ENDESA (NYSE:ELE) Results January - September 2005 All the
electricity related businesses of the Company have generated
excellent results -- The net income for the first nine months,
which does not include proceeds from the sale of the stake in Auna,
is an unprecedented result. The Euro 1,556 million achieved exceeds
the best full-year results recorded by the Company. -- 24.4% growth
in net income in Spain and Portugal in a difficult environment. --
High growth in net income in the European (+102.1%) and Latin
American business (+70.6%). -- Significant growth in total EBITDA
(+15.9%) and EBIT (+19.4%). -- European and Latin American business
have contributed 46% of total EBITDA, reflecting ENDESA's
international footprint. -- Double-digit growth in all major
P&L items. ENDESA's results confirm the feasibility and
strength of the commitments presented in the Strategic Plan
("ENDESA: stronger business, greater value") -- 2005 net income and
EBITDA expected to exceed long-term growth estimates provided to
the market. -- Year-end leverage ratio will also exceed ENDESA's
target. -- Successful divestiture of Auna, with Euro 1,060 million
in net capital gains, ensures meeting dividend targets. KEY FACTS
AND FIGURES FOR JANUARY-SEPTEMBER 2005 STRONG GROWTH IN NET INCOME
IN ALL OF ENDESA'S BUSINESSES -- In the first nine months of 2005,
the Spanish and Portuguese business posted an increase of 24.4% in
net income to Euro 1,051 million. -- Net income from the business
in Europe rose 102.1% to Euro 283 million. -- Net income from the
business in Latin America was Euro 186 million, an increase of
70.6% versus the first nine months in 2004. DOUBLE DIGIT GROWTH IN
ALL MAJOR P&L ITEMS -- The gross margin advanced 16.2% to Euro
6,498 million. -- Gross operating profit (EBITDA) rose by 15.9% to
Euro 4,399 million. -- Operating profit (EBIT) grew 19.4% to Euro
3,106 million. -- Cash flow from operations amounted to Euro 2,929
million, 16.3% higher than in January-September 2004. RESULTS
EXCEED STRATEGIC PLAN PRESENTED TO THE MARKET -- Growth in net
income for 2005, even excluding the Auna divestiture, is expected
to range from 15 to 35%. -- Growth achieved exceeds commitment of
12% net income growth presented in the Strategic Plan on the 3rd of
October ("ENDESA: stronger business, greater value"). -- Including
the Auna divestiture, net income for 2005 will grow more than 100%
vs. 2004. -- Growth in EBITDA for 2005 is expected to range from 20
to 27% and will thus exceed ENDESA's target, as outlined in the
aforementioned Strategic Plan, which is between 10 and 11%. -- The
increase in net income and capital gains derived from the Auna
divestiture (Euro 1,060 million net of taxes) will provide ENDESA
significant progress in meeting its target of distributing Euro 7
billion in dividends over the next 5 years. CONTINUED IMPROVEMENT
IN FINANCIAL LEVERAGE -- Financial leverage stood at 135.0% at the
end of the third quarter, down from 149.6% at the beginning of the
year. -- Leverage as of third quarter 2005 exceeds our target in
the Strategic Plan presented to the market by 5 percent. -- The
estimated debt for year-end is approximately Euro 18 billion,
clearly below the 18.698 billion figure at the beginning of the
year. -- In the first nine months of the year all business lines
have generated cash flows that exceeded their respective investment
needs. ELECTRICITY BUSINESS IN SPAIN AND PORTUGAL Solid performance
despite a severe drought, high fuel costs and a deficit in
allocation of CO2 rights -- Net income from the electricity
business in Spain and Portugal increased by 24.4% and accounted for
67.5% of ENDESA's total net income. -- EBITDA from this business
grew by 6.3% and EBIT by 12.9%. -- Reduction in third quarter 2005
fixed costs (by 3% vs. 3Q 2004 and 6.3% vs. 2Q 2005) in line with
the targets set out in ENDESA's Efficiency Plan. -- The effects of
the drought and the rise in fuel costs have not affected ENDESA as
much as its peers due to a more balanced generation mix. -- In the
first nine months of 2005, ENDESA has achieved fuel unit costs for
mainland generation in ordinary regime of EUR 16.2/MWh, 24.7% below
the rest of the industry. Largest generator and top selling power
company in Spain -- ENDESA continues to be the leading Spanish
power company, with the largest share of the total generation
market and total electricity sales. -- Met 93% of its Spanish
demand from its own output, a balance that gives it a clear
competitive advantage over its rivals owing to its lower exposure
to fluctuations in rainfall and wholesale prices. -- ENDESA's
mainland coal-fired plants achieved a 86.9% load factor in the
first nine months of 2005, contributing significantly to the ensure
supply in the Spanish electricity system. -- CO2 emission rights
deficit in January-September 2005 amounted to Euro 131 million, or
5.9 million tonnes. Continued improvement in quality of supply --
ENDESA's SAIDI (system average interruption duration index), the
indicator normally used to measure the continuity of supply,
improved by 16% between January and September 2005 in the markets
supplied by the Company. -- Noteworthy was the improvement in the
SAIDI for its operations in Andalusia and Catalonia, with a
decrease of SAIDI of 19% compared to 2004. Spain's utility with the
highest investment levels -- ENDESA invested Euro 1,746 million in
Spain and Portugal through September 2005, of which Euro 1,484
million (85.0%) was capex. ENDESA is the Spanish electricity
company that undertakes the most investments. -- Euro 904 million
of capex was used for upgrading electricity distribution facilities
to increase quality and security of supply, in line with the
expected new remuneration methodology for this activity, which
accounts for the investment made by each company. -- The first 350
MW unit converted to imported coal at ENDESA's power plant in As
Pontes (A Coruna) was connected to the grid in the third quarter.
Regarding the construction of an 800 MW CCGT at the same facility -
As Pontes - work is being done under the expected schedule. The 400
MW Cristobal Colon CCGT in Huelva is expected to start trial
operations by year-end. -- ENDESA has acquired Portuguese renewable
company FINERGE, which owns 60 MW in operation and different wind
farms under construction. -- After this acquisition, ENDESA
currently has new wind farms adding up to 305 MW under construction
in the Iberian Mainland, of which 52 MW are scheduled to come on
stream before the end of the year. Relevant competitor in natural
gas industry, with a 12% market share -- ENDESA sold a total of
16,080 GWh in the Spanish natural gas market during the first nine
months of 2005, which along with a self consumption of 16,637 GWh
for its generation, is equivalent to a total market share of 11.9%,
thereby practically achieving the 2007 target of 12%, as outlined
in the Strategic Plan. -- This figure validates ENDESA as a
relevant competitor in the Spanish natural gas market. -- ENDESA
has reached an agreement with EDP for the sale of its 49% stake
(held through Endesa Gas) in the Portuguese company NQF Gas, for
Euro 56.5 million. This business line is expected to show strong
growth EBITDA in 2005 -- Estimated EBITDA for Spain & Portugal
will range from Euro 2,800 million to Euro 3,150 million by
year-end 2005, implying a 13% to 27% increase vs. 2004. ELECTRICITY
BUSINESS IN EUROPE Sharp increases in main income statement lines
-- Net income from the electricity business in Europe increased by
102.1% and accounted for 18.2% of ENDESA's total net income in
January-September 2005. -- EBITDA was Euro 702 million, up 68.8% on
January-September 2004, while EBIT rose by 62.0% to Euro 515
million. Debt reduced by Euro 643 million -- Net debt for ENDESA's
electricity business in the rest of Europe stood at Euro 1,480
million as of 30 September 2005, compared to Euro 2,123 million at
the beginning of the year - a reduction of Euro 643 million, or
30.3%. Strong growth in Endesa Italia's financial and operating
figures. -- EBITDA from Endesa Italia was Euro 561 million, 35.8%
higher than in the first nine months of 2004, while EBIT stood at
Euro 456 million, a 40.7% increase. -- The Company's installed
capacity has increased by 11% in the first nine months of this
year, generation has increased by 9.2% and sales by 18.2%. -- The
Company has continued developing its thermal "repowering" program.
Year to date, it has finalized Ostiglia's group 3 conversion to
CCGT and has initiated trial phase operations in Tavazzano's group
6, also converted into CCGT, and which is expected to be fully
operational by the fourth quarter. -- ENDESA and the Italian group
Merloni have signed an agreement under which the Company will
acquire 51% of the Italian company MF Power, owner of three wind
farms with a total capacity of 60 MW. Snet: Good results, progress
in Industrial Plan and dividend payment -- ENDESA has continued to
unlock the value of its shareholding in Snet: in the third quarter
of 2005 it sold its stake in power generator Sechilienne-Sidec for
Euro 104 million and paid shareholders an interim dividend of Euro
21 million. -- The French generation company has contributed Euro
136 million of EBITDA and Euro 54 million of EBIT to the Company's
European business. -- The Company has improved its efficiency ratio
by 7% (measured by number of employees per installed MW). In the
privatization process of the Polish electricity company Dolna Odra,
ENDESA was selected for exclusive negotiations -- ENDESA will be in
exclusive negotiations over the coming weeks with the Polish
government in regards to the privatisation of the 1,960 MW
generation company Dolna Odra (Poland) This business line is
expected to show strong growth in EBITDA in 2005 -- Europe's EBITDA
is estimated to be around Euro 850 million by year-end 2005, a 60%
increase vs. 2004. ELECTRICITY BUSINESS IN LATIN AMERICA Leveraging
economic recovery: net income up 70.6% and double digit growth in
EBITDA and EBIT -- ENDESA's Latin American operations recorded a
70.6% increase in net income in the first nine months of 2005,
contributing 12.0% to the Company's total net income. -- EBITDA
grew 15.6% compared to January-September 2004 and EBIT by 14.8%. --
Both EBITDA and EBIT have grown in generation and transmission, as
well as in distribution businesses. Growth in operating figures and
significant operational improvements -- ENDESA's companies in Latin
America were able to leverage on the economic recovery and organic
growth in these markets, raising output and sales by 5.4% and 5.5%,
respectively. -- Generation margin stands at 20.6 US$/MWh, and
Distribution VAD at 27.9 US$/MWh, increasing by 11% and 20%
respectively, versus January-September 2004. Cash returns in line
with ENDESA's Strategic Plan's targets -- Cash returns of ENDESA's
Latin American business have totalled US$ 209.7 million during the
first nine months of this year; of these US$ 53.2 million
correspond to dividends and US$ 156.5 million to capital
reductions. Good performance of Enersis and Endesa Chile in the
financial markets -- Enersis and Endesa Chile's share price has
increased by 34% and 63% respectively in the New York Stock
Exchange during the first nine months of the year, and they are
still under review for a possible improvement in their credit
rating. Regulatory progress -- Throughout the first nine months of
2005 there has been an improvement in the regulatory framework in
the Latin American countries where the companies, in which ENDESA
owns an interest, operate, contributing to the development of an
environment more conducive to higher profitability and growth.
Streamlining the organisational structure -- ENDESA set up Endesa
Brasil, S.A. in the third quarter, which will act as the holding
company for the Group's shareholdings in Brazil. -- Merger of
Chilean companies, Chilectra and Edesur has been agreed within the
framework of the project for the optimisation of organisational
structure. Development of new capacity -- Endesa Chile has signed
the EPC contract to build a 377 MW San Isidro II CCGT and has
started construction of the 32 MW Palmucho hydro facilities.
