ENDESA (NYSE:ELE) -0- *T Results JANUARY-JUNE 2006 *T The main
income statement lines supported the strong growth reported in the
first quarter -- Gross operating profit (EBITDA) rose 33.2% vs.
1H05 to Euro 3,762 million. -- Operating profit (EBIT) advanced
45.8% to Euro 2,871 million. Excellent results in all businesses --
The Spanish and Portuguese business reported net income of Euro 961
million, up 41.5% over 1H05, in an environment of regulatory
change. -- Net income from the business in Europe strengthened to
Euro 322 million, an increase of 76.9% vs. 1H05. -- The Latin
American business consolidated its favorable momentum, boosting net
income by 164.9% to Euro 302 million. ENDESA reinforces the
commitments in its Strategic Plan -- The financial results achieved
by the Company since October 2005 demonstrate that the targets
presented then to the market were surpassed. -- Based on the 1H06
results and current forecasts, ENDESA has decided to reinforce the
commitments of its Strategic Plan. -- EBITDA will reach Euro 8,330
million in 2009, vs. the initial Euro 7,500 million. -- The total
dividend in the 2005-2009 period targets Euro 9,900 million, - i.e.
Euro 9.35 per share, of which Euro 2.40 per share were paid against
fiscal year 2005- up from the Euro 7,000 million announced in
October. KEY FACTS AND FIGURES FOR 1H06 SHARP GROWTH IN NET INCOME
IN ALL BUSINESSES -- ENDESA reports net income of Euro 1,756
million, an increase of 83.7% compared to 1H05. -- The business in
Spain and Portugal posted net income of Euro 961 million in the
first half of 2006, an increase of 41.5%. -- Net income from the
business in Europe rose 76.9% to Euro 322 million. -- Net income
from the business in Latin America was Euro 302 million, an
increase of 164.9% on 1H06. INCOME STATEMENT: CONTINUING THE
POSITIVE TREND OF 1Q06 -- The gross margin in the first six months
of the year was Euro 5,299 million, 25.6% higher than in 1H05. --
EBIDTA rose 33.2% to Euro 3,762 million. -- EBIT was Euro 2,871
million, a 45.8% increase. -- Cash flow from operations totalled
Euro 2,275 million, 19.3% higher than in 1H05. ENDESA REINFORCES
THE COMMITMENTS IN ITS STRATEGIC PLANS -- The excellent results
achieved by the Company have easily overcome the pace drawn by the
targets of the Strategic Plan presented to the market last October
in the document "ENDESA: stronger business, greater value".
Therefore, the Company has decided to considerably reinforce its
Plan's commitments. -- EBITDA will reach Euro 8,330 million in
2009, vs. the Euro 7,500 million announced last October. -- Net
income for 2009 is planned to be Euro 3,000 million, up from the
initial Euro 2,200 million. -- The total dividend targets Euro
9,900 million in the 2005-2009 period; i.e. Euro 2,900 million
higher than the Euro 7,000 million committed in the former plan.
This would mean a total payment of Euro 9.35 per share in the whole
period, of which Euro 2.40 per share were already paid against
fiscal year 2005. BUSINESS IN SPAIN AND PORTUGAL Sharp growth in
the key items of the income statement in an environment of
regulatory change -- Net income from the business in Spain and
Portugal increased by 41.5% to Euro 961 million and accounted for
54.7% of ENDESA's total net income. -- As compared to 1H05, EBITDA
grew 31.4% to Euro 2,030 million and EBIT by 43.8% to Euro 1,503
million. -- These sharp increases reflect an even stronger
performance of these items in 2Q06 compared to 1Q06. Specifically,
EBITDA advanced 37.7% in 2Q06 and EBIT by 49.9%. -- The excellent
performance by this business was achieved despite having to book
generation sales to the Company's regulated customers at a
provisional price of Euro 42.35/MWh pursuant to Royal Decree Law
3/2006, a level which is significantly below market prices. -- The
negative impact of this provisional price on EBITDA and net income
was Euro 194 million and Euro 126 million, respectively. -- Since
the regulation for the island and non-mainland electricity systems
has been enacted, in 1H06 ENDESA booked Euro 197 million of higher
compensation, net of tax, for non-mainland generation in 2001-2005
pursuant to the Ministerial Orders passed on March 30, 2006. --
1H06 figures also include a Euro 572 million asset related to the
revenue shortfall from regulated activities in the period.
Excluding this asset, the impact of the deficit on net income would
have been Euro 372 million. -- On the other hand, the elimination
of Competition Transition Costs (CTCs), pursuant to Royal Decree
Law 7/2006 passed on June 23, 2006, will not impact ENDESA, since
it has not recorded in its financial statements any asset of
pending CTCs. In addition, the new law empowers the government to
set premiums for the consumption of domestic coal outside the scope
of the CTCs. Thus, the elimination of the CTCs will not affect the
Company's ability to continue to charge these premiums. Spanish
leading electric utility: generation and demand in suitable balance
-- In 1H06, ENDESA maintained its leadership of the Spanish
electricity market, both in generation in the ordinary regime
(39.2%) and in total electricity sales to final customers (42.2%).
-- The Company met 84.4% of its Spanish demand in 1H06 using its
own output. This balance between generation and demand gives it a
clear competitive advantage over its competitors. -- ENDESA's
mainland coal-fired plants achieved a 77.1% load factor in 1H06,
underscoring the important role played by this fuel in securing
electricity demand in Spain. The largest investor of any Spanish
utility -- ENDESA invested Euro 1,074 million in Spain and Portugal
in 1H06, of which Euro 974 million, or 90.7%, was capex. This
underscores its status as the largest investor among Spanish
utilities. -- Euro 574 million of capex was spent on upgrading
distribution facilities to increase quality and security of supply.
Record improvements in service quality in its markets -- In April,
the indicator generally used to measure the reliability of supply,
the system average interruption duration index (SAIDI or TIEPI) was
6 minutes and 8 seconds overall in the distribution markets served
by ENDESA, marking an all-time monthly record in supply quality. --
In 1H06 the accumulated SAIDI was 55 minutes, while for the last 12
months the indicator is running 19% lower. These figures confirm
the positive trend in ENDESA's quality and security of supply over
the past four years as a result of the significant investments made
in distribution facilities and operating enhancement programs. 760
MW of new installed capacity in 1H06 -- ENDESA added 760 MW to its
generation facilities in 1H06, representing 57.6% of new capacity
planned for the full year and indicating a significant progress in
the New Capacity Plan. -- Capacity adds included the completion of
the 400 MW Cristobal Colon CCGT in Huelva, plus 246 MW of new
capacity installed to meet the rapid growth in demand in the island
and non-mainland systems, and 114 MW of new renewable energy
capacity. -- In addition, work on the 800 MW As Pontes CCGT in La
Coruna is progressing according to schedule. This plant is
scheduled to be commissioned in 2007. Carbon credit purchases --
ENDESA has a broad portfolio of carbon credits derived from Clean
Development Mechanisms (CDM) projects at an average price of less
than Euro 7.5/tonne. This portfolio consists of 71.5 million tonnes
of CO2 covered by Emissions Reduction Purchase Agreements (ERPA),
24.8 million tonnes of additional volume in projects covered by
Letters of Intent (LOI) and projects under analysis amounting to
82.4 million tonnes of CO2. Strong growth in earnings from CHP and
renewables -- Revenues from sales of renewable/CHP energy generated
by ENDESA's consolidated companies totalled Euro 142 million, 52.7%
more than in the first half of 2005. -- EBITDA from this business
increased by 49.2% to Euro 94 million, and EBIT by 52.4% to Euro 64
million. Total market share of 11.4% in the natural gas market --
ENDESA sold a total of 13,531 GWh in the Spanish natural gas market
in 1H06, 17.4% more than in 1H05. These sales, coupled with the
9,749 GWh supplied to its own plants, totalled 23,280 GWh and
represent a market share of 11.4%. -- Revenues from gas sales in
the liberalized market in the first half of 2006 totalled Euro 279
million, up 97.9% from 1H05, while revenues from regulated gas
distribution were Euro 23 million, an increase of 15%. The two
businesses contributed a combined gross margin of Euro 67 million.
BUSINESS IN EUROPE Sharp increase in net income -- Net income from
the business in Europe increased by 76.9% to Euro 322 million in
1H06 and accounted for 18.3% of ENDESA's total net income. -- This
figure includes Euro 118 million after minorities due to the
increase in value of this business caused by the restatement of the
tax base of Endesa Italia's fixed assets to their book values, in
accordance with Italian financial act. -- EBITDA stood at Euro 587
million, up 29.6% versus 1H05, and EBIT at Euro 459 million, an
increase of 38.7%. Results underpinned by strong operating
performance -- ENDESA's total generation in Europe in the first
half of 2006 amounted to 18,671 GWh, an increase of 10% on the
previous year. -- Electricity sales were up 11.3% to 26,635 GWh.
Italy: Sharp increases in main financial indicators plus new
capacity and regasification projects -- EBITDA from Endesa Italia
was Euro 485 million, 33.6% higher than in 1H05, while EBIT stood
at Euro 409 million, a 38.6% increase. -- In line with planned
growth in renewable energies, in June the company added to its
generation mix the Iardino 14 MW wind farm acquired by Endesa
Europa from Gamesa. -- Construction on the 2x 400MW Scandale CCGTs
in Calabria, in which Endesa Italia owns 50%, is proceeding
according to schedule. -- In 1H06, preliminary work commenced on
the offshore regasification terminal off Livorno, which is
scheduled to come on-stream at the end of 2008. France: Snet
combines good earnings momentum combined with increased supply
activities -- In 1H06, French generator Snet contributed Euro 102
million to the ENDESA's EBITDA, 17.2% more than in 1H05, and Euro
50 million to EBIT, an increase of 51.5%. -- Snet also made
significant progress in its supply activity during the period. It
signed an agreement with the French multinational company Auchan to
supply 400 GWh of power in 2006 and another with SNCF (the French
railway operator) to supply 6,600 GWh in the period 2007-2011.
First dividend by Energie Electrique de Tahaddart -- On May 31,
2006, the Board of Directors of Tahaddart agreed on to pay its
first dividend to shareholders. The dividend totalled Euro 6
million, of which Euro 1.9 million corresponded to Endesa Europe.
BUSINESS IN LATIN AMERICA Sharp increases in main financial
figures, underscoring the progress by this business -- ENDESA's
Latin American operations posted a 164.9% increase in 1H06 net
income to Euro 302 million, contributing 17.2% to the Company's
total net income. -- EBITDA and EBIT rose 37.8% and 52.0% to Euro
1,145 million and Euro 909 million, respectively. -- Increases in
EBITDA and EBIT were attained in the generation and transmission
business (+30.7% and +41.8%, respectively) and in the distribution
business (+47.5% and +65.8%, respectively), highlighting the strong
business momentum, underpinned by its operating performance.
Increased margins in generation and distribution -- The organic
growth of the Latin American markets in which ENDESA operates drove
total sales from its Latin American companies 5.3% higher in 1H06.
