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| ENDESA First Half 2003 Consolidated Results
Net Income Was Euro 876 Million, a 4.7% Increase over the Same Period Of 2002 NEW YORK--(BUSINESS WIRE)--July 30, 2003--ENDESA (NYSE: ELE)-- BizVantage – Serious business, investment and technology intelligence for a serious advantage. -- Cash flow amounted to Euro 1,842 million in the first half 2003, a 15.5% increase over the same period in 2002. -- Ordinary income was Euro 1,139 million in the first half of 2003, with an increase of Euro 1,115 million against the same period in 2002, when amounted to Euro 24 million. -- This change shows a positive operative evolution of the Company together with the important improvement in the quality of the results. -- Operating income amounted to Euro 1,642 million in the first six months of 2003, increasing 3.5% versus the same period in 2002. -- Operating income of the domestic electricity business amounted to Euro 891 million, an 18.2% increase vis-a-vis the first half of 2002. This reflects the high competitiveness of ENDESA's generation mix even in strong hydro recovery scenarios, like the current one. -- ENDESA's debt amounted to Euro 18,019 million as of June 30th 2003, representing a Euro 4,728 million decrease in absolute terms and 20.8% in relative terms over the debt reported in December 2002 driving to a remarkable strengthen of ENDESA's balance sheet. -- This debt reduction allowed an important decrease in the leverage ratio that on June 30th 2003 was 127% compared to 203% at year-end 2002. -- In the first half of 2003 ENDESA completed the construction of Tarragona 400 MW combined cycle as well as Son Reus 70 MW gas turbine that concludes the 226 MW combined cycle in the Balearic Islands. Likewise, 49 MW of new capacity have been added to Granadilla (Canary Islands) power plant, 12 MW in Ceuta and Melilla, 74 MW in new wind farms and 16 MW in biomass recycling facilities. -- Demand in the peninsular markets supplied by ENDESA increased by 7.1% in the first half of 2003 over the same period of 2002. In the extra-peninsular markets of ENDESA, the demand increased by 8.4% in the same period. -- Operating income for the electricity business in European countries other than Spain amounted to Euro 160 million, a 50.9% increase against the first half 2002. This result mainly corresponds to the activity carried out by ENDESA Italia that continues to overperform its business plan. -- Operating income for the Latin American electricity business amounted to Euro 579 million, an 18.2% decrease against first half 2002 mainly due to the strength of the Euro. -- However, in local currency terms, operating income for the Latin American electricity business increased by 20.3% while in US dollar grew by 0.6%, reflecting the effect of the first symptoms of economic recovery in the region. -- Auna and Smartcom experienced a positive evolution in the first half of 2003, representing a Euro 69 million improvement in the equity income contribution over the same period of 2002. -- The asset sale in Latin America, ENERSIS's capital increase and the debt refinancing in ENERSIS and Endesa of Chile mean that the ENERSIS's strengthening plan is almost completed at the end of the first half of 2003. -- Regarding ENERSIS's capital increase, is important to highlight that the subscriptions by shareholders other than ENDESA amounted to Euro 580 million, reflecting the support of the minority shareholders to the corporate project that ENERSIS is implementing in Latin America. -- Capital expenditures in electric facilities in Spain amounted to Euro 477 million in the first half of 2003, a 45.4% increase versus the same period of 2002. -- This increase has been compatible with a 27.3% reduction on total investments, in line with the 2002 - 2006 Strategic Plan of ENDESA. -- ENDESA has exercised the call option to buy a 3% of AUNA from SCH. The payment for this transaction will take place in January 2004 for a total amount of Euro 260 million. ENDESA's (NYSE: ELE) net income for the first half 2003 was Euro 876 million and earnings per share were Euro 0.83. In both cases, first half 2003 results are 4.7% higher than the same period 2002. In homogeneous terms, that is, disregarding the effect of capital gains and extraordinary provisions effects in both periods, net income and earnings per share in the first half 2003 increased by 145.4% over the same period in 2002. First half 2003 cash flow amounted to Euro 1,842 million, a 15.5% increase against the first half of 2002. Ordinary income was Euro 1,139 million in the first half of 2003, with an increase of Euro 1,115 million over the same period in 2002, when amounted to Euro 24 million. This change shows a positive operative evolution of the Company together with the important improvement in the quality of the results. Operating income amounted to Euro 1,642 million, increasing 3.5% with respect to the first six months of 2002. This increase was mainly based on the positive evolution of the operating income both in the domestic and the rest of European electricity business. Operating income of the domestic electricity business amounted to Euro 891 million, an 18.2% increase over the same period of 2002, despite it did not include the result from the transmission network sold to Red Electrica de Espana, S.A (REE) effective January 1st 2003. This increase, obtained in a better hydro scenario, confirms ENDESA's domestic electricity business capacity to keep an stable path of growth under any hydro conditions. Operating income of the electricity business from European countries other than Spain amounted to Euro 160 million, a 50.9% rise vis-a-vis the same period of 2002. Regarding the Latin America electricity business, operating income amounted to Euro 579 million in the first half 2003, Euro 129 million lower than first half 2002. This amount represents an 18.2% decrease and is mainly due to the local currencies devaluation between the first half 2002 and