Business line expected to show strong growth in estimated EBITDA as
of year-end 2005 -- Latin American's EBITDA is estimated to reach
approximately Euro 1,750 million by year-end 2005, implying a 15%
increase vs. 2004. TELECOMS Sale of the Auna and Smartcom stakes --
On November 8th, ENDESA and its partners in Auna completed the sale
of 80% of the Telecom operator to France Telecom Spain, transaction
that had been agreed in July 2005. With this sale, ENDESA has
obtained net capital gains of Euro 1,060 million. -- In August,
ENDESA also sold 100% of its Chilean mobile telephony subsidiary,
Smartcom SA, to Mexican operator America Movil for US$ 505 million,
obtaining a net gain of Euro 51 million. CONSOLIDATED RESULTS High
growth in net income: +32.8% ENDESA reported net income of Euro
1,556 million in the first nine months of 2005, a rise of 32.8%
compared to the same period in 2004. -0- *T NET INCOME
----------------------------------------------------------------------
% of total % of total Net % Chg vs Net Income Income (Euro Million)
Jan-Sep05 Jan-Sep04 Jan-Sep04 Jan-Sep05
----------------------------------------------------------------------
Spain and Portugal 1,051 24.4 72.1 67.5
----------------------------------------------------------------------
Rest of Europe 283 102.1 11.9 18.2
----------------------------------------------------------------------
Latin America 186 70.6 9.3 12.0
----------------------------------------------------------------------
Other businesses 36 (53.9) 6.7 2.3
----------------------------------------------------------------------
TOTAL 1,556 32.8 100.0 100.0
----------------------------------------------------------------------
*T All the company's electricity businesses recorded strong growth
in net income, with increases of 24.4% for Spain and Portugal,
102.1% for Europe and 70.6% for Latin America. The distribution of
net income between the different electricity businesses is
balanced, confirming the economic logic behind the company's
geographical diversification strategy and current international
footprint. January-September 2005 results assume the recovery of
the amounts contributed to finance the tariff deficit in Spain,
estimated at Euro 2,500 million, of which Euro 1,104 million
corresponds to ENDESA. The Company has booked this amount following
the same accounting criteria as the other companies in the
industry. Not considering the deficit as revenue, ENDESA's net
income would be Euro 838 million, 28.5% less than in
January-September 2004. Companies financing the regulated
activities tariff deficit are entitled to a full recognition, as it
is reflected in ENDESA's accounts. However, for the purpose of
reflecting sensitivities to ENDESA's results to other deficit
recognition assumptions, and without meaning that it would imply
any resignation of the right to the full recover of the deficit, it
is worth noting that even if legislation establishes at Euro 36/MWh
the remuneration to the hydro and nuclear power production, with
the consequent effect on purchases at the "pool" done by the supply
business, (hypothesis considered in ENDESA's strategic plan
"ENDESA: Stronger business, greater value" released on 3 October
2005), the Company's total net income would be Euro 1,377 million,
up 18% vs. the same period last year. Strong growth in generation
(+5.4%) and electricity sales (+13.8%) The rise in net income was
driven by strong growth in generation (+5.4%) and total electricity
sales (+13.8%). This increase was particularly strong in ENDESA's
non-Spanish operations. -0- *T ELECTRICITY PRODUCTION AND SALES
----------------------------------------------------------------------
Production Sales
----------------------------------------------------------------------
% chg. vs. % chg. vs. GWh Jan-Sep04 GWh Jan-Sep04
----------------------------------------------------------------------
Spain and Portugal 69,769 (3.6) 75,381 3.7
----------------------------------------------------------------------
Rest of Europe 24,410 43.4 34,314 64.6
----------------------------------------------------------------------
Latin America 42,870 5.4 41,033 5.5
----------------------------------------------------------------------
TOTAL 137,049 5.4 150,728 13.8
----------------------------------------------------------------------
*T The fall in generation in Spain and Portugal was due to the
temporary shutdown of some plants in the second and third quarters,
mainly as a result of inspection, maintenance and/or reconversion
work. In addition, strong growth in generation in Europe (+43.4%)
was largely due to a 9.2% increase in generation at Endesa Italia,
which reflects that its repowering programme is nearing completion,
plus the contribution from ENDESA's French subsidiary Snet, which
in the period January-September 2004 only contributed for that
month as it was not fully consolidated in ENDESA until 1st
September 2004. Finally, in Latin America the growth in generation
(+5.4%) was due to a higher utilisation rate in order 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
last year. Generation/sales balance ENDESA has generated 91% of all
its electricity sales in the first nine months of 2005. This
balanced situation between production and demand should
considerably reduce risk in its electricity business. This is a
significant competitive advantage in the Spanish market, where
ENDESA generated 93% of the electricity it sold in the first nine
months of 2005. Active management of the generation/sales balance
reduces the Company's strategic exposure to fluctuations in
wholesale prices, particularly important at times of high prices as
at present. Revenues growth outstrips costs Total sales amounted to
Euro 12,643 million in the first nine months of 2005 up 26.8%
compared to the same period in 2004. One should note that the
electricity business in Spain and Portugal's sales include sales
from Spain and Portugal to other EU markets. The increase in sales
was greater in economic than in operating terms, as prices were
raised to offset the increase in costs. Growth in revenues covered
both fuel costs, which were up by 29.6% during the first nine
months of this year compared to the period Jan-Sep 2004 and the
cost of CO2 emission rights. Significant growth in gross margin,
EBITDA and EBIT As revenues grew ahead of costs, the Company
reported significant rises in gross margin (+16.2%), EBITDA
(+15.9%) and EBIT (+19.4%). -0- *T Gross margin EBITDA EBIT
----------------------------------------------------------------------
(Euro million) % chg. % chg. vs. vs. % chg. vs. Jan-Sep Jan-Sep
Jan-Sep Jan-Sep Jan-Sep Jan-Sep 05 04 05 04 05 04
----------------------------------------------------------------------
Spain and Portugal 3,659 6.6 2,380 6.3 1,634 12.9
----------------------------------------------------------------------
Rest of Europe 944 70.4 702 68.8 515 62.0
----------------------------------------------------------------------
Latin America 1,893 18.2 1,323 15.6 964 14.8
----------------------------------------------------------------------
Other businesses 2 N/A (6) N/A (7) N/A
----------------------------------------------------------------------
TOTAL 6,498 16.2 4,399 15.9 3,106 19.4
----------------------------------------------------------------------
*T Financial results: 12% improvement ENDESA reported negative
financial results of Euro 748 million for the first nine months of
2005, a 12.0% improvement on the same period of 2004. Net financial
expenses totalled Euro 814 million, 2.6% lower than in the same
period of 2004. The average cost of all of ENDESA's financial debt
was 5.41% in January-September 2005. Stripping out Enersis Group
debt, it stood at 4.06%. Cash flow: growth of 16.3% ENDESA
generated operating cash flow of Euro 2,929 million through
September 2005, a rise of 16.3% on January-September 2004. Cash
flow rose sharply in all the Company's electricity businesses. -0-
*T CASH FLOW
----------------------------------------------------------------------
(Euro million) % Chg. vs Jan- Jan-Sep 05 Sep04
----------------------------------------------------------------------
Spain and Portugal 1,669 13.5
----------------------------------------------------------------------
Rest of Europe 502 34.2
----------------------------------------------------------------------
Latin America 766 15.2
----------------------------------------------------------------------
Other businesses (8) N/A
----------------------------------------------------------------------
TOTAL 2,929 16.3
----------------------------------------------------------------------
*T Investment of Euro 2,420 million, 72.1% in Spain and Portugal
Total investment by ENDESA amounted to Euro 2,420 million in the
first nine months of 2005. Of this amount, Euro 2,078 million was
in capex and the remaining Euro 342 million in financial
investments. ENDESA is entitled to finance Euro 1,104 million of
the tariff deficit in revenues from regulated activities in Spain.
As of 30 September 2005, ENDESA had paid out Euro 744 million to
finance the tariff deficit. Financial structure: fall in leverage
As of 30 September 2005, ENDESA had a net debt of Euro 20,419
million, which is Euro 1,721 million higher than at the beginning
of the year. Of this rise, Euro 880 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
remainder of the increase is the consequence of the tariff deficit
financing. The breakdown of debt by business line is as follows as
of 30 September 2005: -0- *T BREAKDOWN BY BUSINESS OF ENDESA'S NET
DEBT
----------------------------------------------------------------------
Euro million
----------------------------------------------------------------------
Change in 30-09-05 01-01-05 euros % Chg
----------------------------------------------------------------------
Electricity business in Spain and Portugal 11,452 9,586 1,866 19.5
----------------------------------------------------------------------
Electricity business in Europe 1,480 2,123 (643) (30.3) ENDESA
Italia 995 1,293 (298) (23.0) Other 485 830 (345) (41.6)
----------------------------------------------------------------------
Electricity business in Latin America 6,237 5,350 887 16.6 Enersis
group 5,063 4,081 982 24.1 Other 1,174 1,269 (95) (7.5)
----------------------------------------------------------------------
Other businesses 1,250 1,639 (389) (23.7)
----------------------------------------------------------------------
TOTAL 20,419 18,698 1,721 9.2
----------------------------------------------------------------------
*T The average cost of Endesa's total debt is 5.41% for the first
nine months of 2005, and the average cost of Enersis Group's debt
is 9.33%. Disregarding Enersis Group, Endesa's average cost of debt
stands at 4.06% in the period. The breakdown of the debt by
currency and interest rate as of 30 September 2005, was as follows:
-0- *T STRUCTURE OF ENDESA'S NET DEBT
----------------------------------------------------------------------
ENDESA and direct Group Total subsidiaries Enersis ENDESA group
----------------------------------------------------------------------
(Euro million) Jan-Sep % of Jan-Sep % of Jan-Sep 05 total 05 total
05 % of total
----------------------------------------------------------------------
Euro 14,918 97 3 0 14,921 73
----------------------------------------------------------------------
Dollar 438 3 2,427 48 2,865 14
----------------------------------------------------------------------
Other currencies 0 0 2,633 52 2,633 13
----------------------------------------------------------------------
Total 15,356 100 5,063 100 20,419 100
----------------------------------------------------------------------
Fixed rate 10,162 66 4,201 83 14,363 70
----------------------------------------------------------------------
Hedged 1,808 12 322 6 2,130 11
----------------------------------------------------------------------
Variable 3,386 22 540 11 3,926 19
----------------------------------------------------------------------
TOTAL 15,356 100 5,063 100 20,419 100
----------------------------------------------------------------------
Avg. life (years) 5.3 5.7 5.4
----------------------------------------------------------------------
*T The average life of the ENDESA Group's debt was 5.4 years in the
first nine months of 2005. ENDESA enjoys a high degree of
protection against interest-rate risk, since 81% of all its debt is
either fixed-rate or hedged. The cash and cash equivalents held by
ENDESA in Spain and its direct subsidiaries, excluding Enersis,
totalled Euro 4,267 million at the end of the third quarter of
2005. Out of this amount, Euro 2,228 million are undrawn,
unconditional lines of credit and Euro 1,500 million correspondes
to the syndicated loan transaction completed on 22 April 2005.
