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FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of July, 2005
Commission File Number: 333-07654
ENDESA, S.A.
(Translation of Registrant's Name into English)
Ribera del Loira, 60
28042 Madrid, Spain
(Address of principal executive office)
Indicate by check mark whether the registrant files or will
file annual reports under cover of Form 20-F or Form 40-F:
Form 20-F X Form 40-F
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Indicate by check mark if the registrant is submitting the Form 6-K
in paper as permitted by Regulation S-T Rule 101(b)(1):
Yes No X
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Indicate by check mark if the registrant is submitting the Form 6-K
in paper as permitted by Regulation S-T Rule 101(b)(7):
Yes No X
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Indicate by check mark whether by furnishing the information
contained in this Form, the Registrant is also thereby furnishing the
information to the Commission pursuant to Rule 12g3-2(b) under
the Securities Exchange Act of 1934:
Yes No X
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If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b): N/A
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ENDESA's Raised Net Income 22.9% in the First
Half of 2005 to Euro 956 Million
NEW YORK--(BUSINESS WIRE)--July 27, 2005--ENDESA (NYSE:ELE)
-- Strong net income growth in Europe (+78.4%) and Latin America
(+200%).
-- Solid performance of the business in Spain and Portugal in a
difficult environment.
-- Total contribution from these two businesses accounts for 45%
of group EBITDA, underscoring ENDESA's importance as a
multinational player and its favorable geographical
diversified portfolio.
-- Significant increase in total EBITDA (+10.9%) and EBIT
(+11.1%).
-- This increase in earnings is underpinned by significant growth
in electricity output (+7.4%) and sales (+16.6%).
-- ENDESA is the Spanish utility with the largest market share in
total generation and total electricity sales.
-- The impact of the drought in Spain was offset by its balanced
generation mix: hydroelectric production fell by 31.8%,
compared to 47.3% in the rest of the sector.
-- ENDESA's coal-fired plants achieved an 89.4% availability
rate, playing an essential role in meeting electricity demand
in Spain.
-- ENDESA is Spain's most efficient electricity company, with 25%
lower fixed unit costs for mainland generation than the
country's second operator.
KEY FACTS AND FIGURES FOR 1H05
SIGNIFICANT NET INCOME GROWTH IN ALL ELECTRICITY BUSINESSES
-- The Spanish and Portuguese electricity business posted net
income of Euro 679 million in the first half of 2005, an
increase of 26.9%.
-- Net income from the electricity business in Europe rose 78.4%
to Euro 182 million.
-- Net income from the electricity business in Latin America was
Euro 114 million, an increase of 200% versus the first half of
2004.
SIGNIFICANT RISE IN MAIN INCOME STATEMENT LINES
-- The gross margin advanced 14.1% to Euro 4,220 million.
-- EBITDA: was Euro 2,824 million, a 10.9% rise.
-- EBIT grew 11.1% to Euro 1,969 million.
-- Cash flow from operations totaled Euro 1,907 million, 15.9%
higher than in 1H04.
FURTHER IMPROVEMENT IN FINANCIAL POSITION
-- At the end of the first six months, gearing stood at 142.4%,
down from 149.6% at the beginning of the year.
ELECTRICITY BUSINESS IN SPAIN AND PORTUGAL
Solid performance despite a severe drought and high fuel costs
-- Net income from the electricity business in Spain and Portugal
increased by 26.9% and accounted for 71% of ENDESA's total net
income.
-- EBITDA from the electricity business in Spain and Portugal
grew 4.3% and EBIT 5.7%.
-- High fuel costs, as a consequence of low rainfall levels and
the costs deriving from the deficit of emission rights,
coupled with limited growth in electricity tariffs (1.7%)
produced an estimated shortfall in revenues from regulated
activities in the sector of Euro 1,495 million.
-- The effects of the drought and the rise in fuel costs have not
hit ENDESA as hard as its peers, thanks to a more balanced
generation mix.
-- ENDESA's fixed unit costs for mainland generation in the
period from January to June were 25% less than those estimated
for the country's second ranked operator.
Largest generator and top selling power company in the Spanish
market
-- ENDESA is once again the leading Spanish power company, with
the largest share of the total generation market and total
electricity sales.
-- The Company met 93.9% of its Spanish demand from its own
output giving it a clear competitive advantage over its rivals
owing to its lower exposure to fluctuations in wholesale
prices.
-- ENDESA's mainland coal-fired plants achieved an 89.4%
availability rate in the first six months of 2005, meeting the
system requirements in order to cover the electricity demand
in Spain.
-- ENDESA Energia had 909,051 deregulated clients as of 30 June
2005, with sales to June increasing by 20.9% compared to the
same period in 2004.
-- Its retention rate for customers switching to the deregulated
market is 89.1%, above the sector average.
-- CO2 emission rights deficit in the first half totaled Euro
99 million, corresponding to a deficit of 4.4 million tonnes.
Significant improvement in quality of supply
-- Average interruption time improved by 10% for markets supplied
by ENDESA in the second quarter of 2005 and 26% in the last 12
months.
-- Improvements have been even more impressive is some areas,
such as the Balearic Islands and Catalonia, where supply
interruptions were down by 36% and 23%, respectively, during
the first six months of the year.
Spain's biggest investing power company
-- ENDESA invested Euro 956 million in Spain and Portugal in the
first six months of 2005, of which Euro 891 million or 93.2%
was capex.
-- Euro 575 million of capex went to upgrading distribution
facilities to increase quality and security of supply, in line
with expected new retribution methodology for this activity
that would consider the investment effort for each company as
a relevant factor.
-- Construction of an 800 MW CCGT plant in La Coruna, conversion
to imported coal of group 4 at this plant and work at the
400MW Cristobal Colon CCGT have all advanced at a good pace
during the first six months of the year.
-- Additionally, in Spain new wind farms adding up to 163MW are
in the construction phase, of which 96MW will be in operation
before the end of the year.
-- Besides, last May the Portuguese anti-trust authorities also
gave the green light to ENDESA's acquisition of Finerge, with
an installed capacity of 60 MW and another 260 MW under
construction.
-- Accomplishment of 2005-2009 New Capacity Plan will allow
ENDESA to maintain its leadership position in the generation
market in Spain during the entire period. Even considering the
future Iberian electricity market (MIBEL), and in accordance
with current projections, the Company will, at least, maintain
3 basic points of market share above the following generator.
ELECTRICITY BUSINESS IN EUROPE
Sharp increase in main income statement lines
-- Net income from the electricity business in Europe increased
by 78.4% and accounted for 19% of ENDESA's net income in the
first half of 2005.
-- EBITDA was Euro 453 million, a 66.5% rise on the first half of
2004, while EBIT rose 55.4% to Euro 331 million.
Debt reduced by Euro 408 million
-- Net debt for the electricity business in the rest of Europe at
30 June 2005 stood at Euro 1,715 million, compared to Euro
2,123 million at the beginning of the year, a decline of Euro
408 million or 19.2%.
ENDESA Italia continues to perform well
-- EBITDA from ENDESA Italia was Euro 363 million, 30.6% higher
than in the first half of 2004, EBIT stood at Euro 295
million, a 34.7% increase.
-- In May group 6 of the Tavazzano power plant, converted to
combined cycle, began test operations.
-- The Company has signed an agreement to build and operate the
Livorno Terminal (Tuscany), which will enable it to acquire up
to 25% of the project's owner, thereby providing ENDESA Italia
with over 2 bcm of regasification capacity.
-- The Royal Decree granting ENDESA Italia the right to receive
Euro 169 million in stranded costs was signed on 23 June.
Snet: Progress on implementing the Industrial plan and dividends
payment
-- ENDESA has continued with its plan to unlock the value of its
stake in Snet by merging Snet's three operators (Setne, Setcm
and Snet itself). During the third quarter, it is worthy to
mention the agreement signed with Ecofin Ltd. to sell its
stake in power generator Sechilienne-Sidec for Euro 103
million, as well as the agreement to pay an interim dividend
of Euro 21 million.
-- In addition, the French generator has been granted permission
to being construction of the Lehaucourt wind farm, which will
have total installed capacity of 9.2 MW.
ELECTRICITY BUSINESS IN LATIN AMERICA
Leveraging economic recovery: net income up 200% and strong growth
in EBITDA and EBIT.
-- ENDESA's Latin American operations recorded a 200% increase in
net income in the first six months of 2005, contributing 11.9%
to the Company's total net income.
-- EBITDA from electricity business in Latin America grew by 8.9%
and EBIT 7.9% versus the same period of year 2004.
-- ENDESA companies were able to profit from the economic
recovery and organic growth in these markets, raising output
and sales by 4.8% and 4.9%, respectively.
Tariff revisions
-- Over the past eighteen months, ENDESA's Latin American
distribution companies have successfully gone through the
tariff revisions, leaving only Edelnor (Peru) to be closed
during this year.
-- On June 17, the Argentinean government and Edesur reached an
agreement within the framework of the renegotiation of the
concession contract. This agreement includes, among other
things, a 15% average tariff increase for industrial and
commercial customers since November 2005 and the Integral
Tariffs Revision, slated for November 2006, that will set the
company's definitive regime for the following 5 years.
Optimization of Organizational Structure
-- ENDESA has initiated the incorporation of a holding company in
Brazil and is studying the restructuring of its Peruvian
generation business in order to optimize its organizational
structure as well as its position for future business
development in these countries.
New capacity development
-- A contract to convert to CCGT the second gas turbine of
Etevensa (Peru) has been signed during the first half of the
year with, altogether, the conversion into CCGT of the first
turbine, expected by 2006, will imply a total capacity of 500
MW for this facility.
-- On June 1st, Santa Rosa unit 7 has started operations after
natural gas conversion.
-- ENDESA Chile has agreed the construction of 377 MW San Isidro
II CCGT and already started the construction of 32MW Palmucho
hydro facility.
TELECOMS
The orderly sale of the Auna stake continues
-- In the second quarter of the year, ENDESA and Auna's other
core shareholders proceeded with the orderly divestment
process.
-- Through a complementary press release the Company will inform
about the latest news on this process.
CONSOLIDATED RESULTS
Strong growth in net income: +22.9%
ENDESA reported net income of Euro 956 million in the first half
of 2005, a rise of 22.9% on the same period of 2004.
Earnings per share grew by 22.1% to Euro 0.90 over the same
period.
NET INCOME
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Euro % Chg % of total % of total
million vs 1H04 NI 1H04 NI 1H05
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Spain and Portugal 679 +26.9 68.8 71.0
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Rest of Europe 182 +78.4 13.1 19.0
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Latin America 114 +200.0 4.9 11.9
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Other businesses (19) (118.4) 13.2 (2.0)
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TOTAL 956 22.9 100.0 100.0
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All the company's electricity businesses recorded strong growth in
net income, with increases of 26.9% for Spain and Portugal, 78.4% for
Europe and 200.0% for Latin America.
The distribution of net income by business is balanced, confirming
the economic sense of the geographical diversification strategy
pursued by ENDESA.