the same period in 2003. On the other hand, in local currency terms, operating income of the Latin America electricity business increased by 20.3% while in US dollar terms grew by 0.6%. This growth shows the positive operating performance of the Latin American business as well as the effect of the first symptoms of economic recovery in the region. ENDESA debt decreased by Euro 5,415 million or a 23% between June 30th 2002 and June 30th 2003. If compared with December 31st 2002, debt decreased by Euro 4,728 million equivalent to a 20.8% decline. This substantial decrease, together with a sustained average cost of debt at a similar level as the first half 2002, enabled an 8.3% decrease in net financial expenses. Debt reduction allowed a sharp decrease in the leverage ratio that on June 30th 2003 was 127% compared to 203% at year-end 2002. Financial results improved by Euro 971 million. This positive evolution is mainly a consequence of lower foreign exchange differences that amounted to a Euro 169 million net gain, against a Euro 710 million loss in the first half 2002. On the other hand, it is important to point out the significant improvement in AUNA's and Smartcom's results, meaning for ENDESA a Euro 69 million increase in the equity income contribution from these stockholdings, compared to the same period in 2002. ENDESA has exercised the call option to buy a 3% of AUNA from SCH. The payment for this transaction will take place in January 2004 for a total amount of Euro 260 million. The exercise of such option rescinds the put option hold by SCH for the same amount of shares and the same price. Finally, in the first half 2003 extraordinary provisions were allocated to cover different contingencies for an amount of Euro 290 million. 1 Main transactions of the first half 2003 In the first half 2003, ENDESA continued the implementation of the asset sale plan included in the Strategic Plan 2002-2006. Basically, the assets sold in the period were the mainland transmission network and certain real estate assets both agreed in 2002, together with the stake in REPSOL and the 7% in Red Electrica de Espana. These transactions delivered Euro 702 million in gross capital gains. Moreover, in the first half 2003 ENERSIS Group completed the sale in Chile of Rio Maipo distribution company, Canutillar hydro power plant, the transmission assets of the Norte Grande interconnected system and its stake in Infraestructura 2000, for an aggregate amount of US dollar 384 million. Should the Euro 220 million debt of the divested companies be considered, asset sale would have amounted to Euro 604 million. ENDESA's first half 2003 net earnings do not include any positive effect of these transactions since goodwill has been amortized for the amount corresponding to ENDESA from ENERSIS's capital gains. Among the financial transactions carried on in Spain in the first half of 2003, is important to point out the Euro 1,500 million Preferred Securities issue by ENDESA Capital Finance LLC and the subscription of ENERSIS' capital increase by shareholders other than ENDESA for an amount of Euro 580 million, which significantly contributed to the debt reduction above mentioned. Additionally, in the first half 2003 ENDESA made several long-term financial transactions that, besides extending the average term of debt, increased ENDESA's liquidity in Spain. On June 30th 2003, liquidity amounted to Euro 5,005 million, more than covering the debt maturing in the next 2 years and a half. Out of this amount, Euro 2,639 million correspond to available lines of credit and Euro 2,366 million to cash. With regard to the main transactions carried out in Latin America, is worthwhile to highlight ENERSIS's capital increase and the Euro 580 million subscription by shareholders other than ENDESA. As with the Preferred Securities, this transaction increased the balance of the minorities shareholders in the balance sheet and decreased the amount of debt, leading to a remarkable improvement on the financial structure of ENDESA. Moreover, ENERSIS closed the refinancing of its bank debt for an amount of US$ 2,330 million, extending its maturity until the end of 2008. On June 30th ENERSIS liquidity amounted to Euro 966 million. It's important to mention that as a consequence of these and other transactions carried out in Latin America, the Financial Strengthening Plan of ENERSIS has been virtually completed in the first half of 2003. Total investment for the period amounted to Euro 961 million, a 27.3% decrease over the first half of 2002. This reduction has been compatible with an important investment effort in electric facilities in Spain that amounted to Euro 477 million, a 45.4% increase over the first six months of 2002. This evolution on total investments and capital expenditures in the electricity business in Spain is in line with the 2002 - 2006 Strategic Plan of ENDESA. 2 Change in consolidated perimeter The main changes in the consolidated perimeter in the first half of 2003 are the following: -- As a consequence of the sale of ENERSIS' stake in Rio Maipo, this company is no longer globally consolidated in ENDESA's accounts in the first half 2003. -- Additionally, as a consequence of the sale of ENDESA's stake in REPSOL, its consolidation by equity method has also been discontinued in the first half 2003. -- Finally, since January first 2003 ENDESA Gas is no longer included in ENDESA Diversificacion and started reporting to ENDESA Red. For this reason, the results of the gas distribution and supply activities have been included in the domestic electricity business, instead of under "other business" as was reported in the first half 2002. 3 Analysis of Results. The table below shows the main magnitudes of ENDESA's consolidated profit and loss account for the first half 2003 and their comparison against the same period in 2002. Main magnitudes of ENDESA's profit and loss account
(Euro million)
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1H-03 1H-02 % Chge.