These balances are sufficient to cover maturities due in the next
15 months for this group of companies. The cash and cash
equivalents held by the Enersis group totalled Euro 476 million,
covering debt maturities for the next months. As of 30 September
2005, ENDESA's total equity were Euro 15,121 million, an increase
of Euro 2,623 million since the start of the year. This increase
lowered ENDESA's financial leverage to 135.0% at 30 September 2005
from 149.6% at the start of the year. As a result of the takeover
bid by Gas Natural for ENDESA, the ratings agencies Standard &
Poor's and Fitch Ratings decided to place ENDESA's credit rating
under review for a possible downgrade, while Moody's changed its
rating outlook from stable to negative, with all three citing the
negative impact of the operation on the Company's financial
situation should the bid go through. As a result, at 16 November
2005, ENDESA's debt had long-term credit ratings of A from Standard
& Poor's and Fitch, under review for possible downgrades, and
A3 from Moody's, with a negative outlook. Disposal of Auna On 29th
July 2005, ENDESA and the remaining core shareholders of Spanish
telecommunications operator Auna reached an agreement with Orange,
a subsidiary of France Telecom, to sell the mobile telephony
business that this operator carried out through its subsidiary,
Amena. The sale of a ENDESA's 27.7% stake in Auna was completed on
8 November 2005, after authorisation was obtained from the European
anti-trust bodies. ENDESA made a gross capital gain of Euro 1,206
million (Euro 1,060 million net of taxes) on the Euro 2,221 million
proceeds. ENDESA still holds a 5.01% stake in Auna, with a
three-year hedge covenant that guarantees a minimum price
equivalent to 90% of the price per share paid by France Telecom in
the initial acquisition plus an annual return of 4.5%. As a result,
at 30 September 2005, the stake in Auna was not anymore recorded
through the equity method. According to certain covenants in the
agreement with France Telecom, Endesa did not have significantly
influence over Auna's management as of September 30, 2005. In the
balance sheet as of 30 September 2005, Endesa recorded 27.7% of its
stake in Auna as "assets held for sale" at its historical cost of
Euro 913 million. ENDESA has booked the remaining 5.01% of its
stake in Auna not included as part of the sale agreement as a
financial investment at the market value inherent in the sale to
France Telecom, recording gross hidden gains against reserves of
Euro 211 million (Euro 185 million after tax). Asset disposal: Euro
917 million ENDESA has followed during the first nine months of the
period its strategy of divesting assets, resulting in disposals
totalling Euro 917 million in the first nine months of 2005, and
generating a gross capital gain of Euro 207 million. The main
disposal in the third quarter of 2005 was the sale of 100% of
Smartcom to Mexican operator America Movil for US$ 505 million
(Euro 408 million), producing a gross capital loss of Euro 3
million (after-tax gain of Euro 51 million). Creation of Bolonia
Real Estate ENDESA has set up the Bolonia Real Estate Company to
handle various real estate assets such as old production plants,
mines and distribution facilities that are already or will soon be
idle. It is worth mentioning that ENDESA's real estate assets
portfolio in Spain is comprised of 43 million square meters and
that the Company has identified 13 estates of 3 million square
meters valued at Euro 750 million, once all urban administrative
requirements are met. ENDESA recorded the assets managed under
Bolonia Real Estate as real estate investments at their historical
cost of Euro 4 million. Progress with the Strategic Plan The solid
earnings obtained by ENDESA in the first nine months of 2005 and
the expectations for the 4th quarter indicate that the Company is
already obtaining a high degree of the terms presented in the
Strategic Plan, as per the document, "ENDESA: Stronger business,
greater value". Companies that have contributed to the tariff
deficit have a right to full recognition, as it is reflected in
ENDESA's accounts. However, for the purpose of reflecting the
sensitivities of ENDESA's results to other deficit recognition
assumptions, and without meaning that it would imply any
resignation of the right to the full recover of the deficit, we
have analysed two different scenarios below. The first scenario
includes the assumption in the aforementioned document "ENDESA:
Stronger business, greater value" of establishing remuneration for
hydro and nuclear power at Euro 36/MWh with the consequent effect
on purchases at the "pool" done by the supply business, while the
second scenario considers tariff deficit recovery without taking
into account the effects of this assumption. -- According to these
estimates, EBITDA would range from Euro 5,400 million to Euro 5,750
million, which implies a 20-27% increase on 2004 results. -- This
means obtaining 30-41% of the targeted increase in EBITDA in the
2004-2009 Strategic Plan in only a year. -- Additionally, net
income excluding income from the divestiture of Auna, would range
from Euro 1,450 to Euro 1,700 million, implying growth of 15%-35%
vs. 2004. -- If capital gains from the divestiture of Auna are
included, net income growth will be above 100%. -- Debt would be
around Euro 18,000 million by year-end, below the Euro 18,698
million figure at the beginning of the period. -- Year-end
financial leverage will be under 1.2, which is below the 1.4
maximum level targeted in the Strategic Plan. -- High growth in
EBITDA is expected in all businesses: in Spain and Portugal EBITDA
is expected to range from Euro 2,800 million to Euro 3,150 million,
implying 13%-27% growth; in Europe it is expected to reach around
Euro 850 million, implying 60% growth; and in Latin America it is
expected to reach around Euro 1,750 million, implying 15% growth.
-- Net capital gains of Euro 1,060 million obtained from the sale
of its telecom business, Auna, and the expected increase in net
income, will clearly help ENDESA to accomplish its commitment to
distribute Euro 7 billion in dividends in the next 5 years. RESULTS
BY BUSINESS LINE ELECTRICITY BUSINESS IN SPAIN AND PORTUGAL Key
operating and regulatory facts for January-September 2005 High
operating efficiency ENDESA maintained its leading position in the
Spanish electricity market in the first nine months of 2005, with a
37.8% market share in ordinary regime electricity generation, 42.7%
in distribution, 36.7% in sales to deregulated clients and 40.7% in
total sales to end customers. Output in Spain totalled 69,769 GWh,
3.6% lower than in January-September 2004 given the low level of
rainfall this year. ENDESA was also hit by downtime at group 4 of
its plant in Puentes which was being converted into imported coal,
and at Vandellos, from last March until last August, for technical
reasons. ENDESA has continued to improve its operating efficiency
in line with the efficiency plan implemented in June, the results
of which began feeding through in the third quarter. In the third
quarter of 2005, ENDESA has been able to achieve a reduction of
fixed costs of 3% vs. 3Q 2004 and 6.3% vs. 2Q 2005. Specifically,
other fixed costs have been 14.2% lower than in 3Q 2004. Progress
in New Capacity Plan The Company has made further progress with its
2005-2009 New Capacity Plan. The first 350 MW unit converted to
imported coal at its plant in As Pontes (A Coruna) was connected to
the grid in the third quarter. Work is also underway on the
construction of an 800 MW CCGT at the same facility and on the 400
MW Cristobal Colon CCGT in Huelva, which is expected to start trial
operations by year-end. The Portuguese anti-trust authorities also
gave the green light to ENDESA's acquisition of the Portuguese
renewable energies company Finerge in the third quarter of 2005.
Finerge has installed capacity of 60 MW. ENDESA is also adding
another 305 MW of wind farm capacity in the Iberian Mainland. Out
of which 52 MW will come on stream before the end of the year. High
growth rates in ENDESA's distribution markets ENDESA's total demand
in the first nine months of 2005 was 83,731 GWh, 5.6% higher than
in the same period of 2004, once again showing its strong growth
potential in the Spanish market. The number of customers served by
ENDESA's distribution facilities grew by 185,961 from the same
period last year. Its number of deregulated customers at the end of
the third quarter was 962,573. Improvement in quality of supply The
Quality Plan carried out over the last few years, which was
reinforced in the second half of 2004, has contributed to a
significant improvement in the Company's quality of supply during
the first nine months of 2005. This becomes especially relevant in
a year with such a high growth in demand. ENDESA's system average
interruption duration index (SAIDI) improved 16% compared to the
first nine months of last year. The Company significantly improved
the quality of supply in Andalusia and Catalonia, where the SAIDI
improved by 19%. ENDESA's retention rate for customers switching to
the deregulated market was 86.9%, higher than the average for other
companies in this industry, reflecting a high degree of loyalty
towards the Company. Net income up 24.4% Net income from the
electricity business in Spain and Portugal in January-September
2005 totalled Euro 1,051 million, up 24.4% on the same period in
2004. This figure represents 67.5% of ENDESA's total net income.
ENDESA divested Euro 120 million worth of Spanish non-core assets
in the first nine months of 2005, booking a gross capital gain of
Euro 102 million. EBIT: Euro 1,634 million (+12.9%) This business
posted EBIT of Euro 1,634 million in January-September 2005, an
increase of 12.9% on January-September 2004. Sales increased by
23.6% to Euro 6,175 million, largely due to a rise in volumes and
selling prices to end customers, and higher wholesale prices. The
increase in sales was sufficient to offset the sharp jump in fuel
costs driven largely higher prices and volumes, and the net cost of
the CO2 emission rights deficit. In addition, low rainfall, high
fuel costs and the cost of meeting the CO2 emission rights deficit
meant that generation pool prices rose in average 81.5%. Given the
limited increase in the electricity tariff (just 1.7%) the system's
costs could not be covered, particularly generation costs, given
the pool price levels. As a result, the industry incurred an
estimated deficit of revenues from regulated activities of Euro
2,500 million, of which Euro 1,104 million corresponds to ENDESA.
