GDP. As already mentioned, this global result, that most probably will be achieved, might negatively influence both the balance of current accounts (with an estimated deficit of 1% of GDP), and a new cycle for the Brazilian currency devaluation, which although encouraging growth, can in time hinder the fight against inflation.

Sector EnvironmentThe general internal market crisis overshadowed also the wood-based panels sector. Suffering from overcapacity, due to recent consolidation moves and a sluggish consumption recovery, coupled with a favourable exchange rate, exports were an obvious focus for most of the sector participants. Nevertheless, the degree of rivalry has been increasing, mainly due to two new MDF lines in the southern part of the country and the entrance of Argentinian players in the Brazilian market, through exports.

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The internal MDF market grew about 39% with an internal consumption of 930 thousand m3 and an installed capacity of 1.6 million m3. In the particleboard market, the growth was circa 6.4% with a demand-supply imbalance depicted by an installed capacity of 2.5 million m3 that faces an internal consumption of about 1.8 million m3. The flooring market grew about 5.6% in 2003, to top an internal consumption of about 5.89 million m2.

Business ReviewDuring 2003, the Real appreciated approximately 18% against the Dollar but fell significantly against the Euro (almost 75%), closing the year at 3.65 Real per Euro.

Therefore, although Tafisa Brasil’s turnover grew by 21% in local currency in 2003, the contribution of the Brazilian operation to the Sonae Indústria consolidated accounts was lower than in 2002. Sales growth in local currency was supported by significant growths in MDF sales – a 12% increase in capacity use – and Flooring. Prices evolved favourably, especially in chipboard and flooring. From the second half year on, the market failed to recover and prices eroded once again.

Despite a better capacity use and efforts to reduce the working capital – e.g. the significant reduction of paper stocks – the Brazilian plant profitability was affected by the increase of raw materials costs, especially wood.

Prospects for 2004 point to an increasing participation in the export market, mainly Flooring and MDF, and a boost of MDF and Flooring in the domestic market.

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Economic EnvironmentFiscal policies in South Africa did not frustrate expectations, inflation rates fell from 9.2% in 2002 to 5.8% in 2003. This combined with a cut in interest rates had a very positive impact on the economy. The PPI (Production Price Index) fell towards the end of the year, largely due to the impact of the strengthened Rand on imported production inputs. This currency exchange impact had an opposite effect on exporting companies, negatively affecting the domestic production. The interest rates decrease, however, had a positive effect at the domestic demand level.

Sector EnvironmentA negative pressure on the panels price was observed in South Africa, due to the declinein exports, influenced by the strength of the Rand against the US dollar. The MDF business was particularly affected by this disadvantageous exchange rate, which led to an increase in imports. The house construction market performed well.

Business ReviewConsidering sales in local currency, the South African market recorded a stable performance, with a turnover growth keeping pace with the country’s domestic inflation. Yet when converted into Euros, sales volume grew over 20% compared with 2002. This fact is due to the strong appreciation of the South African currency against the Euro during the course of 2003. The contribution margin regarding 2003 sales was also more than 5% higher compared with the previous year.

However, this strengthening of the local currency also allowed the entrance of competitive products imported from abroad, bringing pressure on prices and instability not previously foreseen.

In operational terms, there was a general increase in raw materials prices, notably in wood, caused by a scarcity over several country areas, due to bad weather conditions along the year.

For 2004, the macro-economic outlook points to a more than 3% of GDP growth together with an inflation decrease to levels under 5%, and exchange rates to a standstill. If this scenario is materilised, turnover is expected to grow above inflation by several percentage points.

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Business ReviewAlong 2003, the business activity was strongly influenced by the international market trend observed across the industry. Several different factors led to a depressed market situation, both due to discrepancies between supply and demand, and also to highly aggressive commercial strategies.

The global economic crisis and consequent business slowdown, both in Western Europe and the United States, had a twofold impact on the market: 1) a weaker domestic demand associated to 2) the excess production arising from the overcapacity recorded across the Atlantic ocean, helped by the leverage of North American competitiveness, as a consequence of the unfavourable euro-dollar exchange rate.

Relevant structural changes in production, distribution and consumption channels, due to the relocation of industrial mills and horticulture activities, the free market reduction caused by the increasing vertical integration and partnership agreements (e.g. swap) among highly prestigeous business groups, as well as atypical weather conditions, adversely affecting agricultural harvests in countries particularly important to Portucel Viana led to a kraftliner (KLB) market reduction (estimated by 3% in Western Europe) and orders intake had to be adjusted to these circumstances.

2003 was a tough year mainly for the domestic corrugated paper market, subject to the impact of globalisation and industrial concentration through takeovers and concentrationof large international groups.

As a consequence of the domestic economy performance, several sectors suffered severe decreases. For instance, the ceramics sector, especially the ceramics cladding sector, with a fall of more than 35%, due to the decrease in the civil and public sectors of the building industry.

ReprivatisationFollowing the Ministers Council Decision no. 28/2003, dated February, 7th, published in Diário da República (newspaper releasing official announcements from government authorities) on February, 19th, the sale conditions for the Sale Public Offering of the Gescartão shares were approved. Thus two simultaneous share sale transactions, representing 25% and 10% of Gescartão’s share capital, were hold open to the general public, employees, small subscribers and emigrants.

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Under the 2nd and 3rd reprivatisation phases, on June, 27th 2003, the Sale Public Offering until the amount of 6,994,750 shares, representing 35% of the Gescartão share capital was announced. The sale period lasted from June, 30th until July, 11th 2003.

Imocapital felt that the aforementioned shares sale open to the general public, representing 25% of Gescartão’s share capital, infringed upon its right to acquire such shares, as established on the Government Law no. 364/99, dated September, 17th, and the Contract Specifications attached thereto. Imocapital was against this process and, therefore, took the necessary measures to be compensated for any losses incurred due to this sale.

The Sale Public Offering was hold during a special session of the Stock Exchange, on July, 14th 2003. According to Euronext, all shares were sold: 18,270 were acquired by employees, 360,870 by small subscribers and emigrants, and the remainder 6,615,610 were bought by the general public.

On July, 17th 2003, 9,413,510 shares of Gescartão SGPS SA, representing 47.1% of the share capital, were listed on the Stock Market. In January 2004, 379,140 shares were listed, representing 1.9% of the Gescartão share capital. These shares cannot be transacted for a six-month period. On January, 2nd 2004, Gescartão SGPS SA was listed on PSI–20 – the reference index of the Portuguese Stock Exchange.

The shares held by IMOCAPITAL, representing 51% of the share capital, were not requested to be listed, since these are unavailable until the full accomplishment of the obligations referred to on Article 2 through 5 of the the Government Law no. 19/2003, dated February, 3rd.

The above mentioned obligations consist of: (i) the construction and set up of a recycled paper mill for the packaging industry, with a minimum production capacity of 150 thousand tonnes per year, within the Viana do Castelo region (including any investment needed for water collection, energy generation, compliance with environmental requirements and other investments to improve the competitiveness and efficiency of the Viana do Castelo industrial complex). An investment of 125,000,000 euros, starting up24 months after construction and industrial licencing. The first licencing sould be requested within a maximum period of 2 months after the enforcement of the new Government Law; (ii) a minimum 10,000,000 euros industrial investment amount within the Mourão region, to be carried out 9 months after licencing. The first licencing sould be requested within a maximum period of 2 months after the enforcement of the new Government Law; (iii) the accomplishment of investments on agriculture, agro-industrial, industrial or services sectors, including tourism, amounting to 40,000,000 euros, in a maximum period of 36 months, counting as from the enforcement of the Government Law. These investments can be accomplished with one or more venture capital funds and/or with one or more venture capital companies, already existing or to be established by IMOCAPITAL, oriented to investments in agriculture, agro-industrial, industrial or services sector, including tourism. During the Shareholders General Meeting on March, 28th 2004, the decision of the Gescartão Board of Directors was ratified and Gescartão will take the responsibility of fulfilling the obligations listed above and carrying out the respective investments throughits affiliates.

The licencing processes for a mill in Mourão and for the industrial investment in Vianado Castelo are underway, within the deadlines and conditions established on the Government Law.

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The Board of Directors Belmiro Mendes de Azevedo Carlos António Rocha Moreira da Silva Carlos Francisco de Miranda Guedes Bianchi de Aguiar José Antonio Comesaña Portela Duarte Paulo Teixeira de Azevedo Diogo António Rodrigues da Silveira Christian Günther Schwarz Stefan Collin Collignon Hans-Georg Brodach Ángel María García Altozano José Álvaro Cuervo García

Maia, March 11th 2004

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REPORT ON THE CORPORATE GOVERNANCEOF SONAE INDÚSTRIA – SGPS, SA

This appendix complies with Regulation no. 7/2001 and changes introduced by Regulation no. 11/2003 of the Stock Market Supervisory Commission (Comissão do Mercado de Valores Mobiliários).

Chapter 0. Compliance Statement

The adoption of the Stock Market Supervisory Commission recommendations on corporate governance is reported herein.

Chapter 1. Information Release

1. Competencies Division on the Decision-making ProcessThe company is managed by a Board of Directors of 11 members and an Executive Committee with five members from the Board of Directors. The Executive Committee is entrusted with the day-to-day running of the company, within the delegated powers established by the Board of Directors.

Belmiro de Azevedo, Carlos Moreira da Silva, Carlos Bianchi de Aguiar,José Antonio Comesaña, Diogo da Silveira, Paulo Azevedo, Christian Schwarz,Álvaro Cuervo, Ángel Altozano, Stefan Collignon, Georg Brodach

Carlos Moreira da Silva, Carlos Bianchi de Aguiar, José Antonio Comesaña,Diogo da Silveira, Christian Schwarz

Board of Directors

Executive Committee

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2. Internal CommitteesThe company has the following internal Board Committees:

Board Audit and Finance Committee, which is currently composed of the followingdirectors:· José Álvaro Cuervo García – Chairman· Ángel Manuel García Altozano· Duarte Paulo Teixeira de Azevedo

Under the terms of Article 1 no. 2 of Regulation 7/2001, all are independent directors with the exception of Duarte Paulo Teixeira de Azevedo.

This committee meets four times a year, and its main tasks are: (i) to review the financial statements to be disclosed to the market and report its findings to the Board of Directors; (ii) to control the internal processes and businesses; (iii) to review the results of internal and external audits; (iv) to advise any changes in accounting policies and practices; (v) to check compliance with accounting standards; (vi) to check compliance with legal and statutory obligations, in particular in the financial domain.

Social Responsibility and Environment Committee, which is composed of the following directors:· Belmiro Mendes de Azevedo – Chairman· Carlos António Rocha Moreira da Silva· Stefan Colin Collignon· Hans-Georg BrodachUnder the terms of Article 1 no. 2 of Regulation 7/2001, all are independent directors with the exception of Belmiro Mendes de Azevedo.

This Committee meets four times a year, and its main function is to analyse the impact of the economic, environmental and social dimensions of sustainability and of corporate governance on the management of the company’s businesses.

Board Remuneration and Nomination Committee, which is composed of the following directors:· Belmiro Mendes de Azevedo – Chairman· Carlos António Rocha Moreira da Silva· Duarte Paulo Teixeira de Azevedo· José Álvaro Cuervo GarcíaUnder the terms of Article 1 no. 2 of Regulation 7/2001, all are independent directors with the exception of Belmiro Mendes de Azevedo and Duarte Paulo Teixeira de Azevedo.

This Committee meets once a year, and its main function is to submit proposals and recommendations to the Board of Directors in what the composition and remuneration of Sonae Indústria’s affiliated company members are concerned.

3. Risk ControlRisk management is a key issue within the Sonae group culture and is present in all management processes. Therefore, it is a duty of managers and employees at all levels within Sonae Indústria’s affiliated companies.

Risk management is aimed both at creating value through the management and control of uncertainties and threats that might affect Sonae Indústria’s affiliates and at seizing business opportunities and improving the existing processes.

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3.1 Risk Management ProcessesRisk management is incorporated in the whole planning process.

Within the scope of the strategic planning, business risks are assessed and strategies are defined to manage them.

In operational terms, business risks are identified and assessed and actions are planned to manage them. These actions are included and monitored by action plans of the business units and departments.

With regard to safety risks of tangible assets and personnel, audits are carried out to the main plants and preventive and corrective measures are taken. Regularly, the financial cover of insurable risks is reassessed.

Financial risks are managed and monitored by the corporate financial department.

3.2 Risk Management OrganizationBesides the accountability of all managers and employees of the Sonae Indústria affiliates, the risk management activity is performed and supported by the Audit and Risk Management function, as well as by the Planning and Management Control function.