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Revenues 7,762 8,221 -5.6
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EBITDA 2,458 2,460 -0.1
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Operating Income 1,642 1,587 3.5
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Ordinary Income 1,139 24 N/A
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Net Income 876 837 4.7
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Cash flow 1,842 1,595 15.5
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3.1 Operating income ENDESA's revenues in the first half 2003 amounted to Euro 7,762 million, a 5.6% decrease versus the first half of previous year. EBITDA was Euro 2.458 million, approximately the same figure than in the first half 2002. Operating income for the first six months of 2003 was Euro 1,642 million, an increase of 3.5% against the same period last year. Table below shows a breakdown of revenues, EBITDA, operating income and cash flow among the different markets and lines of business in which ENDESA operates. Electricity
Spain Europe Latin America Other
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Euro % on Euro % on Euro % on Euro % on
Million total Million total Million total Million total
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Revenues 4,966 64.0 981 12.6 1,725 22.2 90 1.2
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EBITDA 1,427 58.1 215 8.7 789 32.1 27 1.1
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Operating
income 891 54.3 160 9.7 579 35.3 12 0.7
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Cash flow 1,013 55.0 195 10.6 611 33.2 23 1.2
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3.1.1 Electricity business in Spain In the first half 2003, demand for electricity in the mainland grew by 4.6% against the same period of 2002. Demand in the markets supplied by ENDESA grew clearly above average in the mainland. In the first six months of 2003, demand growth in ENDESA's distribution markets in the mainland was 7.1%, while in the extra-peninsular systems was 8.4%. These increases clearly show that ENDESA's distribution markets are among those that usually register highest demand growth in Spain. Regarding electricity generation, mainland ordinary regime production increased by 3.7% in the first six months of 2003 over the same period of 2002, while special regime increased by 16.9% and net international exchanges decreased by 75.5%. Table below shows the structure of the generation in the mainland for both ENDESA and the whole of the industry for the first half 2002 and 2003: Structure of electricity generation in the mainland for ENDESA and the
total industry (%)
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ENDESA Total industry
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1H 2003 1Q 2002 1Q 2003 1Q 2002
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Nuclear 34.3 36.0 31.6 32.2
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Coal 42.9 49.4 34.8 45.4
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Hydro 17.7 9.7 25.6 11.6
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Fuel-gas 1.6 4.4 2.5 10.3
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CCGT 3.5 0.5 5.5 0.5
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Total 100.0 100.0 100.0 100.0
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Operating income for ENDESA's electricity business in Spain was Euro 891 million, a Euro 137 million increase in absolute and 18.2% in relative terms against the same period of 2002. This increase corresponds to generation including its natural hedging, that is, CTC's and supply. The increase in regulated margin in distribution compensated the effect of the transmission network sale in the mainland. Hence, despite this sale, distribution and transmission operating income was similar to the one obtained in the first half of 2002. Should the effect of the sale of transmission network be discounted, operating income would have increased by 22.0% against the same period of 2002. Among other considerations, this increase in the operating income reflects the high competitiveness of ENDESA's generation mix and its flexibility to adjust to any hydro conditions, resulting in a higher stability in the operating income compared to the rest of the industry. This higher operating income has been mainly due to the 1.65% average increase in the 2003 regulated electricity tariff, the 6.5% increase of the liberalized customer electricity prices and the Euro 59 million lower fuel costs as a consequence of better hydro conditions. Paragraphs below show a detailed analysis of the items comprised in the operating income of the electricity business in Spain. Revenues Revenues from the domestic electricity business amounted to Euro 4,966 million in the first half of 2003, a decrease of 4.8% against the same period of 2002. The table below shows a breakdown of revenues: Euro million
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June 30th June 30th Change %Chge
'03 '02
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Revenues 4,682 5,458 (776) -14.2
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CTC by technology 129 - 129 N/A
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Tariff deficit - (364) 364 N/A
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CTC coal 39 22 17 77,3
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Services 116 101 15 14.8
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TOTAL 4,966 5,217 (251) -4.8
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Sales Sales in the first half 2003 were Euro 4,682 million, broken down as follows: Euro million
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June 30th June 30th Change %Chge
'03 '02
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Generation, mainland 1,341 2,023 (682) -33.7
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Distribution and transmission,
mainland 1,901 2,227 (326) -14.6
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Supply 667 585 82 14.0
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Trading 466 415 51 12.3
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Extra peninsular systems 100 97 3 3.1
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Extra peninsular compensations 53 57 (4) -7.0
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Gas 88 29 59 203.4
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Other* 66 25 41 164.0
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TOTAL 4,682 5,458 (776) -14.2
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*As a consequence of including the gas distribution business into
ENDESA Red, gas revenues in 2003 includes both regulated and
non-regulated revenues, while in 2002 only included non-regulated
revenues.