The Company has booked this amount as a recoverable asset following
the same criteria as the rest of the industry. Not considering the
deficit as revenue, net income from ENDESA's electricity business
in Spain and Portugal would have fallen by 60.5%. Companies
financing the regulated activities tariff deficit are entitled to a
full recognition, as it is reflected in ENDESA's accounts. However,
for the purpose of reflecting sensitivities to ENDESA's results to
other deficit recognition assumptions, and without meaning that it
would imply any resignation of the right to the full recover of the
deficit, it is worth noting that even if legislation establishes at
Euro 36/MWh the remuneration to the hydro and nuclear power
production, with the consequent effect on purchases at the "pool"
done by the supply business, (hypothesis considered in ENDESA's
strategic plan "ENDESA: Stronger business, greater value" released
on 3 October 2005), revenues in Spain & Portugal would have
been Euro 275 million lower, leaving total net income from the
electricity business in Spain and Portugal at Euro 872 million,
3.2% higher than in January-September 2004. On the other hand, the
negative impact on results of low rainfall and higher fuel costs is
limited as the Company enjoys a more balanced generation mix than
its competitors and managed to keep rising costs under control
thanks to its fuel management policy. The breakdown of EBIT for
ENDESA's electricity business in Spain and Portugal is explained in
the following pages. Revenues: 30.6% growth Revenues of this
business totalled Euro 6,651 million in the nine months of 2005,
30.6% higher than in the same period of 2004. Of this amount, sales
accounted for Euro 6,175 million, up 23.6% from January-September
2004. -0- *T SALES IN SPAIN AND PORTUGAL
----------------------------------------------------------------------
Euro million
----------------------------------------------------------------------
Jan-Sep Jan-Sep 2005 2004 Change % Chg
----------------------------------------------------------------------
Mainland generation under Ordinary Regime:
----------------------------------------------------------------------
Supply to customers in deregulated market 1,098 925 173 18.7
----------------------------------------------------------------------
Supply to regulated customers 2,176 1,387 789 56.9
----------------------------------------------------------------------
Generation in renewables/CHP 151 88 63 71.6
----------------------------------------------------------------------
Regulated revenues from distribution 1,197 1,166 31 2.7
----------------------------------------------------------------------
Non-mainland regulated generation 975 784 191 24.4
----------------------------------------------------------------------
Coal CTC 17 59 (42) (71.2)
----------------------------------------------------------------------
Technology CTC -- 142 (142) (100.0)
----------------------------------------------------------------------
Supply to deregulated customers outside Spain 171 126 45 35.7
----------------------------------------------------------------------
Regulated revenues from gas distribution 32 28 4 14.3
----------------------------------------------------------------------
Gas supply 216 102 114 111.8
----------------------------------------------------------------------
Other 142 189 (47) (24.9)
----------------------------------------------------------------------
TOTAL 6,175 4,996 1,179 23.6
----------------------------------------------------------------------
*T Mainland generation Electricity demand in the Spanish mainland
system rose by 6.3% in the first nine months of 2005. Ordinary
regime generation increased by 3.0%, while renewables/CHP output
was up by 14.4%. ENDESA's mainland electricity output in the
ordinary regime reached 57,806 GWh during the period, a 5.4%
decrease vs. the first nine months of 2004. The second and third
quarters of the current year were characterized by two unusual
factors: the technical breakdown at the Vandellos plant from March
until August, and the downtime of the group 4 in As Pontes plant
due to conversion into imported coal work that concluded in August.
All of As Pontes other groups are expected to be converted by 2008.
On the other hand, output related to Special Regime
(Renewables/CHP) was ,569 GWh, a 14.2% increase which is in line
with the evolution of the rest of the industry. Comparative
advantage of ENDESA's generation mix Differences between the
structure of ENDESA's ordinary regime mainland output and that of
the rest of the industry during the analysed period reflect the
strength of the Company's generation mix and its greater stability
to the recurring sudden changes in rainfall rates in Spain.
ENDESA's hydro output fell by 29.9% between January and September
2005 in comparison with the same period in 2004, while output for
the rest of the industry declined by 45.8%. Thermal production in
the industry rose by 39.8% versus an increase of just 6.1% by of
ENDESA. Contribution of coal plants to covering demand The
importance of ENDESA's coal-fired plants in meeting demand was
highlighted by the low levels of rainfall seen in the first nine
months of 2005. These plants have achieved an availability rate of
86.9%, meeting the requirements of the system and demonstrating
that, despite new capacity based on CCGTs and wind farms already
added to the grid, coal power plants are still clearly essential in
meeting the country's electricity needs. More specifically, output
from ENDESA's coal-fired plants has covered 14.7% of demand in the
Iberian Peninsula over the first nine months of 2005. Increase in
ENDESA's sales to the pool ENDESA's sales to the pool totalled Euro
3,776 million in the first nine months of 2005, 76.8% higher than
in the same period in 2004, due to an 81.3% rise in the average
pool price, including the capacity payment. This rise in the 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 a very limited use of hydroelectric plants. In
absolute terms, the average pool price for the first nine months of
2005 including capacity payments, was Euro 59.33 per MWh vs. Euro
32.73 per MWh in January-September 2004. ENDESA's supply and
generation subsidiaries acquired energy from the pool for a total
of Euro 1,600 million, acquisitions that were offset by the energy
sold by the company to the pool. The markets and time bands were
the same in both cases, and the purchase price therefore matched
the selling price. Amounts derived from these sales are neutralised
with purchases made by the supply subsidiary and generator. The
pool sales recorded in the consolidated income statement for the
first nine months of 2005 thus totalled Euro 2,176 million. Output
of ENDESA's renewables/CHP sites Renewable/CHP subsidiaries fully
consolidated by ENDESA produced 1,569 GWh in the first nine months
of 2005. That figure represents a 14.2% increase in relation to the
same period of 2004. ENDESA also has holdings in other
renewable/CHP companies, which generated 2,912 GWh in the first
nine months. Revenues from sales of renewable/CHP energy generated
by consolidated companies totalled Euro 151 million, 71.6% more
than in the same period in 2004, EBIT rose 209.5% to Euro 65
million. Supply to deregulated customers ENDESA had 962,573
deregulated clients as of 30 September 2005. Out of which 913.918
are customers from the mainland liberalised market, 47,368 from the
non-mainland systems, and 2,007 are form other European liberalised
markets outside Spain. ENDESA's sales to these customers totalled
27,442 GWh in the first nine months of 2005, 20.1% more than in the
same period of 2004. Of this amount, 24,383 GWh were in the Spanish
deregulated market, up 21.0% on the same period of 2004, and 3,059
GWh in other deregulated European markets, up 12.9%. Revenues from
supply to deregulated customers in Spain totalled Euro 1,178
million, a 23.9% increase on the first nine months in 2004. Out of
the revenues from supply to deregulated customers in Spain, Euro
1,098 million corresponded to the mainland liberalised market and
Euro 80 million to the non-mainland market. Finally, revenues from
sales to deregulated European customers outside Spain stood at Euro
171 million, an increase of 35.7% on January-September 2004.
Distribution ENDESA distributed 83,731 GWh of electricity in the
Spanish market in the first nine months of 2005, a 5.6% increase on
the same period of 2004. Revenues from regulated distribution
increased to Euro 1,197 million, 2.7% more than in
January-September 2004. This minor increase 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 904 million in
the first nine months of 2005) new regulation governing
distribution should recognise substantial investment effort via
adequate remuneration. ENDESA supplied 47,939 GWh to customers in
the regulated market. However, in accordance with IFRS, its
turnover on this business was not booked as revenue, as the only
revenue from distribution is the remuneration already included in
the tariff. The rest of the turnover merely corresponds to costs
incurred and passed on. Non-mainland generation ENDESA's output in
non-mainland systems in the first nine months of 2005 was 10,394
GWh, 5.2% more than in the same period of 2004. Sales rose 24.4% to
Euro 975 million. 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. The Royal
Decree lays down the general principles that must be applied to
determine the compensation regarding these circumstances. Although
the exact methodology for quantifying this compensation is still
being developed, a draft Ministerial Order has now been prepared by
the Ministry of Industry, and is currently being analysed by the
Comision Nacional de Energia (CNE). ENDESA's January-September 2005
accounts include revenues of Euro 110 million in addition to the
compensation envisaged in the 2005 electricity tariff. This has
been calculated, with conservative criteria, 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 as of year-end 2004. The Company awaits the
definitive regulatory outcome due to be released in the following
months. Technological CTCs and deficit on regulated revenues As
already mentioned, in the first nine months of 2005 regulated
revenues were not sufficient to offset system costs, leaving an
estimated deficit of Euro 2,500 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 1,104
million). In the opinion of ENDESA's legal advisers, taking into
account the legal nature and background of this financing, as well
as legal precedent, the Company is entitled to the full recovery of
the sums contributed. The government should, however, establish a
specific procedure for the return of these sums, as it did in 2002.
Other Spanish utilities also support our view. For this reason,
ENDESA's accounts as of 30 September 2005 include a financial asset
of Euro 1,104 million to reflect its right to recover the amounts
contributed in relation to the regulated revenues deficit. In the
first nine months of 2004, ENDESA's technological CTC revenues
totalled Euro 142 million. Gas distribution and supply ENDESA sold
15,289 GWh of gas up to September 2005, through companies who are
consolidated in the Group; this amount represents a 56.1% increase
on the same period in 2004. Of this amount, 13,355 GWh were sold in
the deregulated market, an increase of 69.3%, and 1,934 GWh in the
regulated market, an increase of 1.4%. In addition 791 GWh of total
sales correspond to companies that are not fully consolidated given
their limited contribution to the Group total. Consequently, total
sales in the regulated market amounted to 2,725 GWh a 0.3% increase
versus January-September 2004. The 16,080 GWh sold in both markets,
together with the 16,637 GWh of gas consumed by ENDESA's generation
plants, amount to a total of 32,717 GWh, implying an 11.9% share of
the Spanish natural gas market. The target of 12% by 2007 envisaged
in the Company's Strategic Plan has therefore already been
achieved. Revenues from gas sales in the deregulated market in the
first nine months of 2005 totalled Euro 216 million, an increase of
111.8% on the same period in 2004. Revenues from regulated gas
distribution rose 14.3% to Euro 32 million. Other operating
revenues Other operating revenues in January-September 2005
totalled Euro 476 million, up Euro 381 million on January-September
2004. Included under this heading is Euro 346 million,
corresponding to a portion of the CO2 emission rights allocated to
ENDESA within the Spanish Emissions NAP for the first nine months
of the year, which are recorded as revenue. Revenues from emissions
allocated to cover the Spanish mainland are recorded at market
price as of the beginning of 2005, while revenues from emissions
allocated to non-mainland are recorded at average market price for
the year. Operating expenses The breakdown of operating expenses in
the Spanish and Portuguese business for the first nine months of
2005 is as follows: -0- *T OPERATING EXPENSE IN SPAIN AND PORTUGAL
----------------------------------------------------------------------
Euro million
----------------------------------------------------------------------
Jan- Jan- Change in Sep2005 Sep2004 Euros % Chg
----------------------------------------------------------------------
Purchases and services 2,992 1,659 1,333 80.4
----------------------------------------------------------------------
Power purchases 649 290 359 123.8
----------------------------------------------------------------------
Fuel consumption 1,493 1,107 386 34.9
----------------------------------------------------------------------
Power transmission expenses 176 132 44 33.3
----------------------------------------------------------------------
Other supplies and services 674 130 544 418.5
----------------------------------------------------------------------
Personnel expenses 673 605 68 11.2
----------------------------------------------------------------------
Other operating expenses 706 680 26 3.8
----------------------------------------------------------------------
Depreciation and amortization 746 792 (46) (5.8)
----------------------------------------------------------------------
TOTAL 5,117 3,736 1,381 37.0
----------------------------------------------------------------------
*T We would like to highlight that ENDESA's fuel unit cost for
mainland generation in ordinary regime for the first nine months of
2005 stood at EUR 16.2/MWh, 24.7% below the rest of the industry.
