Results JANUARY-SEPTEMBER 2006 Excellent results firmly underpinned
by efficient business management Gross operating profit (EBITDA)
rose 24.6% vs. 9M05 to Euro 5,479 million. Operating profit (EBIT)
advanced 32.3% to Euro 4,109 million. Strong growth in all
businesses The Spanish and Portuguese business recorded net income
of Euro 1,503 million, up 43% over 9M05. Net income from the
business in Europe rose 50.5% to Euro 426 million. In Latin
America, net income jumped by 119.4% to Euro 408 million. These
results leave ENDESA on track to easily meet 2005-2009 Strategic
Plan targets, which were revised up in July 2006 Forecasts for net
income and EBITDA growth for full-year 2006 are in line with
targets. The company�s proactive business management policy and its
healthy project portfolio ensure efficient growth over the next few
years. Net income performance is in line with the company�s target
to pay out Euro 9,900 million in dividends during 2005-2009 Results
for the first nine months of 2006 confirm that the Company will be
in a position to propose a dividend payment of at least Euro 1.6
per share against this year�s earnings at the General Shareholders'
Meeting. ENDESA�s Board of Directors has agreed to pay a gross
interim dividend of Euro 0.50 per share against 2006 earnings. This
represents an increase of 63.9% on the interim dividend paid
against 2005 earnings. KEY FACTS AND FIGURES FOR 9M06 SHARP NET
INCOME GROWTH IN ALL BUSINESSES ENDESA reports net income of Euro
2,508 million, an increase of 61.2% vs. 9M05. The business in Spain
and Portugal posted net income of Euro 1,503 million in 9M06, an
increase of 43%. Net income from the business in Europe rose 50.5%
to Euro 426 million. Net income from the business in Latin America
jumped 119.4% to Euro 408 million. STRONG INCREASES IN MAIN INCOME
STATEMENT ITEMS The gross margin in the first nine months of the
year was Euro 7,819 million, 20.3% higher than in 9M05. EBITDA rose
24.6% to Euro 5,479 million. EBIT increased 32.3% to Euro 4,109
million Cash flow from operating activities totalled Euro 3,318
million, 13.3% higher than in 9M05. IMPROVED OUTPUT AND SHARP
INCREASE IN ELECTRICITY SALES IN ALL BUSINESSES ENDESA�s total
generation output in the first nine months of 2006 amounted to
141,029 GWh, an increase of 2.9% on the 9M05. Sales totalled
164,324 GWh, 9% more than in the first nine months of 2005, with
increases of 9.1% in the Spanish and Portuguese business, 13.4% in
Europe and 5.2% in Latin America. THESE RESULTS LEAVE THE COMPANY
ON TRACK TO EASILY MEET TARGETS SET FOR 2006 IN THE STRATEGIC PLAN
In the first nine months of the year the Company generated 79.1%
and 86.5% of the full-year EBITDA and net income targets,
respectively. The Board of Directors agreed to pay a gross interim
dividend against 2006 earnings of Euro 0.50 per share, 63.9% higher
than the interim dividend paid against 2005 earnings. This dividend
payment is in line with the goal of paying a dividend of at least
Euro 1.6 per share against 2006 earnings and a total of Euro 9,900
million between 2005 and 2009. BUSINESS IN SPAIN AND PORTUGAL
Strong increases in the main income statement items against a
backdrop of regulatory change Net income from the business in Spain
and Portugal increased by 43% to Euro 1,503 million over 9M05 and
accounted for 59.9% of ENDESA's total net income. EBITDA grew 22.9%
to Euro 2,926 million and EBIT by 29.3% to Euro 2,112 million. The
excellent performance by this business was achieved despite having
to record generation sales to the Company�s regulated customers at
the provisional price of �42.35 per MWh pursuant to Royal Decree
Law 3/2006, significantly below market prices. The negative impact
of this provisional price on EBITDA and net income was Euro 254
million and Euro 165 million, respectively. With the enactment in
1Q06 of the regulation for the island and non-mainland electricity
systems, in 9M06 ENDESA booked Euro 197 million of higher
compensation after tax for generation in these systems between 2001
and 2005. 9M06 figures also included a Euro 1,194 million asset
related to the revenue shortfall from regulated activities in the
period. Had this asset not been recorded, the impact of the deficit
on net income would have been Euro 776 million. Competitive
position reinforced by mainland generation mix Through September
this year, which featured a major drought, ENDESA�s hydro and
nuclear generation output accounted for 42% of the mainland
generation mix, compared to 33.1% for the rest of the sector.
ENDESA�s mainland thermal plants achieved a 73% load factor in
9M06, well above the 61% average for the rest of the sector. The
load factor at the Company�s coal plants was a noteworthy 79%. The
trend in ENDESA�s mainland unit fuel costs in the first nine months
was positive, rising just 0.1% over 9M05, despite market price
increases and compared to an estimated 7.3% rise for the rest of
the sector. Active management of CO2 emission costs ENDESA has a
broad portfolio of carbon credits derived from its Clean
Development Mechanisms (CDM) at highly competitive prices. ENDESA
signed Emissions Reduction Purchase Agreements (ERPA) for a total
of 71.9 million tonnes of CO2, Letters of Intent (LOI) for 25.1
million tonnes of additional volume and has projects under analysis
amounting to another 104.1 million tonnes of CO2. 982 MW of new
installed capacity in 9M06 ENDESA added 982 MW of new capacity to
its generation facilities in 9M06, representing 74.4% of new
capacity planned for the full year and indicating significant
progress in the New Capacity Plan. New capacity includes the
completion of the 400 MW Crist�bal Col�n CCGT in Huelva, 424 MW in
non-mainland systems installed to meet growing demand in these
markets, and 158 MW of new renewables/CHP capacity. Work on the
800M MW CCGT As Pontes plant (La Coru�a) is progressing according
to schedule. This plant is scheduled to be commissioned in 2007.
Group 3, 367MW conversion to imported coal.is also on track. In
Portugal, this October the E�licas de Portugal consortium � in
which ENDESA has a 30% stake � was awarded the project to develop
1,200 MW of wind capacity, the largest in the Portuguese wind
tender. ENDESA, together with International Power, has been awarded
a connection point for two 400MW CCGTs at the Tejo site. The
operating license should be awarded before the end of this year.
Strong growth in EBIT from CHP and renewables: +33.3% Revenues from
sales of renewable/CHP energy generated by ENDESA�s consolidated
companies totalled Euro 195 million, 29.1% more than in the first
nine months of 2005. EBITDA from this business increased by 33.3%
to Euro 132 million, and EBIT by 32.3% to Euro 86 million. Service
quality at record high levels; value unlocked at the supply
business In 9M06 the cumulative average interruption duration index
(SAIDI) was 1 hour and 39 minutes, an improvement of 9% vs. 9M05.
These figures confirm the success of the operational enhancements
implemented and investments made in new distribution infrastructure
in recent years. They enable the Company to consolidate its market
position and leverage the value of its broad customer base, which
currently stands at 11,139,395 in the regulated market and
1,084,386 in the deregulated market. Sales by ENDESA in the
deregulated market rose 5% to 28,802 GWh in 9M06, with an average
sales price at �73 per MWh. This activity represents an important
hedge against wholesale market prices volatility, as well as
providing the generation business with a reasonable and guaranteed
return over the medium and long term. The largest investor of any
Spanish utility ENDESA invested Euro 1,725 million in Spain and
Portugal in 9M06, of which Euro 1,549 million, or 89.8%, was capex.
This underscores its status as the largest investor among Spanish
utilities. Euro 854 million of capex was spent on distribution
facilities. Total market share of 11.9% in the natural gas market
ENDESA sold a total of 19,603 GWh in the Spanish natural gas market
in 9M06, 21.6% more than in 9M05. These sales, coupled with gas
consumption by its own plants, represent a market share of 11.9%.
Gas sales revenues in the deregulated market in the first nine
months of 2006 totalled Euro 458 million, up 112% from 9M05, while
regulated gas distribution revenues were Euro 33 million, an
increase of 3.1%. Combined, these two businesses contributed a
gross margin of Euro 109 million. BUSINESS IN EUROPE Growth in the
main financial items underscores the strength of the business Net
income from the business in Europe increased by 50.5% to Euro 426
million in 9M06 and accounted for 17% of ENDESA�s total net income.
This figure includes Euro 118 million after minorities related 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 legislation. EBITDA stood at Euro 890
million, up 26.8% versus 9M05, and EBIT at Euro 693 million, an
increase of 34.6%. Excellent results underpinned by strong
operating performance ENDESA�s total generation in Europe in the
first nine months of 2006 amounted to 26,443 GWh, an increase of
8.3% on the year before. Electricity sales were up 13.4% to 38,913
GWh. Italy: strong growth in main financial indicators plus
progress on new capacity and regasification projects EBITDA from
Endesa Italia was Euro 739 million, 31.7% higher than in 9M05,
while EBIT reached at Euro 622 million, a 36.4% increase.
Construction on the two 400MW CCGTs at the Scandale plant
(Calabria), in which Endesa Italia owns 50%, is proceeding
according to schedule, as is the preliminary work on the offshore
regasification terminal off Livorno, which is scheduled to come
on-stream at the end of 2008. In September, Endesa Europa acquired
58.35% of Centro Energia Teverola and Centro Energia Ferrara. Each
of these companies owns a 150 MW CCGT subject to a subsidised
tariff. In line with planned growth in renewable energies, the
company added 14 MW Iardino wind farm to its generation mix, and
will include 42 MW Montecute wind farm, completed on October 6, as
well as Vizzini and Trapani wind farms with a combined capacity of
56 MW, scheduled to come on stream on November. In the first nine
months of the year, Endesa Italia sold 24,914 GWh of electricity,
of which 11,700 GWh, or 47%, were accounted for by direct sales and
sales to large end customers. Thus, the supply business goes a long
way to ensuring placement of the business� significant generation
capacity. France: Good performance of Snet with significant new
capacity projects and new supply contracts In 9M06, French
generator Snet contributed Euro 147 million to ENDESA�s EBITDA,
8.1% more than in 9M05, and Euro 70 million to EBIT, an increase of
29.6%. Total electricity sales amounted to 13,888 GWh, an increase
of 24.4% over 9M05. Snet closed significant supply deals during the
period. It signed an agreement with the French multinational
company Auchan to supply 400 GWh of power in 2006 and another with
the French railway operator SNCF to supply 6,600 GWh in the period
2007-2011. In the generation business, after receiving the
pertinent permits, Snet has begun building a 800 MW CCGT �mile
Huchet site. Meanwhile, the development of an additional 800 MW
CCGT in Lacq and another with capacity of over 400 MW, which could
be located its Lucy or Hornaing sites is being studied. In
addition, Snet has acquired the right to build a 10 MW firm wind
farm in L�haucourt during the current year and has committed to new
wind projects in other regions such as Ambon, Muzillac and Cernon,
adding a combined capacity of nearing 65 MW. BUSINESS IN LATIN
AMERICA Sharp increases in main financial figures, underscoring
progress by this business ENDESA�s Latin American operations posted
a 119.4% increase in 9M06 net income to Euro 408 million,
contributing 16.3% to the Company's total net income. EBITDA and
EBIT rose 25.7% and 35.3% to Euro 1,663 million and Euro 1,304
million, respectively. Increases in EBITDA and EBIT were attained
in both generation and transmission business (+22% and +29.4%,
respectively) and in distribution (+33% and +46.6%, respectively),
highlighting the strong business momentum, underpinned by its
operating performance. Increased margins in generation and
distribution The generation unit margin reached US$25.1 per MWh in
9M06, an increase of 21.8% compared to 9M05, and the distribution
unit margin reached US$35.9 per MWh, an increase of 17.8%. Sharp
generation, distribution and sales pick-up and lower energy losses
across all countries ENDESA�s total generation in Latin America in
the first nine months of 2006 amounted to 46,364 GWh, a
like-for-like increase of 8.7% on the year before, while
distribution increased 5.2% to 43,175 GWh. The Company recorded
significant increases in both generation and distribution in all
its countries of operation. Organic growth of the markets in which
ENDESA operates drove total revenues from its Latin American
companies 22.6% higher in 9M06. ENDESA�s total customer base in
Latin America was 11.5 million at September 30, 2006, i.e., 300,000
more than at the beginning of the period. Energy distribution
losses were lower in all countries in 9M06, most notably in Brazil,
where losses were down 0.7 percentage points as compare to 9M05.
New generation facilities Capacity at ENDESA�s Latin American
companies so far this year increased by 358 MW as a result of
contribution of the Termocartagena plant (Colombia) and completion
of the first CCGT at the Ventanilla plant (Peru). In 3Q06, work
continued on schedule on the construction of the 377 MW San Isidro
II CCGT and of the 32 MW Palmucho hydro facility, both in Chile. In
the same period, Endesa Chile incorporated Centrales
Hidroel�ctricas de Ays�n, 51%-owned by ENDESA�s subsidiary, Endesa
Chile, and 49% by Colb�n. The purpose of this new company is to
analyse, finance, build and operate the Ays�n Project, which
consists of four hydro plants with a total capacity of 2,355 MW.
Construction is currently scheduled to begin in 2008. Cash return
target for 2009: 43% achieved Cash returns from ENDESA�s Latin
American business to the parent company in the first nine months of
the year totalled Euro 125 million. This, coupled with the Euro 308
million achieved in 2005, means that 43% of the target for 2009 in
the Strategic Plan has now been achieved. Debt reduction Net debt
in the Latin American business declined by 5.4%, or Euro 329
million, in 9M06 to Euro 5,780 million as of September 30, 2006.
DISPOSALS Pursuant to an agreement reached on 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 a full disposal of the Company�s telecom
business � one of the main goals of the Strategic Plan. 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 net
capital gains after taxes and minorities of Euro 12 million. In the
third quarter, ENDESA sold, through its subsidiary Bolonia Real
Estate, assets on the so-called �Levante Sector� of Palma de
Mallorca to the Neinver Group for Euro 240 million, generating a
net capital gain of Euro 165 million. SUSTAINABILITY In September
2006, ENDESA was rated the leading electric utility in Europe and
the world for its commitment to sustainable development, according
to the Dow Jones Sustainability World Index and Dow Jones
Sustainability Stoxx Index, respectively. These indices, regarded
as global benchmarks in the field of sustainability, select the
leading companies from across different industries that stand out
for their commitment to making sustainable development one of the
cornerstones of their business strategy. ENDESA has been selected
for inclusion in these indices for the sixth year in a row. Some of
the areas where ENDESA was most highly rated this year include
codes of conduct, customer relations, environmental policy, climate
change strategy, workplace health and safety, and social
initiatives. 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 paid out on January 2, 2006, to Euro
2,541 million. Results for the first nine months 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 earnings this year, of which around Euro 1.27
will be generated by net income from ordinary activities and the
remainder from capital gains arising from the disposal of non-core
assets. To this end, the Board of Directors of ENDESA, in its
meeting on October 24, 2006, agreed to pay a gross interim dividend
against 2006 earnings of Euro 0.50 per share, representing a 63.9%
increase on the interim dividend paid against 2005 earnings.
CONSOLIDATED RESULTS Net income up 61.2% ENDESA reported net income
in 9M06 of Euro 2,508 million, a 61.2% increase on 9M05. This
increase includes the net impact of the Euro 396 million of capital
gains obtained on asset sales made in the first nine months of the
year, of which Euro 171 million correspond to the sale of the 5.01%
stake in Auna to Deutsche Bank and Euro 165 million from the Palma
de Mallorca real estate sell to Neinver Group. Stripping out these
capital gains from both periods, growth in net income in 9M06 vs.
9M05 was 58.2%. NET INCOME IN 9M06 � � Euro million � % Chg vs.
9M06 � % of total NI 2005* � % of total NI 2006* Spain and Portugal
� 1,503� � 43.0� � 69.2� � 64.3� Europe � 426� � 50.5� � 18.6� �
18.2� Latin America � 408� � 119.4� � 12.2� � 17.5� Capital gains
from sale of 5.01% stake in Auna � 171� � --� � --� � --� TOTAL �
2,508� � 61.2� � 100.0� � 100.0� (*) Only net income from
electricity businesses. We note that this sharp increase in net
income, due essentially to good operating performance of all the
Company's business lines, has been achieved despite a scenario
which has been existing for the last 12 months triggered by various
corporate operations directed at ENDESA. This shows how the Company
has been able to uphold the excellence of its management team and
roll out its Strategic Plan within this special context. Net income
growth across all the Company�s businesses The business in Spain
and Portugal posted net income of Euro 1,503 million in 9M06, an
increase of 43% on 9M05. This includes Euro 197 million of higher
compensation, net of tax, from the non-mainland generation deficit
for the period 2001-2005 pursuant to Ministerial Orders passed on
March 30, 2006. In Europe, net income advanced 50.5% to Euro 426
million. This figure includes Euro 118 million, net of minority
interests, related to a write-up in the valuation of this business
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 408 million, 119.4%
more than in 9M05. 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:
+9% Both electricity output (+2.9%) and electricity sales (+9%)
rose in the first nine months vs. 9M05. Increases were particularly
high in the European and Latin American businesses, where output
rose by 8.3% and 8.2%, respectively, amply offsetting the 2.2% drop
in output in Spain. Total electricity sales in the Spanish and
Portuguese, European and Latin American businesses rose by 9.1%,
13.4% and 5.2%, respectively. ELECTRICITY OUTPUT AND SALES IN 9M06
� � Output � Sales � � GWh � % Chg. vs. 9M05 � GWh � % Chg. vs.
9M05 Spain and Portugal � 68,222� � (2.2) � 82,236� � 9.1� Rest of
Europe � 26,443� � 8.3� � 38,913� � 13.4� Latin America � 46,364� �
8.2� � 43,175� � 5.2� TOTAL � 141,029� � 2.9� � 164,324� � 9.0�
Appropriate output/sales balance ENDESA met 85.8% of its total
electricity sales in 9M06 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. Revenue growth outstrips
costs The Company�s total revenues in the first nine months of 2006
amounted to Euro 14,847 million, an increase of 17.4% on the year
before, outstripping growth in physical electricity sales. Sales
growth was greater by value than by volume because of increases in
electricity prices in countries were the Company operates due to
higher power generation costs. The growth in sales in 9M06 covered
the 16.9% increase in purchases and service expenses (variable
costs), which was caused by increases in fuel costs and energy
purchases. Sharp growth in key income statement line items As
revenue growth offset the increase in costs, the company reported
significant rises in gross margin (+20.3%), EBITDA (+24.6%) and
EBIT (+32.3%). � � Gross margin � EBITDA � EBIT � � Euro million �
% Chg vs. 9M05 � Euro million � % Chg vs. 9M05 � Euro million � %
Chg vs. 9M05 Spain and Portugal � 4,339� � 18.6� � 2,926� � 22.9� �
2,112� � 29.3� Rest of Europe � 1,137� � 20.4� � 890� � 26.8� �
693� � 34.6� Latin America � 2,343� � 23.8� � 1,663� � 25.7� �
1,304� � 35.3� TOTAL � 7,819� � 20.3� � 5,479� � 24.6� � 4,109� �
32.3� Net financial expenses: -9.6% ENDESA reported net financial
losses of Euro 720 million in 9M06, a 3.7% improvement over 9M05.
