ENDESA (NYSE:ELE) Results JANUARY-DECEMBER 2005 On a pro forma
basis without considering asset sales, 2005 net income would have
been Euro 1,841 million, an increase of 60% and would still be the
highest figure ever for the Company. All of ENDESA's businesses
have achieved excellent results. -- Solid performance from the
electricity business in Spain and Portugal, with a Euro 1,358
million net income, a 52.9% higher that 2004. -- Strong net income
growth in Europe, totalling Euro 425 million (+151.5%) and Latin
America with Euro 262 million (+106.3%). -- Total EBITDA for ENDESA
rose to Euro 6,020 million and EBIT to 4.244 million, with
significant growth achieved: +33.2% and +49.1% respectively. --
Europe and Latin America represent 45.9% of total EBITDA,
underscoring the company's importance as a multinational player. --
Total output was 185,264 GWh in 2005, a rise of 5.4%, and
electricity sales reached 203,335 GWh, up 12.2% vs. 2004. With
these results the targets presented in the Company's Strategic Plan
"ENDESA: Stronger business, greater value" can be surpassed. -- Net
income and EBITDA growth in 2005 was well above the committed
targets. -- Financial leverage at year end 2005 (112%) was much
better than the target set in the Strategic Plan (140%). -- Growth
forecasts of main financial figures for 2006 confirm the objectives
of the Strategic Plan can be clearly surpassed. -- The Company's
Board of Directors has approved that it will propose to the General
Shareholders' Meeting a total gross dividend against 2005 earnings
of Euro 2.4 per share, with a final dividend of Euro 2.095 per
share, payable on 3 July 2006. Solid confirmation of ENDESA's
higher value KEY FACTS AND FIGURES FOR THE PERIOD SHARP GROWTH IN
NET INCOME IN ALL OF THE COMPANY'S BUSINESSES -- Electricity
business in Spain and Portugal posted net income of Euro 1,358
million in 2005, an increase of 52.9%. -- Net income from the
electricity business in Europe rose 151.5% to Euro 425 million. --
Net income from the electricity business in Latin America was Euro
262 million, up 106.3% compared to 2004. STRONG GROWTH IN KEY
P&L ITEMS -- The gross margin advanced 23.8% to Euro 9,126
million. -- Gross operating profit (EBITDA) was Euro 6,020 million,
a 33.2% rise. -- Operating profit (EBIT) grew 49.1% to Euro 4,244
million. -- Cash flow from operations totalled Euro 4,209 million,
23.1% higher than in 2004. THESE RESULTS ARE WELL ABOVE THE TARGETS
SET OUT IN THE 2004-2009 STRATEGIC PLAN PRESENTED TO THE MARKETS --
Full-year net income growth - 154% - exceeds the commitment made in
the Strategic Plan presented to the markets on 3 October 2005 in
the document "ENDESA: stronger business, greater value", which set
a target of 12% annual growth. -- Full-year EBITDA growth -33.2% -
was greater than the commitment made in the Plan, which is between
10% and 11% annual growth. -- Financial leverage as of 31 December
2005 was 8 percentage points better than the forecast for the full
year and 28 percentage points better than the strategic target. --
Growth in net income and capital gains from the sale of Auna - Euro
1,341 million after tax - confirm the viability of the proposal to
pay Euro 7,000 million in dividends to shareholders over five
years. -- Therefore, results for 2005 are well above the targets
set by the Strategic Plan, confirming that these targets can be
clearly surpassed and thus ENDESA's higher value. IMPROVED
FINANCIAL LEVERAGE -- Financial leverage stood at 112% at the end
of 2005, down from 151.2% at the beginning of the year. -- Net debt
was Euro 18,281 million at the end of the year, below the figure of
Euro 18,698 million at the beginning of 2005. ELECTRICITY BUSINESS
IN SPAIN AND PORTUGAL Solid performance in the context of a severe
drought, high fuel costs and insufficient allocation of CO2
emission rights -- Net income from the electricity business in
Spain and Portugal increased by 52.9% and accounted for 42.7% of
ENDESA's total net income. -- EBITDA grew by 32.1% and EBIT by
58.1%. -- Fixed costs fell by 4.4% in the fourth quarter of 2005
vs. 4Q 2004, in line with the targets established in the Efficiency
Improvement Plan. -- The effects of the drought and the rise in
fuel costs have had less impact on ENDESA compared to its peers.
The Company's better position is due to a more balanced generation
mix than its competitors. Largest generator and top selling power
company in Spain -- ENDESA has strengthened its leadership position
in the Spanish electricity market in 2005. It remains the company
with the largest market share in total generation and total
electricity sales. -- The Company met 92.8% of its Spanish demand
using its own output, a balance between generation and demand that
gives it a clear competitive advantage over its competitors. This
allows ENDESA to lower its exposure to risks arising from changes
in rainfall patterns and fluctuations in wholesale prices. --
ENDESA's coal-fired plants achieved an availability rate of 86.5%
in 2005, playing an important role in securing electricity demand
for the system. -- The CO2 emission rights deficit totalled Euro
185 million in 2005, corresponding to a deficit of 8.5 million
tonnes. Continued improvement in quality of supply -- Average
interruption time improved by 25% at ENDESA in 2005 (vs. 2004) in
the distribution areas of mainland Spain supplied by the Company.
-- In the islands, average interruption time improved by 9% without
taking into account the exceptional effects of hurricane "Delta"
which hit the Canary Islands at the end of November. Spain's
utility with the largest investment levels -- ENDESA invested Euro
2,660 million in Spain and Portugal in 2005, of which Euro 2,382
million, or 90%, was capex. This underscores ENDESA's status as
Spain's utility with the largest investment levels. -- Euro 1,369
million of capex was spent in upgrading distribution facilities to
increase quality and security of supply. -- The construction of the
400 MW Cristobal Colon CCGT plant in Huelva entered its final stage
in the fourth quarter of 2005 and construction of the 800 MW CCGT
plant in As Pontes (La Coruna) also progressed according to
schedule. -- Wind farms with a capacity of 149 MW came on stream in
2005 and the Company currently has up to 462 MW under construction.
A major competitor in the natural gas sector, with a total market
share of 12% -- ENDESA sold a total of 22,595 GWh in the Spanish
natural gas market in 2005, which, together with the 22,222 GWh
supplied to its own plants, represents a total market share of 12%.
-- These figures underscore ENDESA's status as a major operator in
the Spanish natural gas market, especially in specific regions,
such as Catalonia, where it is the main competitor of the dominant
operator ELECTRICITY BUSINESS IN EUROPE Sharp increases in main
financial figures -- ENDESA strengthened its position in the
European market outside of the Iberian system in 2005,
consolidating its status as one of Europe's five largest electric
utilities on the continent. -- In 2005 ENDESA's output in Europe
outside the Iberian market stood at 33,749 GWh, larger than the
total output of its third-largest competitors in Spain and
equivalent to half the output of its second-largest competitor. --
Net income from the Company's European electricity business
increased by 151.5% and accounted for 13.4% of ENDESA's total net
income. -- EBITDA stood at Euro 887 million, up 65.8% vs. 2004, and
EBIT at Euro 618 million, an increase of 67%. Debt reduced by Euro
837 million -- Net financial debt from ENDESA's electricity
business in Europe stood at Euro 1,286 million at 31 December 2005,
compared to Euro 2,123 million at the beginning of the year - a
reduction of Euro 837 million, or 39.4%. Endesa Italia: sharp
increases in main financial and operating figures -- EBITDA from
Endesa Italia was Euro 694 million, 36.1% higher than in 2004,
while EBIT stood at Euro 542 million, a 41.9% increase. --
Electricity generation rose by 12% in 2005 and sales by 17.8%. --
Work continued on repowering Endesa Italia's thermal plants. In
2005, the conversion of Ostiglia's group 3 and Tavazzano's group 6
to a combined cycle was completed. Two turbogas groups at the Fiume
Santo plant also came on stream. SNET: strong results, progress in
the Industrial Plan and dividend payment -- The French generator
contributed Euro 179 million to the European business EBITDA and
Euro 62 million to EBIT in 2005. -- Further progress was made on
its Industrial Plan in 2005. Achievements included a 23% reduction
of its fixed operating and maintenance costs, the merger with the
Setne and Setcm as well as the sale of its 23.62% stake in
Sechilienne-Sidec. -- SNET paid out dividends for the first time in
2005. The interim dividend was Euro 21.2 million. ENDESA wins
tender for Dolna Odra in Poland -- ENDESA won the tender for Dolna
Odra, owner of three plants with an installed capacity of 1,960 MW,
within the framework of the privatisation of this company. -- The
European Commission authorised the operation on 9 January 2006; the
transaction will be completed once the agreement with its workers
has been finalised. ELECTRICITY BUSINESS IN LATIN AMERICA
Leveraging on economic recovery: sharp increases in net income,
EBITDA and EBIT -- ENDESA's Latin American operations recorded a
106.3% increase in net income in 2005, contributing 8.2% to the
Company's total net income. -- EBITDA grew 23.4% vs. 2004 and EBIT
by 30.6%. -- Increases in EBITDA and EBIT were posted both in the
generation and transmission business as well as the distribution
business. Increase in operating magnitudes and significant
operating improvements -- ENDESA's Latin American companies were
able to profit from the economic recovery and organic growth of the
markets in which they operate, increasing output and sales by 5.1%
and 5.6%, respectively. -- The generation margin stood at 21.1
$US/MWh, an increase of 9.9% compared to 2004, and VAD for the
distribution business stood at 30.3 $US/MWh, an increase of 28.9%.
Cash returns in line with the targets established in the Strategic
Plan -- Cash returns for ENDESA's Latin America business totalled
Euro 533 million in 2005 in dividend payments and capital
reductions to Group and minority shareholders. Enersis and Endesa
Chile: strong performance on the financial markets and improved
credit ratings -- Enersis and Endesa Chile registered increases in
their respective share prices of 18.7% and 55.1% on the Santiago de
Chile Stock Exchange in 2005. On the New York Stock Exchange,
Enersis registered a 29.1% increase in its share price while shares
in Endesa Chile rose 67.9%. -- In January, Moody's Investors
Service raised its credit rating for Enersis and Endesa Chile from
Ba2 to Ba1 stable outlook and, in October, Moody's and Standard
& Poor's improved the outlook again, from stable to positive.