Power purchases Power purchases in the period rose by 123.8% to
Euro 649 million. The main component under this heading relates to
gas purchases for supplying deregulated customers, which rose
128.9% due to the 69.3% increase in sales to this type of client
and the increase in natural gas prices. The rest corresponds to
transactions made in the wholesale generation market. The increase
of these purchases is related with the 81.3% increase in the
average pool price. Fuel consumption Fuel consumption amounted to
Euro 1,493 million in the first nine months of 2005, an increase of
34.9% vs. the same period in 2004. This increase is due to the rise
in fuel-oil production (higher unit costs than other technologies)
and to the generalized increase in the prices of raw materials in
international markets. The impact of the increase in prices has
been counterbalanced by the company's active fuel purchasing
policy, which has enabled the company to beat market prices. Other
supplies and services Other supplies and services expenses totalled
Euro 674 million in the first nine months, up Euro 544 million vs.
the same period last year. This increase was due to the booking of
Euro 477 million in expenses from emission rights required to cover
the CO2 emissions made in the first nine months of the year, which
totalled 39.2 million tonnes, out of which 29.8 million tonnes
correspond to the mainland and 9.4 million tonnes for non-mainland
emissions. Expenses for mainland emissions were valued as follows:
-- For the portion of these emissions covered by freely allocated
emission rights, at the same price at which the revenues are
booked, i.e. the market price at the beginning of 2005. -- For the
portion of these emissions covered by rights acquired in the
market, the expense is recorded at the price paid for these rights.
-- The portion of these emissions for which ENDESA does not own
rights was recorded at the market price of these rights as of 30
September 2005, Euro 22.85 per tonne. As non-mainland territories
were granted sufficient emission rights, an expense was recorded
for those made in the first nine months 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
January-September 2005 to cover CO2 emissions was Euro 131 million,
corresponding to an estimated rights deficit of 5.9 million tonnes.
Personnel expenses As of 30 September 2005, the workforce in Spain
and Portugal totalled 12,730 employees, down 1.2% on 2004 year-end.
Personnel expenses amounted to Euro 673 million in
January-September 2005, an increase of 11.2% vs. the same period in
2004. The increase was principally due to factors not related to
regular wages. From January to September 2005, an extra Euro 22
million was recorded in provisions to cover future pension or
early-retirement commitments, primarily to offset the effects of
higher real inflation over the 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 and other non-recurring expense items, mainly
related to variables that affect future pensions or
early-retirement commitments, personnel costs rose by 4.5%. Other
fixed operating expenses Other fixed operating expenses totalled
Euro 706 million in the first nine months of 2005, an increase of
3.8% with respect to the same period in 2004. The cost reduction
plan began to bear fruit in the third quarter of 2005 as evidenced
by the 14.2% decline in other fixed costs for this quarter vs. the
same quarter last year. Net financial expenses: 10.3% improvement
ENDESA reported a net financial loss for the first nine months of
2005 of Euro 359 million, of which, Euro 356 million corresponds to
net financial expenses. This includes Euro 45 million for the cost
of preferred shares, which are considered as debt in the 2005
accounts, and are therefore recorded as financial expenses. As
regulation IAS 32 was not applied last year, in 3Q04 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 86 million in January-September 2005, i.e. 19.5%.
As of 30 September 2005, net debt in Spain and Portugal stood at
Euro 11,452 million, up from Euro 9,586 million at the beginning of
this year. This rise can be explained by the Euro 744 million paid
during the first nine months of the year 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 Equity-accounted income for ENDESA's electricity business in
Spain and Portugal totalled Euro 42 million. This heading includes,
among others, Euro 8 million in income from subsidiaries in
Portugal and Euro 11 million from renewables/CHP generation
subsidiaries. Equity-accounted income rose by 31.3% vs. the same
period last year. Asset disposals: Euro 102 million in capital
gains In the first nine months of 2005, ENDESA sold Euro 120
million worth of non-strategic electricity assets from its business
in Spain and Portugal, posting gross capital gains of Euro 102
million. Among these we highlight the sale of land in Palma de
Mallorca where GESA's headquarters were formerly located and the
sale of the "Lepanto" building in Barcelona, generating gross
capital gains of Euro 89 million (Euro 75 million net of taxes). In
addition, ENDESA agreed to sell EDP the 49% stake held by Endesa
Gas in Portuguese company, NQF Gas, for Euro 57 million. The deal
is only pending to the materialization of certain conditions of the
agreement. As a result, ENDESA ceased to account for the NQF stake
under the equity method instead booking the investment under
"assets held for sale". As of 30 September 2005, ENDESA's stake in
NQF Gas had a book value of Euro 21 million. The corresponding
capital gain is not reflected in the company's financial statements
as of 30 September 2005. Cash flow: Euro 1,669 million Cash flow
from operations from the Spanish and Portuguese electricity
business amounted to Euro 1,669 million in January-September 2005,
an increase of 13.5% vs. the same period in 2004. Investments: 70%
increase in new generation capacity and 59.9% increase in
distribution quality improvement Total investment in Spain and
Portugal reached Euro 1,746 million in the first nine months of
2005, up 62.7% on the same period last year. -0- *T TOTAL
INVESTMENT IN SPAIN AND PORTUGAL
----------------------------------------------------------------------
Euro million
----------------------------------------------------------------------
Jan-Sep2005 Jan-Sep 2004 % Chg
----------------------------------------------------------------------
Capex 1,484 953 55.7
----------------------------------------------------------------------
Intangibles 66 21 214.3
----------------------------------------------------------------------
Financial 196 99 98.0
----------------------------------------------------------------------
Finerge 151 - N/A
----------------------------------------------------------------------
Total investments 1,746 1,073 62.7
----------------------------------------------------------------------
CAPEX IN SPAIN AND PORTUGAL
----------------------------------------------------------------------
Euro million
----------------------------------------------------------------------
Jan-Sep2005 Jan-Sep 2004 % Chg
----------------------------------------------------------------------
Generation 544 320 70.0
----------------------------------------------------------------------
Ordinary regime 491 224 119.2
----------------------------------------------------------------------
Renewables/CHP 53 96 (44.8)
----------------------------------------------------------------------
Distribution 916 573 59.9
----------------------------------------------------------------------
Others 24 60 (60.0)
----------------------------------------------------------------------
Total 1,484 953 55.7
----------------------------------------------------------------------
*T 85% of total investment was capex used in developing or
improving electricity generation and distribution facilities, in
order to maintain ENDESA's position of leadership in the Spanish
market. The capex breakdown reflects the considerable effort made
by the Company over the last few years to improve its service
quality, with investment in distribution facilities accounting for
61.7% of the total. Additionally, it is significant the capex done
by ENDESA's to increase its generation capacity; among which worth
mentioning are: (i) the conversion to imported coal of group 4 and
construction of 800 MWs of CCGT in As Pontes, (ii) the construction
of 400MW CCGT in the Colon plant and (iii) the capacity increase of
special regime generation. The newly consolidated investment
relates to the acquisition during the third quarter of this year of
Portuguese renewables Company, Finerge, for Euro 151 million.
Although not included in the figures above, the financing of the
tariff deficit is also booked as a financial investment; therefore,
an additional Euro 1,104 million was accrued under this heading up
to 30 September 2005. Strong EBITDA growth for the year 2005
According to current estimates, Spain & Portugal's EBITDA would
range from Euro 2,800 million to Euro 3,150 million by year-end
2005, implying a 13% to 27% increase vs. 2004. ELECTRICITY BUSINESS
IN EUROPE Excellent results and sound outlook for growth In the
rest of Europe, ENDESA focused on its two main strategic goals:
consolidating its position in this market and seeking new growth
opportunities. With regards to Endesa Italia, it is worth
mentioning the strong growth achieved in main operating figures
during the period: installed capacity has increased by 11%,
electricity output by 9.2% and sales by 18.2%. On the other hand,
in 3Q05, ENDESA and the Italian group Merloni signed an agreement
pursuant to which ENDESA will acquire 51% of the Italian company MF
Power, owner of three Italian wind farms with a total capacity of
60 MW. Moreover, the construction of two combined cycle groups, 400
MW each, in Scandale (Calabria) advanced on schedule. This project
was 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 wind farms for the company IDAS
according to the contract that awarded 100% to Endesa Italia at the
end of the same month. The two farms will have a total capacity of
56 MW and are expected to be commissioned by mid 2006. In addition,
the Company achieved several other relevant milestones in the first
six months of the year: -- In February, the Company sold 5.33% of
its holding in Endesa Italia to ASM Brescia, one of ENDESA's
partners in Endesa Italia, for Euro 159 million, booking a net
capital gain of Euro 24 million. Following this transaction, ENDESA
holds an 80% stake in Endesa Italia. The transaction implies a
value for ENDESA Italia of Euro 2,989 million, 36.4% higher than
the price ENDESA paid for its original stake in the Italian group
in 2001. -- The repowering work to convert the Ostiglia plant's
group 3 to a 400MW combined cycle generator was completed. 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 of this year. -- 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 portfolio. The Merloni Group contributes with a
portfolio of more than 2,000 customers and sales volumes of over 2
TWh. -- The Company has signed a letter of intent to construct and
operate the Livorno regasification plant (Tuscany), which will
allow ENDESA to acquire up to 25% of the project's company and an
off-take agreement up to 2bcm of the plant's regasification
capacity. -- Endesa Italia distributed a dividend of Euro 102
million in February. Initiatives undertaken at Snet (65% owned by
ENDESA) during the period fell under the auspices of the Industrial
Plan presented at the beginning of 2005, the purpose of which is to
develop new capacity by means of the future use of its current
sites in order to achieve total new capacity of 2,000 MW in
combined cycle plants and 200 MW in renewables/CHP. The following
features of this plan, among others, were carried out in Snet in
the first six months of the year: the contract to sell electricity
to EDF was renegotiated, a coal supply contract was signed, several
agreements were reached with trade unions to ensure that labour
conditions would remain stable and targets for workforce
restructuring could be met, the merger of the three operating
companies (Setne, Setcm and Snet itself) was initiated, and
authorisation was obtained to commence construction of the
Lehaucourt wind farm, which will have a total capacity of 9.2MW. In
addition on 29 July, already in the third quarter, the French
generator's Board of Directors paid out an interim dividend of Euro
21 million, of which Euro 14 million corresponded to Endesa Europa.
On September 23rd, Snet completed the sale of its 23.62% stake in
power generator Sechilienne-Sidec to Ecofin Ltd. for Euro 104
million. In addition, during the third quarter of 2005 the
valuation of Snet's assets required to calculate goodwill yielding
a figure of Euro 185 million. Finally, in line with its strategic
objective of seeking new sources of growth in Europe, ENDESA will
participate on an exclusive basis in the upcoming negotiations
related to the privatisation of the Dolna Odra in Poland, with
installed capacity of 1,960 MW. Net income: up 102.1% Net income
from the electricity business in Europe totalled Euro 283 million
in the first nine months of 2005, an increase of 102.1% when
compared to the same period in the previous year. The table below
shows a breakdown of output and sales figures by country: -0- *T
BREAKDOWN OF ENDESA'S GENERATION AND SALES IN EUROPE
----------------------------------------------------------------------
Generation (GWh) Sales (GWh)
----------------------------------------------------------------------
Jan-Sep Jan-Sep Jan-Sep Jan-Sep 2005 2004 % Chg 2005 2004 % Chg
----------------------------------------------------------------------
Italy 17,329 15,872 9.12 23,153 19,589 18.2
----------------------------------------------------------------------
France 5,927 1,078 449.8 10,007 1,189 741.6
----------------------------------------------------------------------
Poland* 1,154 70 1,548.6 1,154 70 1,548.6
----------------------------------------------------------------------
Total 24,410 17,020 43.4 34,314 20,848 64.6
----------------------------------------------------------------------
(*) ENDESA is present in the generation business in Poland through
the Bialystock co-generation plant, which is controlled by Snet.