Net financial losses were lower despite the fact that in 9M06 the
trends in the exchange rates in which the Group�s debt is
denominated led to a Euro 50 million decrease in exchange-rate
gains. Net financial expense totalled Euro 736 million, down 9.6%
on 9M05. This figure includes financial revenue of Euro 31 million
related to the portion not recorded as of December 31, 2005 of the
interest accrued on compensations derived from non-mainland
generation deficit calculated in accordance with Ministerial Orders
passed on March 30. Increase in net debt caused by financing
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
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 derecognition of the shares from
ENDESA�s balance sheet and recognition of the related capital gain
in its income statement have been met. Therefore, as indicated in
ENDESA�s consolidated financial statements for the year ended
December 31, 2005, in 9M06 the Company recorded a capital gain 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
NQF Gas for Euro 59 million, booking a capital gain of Euro 27
million (Euro 21 million net of taxes) and sold off 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, in 3Q06, and as part of ENDESA�s strategic
goal of maximising value of its real estate assets, the Company,
through its subsidiary Bolonia Real Estate sold assets through a
competitive process in the so-called �Levante Sector� of Palma de
Mallorca to the Neinver Group. The assets sold include planning
rights for approximately 180,000m2. In addition, the Company made a
financial investment in the Neiver Group company, which will head
up the land�s development, taking a 45% stake. The sole purpose of
this investment is to participate, based on its percentage
ownership, in potential additional capital gains that could arise
from future development of the land in question. ENDESA will not
participate in the management of this company and its investment
risk is limited to the amount of capital contributed. The total
deal size is Euro 240 million, generating a gross capital gain of
Euro 185 million (Euro 165 million after-tax), net of the costs of
transferring the electric facilities that were located on the land
and the cost of the 45% equity stake taken in the development
company. Cash flow from operating activities: +13.3% Cash flow from
operating activities in 9M06 was Euro 3,318 million, up 13.3% on
9M05. CASH FLOW FROM OPERATING ACTIVITIES � � Euro million � % Chg
vs. 9M05 Spain and Portugal � 1,876� � 12.4� Rest of Europe � 531�
� 5.8� Latin America � 911� � 18.9� TOTAL � 3,318� � 13.3�
Investment: Euro 2,682 million ENDESA invested a total of Euro
2,682 million in 9M06, of which Euro 2,396 million was capex and
intangible assets while the remaining Euro 286 million was invested
in financial investments. INVESTMENTS Euro million Capex and
intangible assets Financial TOTAL Spain and Portugal (1) 1,620�
105� 1,725� Rest of Europe 166� 138� 304� Latin America 610� 43�
653� TOTAL 2,396� 286� 2,682� (1) Additionally, a financial
investment of Euro 1,194 million for the revenue deficit from
regulated activities in 9M06 and Euro 101 million from the
restatement of the 2005 deficit was booked. Debt performance
ENDESA�s net debt was Euro 21,016 million as of September 30, 2006,
15% higher than at year-end 2005. BREAKDOWN BY BUSINESS LINE OF
ENDESA�S NET DEBT � � Euro million � � � � 30/9/06� � 31/12/05� �
Change � % Chg Business in Spain and Portugal � 13,731� � 11,461� �
2,270� � 19.8� Business in Europe -Endesa Italia -Other � 1,505 730
775� � 1,286 815 471� � 219 (85) 304� � 17.0 (10.4) 64.5� Business
in Latin America -Enersis Group -Other � 5,780 4,836 944� � 6,109
5,207 902� � (329) (371) 42� � (5.4) (7.1) 4.7� Other businesses
(1) � --� � (575) � 575� � NA TOTAL � 21,016� � 18,281� � 2,735� �
15.0� (1) At September 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. The increase in debt in Spain and Portugal is
due to the need to finance the tariff deficit in 2005 and the first
nine months of 2006. In 9M06, ENDESA paid Euro 1,417 in this
regard. It also reflects the Euro 1,341 million dividend payment
made in July in connection with the capital gains realised in 2005
and which led to a debt reduction in that year. The distribution of
this income to its shareholders was approved at the General
Shareholders� Meeting. In Europe, the Euro 219 million increase in
debt was caused by the corporate income tax payment the Company had
to make in the second quarter. It also reflects the growth capex
made during the year. In Latin America, debt was reduced by Euro
329 million in the first nine months of 2006. When assessing
ENDESA�s debt level, it must be remembered that at September 30,
2006, ENDESA had the recognised right to collect Euro 4,207 million
in connection with several regulatory matters: Euro 2,904 million
for financing the revenue deficit from regulated activities, Euro
1,281 million in compensation for the non-mainland generation
deficit and Euro 22 million of stranded costs in Italy. Stripping
out the amounts from these regulatory items, ENDESA�s net debt at
September 30, 2006 was Euro 16,809 million. At the end of this
month (October), ENDESA granted exclusive securitization of the
Euro 1,710 million collection rights corresponding to the financing
of the revenue deficit for regulated activities carried out by
ENDESA in 2005. The contract governing the transfer of the
collection rights will be formalised in November, leaving room for
a significant reduction in debt. The average cost of ENDESA�s total
debt was 5.49% in 9M06, while cost of debt corresponding to the
ENERSIS Group was 9.27%. Stripping out Enersis Group debt, the
average cost of ENDESA�s debt was 4.11%. STRUCTURE OF ENDESA�S NET
DEBT � � ENDESA and direct subsidiaries � Enersis Group � Total
ENDESA Group � � Euro million � % of total � Euro million � % of
total � Euro million � % of total Euro � 16,115� � 100� � --� � --�
� 16,115� � 77� Dollar � 65� � -� � 2,594� � 54� � 2,659� � 13�
Other currencies � --� � -� � 2,242� � 46� � 2,242� � 10� Total �
16,180� � 100� � 4,836� � 100� � 21,016� � 100� Fixed rate � 8,345�
� 52� � 3,950� � 82� � 12,295� � 59� Hedged � 1,815� � 11� � 99� �
2� � 1,914� � 9� Variable � 6,020� � 37� � 787� � 16� � 6,807� �
32� TOTAL � 16,180� � 100� � 4,836� � 100� � 21,016� � 100� Avg.
life (years) � 5.0� � 5.3� � 5.1� The average life of the ENDESA
Group�s debt at September 30, 2006 was 5.1 years. ENDESA enjoys a
high degree of protection against interest-rate risk, since 68% of
its total debt is either fixed-rate or hedged. When stripping out
pending regulatory assets in Spain, which carry floating-rate
interest, this percentage rises to 79%. As of September 30, 2006,
ENDESA in Spain and its direct subsidiaries, excluding the Enersis
Group, had liquidity of Euro 6,159 million, of which Euro 5,756
million corresponded to unconditional undrawn credit lines. These
balances are sufficient to cover the debt falling due over the next
20 months. In addition, the Enersis Group had liquidity of Euro
1,317 million, of which Euro 492 million corresponded to
unconditional undrawn credit lines from two syndicated loans. This
liquidity covers debt maturities for the next 21 months. Financial
leverage stood at 128.8% at September 30, 2006, 6.2 percentage
points below the level a year earlier. As a result of Gas Natural�s
takeover bid for ENDESA launched in September 2005, 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, 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, as of October 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. STRATEGIC PLAN PROGRESS
Results achieved by ENDESA in the first nine months of 2006 ensure
that the targets of its Strategic Plan for 2005-2009, which were
revised upwards and released to the markets on July 25, will be
met. These targets are as follows: EBITDA of Euro 6,930 million in
2006 and Euro 8,330 million in 2009. Net income of Euro 2,900
million in 2006 and Euro 3,000 million in 2009. Pay out to
shareholders no less than Euro 9,900 million against earnings for
2005-2009, of which Euro 7,600 million will be generated by net
income from ordinary activities and the remaining Euro 2,300
million from the disposal of non-core assets. Financial leverage
below 140%. With regard to the EBITDA target, we would point out:
ENDESA reported EBITDA of Euro 5,479 million in 9M06, meeting in
nine months 79.1% of its target for the full year. This target has
been 78% met in Spain and Portugal, 80.9% in Europe and 80% in
Latin America. The EBITDA figure represents an increase of 24.6%
vs. 9M05, compared to the 15.1% which would be required to meet the
FY06 target. On the other hand, EBITDA for the last 12 months i.e.
October 2005 � October 2006, stands at Euro 7,100 million, higher
than the FY06 target. This would suggest that the EBITDA target for
2006 will easily be met. The Company recorded net income of Euro
2,508 million in 9M06, generating 86.5% of its FY06 target. Results
for the first nine months 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
earnings this year, of which Euro 1.27 will be generated by net
income from ordinary activities and the remainder (i.e. no less
than Euro 0.33) from capital gains arising from disposal of
non-core assets. If this dividend payment is approved at the
Shareholders� Meeting, ENDESA will have paid out to its
shareholders a total of at least Euro 4,235 million in dividends
against 2005 and 2006 earnings, i.e. 42.8% of the Euro 9,900
million put aside for this concept in the period 2005-2009. Lastly,
ENDESA�s leverage stood at 128.8% on September 30, 2006, 11.2
percentage points ahead of its Strategic Plan target. In short, the
results obtained through September 30, 2006 confirm that
commitments to shareholders and the market assumed by the Company
are being met ahead of schedule. These results are due largely to
the business management strategy rolled out by ENDESA since the
presentation of its Strategic Plan back on October 2005, despite
various corporate transactions launched in the last 12 months
Maintaining these basic management guidelines in each business
line, coupled with the positive outlook on markets where the
company operates and with their respective regulatory frameworks,
as well as projects in place in each area to maximise organic
growth, puts ENDESA on sound footing to meet all its targets.
RESULTS BY BUSINESS LINE BUSINESS IN SPAIN AND PORTUGAL Net income
up 43% to Euro 1,503 million Net income from this business was Euro
1,503 million in 9M06, an increase of 43% on 9M05 and equivalent to
59.9% to the Company�s overall bottom line. EBITDA rose 22.9% to
Euro 2,926 million and EBIT by 29.3% to Euro 2,112 million. These
outstanding results are underpinned by active business management
with the goal of leveraging the Company�s solid fundamentals and
competitive advantages in an environment of significant regulatory
change throughout the period. In terms of operating management, we
highlight the maintenance of an appropriate balance between output
and sales, an enhanced generation mix in the mainland, high load
factors at its thermal facilities compared to its peers, a slowdown
in fuel price increases, progress on the New Capacity Plan, record
supply quality levels, ongoing supply activities to hedge against
trends in wholesale prices and an active presence in the CDM
market, which yielded enough emission rights certificates to meet
its commitments on emission reductions in Spain and the rest of
Europe. On the regulatory front, the negative impact on 9M06
figures from booking electricity sold to regulated customers in
areas where ENDESA acts as distributor at the provisional price of
Euro 42.35 per MWh established in Royal Decree Law 3/2006 was Euro
254 million. This effect is only temporary, so the negative impact
should be recovered once final price is established based on
objective and transparent market criteria, as provided for in the
same Royal Decree Law. In 9M06, 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 December 31, 2005. 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
maintained its leading position in the Spanish electricity market
in the first nine months of the year. The Company reached a 34.7%
market share in ordinary regime electricity generation, a 43.1%
share in electricity distributed, 54.4% in sales to deregulated
customers and 41.6% in total sales to final customers. Competitive
advantages in generation relative to peers In Spain, the Company
produced a total of 68,222 GWh in the first nine months of 2006,
compared to total demand of 82,236 GWh. This means it met 83% of
its demand from its own output. In addition, nuclear and hydro
powered energy represented 42% of the Company�s mainland generation
mix in 9M06, compared to 33.1% for the rest of the sector.
Furthermore, at 73%, the load factor at its thermal facilities was
also higher than at its competitors (61%). The load factor at the
Company�s coal plants was a noteworthy 79%. All this on top of a
positive trend in ENDESA�s mainland unit fuel costs in the first
nine months, which rose just 0.1% over 9M05, compared to an
estimated average 8.7% increase for the rest of the sector. 982 MW
of new installed capacity in 9M06 ENDESA added 982 MW of new
capacity to its generation facilities in 9M06, marking 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 Crist�bal Col�n 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 424 MW, in
line with growing demand in these markets. 158 MW in
renewables/CHP. In addition, construction of the 800MW CCGT and
transformation of the 367MW group 3 at the As Pontes site in La
Coru�a to imported coal continued on schedule. With regards to the
business in Portugal, on October the E�licas de Portugal consortium
� in which ENDESA has a 30% stake � was awarded the project to
develop 1,200 MW of wind capacity, the largest in the Portuguese
wind tender. Also, ENDESA, together with International Power, has
been awarded a connection point for two 400MW CCGTs at the Tejo
site. The operating license should be awarded before the end of
this year. Market performance: an all-time record in supply quality
and value unlocked at the supply business As already mentioned, in
9M06 ENDESA�s total demand in Spain measured through its sales was
82,236 GWh. This represents a 9.1% increase on 9M05, compared to an
average increase of 3.2% for the overall Spanish electricity
sector. The number of customers serviced by ENDESA in the regulated
market reached at 11,139,395 million at September 30, 2006, i.e.,
173,158 more than at the beginning of the period. In 9M06, the
cumulative interruption index in ENDESA�s markets was 1 hour and 39
minutes, an improvement of 9% vs. 9M05. These figures confirm the
solid and positive trend in the continuity of supply by ENDESA
across all markets served in Spain, reflecting the success of
significant investments made in distribution facilities in recent
years and the efficiency enhancements implemented, also in the
distribution business, within the framework of its Quality Plan. In
the deregulated market, ENDESA ended September with 1,084,386
customers, 12.7% more than the year earlier. The Company�s position
in this market provides a hedge against the volatility of pool
prices and other regulatory and market risks, as well as providing
the generation business with a reasonable and guaranteed return
over the medium and long term. Carbon credit purchases ENDESA
presently boasts a broad portfolio of carbon credits derived from
its Clean Development Mechanisms (CDM) at a highly competitive
average price. Specifically, the Company has signed Emissions
Reduction Purchase Agreements (ERPA) for a total of 71.9 million
tonnes of CO2, Letters of Intent (LOI) for 25.1 million tonnes of
additional volume and has projects under analysis amounting to
another 104.1 million tonnes of CO2. The emission rights acquired
under these agreements will allow ENDESA to meet its CO2 emission
reduction commitments for its operations in Spain, Portugal, France
and Italy required by the Directive on Emissions Trading. With
these, ENDESA is still the leading private purchaser of carbon
credits, via the �Endesa Climate Initiative�, a pioneering program
in this arena though which it has obtained contracts representing
more than 7.5% of the total ERCs (emission rights certificates)
corresponding to all the projects currently registered with the UN.
NAP 2008-2012: compatible with the ENDESA�s competitive generation
portfolio On July 12, 2006, the government unveiled details of its
proposed 2008-2012 National Allocation Plan for emission rights.
Based on analysis conducted to date on the methodology set out,
ENDESA believes that the allocation that will be made, together
with its portfolio of carbon credits, guarantees that the Company�s
generation assets will operate on a fully efficient and competitive
basis and furthermore is fully compatible with the targets
contained in its Strategic Plan. 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 Spanish 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 applicable for this criteria. In relation to thermal
plants in non-mainland systems, the incremental costs that could
arise from an emission rights deficit would be fully recognised 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. Regulatory update for 9M06 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 period. 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 per MWh. ENDESA�s accounts
since that date have been 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 9M06 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 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 September 30, 2006 related to its application
are likewise provisional until detailed norms are enacted and the
corresponding settlements are made. The tariff deficit The increase
in electricity tariffs implemented in 2006, the measures enacted by
Royal Decree Law 3/2006 to reduce the deficit in revenues from
regulated revenues and the reduction in the amount allocated to the
nuclear moratorium have increased 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
2,978 million, of which Euro 1,315 million corresponds to ENDESA.
Of this amount, Euro 121 million corresponding to 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 were deducted from generation revenues and the remaining
Euro 1,194 million were booked as a financial investment. This
accounting methodology is consistent with the right recognised by
law to recoup the amount, regardless of the fact that its formal
recognition and the exact manner in which it will be recovered will
not be regulated until the end of the fiscal year. Had this Euro
1,194 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
776 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
develop Royal Decree 1747/2003 governing Spain�s mainland 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
over 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 9M06. 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 mainland 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 Law 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. 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 Law 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, which was set at 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. 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 shortfall in revenues from regulated activities arising
between January 1, 2005 and December 31, 2005 (which stood at Euro
3,810 million at year-end 2005) be included in the tariff as an
expense. The amount at December 31 of each year is calculated by
updating the pending balance at that date of the previous year
applying an interest rate equivalent to the 3M Euribor and
deducting the payments of the current year. The Royal Decree Law
allows companies entitled to these reimbursements to transfer to
third parties and securitize 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
available 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 stranded costs (CTCs), 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 recovery, 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: +17.2% Sales from the business in Spain and
Portugal totalled Euro 7,235 million in the first nine months of
2006, up 17.2% on 9M05. Growth was primarily due to increase in
demand, rise in final prices and volume sales to deregulated
customers, to higher pool prices in January and February, i.e.
before Royal Decree Law 3/2006 came into effect, and to application
of the Ministerial Orders regulating the calculation of
remuneration for mainland and non-mainland generation. The increase
in sales was enough to offset the rise in variable costs (+16%),
mainly fuel (+13.5%) and energy purchases (+18.2%). Revenues: up
17.4% Revenues for the electricity business in Spain and Portugal
reached Euro 7,810 million in the first nine months of 2006, up
17.4% on 9M05. Of this amount, sales accounted for Euro 7,235
million, 17.2% higher than in 9M05. SPAIN AND PORTUGAL SALES � �
Euro million � � � � 9M06� � 9M05� � Change � % Chg Mainland
generation under Ordinary Regime � 3,175� � 3,274� � (99) � (3.0)
Sales to deregulated customers � 1,334� � 1,098� � 236� � 21.5�
Other sales in the OMEL � 1,841� � 2,176� � (335) � (15.4)
Renewable/CHP generation � 195� � 151� � 44� � 29.1� Regulated
revenues from distribution � 1,363� � 1,197� � 166� � 13.9�
Non-mainland generation and supply* � 1,614� � 975� � 639� � 65.5�
Supply to deregulated customers outside Spain � 224� � 171� � 53� �
31.0� Regulated revenues from gas distribution � 33� � 32� � 1� �
3.1� Unregulated gas supply � 458� � 216� � 242� � 112.0� Other
sales and services rendered � 173� � 159� � 14� � 8.8� TOTAL �
7,235� � 6,175� � 1,060� � 17.2� * The figure for 9M06 includes
Euro 227 million corresponding to compensation for the 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. Mainland generation ENDESA�s
mainland electricity output totalled 57,303 GWh in the first nine
months of the year, 3.5% less than in 9M05. Of this amount, 55,533
GWh corresponded to electricity generated under the ordinary regime
(-3.9%) and 1,770 GWh under renewables/CHP (+12.8%). The fall in
ordinary regime generation was mostly due to higher hydro output by
the system as a whole, to scheduled maintenance downtimes of
several thermal groups and ENDESA�s prioritisation of margins over
market share. ENDESA�s thermal plants achieved an overall load
factor of 73% in 9M06, significantly above the 61% average for the
rest of the sector. Registering a noteworthy load factor of 79%,
ENDESA�s coal plants continued to play a key role in servicing
Spanish electricity demand, meeting 13.5% of mainland demand in
9M06. The high load rate at these plants demonstrates their ability
to respond to grid requirements, proving that, in spite of the CCGT
and wind farm capacity additions, coal plants are still
indispensable to meet the country�s electricity requirements.