-- The generation unit margin stood at US$26/MWh in 1H06, an
increase of 31% compared to 1H05, and the distribution unit margin
stood at US$36.9/MWh, an increase of 22%. -- Energy distribution
losses were lower in all countries in 1H06, down 0.6 percentage
points on 1H05. Improvements were most notable in Brazil and
Argentina, where the percentage of losses declined by 0.9 and 0.6
points, respectively. Debt reduction -- Net debt in the Latin
American business declined by 8.6%, or Euro 526 million, in 1H06 to
Euro 5,583 million as of June 30, 2006. Optimisation of the
ownership structure -- 1H06 marked the completion of the ownership
restructuring in Brazil (incorporation of the Brazilian holding
company, Endesa Brasil), Peru (the Etevensa-Edegel merger) and
Chile (Chilectra-Elesur merger). -- The International Finance
Corporation (IFC) became shareholder in Endesa Brasil, the holding
for all of ENDESA's investments in Brazil, acquiring a 2.7% equity
stake. -- In May, the Boards of Directors of the Colombian
companies, Emgesa and Betania, agreed to analyse a potential
merger. If the outcome of the analysis is favourable, the
transaction will give rise to the largest generator in Colombian,
with installed capacity of 2,288 MW. Cash return target for 2009:
42% completed -- Cash returns from ENDESA's Latin American business
to the parent company in the first six months of the year totalled
US$ 107 million. -- This, coupled with the US$ 308 million achieved
in 2005, means that 42% of the 2009 target of the Strategic Plan
has now been achieved. New generation capacity development --
Endesa Chile signed an agreement with electricity company Colbun
-controlled by the Matte Group, one of Chile's leading business
conglomerates- for its inclusion in the Aysen Project, which
entails the construction of four hydro plants with total installed
capacity of 2,430 MW. -- Meanwhile, also in Chile, work continued
on the construction of the 377 MW San Isidro II CCGT and of the 32
MW Palmucho hydro facility. DISPOSALS -- Pursuant to an agreement
reached in December 2005, in 1Q06 ENDESA sold its 5.01% stake in
telecoms operator Auna to Deutsche Bank. -- This deal, which
generated net capital gains of Euro 171 million, marked the full
disposal of the Company's telecom business - one of the main goals
of the Strategic Plan. -- In the first six months of the year,
Bolonia Real Estate, ENDESA's real estate management company, made
disposals totalling Euro 20 million, generating capital gains of
Euro 14 million. -- In May, ENDESA sold its 49% stake in the
Portuguese company NQF Gas for Euro 59 million, booking a net
capital gain of Euro 21 million. -- In the second quarter, the
generation business of Brazilian company Ampla -whose core business
is the distribution and sale of electricity to over 2 million
customers -was sold for Euro 39 million, generating a gross capital
gain of Euro 30 million and a net capital gain after taxes and
minorities of Euro 12 million. DIVIDENDS -- On July 3, ENDESA paid
its final dividend against 2005 results. -- As approved at the
General Shareholders' Meeting held on February 25, the Company made
a gross dividend payment of Euro 2.095 per share, bringing total
shareholder remuneration against last year's results, including the
gross interim dividend of Euro 0.305 per share paid out on January
2, 2006, to Euro 2,541 million. -- The results for the first half
of 2006 confirm that the Company will be in a position to propose
at the General Shareholders' Meeting the payment of a dividend of
at least Euro 1.6 per share against this year fiscal earnings, of
which Euro 1.27 will be determined by the net income of ordinary
activities and the remainder from the capital gains of
non-strategic assets. CONSOLIDATED RESULTS Net income up 83.7%
ENDESA reported net income of Euro 1,756 million in 1H06, an 83.7%
increase on 1H05. Second quarter results built on the momentum
generated in the first three months of the year. This increase
includes the net impact of the Euro 225 million of capital gains
obtained on asset sales made in the first six months of the year,
of which Euro 171 million correspond to the sale of the 5.01% stake
in Auna to Deutsche Bank. Stripping out these capital gains from
both periods, growth in net income in 1H06 vs. 1H05 was 79.5%. -0-
*T NET INCOME IN 1H06
----------------------------------------------------------------------
Euro % Chg vs. % of total % of total million 1H05 NI 2005(*) NI
2006(*)
----------------------------------------------------------------------
Spain and Portugal 961 41.5 69.6(*) 60.6
----------------------------------------------------------------------
Rest of Europe 322 76.9 18.7 20.3
----------------------------------------------------------------------
Latin America 302 164.9 11.7 19.1
----------------------------------------------------------------------
Capital gains from sale of 5.01% stake in Auna 171 -- -- --
----------------------------------------------------------------------
TOTAL 1,756 83.7 100.0 100.0
----------------------------------------------------------------------
(*) Total Net Income from electricity businesses. *T Net income
growth across all the Company's businesses. The business in Spain
and Portugal posted net income of Euro 961 million in 1H06, an
increase of 41.5%. This includes Euro 197 million of higher
compensation, net of tax, from non-mainland generation deficit for
the period 2001-2005 pursuant to the Ministerial Orders passed on
March 30, 2006. In Europe, net income advanced 76.9% to Euro 322
million. This figure includes Euro 118 million, net of minority
interests, related to a write-up in the valuation as Endesa Italia
revalued the tax bases of its fixed assets to their book values, as
allowed by current legislation in Italy. Finally, net income for
Latin America was Euro 302 million, 164.9% more than in 1H05. This
figure includes Euro 101 million, net of minority interests, from a
tax credit carryforward derived from the Elesur-Electra merger.
Total electricity sales up significantly: +7.6% Both electricity
output (+1.4%) and electricity sales (+7.6%) rose in the first half
compared to the same period last year. The increases were
particularly high for the business in Europe, where output rose by
10% -amply offsetting lower output in Spain- and electricity sales
by 11.3%. -0- *T ELECTRICITY OUTPUT AND SALES IN 1H06
----------------------------------------------------------------------
Output Sales
----------------------------------------------------------------------
GWh % Chg vs. 1H05 GWh % Chg vs. 1H05
----------------------------------------------------------------------
Spain and Portugal 44,875 (3.8) 53,176 7.1
----------------------------------------------------------------------
Rest of Europe 18,671 10.0 26,635 11.3
----------------------------------------------------------------------
Latin America 29,736 4.6 28,549 5.3
----------------------------------------------------------------------
TOTAL 93,282 1.4 108,360 7.6
----------------------------------------------------------------------
*T Appropriate output/sales balance ENDESA met 86.1% of its total
electricity sales in 1H06 from its own output. This balanced
situation between production and demand should considerably
mitigate the risk of its electricity business and provides ENDESA
with a significant competitive advantage, especially in the Spanish
market. In Spain, the Company met 84.4% of demand in the period
from its own output. Revenue growth outstrips costs ENDESA's total
sales in the first half of 2006 amounted Euro 9,946 million, an
increase of 20.5% on the previous year. This growth was greater
than physical electricity sales growth. This was due to increase in
electricity prices in the countries where ENDESA operates because
of power generation costs. The strong growth in sales outstripped
the 20.3% increase in purchases and services expenses (variable
costs), which were caused by increases in fuel costs, energy
purchases and CO2 emission rights in the period. Sharp growth in
key income statement lines As revenue growth offset the increase in
costs, the Company reported significant rises in gross margin
(+25.6%), EBITDA (+33.2%) and EBIT (+45.8%). These growth rates
highlight how the Company's second quarter results built on the
favorable momentum achieved in the first three months of the year.
-0- *T Gross margin EBITDA EBIT
----------------------------------------------------------------------
Euro % Chg Euro % Chg Euro % Chg vs. million vs. million vs.
million 1H05 1H05 1H05
----------------------------------------------------------------------
Spain and Portugal 2,953 22.5 2,030 31.4 1,503 43.8
----------------------------------------------------------------------
Europe 759 23.6 587 29.6 459 38.7
----------------------------------------------------------------------
Latin America 1,587 32.9 1,145 37.8 909 52.0
----------------------------------------------------------------------
TOTAL 5,299 25.6 3,762 33.2 2,871 45.8
----------------------------------------------------------------------
*T Net financial expenses: -10.5% ENDESA reported net financial
losses of Euro 469 million in 1H06, a 1.3% improvement over 1H05.
Net financial expenses totalled Euro 480 million, down by 10.5%
over 1H05. This figure includes a financial income of Euro 31
million related to the portion not recorded as of December 31, 2005
of the interest accrued on the compensations derived from the
non-mainland generation deficit calculated in accordance with the
Ministerial Orders passed in March 30. Worth highlighting is the
fact that the increase in net debt caused by financing the revenue
deficit on regulated activities in Spain does not impact net
financial expenses. Both the cumulative amount of the deficit
financed and the amounts pending collection as compensation for the
stranded costs on non-mainland generation deficit earn interest
that offset the expenses. Asset disposals 1Q06 marked the end of
the period for Auna shareholders to exercise their pre-emptive
rights on the 5.01% stake ENDESA sold to Deutsche Bank on December
30, 2005. After the end of this period, the sale of these shares
was formalised and all the conditions required under International
Financial Reporting Standards (IFRS) regarding the removal of the
shares from ENDESA's balance sheet and the recognition of the
capital gains in its income statement have been met. Therefore, as
indicated in ENDESA's consolidated financial statements for the
year ended December 31, 2005, in 1H06 the Company recorded a
capital of Euro 196 million (Euro 171 million after tax) for the
sale of the aforementioned investment. With this disposal, the
"Other businesses" line has been removed from ENDESA's accounts, so
for the rest of 2006, this capital gain will be the only entry
under this caption. In addition, in 2Q06, ENDESA sold its 49%
holding in the Portuguese company NQF Gas for Euro 59 million,
booking a capital gain of Euro 27 million (Euro 21 million net of
taxes) and sold off the generation assets of Brazilian operator
Ampla for Euro 39 million, recording a gain of Euro 30 million
(Euro 12 million after taxes and minorities). Finally, also in
1H06, ENDESA disposed of Euro 20 million worth of real estate
assets in Spain through Bolonia Real Estate. Cash flow from
operating activities: +19.3% Cash flow from operating activities in
1H06 was Euro 2,275 million, a 19.3% increase compared to 1H05. -0-
*T CASH FLOW FROM OPERATING ACTIVITIES
----------------------------------------------------------------------
Euro million % Chg vs. 1H05
----------------------------------------------------------------------
Spain and Portugal 1,257 20.1
----------------------------------------------------------------------
Rest of Europe 340 (2.0)
----------------------------------------------------------------------
Latin America 678 25.1
----------------------------------------------------------------------
TOTAL 2,275 19.3
----------------------------------------------------------------------
*T The decline in cash flow from operating activities in Rest of
Europe was due to the one-off payment of taxes by Endesa Italia in
2Q06 to generate a tax credit. Stripping out this effect, cash flow
from operating activities would have increased by 19.6%.
Investment: Euro 1,616 million ENDESA invested a total of Euro
1,616 million in 1H06, of which Euro 1,476 million was invested in
capex and the remaining Euro 140 million in financial investments.
-0- *T INVESTMENTS Euro million Capex and intangible assets
Financial TOTAL Spain and Portugal(1) 1,017 57 1,074 Rest of Europe
85 47 132 Latin America 374 36 410 TOTAL 1,476 140 1,616 (1)
Additionally, a financial investment of Euro 572 million for the
revenue deficit from regulated activities in 1H06 and Euro101
million from the restatement of the 2005 deficit was booked. *T
Debt performance ENDESA's net debt was Euro 18,983 million as of
June 30, 2006, just 3.8% higher than at year-end 2005. -0- *T
BREAKDOWN BY BUSINESS LINE OF ENDESA'S NET DEBT
----------------------------------------------------------------------
Euro million
----------------------------------------------------------------------
30-6-06 31-12-05 Change % Chg
----------------------------------------------------------------------
Business in Spain and Portugal 11,860 11,461 399 3,5
----------------------------------------------------------------------
Business in Europe 1,540 1,286 254 19,8 -Endesa Italia 993 815 178
21,8 -Other 547 471 76 16,1
----------------------------------------------------------------------
Business in Latin America 5,583 6,109 (526) (8,6) -Enersis Group
4,675 5,207 (532) (10,2) -Other 908 902 6 0,7
----------------------------------------------------------------------
Other businesses (1) -- (575) 575 NA
----------------------------------------------------------------------
TOTAL 18,983 18,281 702 3,8
----------------------------------------------------------------------
(1) At June 30, 2006, there was no debt assigned to "Other
businesses", as this business line disappeared as such with the
sale of the 5.01% stake in Auna completed in February 2006. The
remaining debt balance was included in the electricity business in
Spain and Portugal. *T The increase in debt in Spain and Portugal
was due to the need to finance the tariff deficit in 2005 and the
first half of 2006. In 1H06, ENDESA paid 1,207 million in this
regard. In Europe, the Company had to make a corporate income tax
payment in the second quarter. However, between June 30, 2005 and
June 30, 2006, debt at this business was cut by Euro 175 million.