----------------------------------------------------------------------
*T EBIT: up 62% EBITDA and EBIT for the ENDESA's European
electricity business for the first nine months of 2005, can be
broken down as follows: -0- *T EBITDA & EBIT IN EUROPE
----------------------------------------------------------------------
EBITDA EBIT (Euro million) (Euro million)
----------------------------------------------------------------------
Jan-Sep Jan-Sep Jan-Sep Jan-Sep 2005 2004 % Chg 2005 2004 % Chg
----------------------------------------------------------------------
Endesa Italia 561 413 35.8 456 324 40.7
----------------------------------------------------------------------
Snet 136 13 946.2 54 4 1,250.0
----------------------------------------------------------------------
Trading 20 - N/A 20 - N/A
----------------------------------------------------------------------
Holding & others (15) (10) (50.0) (15) (10) (50.0)
----------------------------------------------------------------------
Total 702 416 68.8 515 318 62.0
----------------------------------------------------------------------
*T Trading operations have added Euro 20 million to EBIT. These
operations can be executed without assuming any risks due to
ENDESA's generation assets in Italy and France. Positive
performance of ENDESA Italia continues The following table shows
main components of EBIT at Endesa Italia during the first nine
months of 2005. -0- *T ENDESA ITALIA KEY DATA
----------------------------------------------------------------------
Euro million
----------------------------------------------------------------------
Jan-Sep Jan-Sep Change in 2005 2004 euros % Chg
----------------------------------------------------------------------
Revenues 1,661 1,248 413 33.1
----------------------------------------------------------------------
Energy purchases 224 181 43 23.8
----------------------------------------------------------------------
Fuel consumption 648 528 120 22.7
----------------------------------------------------------------------
Transmission expenses 5 15 (10) (66.7)
----------------------------------------------------------------------
Other supplies and services 101 - 101 N/A
----------------------------------------------------------------------
Gross margin 683 524 159 30.3
----------------------------------------------------------------------
Capitalised expenses 4 5 (1) (20.0)
----------------------------------------------------------------------
Personnel expenses 54 50 4 8.0
----------------------------------------------------------------------
Other expenses 72 66 6 9.1
----------------------------------------------------------------------
EBITDA 561 413 148 35.8
----------------------------------------------------------------------
Depreciation and amortization 105 89 16 18.0
----------------------------------------------------------------------
EBIT 456 324 132 40.7
----------------------------------------------------------------------
*T Revenues reported by the Italian group grew 33.1% in the
analysed period due largely to the 18.2% increase in energy sold.
The Company sold 23,153 GWh of electricity, compared to 19,589 GWh
in the same period last year, which represents an increase of
18.2%. Out of the previous amount, 5,824 GWh were acquired from
third parties at a cost of Euro 224 million, representing 2,107 GWh
more than in the same period of 2004. Total electricity generation
of the Company was 17,329 GWh in the period January-September 2005,
an increase of 1,457 GWh or 9.2% relative to the same period in
2004. Market share in the Italian market was 8.1% during the first
nine months of 2005. Progress in ENDESA fulfilling 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. This
programme enables the Company to soften the impact of the increase
in fuel prices. Endesa Italia's fuel costs increased in the first
nine months of the year by just 22.7%, or Euro 120 million. This
figure is far 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 is also clear when we
compare the breakdown by technology for the group in the first nine
months of 2004 with the same period of 2005: the weight of CCGT
plant in the production mix has increased from 27.5% to 48%, while
the weight of fuel-gas has declined from 34.6% to 16.1%. The line
"other supplies and services" includes, among other items, the
estimated cost of CO2 emissions in the first nine months of 2005,
which are not expected to be covered by the emission rights to be
distributed by the Italian government. On the other hand, on 23rd
June 2005, a Decree was published in Italy granting Endesa Italia
the right to charge Euro 169 million in stranded costs in
2005-2009. Euro 25 million of the total amount approved was booked
as an increase in revenues on the Profit and Loss account for the
first nine months of 2005 and the remaining Euro 144 million was
deferred according to the useful life of the related facilities.
Debt reduced by Euro 643 million Net debt at ENDESA's electricity
business in Europe stood at Euro 1,480 million at 30 September,
2005, compared to Euro 2,123 million at the beginning of the year -
a reduction of Euro 643 million, or 30.3%. Financial results
reflected a cost of Euro 44 million in the first nine months of
2005, Euro 1 million less than in January-September 2004. Cash
flow: up 34.2% Cash flow generated from operations stood at Euro
502 million, a rise of 34.2% compared to the same period in 2004.
Investments: Euro 160 million Investment in the European
electricity business was Euro 160 million in January-September
2005. Out of this amount, Euro 135 million was capex, with Euro 79
million of investment in Endesa Italia and Euro 56 million in Snet.
Financial investments for the period were Euro 21 million,
including the purchase of minority interests in Sodelif, Snet's
subsidiary, amounting to Euro 6 million. Divestments In the first
nine months of 2005, ENDESA has made the following divestments in
its European business: -- The sale of a 5.33% stake in Endesa
Italia to ASM Brescia for Euro 159 million, generating a net
capital gain of Euro 24 million. -- The sale of Snet's 23.62% stake
in the generator Sechilienne-Sidec for Euro 104 million, generating
a gross capital gain of Euro 48 million (Euro 26 million after
taxes and minorities). -- 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. Strong EBITDA growth for the year
2005 According to current estimates, EBITDA for the European
business will reach around Euro 850 million by year-end 2005,
implying a 60% increase vs. 2004. ELECTRICITY BUSINESS IN LATIN
AMERICA Leveraging on the economic recovery of the region: strong
growth in output and sales The trends characterising regional
performance during the first half of 2005 extended into the third
quarter: sustained economic growth and currency stability. This
propitious backdrop enabled high growth in demand for electricity
during the first nine months of 2005 vs. 2004 with average sales
growth of 5.5% in all areas in which ENDESA's subsidiaries operate.
This increase in demand boosted generation at ENDESA's
subsidiaries, which showed average growth of 5.4% compared to the
same period last year. Better economic conditions also led to
widespread increases in prices and business margins. As a
consequence the EBIT rose by 5.0% in generation and transmission,
and 21.6% in distribution. Growth in volume sales in generation and
distribution Generation and distribution figures for ENDESA's Latin
American subsidiaries were as follows: -0- *T GENERATION AND
DISTRIBUTION AT THE LATIN AMERICAN BUSINESS
----------------------------------------------------------------------
Generation (GWh) Distribution (GWh)
----------------------------------------------------------------------
Jan-Sep 2005 % chg Jan-Sep 2005 % chg
----------------------------------------------------------------------
Chile 13,778 14.0 8,847 4.7
----------------------------------------------------------------------
Argentina 12,046 3.3 10,498 4.8
----------------------------------------------------------------------
Peru 5,061 23.2 3,356 6.5
----------------------------------------------------------------------
Colombia 8,855 (1.8) 7,469 4.2
----------------------------------------------------------------------
Brazil 3,130 (17.3) 10,863 7.3
----------------------------------------------------------------------
TOTAL 42,870 5.4 41,033 5.5
----------------------------------------------------------------------
*T Improved generation and distribution margins Growth in demand
and tighter reserve margins caused the unit margin of generation
companies to increase by 11.4% in January-September 2005 compared
to the same period last year, to US$ 20.6 per MWh produced. It is
significant that this increase has been achieved in an unfavourable
environment due to the increase in liquid fuel prices and the gas
shortages in Chile and Argentina. The high degree pass through of
the generation prices in the tariff reviews undertaken this year
coupled with the operating efficiency of the companies, improved
Distribution margins. Their VAD increased by 20.3% to US$ 27.9 per
MWh distributed. Development of regulatory framework In the third
quarter of the current year, further improvements of the regulatory
framework on which ENDESA's subsidiaries develop their activities
have come into place. Main milestones are: -- In Argentina,
agreement between Edesur and Uniren, that ratifies the 28% VAD
increase as a Transition Tariff Framework, brings forward the
validity of the Integral Tariff Revision (RTI) to 1 August 2006 and
limits the distributor's contribution to the so called social
tariff. -- In Peru, Edelnor tariff review, valid for the following
four years, was successfully completed in the third quarter. A
preliminary scheme, which maintains current VAD, was published on
October 13th 2005. -- Argentinean and Brazilian Governments are
redefining the conditions for the interconnection business between
both countries, fact that should ease the reestablishment of the
contracts for Line 1 of Cien. In addition, during the current
quarter, it's worth noting the subscription of the Definitive
Agreement for Operation and Management of Generation Projects on 17
October, that will allow installation of two CCGT with total
capacity of 1,600MW. This is the first step towards the Argentinean
wholesale market normalization. Net income: up 70.6% Net income
from this business totalled Euro 186 million in the first nine
months of 2005, an increase of 70.6% from the same period last year
and contribution of 12% to ENDESA's total net income in the same
period. EBIT: Growth of 14.8% The table below shows EBITDA and EBIT
for ENDESA's Latin American electricity business, broken down by
activity: -0- *T EBITDA & EBIT IN LATIN AMERICA
----------------------------------------------------------------------
Euro million
----------------------------------------------------------------------
EBITDA EBIT
----------------------------------------------------------------------
Jan-Sep Jan-Sep Jan-Sep Jan-Sep 2005 2004 % Chg 2005 2004 % Chg
----------------------------------------------------------------------
Generation and transmission 736 681 8.1 548 522 5.0
----------------------------------------------------------------------
Distribution 613 509 20.4 444 365 21.6
----------------------------------------------------------------------
Others (26) (45) N/A (28) (47) N/A
----------------------------------------------------------------------
Total 1,323 1,145 15.6 964 840 14.8
----------------------------------------------------------------------
*T EBITDA and EBIT breakdown by country where ENDESA operates
through fully consolidated subsidiaries as follows: -0- *T
BREAKDOWN OF EBITDA AND EBIT IN LATAM BY BUSINESS LINE
----------------------------------------------------------------------
Generation and transmission
----------------------------------------------------------------------
Euro million EBITDA EBIT
----------------------------------------------------------------------
Jan-Sep Jan-Sep Jan-Sep Jan-Sep 2005 2004 % Chg 2005 2004 % Chg
----------------------------------------------------------------------
Chile 250 188 33.0 171 127 34.6
----------------------------------------------------------------------
Colombia 171 160 6.9 135 129 4.7
----------------------------------------------------------------------
Brazil - Generation 97 73 32.9 83 63 31.7
----------------------------------------------------------------------
Brazil - Transmission 34 66 (48.5) 21 54 (61.1)
----------------------------------------------------------------------
Peru 114 96 18.8 87 69 26.1
----------------------------------------------------------------------
Argentina - Generation 70 87 (19.5) 53 69 (23.2)
----------------------------------------------------------------------
Argentina - Transmission - 11 (100.0) (2) 11 (118.2)
----------------------------------------------------------------------
TOTAL 736 681 8.1 548 522 5.0
----------------------------------------------------------------------
----------------------------------------------------------------------
Distribution
----------------------------------------------------------------------
Euro million EBITDA EBIT
----------------------------------------------------------------------
Jan-Sep Jan-Sep Jan-Sep Jan-Sep 2005 2004 % Chg 2005 2004 % Chg
----------------------------------------------------------------------
Chile 139 130 6.9 121 115 5.2
----------------------------------------------------------------------
Colombia 177 146 21.2 119 96 24.0
----------------------------------------------------------------------
Brazil 202 123 64.2 152 84 81.0
----------------------------------------------------------------------
Peru 54 49 10.2 32 28 14.3
----------------------------------------------------------------------
Argentina 41 61 (32.8) 20 42 (52.4)
----------------------------------------------------------------------
TOTAL 613 509 20.4 444 365 21.6
----------------------------------------------------------------------
*T Generation and transmission Chile In the first nine months of
2005, generation was impacted by the gas supply problems affecting
the thermal plants, which required substituting gas with more
expensive liquid fuels. For ENDESA's subsidiaries this issue was
more than offset by the 14% increase in energy generated from
hydropower thanks to the Ralco plant joining the grid in the third
quarter of 2004. Therefore, EBIT increased 34.6% in the first nine
months of 2005 vs. the same period last year to Euro171 million.