1H05 results assume the recovery of the amounts contributed to
finance the tariff deficit in Spain, around Euro 1,495 million of
which Euro 660 million correspond to ENDESA.
The Company has booked this amount following the same accounting
criteria as the rest of the industry. Not considering the deficit as
revenue, ENDESA's net income would be Euro 527 million, 23% lower on
January-June 2004.
Strong growth in generation (+7.4%) and electricity sales (+16.6%)
The rise in net income was driven by strong growth in generation
(+7.4%) and total electricity sales (+16.6%). The increase under both
these headings was particularly strong in ENDESA's European market
outside Spain and Portugal.
GENERATION AND ELECTRICITY SALES
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Generation Sales
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GWh % Chg vs GWh % Chg vs
1H04 1H04
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Spain and Portugal 46.642 (2.2) 49.655 4.3
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Rest of Europe 16.967 56.1 23.921 84.9
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Latin America 28.416 4.8 27.101 4.9
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TOTAL 92.025 7.4 100.677 16.6
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The fall in generation in Spain was due to the temporary shutdown
of some plants in 2Q, mainly as a result of inspection, maintenance
and/or reconversion work.
Generation rose sharply in Europe (+56.1%) due largely to a 6.4%
increase in generation at ENDESA Italia now that its repowering
programme is nearing completion, plus the contribution from ENDESA's
French subsidiary Snet, which was not yet fully consolidated in the
first half of 2004.
In Latin America the growth in generation (+4.8%) reflects higher
utilisation rate to meet rising demand, along with contributions from
the Ralco hydro plant in Chile and the newly converted open cycle gas
generator at Etevensa in Peru, both of which came on-stream towards
the end of 2004.
Generation/sales balance
ENDESA was able to generate 91.4% of all its electricity sales in
the first quarter of 2005. This balanced situation should considerably
reduce risk in its electricity business.
The generation/sales balance was particularly healthy in the
Spanish market, where ENDESA generated 93.9% of the electricity it
sold in the first half of 2005.
Active management of the generation/sales balance reduces the
company's strategic exposure to fluctuations in wholesale prices,
particularly important at the present times high prices.
Revenues comfortably cover costs
Total electricity sales amounted to Euro 8,256 million, up 27.4%
over the first half of 2004.
The increase was greater by value than by volume, as prices were
raised to offset the increase in costs.
The growth in revenues covered both fuel costs, which were up by
34.8% on the first half of 2004, and the cost of CO2 emission rights.
Significant growth for Gross margin, EBITDA and EBIT
As revenues more than kept pace with rising costs the company
reported rises in gross margin (+14.1%), EBITDA (+10.9%) and EBIT
(+11.1%).
Gross margin EBITDA EBIT
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Euro % Chg Euro % Chg Euro % Chg
million vs million vs million vs
1H04 1H04 1H04
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Spain and Portugal 2,411 7.6 1,545 4.3 1,045 5.7
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Rest of Europe 614 73.9 453 66.5 331 55.4
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Latin America 1,194 12.9 831 8.9 598 7.9
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Other businesses 1 (98.0) (5)(116.7) (5)(131.3)
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TOTAL 4,220 14.1 2,824 10.9 1,969 11.1
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As already pointed out, net income for 1H05 reflects the recovery
of the amounts paid out to finance the deficit in revenues from
regulated activities in Spain.
Financial results: improvement of 19.8%
ENDESA reported negative financial results of Euro 475 million for
the first half of 2005, a 19.8% improvement on the same period of
2004.
Net financial expense came in at Euro 536 million, down by 9.2% or
Euro 54 million.
The average cost of all ENDESA financial debt was 5.45% in the
first half of 2005. Stripping out Enersis Group debt, it stood at
4.12%.
Asset disposal: 287 million
The strategy of divesting assets resulted in disposals totaling
Euro 287 million in the first half of 2005, generating a gross capital
gain of Euro 123 million.
In accordance with this policy, ENDESA and Auna's other two key
shareholders continued with the orderly divestment of their stakes in
this Spanish telecoms operator, a process begun in April.
Cash flow: up by 15.9%
ENDESA generated operating cash flow of Euro 1,907 million in the
first half of 2005, a rise of 15.9% compared with the same period of
2004.
Cash flow rose sharply in all the company's electricity
businesses, especially in Europe and Latin America.
CASH FLOW
- ----------------------------------------------------------------------
Euro % Chg vs
million 1H04
- ----------------------------------------------------------------------
Spain and Portugal 1,047 16.7
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Rest of Europe 347 39.9
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Latin America 542 19.4
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Other businesses (29) (163.0)
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TOTAL 1,907 15.9
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Investment of Euro 1,396 million, 68.5% in Spain
Total investment by ENDESA amounted to Euro 1,396 million in the
first half of 2005.
Of this amount, Euro 1,275 million was in capex and the remaining
Euro 121 million in financial investments.
ENDESA is also required to contribute Euro 660 million to covering
the deficit financing in revenues from regulated activities in Spain.
At 30 June 2005, ENDESA had paid out Euro 182 million under this
heading.
Financial structure: gearing continues to fall
ENDESA's net debt was Euro 19,766 million at 30 June 2005, Euro
1,068 million higher than at the beginning of the year.
Of this rise, Euro 658 million was due to the euro's depreciation
vis-a-vis other currencies in which ENDESA's debt - and that of its
subsidiaries, mainly Enersis - is denominated.
The breakdown of debt by business line is as follows:
ENDESA NET DEBT BY BUSINESS LINE
- ----------------------------------------------------------------------
Euro million
- ----------------------------------------------------------------------
30-06-05 01-01-05 Change % Chg
- ----------------------------------------------------------------------
Spain and Portugal electricity
business 10,441 9,586 855 8.9
- ----------------------------------------------------------------------
Europe electricity business 1,715 2,123 (408) (19.2)
- ENDESA Italia 1,214 1,293 (79) (6.1)
- Other 501 830 (329) (39.6)
- ----------------------------------------------------------------------
Latin America electricity
business 5,940 5,350 590 11.0
- Enersis Group 4,727 4,081 646 15.8
- Other 1,213 1,269 (56) (4.4)
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Other businesses 1,670 1,639 31 1.9
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TOTAL 19,766 18,698 1,068 5.7
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Its structure by currency and interest rate was as follows:
STRUCTURE OF ENDESA NET DEBT
- ----------------------------------------------------------------------
ENDESA Enersis Group Total
and direct ENDESA Group
subsidiaries
- ----------------------------------------------------------------------
Euros Mn % /total Euros Mn % /total Euros Mn % /total
- ----------------------------------------------------------------------
Euro 14,533 97 3 - 14,536 74
- ----------------------------------------------------------------------
Dollar 506 3 2,467 52 2,973 15
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Other
currencies - - 2,257 48 2,257 11
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Total 15,039 100 4,727 100 19,766 100
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Fixed 10,368 69 4,062 86 14,430 73
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Hedged 1,805 12 445 9 2,250 11
- ----------------------------------------------------------------------
Variable 2,866 19 220 5 3,086 16
- ----------------------------------------------------------------------
TOTAL 15,039 100 4,727 100 19,766 100
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Avg. life
(years) 5.22 5.74 5.35
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The average life of the ENDESA Group's debt was 5.35 years in the
first half of 2005.
ENDESA enjoys a high degree of protection against interest rate
risk, since 84% of all its debt is either fixed-rate or hedged.
The cash and cash equivalents held by ENDESA in Spain and its
direct subsidiaries totaled Euro 5,769 million at 30 June 2005,
including Euro 4,788 million available under undrawn, unconditional
credit lines (Euro 2,788 million) and the syndicated loan transaction
completed on April 22, 2005_(Euro 2,000 million).
These balances are sufficient to cover maturities falling due in
the next 17 months for this group of companies.
The cash and cash equivalents held by the Enersis group totaled
Euro 673 million at 30 June 2005, covering debt maturities for the
next 13 months.
At 30 June 2005, ENDESA's net assets were Euro 13,884 million, an
increase of Euro 1,386 million since the start of the year.
This increase lowered ENDESA's gearing to 142.4% at 30 June 2005,
from 149.6% at the start of the year.
Finally, at 27 July 2005, ENDESA's debt had long-term credit
ratings of A from Standard & Poor's and Fitch and A3 from Moody's.
Telecoms: Auna divestment process
ENDESA and Auna's other core shareholders are proceeding with the
orderly divestment process begun this year.
As a result, from April 2005 and pursuant to IFRS 5, ENDESA
records the Auna stake as "assets held for sale" and no longer makes
an equity-accounted adjustment.
At 30 June 2005, ENDESA's 32.7% stake in AUNA had a book value of
Euro 1.075 million, much lower than the current market value of the
stake according to consensus estimates.
Through a complementary press release the Company will inform
about the latest news on this process.
Regarding the Chilean mobile company Smartcom made a negative
contribution of Euro 2 million to ENDESA's net income in the first
half of the year. Turnover exceeded Euro 105 million and EBIT was Euro
23 million as of June 30, 2005.
Smartcom ended June with more than 1.7 million customers.
Creation of Bolonia Real Estate
During the third quarter, ENDESA approved the creation of Bolonia
Real Estate company to handle various real estate assets such as old
production plants, mines and distribution facilities which are either
already inactive or will be in a short period of time.
These real estate assets amount to more than 40 million sq. meters
and have an attractive market value.
Progress with 2005-2009 Strategic Plan
ENDESA has made significant progress in accomplishing its
2005-2009 Strategic Plan goals during the first half of 2005:
-- Leadership in Spain
-- Solid performance above the rest of its competitors in a
challenging context of low rainfall and high fuel costs.
-- Highest market share in output in the ordinary system
(38.8%) and sales to end customers (39.9%).
-- Progress, at a good pace, of the New Capacity Plan:
-- Start of operations of 325 MW Puentes group 4 (La
Coruna) after its conversion into imported coal.
-- Construction continues of the 400 MW Cristobal Colon
CCGT in Huelva.
-- Construction continues at the 800MW Puentes plant
which will be operational in 2007.
-- Construction continues at the new wind farms with a
total capacity of 163MW, of which 96MW will be in
operation during this year.
-- Accomplishment of 2005-2009 New Capacity Plan will allow
ENDESA to maintain its leadership position in the
generation market in Spain during the entire period. Even
considering the future Iberian electricity market (MIBEL),
and in accordance with current projections, the Company
will, at least, maintain 3 basic points of market share
above the following generator.
-- Spain's largest investments in distribution (Euro 575
million between January-June 2005) in line with the
expected better remuneration methodology for this activity
based on the companies' investment effort and the increase
in quality and security of supply.
-- Well positioned to take advantage from the opportunities
arising from the Regulatory framework review.
-- Relevance of businesses other than Spain and Portugal.
-- Electricity businesses outside Spain accounts for 45% of
total EBITDA, which confirms ENDESA as the only
multinational Spanish utility underscoring its favorable
geographical diversified portfolio.
-- Growth and Profitability in Europe
-- Excellent performance in Europe with strong growth at net
income level (+78.4%), EBITDA (+66.5%) and EBIT (55.4%).