Regulatory advances and optimisation of organisational structure --
The regulatory frameworks of the Latin American countries in which
ENDESA's subsidiaries operate continued to improve in 2005, helping
to create a better environment for these companies to demonstrate
their profitability and growth potential. -- Within the framework
of its restructuring initiative for this business, ENDESA Brasil,
S.A. will act as the holding company for the Group's shareholdings
in Brazil. It has also agreed to merge its Chilean subsidiaries
Chilectra and Elesur and its Peruvian subsidiaries Edegel and
Etevensa. New Capacity -- In 2005 Endesa continued the construction
of the 377 MW San Isidro II CCGT and of the 32 MW Palmucho hydro
facility. -- In Peru, work is continuing on the reconversion of
Etevensa I into a CCGT and on the construction of the second
Etevensa II CCGT. TELECOMS Sale of the Auna and Smartcom stakes --
ENDESA sold a 27.7% stake in telecoms operator Auna in 2005,
achieving a Euro 1,115 million net capital gain. In December 2005
ENDESA formalised the sale of its remaining stake in Auna - 5,01%
-, which will represent a net capital gain of Euro 171 million in
the first quarter of 2006. -- In August ENDESA sold 100% of its
Chilean mobile telephony subsidiary Smartcom SA for Euro 408
million, achieving a net gain of Euro 51 million. 2005 DIVIDEND
PROPOSAL -- The Company's Board of Directors has approved that it
will propose to the General Shareholders' Meeting a gross dividend
against 2005 earnings of Euro 2.4 per share - with a final dividend
of Euro 2.095 per share payable on 3 July 2006 - or a total of Euro
2,541 million. -- This amount includes the interim dividend paid
last 2 January, as well as the Euro 1,341 million net capital gains
obtained during 2005 from the disposal of non-core assets.
CONSOLIDATED RESULTS The highest net income figure in the history
of the Company ENDESA reported a net income of Euro 3,182 million
in 2005, the highest in its history, a rise of 154% compared to
2004. Even stripping out the effects of the capital gains obtained
in 2005 from the sale of -non-core assets, net income would have
risen significantly - 60% compared pro forma with 2004 - and would
still represent, at Euro 1,841 million, the highest ever for the
Company. -0- *T NET INCOME EVOLUTION
----------------------------------------------------------------- %
of % of Euro % Chg total NI total NI million vs. 2004 2004 2005
-----------------------------------------------------------------
Spain and Portugal 1,358 52.9 70.9 42.7
-----------------------------------------------------------------
Rest of Europe 425 151.5 13.5 13.4
-----------------------------------------------------------------
Latin America 262 106.3 10.1 8.2
-----------------------------------------------------------------
Other businesses 1,137 1,547.8 5.5 35.7
-----------------------------------------------------------------
TOTAL 3,182 154 100.0 100.0
-----------------------------------------------------------------
*T All of ENDESA's electricity businesses recorded strong net
income growth: with increases of 52.9% in Spain and Portugal,
151.5% for Europe and 106.3% for Latin America. The distribution of
net income between the different electricity businesses is
balanced, reinforcing the economic sense behind ENDESA's
geographical diversification strategy and the Company's
multinational character. Strong growth in generation (+5.4%) and
electricity sales (+12.2%) ENDESA's industrial activity registered
strong growth in 2005, with a 5.4% increase in generation and 12.2%
in total electricity sales. These increases were particularly high
in its European market outside Spain and Portugal. -0- *T
GENERATION AND ELECTRICITY SALES
-----------------------------------------------------------------
Generation Sales
-----------------------------------------------------------------
GWh % chg vs GWh % chg vs 2004 2004
-----------------------------------------------------------------
Spain and Portugal 93,625 (2.1) 100,868 4.3
-----------------------------------------------------------------
Rest of Europe 33,749 34.7 47,221 46.8
-----------------------------------------------------------------
Latin America 57,890 5.1 55,246 5.6
-----------------------------------------------------------------
TOTAL 185,264 5.4 203,335 12.2
-----------------------------------------------------------------
*T The fall in generation in Spain and Portugal was due to the
extraordinary shutdown of some plants for part of the year, mainly
as a result of inspection, maintenance and/or reconversion work.
Generation rose sharply in Europe (+34.7%) due to an increase in
generation at Endesa Italia now that its repowering programme is
close to completion, as well as the contribution from French
subsidiary SNET, which at the 2004 results only included activity
for four months as it was fully consolidated since 1 September
2004. In Latin America the growth in generation (+5.1%) reflects
the higher utilisation rate to meet rising demand, the contribution
from the Ralco hydro plant in Chile in its first full year in
operation and the newly converted open cycle gas generator at
Etevensa in Peru. These facilities came on stream in the final
months of 2004. Generation/sales balance ENDESA met 91.1% of its
total electricity sales in 2005 from its own output. This balanced
situation between production and demand should considerably reduce
risk of its electricity business. This is a significant competitive
advantage in the Spanish market, where the Company met 92.8% of
demand from its own output. 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 is presently the case. Revenue growth
comfortably outstrips costs The Company's total sales in 2005 grew
29.6% vs. 2004 to Euro 17,508 million. Sales growth was greater by
value than volume, as prices were raised to offset the increase in
costs. The growth in revenues covered both fuel costs and energy
purchases, which were up by 31.4% and 42.9% respectively, as well
as 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 (+23.8%), EBITDA
(+33.2%) and EBIT (+49.1%). -0- *T Gross margin EBITDA EBIT
----------------------------------------------------------------------
Euro % chg vs. Euro % chg vs. Euro % chg vs. million 2004 million
2004 million 2004
----------------------------------------------------------------------
Spain and Portugal 5,202 19.5 3,266 32.1 2,264 58.1
----------------------------------------------------------------------
Rest of Europe 1,223 47.4 887 65.8 618 67.0
----------------------------------------------------------------------
Latin America 2,698 23.8 1,878 23.4 1,376 30.6
----------------------------------------------------------------------
Other businesses 3 NA (11) NA (14) NA
----------------------------------------------------------------------
TOTAL 9,126 23.8 6.020 33.2 4,244 49.1
----------------------------------------------------------------------
*T The Company's electricity businesses outside of Spain and
Portugal accounted for 45.8% of EBITDA and 46.8% of EBIT,
underscoring its importance as a multinational player. Financial
results: Euro 1,252 million ENDESA reported negative financial
results of Euro 1,252 million for 2005, a 9.2% improvement over
2004. Net financial expenses totalled Euro 1,257 million, 15.6%
more than in 2004, affected by the increase of the financial costs
related to provisions, which reflect exclusively an accounting
re-statement. In particular, the reduction in long-term interest
rates between 31 December 2004 and the same day of 2005 result in a
rate of 3.588% for the calculation of pension obligations and
restructuring costs vs. the 4% used on 2004, implying a provision
of Euro 111 million higher, which translates into a higher
financial expense for 2005. It should be noted that financial
expenses for 2005 include Euro 60 million for the cost of preferred
shares, which in 2004, as IAS 32 was not in force, were considered
as minorities, which meant that their cost was not registered as
financial expenses. Once these effects have been deducted, the
Group's financial cost was Euro 1,146 million, 0.1% less than in
2004. Cash flow from operating activities: Growth of 23.1% Cash
flow from operating activities was Euro 4,209 million in 2005, a
23.1% increase vs. 2004. All the Company's electricity businesses
have reported significant growth under this heading. -0- *T CASH
FLOW
----------------------------------------------------------------------
Euro million % chg / 2004
----------------------------------------------------------------------
Spain and Portugal 2,669 34.9
----------------------------------------------------------------------
Rest of Europe 586 14.7
----------------------------------------------------------------------
Latin America 1,180 25.3
----------------------------------------------------------------------
Other businesses (226) NA
----------------------------------------------------------------------
TOTAL 4,209 23.1
----------------------------------------------------------------------
*T Investments: Euro 3,640 million, 73.1% in Spain and Portugal
ENDESA invested a total of Euro 3,640 million in 2005. Of this
figure, Euro 3,342 million was invested in tangible and intangible
assets and the remaining Euro 298 million in financial investments.
Of the total investment, 73.1% was invested in the Spanish and
Portuguese business. ENDESA is also entitled to Euro 1,581 million
to cover the deficit in revenues from regulated activities in
Spain. Financial structure: improved leverage ENDESA's net debt was
Euro 18,281 million at 31 December 2005, Euro 417 million lower
than at the beginning of the year. This decrease took place despite
the Euro 920 million increase due to the euro's depreciation
vis-a-vis other currencies in which ENDESA's debt - and that of its
subsidiaries, mainly Enersis Group - is denominated. Flows
generated during the year have therefore allowed debt to be reduced
by Euro 1,337 million. The breakdown of ENDESA'S debt by business
line at 31 December 2005 was as follows: -0- *T BREAKDOWN BY
BUSINESS OF ENDESA'S NET DEBT
----------------------------------------------------------------------
Euro million
----------------------------------------------------------------------
31-12-05 01-01-05 Change % Chg
----------------------------------------------------------------------
Electricity business in Spain and Portugal 11,461 9,586 1,875 19.6
----------------------------------------------------------------------
Electricity business in Europe 1,286 2,123 (837) (39.4) Endesa
Italia 815 1,293 (478) (37.0) Other 471 830 (359) (43.3)
----------------------------------------------------------------------
Electricity business in Latin America 6,109 5,350 759 14.2 Enersis
Group 5,207 4,081 1,126 27.6 Other 902 1,269 (367) (28.9)
----------------------------------------------------------------------
Other businesses (575) 1,639 (2,214) (135.1)
----------------------------------------------------------------------
TOTAL 18,281 18,698 (417) (2.2)
----------------------------------------------------------------------
*T The average cost of ENDESA's total debt was 5.46% in 2005, while
the cost of the debt corresponding to Enersis Group was 9.37%.