BREAKDOWN OF GENERATION SALES GWh Sales to supply through bilateral
contracts 25,148� Sales to distribution from March 3, 2006 (Euro
42.35 per MWh) 16,526� Sales at pool price 13,859� TOTAL 55,533�
Sales to the ordinary regime totalled Euro 3,175 million through
September, Euro 99 million or 3% lower than in the same period last
year. This amount includes sales made after March 3 to Endesa
Distribuci�n to supply regulated companies in ENDESA�s distribution
territories, which were recognised at a provisional price of Euro
42.35 per MWh in accordance with Royal Decree Law 3/2006. This
provisional price is below the average pool price in 9M06 which was
Euro 68.94 per MWh, 12.6% higher than in 9M05. The negative impact
on 9M06 figures from selling the 16,526 GWh produced from March to
September, i.e. the electricity sold to regulated customers in the
markets where ENDESA acts as a distributor, at the provisional
price of Euro 42.35 per MWh, pursuant to the Royal Decree Law
3/2006, was Euro 254 million. This effect is temporary, so the
negative impact should be recovered once the final price is
established based on objective and transparent market criteria, as
provided for in the same Royal Decree Law. Moreover, in accordance
with Royal Decree Law 3/2006, the sales figure is net of the 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: +12.8% Renewable and CHP
generation companies fully consolidated by ENDESA produced 1,770
GWh in 9M06, 12.8% more than in 9M05. In addition, ENDESA has
holdings in other renewable/CHP companies, which generated 2,894
GWh in the same period. Revenues from sales of renewable/CHP energy
generated by consolidated companies totalled Euro 195 million,
29.1% more than in 9M05. This underpinned a 33.3% increase in
EBITDA to Euro 132 million and a 32.3% increase in EBIT to Euro 86
million. Supply to deregulated customers In the supply to
deregulated customers business, we would highlight that contrary to
the decisions taken by other operators to exit this segment in
light of high 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 returns. This selective supply policy drove a 13.5%
increase in the average selling price to final customers in the
deregulated market in 9M06 vs. 9M05. ENDESA had 1,084,386
deregulated customers at September 30, 2006, of which 1,019,208
corresponded to the Spanish mainland deregulated market, 61,678 to
the non-mainland systems and 3,500 to other European deregulated
markets. ENDESA�s sales to these customers totalled 28,802 GWh in
the first nine months of 2006, 5% more than in the same period of
2005. Of this amount, 25,579 GWh were sold on the Spanish
deregulated market, an increase of 4.9%, and 3,223 GWh on other
deregulated European markets, up 5.4%. Revenues from supply to
deregulated customers in Spain (excluding tolls paid to Endesa
Distribuci�n) totalled Euro 1,440 million, a 22.2% increase on
9M05. Of this amount, Euro 1,334 million corresponded to the
mainland deregulated market and Euro 106 million to the
non-mainland market. Revenues from supply to deregulated European
markets other than Spain rose 31% to Euro 224 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 86,758 GWh of electricity
in the Spanish market through September, 3.6% more than in the
first nine months of last year. Revenues from regulated
distribution activities totalled Euro 1,363 million, up 13.9% on
9M05. 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 10.3%. ENDESA supplied 53,434 GWh to customers on the
regulated Spanish market in the period, 11.5% more than in the
first nine months of last year. Non-mainland generation ENDESA�s
output in non-mainland systems rose 5.1% in 9M06 vs. 9M05 to 10,919
GWh. Sales were 65.5% higher, at Euro 1,614 million. As indicated
previously, these sales include Euro 227 million of additional
compensation above that 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 11.9% ENDESA sold a total of 19,603 GWh of natural
gas in 9M06, 21.6% more than in the same period last year. Of this
amount, 16,871 GWh were sold to customers in the deregulated
market, 26% more than in 9M05, and 2,732 GWh to regulated customers
through all the gas companies in Spain in which ENDESA has stakes,
an increase of 0.3% on the same period last year. The 19,603 GWh
sold in both the regulated and deregulated markets and the amount
consumed in ENDESA�s own generation plants imply an 11.9% market
share. Revenues from gas sales in deregulated market rose 112% to
Euro 458 million in 9M06 vs. 9M05. Revenues from regulated gas
distribution totalled Euro 33 million, an increase of 3.1% on 9M05.
The two businesses contributed a combined gross margin of Euro 109
million. Other operating revenues Other operating revenues in 9M06
came to Euro 575 million, Euro 99 million more than in 9M05. This
item includes Euro 391 million corresponding to the 9M06 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 45 million higher than in 9M05,
mostly because of higher value of the rights received in 2006.
Higher revenue is offset by 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:
OPERATING EXPENSE IN SPAIN AND PORTUGAL � � Euro million � � � �
9M06� � 9M06� � Change � % Chg Purchases and services � 3,471� �
2,992� � 479� � 16.0� Power purchases � 767� � 649� � 118� � 18.2�
Fuel consumption � 1,695� � 1,493� � 202� � 13.5� Power
transmission expenses � 272� � 176� � 96� � 54.5� Other supplies
and services � 737� � 674� � 63� � 9.3� Personnel expenses � 758� �
673� � 85� � 12.6� Other operating expenses � 760� � 706� � 54� �
7.6� Depreciation and amortisation � 814� � 746� � 68� � 9.1� TOTAL
� 5,803� � 5,117� � 686� � 13.4� Power purchases Power purchases in
the period rose 18.2% to Euro 767 million. These mainly entail gas
purchases to supply deregulated customers, which rose as a result
of increases in sales to these customers and in gas prices. Fuel
consumption Fuel consumption through September this year amounted
to Euro 1,695 million, an increase of 13.5% on the same period in
2005. This increase is due to a 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 8.7% increase in fuel costs at 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 737 million in
9M06, Euro 63 million more than in 9M05. This increase reflects the
recognition of Euro 473 million of expenses in connection with
rights acquired to cover the CO2 emissions made throughout the
first nine months of the year, which totalled 36.4 million tonnes:
27.6 million tonnes for the mainland and 8.8 million for
non-mainland production. Despite the higher value assigned to the
freely allocated emission rights in 2006 vs. 2005, this cost was
Euro 4 million lower than in 9M05, due to the lower volume of
emissions recorded this year. Net effect of revenues and expenses
booked in 9M06 to cover CO2 emissions was Euro 82 million,
corresponding to an estimated rights deficit of 6.3 million tonnes.
The �Other supplies and services� item includes a Euro 51 million
reversal equivalent to the amount Extremadura regional government
must reimburse ENDESA in connection with the environmental impact
tax on its plants paid by the Company from 1998 to 2005 after the
Constitutional Court ruled this to be unconstitutional on June 13.
Personnel expenses At September 30, 2006, the workforce in Spain
and Portugal was 12,700 employees, 30 fewer than at September 30,
2005. Personnel expenses rose in 9M06 12.6% vs. 9M05, to Euro 758
million. These expenses include Euro 65 million corresponding to a
headcount reduction provision, mainly related to the deviation in
the provision caused by the performance of inflation (CPI), a new
layoff program in connection with the Mining Plan 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. Net financial expenses: down 9%
ENDESA reported net financial expenses for the first nine months of
2006 of Euro 325 million, 9.5% less than in 9M05. Net financial
expenses included Euro 31 million of revenue corresponding to the
interest accrued to December 31, 2005 on higher compensations
derived from 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
September 30, 2006 for the environmental impact 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 September 30, 2006 stood at Euro
13,731 million, vs. Euro 11,461 million at December 31, 2005. This
increase is due to the Euro 1,417 million paid in 9M06 to finance
the revenue shortfall from regulated activities, as well as the
Euro 1,341 million dividend payment made in July in connection with
capital gains realised in 2005, which had contributed to reducing
debt that year. It was determined at the General Shareholders�
Meeting to distribute these capital gains to shareholders.
Equity-accounted income Equity-accounted income in the business in
Spain and Portugal totalled Euro 53 million, a 26.2% increase vs.
9M05. This amount includes, among others, the contribution from
Nuclenor. Cash flow from operating activities: Euro 1,876 million
(+12.4%) Cash flow from operating activities from the Spanish and
Portuguese business totalled Euro 1,876 million in 9M06, an
increase of 12.4% on the same period last year. Investments: Euro
1,725 million Investments in Spain and Portugal totalled Euro 1,725
million in 9M06. The breakdown is as follows: TOTAL INVESTMENT IN
SPAIN AND PORTUGAL � � Euro million � � � � 9M06� � 9M05� � % Chg
Capex � 1,549� � 1,484� � 4.4� Intangibles � 71� � 66� � 7.6�
Financial � 105� � 196� � (46.4) Total investments � 1,725� �
1,746� � (1.2) � CAPEX IN SPAIN AND PORTUGAL � � Euro million � � �
� 9M06� � 9M05� � % Chg Generation � 652� � 544� � 19.9� Ordinary
regime � 507� � 491� � 3.3� Renewables/CHP � 145� � 53� � 173.6�
Distribution � 869� � 916� � (5.1) Others � 28� � 24� � 16.7� Total
� 1,549� � 1,484� � 4.4� 89.8% 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 56.1% of
the total. As already stated, these investments are underpinning
the improvement in the quality of customer service provided in the
regulated market in Spain. The significant increase in capital
expenditure to expand ENDESA�s generation capacity, including the
construction of the Cristobol Col�n (400 MW) and As Pontes (800 MW)
CCGTs and capacity increases in renewables/CHP, is also noteworthy.
BUSINESS IN EUROPE Net income of Euro 426 million (+50.5%) Net
income from the electricity business in Europe totalled Euro 426
million in the first nine months of 2006, an increase of 50.5% from
the same period last year. This figure includes Euro 118 million
after minorities due to an 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 area, firmly driven
by positive performance of its operating indicators and efficiency
gains, and ENDESA�s ability to leverage growth opportunities in its
markets by developing new CCGT and renewable capacity, gas
infrastructure and increasing sales to end customers, thereby
ensuring the long-term sale under favourable terms of the power
produced by its generators. Growth projects In 9M06, ENDESA�s
business in Europe focused on achieving its two main strategic
targets: consolidating its current competitive position and seeking
new growth opportunities. New generation capacity During the third
quarter, Endesa Europa acquired 58.35% of Centro Energia Teverola
and Centro Energia Ferrara from Italian companies Merloni Invest,
MPE and Fineldo. Each of these companies owns a 150 MW CCGT subject
to a subsidized tariff. The first is located in the Emilia Roma�a
region in northern Italy and the second in Campania, in the south.
Foster Wheeler Italiana owns 41.65% of each. Meanwhile, Endesa
Italia continued construction on two 400MW Scandale CCGTs in
Calabria according to schedule. With respect to renewable energies
growth, the 14 MW Iardino wind farm was acquired during the third
quarter by Endesa Europa from Gamesa pursuant to the agreement
signed between the two companies. To be added to this capacity are
the Montecute 42 MW wind farm, completed on October 6 and which
forms part of the Gamesa deal, as well as the Vizzini and Trapani
wind farms with a combined capacity of 56 MW. All these projects
mark a major step forward for Endesa Italia towards achieving its
target of having 400 MW of installed wind capacity by 2010.
Meanwhile, during the third quarter the French generating company
Snet received authorisation by the local government in the French
city of Saint Avold to build a 800 MW CCGT at the �mile Huchet
site. It will entail an investment of around Euro 400 million, and
it could come on-stream sometime during the first half of 2009. The
company is also considering installing another two new CCGTs, one
800 MW at Lacq and one 400 MW, either at Hornaing or Lucy sites.
Elsewhere, during the year the Company won the tender to build a
10MW L�haucourt wind farm and has nearly 65 MW of new wind projects
committed to other sites, such as Ambon, Muzillac or Cernon. These
initiatives form part of the business plan to develop up to a total
of 2,000 MW of new capacity in CCGTs and 200 MW in renewables/CHP.
Gas infrastructure In the third quarter of the year, preliminary
work continued on the offshore regasification terminal to be built
off the coast of Livorno, Italy. 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 be
entitled to approximately 50% of this capacity. The company owns
25.5% of the development company for the facility, although the
agreement with the project�s two other partners �local companies
AMGA and ASA from Genoa and Livorno, respectively� give it
management control. This capacity will be used to feed the CCGTs
currently operated by the Company 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 july 2008.
This project guarantees competitive gas supplies for the Italian
market and increases the flexibility of ENDESA�s fuel mix at its
different sites. Supply This year, Endesa Europa and the Italian
group, Merloni, have begun 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
during the period. It signed an agreement with the French
multinational company Auchan to supply 400 GWh of power in 2006 and
other with French railway operator SNCF to supply 6,600 GWh in the
period 2007-2011. Dividends ENDESA�s investees in Europe have paid
dividends to the parent this year. Endesa Italia paid shareholders
Euro 176 million, of which Euro 140.8 million corresponded to
Endesa Europa. In addition, an agreement was reached at Snet�s
General Shareholders� Meeting 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. Sharp increase in output and sales
ENDESA�s total output in Europe in the first nine months of the
year amounted to 26,443 GWh, an increase of 8.3% on the same period
last year. Electricity sales rose 13.4% to 38,913 GWh. BREAKDOWN OF
ENDESA�S OUTPUT AND SALES IN EUROPE � � Output (GWh) � � � Sales
(GWh) � � � � 9M06� � 9M05� � % Chg � 9M06� � 9M05� � % Chg Italy �
19,420� � 17,329� � 12.1� � 25,025� � 23,153� � 8.1� France �
5,857� � 5,927� � (1.2) � 12,722� � 10,007� � 27.1� Poland* �
1,166� � 1,154� � 1.0� � 1,166� � 1,154� � 1.0� Total � 26,443� �
24,410� � 8.3� � 38,913� � 34,314� � 13.4� (*) ENDESA is present in
the generation business in Poland through the Bialystock CHP, which
is controlled by Snet. EBIT: +26.8% Endesa Europa posted EBITDA
through September of Euro 890 million, up 26.8% versus 9M05, and
EBIT of Euro 693 million, an increase of 34.6%. EBITDA & EBIT
IN EUROPE � � � � EBITDA (Euro million) � EBIT (Euro million) � �
9M06� � 9M05� � % Chg � 9M06� � 9M05� � % Chg Endesa Italia � 739�
� 561� � 31.7� � 622� � 456� � 36.4� Snet � 147� � 136� � 8.1� �
70� � 54� � 29.6� Trading � 26� � 20� � 30.0� � 26� � 20� � 30.0�
Holding & others � (22) � (15) � (46.7) � (25) � (15) � (66.7)
Total � 890� � 702� � 26.8� � 693� � 515� � 34.6� Worth
highlighting is the Euro 26 million contribution to EBIT from
trading operations, an increase of 30% on the same period last
year. ENDESA can conduct these operations risk-free thanks to its
solid generation base in Italy and France. Endesa Italia continue
to improve Endesa Italia�s revenues totalled Euro 2,253 million in
9M06, an increase of 35.6% from last year. This growth was mainly
the result of a 7.6% increase in electricity sold and a 31.7%
increase in average electricity prices in the Italian market.
ENDESA ITALIA KEY DATA � Euro million � � 9M06� � 9M05� � Change �
% Chg Revenues � 2,253� � 1,661� � 592� � 35.6� Gross margin � 854�
� 683� � 171� � 25.0� EBITDA � 739� � 561� � 178� � 31.7� EBIT �
622� � 456� � 166� � 36.4� Endesa Italia generated a total of
19,309 GWh of electricity in 9M06, an increase of 1,980 GWh or
11.4% vs. 9M05. Its market share in Italy at the end of September
stood at 8.5%. Endesa Italia�s generation structure in the
nine-month period reflects a higher percentage of fuel-oil
production than last year (19.2% vs. 16.1%), 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 240 million in 9M06, this was
less than the increase in revenues (Euro 592 million) 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 9M06, Endesa Italia booked Euro 113 million
of revenues from the free allocation and use of emission rights and
Euro 149 million of expenses for the cost of emissions.
Accordingly, the net cost of emission rights in the income
statement was Euro 36 million, corresponding to an estimated
deficit of 2.8 million tonnes of CO2. Finally, Endesa Italia
restated the tax bases of its fixed assets to their book value, in
accordance with Italian legislation. Therefore, it recorded 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 continues to gather pace Earnings at
Snet improved further in the third quarter of 2006. EBITDA in 9M06
rose 8.1% to Euro 147 million and EBIT by 29.6% to Euro 70 million
vs. 9M05. SNET KEY DATA � � Euro million � � 9M06� � 9M05� � Change
� % Chg Revenues � 801� � 625� � 176� � 28.2� Gross margin � 248� �
239� � 9� � 3.8� EBITDA � 147� � 136� � 11� � 8.1� EBIT � 70� � 54�
� 16� � 29.6� Revenues in the period rose 28.2% to Euro 801
million, mostly driven by the 24.4% growth in energy sales to
13,888 GWh. Variables costs were Euro 167 million higher, basically
as a result of the Euro 187 million increase in energy purchases,
although this was offset by tighter control over transport and
fuels costs, which were 9% lower than in 9M05. Finally, in 9M06,
Snet completed the headcount reduction plan, resulting in a 25%
decrease in the total workforce; Snet had 1,373 employees on staff
when Endesa Europa took control of the company. These layoffs led
to a 10.5% reduction in personnel costs and came within the
framework of discussions with union representatives. European debt:
Euro 1,505 million ENDESA�s business in Europe had net financial
debt at September 30, 2006 of Euro 1,505 million, Euro 219 million
higher than at the end of 2005. This debt derives from a one-off
income tax payment in 2Q06 linked to tax credits obtained in 2005
and 2006 and to the acquisition in the third quarter of majority
shareholdings in Centro Energia Teverola and Centro Energia
Ferrara, owners of the CCGTs, and assumption of their debt. Net
financial results in 9M06 amounted to an expense of Euro 36
million, a decrease of Euro 8 million from 9M05. Cash flow from
operating activities: Euro 531 million Operating cash flow
generated by this business in 9M06 totalled Euro 531 million, a
5.8% increase on the same period last year despite the one-off tax
payment mentioned previously. Investments: Euro 304 million
Investments in 9M06 in the European business totalled Euro 304
million, of which Euro 165 million were capex, Euro 73 million were
accounted for by Endesa Italia and Euro 92 million by Snet. These
amounts included the acquisition of 58.35% stakes in Centro Energia
Teverola and Centro Energia Ferrara for Euro 57 million and Euro 35
million, respectively. ENDESA began fully consolidating these
companies on September 1, 2006. BUSINESS IN LATIN AMERICA Strong
growth in net income: +119.4% Net income at ENDESA�s Latin American
business totalled Euro 408 million in 9M06, an increase of Euro 222
million, or 119.4%, on 9M05 and equivalent to 16.3% of ENDESA�s
total net income. This sharp growth reflects favourable economic
trends witnessed in the region since 2005, marked by higher growth
and more stable exchange rates in ENDESA�s operating markets.
ENDESA�s subsidiaries leveraged the growth in generation output and
demand deriving from this improved environment, achieving all-time
high unit margins thanks to ongoing operational efficiency efforts,
the efficient structure of their generation mix and their broad and
growing customer base. Against this backdrop, the strategic logic
behind the various capacity additions and regasification facilities
being developed or in the planning stage is clear. Highlights
Growth in volume sales in generation and distribution As indicated,
the improved economic environment in the countries where ENDESA has
subsidiaries led to sharp increases �all above 3.8%- in demand in
3Q06. Particularly noteworthy were increases in demand in Argentina
(9.6%), Peru (7.4%) and Chile (5.9%). Higher demand underpinned
total electricity sales by these subsidiaries of 43,175 GWh, up
5.2% vs. 9M05, with particularly significant increases in Peru
(7.4%) and Colombia (6%). Regarding output, ENDESA generated 46,364
GWh in the region in 9M06, an 8.2% increase vs. 9M05, or 8.7% in
like-for-like terms; i.e. stripping out generation output from
plants sold by Brazilian company Ampla in 2006. The largest
increases were in Brazil (16.7%, after deducting this output),
Argentina (11.6%) and Colombia (8.2%). OUTPUT AND SALES IN THE
LATIN AMERICAN BUSINESS � � Output (GWh) � Sales (GWh) � � 9M06� �
% Chg vs. 9M05 � 9M06� � % Chg vs. 9M05 Chile � 14,693� � 6.6� �
9,235� � 4.4� Argentina � 13,444� � 11.6� � 11,022� � 5.0� Peru �
5,271� � 4.1� � 3,605� � 7.4� Colombia � 9,577� � 8.2� � 7,917� �
6.0� Brazil � 3,379� � 8.0� � 11,396� � 4.9� TOTAL � 46,364� � 8.2�
� 43,175� � 5.2� Improvement in generation and distribution margins
Growth in demand, tighter reserve margins and favourable generation
mix at ENDESA�s subsidiaries caused the unit margin of generation
companies to increase by 21.8% in 9M06 vs. 9M05 to US$ 25.1 per MWh
produced. Generation margins, measured in dollars, increased
sharply, above all in Chile (+62.5%) thanks to a greater
contribution by hydro in the generation mix and to higher prices;
and in Argentina (+18.2%), thanks to 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$ 35.9 per MWh distributed, an increase of 17.8% vs. 9M05.