In Latin America, debt was reduced by Euro 526 million in the first
six months of 2006. When assessing ENDESA's debt level, it must be
remembered that at June 30, 2006, ENDESA had the recognised right
to collect Euro 3,469 million: Euro 2,275 million for financing the
revenue deficit from regulated activities, Euro 1,092 million in
compensation for the non-mainland generation deficit and Euro 102
million of stranded costs in Italy. Stripping out the amounts from
these regulatory items, ENDESA's net debt at June 30, 2006 was Euro
15,514 million. The average cost of ENDESA's total debt was 5.59%
in 1H06, while the cost of the debt corresponding to the Enersis
Group was 9.39%. Stripping out Enersis Group debt, the average cost
of ENDESA's debt in 1H06 was 4.18%. -0- *T STRUCTURE OF ENDESA'S
NET DEBT
----------------------------------------------------------------------
ENDESA and direct Enersis Total subsidiaries Group ENDESA group
----------------------------------------------------------------------
Euro % of Euro % of Euro % of total million total million total
million
----------------------------------------------------------------------
Euro 14,241 99.5 - - 14,241 75.0
----------------------------------------------------------------------
Dollar 67 0.5 2,360 50.5 2,427 12.8
----------------------------------------------------------------------
Other currencies - - 2,315 49.5 2,315 12.2
----------------------------------------------------------------------
Total 14,308 100.0 4,675 100.0 18,983 100.0
----------------------------------------------------------------------
Fixed rate 8,861 61.9 4,199 89.8 13,060 68.8
----------------------------------------------------------------------
Hedged 1,798 12.6 89 1.9 1,887 9.9
----------------------------------------------------------------------
Variable 3,649 25.5 387 8.3 4,036 21.3
----------------------------------------------------------------------
TOTAL 14,308 100.0 4,675 100.0 18,983 100.0
----------------------------------------------------------------------
Avg. life (years) 5.2 5.2 5.2
----------------------------------------------------------------------
*T The average life of the ENDESA Group's debt at June 30, 2006 was
5.2 years. ENDESA enjoys a high degree of protection against
interest-rate risk, since 78.7% of its total debt is either
fixed-rate or hedged. As of June 30, 2006, ENDESA in Spain and its
direct subsidiaries, excluding the Enersis Group, had liquidity of
Euro 7,433 million, of which Euro 7,100 million corresponded to
unconditional undrawn credit lines. These balances were sufficient
to cover the dividend paid against 2005 earnings on July 3, 2006
and debt maturities falling due over one year. Additionally, the
Enersis Group had liquidity of Euro 1,227 million, of which Euro
447 million corresponded to unconditional undrawn credit lines. The
total amount covers debt maturities for the next 17 months.
Financial leverage stood at 124.8% at June 30, 2006, 17.6
percentage points below the level a year earlier. 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. In all three
cases, the changes were due to the negative impact the transaction
would have, were it to go ahead, on the new company's financial
position. As a result, at July 25, 2006, ENDESA's long-term debt
ratings are: Standard & Poor's, A, under review for a possible
downgrade; Moody's, A3, negative outlook, and Fitch, A+, under
review for a possible downgrade. REINFORCED COMMITMENTS IN THE
STRATEGIC PLAN The excellent results achieved by ENDESA is recent
quarters have easily overcome the pace drawn by the targets of the
Strategic Plan presented to the market on October 3, 2005, in the
document entitled "ENDESA: stronger business, greater value".
EBITDA and net income growth have clearly surpassed the pace
envisaged in the plan. Similarly, the dividend paid and charged to
2005 results and that the Company will propose to the General
Shareholder's Meeting for payment out of 2006 income together
amount to more than Euro 4,200 million, meaning that in the first
two years of the plan, 60% of the total dividend targeted for the
period 2005-2009 will have been met. Moreover, current outlook for
the Company's business environment is favorable, underpinned
primarily by ENDESA's ability to leverage regulatory developments
in Spain, expectations of rising energy prices in Europe and the
consolidation of operating growth in its business in Latin America.
As a result, ENDESA believes -based on the project on progress
considered in its organic growth strategy- it is in a good position
to set more ambitious strategic goals for the coming years
regarding earnings growth and shareholder 's return. This favorable
trend will be shown in fiscal year 2006. According to the Company's
current estimates and assuming that final price on the energy
affected by the Royal Decree Law 3/2006 will be set around Euro
54/MWh by objective market criteria, the EBITDA will reach Euro
6.930 millions, Euro 205 million more than the Euro 6,725 million
guidance presented to the market last October. At the same time,
net income will reach Euro 2,900, a Euro 500 million increase on
the previous estimate. As for targets for the entire 2005-2009
period, based on current estimates the Company forecasts the
following: -0- *T -- EBITDA of Euro 8,330 million in 2009, Euro 830
million more than the Euro 7,500 million included in the targets
announced last October. The breakdown of this increase by business
line is as follows: -- Euro 390 million increase to Euro 4,590
million from the business in Spain and Portugal, driven by wider
margins, efficiency improvements and favorable regulatory updates.
-- Euro 320 million increase to Euro 1,370 million from the
business in Europe, driven by increases in generations margins,
efficiency improvements and the addition of new assets in Poland.
-- Euro 120 million increase to Euro 2,370 million from the
business in Latin America, underpinned by operating improvements of
its subsidiaries under the new macroeconomic outlook of this
region. -- Net income also looks set to grow higher than previously
estimated, reaching Euro 3,000 million in 2009 vs. the target
announced in October of Euro 2,200 million. -- Targeted financial
leverage below 140% is unchanged. *T The Company will continue to
follow the shareholder remuneration policy submitted for approval
at the latest General Shareholders' Meeting; i.e. dividend growth
from ordinary activities over 12% per annum and a payout of 100% of
capital gains obtained on the disposal of non-strategic assets.
Based on these earnings forecasts, this dividend policy, if
ratified by shareholders in the General Meeting, equates to a total
payment of Euro 9,900 million in dividends in the 2005-2009 period;
i.e. Euro 2,900 million more than the figure announced last
October. This would mean a total payment of Euro 9.35 per share in
the whole period, of which Euro 2.40 per share were already paid
against fiscal year 2005. Of this amount, around Euro 7,600 million
will derive from income from ordinary activities and around Euro
2,300 million from capital gains from disposals of non-strategic
assets. In sum, these new projects demonstrate that the strategic
targets presented by the Company to the markets last October were
not only reasonable, but achievable, confirming ENDESA's greater
value. -0- *T REINFORCED COMMITMENTS IN THE STRATEGIC PLAN
----------------------------------------------------------------------
Euro million
----------------------------------------------------------------------
Target announced to the market in October 2005 New target
----------------------------------------------------------------------
EBITDA in 2006 6,725 6,930
----------------------------------------------------------------------
EBITDA in 2009 7,500 8,330
----------------------------------------------------------------------
Net income in 2006 2,400 2,900
----------------------------------------------------------------------
Net Income in 2009 2,200 3,000
----------------------------------------------------------------------
Dividend from net income from ordinary activities 2005-2009
(approx.) 5,000 (approx.) 7,600
----------------------------------------------------------------------
Dividends from disposals of non-strategic assets 2005- 2009
(approx.) 2,000 (approx.) 2,300
----------------------------------------------------------------------
Total shareholder remuneration via dividends (approx.) 7,000
(approx.) 9,900
----------------------------------------------------------------------
Financial leverage (%) less than 140 less than 140
----------------------------------------------------------------------
*T RESULTS BY BUSINESS LINE BUSINESS IN SPAIN AND PORTUGAL Net
income up 41.5% to Euro 961 million Net income from this business
was Euro 961 million in 1H06, an increase of 41.5% on 1H05 and
equivalent to 54.7% to the Company's overall bottom line. EBITDA
rose 31.4% to Euro 2,030 million and EBIT by 43.8% to Euro 1,503
million. Furthermore, both EBITDA and EBIT grew faster in 2Q06
(37.7% and 49.9%, respectively) than in 1Q06. The excellent
performance recorded by ENDESA in its business in Spain and
Portugal in the first half came in a environment of significant
regulatory changes throughout the period and was underpinned by
solid fundamentals and competitive advantages: balance between
output and sales, high load factors at its generation facilities,
lower fuel costs compared to its peers, sharp increases in the
quality of supply, ongoing supply activity to hedge against changes
in wholesale prices, execution of the efficiency improvement plan,
and intense action in the CDM arena to yield enough emission rights
certificates to meet its commitments on emission reductions in
Spain and the rest of Europe. Also worth highlighting was the Euro
194 million negative impact on 1H06 figures from booking the
electricity sold to regulated customers in the areas where ENDESA
acts as distributor at the provisional price of Euro 42.35/MWh as
established in Royal Decree Law 3/2006. This effect is only
temporary, so the negative impact should be neutralized once the
final price is established based on objective and transparent
market criteria, as detailed in the same Royal Decree Law. In 1H06,
ENDESA recorded under revenues the amount corresponding to
compensation for the non-mainland generation historical deficit
calculated in accordance with the Ministerial Orders passed on
March 30, 2006, which was above the amounts booked at March 31,
2006. This concept amounted to Euro 227 million and was booked as
revenues. At 31 December 2005, these compensations earned Euro 31
million of interest, recognised as financial revenue. The impact of
these amounts on ENDESA's net income is Euro 197 million. Key
operating highlights ENDESA: Largest share of the Spanish
electricity market ENDESA maintained its leading position in the
Spanish electricity market in the first half. The Company reached a
39.2% market share in ordinary regime electricity generation, a
42.4% share in energy distributed, 52.2% in sales to liberalized
customers and 41.6% in total sales to final customers. 760 MW of
new installed capacity in 1H06 ENDESA added 760 MW of new capacity
to its generation facilities in 1H06, making significant progress
in the New Capacity Plan. The breakdown of this new capacity is as
follows: -- The completion and connection to the network of the 400
MW Cristobal Colon CCGT in Huelva. When the CCGT begins commercial
operations it will replace the capacity of the plant's existing
fuel and fuel-oil/gas groups. -- New installed capacity on the
mainland and non-mainland systems of 246 MW. -- 114 MW in
renewables/CHP. In addition, construction of the 800MW CCGT and
upgrade of current group 3 to domestic coal the As Pontes site in
La Coruna continued on schedule. ENDESA's territories market
evolution In 1H06, ENDESA's distribution territories total demand
was 56,323 GWh. This figure represents growth of 2.3% vs. 1H05,
compared to an average increase of 0.9% for the Spanish electricity
market. The number of customers served by ENDESA in the regulated
business increased by 254,902 from a year earlier. In the
liberalized market, ENDESA ended June with 1,071,872 customers, up
17.9% on the previous year. The Company's position in this market
provides a hedge against both regulatory and market risks. All-time
record in supply quality In April, the indicator generally used to
measure the reliability of supply, the system average interruption
duration index (SAIDI or TIEPI) was 6 minutes and 8 seconds overall
in the distribution territories served by ENDESA, marking an
all-time monthly record in supply quality. Four of the five
mainland markets served by the Company beated their respective
records that month, outdoing their previous monthly records by
between 6 and 22%. In 1H06 the cumulative SAIDI was 55 minutes, an
improvement of 19% vs. 1H05. These figures confirm the solid and
positive trend in the quality of supply by ENDESA across all the
Spanish territories it serves and is primarily due to the
significant investments made in recent years and the efficiency
enhancement programs in its distribution activity within the
framework of its Quality Plan. Carbon credit purchases ENDESA
presently has a broad portfolio of carbon credits derived from
Clean Development Mechanisms (CDM) projects at an average price of
less than Euro 7.5/tonne. Specifically, it has locked in 71.5
million tonnes of CO2 under Emissions Reduction Purchase Agreements
(ERPA) with a further 24.8 million tonnes covered by Letters of
Intent (LOI) and projects under analysis amounting 82.4 million
tonnes. The emission rights acquired under these agreements will
permit ENDESA to meet to its CO2 emission reduction commitments for
its operations in Spain, Portugal, France and Italy required by the
Directive on Emissions Trading. Within the range of activities
under development in this area, it is worth highlighting the
"ENDESA Climate Initiative", a pioneering program for acquiring
carbon credits that has been launched in China, India, Brazil and
Mexico and will be initiated in Chile in 2H06. The plan envisages
the acquisition of 15 million tonnes of credits by 2012. In
addition, ENDESA recently reached an agreement with the Chilean
company, Consorcio de Santa Marta, to acquire 100% of its emission
reduction certificates, which are estimated to total 2 million
tonnes between 2006 and 2012. NAP 2008-2012: compatible with the
Company's competitive generation portfolio On July 12, 2006, the
government unveiled the details of its 2008-2012 National
Allocation Plan for emission rights proposal. After a preliminary
analysis, ENDESA believes that the allocation that will be made
based on the methodology set out, together with its portfolio of
carbon credits, guarantees that the Company's generation assets
will operate on a fully efficient and competitive basis. All these
have been already factored in the increases in the targets
contained in the Strategic Plan, as detailed previously. We would
highlight that: -- In terms of allocation of rights to coal plants,
preference is granted, in accordance with the provisions of the
National Mining Plan, to those using domestic coal and plants that
have made technological modifications to comply with the Community
Directive on Large Combustion Plants (desulphurisation scrapers,
conversion to imported coal, etc.), which means that all of
ENDESA's coal plants would be under this criteria. -- In relation
to thermal plants in the island and non-mainland systems, the
incremental costs that could arise from an emission rights deficit
would be fully recognized for purposes of remuneration of
generation activities, pursuant to the provisions of Royal Decree
1,747/2003 and the Ministerial Orders dated March 30, 2006. --
Finally, the inevitable internalisation in wholesale electricity
prices derived from implementing the emission rights system and as
a result of any potential deficit in rights will increase the
income accruing to other generation technologies, especially hydro
and nuclear plants. Regulatory update Real Decree Law 3/2006 Royal
Decree Law 3/2006, enacted towards the end of February, entailed
material changes that affected power generation revenues in the
first half of the year. -- Since March 3, 2006, sales to the
wholesale generation market that match purchases by a distributor
belonging to the same group for sale to the regulated market are
settled at the provisional price of Euro 42.35/MWh. ENDESA's
account since that date were drawn up based on this price. However,
the Royal Decree Law stipulates that the government will set the
definitive price based on objective and transparent market prices.