-- ENDESA Italia's Repowering ahead of schedule with
completion of reconversion of the group 3 Ostiglia CCGT
and group 6 of Tavazzano during the first half of the
year.
-- During the first six months of the year, ENDESA Italia and
Snet agreed dividend payment in the amount of Euro 102
million and Euro 21 million respectively.
-- Ability to confront appealing growth opportunities that
may arise.
-- Growth and Profitability in Latin America
-- Leveraging economic recovery which results in a positive
trend of the net income (+200%), EBITDA (+8.9%) and EBIT
(+7.9%) underscoring the business capability to add value.
-- Optimization of the Organizational structure in Brazil and
further analysis in Peru in order to take advantage from
opportunities arising from these existing platforms.
-- Significant margin improvement for generation and
distribution as a result of the tariff revisions.
-- New capacity development in Peru (Etevensa II and Santa
Rosa) and Chile (San Isidro II and Palmucho).
-- Dividend payments from ENDESA Internacional (Euro113
million), Enersis (euro 20 million) and ENDESA Chile (Euro
50 million).
-- Telecoms
-- Orderly sale of the Auna stake.
RESULTS BY BUSINESS LINE
ELECTRICITY BUSINESS IN SPAIN AND PORTUGAL
Key operational and regulatory facts for 1H05
High operating efficiency
In the first half of 2005, ENDESA maintained its leading position
on the Spanish electricity market, with a market share of 38.8% in
generation, 42.6% in distribution, 36.1% in sales to end customers in
the liberalized market and 39.9% in total sales to end customers.
Output in Spain totaled 46,642 GWh, 2.2% lower than in the first
half of 2004, since the first six months of 2005 were characterised by
low rainfall. At the same time ENDESA was also hit by downtime at its
plants in Puentes, undergoing conversion, and Vandellos, due to
technical reasons.
ENDESA remains the most efficient Spanish utility, with fixed unit
costs for mainland generation around 25% lower than those estimated
for the country's second operator.
New Capacity under construction
The Company is making progress with its 2005-2009 New Capacity
Program to build 7,200 MW of additional capacity, of which 71.7% will
be in CCGT and renewables/CHP.
The construction of an 800 MW CCGT plant at Puentes (La Coruna),
the conversion of group 4 to imported coal at the same site, and the
construction of the 400 MW Cristobal Colon CCGT plant in Huelva, all
advanced at a good pace in the first half of 2005. For this reason,
ENDESA expects to comply with the scheduled dates, that is to say, the
conversion of the Puentes group in the coming weeks, the Cristobal
Colon CCGT in 2006 and the Puentes CCGT in 2007.
Additionally, new wind farms adding up to 163 MW are in the
construction phase, of which 96 MW will be operational before the end
of this year.
The work carried out should in principle allow the plants to come
on-stream at the scheduled dates.
Besides, the Portuguese anti-trust authorities also gave the green
light to ENDESA's acquisition of Finerge in the second quarter of
2005. Finerge has installed capacity of 60 MW, with another 260 MW
under construction. The acquisition will be formally closed in the
next few months.
High growth rates in ENDESA's distribution markets
ENDESA's demand was 55,050 GWh, 7.1% higher than in the first half
of 2004, showing once again their high growth potential.
ENDESA increased the number of regulated customers in 238,671
compared to the same period in the previous year. Regarding the
liberalized customers, they amounted to 909,051 at the end of the
first half.
Improvement in quality of service
Under this environment of high demand growth ENDESA's quality of
supply improved further in the first half of 2005, extending the trend
seen throughout 2004. This improvement was essentially due to the
heavy investment in distribution and operating improvements carried
out over the last few years.
Average interruption time in its Spanish markets improved by 11%
in the second quarter of 2005 versus the year-ago period, despite
adverse weather conditions. The improvement was 26% on a rolling
12-month basis.
In some areas improvements were even more impressive. In the
Balearic Islands and Catalonia, for instance, the average interruption
time fell by 36% and 23%, respectively, in the first half.
As regards customer services, ENDESA's retention rate for
customers switching to the deregulated market was 89.1%, higher than
the average for other companies in this sector, reflecting a high
degree of loyalty towards the company.
Regulation for non-mainland generation systems
On the regulation front in Spain, progress was made in the first
half of 2005 towards defining the compensation payable for the extra
generating costs incurred in the island and other non-mainland
systems.
The guarantee of a satisfactory return on this business will
benefit ENDESA, since it is still the only operator supplying
electricity to these electricity systems; no other companies have yet
taken any real steps to enter these markets as of yet.
Net income up 26.9%
Net income from the electricity business in Spain and Portugal
totaled Euro 679 million in the first half of 2005, an increase of
26.9% with respect to the same period of 2004.
This figure represents 71.0% of ENDESA's total net income.
ENDESA sold non-core Spanish electricity assets totaling Euro 91
million in the first half of 2005, booking a gross capital gain of
Euro 81 million.
The business in Portugal, carried under the equity method,
contributed Euro 6 million to net income.
EBIT: Euro 1,045 million (+5.7%)
EBIT from the electricity business in Spain and Portugal amounted
to Euro 1,045 million in the first half of 2005, up 5.7% on the same
period in 2004.
Sales were up by 26.1% to Euro 4,040 million, largely due to a
rise in volumes and higher selling prices to end customers, together
with higher wholesale prices and the booking of higher estimated
compensation for extra costs incurred in the non-mainland systems, in
line with the latest regulation draft.
The increase in sales was sufficient to offset the impact of
higher costs derived largely from a rise in fuel prices and volumes,
the net cost of the CO2 emission rights deficit and the greater
maintenance expenses of the distribution grid.
As a result, the gross margin and EBITDA rose by 7.6% and 4.3%
respectively.
Low rainfall, high fuel costs and the cost of meeting the CO2
emission rights deficit meant that generation pool prices were high.
Given the limited increase in the electricity tariff, just 1.7%,
the sector incurred in a deficit of revenues from regulated activities
estimated at Euro 1,495 million of which ENDESA's contribution is
estimated around Euro 660 million. The Company has booked this amount
following the same accounting criteria as the rest of the industry.
Not considering the deficit as revenue, ENDESA's net income from Spain
and Portugal electricity business would be down 53.3%.
The effects of low rainfall and higher fuel costs were smaller in
the case of ENDESA, as the Company enjoys a more balanced generation
mix than its competitors and has managed to keep rising costs under
control thanks to its fuel management policy.
The table below shows the breakdown of EBIT main components for
ENDESA's electricity business in Spain and Portugal.
Revenues: up by 32.3%
Revenues totaled Euro 4,322 million in the first half of 2005,
32.3% higher than in 1H04.
Of this amount, sales accounted for Euro 4,040 million, up 26.1%
with respect to the first half of 2004.
SALES IN SPAIN AND PORTUGAL
- ----------------------------------------------------------------------
Euro million
- ----------------------------------------------------------------------
1H05 1H04 Change % Chg.
- ----------------------------------------------------------------------
Mainland generation under ordinary regime:
- ----------------------------------------------------------------------
Supply to customers in
deregulated market 756 596 160 26.8
- ----------------------------------------------------------------------
Supply to regulated customers 1,477 923 554 60.0
- ----------------------------------------------------------------------
Generation in renewables/CHP
(a) 93 93 N/A
- ----------------------------------------------------------------------
Regulated revenues from
distribution 802 776 26 3.4
- ----------------------------------------------------------------------
Non-mainland regulated
generation 608 435 173 39.8
- ----------------------------------------------------------------------
Coal CTC 10 42 (32) (76.2)
- ----------------------------------------------------------------------
Technological CTC 158 (158) N/A
- ----------------------------------------------------------------------
Supply to deregulated clients
outside Spain 113 82 31 37.8
- ----------------------------------------------------------------------
Regulated revenues from gas
distribution 20 20 0 0.0
- ----------------------------------------------------------------------
Gas supply 141 65 76 116.9
- ----------------------------------------------------------------------
Other 20 108 (88) (81.5)
- ----------------------------------------------------------------------
TOTAL 4,040 3,205 835 26.1
- ----------------------------------------------------------------------
(a) In the first half of 2004 these sales amounted to Euro 57 million,
recorded under "other businesses".
Mainland generation
Electricity demand in the Spanish mainland system as a whole rose
by 7.5% in the first half of 2005. Ordinary regime generation
increased by 3.2%, while renewables/CHP output was up by 14.5%.
ENDESA's mainland electricity output totaled 40,038 GWh over the
same period, 3.5% lower than in the first half of 2004.
The second quarter of 2004 was characterized by two unusual
factors: a breakdown at the Vandellos plant, and downtime at the
Puentes plant due to conversion work underway at group 4, which is
almost finished.
Of this total output, 39,030 GWh of total output corresponded to
electricity generated under the ordinary regime and sold on the
wholesale market, 3.7% down on the first half of 2004.
Comparative advantage of ENDESA's generation mix
Changes in the structure of ENDESA's ordinary regime mainland
production and that of the rest of the sector between the first half
of 2004 and the same period of 2005 reflect the strength of the
Company's generation mix and its greater stability in the event of
sudden changes in normal rainfall rates in Spain. ENDESA's hydro
output fell by 31.8%, compared to a 47.3% decline for the rest of the
sector, while thermal production in the sector rose by 44.5% versus an
increase of just 12.5% in the case of ENDESA.
It is worth highlighting that this different evolution of ENDESA's
thermal output and that of the rest of the sector occurred within a
context of just a 3.2% increase in the generation ordinary regime.
Essential contribution of coal plants
The importance of ENDESA's coal-fired plants in meeting demand was
highlighted by the low levels of rainfall seen in the first half of
2004.
The availability rate at these plants reached 89.4% in this period
which, despite new capacity based on CCGT and renewables already added
to the system, shows that coal power plants remain clearly essential
to meet the country's electricity demand needs.
During the first six months of the year, all mainland coal power
plants represented 36.9% of ordinary regime generation.
Specifically, ENDESA's coal power plants output was sufficient met
14.7% of mainland demand.
Increase of ENDESA's sales to the wholesale market
ENDESA's sales to the pool totaled Euro 2,412 million, 76.3%
higher than in the first half of 2004 as a result of an 81.0% rise in
the average pool price, including the capacity payment.
This rise in the average pool price was due to higher fuel prices
and the cost of meeting the CO2 emission rights deficit, together with
the effects of the drought, which led to very limited use of
hydroelectric plants.
In absolute terms, the average pool price for the period including
capacity payments was Euro 55.91 per MWh, vs. Euro 30.89 per MWh in
1H04.
ENDESA's supply subsidiary acquired energy from the pool for an
amount of Euro 935 million, offset by the energy sold to the pool. The
time bands were the same in both cases, and the purchase price
therefore matched the selling price.
Amounts deriving from these sales to the pool are neutralised with
purchases made by the supply subsidiary. The pool sales recorded in
the consolidated income statement for the first half of 2005 therefore
totaled Euro 1,477 million.