Reduction in distribution losses Energy distribution losses were
11.3% in 9M06, 0.7 percentage points below the level recorded in
the same period last year. Improvements were made in all countries,
especially Brazil, where the percentage of losses declined by 1
percentage point. These improvements reflect the achievements made
in technological innovation, as illustrated by the development and
rollout of the new Ampla grid in Brazil. Generation and
transmission projects During the period, Centrales Hidroel�ctricas
de Ays�n (51%-owned by Endesa Chile and 49% by Colb�n) was
incorporated. The aim of the new company is to study, finance,
build and operate the Ays�n Project. This project entails the
construction starting in 2008 of four hydro plants with total
installed capacity of 2,355 MW, the last of which is currently
estimated to come on stream towards the end of 2018. It will
require total investment of US$ 3,600 million, of which US$ 1,500
million will be earmarked for the 2,000km high voltage line
required to transmit the energy generated and whose construction
will be put out to tender, and US$ 2,100 million will be allotted
to the four hydro plants. Therefore, in proportion to its stake in
the project, Endesa Chile will have to invest at least 51% of this,
i.e. US$ 1,071 million. Also in 9M06, this company continued work
on the 377MW San Isidro II CCGT and the 32MW Palmucho hydro plant,
both in Chile. On May 16, the first stone was placed 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 projects
undertaken in the country. Endesa Eco continued to work on the 9 MW
Canela wind farm in Chile and began construction of the 9MW Ojos de
Agua mini hydro station. Both projects were started in 1Q06. In
Peru, construction on the first CCGT at the Ventanilla site, owned
by Etevensa- was completed in July. Construction continues on the
second CCGT, slated to be completed this month (i.e. October). 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. Meanwhile, in Colombia, Emgesa completed the
acquisition of the 186 MW Termocartagena thermal plant. Finally, on
July 11 construction officially began in Panama on the transmission
line of the SIEPAC project to interconnect the electricity grids of
six Central American countries. The network owner (Empresa
Propietaria de la Red, or EPR) is responsible for carrying out the
project. Partners include the six Central American countries
involved, Colombian company ISA and ENDESA (12.5% stake).
Optimisation of ownership structure During the course of the
period, ENDESA completed the ownership restructuring underway in
Brazil, Peru and Chile: In Brazil, holding company Endesa Brasil
owns all the assets ENDESA holds directly and indirectly in this
country. In July, International Finance Corporation (IFC), a World
Bank affiliate with 178 member countries, acquired 2.7% of this
holding company. The transaction values Endesa Brasil�s equity at a
total of US$ 1,850 million, equivalent to an EV/EBITDA 2005
multiple of 6.65x. In Peru, the merger and takeover of Etevensa by
Edegel. This transaction, which closed on June 1, results in a more
balanced overall generation mix (51% hydro and 49% thermal), which
will, among other things, reduce volatility of revenues as a result
of variations in rainfall. In Chile, the Chilectra-Elesur merger,
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 would give rise to the largest
generator in Colombia, with installed capacity of 2,780 MW.
Regulatory update Regulatory highlights in 9M06 in the Latin
American countries where ENDESA has operations: The tariffs applied
to Brazilian companies, Ampla and Coelce, were modified, by 2.9%
and 10.01%, respectively. 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. Regarding the bilateral agreement
between Argentina and Brazil, the Argentine Secretary for Energy
issued a resolution in February permitting companies with export
contracts to renegotiate them to encourage imports in order to meet
demand. Also in February, 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, among other things,
increasing the DCV (distribution cumulative value) by 28%
retroactively from November 2005, is pending. A trust has been set
up to enable Argentine companies under the Foninvemem agreement
�awarded 1,600 MW of CCGTS- to obtain necessary administrative and
operating resources. In June, a Brazilian court ruling lifted the
suspension on retroactive collection of amounts related to the 2005
tariff revision. Coelce began charging these amounts on June 26. In
July, the Peruvian Congress passed an amendment to the Electricity
Concession Law, the main features of which are as follows: --
Establishment of a mechanism for tenders at fixed prices over a
period of 10 years to encourage investment and contracting with
distributors, with guaranteed pass-through. -- Establishment of a
new centrally planned regulation, with 30-year concessions and
guaranteed payment. -- Greater involvement by generators,
distributors, transmission companies and deregulated customers in
the domestic electricity system operator. -- The option of spot
market purchases for deregulated demand of distributors and large
deregulated customers. The new law helps to unlock the value of
ENDESA�s generation assets in Peru through rising prices and
long-term contracts. In the first half of October, the new
regulation setting the capacity payments in Colombia was published,
putting an end to almost two years of work to reach a consensus
between the regulator and market agents. We highlight the following
points: -- From December 2006 to at least November 2009, there will
be a period of transition during which pro rata charge will be paid
for energies certified by the regulator. -- In the first half of
2007, energy auctions for up to 20 years will be held in order to
define the expansion required beyond December 2009, when new
projects will be put out to tender and existing projects will
become price takers. EBITDA: growth of 25.7% EBITDA in the Latin
American business totalled Euro 1,663 million in 9M06, a 25.7%
increase on 9M05. EBIT rose 35.3% to Euro 1,304 million. EBITDA
& EBIT IN LATIN AMERICA Euro million � EBITDA � EBIT � � 9M06�
� 9M05� � % Chg � 9M06� � 9M05� � % Chg Generation and transmission
� 898� � 736� � 22.0� � 709� � 548� � 29.4� Distribution � 815� �
613� � 33.0� � 651� � 444� � 46.6� Others � (50) � (26) � NA � (56)
� (28) � NA TOTAL � 1,663� � 1,323� � 25.7� � 1,304� � 964� � 35.3�
The table below shows the breakdown of EBITDA and EBIT of ENDESA�s
fully consolidated subsidiaries by business line and country:
BREAKDOWN OF EBITDA AND EBIT IN LATAM BY BUSINESS LINE AND COUNTRY
Generation and transmission Euro million � EBITDA � EBIT � � 9M06�
� 9M05� � % Chg � 9M06� � 9M05� � % Chg Chile � 435� � 250� � 74.0�
� 362� � 171� � 111.7� Colombia � 168� � 171� � (1.8) � 135� � 135�
� 0.0� Brazil - Generation � 92� � 97� � (5.2) � 78� � 83� � (6.0)
Brazil - Transmission � (11) � 34� � NA � (25) � 21� � NA Peru �
111� � 114� � (2.6) � 80� � 87� � (8.0) Argentina - Generation �
96� � 70� � 37.1� � 73� � 53� � 37.7� Argentina - Transmission � 7�
� -� � 100.0� � 6� � (2) � NA TOTAL � 898� � 736� � 22.0� � 709� �
548� � 29.4� Distribution Euro million � EBITDA � EBIT � � 9M06� �
9M05� � % Chg � 9M06� � 9M05� � % Chg Chile � 160� � 139� � 15.1� �
142� � 121� � 17.4� Colombia � 213� � 177� � 20.3� � 165� � 119� �
38.7� Brazil � 344� � 202� � 70.3� � 289� � 152� � 90.1� Peru � 63�
� 54� � 16.7� � 40� � 32� � 25.0� Argentina � 35� � 41� � (14.6) �
15� � 20� � (25.0) TOTAL � 815� � 613� � 33.0� � 651� � 444� �
46.6� Generation and transmission Chile Energy output in 9M06 rose
6.6% to 14,693 GWh. Moreover, generation mix improved, with hydro
generation accounting for a larger share. This helped protect
earnings from fuel prices increases, such as natural gas. This,
coupled with a favourable trend in the Chilean peso vis-�-vis the
euro and higher wholesale prices, generated a 74% increase in
EBITDA and a 111.7% increase in EBIT vs. 9M05, to Euro 435 million
and Euro 362 million, respectively. Colombia Electricity generation
output was 8.2% higher than in the same period last year, nearly
offsetting the adverse trend in prices as a result of high level of
rainfall through September this year. Hence, EBITDA was just Euro 3
million lower than in 9M05, at Euro 168 million, while EBIT was
virtually flat, at Euro 135 million. Brazil - Generation ENDESA�s
subsidiaries in Brazil generated total output in the period of
3,379 GWh, 8% more than in 9M05, mostly thanks to increased
activity at Cachoeira Dourada. However, if we strip out from the
2005 figures the power generated at the plants sold by Ampla in
2Q06 (235 GWh), total output in the first nine months of 2006 would
have risen by 16.7%. The increase in generation output and
favourable exchange rates cushioned the impact of fuel consumption
increase by Endesa Fortaleza caused by natural gas supply issues,
enabling both EBITDA and EBIT to decline by just Euro 5 million, to
Euro 92 million and Euro 78 million, respectively. Brazil -
Transmission The difficulties in exporting electricity from
Argentina to Brazil due to gas supply restrictions continued,
undermining results at this interconnection. EBITDA in 9M06 showed
a loss of Euro 11 million, Euro 45 million less than in 9M05, while
EBIT was a negative Euro 25 million, Euro 46 million less. Peru
Generation sales in 9M06 rose 2.3% vs. 9M05 to Euro 223 million,
mainly thanks to higher prices and output, which partly offset the
Euro 40 million increase in fuel costs. EBITDA was Euro 111
million, 2.6% less than in 9M05, while EBIT was Euro 80 million,
Euro 7 million less. Argentina Although gas supply difficulties
continued to trigger increases in fuel costs (46.8%) due to the
need to generate power using liquid fuels, higher sales due to
increased output (+11.6%), coupled with improvements in prices,
boosted margins. EBITDA in 9M06 rose 37.1% to Euro 96 million and
EBIT by 37.7% to Euro 73 million. Distribution Chile Revenues rose
25.5% thanks to exchange rates, higher energy sales (4.4%) and
better unit price deriving from changes in tariff indexation.
EBITDA amounted to Euro 160 million and EBIT to Euro 142 million,
15.1% and 17.4% higher, respectively, than in 9M05. Colombia EBITDA
at the Colombian distribution business was Euro 213 million, 20.3%
higher than in 9M05, while EBIT totalled Euro 165 million, up
38.7%. The increases were driven by a 4.7% increase in revenues and
by other revenues from the new business undertaken by Codensa
Hogar. Brazil Distribution sales in Brazil came to Euro 1,207
million in the nine-month period, a 33.4% increase on 9M05. The
increase was driven by wider margins stemming from an enhanced
pass-through of generation prices to customers and, to a lesser
extent, higher volume sales (+4.9%). These factors, coupled with a
sharp decline in energy losses, led to increases in EBITDA and EBIT
of 70.3% and 90.1%, respectively, to Euro 344 million and Euro 289
million. Peru EBITDA from distribution in Peru amounted Euro 63
million in 9M06, up 16.7% on 9M05, due to higher sales (+5%),
offsetting the increase in costs. Meanwhile, EBIT advanced 25% to
Euro 40 million. Argentina By September 30, the tariff increase had
yet to be registered, since the presidential decree required to
ratify the renegotiation of tariffs with Edesur had not been
enacted. As a result, the 1.2% increase in revenues from
distribution was not enough to make up for the 6.8% rise in
procurement costs. This led to a 14.6% decline in EBITDA, to Euro
35 million, and a 25% drop in EBIT, to Euro 15 million this year.
Financial results: Euro 359 million Financial results for the
business in Latin America reflected a loss of Euro 359 million in
the first nine months of 2006, Euro 69 million more than in 9M05.
Net exchange-rate gains were Euro 57 million lower, down from Euro
72 million in 9M05 to Euro 15 million. Net interest expense
totalled Euro 374 million, Euro 12 million or 3.3% higher than in
9M05. This increase was mainly due to high expenses deriving from
readjustments to pension funds, the early repayment of loans and
the exchange rate effect on financial expenses. Net interest
expense totalled Euro 374 million, Euro 12 million or 3.3% higher
than in 9M05. The financial expenses in local currencies decreased
compare to the previous year as a consequence of lower average
interest rates. Net debt at ENDESA�s Latin American business stood
at Euro 5,780 million at September 30, 2006, a reduction of Euro
329 since the start of the year. This decrease is due, among other
factors, to the appreciation of the euro vis-�-vis the currencies
in which ENDESA�s Latin American subsidiaries� debt is denominated.
This accounted for Euro 349 million of the reduction. In May,
rating agency Fitch upgraded its ratings for Enersis and Endesa
Chile from BBB- to BBB, stable outlook, while in October, Moody�s
placed their Ba1 ratings under review for a possible upgrade. Cash
flow from operating activities: up 18.9% ENDESA�s business in Latin
America generated Euro 911 million of cash flow in the first nine
months of 2006, an increase of 18.9% with respect to 9M05.
Investments: Euro 653 million Investment in Latin America through
September this year totalled Euro 653 million, of which Euro 601
million corresponded to capex. CAPITAL EXPENDITURE IN LATIN AMERICA
� � Euro million � � � � 9M06� � 9M05� � % Chg Generation � 240� �
122� � 96.7� Distribution and Transmission � 348� � 243� � 43.2�
Others � 13� � 19� � (31.6) TOTAL � 601� � 384� � 56.5� STATISTICAL
APPENDIX KEY FIGURES Electricity Generation Output (GWh) � 9M06� �
9M05� � % Chg Business in Spain and Portugal � 68,222� � 69,769� �
(2.2) Business in Europe � 26,443� � 24,410� � 8.3� Business in
Latin America � 46,364� � 42,870� � 8.2� TOTAL � 141,029� �
137,049� � 2.9� Electricity Generation Output in Spain and Portugal
(GWh) � 9M06� � 9M05� � % Chg Mainland � 57,303� � 59,375� � (3.5)
Nuclear � 17,806� � 16,835� � 5.8� Coal � 25,700� � 27,216� � (5.6)
Hydro � 5,541� � 6,085� � (8.9) Combined cycle - CCGT � 5,605� �
5,641� � (0.6) Fuel oil � 881� � 2,029� � (56.6) Renewables/CHP �
1,770� � 1,569� � 12.8� Non-mainland � 10,919� � 10,394� � 5.1�
TOTAL � 68,222� � 69,769� � (2.2) Electricity Generation Output in
Europe (GWh) � 9M06� � 9M05� � % Chg Coal � 11,806� � 11,457� �
3.0� Hydro � 1,816� � 1,820� � (0.2) Combined cycle - CCGT � 9,084�
� 8,318� � 9.2� Fuel oil � 3,714� � 2,796� � 32.8� Wind � 23� � 19�
� 21.1� TOTAL � 26,443� � 24,410� � 8.3� Electricity Generation
Output in Latin America (GWh) � 9M06� � 9M05� � % Chg Chile �
14,693� � 13,778� � 6.6� Argentina � 13,444� � 12,046� � 11.6� Peru
� 5,271� � 5,061� 4.1� Colombia � 9,577� � 8,855� � 8.2� Brazil �
3,379� � 3,130� � 8.0� TOTAL � 46,364� � 42,870� � 8.2� Electricity
sales (GWh) � 9M06� � 9M05� � % Chg Business in Spain and Portugal
� 82,236� � 75,381� � 9.1� Regulated market � 53,434� � 47,939� �
11.5� Deregulated market � 28,802� � 27,442� � 5.0� Business in
Europe � 38,913� � 34,314� � 13.4� Italy � 25,025� � 23,153� � 8.1�
France � 12,722� � 10,007� � 27.1� Poland � 1,166� � 1,154� � 1.0�
Business in Latin America � 43,175� � 41,033� � 5.2� Chile � 9,235�
� 8,847� � 4.4� Argentina � 11,022� � 10,498� � 5.0� Peru � 3,605�
� 3,356� � 7.4� Colombia � 7,917� � 7,469� � 6.0� Brazil � 11,396�
� 10,863� � 4.9� TOTAL � 164,324� � 150,728� � 9.0� Gas sales (GWh)
� 9M06� � 9M05� � % Chg Regulated market � 1,725� � 1,934� � (10.8)
Deregulated market � 16,871� � 13,355� � 26.3� TOTAL � 18,596� �
15,289� � 21.6� Workforce � 30/09/06� � 30/09/05� � % Chg Business
in Spain and Portugal � 12,700� � 12,730� � (0.2) Business in
Europe � 2,154� � 2,313� � (6.9) Business in Latin America �
11,964� � 12,343� � (3.1) Other businesses � --� � 54� � NA TOTAL �
26,818� � 27,440� � (2.3) FINANCIAL DATA Key figures � 9M06� �
9M05� � % Chg EPS (Euro) � 2.37� � 1.47� � 61.2� CFPS (Euro) �
3.13� � 2.77� � 13.3� BVPS (Euro) � 10.80� � 9.90� � 9.1� Net
financial debt (Euro million) � 30-09-06� � 31-12-05� � % Chg
Business in Spain and Portugal � 13,731� � 11,461� � 19.8� Business
in Europe � 1,505� � 1,286� � 17.0� Endesa Italia � 730� � 815� �
(10.4) Other � 775� � 471� � 64.5� Business in Latin America �
5,780� � 6,109� � (5.4) Enersis � 4,836� � 5,207� � (7.1) Other �
944� � 902� � 4.7� Other businesses (1) � --� � (575) � NA TOTAL �
21,016� � 18,281� � 15.0� � � � � � � � Financial leverage (%) �
128.8� � 112.0� � NA Net debt/Operating cash flow (times) � 2.9� �
3.0� � NA Interest coverage by operating cash flow (times) � 8.0� �
5.7� � -� (1) At September 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. Ratings
(25/10/2006) � 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) � � 30/09/06� � 31/12/05� 2.7Y Euro 700M 4.375% Mat.
June 2009 � 8� � 5� 5.8Y GBP 400M 6.125% Mat. July 2012 � 24� � 28�
6.4Y Euro 700M 5.375% Mat. Feb 2013 � 18� � 18� Stock market data �
30/09/06� � 31/12/05� � % Chg Market cap (Euro million) � 35,521� �
23,525� � 51.0� Number of shares outstanding � 1,058,752,117� �
1,058,752,117� � --� Nominal share value (Euro) � 1.2� � 1.2� � --�
Stock market data � 9M06� � 9M05� � % Chg Trading volumes (shares)
� � � � � � Madrid stock exchange � 2,327,950,930� � 2,116,538,073�
� 10.0� NYSE � 19,554,600� � 20,964,800� � (6.7) Average daily
trading volume (shares) � � � � � � Madrid stock exchange �
12,188,225� � 11,023,635� � 10.6� NYSE � 104,014� � 110,925� �
(6.2) Share price � 9M06 high � 9M05 low � 30/09/06� � 31/12/05�
Madrid stock exchange (Euro) � 35.00� � 21.70� � 33.55� � 22.22�
NYSE (USD) � 44.40� � 26.30� � 42.60� � 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� 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.
Results JANUARY-SEPTEMBER 2006 Excellent results firmly underpinned
by efficient business management -- Gross operating profit (EBITDA)
rose 24.6% vs. 9M05 to Euro 5,479 million. -- Operating profit
(EBIT) advanced 32.3% to Euro 4,109 million. Strong growth in all
businesses -- The Spanish and Portuguese business recorded net
income of Euro 1,503 million, up 43% over 9M05. -- Net income from
the business in Europe rose 50.5% to Euro 426 million. -- In Latin
America, net income jumped by 119.4% to Euro 408 million. These
results leave ENDESA on track to easily meet 2005-2009 Strategic
Plan targets, which were revised up in July 2006 -- Forecasts for
net income and EBITDA growth for full-year 2006 are in line with
targets. -- The company's proactive business management policy and
its healthy project portfolio ensure efficient growth over the next
few years. Net income performance is in line with the company's
target to pay out Euro 9,900 million in dividends during 2005-2009
-- Results for the first nine months of 2006 confirm that the
Company will be in a position to propose a dividend payment of at
least Euro 1.6 per share against this year's earnings at the
General Shareholders' Meeting. -- ENDESA's Board of Directors has
agreed to pay a gross interim dividend of Euro 0.50 per share
against 2006 earnings. This represents an increase of 63.9% on the
interim dividend paid against 2005 earnings. KEY FACTS AND FIGURES
FOR 9M06 SHARP NET INCOME GROWTH IN ALL BUSINESSES -- ENDESA
reports net income of Euro 2,508 million, an increase of 61.2% vs.