Stripping out the debt of the Enersis Group, the average cost of
ENDESA's debt was 4.05% in 2005. The breakdown of the debt by
currency and interest rate at 31 December 2005 was as follows: -0-
*T STRUCTURE OF ENDESA'S NET DEBT
----------------------------------------------------------------------
ENDESA and direct Enesis Total subsidiaries Group ENDESA group
----------------------------------------------------------------------
Euro % of Euro % of Euro % of Million total Million total Million
total
----------------------------------------------------------------------
Euro 12,853 98.3 2 -- 12,855 70.3
----------------------------------------------------------------------
Dollar 221 1.7 2,695 51.8 2,916 16.0
----------------------------------------------------------------------
Other currencies -- - 2,510 48.2 2,510 13.7
----------------------------------------------------------------------
Total 13,074 100.0 5,207 100.0 18,281 100.0
----------------------------------------------------------------------
Fixed rate 9,793 74.9 4,499 86.4 14,292 78.2
----------------------------------------------------------------------
Hedged 1,811 13.9 148 2.8 1,959 10.7
----------------------------------------------------------------------
Variable 1,470 11.2 560 10.8 2,030 11.1
----------------------------------------------------------------------
TOTAL 13,074 100.0 5,207 100.0 18,281 100.0
----------------------------------------------------------------------
Avg. life (years) 5.3 5.5 5.4
----------------------------------------------------------------------
*T The average life of the ENDESA Group's debt was 5.4 years at the
end of 2005. ENDESA enjoys a high degree of protection against
interest-rate risk, since 89% of all its debt is either fixed-rate
or hedged. At December 31 2005 ENDESA in Spain and its direct
subsidiaries, excluding Enersis, has liquidity of Euro 6,338
million, of which Euro 4,266 million corresponded to undrawn sums:
Euro 2,766 million in unconditional credit lines and Euro 1,500
million corresponding to the syndicated loan transaction completed
on 22 April 2005. These balances are sufficient to cover maturities
falling due in the next 39 months for this group of companies. The
Enersis group held cash and cash equivalents totalling Euro 542
million and Euro 321 million in undrawn, unconditional credit
lines, covering debt maturities for the next ten months. At 31
December 2005, ENDESA's shareholders' equity was Euro 16,327
million, an increase of Euro 3,960 million since the start of the
year. This increase lowered ENDESA's gearing to 112% at 31 December
2005, from 151.2% at the start of the year. As a result of Gas
Natural's take over bid 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. These changes were due
to the negative impact the operation would have, were it to go
ahead, on the Company's financial position. As a result, at 18
January 2006, ENDESA's debt has 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. Disposals
In line with what was laid out in the Strategic Plan presented to
the markets, ENDESA sold in 2005 several non-core assets (telecoms
assets, real estate assets, etc.) for a total of Euro 3,184
million, achieving capital gains of Euro 1,341 million. Disposal of
Auna ENDESA sold in 2005 27.7% of Spanish telecoms operator Auna
for Euro 2,221 million in 2005, generating an after-tax capital
gain of Euro 1,115 million. The 27.7% was sold to France Telecom
via an agreement signed on 29 July 2005, which was formalised on 8
November 2005 once it had been sanctioned by the European
authorities. On 30 December 2005 the sale of the remaining 5.01% of
Auna was sold to Deutsche Bank for Euro 378 million. ENDESA retains
the right to receive 90% of the sale price above Euro 361 million
(capitalised annually at 4,5%) of the first transaction Deutsche
Bank effects from 8 November 2008. The after-tax capital gain of
Euro 171 will not be booked until the first quarter of 2006, as the
period to exercise the pre-emptive rights of the remaining
shareholders had not expired. Other disposals ENDESA's asset
disposal strategy has remained unchanged in 2005, generating gross
capital gains of Euro 213 million in addition to the gains from the
sale of Auna. The main disposal in 2005 was the sale of 100% of
Smartcom to the Mexican operator America Movil for US$ 505 million
(Euro 408 million), generating an after-tax gain of Euro 51
million. It has also continued with the disposal of real estate
assets, obtaining Euro 122 million, with a gross capital gain of
Euro 105 million. 2005 DIVIDEND PROPOSAL The Company's Board of
Directors has approved that it will propose to the General
Shareholders' Meeting a gross dividend against 2005 earnings of
Euro 2.4 per share - with a final dividend of Euro 2.095 per share
payable on 3 July 2006 - or a total of Euro 2,541 million. This
amount includes the interim dividend paid last 2 January, as well
as the Euro 1.2666 per share derived from the Euro 1,341 million
net capital gains obtained during 2005 from the disposal of
non-core assets. This dividend represents a 79.9% pay-out over net
income. After taking out the above mentioned net capital gains, the
pay-out ratio would be 65.2%. The proposed dividend represents, net
of the portion derived from the net capital gains of asset
disposals, an increase of 53.5% compared to the dividend paid on
2004. ACHIEVING THE OBJECTIVES OF THE 2004-2009 STRATEGIC PLAN On 3
October 2005, in light of the significant progress made in
achieving its objectives, ENDESA updated its Strategic Plan in a
presentation to the markets entitled "ENDESA: stronger business,
greater value", in which it set forth its milestones for the
2004-2009 period. The Company's priority for this period is
shareholder return driven by strong organic growth in all its
businesses. The management team is, at the same time, more
committed than ever to meeting its targets. The Company's key
financial targets for the Group include: -- Compounded annual net
income growth in excess of 12%. -- Compounded annual EBITDA growth
of between 10% and 11%. -- Financial leverage of less than 140%. We
note that these targets were set assuming a conservative regulatory
scenario. Since the Strategic Plan was presented, regulatory
changes implemented or announced point to a more benign regulatory
environment than initially envisaged, which will allow the Company
to clearly surpass said targets. On the basis of meeting these
targets, ENDESA is planning to implement a dividend policy which
prioritises shareholder remuneration along the following lines: --
Growth in ordinary dividends in excess of 12%, i.e., in line with
expectations for bottom line growth. -- Distribution of 100% of
capital gains generated on disposals of non-core assets. The
implementation of this dividend policy, which will be put forward
for approval at the next General Shareholders' Meeting, would
entail the distribution of dividends of Euro 7 billion to
shareholders over a five year period. In order to demonstrate its
confidence in the credibility of these targets, the Company's
management team will propose at this General Shareholders' Meeting
that its variable compensation be 100%-linked to the performance of
ENDESA's share price, in addition to committing to reinvesting 50%
of this compensation in Company shares. The 2005 earnings results
have surpassed by far the targets for the key financial variables
mentioned above: -- 154% increase in net income, significantly
above the minimum annual target set at 12%. -- EBITDA rose 33.2%,
also beating the 10-11% target mentioned above. -- The financial
leverage ratio at year-end stood at 112%, i.e., 28 points less than
the level called for in the Strategic Plan. -- Euro 1,341 million
of net capital gains obtained from the disposal of non-core assets
This amount, together with the dividend from ordinary activities,
leads to a dividend payable of Euro 2,541 million, subject to the
approval of the General Shareholders' Meeting, and would represent
36.3% of the target set for the 2004-2009 period. In sum, these
results and the performance shown by the Company's businesses in
2005, despite the very challenging environment currently being
faced by the Spanish electricity market, underscore the credibility
of the Strategic Plan, particularly the proposed dividend policy.
On the other hand, the forecasts currently available on the
evolution of the main economic figures of the Company for 2006
indicate that these targets can be surpassed. RESULTS BY BUSINESS
LINE ELECTRICITY BUSINESS IN SPAIN AND PORTUGAL Key operating facts
and regulatory developments of the year High operating efficiency
Throughout 2005 ENDESA maintained its leading position in the
Spanish electricity market, with a 38.1% market share in
electricity generation in the ordinary regime, 43.1% in
distribution, 37.4% in sales to deregulated customers and 41.1% in
total sales to final customers. Output totalled 93,625 GWh, 2.1%
less than in 2004, primarily due to downtime at group 4 at the As
Pontes facility which was being converted to imported coal and also
at the Vandellos nuclear plant between March and August for
technical reasons. ENDESA continued to improve its operating
efficiency in 2005 in line with the Improvement Efficiency Plan put
in place last June, the results of which are now being seen. In the
fourth quarter of 2005 fixed costs fell 4.4% compared to the fourth
quarter of 2004. Also in the fourth quarter of 2005, ENDESA
launched a pioneering initiative for purchasing CO2 emission
rights. The target is to obtain 15 million tonnes by 2012 by means
of projects developed under the flexible mechanisms provided for in
the Kyoto Protocol: Joint Implementation and Clean Development
Mechanisms --. Within this initiative we highlight the agreement
signed with the Chinese company, Huaneneg Group, to acquire
Emission Reduction Certificates generated by three wind farms under
its ownership. Progress in the New Capacity Plan ENDESA continued
to make progress throughout 2005 on its New Capacity Plan. The 400
MW Cristobal Colon combined cycle plant (Huelva) was in the final
stages of construction by year end. It is scheduled to come on
stream in the first months of 2006. In addition, construction
continued on the 800 MW combined cycle facility at the As Pontes
plant (La Coruna) and on converting group 3 of this plant to
imported coal. Furthermore, it is worth mentioning that the Besos
800MW new combined cycle has been included in the Catalonian Energy
Plan In addition, the Company added in 2005 a total capacity of 149
MW of wind farms to its operations and acquired 100% of the
Portuguese company, Finerge Gestao de Proyectos Energeticos, S.A.
(Finerge), umbrella company for a holding which operates wind farms
and co-generation plants in Portugal, with total capacity of 107 MW
and projects underway to bring installed capacity up to 320 MW by
2007. High growth rates in ENDESA's distribution markets In 2005
ENDESA's total demand was 111,802 GWh. This figure represents a
growth of 5.3% compared to the previous year and confirms the
significant growth prospects of the Spanish market. The number of
customers served by ENDESA in the regulated market increased by
249,263 in 2005. ENDESA ended the year with 998,154 customers in
the deregulated market. Improvement in quality of supply ENDESA
significantly strengthened its Quality Plan, in place for the last
few years, in the second half of the year, contributing to the
substantial improvement in service quality of supply registered in
2005, particularly noteworthy if we consider that this was achieved
against a scenario of strong growth in demand. ENDESA's system
average interruption duration index (SAIDI or TIEPI) for 2005 was
25% better than in 2004 in the mainland markets served by the
Company. The same index for non-mainland markets, stripping out the
effects of Hurricane Delta which hit the Canary Islands at the end
of November, improved 9%. ENDESA's retention rate for customers
switching to the deregulated market was 87.6% in 2005, bettering
all its competitors, reflecting a high degree of loyalty towards
the Company. Net income in the electricity business in Spain and
Portugal: up 52.9% Net income was Euro 1,358 million in 2005, an
increase of 52.9% on 2004, contributing 42.7% to the Company's
overall bottom line. EBIT: Euro 2,264 million (+58.1%) EBIT
generated by the electricity business in Spain and Portugal
amounted to Euro 2,264 million in 2005, up 58.1% compared to 2004.