Risk Management, Internal Audit and Planning and Management Control are activities carried out in all Sonae Indústria’s businesses, with specially assigned personnel, reporting directly to the Sonae Indústria Executive Committee and Board of Directors.

4. Share Price Performance

5. Dividends PolicyLately, the company has adopted a policy of non-distribution of dividends, due to the ongoing significant investments.

6. Share Awards and Options of Shares AcquisitionThe company has neither share awards nor options of shares acquisition.

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4,20

4,00

3,80

3,60

3,40

3,20

3,00

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2,60

2,40

2,20

2,00

1,80

01 02 03 04 05 06 07 08 09 10 11 12

3,25

2,65

2,27 2,25

2002 Accounts

Presentation

1st Q 2003 Accounts

Presentation

1st Half 2003 Accounts

Presentation

3rd Q 2003 Accounts

Presentation

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7. Businesses with Related PartiesThe company did not carry out any business transaction with members of the Boardof Directors or with the Statutory Auditor.

Transactions with any holding or affiliated company are a normal activity and were performed under normal market conditions.

8. Relations with InvestorsAs a rule, the company announces immediately any material event to the shareholders and to the stock market, in order to avoid time gaps between knowledge and disclosure of those facts. The company’s behaviour along the years has been of respecting this commitment with the market.

Material events and other relevant information, namely annual reports, are disclosed to the shareholders and to the stock market by the usual communication means and are made available at the company’s website www.sonaeindustria.com.

Direct information to investors is rendered by the representative for the market relations, Carlos Francisco de Miranda Guedes Bianchi de Aguiar, (phone: +351.220.100.401,Fax +351.220.100.543, cbaguiar@sonae.pt).

Considering the stability of the shareholding structure, as well as the number of appointments and meetings requested, the company considers that the technical and human resources currently allocated to the investors support guarantee an equal treatment with a rapid and effective enlightment of the shareholders.

9. Remuneration CommitteeThe company Remuneration Committee, appointed by the Shareholders General Meeting for a four-year term, is currently composed by Sonae-SGPS, SA, represented by Professor José Manuel Neves Adelino, and by Bruno Walter Lehmann.

10. Annual Remuneration of the AuditorDuring 2003, the auditors, Deloitte, invoiced the company and its affiliated companies in the total amount of 917,321 euros, of which 56.9% related to the accounts legal auditing, 17% to fiscal consultancy services and 26.2% to other services.

To safeguard the auditor independence, the fiscal consultancy and other services are provided by different experts from those involved in the auditing process.

Chapter 2. Voting Right Exercise and Shareholders Representation

Under the terms of the company’s Articles of Association, the Shareholders General Meeting is composed only by shareholders with voting rights and holding shares or subscription bonds who, until eight days before the meeting, prove their holder qualityto the Company, according to the terms established by law.

Each set of one hundred shares corresponds to one vote; shareholders are entitled to a number of votes corresponding to the entire part of their number of shares divided by one hundred.

Unless the law provides otherwise, the decisions of the Shareholders General Meeting are taken by simple majority.

Individual shareholders may be represented at Shareholders General Meetings by their spouse, parents or children, director or another shareholder, as long as they have notified the Chairman of the Shareholders General Meeting by letter, stating the representative name, residence and date of the meeting.

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Collective shareholders may be represented by a person duly appointed for that purpose in a letter whose authenticity is acknowledged by the Chairman of the Shareholders General Meeting.

As the Company is regarded as a “publicly traded company”, shareholders can vote by post exclusively in what changes to the Articles of Association and statutory bodies appointments are concerned.

Votes by post can only be considered when received at the headquarters by a registered letter with receipt notification addressed to the Chairman of the Shareholders General Meeting, at least three days before the date of the Meeting, without prejudice of the mandatory evidence of shareholder quality.

There is neither a specific standard for a vote by post, nor the possibility of voting by electronic means.

Proposals to be submitted by the Board of Directors to the Shareholders General Meeting are made available to shareholders, on the legal terms, at the headquarters, together with all relevant reports, documents and further legally mandatory information. Furthermore, annual reports are available at the website www.sonaeindustria.com as from the same date.

Chapter 3. Corporate Rules

1. Codes of Conduct and Internal RegulationsSONAE INDÚSTRIA’s principles and values are disseminated and deeply rooted in its employees culture, including, among others, the confidentiality duty regarding third parties, safeguarding the company’s position in cases of interest conflicts.

2. Risk ManagementIn addition to the above referred Board Audit and Finance Committee the company has an internal audit and risk management department responsible for monitoring and promoting the development of structured and joint activities to manage business risks.

3. Measures interfering with the success of Public Offerings of AcquisitionThere is no limits to the voting right exercise interfering with the success of Public Offerings of Acquisition.

There are no restrictions to shares transactions, and no shareholders special rights.There are no shareholders agreements known to the company.

Chapter 4. Management Board

1. CompositionThe company is managed by the Board of Directors, currently with eleven members appointed by the Shareholders General Meeting for a four-year term.

The Board of Directors delegated the day-to-day management of the Company in thea five-member Executive Committee.

Board of Directors· Belmiro Mendes de Azevedo · Chairman· Carlos António Rocha Moreira da Silva· Carlos Francisco de Miranda Guedes Bianchi de Aguiar· José Antonio Comeseña Portela· Diogo António Rodrigues da Silveira· Christian Günther Schwarz· José Álvaro Cuervo García

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· Ángel Manuel García Altozano,· Duarte Paulo Teixeira de Azevedo· Stefan Colin Collignon,· Hans-Georg Brodach

Executive Committee· Carlos António Rocha Moreira da Silva· Carlos Francisco de Miranda Guedes Bianchi de Aguiar· José Antonio Comesaña Portela· Christian Günther Schwarz· Diogo António Rodrigues da Silveira

Under the terms of Article 1 no. 2 of Regulation 7/2001, all are independent directors with the exception of Belmiro Mendes de Azevedo and Duarte Paulo Teixeira de Azevedo.

In accordance with the company Articles of Association, the Board of Directors will normally meet once a quarter and also whenever the Chairman or two of its members calla meeting. All decisions taken are recorded in the respective minutes.

The Board of Directors can only deliberate if the majority of its members is present or represented and deliberations are taken by the majority of issued votes.

The Board of Directors met 13 times in 2003.

The Board of Directors are also members of management boards of other companies, listed in an attachment to this report.

Besides restrictions imposed by the Law, all members of the Board of Directors have neither incompatibilities nor a number of assignments higher than allowed.

2. Executive CommitteeThe Board of Directors delegated all powers for the day-to-day management of the company to the Executive Committee, except for:

a) appointing the Chairman of the Board of Directors;b) co-opting directors;c) convening Shareholders General Meetings;d) approving the Annual Report and Accounts;e) granting pledge, guarantees or charges over the assets of the Company, if those are in excess of an accumulated value of 500,000 euros in any financial year;f) deciding to change the company’s headquarters and increase share capital;g) deciding on mergers, demergers and modifications to the corporate format of the company or any other projects relating the association of the company with any other legal entity with the purpose of forming new companies;h) approving the company’s business plan and annual budget;i) defining the personnel policies, including stock incentive plans and variable remuneration plans applicable to executives and senior managers (above Level XIV), in areas that do not require decisions from the Remuneration Committee or deliberations at Shareholders General Meetings;j) defining or changing accounting policies of any company included in the consolidation perimeter of the group;k) approving quarterly and half-yearly reports;l) selling, acquiring directly or by long term lease or transact in any other way, investments classified as tangible fixed assets where the individual transaction value is in excess of 1,000,000 euros, unless covered by the Annual Budget or the Business Plan duly approved by the Board;

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m) purchasing or subscribing new shares in the share capital of any subsidiary companies where the accumulated amount exceeds 5,000,000 euros in any financial year, unless covered by the Annual budget or the Business Plan duly approved by the Board;n) investing in any other companies or in other financial assets when the accumulated value is in excess of 1,000,000 euros in any financial year, unless covered by the Annual Budget or the Business Plan duly approved by the Board;o) making any other financial investments which exceeds the accumulated amount of 1,000,000 euros in any financial year, unless covered by the Annual Budget or the Business Plan duly approved by the Board.p) disposing of assets or make other divestments, if such a transaction has a significant effect on the operating results of the Company (defined as equal or greater than 5%) or affects the jobs of more than 100 employees, unless covered by the Annual Budget or the Business Plan duly approved by the Board.The Executive Committee meets at least once a month and also whenever the Chairman or a majority of its members call a meeting in writing, at least three days before the appointed date; the meeting can only take place if four of its members are present (either physically or by videoconference).During the 2003 financial year, the Executive Committee met 17 times.The decisions of the Executive Committee are taken by a majority of four members. In the absence of this majority, the Executive Committee must submit the matter under consideration to the Board of Directors for a decision.In order to keep the Board of Directors updated on the decisions taken by the Executive Committee, all members are sent a summary of the minutes of the meetings of the Executive Committee.

3. RemunerationDuring 2003, the remunerations earned by the executive members of the Board of Directors, either directly or through its affiliates, amounted to 1,545,159 euros, of which 613,209 euros represented a performance bonus. The performance bonus is indexed to the trend of a set of indicators, considering the directors’, the company’s and its shareholders’ interests. 280,000 euros from the performance bonus are deferred and will only be paid in 2005, subject to the aforementioned indicators and, therefore, might be increased or reduced. The remuneration earned by the non-executive directors was 103,242 euros, excluding those who are also directors of Sonae Indústria’s holding company.

The total remuneration earned by the Chairman of the Executive Committee was 263,755 euros, including a deferred performance bonus of 100,000 euros.

The above mentioned amounts include the remuneration of directors who resigned during the 2003.

The Board of Directors finds that the information above stated on their remuneration is sufficient and the release of this information on an individual basis, as recommended by the Stock Market Supervisory Commission (Comissão do Mercado de Valores Mobiliários), is an excessive demand under the general principles of information disclosure obligation, since it has a minor interest to the shareholders.

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Belmiro Mendes de AzevedoCasa Agrícola de Ambrães, SA

(Chairman)*Efanor Investimentos, SGPS, SA

(Chairman) Imocapital – Sociedade Gestora de

Participações Sociais, SA (Chairman) Modelo Continente, SGPS; SA (Chairman) Praça Foz – Sociedade Imobiliária, SA

(Chairman)*Setimanale – SGPS, SA (Chairman)*Socelpac – SGPS, SA Sonae – SGPS, SA (Chairman) Sonae Capital – SGPS, SA Sonae Imobiliária – SGPS; SA

(Non-executive Chairman) Sonae Produtos e Derivados Florestais

– SGPS, SA Sonae.Com – SGPS, SA (Chairman) Spred – SGPS, SA (Chairman) Tableros de Fibras, SA (Chairman)

Carlos António Rocha Moreira da Silva173509 Canada, INC.Artividro – Arte em Vidro, Lda.*BA – Fábrica de Vidros Barbosa

& Almeida, SA (Chairman)*BA – Vidrio, SA (Chairman)*BA Vidrios, Distribución y

Comercialización de Envases de Vidrio, SA (Chairman)*

BA Vidros Marinha Grande, SA (Chairman)*

Bar.Bar.Idade – Imobiliário e Serviços, SA (Chairman)*

Bar.Bar.Idade Glass – Serviços de Gestãoe Investimentos, SA (Chairman)*

Bar.Bar.Idade II – Consultores de Gestão, SA (Chairman)*

Bar.Bar.Idade, SGPS, SA (Chairman)*Barbosa & Almeida – SGPS, SA

(Chairman)Cor.on.line – Comércio de Arte, SA

(Chairman)*Euromegantic Ltée.Glunz AG (Chairman)Isoroy SAS (Chairman)Novobord (PTY) Ltd.PFV – Paços de Ferreira Vidro, SGPS, SA

(Chairman)*Portucel – Empresa Produtora de Pasta

e Papel, SA*Sonae Indústria – Consultadoria

e Gestão, SASonae Novobord (PTY) Ldt.Sonae South Africa (PTY) Ldt.Sonae UK, Ltd.Tableros de Fibras, SATafibra South Africa (PTY) Ldt.Tafibra – Tableros Aglomerados

Y de Fibras, AIETafisa France SA (Chairman)Tafisa UK, Ltd.

Carlos Francisco de Miranda Guedes Bianchi de Aguiar173509 Canada, INC.Agloma – Sociedade Industrial de Madeira

Aglomerada, SAAgloma Financial Investments Ltd.

