UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

Form 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO
RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE
ACT OF 1934

 

For the Month of March 2004

 

EDP- Electricidadé de Portugal

 

Praça Marquês de Pombal, 12

1250-162  Lisbon, Portugal

(Address of principal executive offices)

 

(Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.)

 

Form 20-F     ý     Form 40-F     o

 

(Indicate by check mark whether the registrant by

furnishing the information contained in this form

is also thereby furnishing the information to the

Commission pursuant to Rule 12g3-2(b) under the

Securities Exchange Act of 1934.)

 

Yes    o      No     ý

 

	Financial Results 2003

 

 

Investor Relations Department
Pedro Pires, Head of IR
Gonçalo Santos
Elisabete Ferreira
Cristina Requicha
Rui Antunes
Tel:  +351 21 001 2834
Fax:  +351 21 001 2899
Email: ir@edp.pt
Site:  www.edp.pt
Reuters:	EDPP.IN / EDP.N
Bloomberg:	EDP PL / EDP US

 

 

Lisbon, 3 March 2004
EDP - Electricidade de Portugal, S.A.	Headquarters: Praça Marquês de Pombal, 12	1250-162 Lisboa	Portugal

 

 

Table of Contents
2003 Financial Results - Summary
Results Overview
Investments and Financial Debt
EDP Produção
EDP Distribuição
Hidrocantábrico
Brazil
Telecoms
Information Technology
Consolidated Financial Results and Pro-forma Analysis
Consolidated Extrordinary Results
Consolidated Income Statement
Adjusted Cash Flow and Consolidated Balance Sheet
Income Statement by Business Areas
Balance Sheet by Business Areas
Appendix I - Naturcorp

 

 

2003 Financial Results - Summary

 

Financial Results Summary (€ m)		2003		2002		Δ%
Operating Revenues		6,977.6		6,386.6		9.3	%
Operating Costs		5,150.6		4,897.7		5.2	%
EBITDA		1,827.0		1,488.9		22.7	%
Operating Results		905.7		648.7		39.6	%
Financial Results		(359.0	)	(222.8	)	-61.1	%
Extraordinary Results		(14.4	)	(138.9	)	89.6	%
Net Profit		381.1		335.2		14	%
Earnings per share		0.127		0.112		13.7	%
Cash Flow (1)		1,302.4		1,175.4		10.8	%
Adjusted Cash Flow (2)		1,458.3		1,182.5		23.3	%
Operating Investment		859.1		1,101.8		-22.0	%

 

Financial Debt (€ m)		2003		2002		Δ%
Financial Debt		7,492.9		7,994.1		-6.3	%
Net Debt		7,207.3		7,780.1		-7.4	%

 

Financial Results Summary (€ m)		A 2002 HC Jan-May		B 2002 Brazil Jan-Sep		2003		2002 + A + B Pro-Forma 2002		Δ%
Operating Revenues		253.1		274.5		6,977.6		6,914.2		0.9	%
Operating Costs		186.3		209.5		5,150.6		5,293.5		-2.7	%
EBITDA		66.9		65.0		1,827.0		1,620.8		12.7	%
Operating Results		42.7		40.2		905.7		731.5		23.8	%

 

General Indicators		2003		2002		Δ%
Number of electricity clients
Portugal		5,767,401		5,665,005		1.8	%
Hidrocantábrico (3)		563,116		550,813		2.2	%
Brazil		2,902,203		2,848,230		1.9	%
Electricity sales (GWh)
Portugal		37,591		36,617		2.7	%
Hidrocantábrico (3)		12,126		11,308		7.2	%
Brazil		20,180		20,631		-2.2	%
No. of employees (core business)
Portugal		8,398		9,150		-8.2	%
Hidrocantábrico (3)		1,569		1,357		15.6	%
Brazil		3,733		3,834		-2.6	%

 

(1) Cash flow = Net Income + Depreciation + Provisions

(2) Adjusted Cash flow = Cash Flow + Tariff Adjustment + Hydrological Correction + Hydrological Account Interest

(3) Hidrocantábrico is proportionally consolidated in accordance with EDP’s stake in Hidrocantábrico (40%). Figures presented above correspond to Hidrocantábrico 100%.

(4) Adjusting for Oni’s direct costs which are accounted for as S&S at EDP’s consolidated accounts.

 

Note: The accounts presented in this document are non-audited.

 

 

The EDP Group reported a significant growth at the operating level in 2003. EBITDA improved by €338.1 million or 22.7%, and EBIT was up €257.0 million or 39.6%. The change in the Group’s consolidation perimeter was a major reason for this increase in EBITDA. Had Hidrocantábrico and the Brazilian subsidiaries been consolidated for the full year of 2002 at the EBITDA level, they would have contributed an extra €66.9 million and €65.0 million respectively. On a Pro-Forma basis, EDP’s EBITDA still increased by 12.7% or €206.3 million.

 

The Group’s generation and distribution businesses EDP Produção (‘EDPP’) and EDP Distribuição (‘EDPD’) contributed respectively with €32.3 million and €33.9 million to the increase in EBITDA having kept operating costs strictly under control. On a Pro-Forma basis Hidrocantábrico contributed positively to EDP’s EBITDA thanks to the consolidation of Naturcorp (+€14 million to EDP). Brazil’s €24.5 million contribution (pro-forma) was due to tariff increases and a pick-up in consumption. Oni had a positive impact of €54.1 million due to the increase in voice traffic, lower interconnection tariffs, rigorous cost cutting and the closure of its mobile venture OniWay.

 

Cost control is still a key management target. In 2003, supplies and services on a consolidated basis went down 15.6%(4) while personnel costs grew 3.5% year-on-year. However, on a pro-forma basis, both supplies and services and personnel costs went down 16.6% and 3.0%, respectively. EDP will continue to focus on cost cutting through operational savings and early retirements, particularly now that the costs of the Human Resources Restructuring Programme were accepted by the regulator (ERSE) as a pass through cost to the electricity tariffs over the next 20 years as from 2005.  In 2003, total costs accepted by ERSE with the HR Restructuring Programme amounted to €148.4 million, following a reduction of 500 employees at EDP Distribuição.

(.../...)