Therefore, if generation costs remain at 1H06 levels during the
rest of the year, the final price will be significantly higher,
meaning that ENDESA's reported revenues and income will be higher
than those appearing in these accounts. -- The amount finally
recognised for each business group for financing the deficit in
regulated revenues in 2006 will be deducted by the value of the
free CO2 emission rights received during the period from January 1
and March 2, 2006. As the norm for making this calculation has not
been fully defined, ENDESA has opted to be conservative,
calculating the proportional part of the period of freely allocated
emission rights received in 2006 and assessing the value taking the
average market price in the first two months of 2006. This
methodology gives an amount of Euro 121 million, recognised as a
decrease in revenues from generation sales and a decrease in the
amount receivable to be recouped from the tariff deficit. -- Since
March 3, 2006, revenues from power sales on the OMEL organised
market at the established price for the market are reduced by the
value of the freely allocated emission rights related to those
revenues. Since some aspects of the new legislation are
provisional, as indicated, the accounting entries at June 30, 2006
related to its application are likewise provisional until the
detailed norms are enacted and the corresponding settlements are
made. The tariff deficit The 1H06 electricity tariff was 4.48%
higher and the amount allocated to the nuclear moratorium has
decreased from, thus, increasing the system's regulated revenues.
However, these adjustments have been insufficient to cover the
system's entire costs, particularly generation costs. This led to a
deficit in revenues from regulated activities, estimated at Euro
1,569 million, of which Euro 693 million corresponds to ENDESA. Of
this amount, Euro 121 million corresponding to the provisional
valuation of the free CO2 emission rights allocated to ENDESA in
the first two months of the year as established by Royal Decree
3/2006 have been deducted from the generation revenues and the
remaining Euro 572 million have been booked as a financial
investment. This accounting methodology is consistent with the
recognized right to recoup the amount, even though the manner in
which it will be recovered will not be regulated until the end of
the fiscal year. Had this Euro 572 million of recoverable revenue
shortfall on regulated activities not been booked as a financial
asset, revenues, EBITDA and EBIT would be lower by that exact
amount and net income by Euro 372 million. Completion of the
regulatory framework for non-mainland systems On March 30, 2006 the
Ministry of Industry, Tourism and Trade approved the Ministerial
Orders which fully develops the Royal Decree 1747/2003, which rules
Spain island and non-mainland systems. These orders establish the
methodology for calculating regulated remuneration on generation in
these systems and, accordingly, the compensation to be received by
the utilities operating in them. Application of the orders gives
rise to compensation of Euro 902 million to ENDESA for the
2001-2005 period above the provisional amounts envisaged in the
subsequent Royal Decree tariffs of each year. To December 31, 2005,
ENDESA's financial statements recognised revenues for this concept
of Euro 644 million, recording the remaining Euro 258 million in
1H06. Of this amount, Euro 227 million were booked as revenues and
the remainder, i.e. Euro 31 million, as financial revenues as they
correspond to interest accrued. With the regulatory framework in
place, the island and non-mainland generation business is
guaranteed sufficient revenues going forward to meet the costs of
the business and allow for appropriate fuel price hedges, while
ensuring a reasonable return. July 1, 2006 tariff revision On June
30, the Spanish cabinet passed Royal Decree 809/2006 revising the
electricity tariff from July 1, 2006. This decree establishes an
average increase of 1.38% in the average tariff for the sale of
electricity that came into effect on January 1, 2006. It also
regulates the application of the tariff increase to the existing
tariff structure. In the share-out of the increase between the
various tariffs, the bulk was among medium- and high-voltage
customers, whose tariffs have risen by 6%. Conversely, the tolls
approved by Royal Decree 1556/2005 have not been modified. The
Royal Decree removes the cap on the annual tariff increase
established in Royal Decree 1432/2002 governing the tariff
methodology. A 1.4% of the change in costs recorded during the year
and a further 0.6% increase due to revisions to estimates made in
the previous two years was in place. It also stipulates that from
July 1, 2006, the amount corresponding to the annual payment
calculated for the straight-line recovery over a period of 14 and a
half years of the NPV of the deficit from regulated activities
arising in Euro 3,810 million to be included in the tariff as an
expense. The amount at December 31 of each year will be calculated
by updating the pending balance at that date of the previous year
applying an interest rate equivalent to the 3M Euribor and
subtracting the payments of the current year. The Royal Decree
allows the companies entitled to these reimbursements to transfer
to third parties and securitize the collection rights. Prior to the
enactment of Royal Decree 809/2006, Royal Decree 470/2006 was
passed, which modified the percentage of the electricity tariff
allocated to the nuclear moratorium. This norm reduced the
percentage form 1.724% to 0.33%, thereby freeing up resources to
the system. This reduction comes on top of the one approved in the
electricity tariff for 2006, which established the percentage for
the nuclear moratorium at 1.724% mentioned previously, vs. the
3,04% applied in 2005. Elimination of Competition Transition Costs
(CTCs) On June 23, the Spanish cabinet passed Royal Decree Law
7/2006, adopting emergency measures for the energy sector. Among
other measures, this law repealed the sixth transitory provision of
the Electricity Industry Law 54/1997, of November 27, regarding
CTCs (stranded costs), thereby eliminating them. The elimination of
the CTC mechanism has no impact whatsoever on ENDESA's financial
statements, as the Company has no future CTCs pending to recover,
nor does it expect any future collections as, under current
circumstances, the estimated amounts will be recovered through the
market. In addition, the Royal Decree Law empowers the government
to set premiums on domestic coal consumption outside the framework
of the CTCs, so their elimination does not affect the future
collection of these premiums by ENDESA. Sharp growth in sales:
+19.5% Sales from the business in Spain and Portugal totalled Euro
4,826 million in 1H06, a 19.5% increase compared to 1H05. Growth
was primarily due to the increase in demand, the rise in final
prices and volume sales to liberalized customers, to higher prices
in the wholesale electricity market in January and February (i.e.
before Royal Decree Law 3/2006 came into effect) and to the
application of the Ministerial Orders regulating the calculation of
remuneration of island and non-mainland generation. The increase in
sales was enough to offset the rise in costs, mainly fuel (15.2%)
and energy purchases (15.7%). Revenues: up 21.9% Revenues for the
electricity business in Spain and Portugal reached Euro 5,268
million in the first half of 2006, up 21.9% on 1H05. Of this
amount, sales accounted for Euro 4,826 million, 19.5% higher than
in 1H05. -0- *T SPAIN AND PORTUGAL SALES
----------------------------------------------------------------------
Euro million
----------------------------------------------------------------------
1H06 1H05 Change % Chg
----------------------------------------------------------------------
Mainland generation under Ordinary Regime 2,126 2,175 (49) (2.3)
----------------------------------------------------------------------
Sales to deregulated customers 879 698 181 25.9
----------------------------------------------------------------------
Other sales in the OMEL 1,247 1,477 (230) (15.6)
----------------------------------------------------------------------
Renewable/CHP generation 142 93 49 52.7
----------------------------------------------------------------------
Regulated revenues from distribution 890 802 88 11.0
----------------------------------------------------------------------
Non-mainland generation and supply(*) 1,088 592 496 83.8
----------------------------------------------------------------------
Coal CTC 19 10 9 90.0
----------------------------------------------------------------------
Supply to deregulated customers outside Spain 147 113 34 30.1
----------------------------------------------------------------------
Regulated revenues from gas distribution 23 20 3 15.0
----------------------------------------------------------------------
Unregulated gas supply 279 141 138 97.9
----------------------------------------------------------------------
Other sales and services rendered 112 94 18 19.1
----------------------------------------------------------------------
TOTAL 4,826 4,040 786 19.5
----------------------------------------------------------------------
(*) The figure for 1H06 includes Euro 227 million corresponding to
compensation for non-mainland generation deficit calculated in
accordance with the Ministerial Orders passed on March 30, 2006,
which was above the amounts recorded at December 31, 2005. *T
Mainland generation ENDESA's mainland electricity output totalled
38,025 GWh in the first six months of the year, 5% less than in
1H05. Of this amount, 36,789 GWh corresponded to electricity
generated under the ordinary regime (-5.7%) and 1,236 GWh under
renewables /CHP (+22.6%). The fall in ordinary regime generation
was mostly due to higher hydro output by the system as a whole, to
scheduled maintenance downtimes of certain important fossil fuel
groups and ENDESA's prioritisation of margins over market share.
ENDESA's coal plants continued to play an important role in meeting
Spanish electricity demand in 1H06. Actually, 13.4% of the total
mainland demand was fulfilled by these plants. Their load factor
was 77.1% proving that, in spite of the CCGT and wind farm capacity
additions, coal plants are still indispensable to meet the
country's electricity requirements. -0- *T BREAKDOWN OF GENERATION
SALES GWh Sales to supply through bilateral contracts 15,356 Sales
to distribution from March 3, 2006 (Euro 42.35/MWh) 10,230 Sales at
pool price 11,203 TOTAL 36,789 *T Sales to the ordinary regime
totalled Euro 2,126 million through June, Euro 49 million or 2.3%
lower than in the same period last year. This amount includes sales
made after March 3 to ENDESA Distribution to supply regulated
customers in ENDESA's distribution territories, which were
recognised at a provisional price of Euro 42.35/MWh in accordance
with Royal Decree Law 3/2006. Worth highlight is that the average
pool price in 1H06 was Euro 70.5/MWh, 21.8% higher than in 1H05.
The negative impact on the 1H06 accounts from selling to regulated
customers the 10,230 GWh of electricity produced from March to June
at the provisional price of Euro 42.35/MWh, pursuant to the Royal
Decree Law 3/2006, was Euro 194 million. This effect is temporary,
so the negative impact should be recovered once the definitive
price is established based on objective and transparent market
criteria, as detailed in the same Royal Decree Law. Moreover, in
accordance with Royal Decree Law 3/2006, the sales figure was
deducted by Euro 121 million corresponding to the provisional
market value of certain CO2 emission rights allocated freely from
the settlement by OMEL. ENDESA renewable/CHP generation: +22.6%
Renewable and CHP generation companies fully consolidated by ENDESA
produced 1,236 GWh in 1H06, 22.6% more than in 1H05. In addition,
ENDESA has holdings in other renewable/CHP companies, which
generated 1,948 GWh in the same period. Revenues from sales of
renewable/CHP energy generated by consolidated companies totalled
Euro 142 million, 52.7% more than in 1H05. This underpinned a 49.2%
increase in EBITDA to Euro 94 million and a 52.4% increase in EBIT
to Euro 64 million. Supply to liberalized customers In the supply
to deregulated customers business, we would highlight that contrary
to the decisions made by other operators in light of the pool
prices and related regulatory updates, ENDESA has opted to pursue a
selective supply strategy. This strategy, which targets higher
value added customers, enables ENDESA to leverage the advantages of
its vertical integration in generation-supply and its highly
competitive generation mix, providing the Company with an
appropriate hedge against regulatory risk and volatility in
wholesale market prices. This policy will allow ENDESA to achieve
reasonable, guaranteed returns over the medium and long run from
the generation business, thus maximising shareholder return. A
12.4% increase in the average selling price to ENDESA's final
liberalized customers in 1H06 vs. 1H05 was attained as a
consequence of this selective policy. ENDESA had 1,071,872
liberalized customers at June 30, 2006. Of these, 1,006,225
corresponded to the mainland deregulated market, 62,254 to the
non-mainland systems and 3,393 to other European deregulated
markets. ENDESA's sales to these customers totalled 18,886 GWh in
the first six months of 2006, 7.7% more than in the same period of
2005. Of this amount, 16,756 GWh were sold on the Spanish
liberalized market, an increase of 8.3%, and 2,130 GWh on other
deregulated European markets, up 3.3%. Revenues from supply to
liberalized customers in Spain (excluding tolls paid to ENDESA
Distribution), totalled Euro 943 million, a 26.6% increase on 1H05.