LIST OF COMPANIES WHERE DIRECTORSARE MEMBERS OF THE BOARD

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Aserraderos de Cuellar, SAEcociclo – Energia e Ambiente, SAEiweiler Sperrholz GmbHEuro Decorative Boards, Ltd.Euromegantic Ltée.Euroresinas – Industrias Quimicas, SAExplotaciones Industriales, Comerciales

y de Servicios, SAExplotaciones Madereras Catalanas, SAForestal Y Maderera, SAGlunz AGGlunz Service GmbHGlunz UK Holdings, Ltd.Glunz UKA GmbHImoplamac – Gestão de Imóveis, SAIsoroy SASMaichave – Consultadoria e Gestão, SAMaiequipa – Gestão Florestal, SAManipulaciones Forestales, SAMovelpartes – Componentes para

a Indústria do Mobiliário, SANAB – Sociedade Imobiliária, SANovobord (PTY) Ltd.Orpin, SAPoliface – Componentes e Sistemas

para Mobiliário e Construção, SAPoliface North America Inc.Racionalización y Manufacturas

Forestales, SAResoflex – Mobiliário e Equipamentos

de Gestão, SARhodes Investiments, Ltd.Rochester Real Estate, Ltd.SIAF – Imobiliária, SASomit – Imobiliária, SASomit – Sociedade de Madeiras

Industrializadas e Transformadas, SASonae – Indústria de revestimentos, SASonae – Serviços de Gestão, SASonae Indústria – Consultadoria

e Gestão, SASonae International, Ltd.Sonae North AmericaSonae Novobord (PTY) Ldt.Sonae South Africa (PTY) Ldt.Sonae Tafibra – Gestão Comercial, SASonae Tafibra Benelux, BVSonae Tafibra UK, Ltd.Sonae UK, Ltd.Spanboard Products, Ltd.Tableros de Fibras, SATableros Tradema, SLTafiber – Tableros de Fibras Ibéricos, SLTafibra – Tableros Aglomerados Y de

Fibras, AIETafibra South Africa (PTY) Ldt.

Tafibrás Participações SATafisa Brasil SATafisa France SATafisa UK, Ltd.Taiber – Tableros Aglomerados Ibéricos, SLTecnologias del Medio Ambiente, SA

José Antonio Comesaña PortelaAgloma – Sociedade Industrial de Madeira

Aglomerada, SAAserraderos de Cuellar, SA (Chairman)Casca – Sociedade de Revestimentos, SAEcociclo – Energia e Ambiente, SAEuroresinas – Indústrias Químicas, SAExplotaciones Industriales, Comerciales

y de Servicios, SAExplotaciones Madereras Catalanas, SAForestal Y Maderera, SAImoplamac – Gestão de Imóveis, SAMaichave – Consultadoria e Gestão, SAMaiequipa – Gestão Florestal, SAManipulaciones Forestales, SAMovelpartes – Componentes para a

Indústria do Mobiliário, SANab – Sociedade Imobiliária, SAOrpin, SAPoliface – Componentes e Sistemas para

Mobiliário e Construção, SAPoliface Brasil, Lda.Racionalización y Manufacturas

Forestales, SAResoflex – Mobiliário e Equipamentos

de Gestão, SAScs Beheer, B.V.Serradora Boix, SLSiaf – Imobiliária, SASociedade de Iniciativa e Aproveitamentos

Florestais – Energia, SASomit – Imobiliária, SASomit – Sociedade de Madeiras

Industrializadas e Transformadas, SASonae – Indústria de Revestimentos, SASonae – Serviços de Gestão, SASonae Indústria Brasil, LdaSonae Tafibra – Gestão Comercial, SATableros de Fibras, SATableros Tradema, SLTafiber, Tableros de Fibras Ibéricos, SLTafibra, Tableros Aglomerados Y de Fibras,

AIE (Chairman)Tafibrás Participações, SA (Chairman)Tafisa Brasil, SA (Chairman)Taiber, Tableros Aglomerados Ibéricos, SLTecnologias del Medio Ambiente, SA

(Chairman)

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Diogo António Rodrigues da SilveiraGlunz AGIsoroy Casteljaloux, SASIsoroy Chatellerault, SASIsoroy Le Creusot, SASIsoroy Panneaux de Fibres, SASIsoroy SASIsoroy Transformation SA (Chairman)Sociètè de Tranchage Isoroy, SASSociètè des Essences Fines Isoroy, SASSociètè des Panneaux Isoroy, SASSonae Indústria – Consultadoria

e Gestão, SATafisa France SATafisa UK, Ltd.

Duarte Paulo Teixeira de AzevedoClixgest – Internet e Conteúdos, SA

(Chairman)Efanor Investimentos, SGPS, SAEnabler – Informática, SA (Chairman)Glunz AG (Conselho Geral)Imparfin, SGPS, SAMigracom-Serviços de Telecomunicações

e Transformação de Informação, SA(Chairman)*

Novis Telecom, SA (Chairman)Optimus – Telecomunicações, SA

(Chairman)Portais Verticais. Com, SGPS, SA

(Chairman)Praça Foz – Sociedade Imobiliária, SAPúblico Comunicação Social, SASocelpac – SGPS, SASonae Com – Sistemas de Informação,

SGPS, SA (Chairman)Sonae Matrix Multimédia, SGPS, SA

(Chairman)Sonae Produtos e Derivados Florestais

– SGPS, SASonae Telecom, SGPS, SA (Chairman)Sonae, SGPS, SASonae.Com, SGPS, SA We do Consulting – Sistemas de

Informação, SA (Chairman)

Christian Günther SchwarzGlunz AGGollin GmbhNovobord (PTY) Ltd.OSB Deutschand GmbhSonae Novobord (PTY) Ldt.Sonae South Africa (PTY) Ldt.Tavapan SA (Supervisory Board)Tafibra South Africa (PTY) Ldt.Tool Gmbh

José Álvaro Cuervo GarcíaACS – Actividades de Construccion

Y Servicios, SA*BA Vidrios, Distribución y

Comercialización de Envasesde Vidrio, SA*

Grupo ThyssenKrupp, SA*Tableros de Fibras, SA

Ángel Manuel García AltozanoAbertis Infraestructuras, SA*Abertis Telecom, SA*Accesos de Madrid, C.E.SA*ACS Proyectos, Obras Y Construcciones, SA*Alazor Inversiones, SA*Autopista Central Gallega, C.E.SA*Autopista Trados 45, SA*Broadnet Consorcio, SA (Chairman)*Cobra Instalaciones Y Servicios, SA*Continental Auto, SL*EASA Energias Ambientales, SA

(Chairman)*EASA Novo (Chairman)*EASA Outes (Chairman)*EASA Somozas (Chairman)*EASA Vimianzo (Chairman)*Saba Aparcamientos, SA*Societat Eolica de L’Enderrocada, SA

(Chairman)*Tacel Inversiones, SA*Tecmed, SA (Chairman)*Vias Y Construcciones, SA*Xfera Moviles, SA (Chairman)*

Stefan Colin Colligon:Glunz AG (Supervisory Board)

Hans-Georg Brodach:Glunz AG (Supervisory Board)

* Companies not belongingto the Sonae Group

11:48:0412:48:29

17:58:10 014:25:47

16:26:33

09:38:22+3

CONSOLIDATED

FINANCIAL STATEMENTS

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Consolidated Balance Sheet as of 31 December 2003

Euros

03.12.31 02.12.31

Assets

Assets Depreciation

Net Assets

Net Assets & Provisions

Fixed Assets

Intangible assets:

Start-up costs 74,207,620 45,501,218 28,706,402 37,987,226

Research and development costs 12,694,574 8,873,450 3,821,124 4,876,975

Patents and other similar rights 4,082,460 3,921,269 161,191 1,938,195

Premiums paid for property occupation rights

Projects in progress 3,815,582 3,815,582 352,993

Advances

Goodwill arising on consolidation

94,800,236 58,295,937 36,504,299 45,155,389

Tangible assets:

Land and natural resources 68,128,768 1,764,762 66,364,006 87,021,177

Buildings and other constructions 429,069,300 111,395,185 317,674,115 354,881,121

Plant and machinery 1,790,167,429 851,247,183 938,920,246 1,001,843,068

Vehicles 21,956,663 19,572,344 2,384,319 2,416,244

Tools 6,014,588 3,906,464 2,108,124 1,256,082

Fixtures and fittings 57,237,649 38,966,623 18,271,026 16,755,033

Containers 25,005 15,517 9,488 2,956

Other tangible assets 28,190,861 23,246,747 4,944,114 5,563,179

Tangible in progress 23,323,488 23,323,488 49,910,762

Advances 621,000 621,000 2,514,490

2,424,734,751 1,050,114,825 1,374,619,926 1,522,164,112

Investments:

Shares in related (including associated) undertakings 56,856,286 46,858,570 9,997,716 15,593,127

Loans to related (including associated) undertakings 15,058,022 14,969,145 88,877 504,562

Shares in other undertakings 141,633 141,633 141,633

Loans to other participated companies

Other investments other than loans 86,253 31,148 55,105 139,405

Other loans 430,914 430,914 331,669

In construction

Advances 271,799 271,799 299,875

72,844,907 61,858,863 10,986,044 17,010,271

Current assets:

Stocks:

Raw, subsidiary and consumable materials 99,144,954 2,821,126 96,323,828 114,474,405

Work in progress 4,989,063 4,989,063 8,668,919

By-products and waste 772,997 772,997 711,579

Finished and intermediate products 73,517,563 1,219,576 72,297,987 86,291,652

Goods for resale 9,760,178 209,165 9,551,013 10,482,849

Payments on account 6,171 6,171

188,190,926 4,249,867 183,941,059 220,629,404

Debtors – medium and long term:

Doubtful debtors 1,185,646 1,183,942 1,704 1,704

Related undertakings 78,786 78,786 73,400

Advances to trade creditors

Taxes recoverable

Other debtors 889,686 64,339 825,347 1,113,882

2,189,942 1,248,281 941,661 1,188,986

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Debtors – short term:

Trade debtors 136,519,647 4,998,703 131,520,944 201,637,855

Bills receivable 35,875,919 35,875,919 43,564,477

Doubtful debtors 13,637,074 11,264,366 2,372,708 2,995,120

Related undertakings 77,007,773 2,096,185 74,911,588 7,852,417

Other related undertakings

Other shareholders

Advances to trade creditors 1,375,844 1,375,844 1,575,418

Advances to fixed asset suppliers 9,961

State and public sector 29,497,781 29,497,781 27,897,024

Other debtors 35,318,478 518,769 34,799,709 64,923,529

Subscribers of capital

329,232,516 18,878,023 310,354,493 350,455,801

Short term investments:

Shares in related (including associated) undertakings 200,000 200,000

Bonds in related (including associated) undertakings 3,606,073 3,606,073

Other negotiable instruments 3,371,302 27,772 3,343,530 2,932,726

Others 1,878,284 1,878,284 1,613,259

9,055,659 27,772 9,027,887 4,545,985

Banks and cash:

Bank deposits 45,714,786 45,714,786 85,705,520

Cash 996,950 996,950 859,010

46,711,736 46,711,736 86,564,530

Accruals and deferrals

Accrued income 68,876,505 68,876,505 70,677,754

Deferred costs 11,806,495 11,806,495 20,422,455

80,683,000 80,683,000 91,100,209

Total depreciation 1,108,410,762

Total provisions 86,262,806

Total assets 3,248,443,673 2,053,770,105 2,338,814,687

The Board of Directors

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03.12.31 02.12.31

Assets

Assets Depreciation

Net Assets

Net Assets & Provisions

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Consolidated Balance Sheet as of 31 December 2003

Euros

Shareholders’ funds and liabilities 03.12.31 02.12.31

Shareholders’ funds

Called up share capital 500,000,000 500,000,000

Own shares - nominal value 0 0

Own shares - premium

Supplementary capital 0 0

Share premium account 135,339,049 135,339,049

Consolidation differences

Post acquisition share of accumulated reserves of associated undertakings 11,691,963 11,296,148

Revaluation reserve 4,648,437 5,307,245

Other reserves:

Legal reserve 3,297,117 3,297,117

Statutory reserve 0

Contratual Reserve 0

Other reserves –392,793,490 –329,854,039

262,183,076 325,385,520

Net profit/(loss) for the year –78,573,030 –81,849,070

Total shareholders’ funds 183,610,046 243,536,450

Minority interests 168,714,245 159,745,138

Liabilities

Provisions for liabilities and charges:

Pension Provisions 22,349,653 22,480,376

Tax Provision 416,144 612,237

Other provisions 34,547,906 45,570,808

57,313,703 68,663,421

Creditors - medium and long term:

Bonds

Non convertible 23,140,934 30,052,573

Bank loans 363,764,175 551,249,711

Trade creditors 2,247 2,218

Related (including associated) undertakings 364,234,643 476,339,953

Other loans 2,721,823 3,580,625

Fixed asset creditors 9,991,784 15,296,149

State and public sector 10,313,120 7,577,157

Other creditors 50,072,785 50,500,588

824,241,511 1,134,598,974

Creditors - short term:

Bonds

Convertible 0

Non convertible 21,029,170

Bank loans and overdrafts 328,213,239 115,906,549

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Advances on account of sales 604 0

Trade creditors 140,394,616 138,244,038

Accruals - invoices 20,686,571 21,526,717

Bills payable 23,683,944 26,872,361

Fixed asset suppliers - bills payable 1,279,282 483,666

Related (including associated) undertakings 19,613,829 90,952,578

Related undertakings ( including parent company) 0 0

Other shareholders 4,705

Advances from trade debtors 987,441 1,399,621

Other loans 612,628 224,800

Fixed asset suppliers 13,011,537 19,057,676

State and public sector 25,869,897 34,944,885

Other creditors 69,673,603 81,818,300

644,027,191 552,465,066

Accruals and deferrals

Accrued costs 81,202,068 82,512,663

Deferred income 94,661,341 97,292,975

175,863,409 179,805,638

Total liabilities 1,701,445,814 1,935,533,099

Total shareholders’ funds and liabilities 2,053,770,105 2,338,814,687

The Board of Directors

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Shareholders’ funds and liabilities 03.12.31 02.12.31

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Consolidated profit and loss account for the year ended 31 December 2003

Euros

03.12.31 02.12.31

Charges

Cost of goods sold and materials consumed:

Goods 41,815,575 38,495,943

Materials 623,117,029 664,932,604 616,549,654 655,045,597

External supplies and services 383,665,334 391,914,653

Staff costs:

Wages and salaries 190,241,701 201,726,020

Social costs:

Pensions 1,787,801 5,275,875

Others 59,472,499 251,502,001 61,510,686 268,512,581

Depreciation of tangible and intangible fixed assets 132,462,855 136,180,593

Provisions 14,163,155 146,626,010 11,379,938 147,560,531

Taxes 12,531,575 13,887,376

Other operating charges 1,842,378 14,373,953 1,851,469 15,738,845

(A) 1,461,099,902 1,478,772,207

Depreciation and provisions for investments 18,256 551,405

Interest payable and similar charges:

Related undertakings 21,598,150 22,682,830

Others 74,953,288 96,569,694 88,656,097 111,890,332

(C) 1,557,669,596 1,590,662,539

Losses relating to associated undertakings 1,538,539 1,775,243

Extraordinary charges 63,892,194 69,502,983

(E) 1,623,100,329 1,661,940,765

Current taxes 4,141,529 8,747,105

Deferred taxes –1,539,577 –412,333

(G) 1,625,702,281 1,670,275,537

Minority interests 5,290,358 7,099,225

Net profit/(loss) for the year –78,573,030 –81,849,070

1,552,419,609 1,595,525,692

Income

Sales:

Goods 46,924,124 42,819,129

Products 1,383,402,207 1,428,514,571

Services rendered 10,656,420 1,440,982,751 8,154,284 1,479,487,984

Change in stocks of finished goods and in work in progress –2,326,214 –8,932,382

Own work capitalised 2,335,227 4,417,640

Supplementary income 11,640,197 8,234,034

Trading subsidies 679,183 1,053,295

Other operating income 10,775,083 23,094,463 20,364,734 29,652,063

(B) 1,464,086,227 1,504,625,305

Dividend income:

Relating undertakings 30,000 45,243

Others 118 22,500

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Investment income:

Related undertakings 40,514

Others 1,081,466 132,244

Other interest received and similar income:

Related undertakings 59,925 207,641

Others 10,278,555 11,450,064 12,257,958 12,706,100

(D) 1,475,536,291 1,517,331,405

Share of profits of associated undertakings 137,691 131,463

Extraordinary income 76,745,627 78,062,824

(F) 1,552,419,609 1,595,525,692

Summary:

Operating results: (B) – (A) = 2,986,325 25,853,098

Financial results: [(D) – (B)] – [(C) – (A)] = –85,119,630 –99,184,232

Current results: (D) – (C) = –82,133,305 –73,331,134

Profit /(loss) before taxation: (F) – (E) = –70,680,720 –66,415,073

Net profit /(loss) for the year: (F) – (G) = –73,282,672 –74,749,845

The Board of Directors

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03.12.31 02.12.31

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Consolidated profit and loss account by functions for the year ended 31 December 2003

Euros

2003 2002

Sales and services rendered 1,440,982,751 1,479,487,985

Cost of goods sold and services rendered –1,134,091,774 –1,120,715,673

Gross margin 306,890,977 358,772,312

Other operating income 17,991,613 22,504,584

Distribution charges –114,405,120 –120,629,114

Administrative charges –93,982,315 –98,891,178

Other operating charges –123,524,009 –142,989,964

Operating results –7,028,855 18,766,640

Net financial charges –74,788,166 –91,301,323

Gains/(losses) relating to related undertakings 10,423,705 –1,500,271

Gains/(losses) relating to other undertakings 250,398 91,571

Exceptional items 4,931,518 20,448,175

Profit /(loss) before taxes and extraordinary items –66,211,399 –53,495,208

Income taxes (excluding taxes on extraordinary items) –2,601,951 –8,334,772

Profit /(loss) after taxes but before extraorinary items –68,813,350 –61,829,980

Profit attributable to minority interests 5,290,358 7,099,225

Loss on operations being discontinued –4,469,322 –12,919,865

Extraordinary Results

Income tax on extraordinary items

Loss for the financial year –78,573,030 –81,849,070

Earnings per Share –0.7857 –0.8185

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The information contained in these notes is presented following the structure and numbering required by the Portuguese Official Chart of Accounts, only the notes which contain information which is relevant to the Sonae Indústria, SGPS, SA Group’s consolidated financial statements being included.

Note 0. Main Accounting Policies

The consolidated financial statements have been prepared in accordance with the accounting principles and consolidation procedures established in the Portuguese Official Chart of Accounts with the changes introduced by Decree-Law 238/91, of 2 July 1991.

The more important accounting policies and valuation criteria used in the preparation of the consolidated financial statements, are set out below:

a) Historical costThe consolidated financial statements have been prepared in accordance with the historical cost convention, modified by legal and other revaluations of specific tangible fixed assets, on a going concern basis from the books and accounting records of the companies included in the consolidation (Notes 1 and 3), maintained in accordance with the generally accepted accounting principles in Portugal.

b) Basis of consolidationThe consolidated financial statements include the parent company and its affiliated undertakings (Notes 1 to 3). The results of affiliated undertakings acquired or disposed during the year are included in the consolidated profit and loss account from the date of their acquisition or up to the date of their disposal. Where the amounts involved are significant, consolidation adjustments have been made to conform to the Group’s accounting policies. Balances, transactions and profits between Group companies have been eliminated.

c) InvestmentsUndertakings in which the Group holds between 20% and 50% of the share of the capital or is able to exercise significant influence are accounted for as associated undertakings by the equity method. The Group’s share of profits and losses of associated undertakings for the year is included in the consolidated profit and loss account. The Group’s share of the other movements in shareholders’ funds of associated companies is reflected in

NOTES TO THE CONSOLIDATEDFINANCIAL STATEMENTS

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consolidated shareholders’ funds. Consolidation adjustments are made where necessary to adjust the accounting policies of associated companies to those of the Group. Transactions and profits between associated companies are eliminated proportionately in the consolidation.

Investments in affiliated undertakings, as well as in other undertakings, not consolidated, in accordance with Decree-Law 238/91 n.4, are stated at cost (Notes 2 and 4), and deducted by necessary provisions to face the estimated market value.

d) Short term investmentsShort-term investments are stated at cost including related purchase expenses.

e) Tangible fixed assetsTangible fixed assets are stated at cost, including successive legal revaluations, plus acquisition costs. Investment grants received or receivable that relate to specific assets are treated as deferred income, which is then credited to the profit and loss account over the useful lives of the related assets. Non-specific grants are credited to the profit and loss account when received.

f) DepreciationDepreciation is calculated monthly on a straight-line basis over the expected useful lives of the related assets. The more significant annual rates used are:

%

Buildings and other constructions 2

Plant and machinery 6.6

Vehicles 20

Fixtures and fittings 10

Intangible assets 20

g) Patents and other similar rightsPatents and other similar rights are stated at cost and amortised over the shorter of the useful life and the legal life of the related asset.

h) Goodwill arising on consolidationGoodwill arising on consolidation, calculated as of the date of acquisition of the investments in Group and associated undertakings, representing the excess of the fair value of the consideration given over the fair value of the identifiable net assets acquired, is recorded directly in shareholders’ funds as a reduction in the caption “Other Reserves” (Note 11).

i) Capitalisation of interest expenseInterest expense incurred on loans from banks and Group companies to finance specific fixed assets in construction, up the time the assets become operational, is capitalised. Capitalised interest is amortised over the period of depreciation of the related fixed assets, which is up to 15 years (Note 28).

j) Start-up, and research and development costsStart-up and research and development costs incurred on specific projects with reasonable expectation of commercial success are capitalised, provided that the estimated future income from them exceeds the costs already incurred or still to be incurred including future production, distribution and administrative costs. The capitalised costs are written off over a period of 5 years (Note 25).

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k) StocksStocks are stated at the lower of cost and net realisable value. In general, cost is determined on a moving average basis using the following methods:

Raw materials and consumables:Average cost including transport and handling;

Work in progress and finished goods:All direct expenditure and an allocation of production overheads based on normal levels of activity, except depreciation costs of fixed assets.

l) Foreign currenciesAssets and liabilities denominated in foreign currencies are translated to Euros at the rates of exchange in force at the balance sheet dates. The results of foreign affiliated undertakings are translated at the average rates at the end of the year. Exchange differences arising on the opening shareholders’ funds of foreign affiliated undertakings are recorded in a currency translation reserve, included in the caption “Other Reserves”.

Where foreign currency balances are covered by forward exchange contracts the contract rate is used for currency conversion.

The exchange rates used to translate the financial statements of foreign affiliated undertakings to Euros are set out in note 24.

m) Minority interestsThe proportion of shareholders’ funds held by third parties in affiliated undertakings included in the consolidation, is reflected in the caption “minority interests” in the consolidated balance sheet.

The share of the results for the year that relate to third party participation is shown asa deduction from the Group’s results in the caption “minority interests”.

n) Income taxIncome tax for the year ended 31 December 2003 is based on the taxable result of each individual company or groups of companies taxed in accordance with the “Special Regime for Taxation of Groups of Companies”, whichever is applicable. Where applicable deferred taxes were recorded.

Deferred taxes, when material, are calculated using the balance sheet method based on temporary differences, being differences between the carrying value of an asset or liability and the amount attributed to it for tax purposes.

Deferred tax assets and liabilities are calculated and annually revalued using tax rates expected to apply in the periods when the temporary differences are expected to revert.

Deferred tax assets arising from tax losses carried forward are only recorded if there is a reasonable expectation that taxable profits will be generated in the future that are sufficient to use existing tax losses.

o) LeasingLeased assets and their corresponding liabilities are included in the balance sheet in accordance with Portuguese Accounting Directives 10 and 25 (Note 47).

p) ProvisionsProvisions are recorded by the amounts necessary to cover estimated risks.

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q) Accruals BasisThe group companies record income and expenses on an accruals basis. Under this basis, income and expenses are recorded in the period to which they relate independently of when the amounts are received or paid.