 

1

 

Results Overview

 

EBITDA (€ m)		2003		2002		Δ%
EDP Produção (1)		813.2		780.9		4.1	%
EDP Distribuição		523.2		489.2		6.9	%
Hidrocantábrico		143.4		67.8		111.5	%
Brazil		186.7		97.2		92.1	%
Oni		8.9		(45.1	)	—
Information Technology		34.1		55.3		-38.3	%
Other & Adjustments		117.5		43.7		169.2	%
Consolidated		1,827.0		1,488.9		22.7	%

 

 

 

(1) Excludes the Special Regime Producers (SRP) Enernova and EDP Bioeléctrica (Renewable Energy)

 

 

(.../...)

 

EDP’s pre-tax profit went up 85.5% to €532.3 million following a 61.1% or €136.2 million net increase in financial charges versus 2002 that was balanced by a 89.6% or €124.5 million net decrease in extraordinaries versus 2002.

 

The change in the consolidation perimeter had a significant impact on financial results with the inclusion of the financial charges of Hidrocantábrico, Escelsa and Enersul for the full year. However, on a pro-forma basis, financial results benefited from a 2.2% decreased in net interest paid.

 

Extraordinary results amounted to a €14.4 million loss. The most important item was a €120 million provision for the possible devaluation and contingencies in Brazil and Cape Verde. Extraordinaries also include a capital gain of €17.8 million resulting from the sale of EDP’s 3% stake in Iberdrola and a €19.3 million gain as the Hidrologic Correction Account exceeded its limit due to a wet year.

 

Net Profit amounted to €381.1 million, up 13.7% year-on-year. Adjusting for 2002 and 2003 one-offs Net Profit would have increased 49%, from €308 million to €459 million. The core business was the main contributor to this improvement due to increased demand, higher allowable revenues and tight cost control. The upward revision in Brazilian tariffs also boosted Net Profit in 2003.

 

 

2

 

Investments and Financial Debt

 

CAPEX (€ m)		2003		2002
EDP Produção (1)		236.1		239.4
Renewables		39.7		47.1
EDP Distribuição		343.6		371.2
(-) Subsidies in cash		59.7		56.9
(-) Edinfor asset transfer		13.3		80.5
(=) EDPD cash investments		270.6		233.8
Hidrocantábrico (40%)		71.0		49.0
Brazil		125.8		125.0
Telecoms		46.2		312.0
Information Technology		55.5		41.8
Other		14.1		53.9
Total		859.1		1,101.8

 

Financial Debt (€ m)		2003		2002
Holding (2)		5,356.2		5,879.4
EDP Produção (1)		38.8		54.3
Renewables		18.7		14.8
EDP Distribuição		—		—
Hidrocantábrico (40%)		786.1		816.6
Brazil (3)		547.3		550.2
Telecoms		685.5		622.1
Information Technology		23.8		25.6
Other		36.5		31.0
Total Financial Debt		7,492.9		7,994.1
Cash and cash equivalents		285.6		214.0
Net Debt		7,207.3		7,780.1

 

(1) Excludes the Special Regime Producers (SRP) Enernova and EDP Bioeléctrica (Renewable Energy)

(2) Net of overdrafts and deposits

(3) netted against €282 million of Escelsa’s Senior Notes in 2003

 

 

Capital expenditure totalled €859.1 million in 2003. If we exclude OniWay’s investment in 2002 (€171.2 million), operating investment would have gone down 7.7%. It is important to note that the data presented corresponds to the cash-out-flow on operating investments of the EDP Group, considering the consolidation method of each subsidiary.

 

EDPP’s investment in the new TER CCGT (Units I and II) amounted to €142.3 million in 2003. Total planned investment (at technical cost) for this first phase amounts to €478.0 million, of which 73% has already been concluded. EDP will build a third 400 MW unit on TER for an extra €197.0 million until 2006 when it should start operations. In 2003 EDPP also invested €34.4 million in an additional 188 MW at the Venda Nova hydro power plant (binding generation). The estimated investment is €139.0 million (at technical costs) of which 79% has already been done. Enernova invested €38.5 million in 25 MW of wind farm capacity and plans to invest €212.0 million in an extra 280 MW by 2006 and a further 300 MW by 2008. HC’s investment was mostly in wind farms. The P.E. Cantábrico wind farm (64 MW) became fully operational in the 2H2003 and P.E. Arlanzón wind farm (34 MW) already has 25 MW in operation.

 

The bulk of recurring investment at EDPD was in the distribution network. These investments, aimed at improving quality of service, led to a drop in the average interruption time. These investments are remunerated by the regulator at a 9% nominal rate.

 

Capex in Brazil remained flat. Note that 2002’s capex only includes 3 months of Escelsa and Enersul. Including the full year of these subsidiaries, capex would have gone down €29.4 million, on the back of lower investments in generation in Brazil. Oni invested €46.2 million in 2003, or 5% of the EDP Group’s total investment. 67% of Oni’s investments was in the Spanish fixed line operations.

 

At the end of 2003, the EDP Group’s total financial debt amounted to €7,492.9 million. Vis-à-vis the YE2002, the holding company’s debt decreased by €523.2 million, in great part thanks to the sale of EDP’s 3% stake in Iberdrola, amounting to €400.1 million.

 

Despite the acquisition of 56.8% of Naturcorp, which resulted in a €251 million cash-out-flow, Hidrocantábrico was able to reduce its financial debt following the sale of a 7% stake in REE (€102 million) and the securitisation of the Spanish electricity “tariff deficit” for 2000-2002 (€60 million).

 

In 2003, Oni and the Brazilian subsidiaries, account for 16% or €1,232.8 million of the EDP Group’s consolidated debt. In Brazil it is worth mentioning that the electricity utilities are financing regulatory receivables through special loans contracted with BNDES to compensate for the rationing losses and “Parcela A” costs. The proportional amount of Escelsa’s Senior Notes held by EDP was netted off against Escelsa’s financial debt.

 

Following the year-on-year debt decrease, total debt over total capital, decreased from 59.0% in 2002 to 57.5% in 2003 or from 58.3% to 56.6% if we consider net debt.