Generation ENDESA's output in the mainland sold in the wholesale market was 38,908 GWh in the first half 2003, approximately the same than in first half 2002. This represents a 42.4% market share in the ordinary regime. Despite approximately the same generation output than in the first half 2002, sales in the mainland were 33.7% lower as a result of a 34.7% lower pool price. This decrease was due to lower fuel costs of the system driven by better hydro conditions, driving the pool price down to 3.24 Euro cents per Kwh. Nevertheless, lower generation revenues due to the lower pool prices have been compensated by lower fuel costs as well as the natural hedging of the generation price, that is, CTC's and the supply business. Therefore, gross margin in generation, supply and CTC's increased by Euro 187 million, a 19.1% increase over the same period of 2002. Distribution ENDESA sold 39,152 GWh in the mainland in the first half 2003, a 7.1% increase over the same period of 2002. This figure represents a share of 42.4% of distribution in the mainland. Hence, growth in energy distributed by ENDESA in the mainland was higher than the average peninsular demand growth. This reflects that, in general terms, ENDESA distributes electricity in those peninsular markets with higher growth rates. Revenues from distribution in the mainland dropped by Euro 326 million. This decrease corresponded to the lower cost of energy purchases, mainly as a result of the lower pool prices. Should the effect of lower cost of energy purchases be disregarded, distribution sales would have increased by Euro 2 million against first half 2002, a 0.4% rise. Moreover, should the effect of the transmission network sale been discounted, gross margin in distribution would have increased by 10.1% Supply In the first six months of 2003, ENDESA sold 11,983 GWh to eligible customers, a 7.1% increase against the same period of 2002 and a 36.8% market share. This higher electricity sold together with a 6.5% increase in its average price, resulted in a 14% revenues increase in supply, amounting to Euro 667 million. Extra Peninsular Systems In the first half 2003 ENDESA's output in the extra peninsular systems was 5,807 GWh, 9.2% higher than in the first half of 2002. Demand in the extra-peninsular systems grew by 8.4%, with an increase of 7.8% and 8.7% in the Balearic and Canary market respectively. Current generation capacity of ENDESA is enough to cover this strong demand growth. This is due to the significant investments in new generation facilities carried out by ENDESA in the last years in the extra peninsular systems. Sales in these markets amounted to Euro 466 million, a 12.3% increase against the same period of 2002 driven, among other reasons, by higher demand. In addition to this, revenues include Euro 100 million from compensations, a Euro 3 million increase against the first half 2002. CTC As a consequence of better hydro conditions in the first half 2003 over the same period of 2002, total revenues of the industry covered the costs of the system. The balance has been applied to CTC's, corresponding to ENDESA Euro 129 million. Moreover, in the first half 2003, Euro 56 million from the tariff deficit and extra peninsular systems compensations prior to 2003 were recovered. Out of this amount, Euro 41 million decreased the balance of the tariff deficit account payable and Euro 15 million was accounted as financial income Is important to recall that in the first half 2002 total industry revenues did not cover all recognized costs of the system. For this reason, a shortfall in the regulated business revenues -tariff deficit- emerged. ENDESA, due to a reasonable uncertainty in its recovery, reported this shortfall as lower revenues for an amount of Euro 364 million. Operating costs Table below shows operating costs for the domestic electricity business in the first half 2003 and its comparison with the same period of 2002. Euro million
June 30th June 30th Change %Chge
'03 '02
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Purchases 2,858 3,304 (446) -13.5
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Purchases of energy 1,910 2,408 (498) -20.7
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Fuel 696 730 (34) -4.7
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Transmission and other external
expenses 252 166 86 51.8
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Depreciation 536 527 9 1.7
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Provisions 24 19 5 26.3
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Personnel 415 409 6 1.5
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Other Operating Costs 350 279 71 25.5
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TOTAL 4,183 4,538 (355) -7.8
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Purchases In the first half 2003, purchases decreased by Euro 446 million or 13.5% against first half 2002 mainly due to the following reasons: -- Lower energy purchases by ENDESA's distribution and supply subsidiaries in the amount of Euro 498 million, representing a 20.7% decrease over the first half 2002. This decrease was due to the reduction in the average pool price mentioned above and despite the increase in the energy supplied to final customers. -- A reduction on Fuel costs that amounted to Euro 59 million as a consequence of higher hydro generation in the first three months of 2003 when compared to the same period of 2002. -- Reporting of Gas purchases for the regulated gas business amounting to Euro 25 million under this caption that in the first half 2002 was reported under "Other