Revenues grew 31.8% to Euro 8,761 million, primarily due to the
increase in sales prices to final customers, particularly higher
wholesale prices. The increase in sales was sufficient to offset
the sharp rise in fuel costs driven by higher prices and volumes,
and the net cost of the CO2 emission rights deficit. Low rainfall,
higher fuel costs and the cost of funding the CO2 emission rights
deficit meant that average generation pool prices were up 75.1%, a
relatively high figure as mentioned earlier. The limited increase
in the electricity tariff, just 1.7%, was insufficient to meet the
incremental system costs, particularly generation costs, given the
pool price levels. This resulted in a sector-wide shortfall in
revenues in the regulated market, a tariff deficit, of an estimated
Euro 3,580 million, Euro 1,581 million of which is financed by
ENDESA. The company has booked this amount as a financial asset,
since their recovery is guaranteed pursuant to Royal Decree this
amount 1556/2005, dated 23 December, which establishes the
electricity tariff for 2006. The impact of low rainfall and higher
fuel costs was more limited for ENDESA as the Company enjoys a more
balanced generation mix than its competitors and has managed to
keep rising costs under control thanks to its fuel management
policy. In fact, fuel costs at the Company's combined cycle
operations are lower than the sector's average. The table below
shows the breakdown of EBIT for ENDESA's business in Spain and
Portugal. Revenues: up 38% Revenue at this business unit totalled
Euro 9,274 million in 2005, up 38% compared to 2004. Of this
amount, revenues accounted for Euro 8,761 million, 31.8% higher
than in 2004. -0- *T SPAIN AND PORTUGAL REVENUES
----------------------------------------------------------------------
Euro million
----------------------------------------------------------------------
2005 2004 Change % Chg
----------------------------------------------------------------------
Mainland generation under Ordinary Regime:
----------------------------------------------------------------------
Sales to deregulated customers 1,487 1,247 240 19.2
----------------------------------------------------------------------
Supply to regulated customers 3,012 1,891 1,121 59.3
----------------------------------------------------------------------
Special Regime 240 121 119 98.3
----------------------------------------------------------------------
Regulated revenues from distribution 1,602 1,564 38 2.4
----------------------------------------------------------------------
Non-mainland generation 1,548 1,004 544 54.2
----------------------------------------------------------------------
Coal CTC 22 75 (53) (70.7)
----------------------------------------------------------------------
Technology CTC -- 118 (118) (100.0)
----------------------------------------------------------------------
Supply to deregulated customers outside Spain 220 170 50 29.4
----------------------------------------------------------------------
Regulated revenues from gas distribution 39 36 3 8.3
----------------------------------------------------------------------
Gas supply 326 160 166 103.8
----------------------------------------------------------------------
Other 265 262 3 1.1
----------------------------------------------------------------------
TOTAL 8,761 6,648 2,113 31.8
----------------------------------------------------------------------
*T Mainland generation In 2005, demand for electricity in the
Spanish mainland system as a whole grew by 4.6%. Ordinary Regime
generation increased 3%, whilst Special Regime increased 10.4%.
ENDESA's mainland electricity output totalled 77,691 GWh over the
same period, 3.8% lower than in 2004 as a consequence of two
factors: the Vandellos plant was down between March and August for
technical reasons, and group 4 at the As Pontes plant was offline
due to its conversion to imported coal, work which was completed at
the beginning of August. All groups at this plant will be
reconverted by 2008. ENDESA's Renewable/CHP output rose 19.6% in
2005 compared to 2004 to 2,120 GWh, higher than the rest of the
sector. Comparative advantage of ENDESA's generation mix A
comparison of the performance of ENDESA's ordinary regime mainland
production structure and that of the rest of the sector in 2005
underscores the strength of the Company's generation mix and its
greater stability in the event of sudden changes in rainfall rates
common in Spain. ENDESA's hydro output fell by 27.5% in 2005 vs.
2004, compared to a 42.3% decline for the rest of the sector, while
industry-wide thermal production rose by 32.2% vs. an increase of
just 5.2% at ENDESA. Contribution by the coal plants to meeting
electricity demand The important role played by ENDESA's coal
plants in meeting Spanish electricity demand was highlighted again
in 2005, a year marked by low rainfall. The utilisation rate at
these plants was 86.5% in response to system requirements, proving
that, in spite of the new combined cycle and wind farm capacity
coming online in recent years, coal plants are still indispensable
to meet the country's electricity requirements. Specifically,
ENDESA's coal-fired plants covered 15% of mainland demand in 2005.
Growth in ENDESA's sales to the pool ENDESA's sales to the pool
totalled Euro 4,940 million in 2005, 67.1% higher than in 2004 due
to an 79.6% rise in the average pool price, including the capacity
payment. The increase in fuel costs, expenses associated with the
CO2 emission rights deficit and lower utilisation rates at the
hydroelectric plants caused by the drought were the main factors
driving this increase. The average pool price in 2005, including
capacity payments, was Euro 60.6 per MWh vs. Euro 33.8 per MWh in
2004. ENDESA's supply and generation subsidiaries acquired energy
from the pool for a total of Euro 1,928 million. These purchases
were offset by the energy sold by the Company to the pool. The
markets and time bands were the same in both cases so that the
purchase matched the selling price. Sales to the pool are offset by
purchases made by the supply and generation subsidiary. The pool
sales recorded in the consolidated income statement for 2005
therefore totalled Euro 3,012 million. ENDESA Renewable/CHP
generation Special Regime companies fully consolidated by ENDESA
produced 2,120 GWh in 2005, primarily using renewable energies,
which represents an increase of 19.6%. Additionally, ENDESA has
holdings in other Special Regime companies which generated 3,850
GWh in 2005. Revenues from sales of Renewable/CHP energy generated
by consolidated companies totalled Euro 240 million, 98.3% more
than in 2004, driving the generation business' EBIT to Euro 100
million, up 185.7% versus 2004. Supply to deregulated customers
ENDESA had 998,154 deregulated customers at year end. Of these,
942,082 correspond to the mainland deregulated market, 53,686 are
from the non-mainland systems and 2,386 are from European
deregulated markets. ENDESA's sales to these customers totalled
36,773 GWh in 2005, up 18.7% on 2004. Of this amount, 32,537 GWh
were sold on the Spanish deregulated market, an increase of 18.7%,
and 4,235 GWh on other deregulated European markets, representing a
growth of 18.8%. Revenues from supply to deregulated customers in
Spain totalled Euro 1,605 million, a 23.6% increase on 2004. Of
this amount, Euro 1,487 million corresponded to the mainland
deregulated market and Euro 118 million to the non-mainland market.
Lastly, revenues from supply to deregulated European markets other
than Spain were Euro 220 million, a growth of 29.4%. Distribution
ENDESA distributed 111,802 GWh of electricity in the Spanish market
in 2005, a 5.3% increase on the previous year. Revenues from
regulated distribution activities totalled Euro 1,602 million, up
2.4% on 2004. This rise is not proportionate to the investment
effort made both in operations and maintenance required to increase
the security and quality of supply. Consequently, in order to
attain this objective that is shared by all the agents in the
electricity market, and in which ENDESA is playing a particularly
significant role (having invested Euro 1,369 million in 2005) new
regulations governing distribution must recognise this effort via
an adequate remuneration. ENDESA supplied 64,095 GWh to customers
on the regulated Spanish market in 2005. In accordance with IFRS,
however, its turnover on this business was not booked as revenue,
as the distribution business' sole income is the compensation
provided for within the electricity tariff. The rest of the
turnover merely corresponds to costs incurred and passed on.
Non-mainland generation ENDESA's 2005 output in non-mainland
systems was 13,814 GWh, 5% more than in 2004. Sales rose to Euro
1,548 million, including compensations for extra costs of these
systems. 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 as well as higher fuel costs. The Royal
Decree lays down the general principles that must be applied to
determine compensation for these specific circumstances. The exact
methodology for quantifying this compensation has still to be
developed, although a draft Ministerial Order has been prepared by
the Ministry for Industry and sent to the National Energy
Commission (CNE) which in turn issued a report on its findings.
ENDESA's 2005 accounts include incremental revenue of Euro 212
million corresponding to the non-mainland systems' extra costs for
2001-2004. ENDESA has booked as an asset the amount approved by the
CNE in its report to the Ministry of Industry. This figure is less
than would have been obtained by applying the Ministerial Order
draft which was prepared by the Ministry of Industry. In addition,
a revenue of Euro 177 million has been registered, corresponding to
the additional compensation received in the 2005 tariff to cover
the extra-costs for this year. This amount has been calculated
following the same methodology used by the CNE in its report which
calculates the 2001-2004 compensations. Technological CTCs and
deficit on regulated revenues As previously mentioned, regulated
revenues in 2005 were not sufficient to offset system costs,
generating an estimated deficit of Euro 3,580 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 1,581
million). Royal Decree 1556/2005, dated 23 December, which
establishes the electricity tariff for 2006, sets forth that ENDESA
has the right to the total recovery of the financed amounts,
without prejudice to the specific repayment method which will be
established by a further governmental Royal Decree on 1 July 2006.
For this reason, ENDESA's accounts at 31 December 2005 include a
financial asset of Euro 1,581 million to reflect its right to
recover its share of the regulated revenues deficit. ENDESA'S
technological CTC revenues totalled Euro 118 million in 2005. Gas
distribution and supply ENDESA sold 21,134 GWh of gas in 2005
through consolidated companies, a 46.5% increase compared to the
previous year. Of this amount, 18,558 GWh were sold on the
deregulated market, an increase of 58.2%, and 2,576 GWh on the
regulated market, 4.5% less than in 2004. ENDESA's equity accounted
gas investees sold 1,461 GWh of gas on the regulated market.