 

 

3

 

EDP Produção (1)

 

Energy emission (GWh)		2003		2002		Δ%
Hydroelectric		13,964		6,764		106.5	%
Thermoelectric		12,619		17,437		-27.6	%
Binding Generation		26,583		24,201		9.8	%
HDN		121		90		34.8	%
Hidrocenel		288		222		29.6	%
EDP Energia		296		111		167.0	%
TER		203		—		—
Non-Binding Generation		907		423		114.6	%
Biomass		38		37		2.2	%
Wind Farms		128		113		13.8	%
Cogeneration		679		595		14.0	%
Small Hydro (2)		196		150		31.0	%
Special Regime Producers		1,042		895		16.3	%
Total EDP emission		28,531		25,519		11.8	%
Pego thermal power station (PES)		4,168		4,794		-13.1	%
Tapada thermal power station (PES)		5,404		7,126		-24.2	%
Auto-producers (IES)		3,184		2,461		29.4	%
Import / (Export) net		2,793		1,899		47.1	%
Direct sales to Ind. Clients (incl. in Cogeneration)		(532	)	(454	)	17.1	%
Pumping		(485	)	(670	)	-27.6	%
Gross demand		43,064		40,675		5.9	%
Synchronous compensation		(31	)	(37	)	-13.8	%
Own consumption - generation		(3	)	(3	)	24.8	%
Own consumption - transmission grid		(10	)	(9	)	17.5	%
Losses		(813	)	(687	)	18.4	%
Energy delivered to distribution		42,206		39,941		5.7	%

 

 

Thermal emission (GWh)		2003		2002		Δ%
Tapada do Outeiro		(1	)	44		—
Carregado		1,091		2,408		-54.7	%
Barreiro		195		249		-21.7	%
Setúbal		1,834		5,191		-64.7	%
Sines		9,473		9,532		-0.6	%
Alto de Mira + Tunes		26		13		106.7	%
EDP thermal emiss. (PES)		12,619		17,437		-27.6	%

 

Installed Capacity (MW)		2003		2002		UMW		BP 2006
Run-of-river		1,860		1,860		—		1,860
Reservoir		2,043		2,043		—		2,475
Coal		1,192		1,192		—		1,192
Fuel		1,759		1,759		—		1,713
CCGT		392		—		392		1,176
Diesel		197		329		(132	)	165
Small hydro (HDN & HCL)		226		226		—		229
Cogeneration		111		111		—		111
Total EDPP		7,780		7,520		260		8,920
Small hydro (EDP Energia)		85		85		—		85
Wind (Enernova)		65		40		25		385
Biomass (EDP Bioeléctrica)		9		9		—		9
EDP Installed Capacity		7,939		7,654		285		9,399

 

(1) The Special Regime Producers (SRP) Enernova and EDP Bioeléctrica (Renewable Energy) were excluded from the EDPP consolidation perimeter from July 2003. For analysis purposes these two companies were excluded from EDPP in both periods.

(2) HDN, Hidrocenel (HCL) and EDP Energia’s power stations with installed capacity of less than 10 MW operating in the Non-Binding system are remunerated as Special Regime Producers (“SRP”). SRP generation in HDN represented 131 GWh in 2003 and 100 GWh in 2002, in HCL represented 47 GWh in 2003 and 42 GWh in 2002 and in EDP Energia represented 19 GWh in 2003 and 8 GWh in

 

 

In 2003 EDP’s total emission increased 11,8% to 28,531 GWh. EDP’s higher emission resulted from heavy rainfall during the first and fourth quarter of the year (52% hydro generation in 2003 compared to 29% in 2002) and a 5.9% increase in gross demand following a cold winter and an unusually hot summer.

 

TER CCGT had its first dry-run during the fourth quarter of the year and contributed with 203 GWh to total emissions to the network. The 1st TER unit started industrial service on the 14th February 2004 and the 2nd is expected to end test emissions in October 2004. As for the 3rd TER unit, it is scheduled to be completed in March 2006.

 

During 2003, CPPE decommissioned the 132 MW Alto Mira diesel plant as its PPA had reached maturity.

 

 

4

 

Electricity revenues (€ m)		2003		2002		Δ%
PPA Capacity Charge		892.7		866.0		3.1	%
PPA Energy Charge		283.6		457.9		-38.1	%
Total CPPE		1,176.3		1,323.9		-11.2	%
Small hydro (HDN & HCL)		87.5		57.6		51.9	%
Cogeneration (Soporgen & Energin)		40.1		32.8		22.2	%
Trading		1.8		—		—
Total EDP Produção		1,305.6		1,414.3		-7.7	%

 

Fuel costs (€ m)		2003		2002		Δ%
Coal		130.5		148.8		-12.3	%
Fuel-oil		117.7		259.8		-54.7	%
Natural Gas		22.9		24.5		-6.4	%
Diesel		2.7		1.5		79.8	%
CPPE		273.9		434.6		-37.0	%
Natural Gas (Soporgen & Energin)		36.4		30.9		17.7	%
Total EDP Produção		310.3		465.5		-33.3	%

 

Electricity Purchases (€ m)		2003		2002		Δ%
Small hydro, CPPE, Trading and Cogen.		65.3		37.2		75.4	%

 

 

 

Electricity revenues

 

 

Fuel costs

 

 

The PPA capacity charge increased 3.1%, reflecting i) the high availability factors (Km)(2) at CPPE’s power plants (total Km: 1.054 in 2003 vs. 1.046 in 2002, of which hydro: 1.051 in 2003 vs. 1.039 in 2002 and thermal: 1.058 in 2003 vs. 1.055 in 2002) and ii) the charge adjustment for inflation as foreseen in the PPA contracts.

 

(2) Km = 12 months average verified available capacity / 12 months average contracted available capacity

 

 

The PPA energy charge, the component that remunerates CPPE plants operating in the Public Electricity System for the fuel consumption they incurred, dropped 38.1% due to a lower utilisation of CPPE’s thermal plants. Fuel consumption was lower because of the wet year. CPPE continued to buy coal and fuel-oil at a lower price than what it receives through the PPA energy charge (€273.9 million vs. €283.6 million), which is based on the EU coal price index and the Platts index. The increase in diesel costs results from using up the remaining fuel stock at the Alto Mira plant site, prior to its decommissioning.

 

As a result, EDP Produção’s (‘EDPP’) electricity generation gross profit increased 2.0% in 2003 to €929.9 million (€911.5 million in 2002).

 

5

 

Personnel costs (€ m)		2003		2002		Δ%
Total Personnel Costs		119.3		118.5		0.7	%
Pension Premiums		8.9		9.7		-8.2	%
Early Retirement Correction		13.1		13.1		0.0	%
Social benefits with early retirees		1.3		1.3		0.0	%
Medical care with inactives		3.2		3.1		3.5	%
Adjusted Personnel Costs		92.7		91.2		1.7	%
Number of employees		1,988		2,099		-5.3	%
MW/Employee		3.91		3.58		9.2	%

 

S&S Non-Group (€ m)		2003		2002		Δ%
Maintenance and specialised works		21.1		21.5		-2.0	%
Insurance costs		8.8		9.8		-10.1	%
Surveillance and security		2.6		2.2		14.5	%
Building rentals		2.4		0.8		—
Other		14.8		16.7		-11.8	%
Total		49.6		51.1		-2.9	%

 

 

 

O&M / MW                                                          Total Cash Cost / MW

 

              

 

 

*     Business Plan 2006 assumes an average hydrological year

 

The implementation of the Human Resources restructuring plan at EDPP resulted in a reduction of 111 employees during 2003. Under this restructuring plan, the average reestructuring cost per early retirement and lay-off at EDPP is €374 thousand.