businesses". This is a consequence of the inclusion of ENDESA Gas financial information in ENDESA Red, while in 2002 it was reported in ENDESA Diversificacion. -- Electricity transmission costs and other costs that increased by Euro 86 million due to the sale of the transmission network. Personnel expenses On June 30th 2003 workforce of ENDESA's domestic electricity business amounted to 13,568 employees. Should the 109 employees of ENDESA Gas be disregarded since in 2002 this company was reported under "Other businesses", ENDESA's workforce would have decreased by 89 employees over December 31st 2002. Personnel expenses in the first half 2003 amounted to Euro 415 million, a 1.5% increase versus the same period of 2002. This increase also reflects the new way of reporting ENDESA Gas in the domestic electricity business, as mentioned above. Other operating expenses Other operating expenses amounted to Euro 350 million in the first half 2003, increasing by Euro 71 million when compared to the same period of 2002. This increase was due to the following reasons: -- Expenses related to new activities amounted to Euro 13 million. These activities are mainly related to domestic electricity business, that is, CCGT's, gas distribution and liberalized retail customer service. -- Higher offices lease costs of Euro 13 million. This was due to the transfer to the new headquarters in Campo de las Naciones in Madrid and to the sale of real estate assets. -- Tax cost increased mainly due to the public thoroughfare levy, amounting to Euro 14 million. -- A Euro 17 million increase on reparation and maintenance expenses, basically due to the plans set up to optimize the efficiency of the distribution network. -- Certain expenses materialized in advance that do not imply any change in total annual expenses; therefore, this amount will be diluted in the following quarters to be compared with the same period of 2002. 3.1.2. European electricity business Operating income for the electricity business in European countries other than Spain amounted to Euro 160 million, a 50.9% increase over the first half 2002. This result mainly corresponds to the activity carried out by ENDESA Italia. Trading business in European markets is included in both revenues and energy purchases, delivering a balanced result. Operating income of ENDESA Italia amounted to Euro 165 million, a 44.7% increase over the first half of 2002. The table below shows the operating result variation of ENDESA Italia in the first half 2003 and 2002. Euro million
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1H-03 1H-02 Change %Chge.
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Revenues 623 541 82 15.2
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Other revenues 35 10 25 250.0
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Energy purchases (42) - (42) N/A
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Raw materials (329) (310) (19) 6.1
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Energy transmission (2) - (2) N/A
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Personnel expenses (32) (35) 3 -8.6
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Depreciation (55) (57) 2 -3.5
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Other expenses (33) (35) 2 -5.7
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Operating income 165 114 51 44.7
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Revenues of ENDESA Italia in the first half of 2003 increased by 15.2% over the first half 2002 as a result of a 2.3% increase in energy sales and 13% higher sales price. Total electricity sales in the first half 2003 was 9,310 GWh, of which 729 GWh correspond to electricity purchased from third parties representing a Euro 42 million cost. ENDESA Italia total output amounted to 8,597 GWh in the first half 2003 compared to 9,106 Gwh in the same period of 2002. This 509 GWh output decrease breakdowns in a 327 GWh increase in hydro generation and an 836 GWh decrease in thermal generation, enabling Euro 19 million in lower fuel costs. On the other hand, first half 2003 operating income includes a Euro 24 million effect of the hydro penalty cancellation effective January 1st 2003 as was approved by the Italian authorities during the second quarter of 2003. It is important to highlight the reduction in fixed costs in the first half 2003, both personnel and other operating costs. This decline is mainly due lower workforce that on June 30th 2003, totaled 1,115 employees, while on June 30th 2002 was 1,248 employees. Therefore, the evolution of ENDESA Italia during the first half of 2003 confirms that the company overperforms its business plan. 3.1.3 Latin American electricity business Electricity demand strongly recovered in all the countries where ENDESA operates in the first half 2003 compared to the same period in 2002, specially in Brazil and Chile. This growth confirms the first symptoms of recovery from the economic situation suffered by the region during 2002 and, at the same time, reveals that the Latin America electricity business of ENDESA will experience a remarkable improvement once the recovery is confirmed. Table below shows the physical data of generation and distribution businesses of ENDESA's affiliates in the first half 2003 over the same period in 2002. Generation (GWh) Distribution (GWh)
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1H 2003 % Chge./1H 1H 2003 % Chge./1H
2002 2002
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Chile 8,534 8.4 5,103 6.1
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Colombia 5,077 -5.5 4,517 1.3