9M05. -- The business in Spain and Portugal posted net income of
Euro 1,503 million in 9M06, an increase of 43%. -- Net income from
the business in Europe rose 50.5% to Euro 426 million. -- Net
income from the business in Latin America jumped 119.4% to Euro 408
million. STRONG INCREASES IN MAIN INCOME STATEMENT ITEMS -- The
gross margin in the first nine months of the year was Euro 7,819
million, 20.3% higher than in 9M05. -- EBITDA rose 24.6% to Euro
5,479 million. -- EBIT increased 32.3% to Euro 4,109 million --
Cash flow from operating activities totalled Euro 3,318 million,
13.3% higher than in 9M05. IMPROVED OUTPUT AND SHARP INCREASE IN
ELECTRICITY SALES IN ALL BUSINESSES -- ENDESA's total generation
output in the first nine months of 2006 amounted to 141,029 GWh, an
increase of 2.9% on the 9M05. -- Sales totalled 164,324 GWh, 9%
more than in the first nine months of 2005, with increases of 9.1%
in the Spanish and Portuguese business, 13.4% in Europe and 5.2% in
Latin America. THESE RESULTS LEAVE THE COMPANY ON TRACK TO EASILY
MEET TARGETS SET FOR 2006 IN THE STRATEGIC PLAN -- In the first
nine months of the year the Company generated 79.1% and 86.5% of
the full-year EBITDA and net income targets, respectively. -- The
Board of Directors agreed to pay a gross interim dividend against
2006 earnings of Euro 0.50 per share, 63.9% higher than the interim
dividend paid against 2005 earnings. -- This dividend payment is in
line with the goal of paying a dividend of at least Euro 1.6 per
share against 2006 earnings and a total of Euro 9,900 million
between 2005 and 2009. BUSINESS IN SPAIN AND PORTUGAL Strong
increases in the main income statement items against a backdrop of
regulatory change -- Net income from the business in Spain and
Portugal increased by 43% to Euro 1,503 million over 9M05 and
accounted for 59.9% of ENDESA's total net income. -- EBITDA grew
22.9% to Euro 2,926 million and EBIT by 29.3% to Euro 2,112
million. -- The excellent performance by this business was achieved
despite having to record generation sales to the Company's
regulated customers at the provisional price of EUR 42.35 per MWh
pursuant to Royal Decree Law 3/2006, significantly below market
prices. The negative impact of this provisional price on EBITDA and
net income was Euro 254 million and Euro 165 million, respectively.
-- With the enactment in 1Q06 of the regulation for the island and
non-mainland electricity systems, in 9M06 ENDESA booked Euro 197
million of higher compensation after tax for generation in these
systems between 2001 and 2005. -- 9M06 figures also included a Euro
1,194 million asset related to the revenue shortfall from regulated
activities in the period. Had this asset not been recorded, the
impact of the deficit on net income would have been Euro 776
million. Competitive position reinforced by mainland generation mix
-- Through September this year, which featured a major drought,
ENDESA's hydro and nuclear generation output accounted for 42% of
the mainland generation mix, compared to 33.1% for the rest of the
sector. -- ENDESA's mainland thermal plants achieved a 73% load
factor in 9M06, well above the 61% average for the rest of the
sector. The load factor at the Company's coal plants was a
noteworthy 79%. -- The trend in ENDESA's mainland unit fuel costs
in the first nine months was positive, rising just 0.1% over 9M05,
despite market price increases and compared to an estimated 7.3%
rise for the rest of the sector. Active management of CO2 emission
costs -- ENDESA has a broad portfolio of carbon credits derived
from its Clean Development Mechanisms (CDM) at highly competitive
prices. -- ENDESA signed Emissions Reduction Purchase Agreements
(ERPA) for a total of 71.9 million tonnes of CO2, Letters of Intent
(LOI) for 25.1 million tonnes of additional volume and has projects
under analysis amounting to another 104.1 million tonnes of CO2.
982 MW of new installed capacity in 9M06 -- ENDESA added 982 MW of
new capacity to its generation facilities in 9M06, representing
74.4% of new capacity planned for the full year and indicating
significant progress in the New Capacity Plan. -- New capacity
includes the completion of the 400 MW Cristobal Colon CCGT in
Huelva, 424 MW in non-mainland systems installed to meet growing
demand in these markets, and 158 MW of new renewables/CHP capacity.
-- Work on the 800M MW CCGT As Pontes plant (La Coruna) is
progressing according to schedule. This plant is scheduled to be
commissioned in 2007. Group 3, 367MW conversion to imported coal.is
also on track. -- In Portugal, this October the Eolicas de Portugal
consortium - in which ENDESA has a 30% stake - was awarded the
project to develop 1,200 MW of wind capacity, the largest in the
Portuguese wind tender. -- ENDESA, together with International
Power, has been awarded a connection point for two 400MW CCGTs at
the Tejo site. The operating license should be awarded before the
end of this year. Strong growth in EBIT from CHP and renewables:
+33.3% -- Revenues from sales of renewable/CHP energy generated by
ENDESA's consolidated companies totalled Euro 195 million, 29.1%
more than in the first nine months of 2005. -- EBITDA from this
business increased by 33.3% to Euro 132 million, and EBIT by 32.3%
to Euro 86 million. Service quality at record high levels; value
unlocked at the supply business -- In 9M06 the cumulative average
interruption duration index (SAIDI) was 1 hour and 39 minutes, an
improvement of 9% vs. 9M05. -- These figures confirm the success of
the operational enhancements implemented and investments made in
new distribution infrastructure in recent years. They enable the
Company to consolidate its market position and leverage the value
of its broad customer base, which currently stands at 11,139,395 in
the regulated market and 1,084,386 in the deregulated market. Sales
by ENDESA in the deregulated market rose 5% to 28,802 GWh in 9M06,
with an average sales price at EUR 73 per MWh. This activity
represents an important hedge against wholesale market prices
volatility, as well as providing the generation business with a
reasonable and guaranteed return over the medium and long term. --
The largest investor of any Spanish utility -- ENDESA invested Euro
1,725 million in Spain and Portugal in 9M06, of which Euro 1,549
million, or 89.8%, was capex. This underscores its status as the
largest investor among Spanish utilities. -- Euro 854 million of
capex was spent on distribution facilities. Total market share of
11.9% in the natural gas market -- ENDESA sold a total of 19,603
GWh in the Spanish natural gas market in 9M06, 21.6% more than in
9M05. These sales, coupled with gas consumption by its own plants,
represent a market share of 11.9%. -- Gas sales revenues in the
deregulated market in the first nine months of 2006 totalled Euro
458 million, up 112% from 9M05, while regulated gas distribution
revenues were Euro 33 million, an increase of 3.1%. Combined, these
two businesses contributed a gross margin of Euro 109 million.
BUSINESS IN EUROPE Growth in the main financial items underscores
the strength of the business -- Net income from the business in
Europe increased by 50.5% to Euro 426 million in 9M06 and accounted
for 17% of ENDESA's total net income. -- This figure includes Euro
118 million after minorities related 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 legislation. -- EBITDA stood at Euro 890 million, up 26.8%
versus 9M05, and EBIT at Euro 693 million, an increase of 34.6%.
Excellent results underpinned by strong operating performance --
ENDESA's total generation in Europe in the first nine months of
2006 amounted to 26,443 GWh, an increase of 8.3% on the year
before. -- Electricity sales were up 13.4% to 38,913 GWh. Italy:
strong growth in main financial indicators plus progress on new
capacity and regasification projects -- EBITDA from Endesa Italia
was Euro 739 million, 31.7% higher than in 9M05, while EBIT reached
at Euro 622 million, a 36.4% increase. -- Construction on the two
400MW CCGTs at the Scandale plant (Calabria), in which Endesa
Italia owns 50%, is proceeding according to schedule, as is the
preliminary work on the offshore regasification terminal off
Livorno, which is scheduled to come on-stream at the end of 2008.
-- In September, Endesa Europa acquired 58.35% of Centro Energia
Teverola and Centro Energia Ferrara. Each of these companies owns a
150 MW CCGT subject to a subsidised tariff. -- In line with planned
growth in renewable energies, the company added 14 MW Iardino wind
farm to its generation mix, and will include 42 MW Montecute wind
farm, completed on October 6, as well as Vizzini and Trapani wind
farms with a combined capacity of 56 MW, scheduled to come on
stream on November. -- In the first nine months of the year, Endesa
Italia sold 24,914 GWh of electricity, of which 11,700 GWh, or 47%,
were accounted for by direct sales and sales to large end
customers. Thus, the supply business goes a long way to ensuring
placement of the business' significant generation capacity. France:
Good performance of Snet with significant new capacity projects and
new supply contracts -- In 9M06, French generator Snet contributed
Euro 147 million to ENDESA's EBITDA, 8.1% more than in 9M05, and
Euro 70 million to EBIT, an increase of 29.6%. -- Total electricity
sales amounted to 13,888 GWh, an increase of 24.4% over 9M05. --
Snet closed significant supply deals during the period. It signed
an agreement with the French multinational company Auchan to supply
400 GWh of power in 2006 and another with the French railway
operator SNCF to supply 6,600 GWh in the period 2007-2011. -- In
the generation business, after receiving the pertinent permits,
Snet has begun building a 800 MW CCGT Emile Huchet site. Meanwhile,
the development of an additional 800 MW CCGT in Lacq and another
with capacity of over 400 MW, which could be located its Lucy or
Hornaing sites is being studied. -- In addition, Snet has acquired
the right to build a 10 MW firm wind farm in Lehaucourt during the
current year and has committed to new wind projects in other
regions such as Ambon, Muzillac and Cernon, adding a combined
capacity of nearing 65 MW. BUSINESS IN LATIN AMERICA Sharp
increases in main financial figures, underscoring progress by this
business -- ENDESA's Latin American operations posted a 119.4%
increase in 9M06 net income to Euro 408 million, contributing 16.3%
to the Company's total net income. -- EBITDA and EBIT rose 25.7%
and 35.3% to Euro 1,663 million and Euro 1,304 million,
respectively. -- Increases in EBITDA and EBIT were attained in both
generation and transmission business (+22% and +29.4%,
respectively) and in distribution (+33% and +46.6%, respectively),
highlighting the strong business momentum, underpinned by its
operating performance. Increased margins in generation and
distribution -- The generation unit margin reached US$25.1 per MWh
in 9M06, an increase of 21.8% compared to 9M05, and the
distribution unit margin reached US$35.9 per MWh, an increase of
17.8%. Sharp generation, distribution and sales pick-up and lower
energy losses across all countries -- ENDESA's total generation in
Latin America in the first nine months of 2006 amounted to 46,364
GWh, a like-for-like increase of 8.7% on the year before, while
distribution increased 5.2% to 43,175 GWh. The Company recorded
significant increases in both generation and distribution in all
its countries of operation. -- Organic growth of the markets in
which ENDESA operates drove total revenues from its Latin American
companies 22.6% higher in 9M06. -- ENDESA's total customer base in
Latin America was 11.5 million at September 30, 2006, i.e., 300,000
more than at the beginning of the period. -- Energy distribution
losses were lower in all countries in 9M06, most notably in Brazil,
where losses were down 0.7 percentage points as compare to 9M05.
New generation facilities -- Capacity at ENDESA's Latin American
companies so far this year increased by 358 MW as a result of
contribution of the Termocartagena plant (Colombia) and completion
of the first CCGT at the Ventanilla plant (Peru). -- In 3Q06, work
continued on schedule on the construction of the 377 MW San Isidro
II CCGT and of the 32 MW Palmucho hydro facility, both in Chile. --
In the same period, Endesa Chile incorporated Centrales
Hidroelectricas de Aysen, 51%-owned by ENDESA's subsidiary, Endesa
Chile, and 49% by Colbun. The purpose of this new company is to
analyse, finance, build and operate the Aysen Project, which
consists of four hydro plants with a total capacity of 2,355 MW.
Construction is currently scheduled to begin in 2008. Cash return
target for 2009: 43% achieved -- Cash returns from ENDESA's Latin
American business to the parent company in the first nine months of
the year totalled Euro 125 million. -- This, coupled with the Euro
308 million achieved in 2005, means that 43% of the target for 2009
in the Strategic Plan has now been achieved. Debt reduction -- Net
debt in the Latin American business declined by 5.4%, or Euro 329
million, in 9M06 to Euro 5,780 million as of September 30, 2006.
DISPOSALS -- Pursuant to an agreement reached on 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 a full disposal of the Company's telecom
business - one of the main goals of the Strategic Plan. -- 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 net
capital gains after taxes and minorities of Euro 12 million. -- In
the third quarter, ENDESA sold, through its subsidiary Bolonia Real
Estate, assets on the so-called "Levante Sector" of Palma de
Mallorca to the Neinver Group for Euro 240 million, generating a
net capital gain of Euro 165 million. SUSTAINABILITY -- In
September 2006, ENDESA was rated the leading electric utility in
Europe and the world for its commitment to sustainable development,
according to the Dow Jones Sustainability World Index and Dow Jones
Sustainability Stoxx Index, respectively. These indices, regarded
as global benchmarks in the field of sustainability, select the
leading companies from across different industries that stand out
for their commitment to making sustainable development one of the
cornerstones of their business strategy. -- ENDESA has been
selected for inclusion in these indices for the sixth year in a
row. Some of the areas where ENDESA was most highly rated this year
include codes of conduct, customer relations, environmental policy,
climate change strategy, workplace health and safety, and social
initiatives. 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 paid out on January 2, 2006, to Euro
2,541 million. -- Results for the first nine months 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 earnings this year, of which around Euro 1.27
will be generated by net income from ordinary activities and the
remainder from capital gains arising from the disposal of non-core
assets. -- To this end, the Board of Directors of ENDESA, in its
meeting on October 24, 2006, agreed to pay a gross interim dividend
against 2006 earnings of Euro 0.50 per share, representing a 63.9%
increase on the interim dividend paid against 2005 earnings.
CONSOLIDATED RESULTS Net income up 61.2% ENDESA reported net income
in 9M06 of Euro 2,508 million, a 61.2% increase on 9M05. This
increase includes the net impact of the Euro 396 million of capital
gains obtained on asset sales made in the first nine months of the
year, of which Euro 171 million correspond to the sale of the 5.01%
stake in Auna to Deutsche Bank and Euro 165 million from the Palma
de Mallorca real estate sell to Neinver Group. Stripping out these
capital gains from both periods, growth in net income in 9M06 vs.
9M05 was 58.2%. -0- *T NET INCOME IN 9M06
----------------------------------------------------------------------
% Chg vs. % of total NI % of total NI Euro million 9M06 2005* 2006*
----------------------------------------------------------------------
Spain and Portugal 1,503 43.0 69.2 64.3
----------------------------------------------------------------------
Europe 426 50.5 18.6 18.2
----------------------------------------------------------------------
Latin America 408 119.4 12.2 17.5
----------------------------------------------------------------------
Capital gains from sale of 5.01% stake in Auna 171 -- -- --
----------------------------------------------------------------------
TOTAL 2,508 61.2 100.0 100.0
----------------------------------------------------------------------
(*) Only net income from electricity businesses. *T We note that
this sharp increase in net income, due essentially to good
operating performance of all the Company's business lines, has been
achieved despite a scenario which has been existing for the last 12
months triggered by various corporate operations directed at
ENDESA. This shows how the Company has been able to uphold the
excellence of its management team and roll out its Strategic Plan
within this special context. Net income growth across all the
Company's businesses The business in Spain and Portugal posted net
income of Euro 1,503 million in 9M06, an increase of 43% on 9M05.
This includes Euro 197 million of higher compensation, net of tax,
from the non-mainland generation deficit for the period 2001-2005
pursuant to Ministerial Orders passed on March 30, 2006. In Europe,
net income advanced 50.5% to Euro 426 million. This figure includes
Euro 118 million, net of minority interests, related to a write-up
in the valuation of this business 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 408 million, 119.4% more than in 9M05. 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: +9% Both electricity output
(+2.9%) and electricity sales (+9%) rose in the first nine months
vs. 9M05. Increases were particularly high in the European and
Latin American businesses, where output rose by 8.3% and 8.2%,
respectively, amply offsetting the 2.2% drop in output in Spain.
Total electricity sales in the Spanish and Portuguese, European and
Latin American businesses rose by 9.1%, 13.4% and 5.2%,
respectively. -0- *T ELECTRICITY OUTPUT AND SALES IN 9M06
----------------------------------------------------------------------
Output Sales
----------------------------------------------------------------------
GWh % Chg. vs. 9M05 GWh % Chg. vs. 9M05
----------------------------------------------------------------------
Spain and Portugal 68,222 (2.2) 82,236 9.1
----------------------------------------------------------------------
Rest of Europe 26,443 8.3 38,913 13.4
----------------------------------------------------------------------
Latin America 46,364 8.2 43,175 5.2
----------------------------------------------------------------------
TOTAL 141,029 2.9 164,324 9.0
----------------------------------------------------------------------
*T Appropriate output/sales balance ENDESA met 85.8% of its total
electricity sales in 9M06 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. Revenue growth outstrips
costs The Company's total revenues in the first nine months of 2006
amounted to Euro 14,847 million, an increase of 17.4% on the year
before, outstripping growth in physical electricity sales. Sales
growth was greater by value than by volume because of increases in
electricity prices in countries were the Company operates due to
higher power generation costs. The growth in sales in 9M06 covered
the 16.9% increase in purchases and service expenses (variable
costs), which was caused by increases in fuel costs and energy
purchases. Sharp growth in key income statement line items As
revenue growth offset the increase in costs, the company reported
significant rises in gross margin (+20.3%), EBITDA (+24.6%) and
EBIT (+32.3%). -0- *T Gross margin EBITDA EBIT
---------------------------------------------------------------------
Euro % Chg vs. Euro % Chg vs. Euro % Chg vs. million 9M05 million
9M05 million 9M05
---------------------------------------------------------------------
Spain and Portugal 4,339 18.6 2,926 22.9 2,112 29.3
---------------------------------------------------------------------
Rest of Europe 1,137 20.4 890 26.8 693 34.6
---------------------------------------------------------------------
Latin America 2,343 23.8 1,663 25.7 1,304 35.3
---------------------------------------------------------------------
TOTAL 7,819 20.3 5,479 24.6 4,109 32.3
---------------------------------------------------------------------
*T Net financial expenses: -9.6% ENDESA reported net financial
losses of Euro 720 million in 9M06, a 3.7% improvement over 9M05.
Net financial losses were lower despite the fact that in 9M06 the
trends in the exchange rates in which the Group's debt is
denominated led to a Euro 50 million decrease in exchange-rate
gains. Net financial expense totalled Euro 736 million, down 9.6%
on 9M05. This figure includes financial revenue of Euro 31 million
related to the portion not recorded as of December 31, 2005 of the
interest accrued on compensations derived from non-mainland
generation deficit calculated in accordance with Ministerial Orders
passed on March 30. Increase in net debt caused by financing
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
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 derecognition of the shares from
ENDESA's balance sheet and recognition of the related capital gain
in its income statement have been met. Therefore, as indicated in
ENDESA's consolidated financial statements for the year ended
December 31, 2005, in 9M06 the Company recorded a capital gain 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
NQF Gas for Euro 59 million, booking a capital gain of Euro 27
million (Euro 21 million net of taxes) and sold off 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, in 3Q06, and as part of ENDESA's strategic
goal of maximising value of its real estate assets, the Company,
through its subsidiary Bolonia Real Estate sold assets through a
competitive process in the so-called "Levante Sector" of Palma de
Mallorca to the Neinver Group. The assets sold include planning
rights for approximately 180,000m2. In addition, the Company made a
financial investment in the Neiver Group company, which will head
up the land's development, taking a 45% stake. The sole purpose of
this investment is to participate, based on its percentage
ownership, in potential additional capital gains that could arise
from future development of the land in question. ENDESA will not
participate in the management of this company and its investment
risk is limited to the amount of capital contributed. The total
deal size is Euro 240 million, generating a gross capital gain of
Euro 185 million (Euro 165 million after-tax), net of the costs of
transferring the electric facilities that were located on the land
and the cost of the 45% equity stake taken in the development
company. Cash flow from operating activities: +13.3% Cash flow from
operating activities in 9M06 was Euro 3,318 million, up 13.3% on
9M05. -0- *T CASH FLOW FROM OPERATING ACTIVITIES
----------------------------------------------------------------------
Euro million % Chg vs. 9M05
----------------------------------------------------------------------
Spain and Portugal 1,876 12.4
----------------------------------------------------------------------
Rest of Europe 531 5.8
----------------------------------------------------------------------
Latin America 911 18.9
----------------------------------------------------------------------
TOTAL 3,318 13.3
----------------------------------------------------------------------
*T Investment: Euro 2,682 million ENDESA invested a total of Euro
2,682 million in 9M06, of which Euro 2,396 million was capex and
intangible assets while the remaining Euro 286 million was invested
in financial investments. -0- *T INVESTMENTS Euro million Capex and
intangible assets Financial TOTAL Spain and Portugal (1) 1,620 105
1,725 Rest of Europe 166 138 304 Latin America 610 43 653 TOTAL
2,396 286 2,682 (1) Additionally, a financial investment of Euro
1,194 million for the revenue deficit from regulated activities in
9M06 and Euro 101 million from the restatement of the 2005 deficit
was booked. *T Debt performance ENDESA's net debt was Euro 21,016
million as of September 30, 2006, 15% higher than at year-end 2005.