 

Personnel costs increased 0,7% following an 2.7% average salary increase. Since most of the headcount reduction was achieved in the last months of 2003, the impact of the personnel reduction on the Personnel costs is expected to be felt more strongly as from 2004.

 

Supplies & Services at EDPP continued to show a fall, benefiting from a reduction in insurance costs, steady maintenance charges and tighter management discipline on other S&S. Building rentals are associated with payments made to EDP’s pension fund, following the sale of EDPP’s headquarters to the latter during 1H2002.

 

 

6

 

Operating Income Statement (€ m)		2003		2002		Δ%
Electricity Sales		1,305.6		1,414.3		-7.7	%
Services Provided		16.9		19.1		-11.5	%
Other Sales		19.7		18.7		5.5	%
Operating Revenues		1,342.1		1,452.0		-7.6	%
Electricity		65.3		37.2		75.4	%
Fuel for electricity generation		310.3		465.5		-33.3	%
Direct Activity Costs		375.6		502.8		-25.3	%
Gross Profit		966.5		949.2		1.8	%
Gross Profit/Revenues		72.0	%	65.4	%	6.6	p.p.
Sundry materials and goods for resale		3.5		4.4		-21.1	%
Supplies and services - Group		18.3		21.9		-16.2	%
Supplies and services - Non-Group		49.6		51.1		-2.9	%
Personnel costs		119.3		118.5		0.7	%
Generation centre rentals		3.6		3.6		1.1	%
Other operating costs (or revenues)		(3.8	)	(5.0	)	24.9	%
Own work capitalised		(37.3	)	(26.0	)	-43.3	%
Operating Costs		153.2		168.4		-9.0	%
EBITDA		813.2		780.9		4.1	%
EBITDA / Revenues		60.6	%	53.8	%	6.8	p.p.
Depreciation and amortisation		230.5		225.9		2.1	%
Provisions		12.7		18.7		-32.4	%
EBIT		570.0		536.3		6.3	%
EBIT / Revenues		42.5	%	36.9	%	5.5	p.p.

 

 

Operating investment (€ m)		2003		2002		Δ%
Binding Generation		66.7		55.7		19.7	%
Non-Binding Generation		143.7		144.8		-0.7	%
Special Regime Producers		2.6		11.9		-77.9	%
Trading		0.2		—		—
Other investments		8.2		17.5		-53.2	%
Financial costs (capitalised)		14.6		9.5		53.7	%
Total operating investment		236.1		239.4		-1.4	%
Recurring investment		34.7		32.4		7.3	%
Non-recurring investment		201.4		207.0		-2.7	%

 

Main Generation Investments at technical cost:

 

 

Total Forecast		€139.0million		Total Forecast		€478.0million
Conclusion date		Sep-2004		Conclusion date		2004
Invested to Date		109.4 or 79%		Invested to Date		347.2 or 73%

 

The consolidation perimeter of EDPP changed in July 2003 and now excludes the special regime producers Enernova and EDP Bioeléctrica. On a stand-alone basis, these two companies amount to €7.5 million EBITDA and €3.6 million Operating Profit in 2003.

 

As a result of efficient fuel procurement and cost cutting, EDPP’s EBITDA grew 4.1% to €813.2 million.

 

7

 

EDP Distribuição

 

Energy Sales (GWh)		2003		2002		Δ%
Energy delivered to Distribution		42,207		39,941		5.7	%
Own consumption - distribution		(33	)	(20	)	-66.0	%
Distribution losses		(3,259	)	(2,989	)	-9.0	%
Total electricity sales (1)		38,915		36,931		5.4	%
Electricity sales - PES (2)		34,867		35,973		-3.1	%
VHV (Very high voltage)		1,115		875		27.4	%
HV (High voltage)		3,640		3,396		7.2	%
MV (Medium voltage)		8,600		11,198		-23.2	%
SLV (Special low voltage)		3,050		2,891		5.5	%
LV (Low voltage)		17,296		16,534		4.6	%
PL (Public lighting)		1,167		1,080		8.0	%
Electricity sales - NBES (3)		4,048		958		—
EDP		2,724		644		—
HV (High voltage)		46		78		-41.3	%
MV (Medium voltage)		2,679		566		—
Non-EDP		1,324		314		—
HV (High voltage)		68		104		-34.5	%
MV (Medium voltage)		1,256		210		—

 

Electricity consumers		2003		2002		Δ%
VHV (Very high voltage)		15		11		4
HV (High voltage)		110		98		12
MV (Medium voltage)		18,980		20,377		(1,397	)
SLV (Special low voltage)		28,111		27,290		821
LV (Low voltage)		5,676,733		5,575,766		100,967
PL (Public lighting)		42,047		41,113		934
Binding consumers		5,765,996		5,664,655		101,341
HV (High voltage)		1		1		—
MV (Medium voltage)		1,404		349		1,055
EDP		1,405		350		1,055
HV (High voltage)		2		3		(1	)
MV (Medium voltage)		513		140		373
Non-EDP		515		143		372
Non-binding consumers		1,920		493		1,427
Total electricity consumers		5,767,916		5,665,148		102,768
% Growth						1.8	%

 

 

		Number of Clients						Consumption (GWh)
Liberalised Market		2003		2002		Δ%		2003		2002		Δ%
Total Market		5,767,916		5,665,148		102,768		38,915		36,931		5.4	%
Eligible Clients		21,025		20,979		46		17,403		16,426		5.9	%
Share of Total Market (%)		0.36		0.37		-0.01	pp	44.7		44.5		0.24	pp
NBES Clients		1,920		493		1,427		4,048		958		322.6	%
Share of Total Market (%)		0.03		0.01		0.02	pp	10.4		2.6		7.81	pp
EDP Energia		1,405		350		1,055		2,724		644		323.3	%
Share of NBES Clients (%)		73.2		71.0		2.18	pp	67.3		67.2		0.10	pp

 

Total electricity distributed in 2003 reached 38,915 GWh, representing a 5.4% growth in Portugal’s electricity consumption, due to a cold winter, a particularly warm summer and a slight recovery in economic growth felt mostly in the industrial segment. The binding system (PES) accounted for 89.6% of total energy distributed in Portugal.