Of this amount, Euro 879 million corresponded to the mainland
deregulated market and Euro 64 million to the non-mainland market.
Revenues from supply to liberalized European markets other than
Spain rose 30.1% to Euro 147 million. As for customer service,
ENDESA's retention rate for customers switching to the deregulated
market was 99.2%, outperforming all its competitors and reflecting
a high degree of loyalty towards the Company. Distribution ENDESA
distributed 56,323 GWh of electricity in the Spanish market through
June, 2.3% more than in the first six months of last year. Revenues
from regulated distribution activities totalled Euro 890 million,
up 11% on 1H05. This included Euro 43 million in settlements from
prior years, mostly from incentives for energy losses. Stripping
out this effect, revenues from regulated distribution activities
would have increased by 5.6%. ENDESA supplied 34,290 GWh to
customers on the regulated Spanish market in the period, 6.8% more
than in the first six months of last year. Non-mainland generation
ENDESA's output in non-mainland systems rose 3.7% in 1H06 vs. 1H05
to 6,850 GWh. Sales were 83.8% higher, at Euro 1,088 million. As
indicated previously, these sales include Euro 227 million of
additional compensation above that already recorded at December 31,
2005 for deficits in the non-mainland systems in 2001-2005 as
recognised in the Ministerial Orders of March 30. Gas distribution
and supply: total market share of 11.4% ENDESA sold a total of
13,531 GWh of natural gas in 1H06, 17.4% more than in the same
period last year. Of this amount, 13,214 GWh were sold through
fully consolidated companies, representing a 22.2% increase. And of
these sales, 11,753 GWh were on the liberalized market (+28.5%) and
1,461 GWh on the regulated market (-4.5%). The 13,531 GWh sold in
both the regulated and deregulated markets, together with the 9,749
GWh consumed in ENDESA's own generation plants, amount to a total
of 23,280 GWh, implying an 11.4% market share. Revenues from gas
sales in the liberalized market rose 97.9% in 1H06 vs. 1H05 to Euro
279 million. Revenues from regulated gas distribution totalled Euro
23 million, an increase of 15% on the figure for the same period
last year. The two businesses contributed a combined gross margin
of Euro 67 million. Other operating revenues Other operating
revenues in 1H06 came to Euro 442 million, Euro 160 million more
than in 1H05. This item includes Euro 336 million corresponding to
the 1H06 portion of CO2 emission rights allocated to ENDESA within
the scope of the Spanish National Allocation Plan for emissions,
which are recorded under revenues. This figure is Euro 139 million
higher than in 1H05, mostly because of the higher value of the
rights received in 2006. The higher revenue is offset by the higher
expense recorded for use of the emission rights. Operating expenses
The breakdown of operating expenses in the Spanish and Portuguese
business is provided below: -0- *T OPERATING EXPENSE IN SPAIN AND
PORTUGAL
----------------------------------------------------------------------
Euro million
----------------------------------------------------------------------
1H06 1H05 Change % Chg
----------------------------------------------------------------------
Purchases and services 2,315 1,911 404 21.1
----------------------------------------------------------------------
Power purchases 537 464 73 15.7
----------------------------------------------------------------------
Fuel consumption 1,061 921 140 15.2
----------------------------------------------------------------------
Power transmission expenses 173 109 64 58.7
----------------------------------------------------------------------
Other supplies and services 544 417 127 30.5
----------------------------------------------------------------------
Personnel expenses 500 442 58 13.1
----------------------------------------------------------------------
Other operating expenses 499 488 11 2.3
----------------------------------------------------------------------
Depreciation and amortisation 527 500 27 5.4
----------------------------------------------------------------------
TOTAL 3,841 3,341 500 15.0
----------------------------------------------------------------------
*T Power purchases Power purchases in the period rose 15.7% to Euro
537 million. These mainly entail transactions on the wholesale
generation market. This increase in power purchases was due to the
21.8% rise in the average pool price and higher purchases on the
market. The remainder relates to gas purchases to supply
deregulated customers, which rose as a result of the increase in
sales to these customers and in gas prices. Fuel consumption Fuel
consumption through June this year amounted to Euro 1,061 million,
an increase of 15.2% on the same period in 2005. This increase was
due to the generalised increase in raw materials prices on
international markets. These higher costs, however, were offset by
the Company's proactive fuel procurement policy, which resulted in
below-market purchasing prices. Compared to the estimated 7.3%
increase in fuel costs by the rest of the utilities in the mainland
system, ENDESA's rose only by 0.1%. This has considerably
strengthened the Company's competitive position with respect to
price and generation mix. Other supplies and services Expenses
under this item totalled Euro 544 million, Euro 127 million higher
than in 1H05. This increase reflects the recognition of Euro 392
million of expenses in connection with rights acquired to cover the
CO2 emissions made throughout the first six months of the year,
which totalled 24.4 million tonnes: 18.1 million tonnes for the
mainland and 6.2 million for non-mainland production. This cost was
Euro 96 million higher than in 1H05, mostly because of the higher
value assigned to the freely allocated emission rights in 2006 vs.
2005, as mentioned in the section "Other operating expenses". The
net effect of revenues and expenses booked in 1H06 to cover CO2
emissions was Euro 56 million, corresponding to an estimated rights
deficit of 3.5 million tonnes. "Other supplies and services" item
includes a Euro 51 million reversal equivalent to the amount the
Extremadura regional government must reimburse ENDESA in connection
with the environmental tax on its plants paid by the Company from
1998 to 2005 after the Constitutional Court ruled this to be
against the Spanish Constitution on June 13. Personnel and other
fixed operating expenses At June 30, 2006, the workforce in Spain
and Portugal totalled 12,725 employees, 41 fewer employees at June
30, 2005. Personnel expenses rose 13.1% vs. 1H05 to Euro 500
million. These expenses include Euro 39 million corresponding to a
provision for headcount reduction, mainly related to the deviation
in the provision caused by the performance of inflation (CPI) and
to the provision for the early layoff of specific workforce groups,
which will help the Company to achieve part of the cost reductions
envisaged in the Strategic Plan. Other operating expenses rose just
2.3%, to Euro 499 million. Net financial expenses: down 16.2%
ENDESA reported net financial expenses for the first half of 2006
of Euro 200 million, 15.6% lower than in 1H05. Of this amount, Euro
192 million corresponded to net financial expenses, 16.2% less than
in the same period last year, and Euro 8 million to exchange-rate
losses. Net financial expenses included Euro 31 million of revenue
corresponding to the interest accrued to December 31, 2005 on the
higher compensations derived from the non-mainland generation
deficit calculated in accordance with the Ministerial Orders passed
on March 30, 2006, and Euro 11 million of revenue corresponding to
interest accrued to June 30, 2006 for the environmental tax paid by
ENDESA from 1998 to 2005, which, as pointed out previously, must be
reimbursed to the Company by the Extremadura regional government.
When assessing financial results, the financial asset corresponding
to the tariff deficit and non-mainland compensation, both of which
bear financial interest, must be considered. Net financial debt at
the Spain and Portugal business at June 30, 2006 stood at Euro
11,860 million vs. Euro 11,461 million at December 31, 2005. This
slight increase is due to the Euro 1,207 million paid in 1H06 to
finance the revenue shortfall from regulated activities.
Equity-accounted income Equity-accounted income in the business in
Spain and Portugal totalled Euro 42 million, a 100% increase vs.
1H05. This amount includes, among others, the contribution from
Nuclenor. Sale of NQF Gas In the second quarter of 2006, ENDESA
sold its 49% holding in NQF Gas for Euro 59 million, booking a net
capital gain of Euro 21 million. Corporate Taxes The corporate tax
charge at June 30, 2006 amounted to 30% of net income, compared
with 21.5% in 1Q06. This increase was mainly due to the decision
that Unelco ENDESA not to avail the fiscal regimen for investments
on the Canary Islands. Although this change implies a higher tax
charge in the 2006 accounts, it increases the Company's value, as
it will be able to apply deductions on investments in future years.
This decision was taken to place value creation before posting
higher income. Cash flow from operating activities: Euro 1,257
million Cash flow from operating activities from the Spanish and
Portuguese business totalled Euro 1,257 million in 1H06, an
increase of 20.1% on the same period last year. Investments: Euro
1,074 million (+12.3%) Investments in Spain and Portugal in 1H06
totalled Euro 1,074 million, 12.3% more than in the same period
last year. -0- *T TOTAL INVESTMENT IN SPAIN AND PORTUGAL
----------------------------------------------------------------------
Euro million
----------------------------------------------------------------------
1H06 1H05 % Chg
----------------------------------------------------------------------
Capex 974 891 9.3
----------------------------------------------------------------------
Intangibles 43 32 34.4
----------------------------------------------------------------------
Financial 57 33 72.7
----------------------------------------------------------------------
Total investments 1,074 956 12.3
----------------------------------------------------------------------
----------------------------------------------------------------------
CAPEX IN SPAIN AND PORTUGAL
----------------------------------------------------------------------
Euro million
----------------------------------------------------------------------
1H06 1H05 % Chg
----------------------------------------------------------------------
Generation 374 304 23.0
----------------------------------------------------------------------
Ordinary regime 325 283 14.8
----------------------------------------------------------------------
Renewables/CHP 49 21 133.3
----------------------------------------------------------------------
Distribution 584 575 1.6
----------------------------------------------------------------------
Others 16 12 33.3
----------------------------------------------------------------------
Total 974 891 9.3
----------------------------------------------------------------------
*T 90.7% of total investment was spent on capex to develop or
enhance electricity generation and distribution facilities. The
breakdown of capex reflects the considerable effort the Company has
been making to improve service quality in Spain, with investment in
distribution facilities accounting for 60.0% of the total. The
significant increase in capital expenditure to expand ENDESA's
generation capacity, above all on the construction of the Cristobol
Colon (400 MW) and As Pontes (800 MW) CCGTs and capacity increases
in renewables/CHP, should be also highlighted. BUSINESS IN EUROPE
Net income of Euro 322 million (+76.9%) Net income from the
business in Europe totalled Euro 322 million in the first half of
2006, an increase of 76.9%. This figure includes Euro 118 million
after minorities due to the increase in value of the business
caused by the restatement of the tax base of Endesa Italia's fixed
assets to their book values, in accordance with Italian law These
results confirm the steady improvement in this business line,
largely driven by the positive performance of its operating
indicators, efficiency gains, and ENDESA's ability to take
advantage of growth opportunities in its markets by developing new
projects and operations. Growth projects In 1H06, ENDESA's business
in Europe focused on achieving its two main strategic targets:
consolidating its position and seeking new growth opportunities.
Gas infrastructure In the second quarter of the year, preliminary
work began on the offshore regasification terminal to be built off
the coast of Livorno. Estimated investment amounts to around Euro
400 million and authorised regasification capacity is close to 4
billion cubic metres (bcm) per annum of which, under the terms of
the agreements negotiated, ENDESA Europa will control approximately
2 bcm per annum. This capacity will be used to feed the CCGTs it
operates in Italy and those planned for the coming years.