Output of ENDESA's renewables/CHP sites
Renewable/CHP subsidiaries fully consolidated by ENDESA generated
1,008 GWh in the first half of 2005, mainly by tapping renewable
energies (4.4% more than in the same period in 2004). ENDESA also has
holdings in other renewable/CHP companies, which generated 2,018 GWh
in the first half.
Revenues from sales of renewable/CHP energy generated by
consolidated companies totaled Euro 93 million, 63.2% more than in the
first half of 2004.
EBIT on these revenues amounted to Euro 42 million, fully recorded
under the Spain and Portugal business.
In the first half of 2004, EBIT on renewable/CHP energy sales had
totaled Euro 20 million, recorded under "Other Businesses".
Consequently, EBIT on ENDESA's renewable/CHP generation was up by
110.0% in the first half of 2005 with respect to the same period in
2004.
Supply to deregulated customers
ENDESA had 909,051 deregulated customers at 30 June 2005, out of
which, 1,702 are customers from other European liberalized markets
outside Spain.
It sold these customers a total of 17,535 GWh in the first half of
the year, 20.9% more than in the same period of 2004. Of this amount,
15,472 GWh were sales in the Spanish liberalized market, up 21.9% over
the same period of year 2004 and 2,063 GWh were sales in other
European liberalized markets, a 14.3% increase.
Revenues from supply to deregulated customers in Spain totaled
Euro 756 million, a 26.8% increase on the first half of 2004.
Of this increase, 21.9% corresponded to the rise in GWh sold and
8.7% to the increase in the average selling price, including tolls.
Regarding the deregulated customers outside Spain, revenues
totaled Euro 113 million, a 37.8% increase on the first half of 2004.
Distribution
ENDESA distributed 49,830 GWh of electricity in the Spanish market
in the first half of 2005, a 6.2% increase on the same period of 2004.
Revenue on regulated distribution totaled Euro 802 million, 3.4%
higher than in the same period of 2004.
This slight rise does not reflect the investment effort, and also
the operational and maintenance work, required to increase the
security and quality of supply.
Consequently, in order to attain an objective shared by all
players in the electricity market, and in whose pursuit ENDESA is
playing a particularly significant role (having invested Euro 567
million in the first half of 2005), the new regulation related to
distribution must recognise this effort via adequate remuneration.
ENDESA supplied 32,120 GWh to customers on the regulated market.
In accordance with IFRS, however, its turnover on this business was
not booked as revenue, as the only distribution revenue is the
regulated margin. The rest of the turnover merely corresponds to costs
incurred and passed on.
Non-mainland regulated generation
ENDESA's 1H05 output in non-mainland systems was 6,604 GWh, 6.5%
more than in the same period of 2004. Sales totaled Euro 608 million,
an increase of 39.8%.
Royal Decree 1747/2003 governing island and other non-mainland
electricity systems recognises that generation in these systems is
subject to higher costs than on the mainland, owing to the larger
reserve margin required, the extra cost of the specific technologies
used and the higher fuel costs.
This Decree lays down the general principles that must be applied
to determine the compensation in respect of these factors. The exact
methodology for quantifying this compensation is still being
developed, although a draft Ministerial Order has now been prepared by
the Industry Ministry.
ENDESA's 1H05 accounts include revenue of Euro 51 million in
addition to the compensation envisaged in the 2005 electricity tariff.
This amount has been calculated by applying the methodology set out in
the draft regulation mentioned above.
No additional sum was included for previous years over and above
the figure recorded at end-2004, pending the definitive regulatory
order to be issued in the next few months.
Technological CTCs and deficit on regulated revenues
As already mentioned, in the first half of 2005 regulated revenues
were not sufficient to offset system costs, leaving an estimated
deficit of Euro 1,495 million.
According to the provisions of Royal Decree Law 5/2005 of 11
March, ENDESA must contribute 44.16% of the total amount of this
deficit (Euro 660 million).
In the opinion of ENDESA's legal advisers, and taking into account
the legal nature of and background to this financing, as well as legal
precedent, the Company is entitled to full recovery of the sums
contributed. The government must however establish a specific
procedure for the return of these sums, as it did in 2002.
The Spanish Energy Industry Association (UNESA) and all its
members also support this standpoint. For this reason, ENDESA's
accounts at 30 June 2005 include a financial asset of Euro 660 million
to reflect its right to recover the amounts contributed in relation to
the regulated revenues deficit.
In the first half of 2004, ENDESA'S technological CTC revenues
totaled Euro 158 million.
Gas distribution and supply:
ENDESA sold 10,814 GWh of gas in the first half of 2005, through
companies included in the consolidated ENDESA group, a 62.5% increase
on the same period in 2004.
Of this amount, 9,145 GWh were sold on the deregulated market, an
increase of 83.5%, and 1,669 GWh on the regulated market, a similar
amount to that sold in the first six months of last year. In addition
659 GWh of total sales correspond to companies that are not fully
consolidated given their scant contribution to the Group total must be
added to the previous figure.
Consequently, total sales in the regulated market amounted to
2,328 GWh, up 2.5% vs. 1H04.
The 11,473 GWh sold in both markets, together with the 10,690 GWh
consumed by ENDESA's generation plants, amount to a total of 22,163
GWh, implying an 11.6% share of the Spanish natural gas market.
Revenues from gas sales in the deregulated market in the first
half of 2005 totaled Euro 141 million, implying an increase of Euro 76
million on the same period in 2004.
Revenues from regulated gas distribution amounted to Euro 20
million, the same as in the first six months of last year.
Other operating revenues
Other operating revenues in 1H05 totaled Euro 282 million, up Euro
219 million on 1H04.
Included under this heading is Euro 197 million, corresponding to
that part of the CO2 emission rights assigned to ENDESA for emissions
made in the first six months of the year, which are recorded as
revenue.
This revenue is recorded at the market price for emission rights
at the start of 2005 for those emissions assigned to cover the Spanish
mainland and at the average price for the year for those non-mainland
emissions.
Operating expenses
The breakdown of operating expenses in the Spanish and Portuguese
business is as follows:
OPERATING EXPENSE IN SPAIN AND PORTUGAL
- ----------------------------------------------------------------------
Euro million
- ----------------------------------------------------------------------
1H 2005 1H 2004 Change % Chg
- ----------------------------------------------------------------------
Purchases and services 1,911 1,028 883 85.9
- ----------------------------------------------------------------------
Energy purchases 464 203 261 128.6
- ----------------------------------------------------------------------
Fuel consumption 921 661 260 39.3
- ----------------------------------------------------------------------
Power transmission expenses 109 86 23 26.7
- ----------------------------------------------------------------------
Other supplies and services 417 78 339 434.6
- ----------------------------------------------------------------------
Personnel expenses 442 396 46 11.6
- ----------------------------------------------------------------------
Other operating expenses 488 426 62 14.6
- ----------------------------------------------------------------------
Depreciation and amortization 500 492 8 1.6
- ----------------------------------------------------------------------
TOTAL 3,341 2.342 999 42.7
- ----------------------------------------------------------------------
Power purchases
Power purchases in the period rose 128.6% to Euro 464 million.
The main cost under this heading relates to gas purchases for
supply to deregulated customers, which has risen 137.7% due to the
83.5% increase in such sales and the rising price of gas.
The rest corresponds to power purchases for deregulated customers
outside Spain, which rose in line with sales; to power purchases for
pumping activities in hydroelectric plants, and to carry out
operations on the wholesale generation market. This increase in power
purchases is linked to the 81.0% rise in the average pool price.
Fuel consumption
Fuel consumption amounted to Euro 921 million in the first half of
2005, an increase of 39.3% vs. the same period in 2004.
This increase is due to the rise in the fuel-oil production
(higher unit costs than other technologies) caused by the drought in
place and to a 40.2% increase in the unit cost of imported coal, even
though ENDESA paid below-market prices thanks to its active fuel
purchase management policy.
It is worth highlighting here that a large part of the increase in
unit fuel cost results from a transitory deterioration in the
generation mix due to low rainfall and not to the rise in fuel prices.
Other supplies and services
Expenses under this heading totaled Euro 417 million, up Euro 339
million vs. the same period in 2004.
This increase was due to booking Euro 296 million as expenses from
emission rights required to cover the CO2 emissions made in the first
half of the year, which totaled 25.6 million tonnes, of which 20.1
million tonnes for the mainland and 5.5 million tonnes for
non-mainland emissions.
Expenses for mainland emissions were valued as follows:
-- For the part of these emissions covered by freely assigned
emission rights, at the same price at which the revenues are
booked, i.e. the market price at the start of 2005.
-- For the part of these emissions covered by rights acquired in
the market, the expense is recorded at the price paid for
these rights.
-- The part of these emissions for which ENDESA does not own
rights was recorded at the market price of these rights as of
30 June 2005, Euro 24.88 per tonne.
As non-mainland was granted with enough emissions rights, an
expense was recorded for those made in the first half of this year,
calculated at the average price of these rights during this period,
which was the same amount as the revenue recorded for freely assigned
emission rights.
The net effect of revenues and expenses booked in 1H05 to cover
CO2 emissions was Euro 99 million, corresponding to an estimated
rights deficit of 4.4 million tonnes.
Personnel expenses
At 30 June 2005, the workforce in Spain and Portugal totaled
12,766, down 1.0% on 2004 year-end.
Personnel expenses amounted to Euro 442 million in 1H05, an
increase of 11.6% vs. the same period in 2004. This rise derived from
headings other than regular wages.
In the first half of this year, an extra Euro 34 million in extra
provisions were recorded to cover future pension or early-retirement
commitments, mainly to offset the effects of higher real inflation in
this period than that envisaged in the actuarial studies used to
calculate this liability at the close of 2004. In 2004, this factor
was only recorded at year-end.
Stripping out these provisions, personnel costs rose 3.6%.
Other Fixed Operating Expenses
Other Fixed Operating Expenses totaled Euro 488 million in 1H05,
an increase of Euro 62 million with respect to 1H04.
This increase was due mainly to the cost of operating and
maintaining the distribution grid, the start up costs of the new
generation capacity on the Spanish islands, and to the inclusion of
the renewables/CHP business, which includes expenses of Euro 15
million under this heading.
Net financial expenses: 16.1% lower
ENDESA reported a financial result for the first half of 2005 of
Euro 237 million. Of this amount, Euro 229 million corresponds to net
financial expenses. This included Euro 30 million for the cost of
preferred shares, which are considered as debt in the 2005 accounts,
and therefore is recorded as financial expenses.
As regulation IAS 32 was not applied last year, in 1H04, these
preferred shares were booked as minority interests and not as
financial debt.
On a like-for-like basis, net financial expenses decreased by Euro
74 million in 1H05, i.e. 24.4%.
As of 30 June 2005, net debt in the Spain and Portugal business
stood at Euro 10,441 million, up from Euro 9,586 million at the start
of this year. This rise can be explained by the Euro 182 million paid
in 1H05 to finance the tariff deficit, and the major distribution
investment made in the period as part of ENDESA's Quality Excellence
Plan.
Equity-accounted income: Euro 21 million
Equity-accounted income for ENDESA's electricity business in Spain
and Portugal business was Euro 21 million. This heading includes Euro
6 million of income from subsidiaries in Portugal and Euro 8 million
from renewables/CHP generation subsidiaries.