 

Energy sales in the binding system (PES) decreased 3.1% year-on-year mostly due to the continued transfer of some MV customers from the binding to the non-binding system. EDPD won 4 new industrial clients that explain the 27.4% increase in VHV energy sales. As for SLV and LV segments, these continue to grow at healthy rates of 5.5% and 4.6%, respectively.

 

By the end of 2003, electricity customers totalled 5,767,916 up 1.8% year-on-year. The number of clients with “non-binding status” totalled 2,620, out of which, 1,920 were actually acquiring energy in the liberalised market. Between 2002 and 2003, EDP Energia, the Group’s company operating in the non-binding segment, achieved a 67.3% market share in the liberalised market with 2,724 GWh of energy sold to its 1,405 clients.

 

Until December 2003, the eligibility threshold for the non-binding system included all consumers except the low voltage ones. As from January 2004, the eligibility threshold was extended to the SLV clients. Liberalisation for all voltage levels should occur in June 2004.

 

(1) Figures presented include Sales to EDP Group.

(2) PES - Public Electricity System.

(3) NBES - Non-Binding Electricity System.

 

8

 

 

EDPD’s “Electricity Gross Profit”(Regulated Revenues) increased 8.5% year-on year, from €1,089.1 million in 2002 to €1,181.5 in 2003. This is the result of: (i) 2.2% higher allowed revenues for the Use of the Distribution Grid activity, which accounted for 76% of EDPD’s total allowed revenues; (ii) a 16.8% increase in allowed revenues for the Network Services’ activity; (iii) a 54.7% increase in allowed revenues for the Supply in the Public System activity and (iv) a €10.2 million tariff adjustment for deviations in energy acquisition costs in the LV segment.

 

Allowed revenues for the Use of the Distribution Grid activity reflect: (i) a 3.8% and 2.9% decrease, from 2002 to 2003, in unit revenues for HV/MV and LV segments respectively (in accordance with the ‘CPI – X’ formula), and (ii) a 5.4% increase in consumption. The positive effect of higher consumption, which would have meant a 5.4% increase in allowed revenues for this activity, was partly offset by the 2003 tariff cuts resulting in a 2.2% increase in the Use of Distribution Grid’s allowed revenues.

 

Regulated Revenues		2003		2002
Unit revenue for the UDGr: HV and MV (€ / MWh)		9.84		10.23
Electricity delivered to PES/NBES consumers: HV and MV (GWh)		39,188		37,292
Unit revenue for the UDGr: LV (€ / MWh)		24.55		25.29
Electricity delivered to binding/non-binding consumers: LV (GWh)		21,512		20,368
Incentive to losses Reduction (€m)		—		(2.2	)
t-2 tariff adjustment (€ m)		(13.9	)	(14.0	)
URD total allowed revenues (€ m)		900.0		880.4
Allowed revenues for the NS activity: VHV; HV and MV (€ m)		23.3		11.2
Allowed revenues for the NS activity: SLV (€ m)		9.2		9.4
Allowed revenues for the NS activity: LV (€ m)		126.4		115.5
t-2 tariff adjustment (€ m)		—		—
CRedes total allowed revenues (€ m)		159.0		136.1
Allowed revenues for the SPS activity: VHV; HV and MV (€ m)		8.4		3.8
Allowed revenues for the SPS activity: SLV (€ m)		2.4		1.8
Allowed revenues for the SPS activity: LV (€ m)		78.8		72.7
t-2 tariff adjustment (€ m)		22.7		(5.7	)
CSEP total allowed revenues (€ m)		112.3		72.6
t-1 tariff adjustment for Energy Acquisition activity (€ m)		10.2		—
Total allowed revenues after tariff adjustment (€ m)		1,181.5		1,089.1

 

Electricity Sales & Gross Profit (€ m)		2003		2002		Δ%
VHV (Very High Voltage)		45.3		37.9		19.4	%
HV (High Voltage)		166.3		155.5		6.9	%
MV (Medium Voltage)		618.4		787.8		-21.5	%
SLV (Special Low Voltage)		290.2		273.4		6.1	%
LV (Low Voltage)		2,215.0		2,061.7		7.4	%
Public lighting		95.7		86.6		10.5	%
Interruptibility discounts		(26.7	)	(25.5	)	-4.8	%
Tariff correction discounts		(1.4	)	(4.5	)	68.7	%
Invoiced Sales - PES		3,402.8		3,373.0		0.9	%
Invoiced Sales - NBES		70.5		12.9		—
Distribution 2000 Reposition		—		20.5		—
Distribution 2001 Reposition		(6.7	)	—		—
Distribution 2002 Reposition		(10.2	)	—		—
Distribution 2002		17.9		50.0		—
Distribution 2003		72.2		—		—
Tariff Adjustments		73.1		70.5		—
Electricity Revenues		3,546.4		3,456.4		2.6	%
Tariff adjustments’ reposition		0.9		20.5		—
Sales to customers before reposition		3,545.4		3,435.9		3.2	%
Electricity purchases		2,364.0		2,346.8		0.7	%
Electricity Gross Profit		1,181.5		1,089.1		8.5	%

 

We recall that EDPD also receives the URD and the CREDES tariffs for all the energy sold by any supplier operating in the liberalised market (4,048 GWh in 2003). This amounted to €70.5 million in 2003.

 

The €73.1 million tariff adjustment recognised in 2003 is made up as follows: (i) €6.7 million from the reposition of the positive tariff adjustment booked in 2001; (ii) €10.2 million from the reposition of a 2002 positive adjustment regarding the recovery of variations between estimated and real fuel costs (variable component of energy acquisition for the LV segments - a pass-through to the 2003 tariffs); (iii) €17.9 million from a revision made to the 2002 tariff adjustment following a correction to the amounts of electricity distributed that year (36,931 GWh instead of 36,741 GWh) and (iv) €72.2 million from the 2003 tariff adjustment as real consumption in PES for the period came below ERSE’s estimate (2.1% growth year-on-year) used in the 2003 tariffs. EDPD was therefore not able to recover the fixed component of its electricity purchases fully.