Construction is scheduled to take around 24 months, with the
terminal expected to come on stream by the end of 2008. This
project, together with the one in the Gulf of Trieste, guarantees
competitive gas supplies for the Italian market and increases the
flexibility of ENDESA's fuel mix at its different sites. New
generation capacity At ENDESA Italia, construction on the 2x 400MW
Scandale CCGTs in Calabria is proceeding according to schedule. In
line with planned growth in renewable energies, in June the company
added the 14 MW Iardino wind plant acquired by ENDESA Europa from
Gamesa to its generation mix. Meanwhile, the French generating
company Snet has undertaken a number of initiatives in line with
its Industrial Plan, aimed at developing new capacity by means of
the future optimisation of its current sites in order to bring
total new capacity of 2,000 MW in CCGTs and 200 MW in
renewables/CHP on-stream. Noteworthy was the tender won to build a
10MW Lehaucour wind farm which will imply an estimated investment
of Euro 10 million. Supply In June, ENDESA Europa and the Italian
group, Merloni, began selling electricity to the Italian retail
market through MPE Energia, a 50/50 joint venture. Merloni brings
to the JV a portfolio of more than 5,000 points of supply across
all Italian regions, and up to 2 TWh of sales volume. Snet also
made significant progress in its supply activities during the
period. It signed an agreement with the French multinational
company Auchan to supply 400 GWh of power in 2006 and an agreement
with SNCF (the French railway operator) to supply 6,600 GWh in the
period 2007-2011. Dividends ENDESA's investees in Europe paid
dividends to their parent companies 1H06. ENDESA Italia paid
shareholders Euro 176 million of dividends, of which Euro 140.8
million corresponded to ENDESA Europa. Meanwhile, an agreement was
reached at Snet's General Shareholders' Meeting held on March 1,
2006 to pay shareholders Euro 59.7 million in dividends. After the
Euro 21.2 million interim dividend paid on March 9, Snet paid out a
final dividend of Euro 38.5 million, of which Euro 25 million
corresponded to ENDESA Europa. Finally, at its meeting of May 31,
the Board of Directors of Moroccan utility Energie Electrique de
Tahaddart approved the payment of Euro 6 million of dividends to
shareholders, of which Euro 1.9 million corresponded to ENDESA
Europa for its 32% holding. Sharp increase in output and sales
ENDESA's total output in Europe in the first half of 2006 amounted
to 18,671 GWh, an increase of 10% on the year before. Electricity
sales rose 11.3% to 26,635 GWh. -0- *T BREAKDOWN OF ENDESA'S OUTPUT
AND SALES IN EUROPE
----------------------------------------------------------------------
Output (GWh) Sales (GWh)
----------------------------------------------------------------------
1H06 1H05 % Chg 1H06 1H05 % Chg
----------------------------------------------------------------------
Italy 13,065 11,571 12.9 16,778 15,877 5.7
----------------------------------------------------------------------
France 4,606 4,418 4.3 8,857 7,066 25.3
----------------------------------------------------------------------
Poland* 1,000 978 2.2 1,000 978 2.2
----------------------------------------------------------------------
Total 18,671 16,967 10.0 26,635 23,921 11.3
----------------------------------------------------------------------
(*) ENDESA is present in the generation business in Poland through
the Bialystock CHP, which is controlled by Snet. *T EBIT: up 38.7%
ENDESA Europa's EBITDA stood at Euro 587 million, up 29.6% versus
1H05, while EBIT totalled Euro 459 million, an increase of 38.7%.
-0- *T EBITDA & EBIT IN EUROPE
----------------------------------------------------------------------
EBITDA EBIT (Euro million) (Euro million)
----------------------------------------------------------------------
1H06 1H05 % Chg 1H06 1H05 % Chg
----------------------------------------------------------------------
ENDESA Italia 485 363 33.6 409 295 38.6
----------------------------------------------------------------------
Snet 102 87 17.2 50 33 51.5
----------------------------------------------------------------------
Trading 21 14 50.0 21 14 50.0
----------------------------------------------------------------------
Holding & others (21) (11) NA (21) (11) NA
----------------------------------------------------------------------
Total 587 453 29.6 459 331 38.7
----------------------------------------------------------------------
*T Worth highlight is the Euro 21 million contribution to EBIT from
trading operations. ENDESA can conduct these operations risk-free
thanks to its solid generation base in Italy and France. ENDESA
Italia continues to improve ENDESA Italia's revenues totalled Euro
1,503 million in 1H06, up 38.7% on the same period last year. This
growth was mainly the result of a 5.7% increase in electricity
sold, the 25.2% increase in average electricity prices in the
Italian market and the fact that the Delibera 254 for unfair trade
practices was not levied on the Company, allowing it to release a
Euro 26 million provision made in previous years. -0- *T ENDESA
ITALIA KEY DATA
----------------------------------------------------------------------
Euro million
----------------------------------------------------------------------
1H06 1H05 Change % Chg
----------------------------------------------------------------------
Revenues 1,503 1,084 419 38.7
----------------------------------------------------------------------
Gross margin 562 439 123 28.0
----------------------------------------------------------------------
EBITDA 485 363 122 33.6
----------------------------------------------------------------------
EBIT 409 295 114 38.6
----------------------------------------------------------------------
*T ENDESA Italia generated a total of 13,065 GWh of electricity, an
increase of 1,494 GWh or 12.9% vs. the first half of 2005. Its
market share in Italy at the end of June stood at 8.7%. The
generation structure of ENDESA Italy in 1H06 reflects a higher
percentage of fuel-oil production than last year (19.9% vs. 17.6%),
as a result of the application of extraordinary measures to reduce
gas consumption through March in order to guarantee supply.
Although ENDESA Italia's fuel costs increased by Euro 185 million
in 1H06, this was less than the increase in revenues due to higher
electricity prices. On February 23, the Italian government approved
the National Allocation Plan (NAP) for greenhouse gas emission
rights, which was subsequently ratified by the EU authorities. This
NAP allocates ENDESA Italia 33.9 million tonnes for the period
2005-2007. On May 4, the Italian national CO2 emission rights
register was formally set up for the rights allocated in the NAP
and those acquired. In 1H06, ENDESA Italia booked Euro 76 million
of revenues from the free allocation and use of emission rights and
Euro 106 million of expenses for the cost of emissions.
Accordingly, the net cost of emission rights in the income
statement was Euro 30 million, corresponding to an estimated
deficit of 1.9 million tonnes of CO2. Finally, ENDESA Italia
restated the tax bases of its fixed assets to their book value, in
accordance with the Italian 2006 Financial Act. Therefore, it
recorded a Euro 148 million lower corporate tax charge (Euro 118
million after minorities) corresponding to the tax savings provided
for in this norm. Earnings growth at Snet is sustained Earnings at
Snet continued to improve in 1H06, with EBITDA rising 17.2% to Euro
102 million and EBIT by 51.5% to Euro 50 million vs. 1H05. -0- *T
SNET KEY DATA
----------------------------------------------------------------------
Euro million
----------------------------------------------------------------------
1H06 1H05 Change % Chg
----------------------------------------------------------------------
Revenues 569 431 138 32.0
----------------------------------------------------------------------
Gross margin 174 160 14 8.8
----------------------------------------------------------------------
EBITDA 102 87 15 17.2
----------------------------------------------------------------------
EBIT 50 33 17 51.5
----------------------------------------------------------------------
*T Revenues in the period rose 32.0% to Euro 569 million, mostly
driven by the 22.5% growth in energy sales to 9,857 GWh. Variables
costs increased Euro 124 million, basically as a result of the Euro
101 million increase in energy purchases and the Euro 30 million
increase in the expense associated with emission rights, due to
their higher unit cost in 1H06. However, the latter impact is
offset by a similar increase in revenues from the free allocation
of emission rights. Finally, in 1H06 Snet completed the headcount
reduction plan, resulting in a 22% decrease in the total workforce;
Snet had 1,373 employees on staff when ENDESA Europa took control
of the company. These layoffs came after negotiations with union
representatives. European debt: Euro 1,540 million ENDESA's
business in Europe had net financial debt at June 30, 2006 of Euro
1,540 million, Euro 254 million higher than at the end of 2005.
This increase was due to the payment of 2005 corporate income tax
in the second quarter this year. However, since June 30, 2005, debt
for the business in Europe has declined by Euro 175 million. Net
financial results amounted to an expense of Euro 25 million in
1H06, Euro 5 million less than in 1H05. Cash flow from operating
activities: Euro 340 million Operating cash flow generated by this
business stood at Euro 340 million, compared to Euro 347 million in
the first half of 2005. This decrease was the result of the one-off
tax payment made by ENDESA Italia to avail itself of Italian
legislation regarding future tax credits. Stripping out this
effect, cash flow from operating activities would have increased by
19.6%. Investments: Euro 132 million Investments in 1H06 in the
European business totalled Euro 132 million. Of this amount, Euro
84 million were capex, Euro 21 million were accounted for by ENDESA
Italia and Euro 63 million by Snet. BUSINESS IN LATIN AMERICA Sharp
growth in net income: +164.9% Net income at ENDESA's Latin American
business totalled Euro 302 million in 1H06, an increase of Euro 188
million, or 164.9%, on 1H05 and equivalent to 17.2% of ENDESA's
total net income. This sharp growth reflects the consolidation of
the favourable economic trends witnessed in the region since 2005,
marked by higher growth and more stable exchange rates in ENDESA's
operating markets, as well as the subsidiaries' ability to leverage
the improved environment and continue reaping positive results from
ongoing operational efficiency efforts. Highlights Growth in volume
sales in generation and distribution Under favourable economic
environment, demand rose sharply in 1H06 in the countries where
ENDESA has subsidiaries, all of which posted growth above 3.2%. We
highlight the increase in demand in Argentina (9.3%), Peru (6.9%)
and Chile (5.7%). Higher demand led ENDESA's subsidiaries to record
total electricity sales of 28,549 GWh, up 5.3% vs. 1H05, with
particularly significant increases in Peru (+7.1%) and Colombia
(+5.7%). Regarding output, ENDESA generated 29,736 GWh in the
region in 1H06, a 4.6% increase vs. 1H05, or 5.3% in like-for-like
terms, i.e. stripping out the generation output from the plants
sold by Brazilian company Ampla in 2006. The largest increases were
in Brazil (+9.3%, after deducting this output), Chile (+8.4%) and
Peru (+4.6%). -0- *T OUTPUT AND SALES IN THE LATIN AMERICAN
BUSINESS
-----------------------------------------------------------------
Output (GWh) Sales (GWh)
-----------------------------------------------------------------
1H06 % Chg vs. 1H06 % Chg vs. 1H05 1H05
-----------------------------------------------------------------
Chile 9,147 8.4 6,088 4.8
-----------------------------------------------------------------
Argentina 9,018 4.0 7,274 5.1
-----------------------------------------------------------------
Peru 3,339 4.6 2,398 7.1
-----------------------------------------------------------------
Colombia 6,058 1.9 5,193 5.7
-----------------------------------------------------------------
Brazil 2,174 (0.1) 7,596 5.3
-----------------------------------------------------------------
TOTAL 29,736 4.6 28,549 5.3
-----------------------------------------------------------------
*T Improvement in generation and distribution margins Growth in
demand, tighter reserve margins and the favourable generation mix
at ENDESA's subsidiaries caused the unit margin of generation
companies to increase by 31% in 1H06 vs. 1H05 to US$ 26/MWh
produced. Generation margins, measured in dollars, increased
sharply, above all in Chile (+83.3%), thanks to a generation mix
with a stronger weight towards hydro and to higher prices; in
Brazil (+22.5%), owing to higher prices; and in Argentina (+14.1%)
for the improved generation mix and higher prices due to the
pass-through of greater fuel costs to the wholesale electricity
market (MEM). Conversely, margins in Colombia shrunk on the back of
lower wholesale prices caused by the increase in rainfall compared
to the same period last year. In distribution, operating margins
were considerably boosted by improved pass-through of generation
costs in Brazil and operating efficiency improvements at the
companies, leading to a considerable improvement in their operating
indicators. The unit margin stood at US$ 36.2/MWh distributed, an
increase of 22% vs. 1H05. Reduction in distribution losses Energy
distribution losses were 11.4% in 1H06, 0.6% below the level in
recorded in 1H05. Improvements were made in all countries,
especially Argentina and Brazil, where the percentage of losses
declined by 0.6 and 0.9 percentage points, respectively. These
improvements in the distribution network management are the result
of an ongoing technological innovation policy, as demonstrated by
the positive progress made in Brazil through the development and
rollout of the new Ampla grid. Generation projects ENDESA Chile has
signed an agreement with electricity provider Colbun -controlled by
the Matte Group, one of Chile's leading business conglomerates- for
its inclusion in the Aysen Project, which entails the construction
starting in 2008 of four hydro plants with total installed capacity
of 2,430 MW. The project will require an estimated investment of
US$4bn, of which US$2.5bn corresponds to generation and the
remaining US$1.5bn to transmission lines. The agreement states that
two companies will create a limited liability company in which