Colombia Lower rainfall led to a 1.8% reduction of energy
generated. However, this fall was offset by the increase in the
average sales price and the favourable trend in the Colombian peso
relative to the Euro, driving EBITDA to Euro 171 million and EBIT
to Euro 135 million, increasing them by 6.9% and 4.7% respectively,
versus the same period last year. Brazil - Generation Total
electricity generation fell 17.3%, due to problems of gas supply
that have affected Endesa Fortaleza. However, favourable exchange
rate movements together with higher prices and lower fuel
consumption underpinned a 32.9% rise in EBITDA and a 31.7% jump in
EBIT to Euro 97 million and Euro 83 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 21 million, Euro 33 million lower than in the same
period last year. Peru Sales in the Peruvian generation business
totalled Euro 218 million in the first nine months of 2005, 5.2%
less than in the same period a year earlier. Effect of lower prices
caused by improved rainfall was offset by a 23.2% increase in power
generated. Improved rainfall also drove a Euro 62 million decrease
in fuel costs, contributing to a Euro 18 million rise both in
EBITDA and EBIT to Euro 114 million and a Euro 87 million
respectively. Argentina Gas supply issues led to significant
increases in fuel costs (+42.5%) due to the need to generate power
using liquid fuels. As a result profitability fell even though
generation sales volume increased. As a result of this, EBITDA and
EBIT fell by 19.5% and 23.2% to Euro 70 million and Euro 53 million
respectively. Distribution Chile EBITDA and EBIT in the Chilean
distribution business rose 6.9% and 5.2% respectively, in the first
nine months of the year. These increases reflect the fact that
growth in sales volume to meet higher demand is offsetting the
squeeze on margins caused by the latest tariff revision. Colombia
EBITDA for the Colombian distribution business rose by 21.2% and
EBIT by 24.0%. These increases were due to the 14.9% increase in
sales (to Euro 448 million), sufficient to cover higher power
purchase costs and the increase in fixed costs and favourable
fluctuation in the euro exchange rate versus the Colombian peso.
Brazil Sales in the Brazilian distribution business stood at Euro
905 million in the first nine months of 2005, a 37.5% increase over
2004. This increase reflects margin expansion due enhanced
generation price pass-through, and, to a lesser extent, higher
volumes of energy sold. Sales growth easily outpaced cost
increases, driving EBITDA to Euro 202 million and EBIT to Euro 152
million, representing an increase of 64.2% and 81.0%, respectively,
on the same period last year. Peru EBITDA at the Peruvian
distribution business in January-September 2005 amounted to Euro 54
million, 10.2% more than in January-September 2004. EBIT grew Euro
4 million (+14.3%). Growth was driven by a 13.4% increase in sales
on of first nine months of 2004 to Euro 220 million compared to an
11.9% rise in power purchases. Argentina EBITDA and EBIT in the
Argentine distribution business fell by Euro 20 million and Euro 22
million, respectively, compared to the first nine months of 2004.
This was largely because the January-September 2004 figures
included income of Euro 10 million corresponding to the
compensation received from Alsthom due to the Azopardo supply
incident. Higher costs, both power purchases and fixed costs, which
were not offset by a corresponding increase in revenues ahead of
the upcoming tariff hike - situation that might change in the
future- accounted for the rest of the fall in earnings. Financial
strength: 23.7% improvement in financial results Financial results
for the electricity business in Latin America reflected a loss of
Euro 290 million in the first nine months of 2005, Euro 90 million
less than recorded in the same period of 2004. Exchange rate
differences were Euro 105 million higher, going from losses of Euro
33 million in January-September 2004 to gains of Euro 72 million in
January-September 2005. Intragroup transactions in foreign
currency, normally in dollars but, in accordance with paragraph 33
of IAS 21, not eliminated in consolidation, contributed Euro 34
million of exchange gains. At its 22 and 23 June meeting, the IASB
decided to modify this paragraph, whereby translation differences
are taken to reserves. Until the EU authorities 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 for 2005 could change. The impact
of these differences on ENDESA's net income as of 30 September 2005
was Euro 17 million. Net financial expenses totalled Euro 362
million, Euro 15 million or 4.3% higher than in January-September
2004. This increase relates to the performance of the Euro with
respect to the Latin American currencies and the dollar, which led
to an increase in debt denominated in these currencies. Net debt at
ENDESA's Latin American business stood at Euro 6,237 million at 30
September 2005, an increase of Euro 887 million since the existing
at the beginning of the year. The increase in net debt is due to
the depreciation of the euro against the currencies in which the
group's Latin American subsidiaries hold their debt, representing a
total increase of Euro 873 million. Stripping out the impact of
this depreciation, and taking account both the Euro 113 million
dividends paid to the parent company, as well as the Euro 359
million capital reduction and dividends paid to third parties, the
debt would have decreased Euro 458 million. Enersis and Endesa
Chile performance in financial markets The strong business
performance of ENDESA's Latin American business was reflected in
the share prices performance of both Enersis and Endesa Chile -
ENDESA's main subsidiaries - whose share prices have risen by 34%
and 63% respectively, in the New York Stock Exchange, in the first
nine months of 2005. Two major rating agencies improved the credit
rating outlook of both companies. Cash flow: up 15.2% Cash flow
generated by the group's business in Latin America totalled Euro
766 million in the first nine months of 2005, an increase of 15.2%
with respect to 2004. Investments: Euro 512 million Investments in
the Latin American electricity business were Euro 512 million in
the period January-September 2005. Of this sum, Euro 384 million
was capex, broken down as follows: -0- *T CAPEX IN LATIN AMERICA
----------------------------------------------------------------------
Euro million
----------------------------------------------------------------------
Jan-Sep 2005 Jan-Sep 2004 % Chg
----------------------------------------------------------------------
Generation 122 152 (19.7)
----------------------------------------------------------------------
Distribution and Transmission 243 177 37.3
----------------------------------------------------------------------
Others 19 8 137.5
----------------------------------------------------------------------
Total 384 337 13.9
----------------------------------------------------------------------
*T The decrease in generation capex was due mainly to the
completion of the construction of the Ralco hydroelectric plant,
which, as mentioned before, came on-stream in the second half of
2004. Financial investments for the period amounted to Euro 124
million, which includes the acquisition of minority interests in
Compania Electrica San Isidro, an Endesa Chile subsidiary, for USD
21 million (Euro 17 million). Optimisation of organisational
structure In the third quarter of 2005 ENDESA set up Endesa Brasil,
S.A. At the end of October, this holding company's shareholders
contributed all the assets owned by ENDESA in Brazil. Also in the
same month, an agreement was reached to merge Chilectra and Edesur,
both of which were owned by Enersis, with stakes of 98.24% and
100%, respectively. Transaction will be executed through the
acquisition of Chilectra by Edesur and the operation forms part of
the Group's strategy to simplify its corporate structure. San
Isidro II and Palmucho Plants Construction (Chile) Endesa Chile
plans to build a combined cycle plant using LNG. This facility, to
be called San Isidro II, will have a total installed capacity of
377 MW. In connection with this initiative, an EPC contract was
signed by the Company with Mitsubishi and the civil engineering
plans are currently being drawn up. The schedule envisages it
coming on stream for open cycle plant operation with diesel in
2007, with capacity of 210 MW, moving to combined cycle diesel
operation with capacity of 310MW in 2008 and to commercial
operations fuelled by LNG once this arrives in Chile, currently
scheduled for year 2009. Endesa Chile started the construction of
Palmucho, a 32 MW hydro power plant. Strong EBITDA growth for the
year 2005 According to current estimates, EBITDA for the business
in Latin America will reach around Euro 1,750 million by year-end
2005, implying a 15% increase vs. 2004. ACCOUNTING CRITERIA ENDESA
has prepared its consolidated financial statements for the first
nine months of 2005 in accordance with the valuation and
classification criteria required by International Financial
Reporting Standards (IFRS) endorsed by the European Union to date.
Under IFRS I, the date for transition to IFRS is January 1st, 2004.
Therefore, figures for the third quarter 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 investors and analysts with information
regarding the effects of adopting IFRS, on 5 April 2005, the
Company filed a press release containing the most significant
adjustments made in transitioning from Spanish GAAP to IFRS and
their implications. This press release was lodged with the Spanish
securities regulator, the CNMV, under registered file no. 18131.