In 1H04, this income was recorded under the European business and
Other Businesses headings, for the amount of Euro 9 million and Euro 7
million, respectively.
Asset disposals: Euro 81 million in capital gains
In the first half of 2005, ENDESA sold Euro 91 million worth of
non-core electricity assets from its business in Spain and Portugal,
posting capital gains of Euro 81 million.
Among them we highlight the sale of land in Palma de Mallorca
where GESA's headquarters were formerly located, for Euro 73 million,
providing capital gains of Euro 65 million, once expenses related to
the sale were deducted.
Cash flow: Euro 1,047 million
Cash flow from operations amounted to Euro 1,047 million in 1H05,
an increase of 16.7% vs. the same period in 2004.
Investments: Euro 575 million in distribution
Total investment in Spain and Portugal reached Euro 956 million in
the first half of 2005, up 61.5% on the same period last year.
TOTAL INVESTMENT IN SPAIN AND PORTUGAL
- ----------------------------------------------------------------------
Euro million
- ----------------------------------------------------------------------
1H 2005 1H 2004 % Chg
- ----------------------------------------------------------------------
Tangibles 891 515 73.0
- ----------------------------------------------------------------------
Intangibles 32 5 540.0
- ----------------------------------------------------------------------
Financial 33 72 (54.2)
- ----------------------------------------------------------------------
Total investments 956 592 61.5
- ----------------------------------------------------------------------
CAPEX IN SPAIN AND PORTUGAL
- ----------------------------------------------------------------------
Euro million
- ----------------------------------------------------------------------
1H 2005 1H 2004 % Chg
- ----------------------------------------------------------------------
Generation 304 132 130.3
- ----------------------------------------------------------------------
Ordinary regime 283 132 114.4
- ----------------------------------------------------------------------
Renewables/CHP (a) 21 - -
- ----------------------------------------------------------------------
Distribution 575 343 67.6
- ----------------------------------------------------------------------
Others 12 40 (70.0)
- ----------------------------------------------------------------------
Total 891 515 73.0
- ----------------------------------------------------------------------
(a) In 1H04, these were included under Other Businesses and amounted
to Euro 58 million.
93.2% of total investment was capex used in developing or
improving electricity generation and distribution facilities, in order
to maintain ENDESA's leadership in the Spanish market.
The breakdown of capex reflects the considerable effort made by
the Company over the last few years to improve the quality of its
service, with investment in distribution facilities accounting for
64.5% of the total.
Although not included in the above figures, the financing of the
tariff deficit is also booked as a financial investment; therefore, an
additional financial investment of Euro 660 million must be included
under this heading, up to 30 June 2005.
ELECTRICITY BUSINESS IN EUROPE
Excellent results and sound outlook for growth
In the rest of Europe, ENDESA focused on two of its main strategic
goals in the first half of 2005: consolidating its position in this
market and seeking new growth opportunities.
In 2Q05, group 6 of the Tavazzano power plant in Italy, which was
converted to combined cycle, began pilot testing. It is expected to
come on-stream in the fourth quarter this year.
The Company has signed an agreement to build and operate the
Livorno Terminal (Tuscany), which will enable ENDESA to acquire up to
25% of the project's owner and to make use of up to 2bcm of the
terminal's regasification capacity.
On 23 June, a Decree was published in Italy granting ENDESA Italia
the right to charge Euro 169 million in stranded costs from the
generation plants and setting out the fee schedule for the approved
amounts, which will apply from 2005 to 2009.
Moreover, the construction of the two combined cycle groups with a
capacity of 400 MW in Scandale (Calabria) advanced according to the
expected schedule. This project was 50% acquired at the end of
December 2004 by ENDESA and ASM Brescia with a 50% stake each.
Likewise, further progress was made on the construction of two of
three farms for the company IDAS in line with the contract awarded
100% to ENDESA Italia last December. The two farms will have a total
capacity of 56 MW and are expected to come on-stream in mid 2006.
The Company recorded several other relevant achievements in the
first three months of the year:
-- In February, the Company sold 5.33% of its holding in ENDESA
Italia to ASM Brescia, partner of ENDESA in ENDESA Italia, for
Euro 159 million, booking a net capital gain of Euro 24
million. Following this operation, ENDESA's stake in ENDESA
Italia stands at 80%.
-- The operation implies a total value for ENDESA Italia's equity
of Euro 2,989 million, 36.4% higher than the price ENDESA paid
for its original stake in the Italian company in 2001.
-- The repowering work to convert the Ostiglia plant's group 3 to
a 400 MW combined cycle generator was completed.
-- An agreement was signed with the Merloni Group to supply
electricity to the Italian retail market. The supply base for
the power sold will be ENDESA Italia's generation capacity.
Merloni contributes with a portfolio of more than 2,000
customers and sales volumes of over 2 TWh.
-- ENDESA Italia distributed a dividend of EUR 102 million in
February.
During the second quarter of 2005, ENDESA initiated the merger of
Setne, Setcm and Snet, the three operators of the French generation
company Snet, in which ENDESA has a 65% holding.
Authorisation was obtained to commence construction of the
Lehaucourt wind farm, which will have a total capacity of 9.2 MW.
In the third quarter (8 July) Snet signed an agreement to sell its
stake in power generator Sechilienne-Sidec to Ecofin Ltd. for Euro 103
million.
The Board of Directors of this company has agreed an interim
dividend of Euro 21 million to be paid July 29, out of which Euro 14
million will correspond to ENDESA Europa.
These actions were reflected in the business plan presented by
this company in the first months of 2005, which aims to develop new
capacity by means of the future use of its current sites in order to
achieve up to 2,000 MW in combined cycle plants and 200 MW in
renewables/CHP.
Under this plan the following features, among others, were carried
out in the first three months of the year: the contract to sell
electricity to EDF was renegotiated, a contract to supply coal was
signed, and several agreements were reached with trade unions to
ensure that labour conditions would remain stable and workforce
restructuring targets could be met.
In Morocco, the Tahaddart combined cycle plant began operating on
19 January. It has a total capacity of 400 MW. ENDESA own 32%,
alongside the Moroccan company One (48%) and Siemens (20%).
Finally, in line with its strategic objective of seeking new
sources of growth in Europe, ENDESA has announced its interest in the
privatisation of the Dolna Odra and Kocienice plants in Poland, which
have installed capacity of 1,960 and 2,845 MW respectively.
Net income: up 78.4%
Net income from the electricity business in Europe totaled Euro
182 million in the first half of 2005, an increase of 78.4% from the
same period in the previous year.
The table below shows a breakdown of output and sales figures by
country:
BREAKDOWN OF ENDESA'S GENERATION AND SALES IN EUROPE
- ----------------------------------------------------------------------
Generation (GWh) Sales (GWh)
- ----------------------------------------------------------------------
1H 2005 1H 2004 % chg 1H 2005 1H 2004 % chg
- ----------------------------------------------------------------------
Italy 11,571 10,871 6.4 15,877 12,940 22.7
- ----------------------------------------------------------------------
France 4,418 - - 7,066 - -
- ----------------------------------------------------------------------
Poland (a) 978 - - 978 - -
- ----------------------------------------------------------------------
Total 16,967 10,871 56.1 23,921 12,940 84.9
- ----------------------------------------------------------------------
(a) ENDESA is present in the generation business in Poland via
Bialystock cogeneration plant, which is controlled by Snet.
EBIT: up 55.4%
EBITDA and EBIT for ENDESA's European electricity business can be
broken down as follows:
EBITDA AND EBIT IN EUROPE
- ----------------------------------------------------------------------
Euro million EBITDA EBIT
- ----------------------------------------------------------------------
1H 2005 1H % 1H 2005 1H 2004 %
2004 chg chg
- ----------------------------------------------------------------------
ENDESA Italia 363 278 30,6 295 219 34,7
- ----------------------------------------------------------------------
Snet 87 - N/A 33 - N/A
- ----------------------------------------------------------------------
Trading 14 1 1,300,0 14 1 1,300,0
- ----------------------------------------------------------------------
Holding & others (11) (7) (57.1) (11) (7) (57.1)
- ----------------------------------------------------------------------
Total 453 272 66.5 331 213 55.4
- ----------------------------------------------------------------------
Positive performance of ENDESA Italia continues
The following table shows the main components of the EBIT of
ENDESA Italia and how they differed in the first semester of 2005 from
the first semester of the previous year.
ENDESA ITALIA KEY DATA
- ----------------------------------------------------------------------
Euro million
- ----------------------------------------------------------------------
1H 2005 1H 2004 Difference % chg
- ----------------------------------------------------------------------
Revenues 1,084 805 279 34.7
- ----------------------------------------------------------------------
Energy purchases 164 96 68 70.8
- ----------------------------------------------------------------------
Fuel procurement cost 407 347 60 17.3
- ----------------------------------------------------------------------
Transmission expenses 3 13 (10) (76.9)
- ----------------------------------------------------------------------
Other purchases and services 71 - 71 N/A
- ----------------------------------------------------------------------
Gross margin 439 349 90 25.8
- ----------------------------------------------------------------------
Capitalised expenses 3 4 (1) (25.0)
- ----------------------------------------------------------------------
Personnel expenses 35 33 2 6.1
- ----------------------------------------------------------------------
Other expenses 44 42 2 4.8
- ----------------------------------------------------------------------
EBITDA 363 278 85 30.6
- ----------------------------------------------------------------------
Depreciations 68 59 9 15.3
- ----------------------------------------------------------------------
EBIT 295 219 76 34.7
- ----------------------------------------------------------------------
Revenues reported by the Italian group grew 34.7% in the first
half due largely to the 22.7% rise in energy sold.
The company sold 15,877 GWh of electricity, compared with 12,940
GWh in the same period last year, 4,306 GWh of which were acquired
from third parties at a cost of Euro 164 million.
It generated a total of 11,571 GWh of electricity, an increase of
700 GWh or 6.4% vs. the first half of 2004. Its market share in Italy
was 8.3% in June.
Progress in ENDESA Italia's programme for repowering its thermal
production plant has allowed it to increase production by using a more
efficient mix that replaces fuel-gas output with power generated by
CCGTs. The programme increases the Company's capability to soften the
impact of the increase in fuel prices.
ENDESA Italia fuel cost increased in the first half by 17.3%
alone, i.e., Euro 60 million, but this was much less than the increase
in revenues resulting from the higher electricity prices triggered by
the jump in fuel prices.
The positive impact of the repowering programme can be clearly
seen when comparing the breakdown by technology for the group in the
first half of 2004 with January-June of 2005: the weight of CCGT plant
in the production mix has increased from 26.0% to 45.4%, while the
weight of fuel-gas has declined from 35.1% to 17.6%.
Other Operating Expenses includes, among other concepts, the
estimated cost of CO2 emissions in the first half of 2005, which will
probably not be covered by the emission rights to be distributed by
the Italian government.
On 23 June 2005, a Decree was published in Italy granting ENDESA
Italia the right to charge Euro 169 million in stranded costs along
the period 2005-2009.