Therefore, total sales in the regulated market were 4,037 GWh, down
1.5%. With regards to distribution, ENDESA distributed a total
5,713 GWh in the regulated gas market, a growth of 18% compared to
2004. The 22,595 GWh sold in both the deregulated and regulated
markets, together with the 22,222 GWh supplied to ENDESA's own
generation plants, amount to a total of 44,817 GWh, implying a 12%
market share. Revenues from gas sales in the deregulated market in
2005 totalled Euro 326 million, representing growth of 103.8%
compared to 2004. Revenues from regulated gas distribution totalled
Euro 39 million, up 8.3% compared to 2004. Other operating revenues
Other operating revenues came to Euro 513 million, Euro 442 million
more than in 2004. This line item includes Euro 337 million
corresponding to the portion of CO2 emission rights allocated to
ENDESA within the scope of the Spanish emissions National
Allocation Plan made in 2005, which is recorded as revenue.
Operating expenses The breakdown of operating expenses in the
Spanish and Portuguese business in 2005 and a comparison with 2004
is provided below: -0- *T OPERATING EXPENSE IN SPAIN AND PORTUGAL
----------------------------------------------------------------------
Euro million
----------------------------------------------------------------------
2005 2004 Change % Chg
----------------------------------------------------------------------
Purchases and services 4.072 2,367 1,705 72.0
----------------------------------------------------------------------
Power purchases 875 434 441 101.6
----------------------------------------------------------------------
Fuel consumption 2,057 1,546 511 33.1
----------------------------------------------------------------------
Power transmission expenses 273 189 84 44.4
----------------------------------------------------------------------
Other supplies and services 867 198 669 337.9
----------------------------------------------------------------------
Personnel expenses 1,041 985 56 15.7
----------------------------------------------------------------------
Other operating expenses 1,034 1,028 6 0.6
----------------------------------------------------------------------
Depreciation and amortisation 1,002 1,040 (38) (3.7)
----------------------------------------------------------------------
TOTAL 7,149 5,420 1,729 31.9
----------------------------------------------------------------------
*T Power purchases Power purchases in the period rose 101.6% to
Euro 875 million. The main component of this line item relates to
transactions on the wholesale generation market. This increase in
power purchases is linked to the 79.6% rise in the average pool
price. The balance relates to gas purchases to supply deregulated
customers, which rose as a result of the 18.7% increase in sales to
these customers and the rising price of gas. Fuel consumption Fuel
consumption amounted to Euro 2,057 million in 2005, an increase of
33.1% vs. 2004. This increase is due to higher fuel-oil generation
in 2005 (higher unit costs than other technologies) triggered by
the drought and to a generalised increase in raw material prices in
international markets. These higher costs were offset by the
Company's proactive fuel purchasing management policy which
resulted in below-market purchasing prices. Other supplies and
services Expenses under this line item totalled Euro 867 million in
2005, up Euro 669 million compared to 2004. This variation reflects
the booking expenses of Euro 522 million in connection with rights
acquired to cover the CO2 emissions made throughout the year, which
totalled 51.9 million tonnes, of which 40.4 million tonnes
corresponded to the mainland and the remaining 11.5 million tonnes
to non-mainland service areas. Expenses for mainland emissions were
valued as follows: -- For the portion of emissions covered by
freely allocated emission rights, at the same price at which the
revenues are booked, i.e. the market price at the start of 2005. --
For the portion of emissions covered by rights acquired in the
market, the expense is recorded at the price paid for these rights.
-- The portion of emissions for which ENDESA does not own rights
was recorded at the market price of these rights as of 31 December
2005, Euro 21.88 per tonne. The net effect of revenues and expenses
booked in 2005 to cover CO2 emissions was Euro 185 million,
corresponding to an estimated rights deficit of 8.5 million tonnes.
Personnel expenses As of 31 December 2005, the workforce in Spain
and Portugal totalled 12,709, down 1.4% compared to year-end 2004.
Personnel expenses rose 5.7% to Euro 1,041 million in 2005 compared
to 2004. These expenses include Euro 34 million corresponding to
estimated costs to be incurred in connection with layoffs
contemplated in the 2006-2012 Mining Plan, expected to be one of
the main driving forces behind cost cutting in the coming years.
Stripping out these provisions, personnel costs remained
practically unchanged. Other fixed operating expenses Other fixed
operating costs rose 0.6% to Euro 1,034 million in 2005, a
testament to the effects that the Improvement Efficiency Plan is
beginning to yield, since this line item was lower by 5.7%, or Euro
20 million, in the fourth quarter of 2005 compared to the same
period of 2004. Net financial expenses: Euro 609 million Financial
expenses in 2005 totalled Euro 609 million, Euro 602 million of
which related to net financial interest expense. This includes Euro
60 million for the cost of preferred shares, which are classified
as debt in the 2005 accounts, and therefore their cost is recorded
as interest expense. As IAS 32 was not applied last year, these
preferred shares were booked as minority interests and not as
financial debt in 2004. Financial expenses in 2005 also include
Euro 111 million corresponding to the reduction from 4% to 3,588%
of the restructuring employees plan's discount rate. On a
like-for-like basis, net financial expenses would have decreased by
Euro 70 million in 2005, i.e. 12.5%. As of 31 December 2005, net
debt in the Spain and Portugal business stood at Euro 11,461
million, up from Euro 9,586 million at the start of the year. This
rise can be explained by several factors, amongst other, by the
Euro 1,581 million paid to finance the tariff deficit, as well as
by the investment in distribution made in the year as part of
ENDESA's Quality Excellence Plan. Equity-accounted income
Equity-accounted income in the electricity business in Spain and
Portugal totalled Euro 44 million. These earnings include, among
others, the contribution by Nuclenor (Euro 19 million), income from
equity affiliates in Portugal (Euro 9 million) and from the
Renewables/CHP generation subsidiaries (Euro 15 million). Asset
disposals: Euro 96 million in capital gains In 2005, ENDESA
generated gross capital gains of Euro 96 million from disposals of
non-core assets of its electricity business in Spain and Portugal.
Among these we highlight the sale of land in Palma de Mallorca
where GESA's headquarters was formerly located, and the sale of the
Lepanto building in Barcelona. These transactions generated gross
and net capital gains of Euro 89 million and Euro 75 million,
respectively. Cash flow from operating activities: Euro 2,669
million Cash flow from operating activities from the Spanish and
Portuguese electricity business totalled Euro 2,669 million in
2005, an increase of 34.9% compared to 2004. Investments: 33.6%
increase in new generation capacity and 28.9% increase in
distribution to improve quality of service Investments in Spain and
Portugal reached Euro 2,660 million in 2005, up 31% compared to the
same period last year. -0- *T TOTAL INVESTMENTS IN SPAIN AND
PORTUGAL
----------------------------------------------------------------------
Euro million
----------------------------------------------------------------------
2005 2004 % Chg
----------------------------------------------------------------------
Capex 2,382 1,828 30.3
----------------------------------------------------------------------
Intangibles 66 77 (14.3)
----------------------------------------------------------------------
Financial 212 125 69.6
----------------------------------------------------------------------
Consolidated subsidiaries 151 - NA
----------------------------------------------------------------------
Total investments 2,660 2,030 31.0
----------------------------------------------------------------------
----------------------------------------------------------------------
CAPEX IN SPAIN AND PORTUGAL
----------------------------------------------------------------------
Euro million
----------------------------------------------------------------------
2005 2004 % Chg
----------------------------------------------------------------------
Generation 943 706 33.6
----------------------------------------------------------------------
Ordinary regime 799 526 51.9
----------------------------------------------------------------------
Renewables/CHP 144 180 (20.0)
----------------------------------------------------------------------
Distribution 1,389 1,078 28.9
----------------------------------------------------------------------
Others 50 44 13.6
----------------------------------------------------------------------
Total 2,382 1,828 30.3
----------------------------------------------------------------------
*T 89.6% of total investment was spent on capex to develop or
enhance electricity generation and distribution facilities in order
to maintain ENDESA's leadership in the Spanish market, meeting
increasing demand while simultaneously improving quality of supply.
The breakdown of capex reflects the considerable effort made by the
Company over the last few years to improve service quality, with
investment in distribution facilities accounting for 58.3% of the
total. We also highlight the significant increase in capital
expenditure to expand ENDESA's generation capacity. Here the
conversion of group 4 at the As Pontes plant, the construction of
the Cristobal Colon (400 MW) and the As Pontes (800 MW) combined
cycle facilities and capacity increases in renewables are
particularly noteworthy. The investment in consolidated
subsidiaries relates to the acquisition of Portuguese renewables
company, Finerge, during the third quarter for Euro 151 million.
The financing of the regulated business tariff deficit -Euro 1,581
million - is also booked as a financial investment, although not
included in the figures above. As of 31 December 2005, Euro 1,011
million had been paid. ELECTRICITY BUSINESS IN EUROPE Excellent
results and sound growth prospects In 2005 ENDESA confirmed its
position as one of the top five power players on the European
continent, with a unique business platform that has proved capable
of generating strong profitability year after year. ENDESA has
currently 9,397MW of installed capacity in Europe outside Spain and
Portugal, generating 33,749 GWh in 2005 and selling 47,221 GWh. By
way of comparison, this output is greater than the total production
of ENDESA's third-ranked competitor in Spain and equates to roughly
half the output of its number two rival. Over 2005, the company's
European business focused on its two main strategic targets:
consolidating its position and seeking new growth opportunities.
Among its main subsidiaries, Endesa Italia achieved marked growth
in volumes: electricity generation grew by 12% and sales by 17.8%.
The company was especially active in renewable energy, with the aim
of diversifying its output into emission-free technologies. In the
fourth quarter, it began building wind farms in Sicily with total
installed capacity of 56 MW, due to come on stream in summer 2006
and signed a deal with Merloni to acquire 51% of MF Power, which
owns three wind farms in Italy for a total of 60 MW. Also, under
the framework agreement with Gamesa, it is due to take over the
Iardino wind farm in Naples (Italy) in January 2006, with installed
capacity of 14 MW. Also, construction continued on schedule for the
two 400MW combined cycle groups at the Scandale plant in Calabria.