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Argentina 4,860 7.3 6,240 2.6
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Brasil 1,172 2.3 6,485 6.9
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Peru 2,412 6.7 1,977 2.7
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TOTAL 22,055 4.1 24,322 4.2
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The 4.2% increase on the energy distributed compares with the 3.2% decrease registered in the first half of 2002 versus the first six months of 2001. Despite these recovery symptoms, results from Latin American business of ENDESA have been still affected by the aftermaths of the difficult economic scenario that Latin America went through in 2002, which on the other hand, were felt with mixed intensity among the different countries of the area. Particularly important were the local currencies devaluations against the Euro between the first half 2002 and the same period of 2003, ranging between 19.2% in the Peruvian Sol and 38.5% in the Brazilian Real. However, if measured in both, local currencies and in US dollar, results from Latin America reflect this improvement in the economic scenario. Operating income for the Latin American electricity business amounted to Euro 579 million, an 18.2% decrease against first half 2002. However, in local currency terms increased by 20.3% while in US dollar grew by 0.6%. Table below shows the performance of the EBITDA and operating income in Latin America broken down by activity: Euro million
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EBITDA Operating income
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1Q 2003 1Q 2002 % Var. 1Q 2003 1Q 2002 %Var.
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Generation 392 460 -14.8 285 331 -13.9
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Distribution & Transmission 416 527 -21.1 316 392 -19.4
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Others (*) (19) (11) N/A (22) (15) N/A
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Total 789 976 -19.2 579 708 -18.2
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(*) 2002 includes Rio Maipo. Since this company was sold in 2003, it
was not included in the 2003 operating income.
Table below shows EBITDA and operating income of generation and distribution in the first half 2003 and the same period of 2002, broken down by country where ENDESA has fully consolidated affiliates. Euro Million EBITDA Operating income
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1H-03 1H-02 %Chge. 1H-03 1H-02 %Chg.
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Generation
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Chile 147 195 -24.6 100 146 -31.5
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Colombia 91 103 -11.7 71 71 0.0
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Brazil 23 33 -30.3 19 26 -26.9
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Peru 71 84 -15.5 50 63 -20.6
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Argentina 60 45 33.3 45 25 80.0
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TOTAL Generation 392 460 -14.8 285 331 -13.9
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Distribution & Transmission
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Chile 75 92 -18.5 67 82 -18.3
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Colombia 58 76 -23.7 27 33 -18.2
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Brazil 203 260 -21.9 170 213 -20.2
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Peru 37 44 -15.9 24 29 -17.2
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Argentina 43 55 -21.8 28 35 -20.0
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TOTAL Distribution &
Transmission 416 527 -21.1 316 392 -19.4
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It's important to point out that in all countries the decrease in EBITDA was lower than the local currency devaluation, meaning that EBITDA increased in local currency terms in all countries were ENDESA operates. The remarkable performance of generation in Argentina was mainly due to electricity exports and demand recovery. However, distribution did not show the same trend since the increase in generation prices could not been passed through to the final customers. Likewise, income in Colombian distribution decreased by 18.2% while in generation was stable compared to the first half of 2002. This result reflects the high correlation between the electricity prices and US dollar, since Colombian peso experienced a 35.7% devaluation against Euro over the first half of 2002. In the rest of countries, income decreased, in general, less than local currency devaluation. However, although the pass through of 2002 currency devaluation to electricity prices is more gradual than in Colombia, it is foreseeable that an important part of the 2002 devaluations will be recovered in the future. Finally, the Euro 46 million decrease in operating income in generation in Chile is affected by the Euro 21 million capitalization of foreign exchanges differences, mainly due to the construction of Ralco hydro plant, accounted as operating income in the "expenses capitalized" caption. Should this effect be disregarded, operating income in generation in Chile would have decreased by 19.8%, in line with the US$ devaluation against Euro in the same period. 3.2 Financial results Financial results showed a net loss of Euro 347 million in the first half 2003, this is Euro 971 million lower than the same period of 2002, broken down as follows: Euro million
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1H 2003 1H 2002 Change %Chge.