ENDESA Chile will hold 51% and Colbun 49%. It also states that,
given its contribution to the project, ENDESA Chile will receive
12.3% of the energy produced by the project over a 30-year period
starting from when each of the plants envisaged by the project
begin operating commercially. The remaining energy output will be
divided between the companies in accordance with their holding;
i.e. 51% to ENDESA Chile and 49% output to Colbun. In 1H06, ENDESA
Chile continued work on 377MW San Isidro II CCGT as well as the
32MW Palmucho hydro plant, both in Chile. On May 16, the first
stone was laid on the regasification plant included in the
liquefied natural gas (LNG) project being carried out in Quintero
(Chile). ENDESA is involved in the project alongside British Gas,
Metrogas and ENAP. This plant will ensure fuel supply to the
capacity addition undertaken in the country. ENDESA Eco continued
to work in 1H06 on the 9MW Canela wind farm, and began construction
of the 9MW Ojos de Agua mini hydro station. Both projects were
started in the year's first quarter. In Peru, construction on
Etevensa CCGT -the first combined cycle in this site- was
completed. Commercial operation began towards mid July. Meanwhile,
construction continued on Etevensa II CCGT - the second one- which
is slated completion before the end of this year. The start-up of
both CCGTs will bring an additional 172 MW of new capacity
on-stream and make the company's generation mix much more
competitive. Finally, in Colombia, Emgesa completed the acquisition
of the 186 MW Termocartagena thermal plant. Optimisation of
ownership structure In 1H06, ENDESA completed the organisational
restructuring underway in Brazil, Peru and Chile: -- In Brazil, the
company incorporated the Endesa Brasil holding company,
contributing all the assets it held directly and indirectly in
Brazil. This holding company will streamline the ownership
structure in Brazil, lead to the generation of more stable local
cash flows, improve third-party financing and bolster ENDESA's
position in Brazil vis-a-vis new growth opportunities. -- In Peru,
on April 12 the local antitrust authorities cleared the merger and
takeover of Etevensa by Edegel; the move was approved by the
companies' respective Boards in November 2005 and ratified by
shareholders on January 17, 2006. This transaction results in a
more balanced overall generation mix (51% hydro and 49% thermal),
which will reduce earnings volatility as a result of variations in
rainfall, create synergies from overlapping overhead costs,
strengthen its financial structure, generate economies of scale and
increase shareholder liquidity. On June 1, the two companies were
merged. -- In Chile, the Boards of Directors of Chilectra and
Elesur approved the merger of the two companies on March 31. This
transaction will eliminate holding companies, reduce overhead costs
and optimise tax charges. Worth noting is that the merger has led
to a lower tax charge, for a total recognised amount of Euro 170
million (Euro 101 million after minority interests). Meanwhile, in
May, the Boards of the Colombian companies Emgesa and Betania
agreed to begin analysing a potential merger. If the analysis is
favourable, the transaction could give rise to the largest
generator in Colombia, with installed capacity of 2,288 MW. New
partner in Endesa Brasil In the third quarter this year, the
International Finance Corporation (IFC) acquired 2.7% of Endesa
Brasil. The transaction will be carried out via subscription to a
US$50 million capital increase by Endesa Brasil. IFC is the only
shareholder in Endesa Brasil not belonging to the Endesa Group. The
transaction values Endesa Brasil equity at a total of US$1.8
billion, equivalent to an EV/EBITDA 2005 multiple of 6.65x. The
terms of the agreement are typical for this type of transaction.
They call for the listing of Endesa Brasil in the next three years
and stipulate that ENDESA will provide IFC with an exit clause at
market prices if the IPO does not take place. It also includes a
price adjustment mechanism to compensate IFC via the delivery of
free shares if the listing price is lower than what it initially
paid. This transaction is aligned with ENDESA's goal of enhancing
the value of its investments by attracting strategic shareholders
to its Latin American subsidiaries. In this regard, IFC investment
ratifies the quality and the strength of Endesa's business in
Brazil. The institutional and credit reputation of the new partner
will improve the profile of Endesa Brasil when facing a potential
IPO. Start on construction on the transmission line of the SIEPAC
project On July 11 (i.e. already in the year's third quarter),
construction officially began in Panama on the transmission line of
the SIEPAC project. This project's objective is twofold: -0- *T --
Construction and maintenance of a regional transmission system
interconnecting the electricity grids of the six Central American
countries, known as SIEPAC. The network owner (Empresa Propietaria
de la Red, or EPR) is responsible for achieving this goal. Partners
include the six Central American countries, Colombian company ISA
and ENDESA, (12.5% interest). This project entails an investment of
US$ 340 million and is expected to be completed some time in the
third quarter of 2008. -- Creation of the Regional Electricity
Market (REM), an additional market overlapped with the six existing
national systems, where qualified agents will carry out
international power trades. Regulatory update Regulatory highlights
in 1H06: -- The tariffs applied to Brazilian companies, Ampla and
Coelce, were increased by 2.9% and 10.01%, respectively. --
Regarding the bilateral agreement between Argentina and Brazil, the
Argentine Secretary for Energy issued a resolution on February 3
permitting companies with export contracts to renegotiate them. The
aim of the resolution is to encourage imports to meet demand. -- On
February 15, the Argentine Senate ratified the agreement between
UNIREN and Edesur establishing the framework for an integral tariff
review to be completed through October 2006. A presidential decree,
ratifying this process and increasing the DCV (distribution
cumulative value) by 28%, retroactively from November 2005, is
pending. -- A trust has been set up to enable the Argentine
companies under the Foninvemem agreement -awarded 1,600 MW of
CCGTS- to obtain the necessary administrative and operating
resources. -- In January the Colombian electricity regulator passed
a resolution modifying the calculation to limit generation market
share, providing ENDESA's subsidiaries with access to higher market
volume. -- On July 5, the Peruvian Congress passed an amendment to
the Electricity Concession Law, whose main features are as follows:
-- The establishment of a mechanism for tenders at fixed prices
over a period of 10 years to encourage investment and contracting
with distributions, with guaranteed pass-through -- The
establishment of a new regulation, with 30-year concessions and
guaranteed payment centrally planned. -- Greater involvement by
generators, distributors, transmission companies and deregulated
customers in the domestic electricity system operator. -- The
option of spot purchase for deregulated demand of distributors and
large deregulated customers (10 MW). Summarizing, the new law
unlocks the value of the Peruvian generation assets at rising
prices via long-term contracts. -- In Brazil, on June 22 a court
ruling lifted the suspension on the retroactive collection of
amounts related to the 2005 tariff revision. Coelce resumed
changing this amounts on June 26. *T EBITDA: growth of 37.8% EBITDA
in the Latin American business totalled Euro 1,145 million in 1H06,
a 37.8% increase on 1H05. EBIT rose 52% to Euro 909 million. It is
noteworthy that both EBITDA and EBIT grew faster in 2Q06 than in
1Q06, at 39.6% and 63.5%, respectively. -0- *T EBITDA & EBIT IN
LATIN AMERICA
----------------------------------------------------------------------
Euro million
----------------------------------------------------------------------
EBITDA EBIT
----------------------------------------------------------------------
1H06 1H05 % Chg 1H06 1H05 % Chg
----------------------------------------------------------------------
Generation and transmission 613 469 30.7 492 347 41.8
----------------------------------------------------------------------
Distribution 556 377 47.5 446 269 65.8
----------------------------------------------------------------------
Others (24) (15) NA (29) (18) NA
----------------------------------------------------------------------
TOTAL 1,145 831 37.8 909 598 52.0
----------------------------------------------------------------------
*T The table below shows the breakdown of EBITDA and EBIT of
ENDESA's fully consolidated subsidiaries by business line and
country: -0- *T BREAKDOWN OF EBITDA AND EBIT IN LATAM BY BUSINESS
LINE AND COUNTRY
----------------------------------------------------------------------
Generation and transmission
----------------------------------------------------------------------
Euro million EBITDA EBIT
----------------------------------------------------------------------
1H06 1H05 % Chg 1H06 1H05 % Chg
----------------------------------------------------------------------
Chile 291 137 112.4 248 86 188.4
----------------------------------------------------------------------
Colombia 107 111 (3.6) 85 88 (3.4)
----------------------------------------------------------------------
Brazil - Generation 65 54 20.4 55 46 19.6
----------------------------------------------------------------------
Brazil - Transmission 4 36 (88.9) (5) 28 (117.9)
----------------------------------------------------------------------
Peru 79 74 6.8 59 55 7.3
----------------------------------------------------------------------
Argentina - Generation 66 50 32.0 49 39 25.6
----------------------------------------------------------------------
Argentina - Transmission 1 7 (85.7) 1 5 (80.0)
----------------------------------------------------------------------
TOTAL 613 469 30.7 492 347 41.8
----------------------------------------------------------------------
----------------------------------------------------------------------
Distribution
----------------------------------------------------------------------
Euro million EBITDA EBIT
----------------------------------------------------------------------
1H06 1H05 % Chg 1H06 1H05 % Chg
----------------------------------------------------------------------
Chile 102 81 25.9 89 71 25.4
----------------------------------------------------------------------
Colombia 129 111 16.2 98 73 34.2
----------------------------------------------------------------------
Brazil 232 118 96.6 195 87 124.1
----------------------------------------------------------------------
Peru 42 35 20.0 27 20 35.0
----------------------------------------------------------------------
Argentina 51 32 59.4 37 18 105.6
----------------------------------------------------------------------
TOTAL 556 377 47.5 446 269 65.8
----------------------------------------------------------------------
*T Generation and transmission Chile Energy generated in 1H06 rose
8.4% to 9,147 GWh. The generation mix improved, thanks to higher
hydro generation that protected the Company from increases in fuel
prices, like natural gas. This, together with the favourable trend
in the Chilean peso vis-a-vis the euro and higher wholesale prices,
drove a 112.4% increase in EBITDA and a 188.4% increase in EBIT vs.
1H05, to Euro 291 million and Euro 248 million, respectively.
Colombia The 1.9% increase in electricity generation output was not
enough to offset the adverse performance of prices due to high
hydro conditions in 1H06. EBITDA fell by Euro 4 million to Euro 107
million and EBIT by Euro 3 million to Euro 85 million. Brazil -
Generation Despite the gas supply problems affecting Endesa
Fortaleza, total output by ENDESA's subsidiaries in Brazil in 1H06
was 2,174 GWh. Stripping out from the 2005 figures the power
generated at the plants sold by Ampla in 2Q06 (187 GWh), total
output in the first six months in 2006 would have risen 9,3%,
mainly driven by the growth in activity at Cachoeira Dourada. This,
coupled with favourable exchange-rates, helped to offset the impact
of the increase in fuel consumption, to give EBITDA in 1H06 of Euro
65 million and EBIT of 29 million, increases of 20.4% and 19.6%,
respectively, vs. 1H05. Brazil - Transmission The difficulties in
exporting electricity from Argentina to Brazil due to gas supply
restrictions continued, undermining results at this
interconnection. EBITDA in 1H06 was Euro 4 million, Euro 32 million
less than in 1H05, while EBIT was a negative Euro 5 million, Euro
33 million less. Peru Generation sales in 1H06 rose 8.1% vs. 1H05
to Euro 147 million, mainly thanks to higher prices, which clearly
offset the Euro 15 million increase in fuel costs. EBITDA was Euro
79 million, 6.8% higher than in 1H05, while EBIT stood at Euro 59
million, up 7.3%. Argentina - Generation Although gas supply
difficulties continued to trigger increases in fuel costs (40.3%)
due to the need to generate power using liquid fuels, higher sales
due to increased output (+4%), coupled with improvements in prices,
boosted margins. EBITDA in 1H06 rose 32% vs. 1H05 to Euro 66
million and EBIT by 25.6% to Euro 49 million. Distribution Chile
The 40.6% increase in revenues, boosted by exchange rates and
higher volume sales (4.8%), offset the squeeze on margins caused by
the latest tariff revision. EBITDA rose 25.9% to Euro 102 million
and EBIT by 25.6% to Euro 89 million. Colombia EBITDA at the
Colombian distribution business was Euro 129 million, 16.2% higher
than in 1H05, while EBIT stood at Euro 98 million, up 34.2%. These
rises were due to a 7.3% increase in revenues to Euro 308 million,
enough to cover the higher costs of buying electricity. Brazil
Distribution sales in Brazil came to Euro 815 million in 1H06, a
41.2% increase on 1H05. The rise resulted from wider margins as
consequence of the enhanced pass-through of generation prices to
customers and, to a lesser extent, higher volume sales (5.3%). This
led to increases in EBITDA and EBIT of 96.6% and 124.1%,
respectively, to Euro 232 million and Euro 195 million. Peru EBITDA
from distribution in Peru amounted Euro 42 million in 1H06, up 20%
on 1H05, due to higher sales (+9.1%), which offset the increase in
costs. EBIT advanced 35% to Euro 27 million. Argentina Revenues
from distribution stood at Euro 196 million in 1H06, up 18.1% vs.