This project was acquired at the end of December 2004 by ENDESA and
ASM Brescia (50/50). Finally, in accordance with Legge Finanziaria
2006, Endesa Italia's fixed assets have been partially revalued
following Italian accounting principles. This revaluation is not
taken into consideration under International Financial Reporting
Standards (IFRS). The economic impact of this tax revaluation
amounts to Euro 134 million which has been booked in ENDESA's
results. These were just some of the significant milestones in
2005, which also included the following: -- 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's stake in Endesa Italia stands at 80%. The
transaction implies a total value for Endesa Italia of Euro 2,989
million, 36.4% higher than the price ENDESA paid for its original
stake in this group in 2001. -- Repowering work to convert group 3
of Ostiglia and group 6 of Tavazzano to combined cycle generators
was completed. -- An agreement was signed with the Merloni group to
supply electricity to the Italian retail market. The supply source
for the power sold will be Endesa Italia's generation capacity. The
Merloni group contributes with a portfolio of more than 2,000
customers and sales volume 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 25.5% of the project and to use of up to 2bcm of the plant's
regasification capacity. -- A Euro 102 million dividend was paid in
February. With regards to SNET, in which ENDESA has a 65%
controlling stake, initiatives were taken during the year in the
context of the Industrial Plan presented to the markets the first
months of 2005, the purpose of which is to develop new capacity on
current sites to achieve total new capacity of 2,000MW in combined
cycle plants and 200MW in renewables. In accordance with this plan,
SNET renegotiated the contract to sell electricity to EDF, signed a
coal supply contract, and reached several agreements with trade
unions to ensure that labour relations would remain stable and
targets for workforce restructuring could be met. It also obtained
authorisation to begin construction of the Lehaucourt wind farm,
which will have a total capacity of between 8 and 10MW, and sold
its 23.62% stake in power generator Sechilienne-Sidec to Ecofin
Ltd. for Euro 104 million. It also successfully completed the
merger of its three operating companies (Setne, Setcm and SNET
itself), and SNET acquired an additional 4.36% of the Polish
cogeneration plant at Bialystock, taking its total stake to 69.58%
at year end. In 2005, the Board of Directors of SNET approved the
distribution of an interim dividend of Euro 21 million, of which
Euro 14 million corresponded to ENDESA Europe. Finally, the
European Commission authorised the acquisition of Dolna Odra
(Poland) on 9 January 2006 and final negotiations for the purchase
by ENDESA are expected to be concluded in the coming weeks. Net
income: up 151.5% Net income from the electricity business in
Europe totalled Euro 425 million in 2005, an increase of 151.5%
with respect to 2004. 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)
----------------------------------------------------------------------
2005 2004 % Chg 2005 2004 % Chg
----------------------------------------------------------------------
Italy 23,362 20,865 12.0 30,911 26,246 17.8
----------------------------------------------------------------------
France (1) 8,689 3,591 142.0 14,612 5,329 174.2
----------------------------------------------------------------------
Poland(1)(2) 1,698 597 184.4 1,698 597 184.4
----------------------------------------------------------------------
Total 33,749 25,053 34.7 47,221 32,172 46.8
----------------------------------------------------------------------
(1) 2004 data corresponds to the last four months of the year,
since ENDESA gained control of SNET (2) ENDESA is present in the
generation business in Poland through the Bialystock CHP, which is
controlled by SNET. *T EBIT: up 67% The table below shows EBITDA
and EBIT for ENDESA's European electricity business broken down by
business line: -0- *T EBITDA & EBIT IN EUROPE
----------------------------------------------------------------------
EBITDA (Euro million) EBIT (Euro million)
----------------------------------------------------------------------
2005 2004 % Chg 2005 2004 % Chg
----------------------------------------------------------------------
Endesa Italia 694 510 36.1 542 382 41.9
----------------------------------------------------------------------
SNET (1) 179 43 316.3 62 6 933.3
----------------------------------------------------------------------
Trading 46 1 NA 46 1 NA
----------------------------------------------------------------------
Holding & others (32) (19) NA (32) (19) NA
----------------------------------------------------------------------
Total 887 535 65.8 618 370 67.0
----------------------------------------------------------------------
(1) 2004 data corresponds to the last four months of the year,
since ENDESA gained control of SNET *T Key points to note are the
Euro 46 million EBIT from trading operations. ENDESA can conduct
these operations taking no risks thanks to its generating base in
Italy and France. Endesa Italia: excellent progress on all key
financial measures The table below shows key magnitudes of Endesa
Italia's EBIT: -0- *T ENDESA ITALIA KEY DATA
----------------------------------------------------------------------
Euro million
----------------------------------------------------------------------
2005 2004 Change % Chg
----------------------------------------------------------------------
Revenues 2,242 1,680 562 33.5
----------------------------------------------------------------------
Gross margin 853 717 136 19.0
----------------------------------------------------------------------
EBITDA 694 510 184 36.1
----------------------------------------------------------------------
EBIT 542 382 160 41.9
----------------------------------------------------------------------
*T Revenues reported by the Italian group grew 33.5% due largely to
the 17.8% rise in energy sold. Sales were 30,911GWh in 2005,
compared to 26.246GWh the previous year. Of this, 7,549GWh was
acquired from third parties at a cost of Euro 292 million, an
increase of 2,168GWh compared to 2004. Endesa Italia generated
23,362GWh in 2005, a rise of 2,497 GWh or 12% compared to 2004. It
had a 8.1% share of the Italian market. Progress in Endesa Italia's
repowering programme has allowed it to increase production by using
a more efficient mix that replaces fuel-oil output with power
generated by CCGTs. The programme has also boosted its capacity to
limit the impact of higher fuel prices. Fuel costs for Endesa
Italia rose by just Euro 241 million in 2005. This is far lower
than the rise in revenues reflecting higher electricity prices as a
result of the increase in fuel prices. The benefits of the
repowering programme were also apparent, comparing the company's
technology mix in 2005 vs. 2004: the weight of CCGTs in the
generation mix has increased from 30.4% to 50.4%, while the weight
of fuel-oil has declined from 31.1% to 16.2%. "Other supplies and
services" include, among other items, the Euro 21 million estimated
cost of CO2 emissions in 2005, which are not expected to be covered
by the emission rights to be allocated by the Italian Government,
which has sent a proposal to the European Union and is pending
approval. Also, on 23 June 2005, a Decree was published in Italy
regulating how Endesa Italia can recover the Euro 169 million of
stranded costs it is entitled to for the 2005-2009 period. Euro 33
million of the total amount recognised was booked as an increase in
income in the 2005 profit and loss account and the remaining Euro
136 million was deferred depending on the useful life of the plants
affected. Debt reduced by Euro 837 million Net debt at ENDESA's
electricity business in Europe stood at Euro 1,286 million at 31
December 2005, compared to Euro 2,123 million at the beginning of
the year - a reduction of Euro 837 million, or 39.4%. Financial
results showed a cost of Euro 64 million in 2005, a Euro 2 million
reduction vs. 2004. Income tax Income tax includes Euro 134 million
corresponding to the tax deduction associated to the partial asset
revaluation in accordance with Lege Finanziaria 2006. Cash flow
from operations: up 14.7% Cash flow generated from operations in
this business stood at Euro 586 million, a rise of 14.7% compared
to 2004. Investments: Euro 308 million Investment in the European
electricity business totalled Euro 308 million in 2005. Of this,
Euro 283 million was capex of which Euro 209 million corresponded
to Endesa Italia and Euro 74 million to SNET. Financial investments
for the year were Euro 25 million including the buyout of minority
shareholders' stakes in SNET subsidiaries Sodelif and Bialystock
for Euro 6 and 4 million respectively. These transactions represent
the acquisition of 15.86% of Sodeli and 4.36% of Bialystock.