I – INFORMATION IN RESPECT OF COMPANIES INCLUDED IN OR EXCLUDEDFROM THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Companies included in the consolidation

Legal

Company Registered Office % Capital Held Reason for

Inclusion

31.12.2003 31.12.2002

Direct Total Direct Total

Agloma – Financial Investments, BV Cayman 100.00% 94.42% 100.00% 94.73% a)

Agloma – Sociedade Industrial de Madeira Aglomerada, SA Oliveira do Hospital 100.00% 94.42% 100.00% 94.73% a)

Casca – Sociedade de Revestimento, SA Águeda 100.00% 94.43% 100.00% 94.73% a)

Celnave – Agência de Navegação, Lda. Viana do Castelo 100.00% 35.08% 100.00% 32.50% c)

Celpap – Terminal de Celulose e Papel de Portugal, Lda. Viana do Castelo 100.00% 35.08% 100.00% 32.50% c)

Cia. De Industrias y Negocios, SA Madrid (Spain) 100.00% 94.42% 100.00% 94.73% a)

11) Ecociclo, Energia e Ambiente, SA Maia 100.00% 100,00% a)

Emprobal – Empr. Prod. e Comercial. de Embalagens, Lda. Funchal 60.00% 21.05% 60.00% 19.50% c)

Euro Decorative Boards Ltd. Peterlee (UK) 100.00% 94.42% 100.00% 94.73% a)

Euromegantic Lteé Québec (Canada) 100.00% 94.42% 100.00% 94.73% a)

Euroresinas - Indústrias Quimicas, SA Maia 100.00% 100.00% 100.00% 100.00% a)

Explotaciones Comerciales, Industriales y de Servicios, SA Madrid (Spain) 100.00% 94.42% 100.00% 94.73% a)

Explotaciones Madereras Catalanas, SA Barcelona (Spain) 100.00% 94.42% 100.00% 94.73% a)

Gescartão, SGPS, SA Viana do Castelo 67.58% 35.08% 65.00% 32.50% c)

Glunz AG Hamm (Germany) 98.17% 92.70% 97,52% 93.00% a)

Gollin GmbH Bad Oeynhausen (Germany) 90.00% 83.43% 90.00% 83.70% a)

Imocapital, SGPS, SA Maia 50.00% 50.00% 50.00% 50.00% b)

4) Industrias Quimicas del Carbono, SA Valencia (Spain) 100.00% 94.42% 100.00% 94.73% a)

8) Investalentejo, SGPS, SA Vila do Conde 100.00% 35.08% c)

3) Isoroy Casteljaloux Casteljaloux (France) 100.00% 94.42% 100.00% 94.73% a)

Isoroy Chatellerault Labruguière (France) 100.00% 94.42% 100.00% 94.73% a)

Isoroy Diffusion, SNC Alfortville (France) 100.00% 94.42% 100.00% 94.73% a)

Isoroy Le Creusot, SAS Torcy (France) 100.00% 94.42% 100.00% 94.73% a)

Isoroy Panneaux de Fibres, SA St.Dizier (France) 100.00% 94.42% 100.00% 94.73% a)

Isoroy Transformation St. Dizier (France) 99.99% 94.42% 100.00% 94.72% a)

Isoroy, SAS Boulogne (France) 100.00% 94.42% 100.00% 94.73% a)

Lepe – Empresa Portuguesa de Embalagens, SA Marinha Grande 100.00% 35.08% 100.00% 32.50% c)

2) Leroy Gabon SA Libreville (Gabon) 99.99% 94.42% 99.99% 94.72% a)

Maichave – Consultoria e Gestão, SA Maia 100.00% 100.00% 100.00% 100.00% a)

Maiequipa – Gestão Florestal, SA Maia 100.00% 100.00% 100.00% 100.00% a)

Manipulaciones Florestales, SA Madrid (Spain) 100.00% 94.42% 100.00% 94.73% a)

Megantic BV Amsterdam (The Netherlands) 100.00% 94.42% 100.00% 94.73% a)

Movelpartes – Comp. para a Indústria do Mobiliário, SA Paredes 100.00% 100.00% 100.00% 100.00% a)

1) NAB – Sociedade Imobiliária, SA Maia 100.00% 100.00% 100.00% 100.00% a)

Novobord (Pty) Ltd. Rosebank (South Africa) 100.00% 94.42% 100.00% 94.73% a)

2) Placage Okoumé du Gabon Libreville (Gabon) 99.87% 94.30% 99.87% 94.61% a)

2) Plysorol SAS Niort (France) 100.00% 94.42% 100.00% 94.73% a)

2) Plysorol SNC Lisieux (France) 100.00% 94.42% 100.00% 94.73% a)

Poliface – Componentes e Sist. para Mob. e Construção, SA Maia 100.00% 100.00% 100.00% 100.00% a)

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5) Poliface Componentes y Sist. para Mobil. y Construccion, SL Madrid (Spain) 100.00% 100.00% 100.00% 100.00% a)

Portucel Embalagem – Empr. Produtora Embal. de Cartão, SA Albarraque 100.00% 35.08% 100.00% 32.50% c)

10) Portucel Espana Madrid (Spain) 100,00% 35.08% c)

Portucel Recicla – Indústria de Papel Reciclado, SA Mourão 100.00% 35.08% 100.00% 32.50% c)

Portucel Viana – Empresa Produtora de Papéis Industriais, SA Viana do Castelo 100.00% 35.08% 100.00% 32.50% c)

Racionalización y Manufacturas Florestales, SA Madrid (Spain) 100.00% 94.42% 100.00% 94.73% a)

Resoflex – Mobiliário e Equipamentos de Gestão, SA Vila do Conde 100.00% 100.00% 100.00% 100.00% a)

6) RGR – Reciclagem e Gestão de Resíduos, SA Maia 100.00% 100.00% 100.00% 100.00% a)

SCS Beheer, BV Holanda 100.00% 94.42% 100.00% 94.73% a)

Selvicola del Norte, SA Madrid (Spain) 100.00% 94.42% 100.00% 94.73% a)

Siaf – Soc. de Iniciativa e Aproveitamentos Florestais, SA Mangualde 100.00% 94.42% 100.00% 94.73% a)

Socelpac, SGPS, SA Maia 100.00% 100.00% 100.00% 100.00% a)

Sociedade de Iniciativa e Aproveit. Florestais - Energias, SA Mangualde 100.00% 94.44% 100.00% 94.74% a)

Sociétè Civile Bois de la Duchesse Auxerre (France) 100.00% 94.42% 100.00% 94.73% a)

Sociétè Civile de Chamouilley St. Dizier (France) 100.00% 94.42% 100.00% 94.73% a)

Sociétè Civile de la Route de Caen Saint-Pierre (France) 100.00% 94.42% 100.00% 94.73% a)

3) Société de Tranchage Isoroy Honfleur (France) 99.82% 94.25% 99.82% 94,55% a)

3) Société des Essences Fines Isoroy Honfleur (France) 100.00% 94.42% 100.00% 94.73% a)

Société de Panneaux Isoroy, SAS. Ussel (France) 100.00% 94.42% 100.00% 94.73% a)

Somit – Imobiliária, SA Oliveira do Hospital 100.00% 94.43% 100.00% 94.73% a)

Sonae – Serviços de Gestão, SA Maia 100.00% 100.00% 100.00% 100.00% a)

Sonae Indústria – Consultadoria e Gestão, SA Maia 100.00% 100.00% 100.00% 100.00% a)

Sonae Indústria – Soc. Gestora de Participações Sociais, SA Maia Holding Holding Holding Holding Holding

Sonae Indústria de Revestimentos, SA Maia 100.00% 100.00% 100.00% 100.00% a)

Sonae Novobord (Pty) Ltd Woodnead (South Africa) 100.00% 94.42% 100.00% 94.73% a)

Sonae Tafibra - Gestão Comercial, SA Maia 100.00% 100.00% 100.00% 100.00% a)

Sonae Tafibra (UK) Ltd Hants (UK) 100.00% 94.42% 100.00% 94.73% a)

Sonae Tafibra Benelux, BV Woerden (The Netherlands) 100.00% 92.70% 100.00% 92.00% a)

Sonae UK, Limited Londres (UK) 100.00% 94.42% 100.00% 94.73% a)

Spanboard Products Ltd Belfast (UK) 100.00% 94.42% 100.00% 94.73% a)

9) Sulpac, Empresa Produtora de Embalagens de Cartão, SA Mourão 100,00% 35.08% c)

Tableros de Fibras, SA Madrid (Spain) 94.42% 94.42% 94.73% 94.73% a)

Tableros Tradema, SL Madrid (Spain) 100.00% 94.42% 100.00% 94.73% a)

Tafiber, Tableros de Fibras Ibéricas, SL Madrid (Spain) 100.00% 94.42% 100.00% 94.73% a)

Tafibra – Tableros Aglomerados y de Fibras, AIE Madrid (Spain) 100.00% 94.44% 100.00% 94.74% a)

Tafibra South Africa, Limited África do Sul 100.00% 94.42% 100.00% 94.73% a)

Tafibras, SA Curitiba (Brazil) 53.99% 50.98% 53.99% 51.14% a)

Tafisa Brasil, SA Curitiba (Brazil) 100.00% 59.23% 100.00% 59.42% a)

Tafisa Canadá Societé en Commandite Québec (Canada) 67.23% 63.48% 67.23% 63.68% a)

Tafisa France SA Alfortville (France) 100.00% 94.42% 100.00% 94.73% a)

Tafisa UK Ltd. Petrelee (UK) 100.00% 94.42% 100.00% 94.73% a)

Taiber, Tableros Aglomerados Ibéricos, SL Madrid (Spain) 100.00% 94.42% 100.00% 94.73% a)

Tavapan, SA Tavannes (Switzerland) 100.00% 92.70% 100.00% 93.00% a)

Tecnologias del Medio Ambiente, SA Barcelona (Spain) 100.00% 94.42% 100.00% 94.73% a)

Tool, GmbH Gemany 100.00% 92.70% 100.00% 93.00% a)

a) Paragraph a), item 1, art. 1 of Decree-Law 238/91 (majority holding);

b) Paragraphs c) and d), item 1, art. 1 of Decree-Law 238/91;

c) Included in the consolidated financial statements of Imocapital, SGPS, SA;

1) Company sold in 30 June 2003;

2) Company sold in 19 December 2003;

3) Company excluded from consolidation due to an agreement contract which

determines to be disposed within a year;

4) Company liquidated in 15 December 2003;

5) Company liquidated in 21 November 2003;

6) Company merged in Ecociclo, SA as of 3 December 2003;

7) Company excluded from consolidation in prior years as it was not significant;

8) Company established in 18 December 2003;

9) Company established in 1 October 2003;

10) Company acquired in 18 December 2003;

11) Company excluded from consolidation in prior years

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Note 2. Companies excluded from the consolidation

Company Registered Office % Capital Held

31.12.2003 31.12.2002

Direct Total Direct Total

1) Comfloresta – Comp. Catarinense de Empr. Florestais, SA Brazil 4.55% 2.69% 36.00% 21.39%

Serradora Boix Barcelona 31.25% 29.60% 31.25% 29.60%

1) Company which made an increase in share capital, not subscribed by Sonae Indústria SGPS, SA,

which corresponds to a decrease in percentage of capital held.

Legal

Company Registered Office % Capital Held Reason for

Inclusion

31.12.2003 31.12.2002

Direct Total Direct Total

4) Ecociclo – Energia e Ambiente, S. A. Matosinhos 100.00% 100.00% 100.00% 100.00% a)

Eiweiler Sperrholz GmbH Germany 100.00% 92.70% 100.00% 93.00% a)

Enercicla, Lda Mourão 100.00% 35.08% 100.00% 32.50% a)

Florestal y Maderera, SA Madrid (Spain) 100.00% 94.42% 100.00% 94.73% a)

Glunz Service GmbH Hamm (Germany) 100.00% 92.70% 100.00% 93.00% a)

Glunz Uk Holdings, Ltd. London (UK) 100.00% 92.70% 100.00% 93.00% a)

Glunz Uka Gmbh Hamm (Germany) 100.00% 92.70% 100.00% 93.00% a)

1) Imoplamac – Gestão de Imóveis, SA Santarém 100.00% 100.00% 100.00% 100.00% a)

Orpin, SA Madrid (Spain) 100.00% 94.42% 100.00% 94.73% a)

OSB Deustchland Germany 100.00% 94.42% 100.00% 94.73% a)

Novobord GmbH Hamm (Germany) 100.00% 92.70% 100.00% 93.00% a)

2) Plysorol BV Soest (The Netherlands) 100.00% 94.42% 100.00% 94.73% a)

2) Plysorol Contreplaques Lisieux (France) 100.00% 94.42% 100.00% 94.73% a)

Poliface Brasil, Ltda. São Paulo (Brazil) 99.99% 99.99% 99.99% 99.99%

Poliface North America Québec (Canada) 100.00% 94.42% 100.00% 100.00% a)

3) Resoflex I - Racionalização de Espaços, Lda Braga 82.50% 100.00% 82.50% 82.50% a)

Société Industrielle et Financière Isoroy Rungis (France) 100.00% 94.42% 100.00% 94.73% a)

Sonae Espanha, SA Madrid (Spain) 99.94% 99.94% 99.94% 94.94% a)

Sonae Indústria Brasil, Ltda São Paulo (Brazil) 100.00% 100.00% 100.00% 100.00% a)

Sonae North América Inc. Quebec (Canada) 100.00% 100.00% 100.00% 100.00% a)

5) Tafisa Trading, SA Madrid (Spain) 100.00% 94.42% 100.00% 94.73% a)

a) Item 1, art. 4 of Decree-Law 238/91 (not significant);

1) Company disposed in 28 May 2003;

2) Company disposed as of 19 December 2003;;

3) Company liquidated in 30 June 2003;

4) Company included for the first time in consolidation;

5) Company liquidated in 1 December 2003

Note 3. Associated undertakings recorded in accordance with the equity method

96

Note 4. Associated undertakings not recorded in accordance with the equity method

By category

Directors and managers 767

Technical 1,370

Administrative 741

Production 5,225

Total 8,103

Legal

Company Registered Office % Capital Held Reason for

Exclusion

31.12.2003 31.12.2002

Direct Total Direct Total

OKO Zentrum NRW Germany 25.00% 23.25% 25.00% 23.25% a)

Promodeco – Proj. Imobiliário Decoração e Construção, Lda Maia 27.60% 27.60% 27.60% 27.60% a)

Sonaegest Maia 20.00% 20.00% 20.00% 20.00% a)

Stinnes Holz Gmbh Hamm (Germany) 35.25% 32.79% 35.25% 32.77% a)

a) item 1, art. 4 of Decree-Law 238/91 (not significant).