The consolidated financial statements for 2005 and 2004 included in
the annual accounts for 2005 must be prepared under the IFRS
endorsed by the European Union as of 31 December 2005. Accordingly,
any change in the rules endorsed by the European Union or
interpretation of the same between now and the end of the year
could lead to modifications in the consolidated financial
statements as of 30 September 2005, although, given year-end is
near, further significant changes to the accounts of ENDESA are not
expected. STATISTICAL APPENDIX KEY FIGURES -0- *T Electricity
Generation (GWh) 9M 2005 9M 2004 % Chg
----------------------------------------------------------------------
Electricity business in Spain and Portugal 69,769 72,357 (3.6)
----------------------------------------------------------------------
Electricity business in Europe 24,410 17,020 43.4
----------------------------------------------------------------------
Electricity business in Latin America 42,870 40,664 5.4
----------------------------------------------------------------------
TOTAL 137,049 130,041 5.4
----------------------------------------------------------------------
Electricity Generation in Spain and Portugal (GWh) 9M 2005 9M 2004
% Chg
----------------------------------------------------------------------
Mainland 59,375 62,476 (5.0)
----------------------------------------------------------------------
Nuclear 16,835 19,525 (13.8)
----------------------------------------------------------------------
Coal 27,216 27,289 (0.3)
----------------------------------------------------------------------
Hydroelectric 6,085 8,686 (29.9)
----------------------------------------------------------------------
Combined cycle - CCGT 5,641 4,524 24.7
----------------------------------------------------------------------
Fuel oil 2,029 1,078 88.2
----------------------------------------------------------------------
Renewables/CHP 1,569 1,374 14.2
----------------------------------------------------------------------
Non-mainland 10,394 9,881 5.2
----------------------------------------------------------------------
TOTAL 69,769 72,357 (3.6)
----------------------------------------------------------------------
Electricity Generation in Europe (GWh) 9M 2005 9M 2004 % Chg
----------------------------------------------------------------------
Coal 11,457 5,299 116.2
----------------------------------------------------------------------
Hydroelectric 1,820 1,855 (1.9)
----------------------------------------------------------------------
Combined cycle - CCGT 8,318 4,366 90.5
----------------------------------------------------------------------
Fuel oil 2,796 5,497 (49.1)
----------------------------------------------------------------------
Wind 19 3 533.3
----------------------------------------------------------------------
TOTAL 24,410 17,020 43.4
----------------------------------------------------------------------
Electricity Generation in Latin America (GWh) 9M 2005 9M 2004 % Chg
----------------------------------------------------------------------
Chile 13,778 12,086 14.0
----------------------------------------------------------------------
Argentina 12,046 11,666 3.3
----------------------------------------------------------------------
Peru 5,061 4,107 23.2
----------------------------------------------------------------------
Colombia 8,855 9,019 (1.8)
----------------------------------------------------------------------
Brazil 3,130 3,786 (17.3)
----------------------------------------------------------------------
TOTAL 42,870 40,664 5.4
----------------------------------------------------------------------
Electricity sales (GWh) 9M 2005 9M 2004 % Chg
----------------------------------------------------------------------
Electricity business in Spain and Portugal 75,381 72,689 3.7
----------------------------------------------------------------------
Regulated market 47,939 49,831 (3.8)
----------------------------------------------------------------------
Deregulated market 27,442 22,858 20.1
----------------------------------------------------------------------
Electricity business in Europe 34,314 20,848 64.6
----------------------------------------------------------------------
Electricity business in Latin America 41,033 38,905 5.5
----------------------------------------------------------------------
Chile 8,847 8,449 4.7
----------------------------------------------------------------------
Argentina 10,498 10,014 4.8
----------------------------------------------------------------------
Peru 3,356 3,150 6.5
----------------------------------------------------------------------
Colombia 7,469 7,165 4.2
----------------------------------------------------------------------
Brazil 10,863 10,127 7.3
----------------------------------------------------------------------
TOTAL 150,728 132,442 13.8
----------------------------------------------------------------------
Gas sales (GWh) 9M 2005 9M 2004 % Chg
----------------------------------------------------------------------
Regulated market 1,934 1,907 1.4
----------------------------------------------------------------------
Deregulated market 13,355 7,887 69.3
----------------------------------------------------------------------
TOTAL 15,289 9,794 56.1
----------------------------------------------------------------------
Workforce 30-09-05 31-12-04 % Chg
----------------------------------------------------------------------
Electricity business in Spain and Portugal 12,730 12,889 (1.2)
----------------------------------------------------------------------
Electricity business in Europe 2,313 2,440 (5.2)
----------------------------------------------------------------------
Electricity business in Latin America 12,343 11,735 5.2
----------------------------------------------------------------------
Other businesses 54 93 (41.9)
----------------------------------------------------------------------
TOTAL 27,440 27,157 1.0
----------------------------------------------------------------------
FINANCIAL DATA Key figures 9M 2005 9M 2004 % Chg
----------------------------------------------------------------------
EPS (euros) 1.47 1.11 32.8
----------------------------------------------------------------------
Cash flow per share (euros) 2.77 2.40 15.4
----------------------------------------------------------------------
Book value per share (euros) 9.90 8.12** 21.8
----------------------------------------------------------------------
Net financial debt (Euro million) 30-09-05 01-01-05 % Chg
----------------------------------------------------------------------
Electricity business in Spain and Portugal 11,452 9,586 19.5
----------------------------------------------------------------------
Electricity business in Europe 1,480 2,123 (30.3)
----------------------------------------------------------------------
ENDESA Italia 995 1,293 (23.0)
----------------------------------------------------------------------
Other 485 830 (41.6)
----------------------------------------------------------------------
Electricity business in Latin America 6,237 5,350 16.6
----------------------------------------------------------------------
Enersis 5,063 4,081 24.1
----------------------------------------------------------------------
Other 1,174 1,269 (7.5)
----------------------------------------------------------------------
Other businesses 1,250 1,639 (23.7)
----------------------------------------------------------------------
TOTAL 20,419 18,698 9.2
----------------------------------------------------------------------
----------------------------------------------------------------------
Gearing (%) 135.0 149.6 N/A
----------------------------------------------------------------------
Net debt/operating cash flow (times) 3.5 3. 5* N/A
----------------------------------------------------------------------
Interest coverage with operating cash flow (times) 5.9 5.3* N/A
----------------------------------------------------------------------
"Rating" (16-11-05) Long term Short term Outlook
----------------------------------------------------------------------
Standard & Poor's A A-1 Revision (-)
----------------------------------------------------------------------
Moody's A3 P-2 Negative
----------------------------------------------------------------------
Fitch A F1 Revision (-)
----------------------------------------------------------------------
Main fixed income issues Spread over IRS (bp)
----------------------------------------------------------------------
30-09-05 31-12-04
----------------------------------------------------------------------
3.7 Y EUR 700M 4.375% Mat. September 2009 5 17
----------------------------------------------------------------------
6.8 Y GBP 400M 6.125% Mat. September 2012 27 33
----------------------------------------------------------------------
7.4 Y EUR 700M 5.375% Mat. Feb 2013 21 31
----------------------------------------------------------------------
Stock market data 30-09-05 31-12-04 % Chg
----------------------------------------------------------------------
Market cap (Euro million) 23,578 18,306 28.80
----------------------------------------------------------------------
Number of shares outstanding 1,058,752,117 1,058,752,117 --
----------------------------------------------------------------------
Nominal share value (EUR) 1.2 1.2 --
----------------------------------------------------------------------
Stock market data 9M 05 9M 04 % Chg
----------------------------------------------------------------------
Trading volumes (shares)
----------------------------------------------------------------------
Madrid stock exchange 2,116,538,073 1,707,596,826 23.95
----------------------------------------------------------------------
NYSE 20,964,800 17,804,900 17.75
----------------------------------------------------------------------
Average daily trading volume (shares)
----------------------------------------------------------------------
Madrid stock exchange 11,023,635 8,940,298 23.30
----------------------------------------------------------------------
NYSE 110,925 94,707 17.12
----------------------------------------------------------------------
Share price High 9M Low 9M 2005 2005 30-09-05 31-12-04
----------------------------------------------------------------------
Madrid stock exchange (euros) 22.30 16.63 22.27 17.29
----------------------------------------------------------------------
NYSE (USD) 26.90 21.63 26.77 23.27
----------------------------------------------------------------------
Dividends (euro cents/share) Payable against 2004 results
----------------------------------------------------------------------
Interim dividend (3-01-05) 27.20
----------------------------------------------------------------------
Final dividend (01-07-05) 46.62
----------------------------------------------------------------------
Total DPS 73.82
----------------------------------------------------------------------
Pay-out (%) 56.7
----------------------------------------------------------------------
Dividend yield (%) 3.31
----------------------------------------------------------------------
(*) As of September 30th, 2004. (**) As of January 1st, 2005. *T
NOTE: THE RESULTS PRESENTATION IS AVAILABLE FOR DOWNLOAD FROM
ENDESA'S WEBSITE (WWW.ENDESA.ES). http://www.endesa.es Cautionary
Statement for Purposes of the "Safe Harbor" Provisions of the
United States Private Securities Litigation Reform Act of 1995. The
U.S. Private Securities Litigation Reform Act of 1995 provides a
safe harbor for forward-looking statements. This presentation
contains certain "forward-looking statements" regarding anticipated
financial and operating results and statistics and other future
events. These statements are not guarantees of future performance
and are subject to material risks, uncertainties, changes and other
factors which may be beyond Endesa's control or may be difficult to
predict. Forward-looking statements include, but are not limited
to, information regarding: estimated future earnings; anticipated
increases in wind and CCGTs generation and market share; expected
increases in demand for gas and gas sourcing; management strategy
and goals; estimated cost reductions; tariffs and pricing
structure; estimated capital expenditures and other investments;
expected asset disposals; estimated increases in capacity and
output and changes in capacity mix; repowering of capacity and
macroeconomic conditions. For example, the EBITDA, net income and
dividend forecasts for the year ending December 31, 2005 and the
EBITDA and dividends targets for 2004 to 2009 included in this
presentation are forward-looking statements and are based on
certain assumptions which may or may not prove correct. The
principal assumptions underlying these forecasts and targets relate
to regulatory environment, exchange rates, divestments, increases
in production and installed capacity in the various markets where
Endesa operates, increases in demand in these markets, allocation
of production among different technologies increased costs
associated with higher activity levels not exceeding certain
levels, the market price of electricity not falling below certain
levels, the cost of CCGT and the availability and cost of gas,
fuel, coal and emission rights necessary to operate our business at
desired levels. For all of the forward-looking statements in this
presentation, Endesa claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995. The following important factors, in
addition to those discussed elsewhere in this presentation, could
cause actual financial and operating results and statistics to
differ materially from those expressed in our forward-looking
statements: Economic and Industry Conditions: materially adverse
changes in economic or industry conditions generally or in our
markets; the effect of existing regulations and regulatory changes;
tariff reductions; the impact of any fluctuations in interest
rates; the impact of fluctuations in exchange rates; natural
disasters; the impact of more stringent environmental regulations
and the inherent environmental risks relating to our business
operations; the potential liabilities relating to our nuclear
facilities. Transaction or Commercial Factors: any delays in or
failure to obtain necessary regulatory, antitrust and other
approvals for our proposed acquisitions or asset disposals, or any
conditions imposed in connection with such approvals; our ability
to integrate acquired businesses successfully; the challenges
inherent in diverting management's focus and resources from other
strategic opportunities and from operational matters during the
process of integrating acquired businesses; the outcome of any
negotiations with partners and governments. Any delays in or
failure to obtain necessary regulatory approvals, including
environmental to construct new facilities, repowering or
enhancement of existing facilities; shortages or changes in the
price of equipment, materials or labor; opposition of political and
ethnic groups; adverse changes in the political and regulatory
environment in the countries where we and our related companies
operate; adverse weather conditions, which may delay the completion
of power plants or substations, or natural disasters, accidents or
other unforeseen events; and the inability to obtain financing at
rates that are satisfactory to us. Political/Governmental Factors:
political conditions in Latin America; changes in Spanish, European
and foreign laws, regulations and taxes. Operating Factors:
technical difficulties; changes in operating conditions and costs;
the ability to implement cost reduction plans; the ability to
maintain a stable supply of coal, fuel and gas and the impact of
fluctuations on fuel and gas prices; acquisitions or
restructurings; the ability to implement an international and
diversification strategy successfully. Competitive Factors: the
actions of competitors; changes in competition and pricing
environments; the entry of new competitors in our markets. Further
information about the reasons why actual results and developments
may differ materially from the expectations disclosed or implied by
our forward-looking statements can be found under "Risk Factors" in
our annual report on Form 20-F for the year ended December 31,
2004. No assurance can be given that the forward-looking statements
in this document will be realized. Neither Endesa nor any of its
affiliates intends to update these forward-looking statements.
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