 

9

 

Materials (€ m)		2003		2002		Δ%
Own Work Capitalised		95.3		67.2		41.7	%
Maintenance Works		16.1		12.9		24.5	%
Materials		111.3		80.1		39.0	%

 

Supplies & Services (€ m)		2003		2002		Δ%
Supplies&Services - Group		90.7		79.9		13.5	%
Supplies&Services - Non-Group		115.6		123.4		-6.3	%
Maintenance costs		35.3		45.5		-22.5	%
Specialised works		35.6		33.1		7.5	%
Communications		16.3		15.7		3.8	%
Insurance costs		5.7		5.9		-3.0	%
Others		22.8		23.2		-1.9	%
Total Supplies&Services		206.3		203.3		1.5	%

 

Personnel costs (€ m)		2003		2002		Δ%
Total Personnel Costs		393.8		379.6		3.7	%
Pension premiums		42.7		31.0		37.7	%
Early retirement correction		75.5		77.1		-2.0	%
Social benefits with early retirees		11.1		11.9		-7.3	%
Medical care with inactives		13.4		13.1		2.2	%
Adjusted Personnel Costs		251.2		246.5		1.9	%
Number of employees		6,334		6,979		-9.2	%

 

The abnormal increase in sundry materials during the period (39%) is explained by the fact that last year’s costs were lower than normal due to stock write-offs. Sundry materials relate mostly to investment at EDPD which was capitalised and accounted for as “own work capitalised” (subsequently depreciated).

 

The increase in group supplies and services (up 13.5% year-on-year) is related to an €18.8 million bill regarding services supplied by EDP Valor. Note that EDP Valor started its activities as a services provider progressively and that EDPD’s costs with services related to the creation of EDP Valor were fully transferred to that company in the 2Q2003.

 

Non-group supplies and services, which fell 6.3% year-on-year, benefited from a 22.5% decrease in maintenance costs due to both the renegotiation of some maintenance contracts (payments no longer made under a retainer basis) and a higher recourse to EDPD’s internal resources.

 

Personnel costs for the period totalled €393.8 million, up 3.7% year-on-year, mostly on the back of increased “pension premiums”. When corrected for all early-retirement costs, pension premiums and other costs associated with non-active workers, personnel costs would have increased by a mere 1.9%, reflecting a 2.7% average salary increase that was slightly offset by a reduction of 645 employees, with an impact only towards the end of the year.

 

Following ERSE’s approval (August 2003) regarding the pass-through to final tariffs of up to €485.7 million of EDPD’s restructuring costs associated with the “Human Resources Rationalisation Program”, the company decided to resume its early retirements program, which had been suspended. As a consequence, EDPD was able to reduce its workforce by 645 employees, of which 500 were part of this restructuring program for which ERSE accepts the costs. The remaining reductions refer to transfers to the Holding / EDP Valor and early retirements made outside the scope of ERSE’s costs acceptance.

 

Customers/Employee & Sales / Employee

 

 

10

 

EDP Distribuição HR Restructuring Program (Year 0)

 

1                   Accounting Procedures - In year 2003, there is no impact at the level of Net Income...

 

2003 HR Restructuring Program:

Negociated Dismissals - 70 employees

Early Retirements - 430 employees

Total Costs:

Negociated Dismissals - €14.9 m

Early Retirements - €133.4 m

 

Negociated		Early Retirements
Extraordinary
Charge - Recognition		Constitution of a
of Liability:		Regulatory Asset:
- €14.9 m		€133.4 m
Extraordinary Gain		Against
Constitution of a
Regulatory Asset:		Recognition of a
+ €14.9 m		Deferred Income
		€133.4 m
P&L Impact = 0

 

BALANCE SHEET
		Accounts
		Payable
Constitution of a		€12.5 m
Regulatory
Asset		Cash €2.4 m
€148.4 m		Deferred
		Income
		€133.4 m

 

REGULATORY ASSET		DEFERRED INCOME
Amortised as Costs Recovery through the Tariffs:		Amortised as payment to Early Retirees:
•over a 20 years period;		•against ‘Other Income’ P&L item;
• starting in 2005.		•from 2004 onwards;
		•for an average period of 14 years.

 

2                   ... Impact at the P&L comes from 2004 onwards, in the form of EDPD’s savings with the Human Resources Restructuring Program.

 

INCOME STATEMENT		2004		2005 *		2006		2007		2004 - 2022		...up to 2032		TOTAL
Electricity Revenues		—		22.3		7.4		7.4		148.4		—		148.4		Costs Recovery through tariffs
Operating Costs		—		(22.3	)	(7.4	)	(7.4	)	(148.4	)	—		(148.4	)	Amortisation of Regulatory Asset^
Personnel Costs		(11.2	)	(11.3	)	(11.3	)	(11.3	)	(133.4	)	—		(133.4	)	Payments to Early Retirees
Personnel Costs - Savings		15.1		15.5		16.1		16.6		242.3		4.6		246.9		EDPD Savings with Personnel Reduction
Other Income		11.2		11.3		11.3		11.3		133.4		—		133.4		Amortisation of Deferred Income
P&L Impact (Before Taxes)		15.1		15.5		16.1		16.6		242.3		4.6		246.9

 

^ Asset is fully amortised by 2022.

* In 2005, Costs Recovery refers to the 2003-2005 period.

 

3                  What is the value of what was achieved in 2003 with HR Restructuring?

 

NPV assumes the gain of the incentive given
by ERSE against a scenario where the
restructuring cost would not be accepted for
tariffs calculation

 

BENEFITS 2003 HR PROGRAM

€ 246.9 million

COSTS 2003 HR PROGRAM

Considering Costs Recovery through Tariffs €148.4 million

 

CONSIDERING COSTS RECOVERY THROUGH TARIFFS

NPV (@8,5%) of the Reduction of 500 employees at EDP Distribuição:

€100-110 million

 

11

 

EDP Distribuição

 

Operating Income Statement (€ m)		2003		2002		Δ%
Electricity sales - Group		35.7		2.1		—
Electricity sales - Non-Group		3,510.6		3,454.3		1.6	%
Services provided		24.7		21.6		14.6	%
Other sales		1.9		1.7		12.0	%
Operating Revenues		3,573.1		3,479.7		2.7	%
Direct Activity Costs		2,364.0		2,346.8		0.7	%
Gross Profit		1,209.1		1,132.9		6.7	%
Gross Profit/Revenues		33.8	%	32.6	%	1.3	p.p.
Sundry materials and goods for resale		111.3		80.1		39.0	%
Supplies and services - Group		90.7		79.9		13.5	%
Supplies and services - Non-group		115.6		123.4		-6.3	%
Personnel costs		393.8		379.6		3.7	%
Concession fees		171.7		154.0		11.5	%
Other operating costs (or revenues)		(13.4	)	(12.6	)	-6.2	%
Own work capitalised		(183.8	)	(160.7	)	-14.4	%
Operating Costs		685.9		643.6		6.6	%
EBITDA		523.2		489.2		6.9	%
EBITDA / Revenues		14.6	%	14.1	%	0.6	p.p.
Depreciation and amortisation		345.5		330.2		4.6	%
Provisions		42.7		65.1		-34.4	%
EBIT		135.0		93.9		43.8	%
EBIT/ Revenues		3.8	%	2.7	%	1.1	p.p.