Divestments In 2005, ENDESA's European business completed the
following divestments: -- 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
Moroccan water utility Lydec for Euro 26 million, generating a net
capital gain of Euro 12 million. ELECTRICITY BUSINESS IN LATIN
AMERICA Leveraging on economic recovery: strong gains in output and
sales In 2005, ENDESA's business in Latin America profited from the
economic recovery of the region. On the back of the most favourable
environment for several years, the business was able to demonstrate
its potential for profitability while continuing to strengthen
balance sheets and optimizing the organizational estructure,
consolidating ENDESA's position as Latin America's leading
electricity multinational with installed capacity of 14,095 MW,
generating output of 57,890 GWh and sales of 55,246 GWh to 11.2
million customers. Sustained economic growth and low inflation were
the rule throughout 2005. This created a good environment for
strong growth in electricity demand in markets served by ENDESA
subsidiary companies, with an average growth in electricity sales
of 5.6% compared to 2004 across all markets where the group is
active. This increase in demand boosted generation at ENDESA's
subsidiaries, which showed average growth of 5.1% compared to the
same period last year. The economic conditions also led to
widespread increases in prices and margins. As a result, EBIT rose
by 10% in the generation and transmission business and by 43.4% in
distribution. Growth in volume sales in generation and distribution
The table below shows generation and distribution figures for
ENDESA's Latin American subsidiaries: -0- *T GENERATION AND
DISTRIBUTION IN THE LATIN AMERICAN BUSINESS
----------------------------------------------------------------------
Generation (GWh) Distribution (GWh)
----------------------------------------------------------------------
2005 % chg 2005 % chg
----------------------------------------------------------------------
Chile 18,764 11.7 11,851 4.7
----------------------------------------------------------------------
Argentina 16,154 1.7 14,018 5.2
----------------------------------------------------------------------
Peru 6,895 21.9 4,530 6.6
----------------------------------------------------------------------
Colombia 11,864 (0.1) 10,094 4.5
----------------------------------------------------------------------
Brazil 4,213 (13.8) 14,753 7.1
----------------------------------------------------------------------
TOTAL 57,890 5.1 55,246 5.6
----------------------------------------------------------------------
*T Improvement in generation and distribution margins Growth in
demand and tighter reserve margins caused the unit margin of
generation companies to increase by 9.9% compared to 2004, reaching
US$ 21.1 per MWh produced, despite the rise in fuel prices and gas
restrictions affecting Chile and Argentina. In distribution,
operating margins were considerably boosted by improved
pass-through of generation costs achieved through tariff revisions
in the course of the year coupled with operating efficiency. VAD
was US$30.3 per MWh, up by 28.9%. Regulatory developments In the
fourth quarter of 2005, further improvements were made to the
regulatory frameworks under which ENDESA's Latin American
subsidiaries operate. In October 2005, ENDESA, alongside the
remaining generators in Argentina, signed a Definitive Agreement
with the Secretary of Energy to manage and operate projects to
reconfigure the Wholesale Electricity Market (MEM). This agreement
comes after the Adhesion Agreement signed in December 2004, under
which the generators agreed to participate in Foninvemem, a
fiduciary fund set up to finance investment to increase electricity
supply to the MEM. In 9 December 2005, Brazil and Argentina signed
an agreement for the 2006-2008 period. Through this treaty, both
countries agreed to adapt their regulations to allow for
contractual changes regarding imports and exports. Also in
December, the Argentine Senate voted in favour of the agreement
signed between Edesur and Uniren providing for the increase in
tariffs, although its application remains pending. Additional
agreements have been reached in 2005 for Chilectra, Ampla, Coelce
and Edelnor. Net income growth of 106.3% Net income from this
business line was Euro 262 million in 2005, up by 106.3% compared
to 2004 and representing 8.2% of ENDESA's total net income for the
year. EBIT: Growth of 30.6% The table below sets out 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
----------------------------------------------------------------------
2005 2004 % Chg 2005 2004 % Chg
----------------------------------------------------------------------
Generation and transmission 1,037 914 13.5 768 698 10.0
----------------------------------------------------------------------
Distribution 898 663 35.4 677 472 43.4
----------------------------------------------------------------------
Others (57) (55) NA (69) (116) NA
----------------------------------------------------------------------
Total 1,878 1,522 23.4 1,376 1,054 30.6
----------------------------------------------------------------------
*T The table below shows the breakdown for each business line by
the countries in which ENDESA operates through fully consolidated
subsidiaries: -0- *T BREAKDOWN OF EBITDA AND EBIT IN LATAM BY
BUSINESS LINE AND COUNTRY
----------------------------------------------------------------------
Generation and transmission
----------------------------------------------------------------------
Euro million EBITDA EBIT
----------------------------------------------------------------------
2005 2004 % Chg 2005 2004 % Chg
----------------------------------------------------------------------
Chile 365 266 37.2 248 179 38.5
----------------------------------------------------------------------
Colombia 232 220 5.5 183 178 2.8
----------------------------------------------------------------------
Brazil - Generation 128 98 30.6 111 84 32.1
----------------------------------------------------------------------
Brazil - Transmission 55 68 (19.1) 38 54 (29.6)
----------------------------------------------------------------------
Peru 154 127 21.3 114 90 26.7
----------------------------------------------------------------------
Argentina - Generation 93 123 (24.4) 66 101 (34.7)
----------------------------------------------------------------------
Argentina - Transmission 10 12 (16.7) 8 12 (33.3)
----------------------------------------------------------------------
TOTAL 1,037 914 13.5 768 698 10.1
----------------------------------------------------------------------
----------------------------------------------------------------------
Distribution
----------------------------------------------------------------------
Euro million EBITDA EBIT
----------------------------------------------------------------------
2005 2004 % Chg 2005 2004 % Chg
----------------------------------------------------------------------
Chile 192 168 14.3 168 147 14.3
----------------------------------------------------------------------
Colombia 236 206 14.6 165 139 18.7
----------------------------------------------------------------------
Brazil 329 145 126.9 262 96 172.9
----------------------------------------------------------------------
Peru 74 69 7.2 44 40 10.0
----------------------------------------------------------------------
Argentina 67 75 (10.7) 38 50 (24.0)
----------------------------------------------------------------------
TOTAL 898 663 35.4 677 472 43.4
----------------------------------------------------------------------
*T Generation and transmission Chile In 2005, Chilean generation
was impacted by the gas supply problems affecting thermal plants,
which required substituting gas with more expensive liquid fuels.
For ENDESA's subsidiaries, however, this issue was more than offset
by the 11.7% increase in energy generated from hydro plants,
specially thanks to the start up of operations of the Ralco plant
in September 2004 and the increase of the node price, which was
derived from the change in the energy matrix caused by the gas
supply crisis. For these reasons, EBIT rose to Euro 248 million in
2005, up by 38.5% compared to 2004. Colombia Although power output
in 2005 was virtually unchanged compared to 2004, the positive
evolution of the Colombian peso vs. the euro allowed the Colombian
subsidiary to report EBITDA of Euro 232 million and EBIT of Euro
183 million, increases of 5.5% and 2.8% respectively. Brazil
(Generation) Total electricity generation in Brazil fell by 13.8%
reflecting gas supply problems at Endesa Fortaleza. However,
favourable exchange rate movements, together with positive price
trends and lower fuel consumption, underpinned a 30.6% rise in
EBITDA and a 32.1% jump in EBIT to Euro 128 million and Euro 111
million, respectively. Brazil (Transmission) The difficulties of
the unavailability of electricity in Argentina to export to Brazil
due to the above-mentioned gas supply restrictions had a negative
impact on results of the interconnection, leading to an EBIT of
Euro 38 million, Euro 16 million lower than in 2004. Peru
Generation sales reached Euro 299 million in 2005, a 3.5% increase
compared to 2004. The impact of lower prices due to higher hydro
output was offset by the 21.9% rise in volumes generated. Higher
hydro output drove a Euro 35 million reduction in the cost of fuel,
contributing to a Euro 27 million increase in EBITDA and Euro 24
million rise in EBIT, to Euro 154 million and Euro 114 million,
respectively. Argentina Gas supply problems pushed up fuel costs
considerably (by 48.5%), as generators were forced to fall back on
more expensive liquid fuels. As a result, although volume sales of
electricity rose by 1.7%, margins narrowed. This meant that EBITDA
and EBIT fell by 24.4% and 34.7% to Euro 93 million and Euro 66
million, respectively. Distribution Chile EBITDA and EBIT from
distribution were up by 14.3% compared to 2004. These increases
reflect the fact that growth in sales volume to meet higher demand
offset the squeeze on margins caused by the latest tariff revision.
Colombia EBITDA of Colombian distribution rose by 14.6% and EBIT by
18.7%. These rises were due to a 10.5% increase in sales to Euro
400 million - enough to cover the higher costs of buying
electricity - and a stronger Colombian peso vs. the euro. Brazil
Distribution sales in Brazil reached Euro 1,319 million in 2005, a
53.7% increase compared to 2004. The rise resulted from wider
margins as a consequence of the pass-through of generation prices
to customers and, to a lesser extent, higher sales volume. Also,
higher income from electricity sales more than covered cost
increases, with EBITDA growing by 126.9% compared to 2004 levels to
Euro 329 million and EBIT by 172.9% to Euro 262 million. Peru
Distribution sales in Peru reached Euro 74 million in 2005, a 7.2%
increase compared to 2004. EBIT rose in 2005 by Euro 4 million
reaching Euro 44 million (+10%). This was due to a Euro 36 million
rise in sales vs. 2004 to Euro 298 million, compared to a rise in
electricity costs of just Euro 22 million. Argentina EBITDA and
EBIT of the Argentine distribution business were down by Euro 8
million and Euro 12 million, respectively, on 2004. This was
largely because the 2004 figures included income of Euro 10 million
corresponding to the compensation received from Alstom due to the
Azopardo supply incident. The rest reflected greater energy
purchases and fixed costs, which were not offset by higher sales.
This situation could change going forward after the upcoming tariff
review. Financial strength: 3% improvement in financial results Net
financial expense from the business in Latin America in 2005
totalled Euro 524 million, Euro 16 million lower than in 2004.
Exchange rate differences switched from losses of Euro 87 million
in 2004 to gains of Euro 16 million in 2005, a difference of Euro
103 million. Net interest expense totalled Euro 540 million, Euro
87 million or 19.2% higher than in 2004. The rise was due to the
euro's trend vs. Latin American currencies and the dollar, which
drove up debt denominated in these currencies in euro terms and
hence increased interest payments on foreign-denominated debt. Net
debt at ENDESA's Latin American business stood at Euro 6,109
million at 31 December 2005, up by Euro 759 million since the start
of the year. This increase in net debt is fundamentally due to the
depreciation of the euro against the currencies in which Latam
subsidiaries hold their debt, which has risen by Euro 912 million
as a result. Stripping out currency effects, debt of the Latin
American business would have fallen by Euro 153 million, after
paying dividends and capital reductions to Group and minority
shareholders totalling Euro 533 million. Enersis and Endesa Chile
in the financial markets The strong operating performance by
ENDESA's Latin American business was mirrored by gains by Enersis
and Endesa Chile stocks, which rose by 18.7% and 55.1%,
respectively on the Santiago de Chile Exchange in 2005. On the New
York Stock Exchange, Enersis gained 29.1% in 2005 and Endesa Chile
67.9%. Cash flow: up 25.3% Cash flow generated by the group's
business in Latin America totalled Euro 1,180 million in 2005, an
increase of 25.3% with respect to 2004. Investments: Euro 670
million Investments in the Latin American business totalled Euro
670 million in 2005. Of this, Euro 600 million was capex. The
breakdown is as follows: -0- *T CAPITAL EXPENDITURES IN LATIN
AMERICA
----------------------------------------------------------------------
Euro million
----------------------------------------------------------------------
2005 2004 % Chg
----------------------------------------------------------------------
Generation 166 168 (1.2)
----------------------------------------------------------------------
Distribution and Transmission 390 251 55.4
----------------------------------------------------------------------
Others 44 59 (25.4)
----------------------------------------------------------------------
Total 600 478 25.5
----------------------------------------------------------------------
*T In the fourth quarter of 2005, ENDESA sold its 40% holding in
Dominican Republic's CEPM for Euro 20 million, at a gross capital
gain of Euro 7 million (Euro 4 million after tax). Optimisation of
the organisational structure In 2005, ENDESA created the subsidiary
Endesa Brasil to bring together all the Group's operating companies
in Brazil, both generation and distribution. ENDESA has a direct
stake in Endesa Brasil of 28.48%. The remaining 71.52% is owned by
the Enersis Group Also, as part of the drive to simplify its
corporate structure, in 2005 the Group began the process of merging
Elesur with Chilectra (Chile) and Edegel with Etevensa (Peru).