Euro 17 million of the total amount approved were booked as an
increase in income in the profit and loss account for the first half
of 2005 and the remaining Euro 152 million was deferred in various
ways depending on the useful life of the plants in question.
Debt reduced by Euro 408 million
Net debt for the ENDESA's electricity business in Europe stood at
Euro 1,715 million at June 30, 2005, compared to Euro 2,123 million at
the beginning of the year - a decline of Euro 408 million, or 19.2%.
On 27 April, ENDESA Italia signed a Euro 700 million syndicated
loan with seven financial institutions primarily used to refinance its
debt. This enabled it to extend the average life of its debt from
three to five years and to obtain a better interest rate.
Financial results for the electricity business in Europe reflected
a loss of Euro 30 million in the first half of 2005, Euro 1 million
less than for January-June 2004.
It should be noted that ENDESA acquired an additional 35% holding
in Snet after the first half of 2004, without this leading to any
increase in financial expenses for this business.
Cash flow: up 39.9%
Cash flow generated from group operations in this business
amounted to Euro 347 million, a rise of 39.9% compared to 2004.
Investments: Euro 118 million
Investment in the European electricity business was Euro 118
million in the first half of 2005, out of which Euro 97 million was
capex.
This includes Euro 60 million investment in ENDESA Italia and Euro
37 million in Snet. This was virtually all capex.
Financial investments for the period include the purchase of
minority interests in Sodelif, Snet's subsidiary, amounting to Euro 6
million.
In the first half of 2005, the following divestments were made:
-- The sale of a 5.33% holding in ENDESA Italia to ASM Brescia
for Euro 159 million, generating a net capital gain of Euro 24
million.
-- The sale of ENDESA's 18% stake in the Moroccan water utility
Lydec for Euro 26 million, generating a net capital gain of
Euro 12 million.
ELECTRICITY BUSINESS IN LATIN AMERICA
Leveraging economic recovery: strong growth in output and sales
The economic trends seen in Latin America during the first three
months of 2005 extended into the second quarter of the year: sustained
economic growth and currency stability. This propitious backdrop
enabled high demand growth for electricity, with average growth in
sales of 4.9% in all areas in which ENDESA's subsidiaries operate.
This increase in demand boosted generation ENDESA's subsidiaries,
which showed average growth of 4.8% compared to the same period last
year.
Better economic conditions also led to widespread increases in
prices and business margins. This fed through to a solid operating
performance, with EBIT rising by 4.5% in generation and transmission,
and 5.9% in distribution.
Growth in volume sales in generation and distribution
Generation and distribution figures for ENDESA's Latin American
subsidiaries were as follows:
GENERATION AND DISTRIBUTION OF THE LATIN AMERICAN BUSINESS
- ------------------------------------------------------------
Generation (GWh) Distribution (GWh)
- ------------------------------------------------------------
1H 2005 % chg 1H 2005 % chg
- ------------------------------------------------------------
Chile 8,437 8.3 5,809 4.9
- ------------------------------------------------------------
Colombia 5,944 (2.4) 4,914 3.4
- ------------------------------------------------------------
Brazil 2,176 (17.0) 7,217 7.5
- ------------------------------------------------------------
Peru 3,192 24.3 2,240 6.8
- ------------------------------------------------------------
Argentina 8,667 7.5 6,921 2.9
- ------------------------------------------------------------
TOTAL 28,416 4.8 27,101 4.9
- ------------------------------------------------------------
Wider generation and distribution margins
Growth in demand and tighter reserve margins caused the unit
margin of the generation companies to increase by 5.9% on the same
period last year, to US$ 19.7 per MWh produced, despite the increase
in fuel prices and gas restrictions affecting Chile and Argentina.
Tariff revisions
Over the past eighteen months, ENDESA's Latin American
distribution subsidiaries have successfully gone through the tariff
revisions, leaving only Edelnor (Peru) to be closed during this year;
thus closing this process until the next tariff revision in 2008.
The improvement in the "pass-through" of generation costs achieved
in these tariff revisions, together with operating efficiency of these
companies led to higher growth in operating distribution margins.
Measured by DCV (distribution cumulative value), margins expanded
17.7% in the first half of the year to US$ 27.2 per MWh distributed.
On June 17, the Argentinean government and Edesur reached an
agreement within the framework of the renegotiation of the concession
contract after the economic crisis that razed the country since
January 2002.
This agreement resulted in a Memorandum of Understanding with the
following main features:
-- 28% DCV increase within the Transition Tariff Framework from
November 1st 2005 that will result in a 15% average tariff
increase for industrial and commercial customers.
-- Linkage to inflation through a half-year adjustment based on
the Cost Variation Index (CVI).
-- Integral Tariff Revision (ITR), slated for November 1st, 2006
for a 5 year period.
-- Once the tariff increase comes into force, ENDESA will suspend
its CIADI's suit; and will withdraw it as soon as the Integral
Tariff Revision has been implemented.
-- Fines Edesur owes the regulator (ENRE) previous to the 6th
January 2002 will be paid through 10 half-year installments.
Fines after that date will be cancelled by ENRE once ENDESA
withdraws its suit.
-- Agreement to ease Edesur's fines previous to January 6, 2002
and to revoke later ones.
Review of the Chilean electricity law
On May 3 the Chilean Chamber of Deputies passed the "Ley Corta
II", modifying the law regulating the Chilean electricity sector. This
new law modifies the methodology used to set regulated prices charged
by generators to distributors, and the contracting system between
distributors and generators.
Its aim is to reflect the new fuel-supply situation in Chile and
the new capacity plan drawn up following problems with gas supplies
from Argentina, as well as ensuring the distributors have reliable
supply contracts.
The terms of the new law create incentives to build new power
generating capacity at a time when demand is rising at a sustained
rate of around 6-8% annually, requiring around 400MW of new capacity
per year to guarantee the continuity of supply.
Net income growth of 200.0%
Net income from the electricity business in Latin America totaled
Euro 114 million in the first half of 2005, an increase of 200.0% from
the same period last year.
This figure accounted for 11.9% of ENDESA's total net income in
the period.
EBIT: Growth of 7.9%
The table below sets out EBITDA and EBIT for ENDESA's Latin
American electricity business, broken down by activity:
EBITDA & EBIT IN LATIN AMERICA
- ----------------------------------------------------------------------
Euro million
- ----------------------------------------------------------------------
EBITDA EBIT
- ----------------------------------------------------------------------
1H 2005 1H 2004 % Chg 1H 2005 1H 2004 % Chg
- ----------------------------------------------------------------------
Generation and
transmission 469 443 5.9 347 332 4.5
- ----------------------------------------------------------------------
Distribution 377 350 7.7 269 254 5.9
- ----------------------------------------------------------------------
Others (15) (30) N/A (18) (32) N/A
- ----------------------------------------------------------------------
Total 831 763 8.9 598 554 7.9
- ----------------------------------------------------------------------
EBITDA and EBIT by country where ENDESA operates through fully
consolidated subsidiaries breaks down as follows:
BREAKDOWN OF EBITDA AND EBIT IN LATAM BY BUSINESS LINE
- ----------------------------------------------------------------------
Generation and transmission
- ----------------------------------------------------------------------
Euro million EBITDA EBIT
- ----------------------------------------------------------------------
1H 1H % Chg 1H 1H % Chg
2005 2004 2005 2004
- ----------------------------------------------------------------------
Chile 137 127 7.9 86 87 (1.1)
- ----------------------------------------------------------------------
Colombia 111 100 11.0 88 79 11.4
- ----------------------------------------------------------------------
Brazil - Generation 54 42 28.6 46 35 31.4
- ----------------------------------------------------------------------
Brazil - Transmission 36 40 (10.0) 28 32 (12.5)
- ----------------------------------------------------------------------
Peru 74 69 7.2 55 49 12.2
- ----------------------------------------------------------------------
Argentina - Generation 50 58 (13.8) 39 43 (9.3)
- ----------------------------------------------------------------------
Argentina - Transmission 7 7 0.0 5 7 (28.6)
- ----------------------------------------------------------------------
TOTAL 469 443 5.9 347 332 4.5
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Distribution
- ----------------------------------------------------------------------
Euro million EBITDA EBIT
- ----------------------------------------------------------------------
1H 1H % Chg 1H 1H % Chg
2005 2004 2005 2004
- ----------------------------------------------------------------------
Chile 81 82 (1.2) 71 73 (2.7)
- ----------------------------------------------------------------------
Colombia 111 100 11.0 73 67 9.0
- ----------------------------------------------------------------------
Brazil 118 92 28.3 87 65 33.8
- ----------------------------------------------------------------------
Peru 35 33 6.1 20 19 5.3
- ----------------------------------------------------------------------
Argentina 32 43 (25.6) 18 30 (40.0)
- ----------------------------------------------------------------------
TOTAL 377 350 7.7 269 254 5.9
- ----------------------------------------------------------------------
Generation and transmission
Chile
Increase in revenues, due to the Ralco hydroelectric plant joining
the grid, was partially offset by the impact of gas supply problems
affecting thermal plants, which required replacing it with more
expensive liquid fuels during the second quarter.
Despite these obstacles, EBIT only decreased by 1.1% on the same
period last year to Euro 86 million. On the other hand, the plentiful
rainfall registered in last weeks led to a fuel price improvement in
June
Colombia
Sales in the Colombian generation business stood at Euro 187
million, a 6.9% increase from the first half of last year offsetting
the 2.4% decline in production with the positive effect from exchange
rate fluctuations.
With costs holding steady, this increase in sales was nearly
passed on in full to EBITDA and EBIT, which increased by 11.0% and
11.4%, respectively.
Brazil - Generation
Rainfall conditions during the first half of the year led to
increased production at the Cachoeira Dourada (hydroelectric) plant
favoured by the increase of rainfall conditions in the
Southwest-Central West region.
On the other hand, production at the Fortaleza (CCGT) plant
declined due to gas supply problems in the Ceara region where it is
located.
Overall, total output declined by 17.0%. Nevertheless, better
prices, favourable effect of exchange rate fluctuations and lower fuel
consumption derived from the decrease in output at the Fortaleza
plant, underpinned a 28.6% rise in EBITDA and a 31.4% jump in EBIT to
Euro 54 million and Euro 46 million, respectively.
Brazil - Transmission
The difficulties in finding available electricity in Argentina to
export to Brazil due to gas supply restrictions had a negative impact
on results at this interconnection, leading to an EBIT of Euro 28
million, 4 million less than on first half 2004.
Peru
Sales in the Peruvian generation business were virtually unchanged
in the first half of the year, at Euro 136 million.
The drop in prices caused by improved rainfall was offset by a
24.3% increase in power generated.
Improved hydro conditions also drove a Euro 20 million decrease in
fuel costs, underpinning a Euro 5 million rise in EBITDA to Euro 74
million and a Euro 6 million increase in EBIT to Euro 55 million.
Argentina
Sales in the Argentinean generation business increased by 7.5%
from the first half of 2004 due to increases of internal demand and
exports to Brazil
Nevertheless, problems with the gas supply and the need to produce
with liquid fuels resulted in a significant increase in fuel costs,
thus deteriorating margins during the quarter. As a consequence.