 

Investment (€ m)		2003		2002		Δ%
Distribution grid		266.1		230.9		15.2	%
Public lighting		19.6		11.4		72.7	%
Information systems		14.8		80.8		-81.7	%
Of which: Transfer of IT System		13.3		80.5		—
Other investments		43.2		48.1		-10.2	%
Operating investment (1)		343.6		371.2		-7.4	%
Investment subsidies - Cash		59.7		56.9		5.0	%
Investment subsidies - Kind		61.0		54.1		12.8	%
Total Investment Subsidies		120.8		110.9		8.8	%
Operating Invest. Excl. Subsidies		283.9		314.3		-9.7	%

 

 

Gross Profit for the period increased 6.7%, which along with the company’s efforts to improve its operating efficiency, resulted in a 6.9% increase of EBITDA.

 

The 11.5% increase in concession fees reflects a 0.25 p.p. increase in the average rate paid to municipalities (7.25% on the previous year’s LV sales). LV sales increased 6.4% between 2001 and 2002.

 

Provisions for the period totalled €42.7 million, down 34.4% year-on-year, following a change in EDP Distribuição’s accounting procedures, according to which the constitution of provisions for doubtful clients was netted off against extraordinary gains resulting from the reversal of this kind of provisions.

 

The transfer from Edinfor to EDPD of an IT system worth €93.8 million led to a 4.6% increase in amortisations. All together, EBIT increased 43.8% year-on-year to €135.0 million, while EBIT margin went up 1.1 p.p., to 3.8% in 2003.

 

Excluding the amounts of investment relative to the above-mentioned transfer of assets (which do not affect the Group cash-(outflow), EDPD’s operating investment would have increased 13.7% to €330.3 million, of which 80.5% were invested in the distribution grid. These investments, which are aimed at improving the quality of service, allowed for an improvement of the average interruption time at the MV grid (341 min in 2003, down from 420 min in 2002).

 

(1) Includes Cash Subsidies .

 

12

 

Hidrocantábrico (100%) - Generation

 

Spain Energy Balance (GWh)		2003		2002		Δ%
Generation		183,633		171,524		7.1	%
Special Regime		39,659		34,048		16.5	%
Imports		8,537		9,595		-11.0	%
System Demand - Coverage		231,830		215,167		7.7	%
Regulated Distribution		158,804		150,010		5.9	%
Supply		65,561		60,802		7.8	%
Exports		7,465		4,355		71.4	%
Source: OMEL

 

HC’s Net Electricity Generation (GWh)		2003		2002		Δ%
Hydroelectric		861		771		11.6	%
Nuclear		1,257		1,212		3.7	%
Aboño		6,573		6,425		2.3	%
Soto de Ribera		3,918		4,572		-14.3	%
Coal		10,491		10,997		-4.6	%
Castejón CCGT		1,546		328		370.7	%
Total Generation		14,154		13,309		6.4	%
Pumping		(127	)	(131	)	-3.6	%
Energy delivered to the Pool		14,028		13,178		6.5	%

 

HC’s Performance in the Pool		2003		2002		Δ%
Average HC Selling Price (1) (€/MWh)		35.83		44.15		-18.8	%
Average Pool Price (1) (€/MWh)		37.76		47.15		-19.9	%
HC’s market share in wholesale market		7.6	%	7.7	%	0.0	p.p.

 

HC’s Fuel Costs		2003		2002		Δ%
Average HC Fuel Cost (€/MWh) (2)		16.1		16.0		0.4	%

 

 

Demand in the Spanish electricity market grew 6% compared to 2002 following a harsh winter (beginning and end of 2003) and an unusually hot summer.

 

Due to the wet 4Q2003, hydro generation as a percentage of the total Spanish electricity emission had a strong increase which led to a reduction in pool prices from €38.59/MWhon the 9M2003 to €37.76/MWh on the YE2003. In 2003 the pool prices dropped 18.8% from €47.15/MWh to  €37.76/MW has a result of a higher hydrological coefficient (1.16 in 2003 versus 0.73 in 2002).

 

Although Hidrocantábrico is heavily weighted on thermal power generation, it was able to increase its net emission by 6.4% under these hydrological conditions thanks to the start of Castejón CCGT’s operations in October 2002.

 

Fuel prices had a favourable trend during almost all of 2003 compared to last year. However, Hidrocantábrico’s average fuel costs increased slightly from €15.6/MWh in the 9M2003 to €16.1/MWh in the YE2003 as a result of an increase in the coal prices on the 4Q2003.

 

(1) Includes wholesale market, ancillary services and capacity payment.

(2) Excluding hydroelectric emission.

 

13

 

Hidrocantábrico (100%) - Distribution & Supply

 

Distribution

 

Energy Sales - GWh

 

Electricity		2003		2002		Δ%
Low Voltage		2,148		2,015		6.6	%
Medium Voltage		991		861		15.1	%
High Voltage		5,520		5,571		-0.9	%
Total		8,659		8,447		2.5	%
of which: access clients		1,245		1,094		13.8	%

 

Gas (1)		2003		2002		Δ%
Pressure < 4 Bar		3,188		1,602		—
Pressure > 4 Bar		6,439		222		—
Total		9,627		1,824		—
of which: access clients		5,257		360		—

 

# of Customers

 

Electricity		2003		2002		Δ%
Low Voltage		560,499		548,423		2.2	%
Medium Voltage		690		649		6.3	%
High Voltage		19		19		0.0	%
Total		561,208		549,091		2.2	%
of which: access clients		1,468		525		179.6	%

 

Gas (1)		2003		2002		Δ%
Pressure < 4 Bar		542,107		157,000		—
Pressure > 4 Bar		687		51		—
Total		542,794		157,051		—
of which: access clients		2,614		12		—