Note 7. Employee information

The average number of employees of the companies included in the consolidated financial statements was:

III – INFORMATION ON CONSOLIDATION PROCEDURES ADOPTED

Note 10. Goodwill arising on consolidation

As mentioned in the note 0.h), goodwill arising on consolidation was registered in the caption “Other Reserves”:

Euros

03.12.31 02.12.31 Net change

Opening –3,431,487 –3,445,052 13,565

Positive (a) –208,695,117 –239,134,188 30,439,071

Negative 38,305,500 38,667,443 –361,943

(a) Net of accumulated depreciation in 1 January 2001.

The decrease in goodwill arising on consolidation includes the effect from consolidation exclusion from companies (note 50–8) and alienation of affiliated companies during the year (note 50–9).

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Note 11. Portuguese accounting principles not applied during the year

The accounting principle used as from 1 January 2001 for recording goodwill arising on consolidation (note 0 h)), is not in accordance with generally accepted accounting principles in Portugal, which states that goodwill arising on consolidation must be included in Intangible Assets and depreciated in constant shares during the period estimated for the recover of the investment amount. If this criteria had been applied the amounts in Net Intangible Assets and the Equity would have been increased by 169,261,118 Euros and 167,550,843 Euros, respectively, and Net Profit would have been decreased by 11,279,612 Euros.

Note 14. Comparability of financial statements: Changes to the consolidation perimeter

Comparability of the consolidated financial statements as of 31 December 2003 with those for the preceding year is affected by the following changes in the consolidation perimeter:

1) The following companies were included on consolidation in 2003:

By the full consolidation method:

a) Ecociclo, Energia e Ambiente, SA;b) Investalentejo, SGPS, SA;c) Portucel Espana, SA;d) Sulpac, SA.

a) Company not included in prior years as it was not significant;b) Company established in 18 December 2003;c) Company acquired in 18 December 2003;d) Company established in 1 October 2003.

2) The following companies were excluded from the consolidation in 2003:

By the full consolidation method:

a) Nab – Sociedade Imobiliária, SA;b) Indústrias Químicas del Carbono, SA;c) Isoroy Casteljaloux;d) Leroy Gabon, SA;d) Placage Okoumé du Gabon;d) Plysorol SAS;d) Plysorol SNC;e) Poliface Componentes y Sist. Mobil. Y Construccion, SLc) Société des Essences Fines Isoroy;c) Société de Tranchage Isoroy.

a) Affiliated company disposed in 30 June 2003;b) Company liquidated in 15 December 2003;c) Company excluded from consolidation due to an agreement contract which determinesto be disposed within a year;d) Company disposed in 19 December 2003;e) Company liquidated in 21 November 2003.

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Note 18. Accounting for associated undertakings

The companies included in the consolidated financial statements have recorded their investments in associated undertakings in accordance with paragraph a), item 5.4.3.1. of Appendix II to the Portuguese Chart of Accounts (at cost). However, in the case of the investments in the associated undertakings referred to in Note 3., consolidation adjustments are made to record them by the equity method, in accordance with item 13.6.1 of the rules for consolidation. In the other cases (note 4 – excluded due to immateriality), the investments in associated undertakings were recorded at cost.

IV – INFORMATION RELATING TO COMMITMENTS

Note 21. Financial Commitments not reflected in the balance sheet

The financial commitments not reflected in the balance sheet as of 31 December 2003 are as follows:

a) The banks participating in the syndicated loan of 300,000,000 Euros have an option to sell, to Sonae Indústria SGPS,SA, the loans granted to a group of its subsidiaries, exercisable in accordance with the terms referred to in item 7 of Note 50;

b) Responsibilities for instalments of operational lease contracts at the amount of 1,318,160 Euros;

c) Sonae Indústria, SGPS, SA is responsible, with its principal shareholder Sonae SGPS, SA, for carrying out the obligations of the loan in the European Investment Bank in the amount of 50,000,000 Euros, obtained in 2001.

Note 22. Responsibilities for guarantees given

At 31 December 2003 the responsibilities of the companies included in the consolidation were as follows:

Euros

Guarantees 276,041,302

Mortgages and charges 86,238,600

Other 27,773,876

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V – INFORMATION REGARDING ACCOUNTING POLICIES

Note 23. Valuation methods

See Note 0.

Note 24. Exchange rates used for translation to Euros

The exchange rates used to translate the consolidated financial statements of foreign subsidiaries to Euros were as follows (note 0-I):

Note 25. Start up costs

Movements occurred in caption “Start-up Costs” in the year refers mainly to (note 0 – j):

Average rate Rate 03.12.31

Sterling Pound 0.69147 0.70480

Swiss Franc 1.51989 1.55789

Real 3.45805 3.66461

Rand 8.49617 8.32778

Canadian Dollar 1.58095 1.62340

Euros

Increase:

Share capital increase in Tafisa 2,270,105

Decrease:

Affiliates disposal 1,812,631

Transfers and write-offs:

Exchange actualization – 832,295

100

VI – INFORMATION RELATING TO SPECIFIC ITEMS

Note 27. Movement in fixed assets

The movement during the year in consolidated fixed assets and corresponding amortisation, depreciation and provision accounts are as follows:

Gross Assets Euros

Items Opening Increases Decreases Transfers and Closing

balance (a) Write-offs (b) Balance

Intangible assets:

Start-up costs 74,470,038 4,006,426 2,136,452 –2,132,392 74,207,620

Research and development costs 13,865,493 229,083 514,571 –885,431 12,694,574

Patents and other similar costs 7,851,555 16,761 3,718,533 –67,323 4,082,460

Projects in progress 352,993 706,832 2,755,757 3,815,582

96,540,079 4,959,102 6,369,556 –329,389 94,800,236

Tangible assets:

Land and natural resources 89,133,698 1,205,147 11,162,662 –11,047,415 68,128,768

Buildings and other constructions 476,858,102 2,971,024 46,370,640 –4,389,186 429,069,300

Plant and machinery 1,789,952,258 13,662,652 65,395,783 51,948,302 1,790,167,429

Vehicles 24,876,146 1,391,639 4,561,358 250,236 21,956,663

Tools 4,454,441 70,546 440,513 1,930,114 6,014,588

Fixtures and fittings 53,708,271 2,966,452 1,854,882 2,417,808 57,237,649

Containers 14,916 10,089 25,005

Other tangible assets 28,867,875 1,201,362 5,611,919 3,733,543 28,190,861

Tangible in progress 49,910,762 31,409,175 2,648,738 –55,347,711 23,323,488

Advances 2,514,490 2,154,615 2,850,223 –1,197,882 621,000

2,520,290,959 57,042,701 140,896,718 –11,702,191 2,424,734,751

Investments:

Shares in related (including associated) undertakings 60,914,197 96 997,021 –3,060,986 56,856,286

Loans to related (including associated) undertakings 15,473,707 1,953 1,088 –416,550 15,058,022

Shares in other undertakings 141,633 141,633

Other investments other than loans 285,479 17,455 216,681 86,253

Other loans 331,669 27,349 126,594 430,914

Advances 299,875 39,046 72,684 5,562 271,799

77,446,560 58,550 1,314,823 –3,345,380 72,844,907

(a) Includes the effect of disposal and exclusion from consolidation of subsidiaries totalling 121,611,523(notes 50–8 and 50–9);(b) Includes exchange adjustments of the opening balances of foreign subsidiaries totalling – 4,091,349 Euros;

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Note 28. Interest expense capitalised during the year

During the year, interests incurred on loans to finance fixed assets in construction, were not capitalised (Note 0 – i).

Note 33. Liabilities due after more than five years

The consolidated balance sheet includes liabilities of 335,426,525 Euros due after more than five years.

Note 34.Liabilities covered by real guarantees

At 31 December 2003 the liabilities included in the consolidated balance sheet, covered by real guarantees given by the companies included in the consolidation, were as follows:

Accumulated amortization, depreciation and provisions Euros

Items Opening Increase Transfers and Closing

balance Adjustments (a) Balance

Intangible assets:

Start-up costs 36,482,812 13,009,094 –3,990,688 45,501,218

Research and development costs 8,988,518 1,640,033 –1,755,101 8,873,450

Patents and other similar costs 5,913,360 733,999 –2,726,090 3,921,269

51,384,690 15,383,126 –8,471,879 58,295,937

Tangible assets:

Land and natural resources 2,112,521 26,716 –374,475 1,764,762

Buildings and other constructions 121,976,981 10,440,184 –21,021,980 111,395,185

Plant and machinery 788,109,190 100,727,455 –37,589,462 851,247,183

Vehicles 22,459,902 1,744,308 –4,631,866 19,572,344

Tools 3,198,359 1,039,666 –331,561 3,906,464

Fixtures and fittings 36,953,238 3,448,915 –1,435,530 38,966,623

Containers 11,960 3,557 15,517

Other tangible assets 23,304,696 2,391,935 –2,449,884 23,246,747

998,126,847 119,822,736 –67,834,758 1,050,114,825

Investments:

Shares in related (including associated) undertakings 45,321,070 –1,077,426 44,243,644

Loans to related (including associated) undertakings 14,969,145 14,969,145

Other investments other than loans 146,074 146,074

60,436,289 –1,077,426 59,358,863

a) Includes exchange adjustments to the opening balances of foreign subsidiaries totalling – 1,659,732 Euros,as well the effect of disposal and exclusion from consolidation of subsidiaries totalling – 58,815,892 (notes 50–8 and 50–9);

Euros

Mortgages 43,643,451

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Note 36. Segment reporting

The activity developed by Sonae Indústria – SGPS, SA and its branches, is characterized by an high developed geographical dispersion of assets and markets in opposition to a relatively high concentration in terms of products and services. In relation to the geographical element, is important to refer that the Company develops its industrial activity through an industrial net of branches located in 9 different countries: Portugal, Spain, France, Germany, United Kingdom, Switzerland, Canada, Brazil and South Africa, which together represent around 80% of the consolidated turnover. To perform a segmental analyses, business risks and profitability should be considered mainly at a geographical level, as the internal and financial reporting is organized in a geographical perspective.

Consequently, and for segment reporting, the geographical placement of assets represents the main criteria of segmentation, which is completed with business information about main products.

The segmental information has been prepared following the rules defined by the Portuguese Accounting Directive nº. 27 and International Accounting Standard 14.

1. Geographical Segments

1.1. Assets by Geographic Markets

Segments

Thousands of Euros Portugal Spain France Germany United Brazil Canada South Others Eliminations Consolidated

Kingdom Africa

Income

External Sales 313,919 214,568 219,012 286,191 97,101 79,843 117,397 68,478 44,472

Inter-Segments Sales 86,623 23,451 44,429 42,556 –1,761 –3,444 –3,035 1,385 3,546 –193,748

Total Income 400,541 238,019 263,441 328,747 95,340 76,399 114,362 69,863 48,018 –193,748 1,440,983

Profits

Segmental Profits 44,184 5,317 –23,992 –18,679 –16,354 4,410 2,323 11,887 3,043

Inter-Segmental Eliminations 43 –43

Total Segmental Profits 44,227 5,317 –23,992 –18,679 –16,354 4,410 2,323 11,887 3,043 –43 12,139

Profits not imputed 3,700

Financial Costs 96,570

Financial Profits 11,450

Related Undertakings profit/loss 138 –1,539 –1,401

Income Tax 2,440 –447 –110 108 –89 425 274 2,602

Ordinary Activities Profits –73,283

Extraordinary Losses

Extraordinary Income

Net Profit –73,283

Segmental Net Assets 447,112 251,506 251,472 338,921 153,623 120,580 159,392 84,851 4,943 1,812,400

Investment in Associated

Companies (1) 1,989 823 2,812

Not imputed Net Assets 238,558

Total Consolidated Net Assets 2,053,770

Segmental Liabilities 87,709 119,234 103,445 156,486 23,624 15,715 12,745 11,017 1,338 531,312

Not Imputed Liabilities 1,170,134

Total Consolidated Liabilities 1,701,446

Investment in Tangible

and Intangible Assets 15,259 12,899 10,390 12,572 2,555 2,283 3,833 1,597 613 62,002

Depreciation and amortisation

of tangible and intangible assets 35,918 18,641 16,787 23,035 11,254 8,201 12,697 3,856 2,074 132,463

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1) Companies recorded by the equity method (note 3).