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Financial expenses (737) (750) 13 1.7
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Financial income 138 97 41 42.3
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FX Differences 169 (710) 879 N/A
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Monetary correction 87 47 40 85.1
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Change in provisions (4) (2) (2) N/A
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Total financial income (347)(1,318) 971 73.7
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3.2.1 Debt Reduction In the first half 2003 ENDESA reduced its debt by Euro 4,728 million over the debt reported in December 2002. As a consequence, debt fell to Euro 18,019 million as of June 30th 2003. Debt reduction was the result of the following: -- Transactions carried out during the first half of 2003 resulted in a debt reduction of Euro 1,877 million. Items 5 and 6 below show the sources and uses of funds that resulted in such reduction. -- Preferred Securities issue by ENDESA Capital Finance LLC for an amount of Euro 1,500 million representing a Euro 1,388 million cash inflow. -- The subscriptions of ENERSIS' capital increase by shareholders other than ENDESA for an amount of Euro 580 million that increased the minority interests and reduced debt by such amount. -- Variation in the exchange rates against the Euro of the currencies in which the debt of the consolidated affiliates is denominated have resulted in a Euro 651 million decrease of the total consolidated debt. -- A Euro 232 million reduction of the debt of the companies sold during this period. It is important to highlight the significant improvement on leverage. Results from operations and subscriptions from shareholder other than ENDESA facilitated debt reduction and an increase in minority interests. Hence, total debt over equity and minorities ratio decreased to 128% on June 30th 2003 from 203% at year-end 2002. 3.2.2 Net financial expenses Average cost of debt for the first half of 2003 was 5.2%, approximately the same as in the first six months of 2002, while average cost of debt for ENDESA, excluding ENERSIS, was 4.3%. Lower debt and similar average cost enabled a reduction in net financial expenses of Euro 54 million, an 8.3% decrease against the first half 2002. The following table shows a breakdown of debt and its average cost by line of business in the first half of 2003: June 30th/03 %Chge. over Average
Debt Dec. 31st cost 1H
2002 2003 %
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Domestic electricity business 6,339 -32.5 4.35
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Latin America electricity business 8,063 -16.0 6.69
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ENERSIS 5,474 -21.6 7.54
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Resto 2,589 -1.0 4.62
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European electricity business 1,625 -0.1 3.20
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Other businesses 1,992 -6.3 4.22
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TOTAL 18,019 -20.8 5.18
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3.2.3 Foreign Exchange Differences Net foreign exchange differences for the first half 2003 resulted in Euro 169 million net gain, mainly corresponding to a 20.8% revaluation in the Argentinean Peso against US dollar in such period. However, ENDESA has not reflected in net income the net positive differences generated by its subsidiaries in Argentina since, following conservative accounting procedures, an additional provision was allocated. 3.3 Equity income On June 30th 2003, losses attributable to ENDESA under the equity method were Euro 14 million, a Euro 50 million improvement over the first half 2002. The main component of this item corresponds to the shareholdings in telecommunications affiliates. This positive operating performance of Auna enabled a remarkable improvement Auna's income corresponding to ENDESA, that in the first half of 2003 amounted to Euro 28 million net loss, while in the same period of 2002 amounted to Euro 82 million net loss. On June 30th 2003, Auna had more than 7.2 million mobile telephony customers (770,000 more than on December 30th 2002) and more than 600,000 cable customers, a 19% increase over the same period of 2002. Moreover, EBITDA of Chilean mobile telephone operator Smartcom amounted to Euro 10 million in the first half of 2003. Negative income corresponding to ENDESA improved to Euro 17 million in the first half 2003, from Euro 32 million in the same period 2002. On June 30th 2003 Smartcom had over one million customers, a 11% increase over year-end 2002 with a 16.2% market share. 3.4 Extraordinary results Extraordinary results for ENDESA in the first half 2003 were Euro 646 million. Its main components were the following: -- The sale of the Spanish mainland transmission network that resulted in a Euro 514 million capital gain. -- The sale of certain real estate assets in Spain with a Euro 152 million capital gain. -- The sale of a 7% of Red Electrica de Espana that generated a Euro 44 million capital gain. -- Euro 8 million capital losses from the sale of the stake in REPSOL.-- Euro 110 million capital gains from ENERSIS's sale of Rio Maipo. Its worth noting that this transaction did not have any positive effect in ENDESA's net income since the 65% portion of ENDESA in this capital gain, amounting to Euro 71 million, was accounted in "Extraordinary Results" in order to amortize goodwill for the same amount. The balance, increased the minority shareholders account. -- Euro 157 million provisions to cover risks related to the domestic electricity business. -- Euro 133 million provisions to cover risks related to the Latin American electricity business. Of this amount, Euro 82 million were allocated to cover the risk arising from investments in Argentina, in addition to the Euro 145 million provisioned in 2002. This additional provision was a consequence of the revaluation in the Argentinean peso that enabled positive results in ENDESA's affiliates in this country. ENDESA, following conservative accounting criteria, has provisioned these positive results to maintain zero book value in the Argentinean investments as well as its share in the direct and indirect intercompany loans in Argentina. 4 Information by Line of Business Table below shows the main income statement and balance sheet parameters as of June 30th 2003 by line of business: Euro Million