-0- *T BREAKDOWN BY BUSINESS LINE OF ENDESA'S NET DEBT
---------------------------------------------------------------------
Euro million
---------------------------------------------------------------------
30/9/06 31/12/05 Change % Chg
---------------------------------------------------------------------
Business in Spain and Portugal 13,731 11,461 2,270 19.8
---------------------------------------------------------------------
Business in Europe 1,505 1,286 219 17.0 -Endesa Italia 730 815 (85)
(10.4) -Other 775 471 304 64.5
---------------------------------------------------------------------
Business in Latin America 5,780 6,109 (329) (5.4) -Enersis Group
4,836 5,207 (371) (7.1) -Other 944 902 42 4.7
---------------------------------------------------------------------
Other businesses (1) -- (575) 575 NA
---------------------------------------------------------------------
TOTAL 21,016 18,281 2,735 15.0
---------------------------------------------------------------------
(1) At September 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
is due to the need to finance the tariff deficit in 2005 and the
first nine months of 2006. In 9M06, ENDESA paid Euro 1,417 in this
regard. It also reflects the Euro 1,341 million dividend payment
made in July in connection with the capital gains realised in 2005
and which led to a debt reduction in that year. The distribution of
this income to its shareholders was approved at the General
Shareholders' Meeting. In Europe, the Euro 219 million increase in
debt was caused by the corporate income tax payment the Company had
to make in the second quarter. It also reflects the growth capex
made during the year. In Latin America, debt was reduced by Euro
329 million in the first nine months of 2006. When assessing
ENDESA's debt level, it must be remembered that at September 30,
2006, ENDESA had the recognised right to collect Euro 4,207 million
in connection with several regulatory matters: Euro 2,904 million
for financing the revenue deficit from regulated activities, Euro
1,281 million in compensation for the non-mainland generation
deficit and Euro 22 million of stranded costs in Italy. Stripping
out the amounts from these regulatory items, ENDESA's net debt at
September 30, 2006 was Euro 16,809 million. At the end of this
month (October), ENDESA granted exclusive securitization of the
Euro 1,710 million collection rights corresponding to the financing
of the revenue deficit for regulated activities carried out by
ENDESA in 2005. The contract governing the transfer of the
collection rights will be formalised in November, leaving room for
a significant reduction in debt. The average cost of ENDESA's total
debt was 5.49% in 9M06, while cost of debt corresponding to the
ENERSIS Group was 9.27%. Stripping out Enersis Group debt, the
average cost of ENDESA's debt was 4.11%. -0- *T STRUCTURE OF
ENDESA'S NET DEBT
---------------------------------------------------------------------
ENDESA and direct Enersis Total subsidiaries Group ENDESA Group
---------------------------------------------------------------------
Euro % of Euro % of Euro % of million total million total million
total
---------------------------------------------------------------------
Euro 16,115 100 -- -- 16,115 77
---------------------------------------------------------------------
Dollar 65 - 2,594 54 2,659 13
---------------------------------------------------------------------
Other currencies -- - 2,242 46 2,242 10
---------------------------------------------------------------------
Total 16,180 100 4,836 100 21,016 100
---------------------------------------------------------------------
Fixed rate 8,345 52 3,950 82 12,295 59
---------------------------------------------------------------------
Hedged 1,815 11 99 2 1,914 9
---------------------------------------------------------------------
Variable 6,020 37 787 16 6,807 32
---------------------------------------------------------------------
TOTAL 16,180 100 4,836 100 21,016 100
---------------------------------------------------------------------
Avg. life (years) 5.0 5.3 5.1
---------------------------------------------------------------------
*T The average life of the ENDESA Group's debt at September 30,
2006 was 5.1 years. ENDESA enjoys a high degree of protection
against interest-rate risk, since 68% of its total debt is either
fixed-rate or hedged. When stripping out pending regulatory assets
in Spain, which carry floating-rate interest, this percentage rises
to 79%. As of September 30, 2006, ENDESA in Spain and its direct
subsidiaries, excluding the Enersis Group, had liquidity of Euro
6,159 million, of which Euro 5,756 million corresponded to
unconditional undrawn credit lines. These balances are sufficient
to cover the debt falling due over the next 20 months. In addition,
the Enersis Group had liquidity of Euro 1,317 million, of which
Euro 492 million corresponded to unconditional undrawn credit lines
from two syndicated loans. This liquidity covers debt maturities
for the next 21 months. Financial leverage stood at 128.8% at
September 30, 2006, 6.2 percentage points below the level a year
earlier. As a result of Gas Natural's takeover bid for ENDESA
launched in September 2005, 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, 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,
as of October 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. STRATEGIC PLAN PROGRESS Results achieved by
ENDESA in the first nine months of 2006 ensure that the targets of
its Strategic Plan for 2005-2009, which were revised upwards and
released to the markets on July 25, will be met. These targets are
as follows: -- EBITDA of Euro 6,930 million in 2006 and Euro 8,330
million in 2009. -- Net income of Euro 2,900 million in 2006 and
Euro 3,000 million in 2009. -- Pay out to shareholders no less than
Euro 9,900 million against earnings for 2005-2009, of which Euro
7,600 million will be generated by net income from ordinary
activities and the remaining Euro 2,300 million from the disposal
of non-core assets. -- Financial leverage below 140%. With regard
to the EBITDA target, we would point out: -- ENDESA reported EBITDA
of Euro 5,479 million in 9M06, meeting in nine months 79.1% of its
target for the full year. This target has been 78% met in Spain and
Portugal, 80.9% in Europe and 80% in Latin America. -- The EBITDA
figure represents an increase of 24.6% vs. 9M05, compared to the
15.1% which would be required to meet the FY06 target. -- On the
other hand, EBITDA for the last 12 months i.e. October 2005 -
October 2006, stands at Euro 7,100 million, higher than the FY06
target. This would suggest that the EBITDA target for 2006 will
easily be met. The Company recorded net income of Euro 2,508
million in 9M06, generating 86.5% of its FY06 target. Results for
the first nine months 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
earnings this year, of which Euro 1.27 will be generated by net
income from ordinary activities and the remainder (i.e. no less
than Euro 0.33) from capital gains arising from disposal of
non-core assets. If this dividend payment is approved at the
Shareholders' Meeting, ENDESA will have paid out to its
shareholders a total of at least Euro 4,235 million in dividends
against 2005 and 2006 earnings, i.e. 42.8% of the Euro 9,900
million put aside for this concept in the period 2005-2009. Lastly,
ENDESA's leverage stood at 128.8% on September 30, 2006, 11.2
percentage points ahead of its Strategic Plan target. In short, the
results obtained through September 30, 2006 confirm that
commitments to shareholders and the market assumed by the Company
are being met ahead of schedule. These results are due largely to
the business management strategy rolled out by ENDESA since the
presentation of its Strategic Plan back on October 2005, despite
various corporate transactions launched in the last 12 months
Maintaining these basic management guidelines in each business
line, coupled with the positive outlook on markets where the
company operates and with their respective regulatory frameworks,
as well as projects in place in each area to maximise organic
growth, puts ENDESA on sound footing to meet all its targets.
RESULTS BY BUSINESS LINE BUSINESS IN SPAIN AND PORTUGAL Net income
up 43% to Euro 1,503 million Net income from this business was Euro
1,503 million in 9M06, an increase of 43% on 9M05 and equivalent to
59.9% to the Company's overall bottom line. EBITDA rose 22.9% to
Euro 2,926 million and EBIT by 29.3% to Euro 2,112 million. These
outstanding results are underpinned by active business management
with the goal of leveraging the Company's solid fundamentals and
competitive advantages in an environment of significant regulatory
change throughout the period. In terms of operating management, we
highlight the maintenance of an appropriate balance between output
and sales, an enhanced generation mix in the mainland, high load
factors at its thermal facilities compared to its peers, a slowdown
in fuel price increases, progress on the New Capacity Plan, record
supply quality levels, ongoing supply activities to hedge against
trends in wholesale prices and an active presence in the CDM
market, which yielded enough emission rights certificates to meet
its commitments on emission reductions in Spain and the rest of
Europe. On the regulatory front, the negative impact on 9M06
figures from booking electricity sold to regulated customers in
areas where ENDESA acts as distributor at the provisional price of
Euro 42.35 per MWh established in Royal Decree Law 3/2006 was Euro
254 million. This effect is only temporary, so the negative impact
should be recovered once final price is established based on
objective and transparent market criteria, as provided for in the
same Royal Decree Law. In 9M06, 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 December 31, 2005. 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
maintained its leading position in the Spanish electricity market
in the first nine months of the year. The Company reached a 34.7%
market share in ordinary regime electricity generation, a 43.1%
share in electricity distributed, 54.4% in sales to deregulated
customers and 41.6% in total sales to final customers. Competitive
advantages in generation relative to peers In Spain, the Company
produced a total of 68,222 GWh in the first nine months of 2006,
compared to total demand of 82,236 GWh. This means it met 83% of
its demand from its own output. In addition, nuclear and hydro
powered energy represented 42% of the Company's mainland generation
mix in 9M06, compared to 33.1% for the rest of the sector.
Furthermore, at 73%, the load factor at its thermal facilities was
also higher than at its competitors (61%). The load factor at the
Company's coal plants was a noteworthy 79%. All this on top of a
positive trend in ENDESA's mainland unit fuel costs in the first
nine months, which rose just 0.1% over 9M05, compared to an
estimated average 8.7% increase for the rest of the sector. 982 MW
of new installed capacity in 9M06 ENDESA added 982 MW of new
capacity to its generation facilities in 9M06, marking 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 424 MW, in
line with growing demand in these markets. -- 158 MW in
renewables/CHP. In addition, construction of the 800MW CCGT and
transformation of the 367MW group 3 at the As Pontes site in La
Coruna to imported coal continued on schedule. With regards to the
business in Portugal, on October the Eolicas de Portugal consortium
- in which ENDESA has a 30% stake - was awarded the project to
develop 1,200 MW of wind capacity, the largest in the Portuguese
wind tender. Also, ENDESA, together with International Power, has
been awarded a connection point for two 400MW CCGTs at the Tejo
site. The operating license should be awarded before the end of
this year. Market performance: an all-time record in supply quality
and value unlocked at the supply business As already mentioned, in
9M06 ENDESA's total demand in Spain measured through its sales was
82,236 GWh. This represents a 9.1% increase on 9M05, compared to an
average increase of 3.2% for the overall Spanish electricity
sector. The number of customers serviced by ENDESA in the regulated
market reached at 11,139,395 million at September 30, 2006, i.e.,
173,158 more than at the beginning of the period. In 9M06, the
cumulative interruption index in ENDESA's markets was 1 hour and 39
minutes, an improvement of 9% vs. 9M05. These figures confirm the
solid and positive trend in the continuity of supply by ENDESA
across all markets served in Spain, reflecting the success of
significant investments made in distribution facilities in recent
years and the efficiency enhancements implemented, also in the
distribution business, within the framework of its Quality Plan. In
the deregulated market, ENDESA ended September with 1,084,386
customers, 12.7% more than the year earlier. The Company's position
in this market provides a hedge against the volatility of pool
prices and other regulatory and market risks, as well as providing
the generation business with a reasonable and guaranteed return
over the medium and long term. Carbon credit purchases ENDESA
presently boasts a broad portfolio of carbon credits derived from
its Clean Development Mechanisms (CDM) at a highly competitive
average price. Specifically, the Company has signed Emissions
Reduction Purchase Agreements (ERPA) for a total of 71.9 million
tonnes of CO2, Letters of Intent (LOI) for 25.1 million tonnes of
additional volume and has projects under analysis amounting to
another 104.1 million tonnes of CO2. The emission rights acquired
under these agreements will allow ENDESA to meet its CO2 emission
reduction commitments for its operations in Spain, Portugal, France
and Italy required by the Directive on Emissions Trading. With
these, ENDESA is still the leading private purchaser of carbon
credits, via the "Endesa Climate Initiative", a pioneering program
in this arena though which it has obtained contracts representing
more than 7.5% of the total ERCs (emission rights certificates)
corresponding to all the projects currently registered with the UN.
NAP 2008-2012: compatible with the ENDESA's competitive generation
portfolio On July 12, 2006, the government unveiled details of its
proposed 2008-2012 National Allocation Plan for emission rights.
Based on analysis conducted to date on the methodology set out,
ENDESA believes that the allocation that will be made, together
with its portfolio of carbon credits, guarantees that the Company's
generation assets will operate on a fully efficient and competitive
basis and furthermore is fully compatible with the targets
contained in its Strategic Plan. 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 Spanish 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 applicable for this criteria. -- In relation to
thermal plants in non-mainland systems, the incremental costs that
could arise from an emission rights deficit would be fully
recognised 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. Regulatory update for 9M06
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 period. -- 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 per MWh.
ENDESA's accounts since that date have been 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 9M06 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 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 September 30,
2006 related to its application are likewise provisional until
detailed norms are enacted and the corresponding settlements are
made. The tariff deficit The increase in electricity tariffs
implemented in 2006, the measures enacted by Royal Decree Law
3/2006 to reduce the deficit in revenues from regulated revenues
and the reduction in the amount allocated to the nuclear moratorium
have increased 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 2,978
million, of which Euro 1,315 million corresponds to ENDESA. Of this
amount, Euro 121 million corresponding to 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 were
deducted from generation revenues and the remaining Euro 1,194
million were booked as a financial investment. This accounting
methodology is consistent with the right recognised by law to
recoup the amount, regardless of the fact that its formal
recognition and the exact manner in which it will be recovered will
not be regulated until the end of the fiscal year. Had this Euro
1,194 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
776 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
develop Royal Decree 1747/2003 governing Spain's mainland 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
over 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 9M06. 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 mainland 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 Law 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. 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 Law 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, which was set at 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. 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 shortfall in revenues from regulated activities arising
between January 1, 2005 and December 31, 2005 (which stood at Euro
3,810 million at year-end 2005) be included in the tariff as an
expense. The amount at December 31 of each year is calculated by
updating the pending balance at that date of the previous year
applying an interest rate equivalent to the 3M Euribor and
deducting the payments of the current year. The Royal Decree Law
allows companies entitled to these reimbursements to transfer to
third parties and securitize 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
available 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 stranded costs (CTCs), 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 recovery, 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: +17.2% Sales from the business in Spain and
Portugal totalled Euro 7,235 million in the first nine months of
2006, up 17.2% on 9M05. Growth was primarily due to increase in
demand, rise in final prices and volume sales to deregulated
customers, to higher pool prices in January and February, i.e.
before Royal Decree Law 3/2006 came into effect, and to application
of the Ministerial Orders regulating the calculation of
remuneration for mainland and non-mainland generation. The increase
in sales was enough to offset the rise in variable costs (+16%),
mainly fuel (+13.5%) and energy purchases (+18.2%). Revenues: up
17.4% Revenues for the electricity business in Spain and Portugal
reached Euro 7,810 million in the first nine months of 2006, up
17.4% on 9M05. Of this amount, sales accounted for Euro 7,235
million, 17.2% higher than in 9M05. -0- *T SPAIN AND PORTUGAL SALES
---------------------------------------------------------------------
Euro million
---------------------------------------------------------------------
9M06 9M05 Change % Chg
---------------------------------------------------------------------
Mainland generation under Ordinary Regime 3,175 3,274 (99) (3.0)
---------------------------------------------------------------------
Sales to deregulated customers 1,334 1,098 236 21.5
---------------------------------------------------------------------
Other sales in the OMEL 1,841 2,176 (335) (15.4)
---------------------------------------------------------------------
Renewable/CHP generation 195 151 44 29.1
---------------------------------------------------------------------
Regulated revenues from distribution 1,363 1,197 166 13.9
---------------------------------------------------------------------
Non-mainland generation and supply* 1,614 975 639 65.5
---------------------------------------------------------------------
Supply to deregulated customers outside Spain 224 171 53 31.0
---------------------------------------------------------------------
Regulated revenues from gas distribution 33 32 1 3.1
---------------------------------------------------------------------
Unregulated gas supply 458 216 242 112.0
---------------------------------------------------------------------
Other sales and services rendered 173 159 14 8.8
---------------------------------------------------------------------
TOTAL 7,235 6,175 1,060 17.2
---------------------------------------------------------------------
* The figure for 9M06 includes Euro 227 million corresponding to
compensation for the 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
57,303 GWh in the first nine months of the year, 3.5% less than in
9M05. Of this amount, 55,533 GWh corresponded to electricity
generated under the ordinary regime (-3.9%) and 1,770 GWh under
renewables/CHP (+12.8%). The fall in ordinary regime generation was
mostly due to higher hydro output by the system as a whole, to
scheduled maintenance downtimes of several thermal groups and
ENDESA's prioritisation of margins over market share. ENDESA's
thermal plants achieved an overall load factor of 73% in 9M06,
significantly above the 61% average for the rest of the sector.
Registering a noteworthy load factor of 79%, ENDESA's coal plants
continued to play a key role in servicing Spanish electricity
demand, meeting 13.5% of mainland demand in 9M06. The high load
rate at these plants demonstrates their ability to respond to grid
requirements, 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 25,148 Sales
to distribution from March 3, 2006 (Euro 42.35 per MWh) 16,526
Sales at pool price 13,859 TOTAL 55,533 *T Sales to the ordinary
regime totalled Euro 3,175 million through September, Euro 99
million or 3% lower than in the same period last year. This amount
includes sales made after March 3 to Endesa Distribucion to supply
regulated companies in ENDESA's distribution territories, which
were recognised at a provisional price of Euro 42.35 per MWh in
accordance with Royal Decree Law 3/2006. This provisional price is
below the average pool price in 9M06 which was Euro 68.94 per MWh,
12.6% higher than in 9M05. The negative impact on 9M06 figures from
selling the 16,526 GWh produced from March to September, i.e. the
electricity sold to regulated customers in the markets where ENDESA
acts as a distributor, at the provisional price of Euro 42.35 per
MWh, pursuant to the Royal Decree Law 3/2006, was Euro 254 million.
This effect is temporary, so the negative impact should be
recovered once the final price is established based on objective
and transparent market criteria, as provided for in the same Royal
Decree Law. Moreover, in accordance with Royal Decree Law 3/2006,
the sales figure is net of the 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: +12.8% Renewable and CHP generation companies fully
consolidated by ENDESA produced 1,770 GWh in 9M06, 12.8% more than
in 9M05. In addition, ENDESA has holdings in other renewable/CHP
companies, which generated 2,894 GWh in the same period. Revenues
from sales of renewable/CHP energy generated by consolidated
companies totalled Euro 195 million, 29.1% more than in 9M05. This
underpinned a 33.3% increase in EBITDA to Euro 132 million and a
32.3% increase in EBIT to Euro 86 million. Supply to deregulated
customers In the supply to deregulated customers business, we would
highlight that contrary to the decisions taken by other operators
to exit this segment in light of high 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 returns. This
selective supply policy drove a 13.5% increase in the average
selling price to final customers in the deregulated market in 9M06
vs. 9M05. ENDESA had 1,084,386 deregulated customers at September
30, 2006, of which 1,019,208 corresponded to the Spanish mainland
deregulated market, 61,678 to the non-mainland systems and 3,500 to
other European deregulated markets. ENDESA's sales to these
customers totalled 28,802 GWh in the first nine months of 2006, 5%
more than in the same period of 2005. Of this amount, 25,579 GWh
were sold on the Spanish deregulated market, an increase of 4.9%,
and 3,223 GWh on other deregulated European markets, up 5.4%.
Revenues from supply to deregulated customers in Spain (excluding
tolls paid to Endesa Distribucion) totalled Euro 1,440 million, a
22.2% increase on 9M05. Of this amount, Euro 1,334 million
corresponded to the mainland deregulated market and Euro 106
million to the non-mainland market. Revenues from supply to
deregulated European markets other than Spain rose 31% to Euro 224
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 86,758
GWh of electricity in the Spanish market through September, 3.6%
more than in the first nine months of last year. Revenues from
regulated distribution activities totalled Euro 1,363 million, up
13.9% on 9M05. 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 10.3%. ENDESA supplied 53,434 GWh to
customers on the regulated Spanish market in the period, 11.5% more
than in the first nine months of last year. Non-mainland generation
ENDESA's output in non-mainland systems rose 5.1% in 9M06 vs. 9M05
to 10,919 GWh. Sales were 65.5% higher, at Euro 1,614 million. As
indicated previously, these sales include Euro 227 million of
additional compensation above that 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 11.9% ENDESA sold a total of 19,603 GWh of
natural gas in 9M06, 21.6% more than in the same period last year.