According to the Portuguese Accounting Directive 27 (Segment reporting), the captions 79 and 69, in accordance with the Portuguese Official Chart of Accounts, are included in segment reporting. Extraordinary profit and loss, in accordance to the above mentioned Directive are conceptually similar to the same stated in Portuguese Accounting Directive 20 (Statement of profit and loss by functions).

1.2. Turnover by foreign markets

2. Business Segments

Euros

Deffered Tax Assets Deferred Tax Liabilities

03.12.03 02.12.03 03.12.03 02.12.03

Fixed assets revaluations

Land revaluations

Reinvested gains on disposals of fixed assets

Losses carried forward 67,340,895 68,681,065

Provisions disallowed for tax purposes

Depreciatons disallowed for tax purposes

Income by aplication of Equity Method

Harmonization adjustments 26,320,823 30,027,803

Others 253,700 475,999 4,231,383 913,683

67,594,595 69,157,064 30,552,206 30,941,486

Note 38. Deferred Taxes

As of 31 December 2003 and 2002, the detail of deferred tax assets and liabilities,by nature, is as follows:

Segment Thousands of Euros

Income

Spain 259,979 18.0%

Germany 251,185 17.4%

France 182,651 12.7%

Portugal 165,588 11.5%

United Kingdom 103,523 7.2%

South Africa 76,427 5.3%

North America 76,111 5.3%

Brazil 55,929 3.9%

Others 269,591 18.7%

Total 1,440,983

Segments

Thousands of Euros Wood based materials Paper based materials Total

Income 1,262,744 178,238 1,440,983

Segmental Net Assets 1,594,621 217,779 1,812,400

Investment in Tangible and Intangible assets 50,727 11,275 62,002

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Movements in deferred taxes during the year ended 31 December 2003 and 2002 were as follows:

In 2003 deferred tax liabilities amounting to 2,722,090 Euros were recorded in the consolidated profit and loss accounts and in the caption accrued expenses of the consolidated balance sheet. According to the Income tax rate change for the year 2004, which changed from 30% to 25%, the company made the necessary adjustments to the deferred tax balance account from prior years, in the amount of –2,297,863 Euros. In accordance with the disposal of companies (note 1) deferred tax liabilities have been eliminated in the amount of 683,724 Euros, which effect is stated in the captions accrued income and extraordinary profit and included in the line “Credits/charges to the profit and loss account – Others”.

Deferred tax assets amounting to 4,600,924 Euros were recorded during the year and similar deferred tax assets amounting to 2,561,416 Euros were reverted. These movements were included in the consolidated profit and loss accounts and in the caption accrued income of the consolidated balance sheet. The income tax rate change amounts to –747,750 Euros, stated to the above mentioned accounts. In accordance with the disposal of companies (note 1), deferred tax assets have been eliminated in the amount of 2,575,400 Euros, which effect is stated in the captions accrued income and extraordinary loss and included in the line “Credits/charges to the profit and loss account – Others”.

The Company and its subsidiaries have commitments under tax legislation to reinvest amounts resulting from the disposal of investments in prior years. As in previous years, it is the intention of the Board of Directors that the Company and its subsidiaries comply with these commitments through the acquisition of other investments and so the profit generated in previous years from the sale of investments (including profit on the sale of investments to Group companies, recorded in the non consolidated accounts of the subsidiaries, and eliminated on consolidation) has not been included in taxable income from 2000 to 2003.

Euros

Deferred Tax Assets Deferred Tax Liabilities

03.12.31 02.12.31 03.12.31 02.12.31

Balance as of 1 January 69,157,063 64,058,178 30,941,486 27,239,597

Credits/(Charges) to the profit and loss account:

Depreciation arising from fixed assets revaluations

Depreciation arising from reinvested gains on disposals of fixed assets

Losses carried forward 2,928,789 6,973,902

Provisions disallowed for tax purposes in previous years

Tax rate change effect –747,750 –208,317 –2,297,867

Harmonization adjustments 1,805,187 5,623,727

Others –217,235 –77,626 916,903 651,898

Sub-total 1,963,804 6,687,959 424,223 6,275,625

Credits/(Charges) to the extraordinary profit and loss accounts:

Consolidation perimeter change –2,575,400 –683,724

After balance 2002 movements –672,046

Sub-total –3,247,446 –683,724

Credits/(Charges) to retained earnings:

Monetary adjustments on land revaluations

Others –278,826 –1,589,073 –129,779 –2,573,736

Balance as of 31 December 67,594,595 69,157,064 30,552,206 30,941,486

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Note 41. Legislation under which tangible fixed assets were revalued

Tangible fixed assets of several companies included in the consolidation, with head offices in Portugal, were revalued in previous years in accordance with Decree Laws 430/78, of 27 December, 219/82, of 2 June, 278/85, of 17 July, 118/86, of 27 May, 111/88, of 2 April, 49/91, of 25 January and 264/92, of 24 November. Assets acquired recently at market prices have not been revalued.

Note 42. Revaluations

The overall effect of the revaluations of tangible fixed assets is as follows:

Note 43. Comparability of financial statements: Impact of changes to the consolidation perimeter

Note 14 shows the changes in the companies included in the consolidation perimeter that affect the comparability of consolidated financial statements of the year. The following effects relating to the exclusion from consolidation of the subsidiaries Isoroy Casteljaloux, Leroy Gabon SA, Placage Okoumé du Gabon, Plysorol SAS, Plysorol SNC, Société des Essences Fines Isoroy e Société de Tranchage Isoroy:

Euros

Items Historical Cost (a) Revaluations (a) (b) Revalued Book Value (a)

Tangible assets:

Land and natural resources 62,774,027 3,589,979 66,364,006

Buildings and other constructions 310,405,963 7,268,152 317,674,115

Plant and machinery 935,081,868 3,838,378 938,920,246

Vehicles 2,100,664 283,655 2,384,319

Tools 2,108,118 6 2,108,124

Fixtures and fittings 18,270,029 997 18,271,026

Containers 9,488 9,488

Other tangible assets 4,874,481 69,633 4,944,114

1,335,624,638 15,050,800 1,350,675,438

(a) Net of depreciation;

(b) Includes all revaluations to date.

Euros Inclusion 03.12.31 Exclusion 03.12.31 Net Change

Consolidated Balance Sheet

Banks and cash 56,536,662 55,739,621 –797,041

Accounts receivable 280,392,770 322,667,777 42,275,007

Stocks 211,372,542 183,941,060 –27,431,482

Investments 11,078,992 10,986,044 –92,948

Tangible and intangible assets 1,458,317,771 1,411,124,226 –47,193,545

Other assets 108,454,889 80,835,352 –27,619,537

Total equity before net profit/loss from the year and after minority interests 412,270,321 430,897,321 18,627,000

Profit/loss for the year – group –82,070,928 –78,573,030 3,497,898

Accounts payable – long term 830,666,988 824,241,512 –6,425,476

Accounts payable – short term 727,235,676 655,551,176 –71,684,500

Other liabilities 238,051,569 233,177,101 –4,874,468

106

Note 44. Net financial charges

Euros Before inclusion 03.12.31 After exclusion 03.12.31 Net Change

Consolidated profit and loss account

Turnover 1,486,745,701 1,440,982,751 –45,762,950

Other operational income 22,928,010 22,349,419 –578,591

Operational charges 1,513,720,140 1,463,360,255 –50,359,885

Operational result –1,017,035 2,986,324 4,003,359

Financial result –88,452,907 –85,119,630 3,333,277

Extraordinary result 16,600,433 12,853,433 –3,747,000

Income tax estimate 2,691,187 2,601,952 –89,235

Others –1,400,847 –1,400,847 0

Profit/loss for the year with minority interests –76,961,543 –73,282,672 3,678,871

Note 45. Net extraordinary items

Euros

Charges 03.12.31 03.12.31

Interest expense 65,382,263 77,132,604

Depreciation of real estate investments

Provision for marketable securities 18,256 551,405

Exchange losses 5,882,054 17,172,087

Financial discounts allowed 16,151,659 8,745,880

Loss on the sale of short term investments 4,772 6

Other financial charges 9,130,690 8,288,350

Net financial charges –85,119,630 –99,184,232

11,450,064 12,706,100

Income 03.12.31 03.12.31

Interest income 3,299,012 3,627,299

Property income 1,309

Equity investment income 30,118 67,743

Exchange gains 4,855,670 6,770,387

Financial discounts received 2,829,015 1,702,961

Gain on disposal of short term investments 43,814 23,603

Other financial income 392,435 512,798

11,450,064 12,706,100

Euros

Charges 03.12.31 02.12.31

Donations 99,406 192,072

Doubtful debts written off 7,859,350 2,818,071

Stock losses 643,843 847,974

Loss on the sale of fixed assets 7,620,879 3,721,029

Fines and penalties 133,047 294,767

Increase in depreciation and provisions 12,793,819 13,730,202

Charges relating to prior years 9,910,718 6,915,153

a) Other extraordinary charges 24,831,131 40,983,715

Net extraordinary items 12,853,434 8,559,841

76,745,627 78,062,824

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Note 46. Provisions as of 31 December 2003 and movement for the year then ended

The accumulated provisions at 31 December 2003 and movements during the year then ended are as follows:

Euros

Income 03.12.31 02.12.31

Taxes refunded 4,706,846 63,964

Collection of doubtful debts written off 389,055 568,989

Stock gains 152,435 241,856

Gain on the sale of fixed assets 20,697,193 11,775,289

Contractual penalties 170 16,892

b) Decrease in provisions and depreciation 31,148,245 35,535,273

Gains relating to prior years 6,313,811 4,050,048

c) Other extraordinary income 13,337,872 25,810,513

76,745,627 78,062,824

a) The caption “Other extraordinary charges” includes:

i) 7,470,040 Euros exchange differences;

ii) 5,560,895 Euros of contracts rescission indemnities in several subsidiaries;

iii) 4,469,322 Euros of production segments closure costs;

iv) 1,200,000 Euros of costs with accidents;

v) 3,200,000 Euros related to the difference between the insurance indemnity value claimed and recorded in 2002,

and the amount agreed in the year.

b) Includes utilisation of the excess provision for

i) exchange losses: 7,470,040 euros;

ii) work contracts rescission indemnities in several subsidiaries: 2,216,142 euros (which refers to the costs mentioned in note a) above);

iii) production segments closure costs: 4,687,443 euros (which refers to the costs mentioned in note a) above);

c) The amounts included on this caption are mainly due to recognition of investment subsidies (9,535,409 Euros).

Euros

Provisions Opening Balance Increases Decreases Closing Balance

Provisions for short term investments 9,516 9,313,382 9,322,898

Provisions for doubtful debts 20,682,742 8,094,734 8,651,172 20,126,304

Provisions for other risks and charges 68,663,421 13,643,557 24,993,275 57,313,703

Provisions for stock losses 7,786,864 3,774,405 7,311,402 4,249,867

Provisions for investments 60,436,289 1,077,426 59,358,863

157,578,832 34,826,078 42,033,275 150,371,635

The reduction occurred in the caption “Provisions for other risks and charges” refers to provisions utilisation recorded in prior years, as mentioned in comment to note 45.

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Note 47. Leased assets and their consolidated book values

Note 50. Other information for the analysis of financial position and the consolidated results

1) Accruals and deferrals

a) Accrued income

Includes:

Euros

Land 196,569

Buildings and other constructions 6,799,263

Plant and machinery 20,124,125

Vehicles 615,178

Fixtures and fittings 1,253,660

Other tangible assets 28,988,795

Euros

Deferred taxation (Note 38) 67,594,595

b) Accrued expenses

Includes:

Euros

Deferred taxation (Note 38) 30,552,206

Holiday pay and bonuses 19,304,843

Volume discounts 13,150,486

External supplies and services 8,749,590

Accrued interest 1,095,989

c) Deferred income

Includes:

Euros

Investment subsidies 94,579,959

2) Other Debtors – Short Term

Includes:

Euros

Factoring current accounts 2,888,847

Investment subsidies 5,561,553

EDIA (Portucel Recicla) 7,981,714

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The amount of 7,981,714 euros refers to the account receivable by the subsidiary Portucel Recicla, related with the indemnity agreed with the company “EDIA – Empresa de Desenvolvimento de Infraestruturas do Alqueva”, as a consequence of the submersion of the company’s facilities, by the Alqueva’s dam construction. The company EDIA is deferring the payment as they consider that all contract requirements are not fulfilled. Therefore, recently Portucel Recicla has claimed the payment of this account receivable through a litigation process against EDIA.