EBITDA and EBIT fell 13.8% and 9.3%, respectively.
Distribution
Chile
EBITDA and EBIT in the Chilean distribution business fell by 1.2%
and 2.7%, respectively, in the first half of 2005.
This was because the growth in sales to meet higher demand was not
enough to offset the squeeze on margins caused by the latest tariff
revision.
Colombia
EBITDA and EBIT for the Colombian distribution business rose 11.0%
and 9.0%, respectively, as the 13% increase in sales (to Euro 287
million) was enough to cover the higher power purchase costs and the
increase in fixed costs. The fluctuation in the euro exchange rate
versus the Colombian peso had a positive contribution.
Brazil
Sales in the Brazilian distribution business stood at Euro 577
million, a 29.7% increase from the first half of 2004. This increase
was due to the improvement in the "pass-through" of generation prices
and, to a lesser extent, the increase in volumes.
The growth of sales fully covered costs, leaving EBITDA of Euro
118 million and EBIT of Euro 87 million, advances of 28.3% and 33.8%,
respectively, on 1H04.
Peru
EBITDA from the Peruvian distribution business in 1H05 amounted to
Euro 35 million, 6.1% more than in the same period last year, while
EBIT rose Euro 1 million.
Driving growth was a 12.6% increase in sales to Euro 143 million
on 1H04 and a 12.2% rise in power purchases.
Argentina
Both EBITDA and EBIT in the Argentinean distribution business fell
by Euro 11 million and Euro 12 million, respectively, vs. 1H04. This
was because 2004 figures included Euro 10 million corresponding to the
compensation received from Alsthom due to the Azopardo supply
incident.
Stripping out this impact. EBITDA and EBIT would have been fairly
stable, declining by just Euro 1 million and Euro 2 million,
respectively, ahead of the tariff hike slated at the end of the year.
Financial strength: 37.1% improvement in financial results
Financial results for the electricity business in Latin America
reflected a loss of Euro 168 million in the first half of 2005, a fall
of Euro 99 million on the same period of 2004.
Of this figure, Euro 89 million corresponded to exchange
differences (from losses of Euro 16 million in 1H04 to gains of Euro
73 million in 1H05).
Intragroup transactions in foreign currency, normally in dollars
but in accordance with paragraph 33 of IAS 21 not eliminated in
consolidation, contributed Euro 80 million of exchange gains. At its
22 and 23 June meeting, the IASB decided to modify this paragraph,
whereby translation reserves are taken to reserves. Until the EU
endorses this change, the previous version of IAS 21 remains in force
in the IFRS adopted by the European Union. Depending on whether this
change is endorsed and when it takes effect, if at all, the accounting
of translation differences by ENDESA to the end of 2005 could change.
The impact of these differences on ENDESA's net income to 30 June 2005
was Euro 35 million.
Net financial expenses totaled Euro 241 million, Euro 10 million
or 4.0% lower than in 1H04.
Net debt at ENDESA's Latin American business stood at Euro 5.940
million at 30 June 2005, increasing by Euro 590 million since the
beginning of the year. This increase in net debt is due to the
depreciation of the euro against the currencies in which the group's
Latam subsidiaries hold their debt, which has prompted a total
increase of Euro 651 million. Stripping out the impact of this
depreciation, debt at this division would have fallen by Euro 61
million.
Dividend payment
ENDESA Internacional
In June, ENDESA Internacional paid EUR 113 million in dividends in
respect of its 2004 earnings.
This interim payout marked a milestone for the business,
underlining the capacity of ENDESA's Latin American holdings to create
value.
Enersis and ENDESA Chile
The strong performance of the Latin American business allowed both
the group's local flagship companies, Enersis and ENDESA Chile, to
raise their shareholder remuneration by increasing dividends.
In the year to date, ENDESA Chile has paid out in dividends 33,800
million Chilean pesos, around Euro 50 million at the current exchange
rate and an 80% increase on 2004.
Enersis, which paid no dividend in 2004, this year distributed
13,800 million Chilean pesos, around EUR 20 million at the current
exchange rate.
Enersis and ENDESA Chile share price performance
The strong business performance was reflected by the share prices
of both Enersis and ENDESA Chile, the main subsidiaries in this
activity, which have risen by 30.6% and 44.5%, respectively, since the
beginning of the year.
Cash flow: growth of 19.4%
Cash flow generated by the group's business in Latin America
totaled Euro 542 million in the first half of 2005, an increase of
19.4% with respect to 1H04.
Investments: Euro 320 million
Investments in the Latin American electricity market were Euro 320
million in the first half of the year. Of this sum, Euro 250 million
was capex - broken down as follows:
INVESTMENT IN LATIN AMERICA
- ----------------------------------------------------------------------
Euro million
- ----------------------------------------------------------------------
1H 2005 1H 2004 % Chg
- ----------------------------------------------------------------------
Generation 95 107 (11.2)
- ----------------------------------------------------------------------
Distribution and
Transmission 147 109 34.9
- ----------------------------------------------------------------------
Others 8 5 60.0
- ----------------------------------------------------------------------
Total 250 221 13.1
- ----------------------------------------------------------------------
The decrease in generation capex was due mainly to the completion
of the construction of the Ralco hydroelectric plant, which came
on-stream in the second half of 2004.
Optimization of Organizational Structure
ENDESA is creating a holding company in Brazil, named ENDESA
Brasil S.A., which will receive all the assets ENDESA owns in this
county directly or through its subsidiaries. Given the complexity of
the current ENDESA's shareholding structure in Brazil, the transfer
will be done by ENDESA Internacional, S.A., Enersis S.A, Chilectra
S.A. and ENDESA Chile S.A.
The creation of this holding was approved in May by the boards of
ENDESA, Enersis, ENDESA Chile and Chilectra, and aims to:
-- Simplify the shareholder structure
-- Enhance the stability of local cash flows
-- Improve access to external financing
-- Boost the group's positioning to access new investment
opportunities
Besides, ENDESA is assessing the possibility of restructuring its
generation shareholdings in Peru. Comprised by its subsidiaries Edegel
and Etevensa, with 967 and 325 MW of installed capacity respectively.
By this strategic move, ENDESA would achieve a more balanced
hydro-thermal generation portfolio in Peru, together with operating
and financial synergies, as well as greater stability of local cash
flows and more liquidity for potential investment opportunities.
Terms of this corporate restructuring are currently under
discussion.
New investment projects
Etevensa II
The contract to supply natural gas from the Camisea field in Peru
committed the company to converting both Etevensa power plants to gas
and, subsequently, one of them to combined cycle generation.
In August 2004, the facility began generating electricity, as
envisaged in the contract, using open cycle gas generation. ENDESA
thus became the first company to use Camisea bas to generate
electricity in Peru.
The contract also stated that in May 2006 at least one plant
should start operating under combined cycle. Work on this phase of the
project is proceeding on schedule.
In addition, in the first half of 2005, Etevensa extended its
commitment and signed an agreement to convert the second plant to
combined cycle which would give the facility a final total of 500MW
installed capacity. The investment required to complete this second
combined cycle facility is estimated at USD 35 million.
Conversion to gas of Santa Rosa plant
On June 1 the "Westinghouse 7" unit of Edegel's Santa Rosa plant
came back on stream, after being converted to natural gas.
The start-up of the former fuel-oil plant raised the total
generating capacity of the facility from 121MW to 125MW for an
investment of USD 5.6 million.
International tender to supply liquefied natural gas (LNG) to
Chile
Problems with the supply of Argentinean gas to Chile over the last
two years have prompted a search for alternative sources for the
Chilean electricity system.
As a result, ENDESA Chile, Colbun, Metrogas and Enap signed a deal
on April 7 to design and implement an international process that would
identify, select and contract one or more suppliers to provide LNG,
transport it to the port of Quintero in Chile's Quinta region and
regasify, supply and distribute it to users in the centre of the
country.
San Isidro II
In accordance of this plan, ENDESA Chile has undertaken to build a
combined cycle plant capable of using LNG.
This facility, to be called San Isidro II, will be located
alongside the current San Isidro I combined cycle plant and will offer
final installed capacity of 377M.
The schedule envisages it coming on stream for open cycle
operation with diesel in 2007, with capacity of 210MW, moving to
combined cycle diesel capacity of 310MW in 2008 and to commercial
operations fueled by LNG once this arrives in Chile, scheduled for
2009.
Palmucho
ENDESA Chile also began building the 32MW Palmucho hydro plant.
This facility is located in the basin of the Bio river and
will be powered by the natural water flow of the Ralco facility,
opened in September 2004 with installed capacity of 690MW.
The project has been authorised by the Chilean environmental
commission (CONAMA).
ACCOUNTING CRITERIA
ENDESA has prepared its consolidated financial statements for the
first half of 2005 in accordance with the valuation and classification
criteria required by International Financial Reporting Standards
(IFRS) endorsed by the European Union to date.
Figures for the first half of 2004 and to 31 December 2004 have
also been drawn up under IFRS to facilitate comparisons. Therefore,
they do not correspond to those presented in ENDESA's 2004
consolidated financial statements, which were prepared under Spanish
GAAP.
Under IFRS I, which regulates first-time adoption of IFRS,
companies do not need to apply IAS 32 and 39 on financial instruments
to figures from the 2004 financial statements presented for comparison
purposes. ENDESA has taken up this option and 2004 figures therefore
do not include the impact of IAS 32 and 39.
Note, however, that all references to balance sheet items "at 1
January 2005" or "at the start of 2005" refer to the information at 31
December 2004 adjusted for first-time application of IAS 32 and 39.
In order to facilitate to investors and analysts the effect from
the IFRS adoption, on April 5, 2005 the Company presented at the
Comision Nacional del Mercado de Valores, under registered file 18131,
a press release containing the most significant adjustments already
made and its implications during the transition from Spanish GAAP to
IFRS.
The consolidated financial statements for 2005 and 2004 included
in the annual accounts for 2005 must also be prepared under the IFRS
endorsed by the European Union at 31 December 2005. Accordingly, any
change in the rules endorsed by the European Union or criteria for
adoption made from now to the end of the year could lead to
modifications in the consolidated financial statements at 30 June
2005.
In this regard, the following headings may suffer some changes:
Net of sales and purchases of energy
Consolidated results from Spain and Portugal electricity business
as of June 30, 2004 and 2005 are netted because ENDESA's supply
subsidiary acquired energy from the pool for an amount of Euro 445
million and Euro 935 million, respectively, offset by the energy sold
to the pool. The time bands were the same in both cases, and the
purchase price therefore matched the selling price.
As of today, the sector is still analyzing the rationale of above
mention adjustment.
Stripping out this effect, total sales as of June 30, 2004 and
2005 would have amounted to Euro 6,293 million and Euro 9,191 million,
respectively. Sales from Spain and Portugal electricity business would
have amounted to Euro 3,650 million and Euro 4,975 million,
respectively.
This sales increase has no effect on gross margin nor the net
income since they are offset with a similar increase under Energy
Purchases heading.