Of this amount, 16,871 GWh were sold to customers in the
deregulated market, 26% more than in 9M05, and 2,732 GWh to
regulated customers through all the gas companies in Spain in which
ENDESA has stakes, an increase of 0.3% on the same period last
year. The 19,603 GWh sold in both the regulated and deregulated
markets and the amount consumed in ENDESA's own generation plants
imply an 11.9% market share. Revenues from gas sales in deregulated
market rose 112% to Euro 458 million in 9M06 vs. 9M05. Revenues
from regulated gas distribution totalled Euro 33 million, an
increase of 3.1% on 9M05. The two businesses contributed a combined
gross margin of Euro 109 million. Other operating revenues Other
operating revenues in 9M06 came to Euro 575 million, Euro 99
million more than in 9M05. This item includes Euro 391 million
corresponding to the 9M06 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 45 million higher than in 9M05, mostly because of higher value
of the rights received in 2006. Higher revenue is offset by 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
---------------------------------------------------------------------
9M06 9M06 Change % Chg
---------------------------------------------------------------------
Purchases and services 3,471 2,992 479 16.0
---------------------------------------------------------------------
Power purchases 767 649 118 18.2
---------------------------------------------------------------------
Fuel consumption 1,695 1,493 202 13.5
---------------------------------------------------------------------
Power transmission expenses 272 176 96 54.5
---------------------------------------------------------------------
Other supplies and services 737 674 63 9.3
---------------------------------------------------------------------
Personnel expenses 758 673 85 12.6
---------------------------------------------------------------------
Other operating expenses 760 706 54 7.6
---------------------------------------------------------------------
Depreciation and amortisation 814 746 68 9.1
---------------------------------------------------------------------
TOTAL 5,803 5,117 686 13.4
---------------------------------------------------------------------
*T Power purchases Power purchases in the period rose 18.2% to Euro
767 million. These mainly entail gas purchases to supply
deregulated customers, which rose as a result of increases in sales
to these customers and in gas prices. Fuel consumption Fuel
consumption through September this year amounted to Euro 1,695
million, an increase of 13.5% on the same period in 2005. This
increase is due to a 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 8.7%
increase in fuel costs at 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 737 million in 9M06, Euro 63 million
more than in 9M05. This increase reflects the recognition of Euro
473 million of expenses in connection with rights acquired to cover
the CO2 emissions made throughout the first nine months of the
year, which totalled 36.4 million tonnes: 27.6 million tonnes for
the mainland and 8.8 million for non-mainland production. Despite
the higher value assigned to the freely allocated emission rights
in 2006 vs. 2005, this cost was Euro 4 million lower than in 9M05,
due to the lower volume of emissions recorded this year. Net effect
of revenues and expenses booked in 9M06 to cover CO2 emissions was
Euro 82 million, corresponding to an estimated rights deficit of
6.3 million tonnes. The "Other supplies and services" item includes
a Euro 51 million reversal equivalent to the amount Extremadura
regional government must reimburse ENDESA in connection with the
environmental impact tax on its plants paid by the Company from
1998 to 2005 after the Constitutional Court ruled this to be
unconstitutional on June 13. Personnel expenses At September 30,
2006, the workforce in Spain and Portugal was 12,700 employees, 30
fewer than at September 30, 2005. Personnel expenses rose in 9M06
12.6% vs. 9M05, to Euro 758 million. These expenses include Euro 65
million corresponding to a headcount reduction provision, mainly
related to the deviation in the provision caused by the performance
of inflation (CPI), a new layoff program in connection with the
Mining Plan 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. Net financial
expenses: down 9% ENDESA reported net financial expenses for the
first nine months of 2006 of Euro 325 million, 9.5% less than in
9M05. Net financial expenses included Euro 31 million of revenue
corresponding to the interest accrued to December 31, 2005 on
higher compensations derived from 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 September 30, 2006 for the environmental impact
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 September 30, 2006 stood at Euro 13,731 million, vs.
Euro 11,461 million at December 31, 2005. This increase is due to
the Euro 1,417 million paid in 9M06 to finance the revenue
shortfall from regulated activities, as well as the Euro 1,341
million dividend payment made in July in connection with capital
gains realised in 2005, which had contributed to reducing debt that
year. It was determined at the General Shareholders' Meeting to
distribute these capital gains to shareholders. Equity-accounted
income Equity-accounted income in the business in Spain and
Portugal totalled Euro 53 million, a 26.2% increase vs. 9M05. This
amount includes, among others, the contribution from Nuclenor. Cash
flow from operating activities: Euro 1,876 million (+12.4%) Cash
flow from operating activities from the Spanish and Portuguese
business totalled Euro 1,876 million in 9M06, an increase of 12.4%
on the same period last year. Investments: Euro 1,725 million
Investments in Spain and Portugal totalled Euro 1,725 million in
9M06. The breakdown is as follows: -0- *T TOTAL INVESTMENT IN SPAIN
AND PORTUGAL
---------------------------------------------------------------------
Euro million
---------------------------------------------------------------------
9M06 9M05 % Chg
---------------------------------------------------------------------
Capex 1,549 1,484 4.4
---------------------------------------------------------------------
Intangibles 71 66 7.6
---------------------------------------------------------------------
Financial 105 196 (46.4)
---------------------------------------------------------------------
Total investments 1,725 1,746 (1.2)
---------------------------------------------------------------------
---------------------------------------------------------------------
CAPEX IN SPAIN AND PORTUGAL
---------------------------------------------------------------------
Euro million
---------------------------------------------------------------------
9M06 9M05 % Chg
---------------------------------------------------------------------
Generation 652 544 19.9
---------------------------------------------------------------------
Ordinary regime 507 491 3.3
---------------------------------------------------------------------
Renewables/CHP 145 53 173.6
---------------------------------------------------------------------
Distribution 869 916 (5.1)
---------------------------------------------------------------------
Others 28 24 16.7
---------------------------------------------------------------------
Total 1,549 1,484 4.4
---------------------------------------------------------------------
*T 89.8% 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 56.1% of the total. As
already stated, these investments are underpinning the improvement
in the quality of customer service provided in the regulated market
in Spain. The significant increase in capital expenditure to expand
ENDESA's generation capacity, including the construction of the
Cristobol Colon (400 MW) and As Pontes (800 MW) CCGTs and capacity
increases in renewables/CHP, is also noteworthy. BUSINESS IN EUROPE
Net income of Euro 426 million (+50.5%) Net income from the
electricity business in Europe totalled Euro 426 million in the
first nine months of 2006, an increase of 50.5% from the same
period last year. This figure includes Euro 118 million after
minorities due to an 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 area, firmly driven
by positive performance of its operating indicators and efficiency
gains, and ENDESA's ability to leverage growth opportunities in its
markets by developing new CCGT and renewable capacity, gas
infrastructure and increasing sales to end customers, thereby
ensuring the long-term sale under favourable terms of the power
produced by its generators. Growth projects In 9M06, ENDESA's
business in Europe focused on achieving its two main strategic
targets: consolidating its current competitive position and seeking
new growth opportunities. New generation capacity During the third
quarter, Endesa Europa acquired 58.35% of Centro Energia Teverola
and Centro Energia Ferrara from Italian companies Merloni Invest,
MPE and Fineldo. Each of these companies owns a 150 MW CCGT subject
to a subsidized tariff. The first is located in the Emilia Romana
region in northern Italy and the second in Campania, in the south.
Foster Wheeler Italiana owns 41.65% of each. Meanwhile, Endesa
Italia continued construction on two 400MW Scandale CCGTs in
Calabria according to schedule. With respect to renewable energies
growth, the 14 MW Iardino wind farm was acquired during the third
quarter by Endesa Europa from Gamesa pursuant to the agreement
signed between the two companies. To be added to this capacity are
the Montecute 42 MW wind farm, completed on October 6 and which
forms part of the Gamesa deal, as well as the Vizzini and Trapani
wind farms with a combined capacity of 56 MW. All these projects
mark a major step forward for Endesa Italia towards achieving its
target of having 400 MW of installed wind capacity by 2010.
Meanwhile, during the third quarter the French generating company
Snet received authorisation by the local government in the French
city of Saint Avold to build a 800 MW CCGT at the Emile Huchet
site. It will entail an investment of around Euro 400 million, and
it could come on-stream sometime during the first half of 2009. The
company is also considering installing another two new CCGTs, one
800 MW at Lacq and one 400 MW, either at Hornaing or Lucy sites.
Elsewhere, during the year the Company won the tender to build a
10MW Lehaucourt wind farm and has nearly 65 MW of new wind projects
committed to other sites, such as Ambon, Muzillac or Cernon. These
initiatives form part of the business plan to develop up to a total
of 2,000 MW of new capacity in CCGTs and 200 MW in renewables/CHP.
Gas infrastructure In the third quarter of the year, preliminary
work continued on the offshore regasification terminal to be built
off the coast of Livorno, Italy. 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 be
entitled to approximately 50% of this capacity. The company owns
25.5% of the development company for the facility, although the
agreement with the project's two other partners -local companies
AMGA and ASA from Genoa and Livorno, respectively- give it
management control. This capacity will be used to feed the CCGTs
currently operated by the Company 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 july 2008.
This project guarantees competitive gas supplies for the Italian
market and increases the flexibility of ENDESA's fuel mix at its
different sites. Supply This year, Endesa Europa and the Italian
group, Merloni, have begun 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
during the period. It signed an agreement with the French
multinational company Auchan to supply 400 GWh of power in 2006 and
other with French railway operator SNCF to supply 6,600 GWh in the
period 2007-2011. Dividends ENDESA's investees in Europe have paid
dividends to the parent this year. Endesa Italia paid shareholders
Euro 176 million, of which Euro 140.8 million corresponded to
Endesa Europa. In addition, an agreement was reached at Snet's
General Shareholders' Meeting 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. Sharp increase in output and sales
ENDESA's total output in Europe in the first nine months of the
year amounted to 26,443 GWh, an increase of 8.3% on the same period
last year. Electricity sales rose 13.4% to 38,913 GWh. -0- *T
BREAKDOWN OF ENDESA'S OUTPUT AND SALES IN EUROPE
----------------------------------------------------------------------
Output (GWh) Sales (GWh)
----------------------------------------------------------------------
9M06 9M05 % Chg 9M06 9M05 % Chg
----------------------------------------------------------------------
Italy 19,420 17,329 12.1 25,025 23,153 8.1
----------------------------------------------------------------------
France 5,857 5,927 (1.2) 12,722 10,007 27.1
----------------------------------------------------------------------
Poland* 1,166 1,154 1.0 1,166 1,154 1.0
----------------------------------------------------------------------
Total 26,443 24,410 8.3 38,913 34,314 13.4
----------------------------------------------------------------------
(*) ENDESA is present in the generation business in Poland through
the Bialystock CHP, which is controlled by Snet. *T EBIT: +26.8%
Endesa Europa posted EBITDA through September of Euro 890 million,
up 26.8% versus 9M05, and EBIT of Euro 693 million, an increase of
34.6%. -0- *T EBITDA & EBIT IN EUROPE
---------------------------------------------------------------------
EBITDA EBIT (Euro million) (Euro million)
---------------------------------------------------------------------
9M06 9M05 % Chg 9M06 9M05 % Chg
---------------------------------------------------------------------
Endesa Italia 739 561 31.7 622 456 36.4
---------------------------------------------------------------------
Snet 147 136 8.1 70 54 29.6
---------------------------------------------------------------------
Trading 26 20 30.0 26 20 30.0
---------------------------------------------------------------------
Holding & others (22) (15) (46.7) (25) (15) (66.7)
---------------------------------------------------------------------
Total 890 702 26.8 693 515 34.6
---------------------------------------------------------------------
*T Worth highlighting is the Euro 26 million contribution to EBIT
from trading operations, an increase of 30% on the same period last
year. ENDESA can conduct these operations risk-free thanks to its
solid generation base in Italy and France. Endesa Italia continue
to improve Endesa Italia's revenues totalled Euro 2,253 million in
9M06, an increase of 35.6% from last year. This growth was mainly
the result of a 7.6% increase in electricity sold and a 31.7%
increase in average electricity prices in the Italian market. -0-
*T ENDESA ITALIA KEY DATA
---------------------------------------------------------------------
Euro million
---------------------------------------------------------------------
9M06 9M05 Change % Chg
---------------------------------------------------------------------
Revenues 2,253 1,661 592 35.6
---------------------------------------------------------------------
Gross margin 854 683 171 25.0
---------------------------------------------------------------------
EBITDA 739 561 178 31.7
---------------------------------------------------------------------
EBIT 622 456 166 36.4
---------------------------------------------------------------------
*T Endesa Italia generated a total of 19,309 GWh of electricity in
9M06, an increase of 1,980 GWh or 11.4% vs. 9M05. Its market share
in Italy at the end of September stood at 8.5%. Endesa Italia's
generation structure in the nine-month period reflects a higher
percentage of fuel-oil production than last year (19.2% vs. 16.1%),
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 240 million
in 9M06, this was less than the increase in revenues (Euro 592
million) 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 9M06, Endesa Italia
booked Euro 113 million of revenues from the free allocation and
use of emission rights and Euro 149 million of expenses for the
cost of emissions. Accordingly, the net cost of emission rights in
the income statement was Euro 36 million, corresponding to an
estimated deficit of 2.8 million tonnes of CO2. Finally, Endesa
Italia restated the tax bases of its fixed assets to their book
value, in accordance with Italian legislation. Therefore, it
recorded 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 continues to gather pace
Earnings at Snet improved further in the third quarter of 2006.
EBITDA in 9M06 rose 8.1% to Euro 147 million and EBIT by 29.6% to
Euro 70 million vs. 9M05. -0- *T SNET KEY DATA
---------------------------------------------------------------------
Euro million
---------------------------------------------------------------------
9M06 9M05 Change % Chg
---------------------------------------------------------------------
Revenues 801 625 176 28.2
---------------------------------------------------------------------
Gross margin 248 239 9 3.8
---------------------------------------------------------------------
EBITDA 147 136 11 8.1
---------------------------------------------------------------------
EBIT 70 54 16 29.6
---------------------------------------------------------------------
*T Revenues in the period rose 28.2% to Euro 801 million, mostly
driven by the 24.4% growth in energy sales to 13,888 GWh. Variables
costs were Euro 167 million higher, basically as a result of the
Euro 187 million increase in energy purchases, although this was
offset by tighter control over transport and fuels costs, which
were 9% lower than in 9M05. Finally, in 9M06, Snet completed the
headcount reduction plan, resulting in a 25% decrease in the total
workforce; Snet had 1,373 employees on staff when Endesa Europa
took control of the company. These layoffs led to a 10.5% reduction
in personnel costs and came within the framework of discussions
with union representatives. European debt: Euro 1,505 million
ENDESA's business in Europe had net financial debt at September 30,
2006 of Euro 1,505 million, Euro 219 million higher than at the end
of 2005. This debt derives from a one-off income tax payment in
2Q06 linked to tax credits obtained in 2005 and 2006 and to the
acquisition in the third quarter of majority shareholdings in
Centro Energia Teverola and Centro Energia Ferrara, owners of the
CCGTs, and assumption of their debt. Net financial results in 9M06
amounted to an expense of Euro 36 million, a decrease of Euro 8
million from 9M05. Cash flow from operating activities: Euro 531
million Operating cash flow generated by this business in 9M06
totalled Euro 531 million, a 5.8% increase on the same period last
year despite the one-off tax payment mentioned previously.
Investments: Euro 304 million Investments in 9M06 in the European
business totalled Euro 304 million, of which Euro 165 million were
capex, Euro 73 million were accounted for by Endesa Italia and Euro
92 million by Snet. These amounts included the acquisition of
58.35% stakes in Centro Energia Teverola and Centro Energia Ferrara
for Euro 57 million and Euro 35 million, respectively. ENDESA began
fully consolidating these companies on September 1, 2006. BUSINESS
IN LATIN AMERICA Strong growth in net income: +119.4% Net income at
ENDESA's Latin American business totalled Euro 408 million in 9M06,
an increase of Euro 222 million, or 119.4%, on 9M05 and equivalent
to 16.3% of ENDESA's total net income. This sharp growth reflects
favourable economic trends witnessed in the region since 2005,
marked by higher growth and more stable exchange rates in ENDESA's
operating markets. ENDESA's subsidiaries leveraged the growth in
generation output and demand deriving from this improved
environment, achieving all-time high unit margins thanks to ongoing
operational efficiency efforts, the efficient structure of their
generation mix and their broad and growing customer base. Against
this backdrop, the strategic logic behind the various capacity
additions and regasification facilities being developed or in the
planning stage is clear. Highlights Growth in volume sales in
generation and distribution As indicated, the improved economic
environment in the countries where ENDESA has subsidiaries led to
sharp increases -all above 3.8%- in demand in 3Q06. Particularly
noteworthy were increases in demand in Argentina (9.6%), Peru
(7.4%) and Chile (5.9%). Higher demand underpinned total
electricity sales by these subsidiaries of 43,175 GWh, up 5.2% vs.
9M05, with particularly significant increases in Peru (7.4%) and
Colombia (6%). Regarding output, ENDESA generated 46,364 GWh in the
region in 9M06, an 8.2% increase vs. 9M05, or 8.7% in like-for-like
terms; i.e. stripping out generation output from plants sold by
Brazilian company Ampla in 2006. The largest increases were in
Brazil (16.7%, after deducting this output), Argentina (11.6%) and
Colombia (8.2%). -0- *T OUTPUT AND SALES IN THE LATIN AMERICAN
BUSINESS
---------------------------------------------------------------------
Output (GWh) Sales (GWh)
---------------------------------------------------------------------
9M06 % Chg vs. 9M05 9M06 % Chg vs. 9M05
---------------------------------------------------------------------
Chile 14,693 6.6 9,235 4.4
---------------------------------------------------------------------
Argentina 13,444 11.6 11,022 5.0
---------------------------------------------------------------------
Peru 5,271 4.1 3,605 7.4
---------------------------------------------------------------------
Colombia 9,577 8.2 7,917 6.0
---------------------------------------------------------------------
Brazil 3,379 8.0 11,396 4.9
---------------------------------------------------------------------
TOTAL 46,364 8.2 43,175 5.2
---------------------------------------------------------------------
*T Improvement in generation and distribution margins Growth in
demand, tighter reserve margins and favourable generation mix at
ENDESA's subsidiaries caused the unit margin of generation
companies to increase by 21.8% in 9M06 vs. 9M05 to US$ 25.1 per MWh
produced. Generation margins, measured in dollars, increased
sharply, above all in Chile (+62.5%) thanks to a greater
contribution by hydro in the generation mix and to higher prices;
and in Argentina (+18.2%), thanks to 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$ 35.9 per MWh distributed, an increase of 17.8% vs. 9M05.
Reduction in distribution losses Energy distribution losses were
11.3% in 9M06, 0.7 percentage points below the level recorded in
the same period last year. Improvements were made in all countries,
especially Brazil, where the percentage of losses declined by 1
percentage point. These improvements reflect the achievements made
in technological innovation, as illustrated by the development and
rollout of the new Ampla grid in Brazil. Generation and
transmission projects During the period, Centrales Hidroelectricas
de Aysen (51%-owned by Endesa Chile and 49% by Colbun) was
incorporated. The aim of the new company is to study, finance,
build and operate the Aysen Project. This project entails the
construction starting in 2008 of four hydro plants with total
installed capacity of 2,355 MW, the last of which is currently
estimated to come on stream towards the end of 2018. It will
require total investment of US$ 3,600 million, of which US$ 1,500
million will be earmarked for the 2,000km high voltage line
required to transmit the energy generated and whose construction
will be put out to tender, and US$ 2,100 million will be allotted
to the four hydro plants. Therefore, in proportion to its stake in
the project, Endesa Chile will have to invest at least 51% of this,
i.e. US$ 1,071 million. Also in 9M06, this company continued work
on the 377MW San Isidro II CCGT and the 32MW Palmucho hydro plant,
both in Chile. On May 16, the first stone was placed 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 projects
undertaken in the country. Endesa Eco continued to work on the 9 MW
Canela wind farm in Chile and began construction of the 9MW Ojos de
Agua mini hydro station. Both projects were started in 1Q06. In
Peru, construction on the first CCGT at the Ventanilla site, owned
by Etevensa- was completed in July. Construction continues on the
second CCGT, slated to be completed this month (i.e. October). 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. Meanwhile, in Colombia, Emgesa completed the
acquisition of the 186 MW Termocartagena thermal plant. Finally, on
July 11 construction officially began in Panama on the transmission
line of the SIEPAC project to interconnect the electricity grids of
six Central American countries. The network owner (Empresa
Propietaria de la Red, or EPR) is responsible for carrying out the
project. Partners include the six Central American countries
involved, Colombian company ISA and ENDESA (12.5% stake).