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Revenues Operating Net Fixed
income income asset
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Generation 1,883 448 265 8,230
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Distribution 2,597 312 597 6,410
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Supply 730 31 13 8
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Latin America 1,725 579 4 8,991
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Europe 981 160 27 2,398
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Other businesses 90 12 (70) 379
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Services 106 5 5 57
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Corporate Structure 239 95 35 17
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5 Cash Flow and Investments Cash flow from operations amounted to Euro 1,842 million during the first half 2003, a 15.5% increase versus the same period of 2002. This cash flow more than covered investments which amounted to Euro 961 million, payment of the interim dividend to ENDESA's shareholder on January 2nd 2003 for an amount of Euro 280 million and to minorities in the amount of Euro 68 million as well as payment of previously provisioned commitments, such as early retirements, in the amount of Euro 260 million. In the first six months of 2003 the asset sales amounted to Euro 2,355 million, broken down as follows: Euro million ----------------------------------------------------------- Mainland Transmission Network (Spain) 957 ----------------------------------------------------------- Repsol 504 ----------------------------------------------------------- Real Estate 385 ----------------------------------------------------------- Red Electrica de Espana 102 ----------------------------------------------------------- Rio Maipo 153 ----------------------------------------------------------- Canutillar 156 ----------------------------------------------------------- Infraestructura 2000 49 ----------------------------------------------------------- Transmission Network (Latin America) 26 ----------------------------------------------------------- Others 23 ----------------------------------------------------------- TOTAL 2,355 ----------------------------------------------------------- Of this amount, Euro 535 million were cashed in 2002 and Euro 49 million corresponding to the sale of Infraestructura 2000 in Chile was due on June 30th 2003. As mentioned above, total investments in the first half of 2003 amounted to Euro 961 million, a 27.3% decrease over the same period of 2002 following ENDESA's 2002-2006 Strategic Plan. Euro million
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1H-03 1H-02 %Chge.
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Capital Expenditures 822 749 9.8
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Intangibles 26 35 -25.7
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Financial 98 410 -76.1
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Acquisition of shares in consolidated companies 15 127 -88.2
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Total investments 961 1,321 -27.3
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It is important to highlight that first half 2003 capital expenditures were approximately the same as depreciation and amortization, amounting to Euro 816 million reflecting the conservative investment profile of the company. The breakdown of capital expenditures by line of business is as follows: Euro million
Electricity business Other Total
businesses
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Spain Latin America Europe
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Generation 231 126 103 - 460
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Distribution 223 92 - - 315
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Others 23 6 - 18 47
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Total 477 224 103 18 822
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It is important to point out that following the 2002-2006 Strategic Plan, capital expenditures in the domestic business grew by 43.1% in the first half 2003 over the same period in 2002. This increase corresponds to 110% and 9.3% higher investments in generation and distribution respectively. Regarding ENDESA's asset generation portfolio, is important to highlight that in the first half of 2003 the Tarragona 400 MW combined cycle was completed, as well as Son Reus 70 MW gas turbine that concludes this 226 MW combined cycle in the Balearic Islands. Likewise, 49 MW of new capacity have been added to Granadilla (Canary Islands) power plant, 12 MW in Ceuta and Melilla, 74 MW in new wind farms and 16 MW in biomass recycling facilities. Additionally, ENDESA has approved the plan to transform the As Pontes (La Coruna) 1,400 MW power plant in order to burn imported coal. On the other hand, during the first half of 2003 ENDESA Italia continued with the implementation of the repowering plan of its thermal generation portfolio. This allowed the initiation of the testing period for the Ostiglia 800 MW power plant and the Fiume Santo 320 MW power plant. 6 Financing activity Financing activity wise, in the first half of 2003 ENDESA made long-term financing transactions for an amount of Euro 2,250 million and an average life of 6.2 years. Moreover, ENDESA significantly strengthened its financial structure through the preferred notes issue of ENDESA Capital Finance LLC for an amount of Euro 1,500 million, resulting in an increase of the minority interests and a decrease of the net debt for the same amount. Liquidity of ENDESA in Spain on June 30th 2003, that is, available lines of credit and cash, amounted to Euro 5,005 million, more than covering ENDESA's debt maturing in Spain in the following two years and a half. In Latin America, on June 30th 2003 ENERSIS successfully closed the first subscription period of its US$ 2 billion capital increase with a 90% of such amount already subscribed. Shareholders other than ENDESA subscribed Euro 580 million. Moreover, ENERSIS and ENDESA of CHILE successfully closed the bank debt refinancing for an amount of US$ 2,330 million. As of June 30th 2003, liquidity of ENERSIS Group amounted to Euro 966 million. For additional information please contact Jacinto Pariente at NY Investor Relations Office, tel. 212 750 7200.
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