Construction of San Isidro II and Palmucho plants (Chile) In 2005,
Endesa Chile continued work on the combined-cycle generation plant
San Isidro II, with a final installed capacity of 377MW, as well as
the Palmucho hydro-electric station with capacity of 32MW. Also in
Peru work continues on Etevensa II, the second combined-cycle at
the Etevensa plant, and on the conversion of Etevensa I to a
combined-cycle. Both are expected to be completed in 2006.
ACCOUNTING CRITERIA ENDESA has prepared its consolidated financial
statements for 2005 and 2004 in accordance with the valuation and
classification criteria required by International Financial
Reporting Standards (IFRS) endorsed by the European Union
prevailing on 31 December 2005. In accordance with IFRS I, the
deadline for the transition to IFRS is 1 January 2004. Accordingly,
figures 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. STATISTICAL APPENDIX KEY FIGURES -0- *T
Electricity Generation (GWh) 2005 2004 % Chg
----------------------------------------------------------------------
Electricity business in Spain and Portugal 93,625 95,679 (2.1)
----------------------------------------------------------------------
Electricity business in Europe 33,749 25,053 34.7
----------------------------------------------------------------------
Electricity business in Latin America 57,890 55,106 5.1
----------------------------------------------------------------------
TOTAL 185,264 175,838 5.4
----------------------------------------------------------------------
Electricity Generation in Spain and Portugal (GWh) 2005 2004 % Chg
----------------------------------------------------------------------
Mainland 79,811 82,529 (3.3)
----------------------------------------------------------------------
Nuclear 23,020 25,567 (10.0)
----------------------------------------------------------------------
Coal 37,018 37,203 (0.5)
----------------------------------------------------------------------
Hydroelectric 7,479 10,310 (27.5)
----------------------------------------------------------------------
Combined cycle - CCGT 7,757 6,039 28.4
----------------------------------------------------------------------
Fuel oil 2,417 1,637 47.6
----------------------------------------------------------------------
Renewables/CHP 2,120 1,773 19.6
----------------------------------------------------------------------
Non-mainland 13,814 13,150 5.0
----------------------------------------------------------------------
TOTAL 93,625 95,679 (2.1)
----------------------------------------------------------------------
Electricity Generation in Europe (GWh) 2005 2004 % Chg
----------------------------------------------------------------------
Coal 15,880 9,830 61.5
----------------------------------------------------------------------
Hydroelectric 2,292 2,392 (4.2)
----------------------------------------------------------------------
Combined cycle - CCGT 11,766 6,338 85.6
----------------------------------------------------------------------
Fuel oil 3,786 6,483 (41.6)
----------------------------------------------------------------------
Wind 25 10 150.0
----------------------------------------------------------------------
TOTAL 33,749 25,053 34.7
----------------------------------------------------------------------
Electricity Generation in Latin America (GWh) 2005 2004 % Chg
----------------------------------------------------------------------
Chile 18,764 16,797 11.7
----------------------------------------------------------------------
Argentina 16,154 15,884 1.7
----------------------------------------------------------------------
Peru 6,895 5,655 21.9
----------------------------------------------------------------------
Colombia 11,864 11,881 (0.1)
----------------------------------------------------------------------
Brazil 4,213 4,889 (13.8)
----------------------------------------------------------------------
TOTAL 57,890 55,106 5.1
----------------------------------------------------------------------
Electricity sales (GWh) 2005 2004 % Chg
----------------------------------------------------------------------
Electricity business in Spain and Portugal 100,868 96,731 4.3
----------------------------------------------------------------------
Regulated market 64,095 65,762 (2.5)
----------------------------------------------------------------------
Deregulated market 36,773 30,969 18.7
----------------------------------------------------------------------
Electricity business in Europe 47,221 32,172 46.8
----------------------------------------------------------------------
Electricity business in Latin America 55,246 52,314 5.6
----------------------------------------------------------------------
Chile 11,851 11,317 4.7
----------------------------------------------------------------------
Argentina 14,018 13,322 5.2
----------------------------------------------------------------------
Peru 4,530 4,250 6.6 Colombia 10,094 9,656 4.5
----------------------------------------------------------------------
Brazil 14,753 13,769 7.1
----------------------------------------------------------------------
TOTAL 203,335 181,217 12.2
----------------------------------------------------------------------
Gas sales (GWh) 2005 2004 % Chg
----------------------------------------------------------------------
Regulated market 2,576 2,697 (4.5)
----------------------------------------------------------------------
Deregulated market 18,558 11,728 58.2
----------------------------------------------------------------------
TOTAL 21,134 14,424 46.5
----------------------------------------------------------------------
Workforce 31-12-05 31-12-04 % Chg
----------------------------------------------------------------------
Electricity business in Spain and Portugal 12,709 12,889 (1.4)
----------------------------------------------------------------------
Electricity business in Europe 2,153 2,436 (11.6)
----------------------------------------------------------------------
Electricity business in Latin America 12,317 11,735 5.0
----------------------------------------------------------------------
Other businesses 25 93 (73.1)
----------------------------------------------------------------------
TOTAL 27,204 27,153 0.2
----------------------------------------------------------------------
*T FINANCIAL DATA -0- *T Key figures 2005 2004 % Chg
----------------------------------------------------------------------
Earnings per share - EPS (Euro) 3.01 1.19 152.5
----------------------------------------------------------------------
Cash flows per share - CFPS (Euro) 3.98 3.25 22.5
----------------------------------------------------------------------
Book value per share - BVPS (Euro) 10.95 8.11** 35.0
----------------------------------------------------------------------
Net financial debt (Euro million) 31-12-05 01-01-05 % Chg
----------------------------------------------------------------------
Electricity business in Spain and Portugal 11,461 9,586 19.6
----------------------------------------------------------------------
Electricity business in Europe 1,286 2,123 (39.4)
----------------------------------------------------------------------
Endesa Italia 815 1,293 (37.0)
----------------------------------------------------------------------
Other 471 830 (43.3)
----------------------------------------------------------------------
Electricity business in Latin America 6,109 5,350 14.2
----------------------------------------------------------------------
Enersis 5,207 4,081 27.6
----------------------------------------------------------------------
Other 902 1,269 (28.9)
----------------------------------------------------------------------
Other businesses (575) 1,639 (135.1)
----------------------------------------------------------------------
TOTAL 18,281 18,698 (2.2)
----------------------------------------------------------------------
----------------------------------------------------------------------
Financial leverage (%) 112.0 151.2 NA
----------------------------------------------------------------------
Net debt/EBITDA (times) 3.0 4.1* NA
----------------------------------------------------------------------
EBITDA interest coverage (times) 5.7 4.6* NA
----------------------------------------------------------------------
"Rating" (18-01-06) Long term Short term Outlook
----------------------------------------------------------------------
Standard & Poor's A A-1 Under review (-)
----------------------------------------------------------------------
Moody's A3 P-2 Negative
----------------------------------------------------------------------
Fitch A F1 Under review (-)
----------------------------------------------------------------------
Main fixed income issues Spread over IRS (bp)
----------------------------------------------------------------------
31-12-05 31-12-04
----------------------------------------------------------------------
3.5 Y EUR700M 4.375% Mat. June 2009 5 17
----------------------------------------------------------------------
6.5 Y GBP 400M 6.125% Mat. July 2012 28 33
----------------------------------------------------------------------
7.1 Y EUR700M 5.375% Mat. Feb 2013 18 31
----------------------------------------------------------------------
Stock market data 31-12-05 31-12-04 % Chg
----------------------------------------------------------------------
Market cap (Euro million) 23,525 18,306 28.51%
----------------------------------------------------------------------
Number of shares outstanding 1,058,752,117 1,058,752,117 --
----------------------------------------------------------------------
Nominal share value (Euro) 1.2 1.2 --
----------------------------------------------------------------------
Stock market data 2005 2004 % Chg
----------------------------------------------------------------------
Trading volumes (shares)
----------------------------------------------------------------------
Madrid stock exchange 2,602,871,497 2,227,994,547 16.8%
----------------------------------------------------------------------
NYSE 28,068,500 23,217,800 20.9%
----------------------------------------------------------------------
Average daily trading volume (shares)
----------------------------------------------------------------------
Madrid stock exchange 10,167,467 8,876,472 14.5%
----------------------------------------------------------------------
NYSE 111,383 92,134 20.9%
----------------------------------------------------------------------
Share price High 2005 Low 2005 31-12-05 31-12-04
----------------------------------------------------------------------
Madrid stock exchange (Euro) 22.78 16.63 22.22 17.29
----------------------------------------------------------------------
NYSE (USD) 27.01 21.63 26.01 23.27
----------------------------------------------------------------------
Dividends (Euro cents/share) Payable against 2005 results
----------------------------------------------------------------------
Interim dividend (2 January 2006) 30.50
----------------------------------------------------------------------
Final dividend*** 209.5
----------------------------------------------------------------------
Total DPS 240.00
----------------------------------------------------------------------
Pay-out (%) 79.9
----------------------------------------------------------------------
Dividend yield (%) 10.80
----------------------------------------------------------------------
* As of 31 December 2004. ** As of 1 January 2005. *** To be
proposed to the General Shareholders' Meeting *T NOTE: The results
presentation is available for download from endesa's website
(www.endesa.es). For additional information please contact Alvaro
Perez de Lema, North America Investor Relations Office, telephone #
212 750 7200 http://www.endesa.es Information memo (forward looking
statements) Investors are urged to read ENDESA's
Solicitation/Recommendation Statement on Schedule 14D-9 when it is
filed with the U.S. Securities and Exchange Commission (the "SEC"),
as it will contain important information. The
Solicitation/Recommendation Statement and other public filings made
from time to time by ENDESA with the SEC are available without
charge from the SEC's website at www.sec.gov and at ENDESA's
principal executive offices in Madrid, Spain. 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 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. 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. Except as may be required by
applicable law, neither Endesa nor any of its affiliates intends to
update these forward-looking statements.
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