Optimisation of ownership structure During the course of the
period, ENDESA completed the ownership restructuring underway in
Brazil, Peru and Chile: -- In Brazil, holding company Endesa Brasil
owns all the assets ENDESA holds directly and indirectly in this
country. In July, International Finance Corporation (IFC), a World
Bank affiliate with 178 member countries, acquired 2.7% of this
holding company. The transaction values Endesa Brasil's equity at a
total of US$ 1,850 million, equivalent to an EV/EBITDA 2005
multiple of 6.65x. -- In Peru, the merger and takeover of Etevensa
by Edegel. This transaction, which closed on June 1, results in a
more balanced overall generation mix (51% hydro and 49% thermal),
which will, among other things, reduce volatility of revenues as a
result of variations in rainfall. -- In Chile, the Chilectra-Elesur
merger, 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 would give rise to the
largest generator in Colombia, with installed capacity of 2,780 MW.
Regulatory update Regulatory highlights in 9M06 in the Latin
American countries where ENDESA has operations: -- The tariffs
applied to Brazilian companies, Ampla and Coelce, were modified, by
2.9% and 10.01%, respectively. -- 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. -- Regarding the bilateral
agreement between Argentina and Brazil, the Argentine Secretary for
Energy issued a resolution in February permitting companies with
export contracts to renegotiate them to encourage imports in order
to meet demand. -- Also in February, 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, among other
things, increasing the DCV (distribution cumulative value) by 28%
retroactively from November 2005, is pending. -- A trust has been
set up to enable Argentine companies under the Foninvemem agreement
-awarded 1,600 MW of CCGTS- to obtain necessary administrative and
operating resources. -- In June, a Brazilian court ruling lifted
the suspension on retroactive collection of amounts related to the
2005 tariff revision. Coelce began charging these amounts on June
26. -- In July, the Peruvian Congress passed an amendment to the
Electricity Concession Law, the main features of which are as
follows: -0- *T -- Establishment of a mechanism for tenders at
fixed prices over a period of 10 years to encourage investment and
contracting with distributors, with guaranteed pass-through. --
Establishment of a new centrally planned regulation, with 30-year
concessions and guaranteed payment. -- Greater involvement by
generators, distributors, transmission companies and deregulated
customers in the domestic electricity system operator. -- The
option of spot market purchases for deregulated demand of
distributors and large deregulated customers. *T The new law helps
to unlock the value of ENDESA's generation assets in Peru through
rising prices and long-term contracts. -- In the first half of
October, the new regulation setting the capacity payments in
Colombia was published, putting an end to almost two years of work
to reach a consensus between the regulator and market agents. We
highlight the following points: -0- *T -- From December 2006 to at
least November 2009, there will be a period of transition during
which pro rata charge will be paid for energies certified by the
regulator. -- In the first half of 2007, energy auctions for up to
20 years will be held in order to define the expansion required
beyond December 2009, when new projects will be put out to tender
and existing projects will become price takers. *T EBITDA: growth
of 25.7% EBITDA in the Latin American business totalled Euro 1,663
million in 9M06, a 25.7% increase on 9M05. EBIT rose 35.3% to Euro
1,304 million. -0- *T EBITDA & EBIT IN LATIN AMERICA
---------------------------------------------------------------------
Euro million EBITDA EBIT
---------------------------------------------------------------------
9M06 9M05 % Chg 9M06 9M05 % Chg
---------------------------------------------------------------------
Generation and transmission 898 736 22.0 709 548 29.4
---------------------------------------------------------------------
Distribution 815 613 33.0 651 444 46.6
---------------------------------------------------------------------
Others (50) (26) NA (56) (28) NA
---------------------------------------------------------------------
TOTAL 1,663 1,323 25.7 1,304 964 35.3
---------------------------------------------------------------------
*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
---------------------------------------------------------------------
9M06 9M05 % Chg 9M06 9M05 % Chg
---------------------------------------------------------------------
Chile 435 250 74.0 362 171 111.7
---------------------------------------------------------------------
Colombia 168 171 (1.8) 135 135 0.0
---------------------------------------------------------------------
Brazil - Generation 92 97 (5.2) 78 83 (6.0)
---------------------------------------------------------------------
Brazil - Transmission (11) 34 NA (25) 21 NA
---------------------------------------------------------------------
Peru 111 114 (2.6) 80 87 (8.0)
---------------------------------------------------------------------
Argentina - Generation 96 70 37.1 73 53 37.7
---------------------------------------------------------------------
Argentina - Transmission 7 - 100.0 6 (2) NA
---------------------------------------------------------------------
TOTAL 898 736 22.0 709 548 29.4
---------------------------------------------------------------------
*T -0- *T Distribution
---------------------------------------------------------------------
Euro million EBITDA EBIT
---------------------------------------------------------------------
9M06 9M05 % Chg 9M06 9M05 % Chg
---------------------------------------------------------------------
Chile 160 139 15.1 142 121 17.4
---------------------------------------------------------------------
Colombia 213 177 20.3 165 119 38.7
---------------------------------------------------------------------
Brazil 344 202 70.3 289 152 90.1
---------------------------------------------------------------------
Peru 63 54 16.7 40 32 25.0
---------------------------------------------------------------------
Argentina 35 41 (14.6) 15 20 (25.0)
---------------------------------------------------------------------
TOTAL 815 613 33.0 651 444 46.6
---------------------------------------------------------------------
*T Generation and transmission Chile Energy output in 9M06 rose
6.6% to 14,693 GWh. Moreover, generation mix improved, with hydro
generation accounting for a larger share. This helped protect
earnings from fuel prices increases, such as natural gas. This,
coupled with a favourable trend in the Chilean peso vis-a-vis the
euro and higher wholesale prices, generated a 74% increase in
EBITDA and a 111.7% increase in EBIT vs. 9M05, to Euro 435 million
and Euro 362 million, respectively. Colombia Electricity generation
output was 8.2% higher than in the same period last year, nearly
offsetting the adverse trend in prices as a result of high level of
rainfall through September this year. Hence, EBITDA was just Euro 3
million lower than in 9M05, at Euro 168 million, while EBIT was
virtually flat, at Euro 135 million. Brazil - Generation ENDESA's
subsidiaries in Brazil generated total output in the period of
3,379 GWh, 8% more than in 9M05, mostly thanks to increased
activity at Cachoeira Dourada. However, if we strip out from the
2005 figures the power generated at the plants sold by Ampla in
2Q06 (235 GWh), total output in the first nine months of 2006 would
have risen by 16.7%. The increase in generation output and
favourable exchange rates cushioned the impact of fuel consumption
increase by Endesa Fortaleza caused by natural gas supply issues,
enabling both EBITDA and EBIT to decline by just Euro 5 million, to
Euro 92 million and Euro 78 million, respectively. Brazil -
Transmission The difficulties in exporting electricity from
Argentina to Brazil due to gas supply restrictions continued,
undermining results at this interconnection. EBITDA in 9M06 showed
a loss of Euro 11 million, Euro 45 million less than in 9M05, while
EBIT was a negative Euro 25 million, Euro 46 million less. Peru
Generation sales in 9M06 rose 2.3% vs. 9M05 to Euro 223 million,
mainly thanks to higher prices and output, which partly offset the
Euro 40 million increase in fuel costs. EBITDA was Euro 111
million, 2.6% less than in 9M05, while EBIT was Euro 80 million,
Euro 7 million less. Argentina Although gas supply difficulties
continued to trigger increases in fuel costs (46.8%) due to the
need to generate power using liquid fuels, higher sales due to
increased output (+11.6%), coupled with improvements in prices,
boosted margins. EBITDA in 9M06 rose 37.1% to Euro 96 million and
EBIT by 37.7% to Euro 73 million. Distribution Chile Revenues rose
25.5% thanks to exchange rates, higher energy sales (4.4%) and
better unit price deriving from changes in tariff indexation.
EBITDA amounted to Euro 160 million and EBIT to Euro 142 million,
15.1% and 17.4% higher, respectively, than in 9M05. Colombia EBITDA
at the Colombian distribution business was Euro 213 million, 20.3%
higher than in 9M05, while EBIT totalled Euro 165 million, up
38.7%. The increases were driven by a 4.7% increase in revenues and
by other revenues from the new business undertaken by Codensa
Hogar. Brazil Distribution sales in Brazil came to Euro 1,207
million in the nine-month period, a 33.4% increase on 9M05. The
increase was driven by wider margins stemming from an enhanced
pass-through of generation prices to customers and, to a lesser
extent, higher volume sales (+4.9%). These factors, coupled with a
sharp decline in energy losses, led to increases in EBITDA and EBIT
of 70.3% and 90.1%, respectively, to Euro 344 million and Euro 289
million. Peru EBITDA from distribution in Peru amounted Euro 63
million in 9M06, up 16.7% on 9M05, due to higher sales (+5%),
offsetting the increase in costs. Meanwhile, EBIT advanced 25% to
Euro 40 million. Argentina By September 30, the tariff increase had
yet to be registered, since the presidential decree required to
ratify the renegotiation of tariffs with Edesur had not been
enacted. As a result, the 1.2% increase in revenues from
distribution was not enough to make up for the 6.8% rise in
procurement costs. This led to a 14.6% decline in EBITDA, to Euro
35 million, and a 25% drop in EBIT, to Euro 15 million this year.
Financial results: Euro 359 million Financial results for the
business in Latin America reflected a loss of Euro 359 million in
the first nine months of 2006, Euro 69 million more than in 9M05.
Net exchange-rate gains were Euro 57 million lower, down from Euro
72 million in 9M05 to Euro 15 million. Net interest expense
totalled Euro 374 million, Euro 12 million or 3.3% higher than in
9M05. This increase was mainly due to high expenses deriving from
readjustments to pension funds, the early repayment of loans and
the exchange rate effect on financial expenses. Net interest
expense totalled Euro 374 million, Euro 12 million or 3.3% higher
than in 9M05. The financial expenses in local currencies decreased
compare to the previous year as a consequence of lower average
interest rates. Net debt at ENDESA's Latin American business stood
at Euro 5,780 million at September 30, 2006, a reduction of Euro
329 since the start of the year. This decrease is due, among other
factors, to the appreciation of the euro vis-a-vis the currencies
in which ENDESA's Latin American subsidiaries' debt is denominated.
This accounted for Euro 349 million of the reduction. In May,
rating agency Fitch upgraded its ratings for Enersis and Endesa
Chile from BBB- to BBB, stable outlook, while in October, Moody's
placed their Ba1 ratings under review for a possible upgrade. Cash
flow from operating activities: up 18.9% ENDESA's business in Latin
America generated Euro 911 million of cash flow in the first nine
months of 2006, an increase of 18.9% with respect to 9M05.
Investments: Euro 653 million Investment in Latin America through
September this year totalled Euro 653 million, of which Euro 601
million corresponded to capex. -0- *T CAPITAL EXPENDITURE IN LATIN
AMERICA
---------------------------------------------------------------------
Euro million
---------------------------------------------------------------------
9M06 9M05 % Chg
---------------------------------------------------------------------
Generation 240 122 96.7
---------------------------------------------------------------------
Distribution and Transmission 348 243 43.2
---------------------------------------------------------------------
Others 13 19 (31.6)
---------------------------------------------------------------------
TOTAL 601 384 56.5
---------------------------------------------------------------------
*T STATISTICAL APPENDIX KEY FIGURES -0- *T Electricity Generation
Output (GWh) 9M06 9M05 % Chg
---------------------------------------------------------------------
Business in Spain and Portugal 68,222 69,769 (2.2)
---------------------------------------------------------------------
Business in Europe 26,443 24,410 8.3
---------------------------------------------------------------------
Business in Latin America 46,364 42,870 8.2
---------------------------------------------------------------------
TOTAL 141,029 137,049 2.9
---------------------------------------------------------------------
*T -0- *T Electricity Generation Output in Spain and Portugal (GWh)
9M06 9M05 % Chg
---------------------------------------------------------------------
Mainland 57,303 59,375 (3.5)
---------------------------------------------------------------------
Nuclear 17,806 16,835 5.8
---------------------------------------------------------------------
Coal 25,700 27,216 (5.6)
---------------------------------------------------------------------
Hydro 5,541 6,085 (8.9)
---------------------------------------------------------------------
Combined cycle - CCGT 5,605 5,641 (0.6)
---------------------------------------------------------------------
Fuel oil 881 2,029 (56.6)
---------------------------------------------------------------------
Renewables/CHP 1,770 1,569 12.8
---------------------------------------------------------------------
Non-mainland 10,919 10,394 5.1
---------------------------------------------------------------------
TOTAL 68,222 69,769 (2.2)
---------------------------------------------------------------------
*T -0- *T Electricity Generation Output in Europe (GWh) 9M06 9M05 %
Chg
---------------------------------------------------------------------
Coal 11,806 11,457 3.0
---------------------------------------------------------------------
Hydro 1,816 1,820 (0.2)
---------------------------------------------------------------------
Combined cycle - CCGT 9,084 8,318 9.2
---------------------------------------------------------------------
Fuel oil 3,714 2,796 32.8
---------------------------------------------------------------------
Wind 23 19 21.1
---------------------------------------------------------------------
TOTAL 26,443 24,410 8.3
---------------------------------------------------------------------
*T -0- *T Electricity Generation Output in Latin America (GWh) 9M06
9M05 % Chg
--------------------------------------------------------------------
Chile 14,693 13,778 6.6
--------------------------------------------------------------------
Argentina 13,444 12,046 11.6
--------------------------------------------------------------------
Peru 5,271 5,061 4.1
--------------------------------------------------------------------
Colombia 9,577 8,855 8.2
--------------------------------------------------------------------
Brazil 3,379 3,130 8.0
--------------------------------------------------------------------
TOTAL 46,364 42,870 8.2
--------------------------------------------------------------------
*T -0- *T Electricity sales (GWh) 9M06 9M05 % Chg
---------------------------------------------------------------------
Business in Spain and Portugal 82,236 75,381 9.1
---------------------------------------------------------------------
Regulated market 53,434 47,939 11.5
---------------------------------------------------------------------
Deregulated market 28,802 27,442 5.0
---------------------------------------------------------------------
Business in Europe 38,913 34,314 13.4
---------------------------------------------------------------------
Italy 25,025 23,153 8.1
---------------------------------------------------------------------
France 12,722 10,007 27.1
---------------------------------------------------------------------
Poland 1,166 1,154 1.0
---------------------------------------------------------------------
Business in Latin America 43,175 41,033 5.2
---------------------------------------------------------------------
Chile 9,235 8,847 4.4
---------------------------------------------------------------------
Argentina 11,022 10,498 5.0
---------------------------------------------------------------------
Peru 3,605 3,356 7.4
---------------------------------------------------------------------
Colombia 7,917 7,469 6.0
---------------------------------------------------------------------
Brazil 11,396 10,863 4.9
---------------------------------------------------------------------
TOTAL 164,324 150,728 9.0
---------------------------------------------------------------------
*T -0- *T Gas sales (GWh) 9M06 9M05 % Chg
---------------------------------------------------------------------
Regulated market 1,725 1,934 (10.8)
---------------------------------------------------------------------
Deregulated market 16,871 13,355 26.3
---------------------------------------------------------------------
TOTAL 18,596 15,289 21.6
---------------------------------------------------------------------
*T -0- *T Workforce 30/09/06 30/09/05 % Chg
---------------------------------------------------------------------
Business in Spain and Portugal 12,700 12,730 (0.2)
---------------------------------------------------------------------
Business in Europe 2,154 2,313 (6.9)
---------------------------------------------------------------------
Business in Latin America 11,964 12,343 (3.1)
---------------------------------------------------------------------
Other businesses -- 54 NA
---------------------------------------------------------------------
TOTAL 26,818 27,440 (2.3)
---------------------------------------------------------------------
*T FINANCIAL DATA -0- *T Key figures 9M06 9M05 % Chg
---------------------------------------------------------------------
EPS (Euro) 2.37 1.47 61.2
---------------------------------------------------------------------
CFPS (Euro) 3.13 2.77 13.3
---------------------------------------------------------------------
BVPS (Euro) 10.80 9.90 9.1
---------------------------------------------------------------------
*T -0- *T Net financial debt (Euro million) 30-09-06 31-12-05 % Chg
---------------------------------------------------------------------
Business in Spain and Portugal 13,731 11,461 19.8
---------------------------------------------------------------------
Business in Europe 1,505 1,286 17.0
---------------------------------------------------------------------
Endesa Italia 730 815 (10.4)
---------------------------------------------------------------------
Other 775 471 64.5
---------------------------------------------------------------------
Business in Latin America 5,780 6,109 (5.4)
---------------------------------------------------------------------
Enersis 4,836 5,207 (7.1)
---------------------------------------------------------------------
Other 944 902 4.7
---------------------------------------------------------------------
Other businesses (1) -- (575) NA
---------------------------------------------------------------------
TOTAL 21,016 18,281 15.0
---------------------------------------------------------------------
---------------------------------------------------------------------
Financial leverage (%) 128.8 112.0 NA
---------------------------------------------------------------------
Net debt/Operating cash flow (times) 2.9 3.0 NA
---------------------------------------------------------------------
Interest coverage by operating cash flow (times) 8.0 5.7 -
---------------------------------------------------------------------
(1) At September 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. *T -0- *T Ratings
(25/10/2006) Long term Short term Outlook
---------------------------------------------------------------------
Standard & Poor's A A-1 Creditwatch (-)
---------------------------------------------------------------------
Moody's A3 P-2 Negative
---------------------------------------------------------------------
Fitch A+ F1 Creditwatch (-)
---------------------------------------------------------------------
*T -0- *T Main fixed-income issues Spread over IRS (bp)
---------------------------------------------------------------------
30/09/06 31/12/05
---------------------------------------------------------------------
2.7Y Euro 700M 4.375% Mat. June 2009 8 5
---------------------------------------------------------------------
5.8Y GBP 400M 6.125% Mat. July 2012 24 28
---------------------------------------------------------------------
6.4Y Euro 700M 5.375% Mat. Feb 2013 18 18
---------------------------------------------------------------------
*T -0- *T Stock market data 30/09/06 31/12/05 % Chg
---------------------------------------------------------------------
Market cap (Euro million) 35,521 23,525 51.0
---------------------------------------------------------------------
Number of shares outstanding 1,058,752,117 1,058,752,117 --
---------------------------------------------------------------------
Nominal share value (Euro) 1.2 1.2 --
---------------------------------------------------------------------
*T -0- *T Stock market data 9M06 9M05 % Chg
---------------------------------------------------------------------
Trading volumes (shares)
---------------------------------------------------------------------
Madrid stock exchange 2,327,950,930 2,116,538,073 10.0
---------------------------------------------------------------------
NYSE 19,554,600 20,964,800 (6.7)
---------------------------------------------------------------------
Average daily trading volume (shares)
---------------------------------------------------------------------
Madrid stock exchange 12,188,225 11,023,635 10.6
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NYSE 104,014 110,925 (6.2)
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*T -0- *T Share price 9M06 high 9M05 low 30/09/06 31/12/05
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Madrid stock exchange (Euro) 35.00 21.70 33.55 22.22
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NYSE (USD) 44.40 26.30 42.60 26.01
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*T -0- *T Dividends (Euro cents/share) Payable against 2005 results
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Interim dividend (02/01/06) 30.50
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Final dividend (03/07/06) 209.50
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Total DPS 240.00
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Pay-out (%) 79.9
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Dividend yield (%) 10.8
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*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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