3) Other Creditors – Short Term

Includes:

4) Other Creditors – Medium and Long Term

Includes:

Euros

Factoring current accounts 38,446,262

Advances on fixed assets disposals 12,000,000

Euros

Aserradora de Cuellar (a) 50,051,855

(a) Related with acquisition of land to Aserradora de Cuellar.

5) Bonds

Bonds are as follows:

a) SONAE INDUSTRIA / 98 bonds amounting to 21,029,170 Euros, have been reimbursed in March 2003, as well as the 10 coupon interest.

b) TAFISA / 98 bonds amounting to 30,052,573 Euros, redeemable in full in 2005, bearing interest at an annual interest rate equal to the Mibor rate plus 0.75%. During 2003, a reimbursement of 6,911,639 euros have been made, related to the exercise of a “put option”. The bond value has been reduced to 23,140,934 Euros.

At the end of the year, the cal and put options included in the bond have all expired.

6) Retirement Pensions In accordance with the remuneration policies of some subsidiaries of Sonae Indústria SGPS, SA, retirement benefit plans were introduced in prior years under the following conditions:

a) Glunz AG: has a defined benefits pension plan, no fund having been constituted. The liability under the plan, calculated based on actuarial studies made by an independent entity in accordance with the International Accounting Standard 19, in the amount of 22,349,653 Euros at 31 December 2003, is fully covered by a provision for pensions;

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b) Subsidiaries of Gescartão SGPS, SA have a defined benefits pension plan, having constituted a fund, managed by a third party entity, based on the amount calculated by an independent entity in accordance with the Portuguese Accounting Directive 19. The responsibilities with services incurred amounts to 22,024,469 Euros. At 31 December 2003, the cost for the year, in the net amount of 79,083 Euros, accounted for in the “staff costs” (486,534 Euros), in “Other extraordinary income” (565,617 Euros), in “Acrued expenses” (–506,590 Euros) and in “Deferred cost” (585,673 Euros), was recorded in the consolidated balance captions, “prepayments” and “accrual liabilities”.

c) Subsidiaries of Sonae Indústria SGPS, SA have a defined benefits pension plan, having constituted a fund, managed by a third party entity, based on the amount calculated by an independent entity in accordance with the Portuguese Accounting Directive 19. The employees of five subsidiaries hired up to 31 December 1994 are covered by the plan, and are entitled to receive a monthly amount of 20% of their current salary at the time of their retirement. At 30 November 2003, the responsibility amount to 1,666,018 Euros, which is almost fully covered by the fund.

7) Bank Loans – Medium and Long TermIn 1999, a group of subsidiaries of Sonae Indústria contracted a syndicated revolving credit facility for up to 400,000,000 Euros. The credit facility was reduced to 300,000,000 Euros in 20/12/2002, will be reduced to 100,000,000 Euros in 20/12/2004 and expires in 20/12/2006. Early repayment of the loan can be demanded following a sale option held by the participating banks, after a remedy period of 15 days as from the date of publication of the yearly and half yearly accounts, in the event of non compliance by the Sonae Indústria Group with the following ratios: net interest bearing debt over shareholders’ funds of a maximum of 1.4 and net interest bearing debt over operating cash flow (EBITDA) of a maximum of 4.5 at June 2003 and a maximum of 4 thereafter.

The facility bears interest at a rate equal to the Euribor 3 or 6 month rate, at the subsidiaries’ option, plus a variable spread in accordance with the financial performance of the Sonae Indústria Group, measured by the ratios of net interest bearing debt over shareholders’ funds and net interest bearing debt over operating cash flow (EBITDA).

During 2002, the ratios above were renegotiated as follows: net interest bearing debt over shareholders’ funds of a maximum of 1.4 and net interest bearing debt over operating cash flow (EBITDA) of a maximum of 5.75 at June 2002, 5 at December 2002, 4.5 at June 2003 and 4 thereafter.

During 2002, the Company, together with its principal shareholder, Sonae SGPS, SA and with its affiliated company Glunz Ag., contracted a loan with the European Investment Bank in the total amount of 119,000,000 Euros, totally used until 31 December 2003. This bank loan bears quarterly interest rate, indexed to Euribor, and will be redeemed in consecutive and equal 16 half yearly instalments, of which the first instalment matures in June 2005.

In previous years Tafisa Canada contracted a syndicated bank loan amounting to CAD 101,200,000. This loan bear interests at market rates, and 45% of the principal will be repayable in 9 half yearly instalments, the first matured in June 2000, and the remaining 55% will be redeemable in a full payment in June 2005. As of 31 December 2003, the balance of this loan amounts to 43,636,732 Euros.

Sonae UK signed a bank loan contract with the European Investment Bank, in the total amount of GBP 35,000,000. This loan bears interests at market rates and is redeemable in 15 consecutive and equal half yearly instalments, of which the first on matured in June 2002. As of 31 December 2003, the balance of this loan amounts to 36,416,894 Euros.

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8) Exclusion of Companies From ConsolidationAs of 31 December 2003 a sale agreement contract has been celebrated with Sonae Capital, SGPS, SA, for the sale of the investments held in the following subsidiaries: Isoroy Casteljaloux, Société des Essences Fines Isoroy and Société de Tranchage Isoroy. In the above mentioned agreement, has been defined the sale price of the referred companies (200,000 Euros) and that the sale contract should be signed in the short term. Consequently, companies have been excluded from consolidation (notes 1, 14 and 43) and the respective investments stated in the consolidated balance sheet, at the above mentioned agreement defined sale price.

Additionally, the agreement states that the loans granted to these companies, should also be sold to the acquirer. The loans granted to these companies amounts to 7,530,268 Euros and are recorded in the assets caption “Related undertakings”.

9) Disposal of Companies Excluded From Consolidation in 30 June 2003As of 30 June 2003, the companies Leroy Gabon, SA, Placage Okoumé du Gabon, Plysorol SAS and Plysorol SNC, have been excluded from consolidation, due to a sale agreement contract signed with Sonae Capital, SGPS, SA, for the disposal of these companies in the short term. As of 31 December 2003 the disposal of these companies has became effective. During February 2004 the sale price of the referred companies has been received, which includes the price of the share capital held and the loans granted (recorded in the caption “Related undertakins”) as of 31 December 2003.

Note 51. Explanation added for translation

These financial statements are a translation of financial statements originally issued in Portuguese in accordance with generally accepted accounting principles in Portugal and the format and disclosures required by the Portuguese Official Chart of Accounts (“Plano Oficial de Contabilidade”) some of which may not conform to or be required by generally accepted accounting principles in other countries. In the event of discrepancies, the Portuguese language version prevails.

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To the Shareholders of Sonae Indústria – SGPS, SA

In compliance with the applicable legislation and our mandate we hereby submit our Report and Opinion which covers our work and the consolidated documents of account of Sonae Indústria – SGPS, SA (“Company”) for the year ended 31 December 2003, which are the responsibility of Company’s Board of Directors.

We accompanied, in the adequate time and with the appropriated scope the evolution of the operations of the Company and its principal subsidiaries and affiliated companies, the writing up of their accounting records and their compliance with the requirements of current legislation and their articles of association, having obtained from the Board of Directors and personnel of the Company and its principal subsidiaries and affiliated companies, all the information and explanations required.

In performing our work, we examined the consolidated Balance Sheet as of 31 December 2003, the consolidated Statements of Profit and Loss by natures and by functions and the accompanying notes. Additionally, we examined the consolidated Report of the Board of Directors for 2003, prepared by the Company’s Board of Directors. As a consequence of our legal examination, we have issued the Statutory Auditors’ Report, which includes in paragraphs 5 and 7 a qualification and an emphases.

Considering the above, in our opinion, except for the effects of the matter referred to in paragraph 5 and taking in consideration the matter described in paragraph 7 of the Statutory Auditors’ Report, the consolidated financial statements referred to above and the consolidated Report of the Board of Directors, are in accordance with the accounting, legal and statutory requirements and so can be approved by the Shareholders’ General Meeting.

We wish to thank to the Board of Directors and personnel of the Company and its associated companies for the assistance provided to us.

Porto, 11 March 2004

MAGALHÃES, NEVES E ASSOCIADOS, SROCRepresented by Jorge Manuel Araújo de Beja Neves

REPORT AND OPINION OF THE STATUTORY AUDITORCONSOLIDATED FINANCIAL STATEMENTSTranslation of a report originally issued in Portuguese

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Introduction1. We have examined the accompanying consolidated financial statements of Sonae Indústria – SGPS, SA, which comprise the consolidated Balance Sheet as of 31 December 2003 that reflects a total of 2,053,770,105 Euros and shareholder’s equity of 183,610,046 Euros, including a net loss of (78,573,030) Euros and the consolidated Statements of Profit and Loss by nature and by function for the year then ended and the related notes.

Responsabilities2. The preparation of consolidated financial statements that present a true and fair view of the financial position of the companies included in the consolidation and the consolidated results of their operations, as well the adoption of adequate accounting principles and criteria and the maintenance of appropriate systems of internal control are the responsibility of the Company’s Board of Directors. Our responsibility is to express a professional and independent opinion on these financial statements, based on our examination.

Scope3. Our examination was performed in accordance with the Technical Standards issued by the Portuguese Institute of Statutory Auditors, which require that the examination be planned and performed with the objective of obtaining reasonable assurance about whether the consolidated financial statements are free of material misstatement. Such an examination includes verifying, on a test basis, evidence supporting the amounts and disclosures in the financial statements and assessing the significant estimates, based on judgements and criteria defined by the Board of Directors, used in their preparation. Such an examination also includes the verification of the consolidation procedures used and application of the equity method, as well as verifying that the financial statements of the companies included in the consolidation have been appropriately examined, assessing the adequacy of the accounting principles used and their uniform application and disclosure, taking into consideration the circumstances, verifying the applicability of the going concern concept and assessing the adequacy of the overall presentation of the consolidated financial statements. We believe that our examination provides a reasonable basis for expressing our opinion.

4. The accompanying consolidated financial statements were prepared for approval by the Shareholders’ General Meeting in accordance with the provisions of article 376º of the Commercial Companies Code, and do not include a consolidated Statement of Cash Flows and related notes. These will be prepared and presented for the purposes of article 245º of the Securities Market Code.

STATUTORY AUDITORS’ REPORTCONSOLIDATED FINANCIAL STATEMENTSTranslation of a report originally issued in Portuguese

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Qualification5. Up to 31 December 2000 the Group recorded goodwill arising on the acquisition of investments in group and associated companies under the caption Intangible Assets, and amortised it over the period estimated to recover the investments. In the beginning of 2001, the Group decided to change this accounting policy and write off goodwill against Other Reserves, including the net book value of goodwill at 31 December 2000. The accounting policy adopted since 31 December 2000, is not in accordance with the generally accepted accounting principles in Portugal. Had the Group maintained the accounting policy and amortisation periods adopted until 31 December 2000, assets and shareholders’ equity as of 31 December 2003 would increase by approximately 51,515,000 Euros and the consolidated net result for the year then ended would decrease by approximately 6,685,000 Euros, corresponding to amortisation of goodwill for the year ended 31 December 2003.

Opinion6. In our opinion, except for the effect of the matter referred to in paragraph 5 above, the consolidated financial statements referred to in paragraph 1 above, present fairly, in all material respects, the consolidated financial position of Sonae Industria SGPS, SA as of 31 December 2003 and the consolidated results of its operations for the year then ended, in conformity with generally accepted accounting principles in Portugal.

Emphasis7. The accompanying financial statements include net losses incurred this year and in prior years, mainly by subsidiaries located in Germany, France and the United Kingdom, that have contributed to significantly decreasing consolidated shareholder’s equity. Additionally, in prior years the Group recorded deferred tax assets of approximately 52,440,000 Euros, relating to tax losses carried forward by those subsidiaries. The above mentioned circumstances inidicate that the Group’s ability to recover the full amount of the tangible and intangible assets of those subsidiaries, as well the deferred tax assets mentioned above, depends upon the success of its future operations and maintenance of the current conditions for carrying tax losses forward.

Porto, 11 March 2004

MAGALHÃES, NEVES E ASSOCIADOS, SROCRepresented by Jorge Manuel Araújo de Beja Neves

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Depósito Legal: 215424/04

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www.sonaeindustria.com

SONAE INDÚSTRIA – SGPS, SA

Lugar do Espido · Via NorteApartado 10964471–909 MaiaPortugal

Tel. +351 22 010 0400Fax. +351 22 010 4226