1H05, outpacing the 10.4% increase in procurement costs to give
EBITDA of Euro 51 million and EBIT of Euro 37 million, increases of
59.4% and 105.6%, respectively. Financial results: Euro 244 million
Financial results for the business in Latin America reflected a
loss of Euro 244 million in the first half of 2006, Euro 76 million
higher than in 1H05. Net exchange-rate gains were Euro 54 million
lower, down from Euro 73 million in 1H05 to Euro 19 million this
half. Net interest expense totalled Euro 263 million, Euro 22
million or 9.1% higher than in 1H05. This increase was mainly due
to higher expenses driven by readjusted pension funds, the early
pay off of loans and the exchange rate effect on financial
expenses. The financial expenses in local currencies decreased
compare to the previous year driven by lower debt levels as well as
lower average interest rates. Net debt at ENDESA's Latin American
business stood at Euro 5,583 million as of June 30, 2006,
representing a reduction of Euro 526 million since the start of the
year. This decrease is fundamentally due to the performance of the
euro against the currencies in which ENDESA's Latin American
subsidiaries' debt is denominated, accounting for Euro 435 million
of the reduction. In May, the rating agency Fitch upgraded its
ratings for Enersis and Endesa Chile from BBB- to BBB, with a
stable outlook. Asset disposals: Euro 34 million of capital gains
In the second quarter of 2006, ENDESA booked, among other
transactions, the sale of Brazilian company Ampla's generation
business, which produced a gross capital gain of Euro 30 million
(Euro 12 million after tax and minorities). The gross capital gains
derived from this transactions totalled Euro 34 million. Cash flow
from operation: up 25.1% Cash flow generated by ENDESA's business
in Latin America totalled Euro 678 million in 1H06, an increase of
25.1% with respect to 1H05. Investments: Euro 410 million
Investments in Latin America in the first six months of the year
totalled Euro 410 million, of which Euro 368 million corresponded
to capex. -0- *T CAPITAL EXPENDITURE IN LATIN AMERICA
----------------------------------------------------------------------
Euro million
----------------------------------------------------------------------
1H06 1H05 % Chg
----------------------------------------------------------------------
Generation 140 95 47.4
----------------------------------------------------------------------
Distribution and Transmission 220 147 49.7
----------------------------------------------------------------------
Others 8 8 NA
----------------------------------------------------------------------
TOTAL 368 250 47.2
----------------------------------------------------------------------
*T STATISTICAL APPENDIX KEY FIGURES -0- *T Electricity Generation
Output (GWh) 1H06 1H05 % Chg
----------------------------------------------------------------------
Business in Spain and Portugal 44,875 46,642 (3.8)
----------------------------------------------------------------------
Business in Europe 18,671 16,967 10.0
----------------------------------------------------------------------
Business in Latin America 29,736 28,416 4.6
----------------------------------------------------------------------
TOTAL 93,282 92,025 1.4
----------------------------------------------------------------------
Electricity Generation Output in Spain 1H06 1H05 % Chg and Portugal
(GWh)
----------------------------------------------------------------------
Nuclear 38,025 40,038 (5.0)
----------------------------------------------------------------------
Coal 11,609 11,218 3.5
----------------------------------------------------------------------
Hydro 16,821 18,279 (8.0)
----------------------------------------------------------------------
Combined cycle - CCGT 4,001 4,444 (10.0)
----------------------------------------------------------------------
Fuel oil 3,882 3,581 8.4
----------------------------------------------------------------------
Renewables/CHP 476 1,508 (68.4)
----------------------------------------------------------------------
Non-mainland 1,236 1,008 22.6
----------------------------------------------------------------------
TOTAL 6,850 6,604 3.7
----------------------------------------------------------------------
Nuclear 44,875 46,642 (3.8)
----------------------------------------------------------------------
Electricity Generation Output in Europe 1H06 1H05 % Chg (GWh)
----------------------------------------------------------------------
Coal 8,796 8,296 6.0
----------------------------------------------------------------------
Hydro 1,358 1,370 (0.9)
----------------------------------------------------------------------
Combined cycle - CCGT 5,898 5,256 12.2
----------------------------------------------------------------------
Fuel oil 2,605 2,032 28.2
----------------------------------------------------------------------
Wind 14 13 7.7
----------------------------------------------------------------------
TOTAL 18,671 16,967 10.0
----------------------------------------------------------------------
Electricity Generation Output in Latin 1H06 1H05 % Chg America
(GWh)
----------------------------------------------------------------------
Chile 9,147 8,437 8.4
----------------------------------------------------------------------
Argentina 9,018 8,667 4.0
----------------------------------------------------------------------
Peru 3,339 3,192 4.6
----------------------------------------------------------------------
Colombia 6,058 5,944 1.9
----------------------------------------------------------------------
Brazil 2,174 2,176 (0.1)
----------------------------------------------------------------------
TOTAL 29,736 28,416 4.6
----------------------------------------------------------------------
Electricity sales (GWh) 1H06 1H05 % Chg
----------------------------------------------------------------------
Business in Spain and Portugal 53,176 49,655 7.1
----------------------------------------------------------------------
Regulated market 34,290 32,120 6.8
----------------------------------------------------------------------
Liberalized market 18,886 17,535 7.7
----------------------------------------------------------------------
Business in Europe 26,635 23,921 11.3
----------------------------------------------------------------------
Italy 16,778 15,877 5.7
----------------------------------------------------------------------
France 9,857 8,044 22.5
----------------------------------------------------------------------
Business in Latin America 28,549 27,101 5.3
----------------------------------------------------------------------
Chile 6,088 5,809 4.8
----------------------------------------------------------------------
Argentina 7,274 6,921 5.1
----------------------------------------------------------------------
Peru 2,398 2,240 7.1
----------------------------------------------------------------------
Colombia 5,193 4,914 5.7
----------------------------------------------------------------------
Brazil 7,596 7,217 5.3
----------------------------------------------------------------------
TOTAL 108,360 100,677 7.6
----------------------------------------------------------------------
Gas sales (GWh) 1H06 1H05 % Chg
----------------------------------------------------------------------
Regulated market 1,461 1,669 (12.5)
----------------------------------------------------------------------
Liberalized market 11,753 9,145 28.5
----------------------------------------------------------------------
TOTAL 13,214 10,814 22.2
----------------------------------------------------------------------
Workforce 30-06-06 30-06-05 % Chg
----------------------------------------------------------------------
Business in Spain and Portugal 12,725 12,766 (0.3)
----------------------------------------------------------------------
Business in Europe 2,114 2,330 (9.2)
----------------------------------------------------------------------
Business in Latin America 11,974 12,256 (2.3)
----------------------------------------------------------------------
Other businesses - 77 NA
----------------------------------------------------------------------
TOTAL 26,813 27,429 (2.2)
----------------------------------------------------------------------
FINANCIAL DATA Key figures 1H06 1H05 % Chg
----------------------------------------------------------------------
EPS (Euro) 1.66 0.90 83.7
----------------------------------------------------------------------
CFPS (Euro) 2.15 1.80 19.4
----------------------------------------------------------------------
BVPS (Euro) 9.98 8.89 12.3
----------------------------------------------------------------------
Net financial debt (Euro million) 30-06-06 31-12-05 % Chg
----------------------------------------------------------------------
Business in Spain and Portugal 11,860 11,461 3.5
----------------------------------------------------------------------
Business in Europe 1,540 1,286 19.8
----------------------------------------------------------------------
Endesa Italia 993 815 21.8
----------------------------------------------------------------------
Other 547 471 16.1
----------------------------------------------------------------------
Business in Latin America 5,583 6,109 (8.6)
----------------------------------------------------------------------
Enersis 4,675 5,207 (10.2)
----------------------------------------------------------------------
Other 908 902 0.7
----------------------------------------------------------------------
Other businesses (1) -- (575) NA
----------------------------------------------------------------------
TOTAL 18,983 18,281 3.8
----------------------------------------------------------------------
----------------------------------------------------------------------
Financial leverage (%) 124.8 112.0 NA
----------------------------------------------------------------------
Net Debt / Operating cash flow (times) 2.5 3.0 NA
----------------------------------------------------------------------
Interest coverage with operating cash flow (times) 9.0 5.7 -
----------------------------------------------------------------------
(1) At June 30, 2006, there was no debt assigned to "Other
businesses", as it disappeared as such with the sale of the 5.01%
stake in Auna carried out in February 2006 and was allocated to the
electricity business in Spain and Portugal. Rating (25/07/06) Long
term Short term Outlook
----------------------------------------------------------------------
Standard & Poor's A A-1 Creditwatch (-)
----------------------------------------------------------------------
Moody's A3 P-2 Negative
----------------------------------------------------------------------
Fitch A+ F1 Creditwatch (-)
----------------------------------------------------------------------
Main fixed income issues Spread over IRS (bp)
----------------------------------------------------------------------
30-06-06 31-12-05
----------------------------------------------------------------------
3.0Y Euro 700M 4.375% Mat. June 2009 3 5
----------------------------------------------------------------------
6.0Y GBP 400M 6.125% Mat. July 2012 22 28
----------------------------------------------------------------------
6.7Y Euro 700M 5.375% Mat. Feb 2013 29 18
----------------------------------------------------------------------
Stock market data 30-06-06 31-12-05 % Chg
----------------------------------------------------------------------
Market cap (Euro million) 28,787 23,525 22.4
----------------------------------------------------------------------
Number of shares outstanding 1,058,752,117 1,058,752,117 --
----------------------------------------------------------------------
Nominal share value (Euro) 1.2 1.2 --
----------------------------------------------------------------------
Stock market data 1H06 1H05 % Chg
----------------------------------------------------------------------
Trading volumes (shares)
----------------------------------------------------------------------
Madrid stock exchange 1,382,592,695 1,456,648,699 (5.1)
----------------------------------------------------------------------
NYSE 12,133,200 12,503,000 (3.0)
----------------------------------------------------------------------
Average daily trading volume (shares)
----------------------------------------------------------------------
Madrid stock exchange 10,792,958 11,560,703 (5.1)
----------------------------------------------------------------------
NYSE 97,066 100,024 (3.0)
----------------------------------------------------------------------
Share price 1H06 high 1H06 low 30-06-06 31-12-05
----------------------------------------------------------------------
Madrid stock exchange (Euro) 28.35 21.70 27.19 22.22
----------------------------------------------------------------------
NYSE (USD) 34.33 26.30 32.12 26.01
----------------------------------------------------------------------
Dividends (Euro cents/share) Payable against 2005 results
----------------------------------------------------------------------
Interim dividend (02/01/06) 30.50
----------------------------------------------------------------------
Final dividend (03/07/06) 209.50
----------------------------------------------------------------------
Total DPS 240.00
----------------------------------------------------------------------
Pay-out (%) 79.9
----------------------------------------------------------------------
Dividend yield (%) 10.8
----------------------------------------------------------------------
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 *T
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 labour; 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
details on the factors that may cause actual results and other
developments to differ significantly from the expectations implied
or explicitly contained in the presentation are given in the Risk
Factors section of Form 20-F for the first quarter of 2005 filed
with the SEC and in the Registration Document of ENDESA Stock filed
with the CNMV. No assurance can be given that the forward-looking
statements in this document will be realised. 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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