Exchange differences from financial transactions within Company's
group
In accordance with paragraph 33 of NIC21, differences arising from
exchange rate as a result of financial transactions between intergroup
companies using currencies others than the functional currency of the
participants or the parent company, are not netted after
consolidation. Nevertheless, IASB after its meetings held last June 22
and 23, agreed to modify this paragraph in order to book this
differences under the reserves heading.
Depending on the timing of the final resolution from the European
Union regarding this paragraph, exchange differences at year end may
suffer changes. Positive effect from exchange differences on net
results as of June 30, 2004 and 2005 amounted to Euro 4 million and
Euro 35 million, respectively.
CO2 emission rights
On 2 December 2004, the IASB released IFRIC 3, which issues
guidance on accounting for CO2 emission rights, recognising that, in
the bases of its conclusions, the interpretation could be modified in
future when IAS 20 and IAS 38 are revised.
On 6 May 2005, the EFRAG issued an opinion in which it does not
endorse adoption of IFRIC 3, stating that it did not believe applying
IFRIC 3 would always result in economic reality being reflected and
relevant financial information being provided. Finally, at the 22 and
23 June meetings, the IASB decided to withdraw IFRIC 3 and directly
conduct an assessment of the accounting of emission rights, not
through IFRIC, as some of these must be changed.
As IFRIC 3 has not been adopted in EU legislation, there is a
loophole in the accounting of emission rights that must be resolved in
accordance with prevailing rules.
Accordingly, pursuant to paragraph 12 of IAS 8, in the absence of
a Standard or an Interpretation that specifically applies to a
transaction, other event or condition, management must use its
judgement in developing and applying an accounting policy that results
in information that is relevant for making economic decisions and
reliable for financial statements to be accurate, reflect the economic
nature of transactions, be neutral and produce and comprehensive in
all material aspects.
In this respect, in the second quarter of 2005, as in the first,
ENDESA continued recording emission rights based on IFRIC 3, but
modifying the issues that the EFRAG has opposed.
Therefore, the accounting is provisional and subject to change
when the new accounting rule is issued.
STATISTICAL APPENDIX
KEY FIGURES
Electricity Generation (GWh) 1H 2005 1H 2004 % Chg
- ----------------------------------------------------------------------
Electricity business in Spain and
Portugal 46,642 47,681 (2.2)
- ----------------------------------------------------------------------
Electricity business in Europe 16,967 10,871 56.1
- ----------------------------------------------------------------------
Electricity business in Latin America 28,416 27,127 4.8
- ----------------------------------------------------------------------
TOTAL 92,025 85,679 7.4
- ----------------------------------------------------------------------
Electricity Generation in Spain and 1H 2005 1H 2004 % Chg
Portugal (GWh)
- ----------------------------------------------------------------------
Mainland 40,038 41,481 (3.5)
- ----------------------------------------------------------------------
Nuclear 11,218 13,232 (15.2)
- ----------------------------------------------------------------------
Coal 18,279 17,393 5.1
- ----------------------------------------------------------------------
Hydroelectric 4,444 6,515 (31.8)
- ----------------------------------------------------------------------
Combined cycle - CCGT 3,581 2,907 23.2
- ----------------------------------------------------------------------
Fuel oil 1,508 468 222.2
- ----------------------------------------------------------------------
Renewables/CHP 1,008 966 4.3
- ----------------------------------------------------------------------
Non-mainland 6,604 6,200 6.5
- ----------------------------------------------------------------------
TOTAL 46,642 47,681 (2.2)
- ----------------------------------------------------------------------
Electricity Generation in Europe (GWh) 1H 2005 1H 2004 % Chg
- ----------------------------------------------------------------------
Coal 8,296 2,893 186.8
- ----------------------------------------------------------------------
Hydroelectric 1,370 1,341 2.2
- ----------------------------------------------------------------------
Combined cycle - CCGT 5,256 2,823 86.2
- ----------------------------------------------------------------------
Fuel oil 2,032 3,814 (46.7)
- ----------------------------------------------------------------------
Wind 13 - -
- ----------------------------------------------------------------------
TOTAL 16,967 10,871 56.1
- ----------------------------------------------------------------------
Electricity Generation in Latin America 1H 2005 1H 2004 % Chg
(GWh)
- ----------------------------------------------------------------------
Chile 8,437 7,788 8.3
- ----------------------------------------------------------------------
Argentina 8,667 8,060 7.5
- ----------------------------------------------------------------------
Peru 3,192 2,568 24.3
- ----------------------------------------------------------------------
Colombia 5,944 6,088 (2.4)
- ----------------------------------------------------------------------
Brazil 2,176 2,623 (17.0)
- ----------------------------------------------------------------------
TOTAL 28,416 27,127 4.8
- ----------------------------------------------------------------------
Electricity sales (GWh) 1H 2005 1H 2004 % Chg
- ----------------------------------------------------------------------
Electricity business in Spain and
Portugal 49,655 47,593 4.3
- ----------------------------------------------------------------------
Regulated market 32,120 33,094 (2.9)
- ----------------------------------------------------------------------
Deregulated market 17,535 14,499 20.9
- ----------------------------------------------------------------------
Electricity business in Europe 23,921 12,940 84.9
- ----------------------------------------------------------------------
Electricity business in Latin America 27,101 25,827 4.9
- ----------------------------------------------------------------------
Chile 5,809 5,539 4.9
- ----------------------------------------------------------------------
Argentina 6,921 6,726 2.9
- ----------------------------------------------------------------------
Peru 2,240 2,097 6.8
- ----------------------------------------------------------------------
Colombia 4,914 4,754 3.4
- ----------------------------------------------------------------------
Brazil 7,217 6,711 7.5
- ----------------------------------------------------------------------
TOTAL 100,677 86,360 16.6
- ----------------------------------------------------------------------
Gas sales (GWh) 1H 2005 1H 2004 % Chg
- ----------------------------------------------------------------------
Regulated market 1,669 1,671 (0.1)
- ----------------------------------------------------------------------
Deregulated market 9,145 4,984 83.5
- ----------------------------------------------------------------------
TOTAL 10,814 6,655 62.5
- ----------------------------------------------------------------------
Workforce 30-06-05 31-12-04 % Chg
- ----------------------------------------------------------------------
Electricity business in Spain and
Portugal 12,766 12,889 (1.0)
- ----------------------------------------------------------------------
Electricity business in Europe 2,330 2,440 (4.5)
- ----------------------------------------------------------------------
Electricity business in Latin America 12,256 11,735 4.4
- ----------------------------------------------------------------------
Other businesses 77 93 (17.2)
- ----------------------------------------------------------------------
TOTAL 27,429 27,157 (1.0)
- ----------------------------------------------------------------------
FINANCIAL DATA
Key figures 1H 2005 1H 2004 % Chg
- ----------------------------------------------------------------------
EPS (euros) 0.90 0.74 22.1
- ----------------------------------------------------------------------
CFPS (euros) 1.80 1.56 15.2
- ----------------------------------------------------------------------
BVPS (euros) 8.89 8.12(b) 9.5
- ----------------------------------------------------------------------
Net financial debt (Euro million) 30-06-05 01-01-05 % Chg
- ----------------------------------------------------------------------
Electricity business in Spain and
Portugal 10,441 9,586 8.9
- ----------------------------------------------------------------------
Electricity business in Europe 1,715 2,123 (19.2)
- ----------------------------------------------------------------------
ENDESA Italia 1,214 1,293 (6.1)
- ----------------------------------------------------------------------
Others 501 830 (39.6)
- ----------------------------------------------------------------------
Electricity business in Latin America 5,940 5,350 11.0
- ----------------------------------------------------------------------
Enersis 4,727 4,081 15.8
- ----------------------------------------------------------------------
Others 1,213 1,269 (4.4)
- ----------------------------------------------------------------------
Other businesses 1,670 1,639 1.9
- ----------------------------------------------------------------------
TOTAL 19,766 18,698 5.7
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Gearing (%) 142.4 149.6 N/A
- ----------------------------------------------------------------------
Net debt/operating cash flow (times) 3.5 3.4(b) N/A
- ----------------------------------------------------------------------
Interest coverage with operating cash
flow (times) 5.7 5.4(b) N/A
- ----------------------------------------------------------------------
"Rating" (27-07-05) Long term Short term Outlook
- ----------------------------------------------------------------------
Standard & Poor's A A-1 Negative
- ----------------------------------------------------------------------
Moody's A3 P-2 Stable
- ----------------------------------------------------------------------
Fitch A F1 Stable
- ----------------------------------------------------------------------
Main fixed income issues Spread over IRS (bp)
- ----------------------------------------------------------------------
30-06-05 31-12-04
- ----------------------------------------------------------------------
0.6 Y EUR 750 M 5.25% Mat. Feb 2006 11 11
- ----------------------------------------------------------------------
4.0 Y EUR 700M 4.375% Mat. June 2009 11 17
- ----------------------------------------------------------------------
7.0 Y GBP 750M 6.125% Mat. June 2012 30 33
- ----------------------------------------------------------------------
7.7 Y EUR 700M 5.375% Mat. Feb 2013 30 31
- ----------------------------------------------------------------------
Stock market data 30-06-05 31-12-04 % Chg
- ----------------------------------------------------------------------
Market cap (Euro million) 20,550 18,306 12.26
- ----------------------------------------------------------------------
Number of shares
outstanding 1,058,752,117 1,058,752,117 --
- ----------------------------------------------------------------------
Nominal share value (EUR) 1.2 1.2 --
- ----------------------------------------------------------------------
Stock market data 1H 05 1H 04 % Chg
- ----------------------------------------------------------------------
Trading volumes (shares)
- ----------------------------------------------------------------------
Madrid stock exchange 1,456,648,699 1,226,950,297 18.72
- ----------------------------------------------------------------------
NYSE 12,503,000 14,506,800 (13.81)
- ----------------------------------------------------------------------
Average daily trading volume
(shares)
- ----------------------------------------------------------------------
Madrid stock exchange 11,560,703 9,737,700 18.72
- ----------------------------------------------------------------------
NYSE 100,024 116,990 (14.50)
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Share price 1H 2005 1H 2005
high low 30-06-05 31-12-04
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Madrid stock exchange (euros) 19.41 16.63 19.41 17.29
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NYSE (USD) 23.40 21.63 22.92 23.27
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Dividends (euro cents/share) Payable against 2004 results
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Interim dividend (3-01-05) 27.20
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Final dividend (01-07-05) 46.62
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Total DPS 73.82
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Pay-out (%) 56.7
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Dividend yield (%) 3.80
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(b) At January 1st 2005
NOTE: THE RESULTS PRESENTATION IS AVAILABLE FOR DOWNLOAD FROM
ENDESA'S WEBSITE (WWW.ENDESA.ES).
CONTACT: ENDESA
North America Investor Relations Office
David Raya, 212-750-7200
http://www.endesa.es
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ENDESA, S.A.
Dated: July 27th, 2005 By: /s/ David Raya
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Name: David Raya
Title: Manager of North America
Investor Relations