 

Revenues - € m

 

Electricity		2003		2002		Δ%
Transmission		6.4		3.6		76.4	%
Distribution		93.2		90.2		3.3	%
Commercialisation		7.0		7.2		-3.5	%
Regulated revenues		106.6		101.1		5.5	%

 

Gas		2003		2002		Δ%
Transmission		5.5		—		—
Distribution		63.1		24.6		—
Commercialisation		5.3		2.1		—
Regulated revenues		73.9		26.7		—

 

Supply

 

Energy Sales - GWh

 

Electricity		2003		2002		Δ%
Asturias		1,024		933		9.8	%
Rest of Spain		3,688		3,022		22.0	%
Total		4,712		3,955		19.1	%

 

Gas		2003		2002		Δ%
Asturias/Basque Country		3,342		168		—
Rest of Spain		2,369		1,740		—
Total		5,711		1,908		—

 

# of Customers

 

Electricity		2003		2002		Δ%
Asturias		1,180		472		150.0	%
Rest of Spain		2,196		1,775		23.7	%
Total		3,376		2,247		50.2	%

 

Gas		2003		2002		Δ%
Asturias/Basque Country		400		8		—
Rest of Spain		74		76		—
Total		474		84		—

 

Revenues - € m

 

Electricity		2003		2002		Δ%
Asturias		57.4		49.3		16.5	%
Rest of Spain		203.4		161.1		26.3	%
Sales		260.8		210.4		24.0	%

 

Gas		2003		2002		Δ%
Asturias/Basque Country		71.6		2.4		—
Rest of Spain		35.4		25.8		—
Sales		107.0		28.3		—

 

Electricity Distribution: Hidrocantábrico’s regulated revenues for the electricity distribution activity increased 5.5% to €106.6 million. This is explained by: i) the increase in the transmission’s regulated revenues following the expansion outside Asturias (+€2.8 million); and ii) higher regulated revenues in distribution mainly due to lower distribution losses than those recognised by the regulation (+€2.0 million).

 

Gas Distribution: The 2003 figures of Hidrocantábrico’s gas distribution activity include Naturcorp’s figures as from the 1st August 2003. It is important to note that Naturcorp contributed with 7,433 GWh of gas distributed since August. Taking into account the full year of Naturcorp’s gas distribution, Hidrocantábrico would have distributed a total of 21,133 GWh, implying a 7.7% market share of gas distributed in Spain. In terms of regulated revenues, Naturcorp represented €38.8 million (out of €73.9 million) in Hidrocantábrico’s YE2003 accounts. Note: operating data considers 100% of Naturcorp’s gas distribution subsidiaries’ figures, while all financial data considers the consolidation method.

 

Electricity Supply: The electricity supply activity has benefited from the liberalisation for all customers as of January 2003 and the 6.0% growth in electricity demand. In this activity, the company was able to increase its average selling price 4.1% to €55.4/MWh in 2003.

 

Gas Supply: The strong year-on-year growth in the gas supply activity is explained by the fact that Hidrocantábrico initiated this activity at the beginning of 2002 and by the inclusion of Naturcorp since August 1st 2003. Naturcorp has contributed with 2,930 GWh of gas sold. Considering a full 2003 contribution of Naturcorp, Hidrocantábrico would have sold 7,540 GWh of gas, achieving a market share of 3.9% in the liberalised market. In the total Spanish gas market, both regulated and non-regulated, Hidrocantábrico would have sold 20,507 GWh of gas, corresponding to a 7.4% market share.

 

(1) Considering 100% of Naturcorp’s gas distribution subsidiaries

 

14

 

Hidrocantábrico (100%)

 

Business Areas		Generation & Supply (1)						Electricity Distribution						Gas (1)						Special Regime
Breakdown		2003		2002		Δ%		2003		2002		Δ%		2003		2002		Δ%		2003		2002		Δ%
Revenues		911.4		867.7		5.0	%	428.1		488.1		-12.3	%	241.8		55.6		334.9	%	34.0		34.1		-0.4	%
Direct Costs		597.6		543.8		9.9	%	315.4		385.3		-18.1	%	151.5		22.1		585.2	%	17.9		24.7		-27.5	%
Gross Profit		313.8		323.9		-3.1	%	112.6		102.7		9.7	%	90.4		33.5		169.7	%	16.1		9.4		70.8	%
Gross Profit/Revenues		34.4	%	37.3	%	-2.9	p.p.	26.3	%	21.0	%	5.3	p.p.	37.4	%	60.3	%	-22.9	p.p.	47.3	%	27.6	%	19.7	p.p.
Personnel Costs		36.2		33.4		8.3	%	22.7		21.5		5.9	%	8.7		2.5		248.6	%	4.7		5.5		-13.9	%
Other Operating Costs (net)		33.6		21.7		55.2	%	19.1		23.7		-19.7	%	14.9		3.4		338.3	%	(0.2	)	(3.9	)	94.1	%
EBITDA		244.0		268.9		-9.2	%	70.9		57.5		23.2	%	66.8		27.6		141.8	%	11.6		7.8		47.7	%
EBITDA/Revenues		26.8	%	31.0	%	-4.2	p.p.	16.6	%	11.8	%	4.8	p.p.	27.6	%	49.7	%	-22.0	p.p.	34.1	%	23.0	%	11.1	p.p.
Depreciation		93.3		84.2		10.8	%	29.1		27.4		6.3	%	18.5		9.1		104.6	%	5.9		4.6		26.1	%
Provision		0.8		0.4		108.0	%	1.1		0.3		223.5	%	0.0		0.7		-93.1	%	0.7		4.7		-84.5	%
EBIT		149.9		184.3		-18.7	%	40.6		29.7		36.5	%	48.2		17.9		169.9	%	5.0		(1.5	)	—
EBIT/Revenues		16.4	%	21.2	%	-4.8	p.p.	9.5	%	6.1	%	3.4	p.p.	19.9	%	32.1	%	-12.2	p.p.	14.7	%	-4.5	%	19.2	p.p.
# of employees		585		580		0.9	%	395		388		1.8	%	277		71		289.4	%	98		139		-29.5	%

 

 

Generation & Supply: The electricity generation and supply activity, which accounts for 68% of Hidrocantábricos’s operating cash-flow, fell 9.2% at the EBITDA level due to a drop in wholesale market prices vis-à-vis 2002 as a result of a higher rainfall in 2003. Nevertheless, the negative effect of lower generation prices was partly offset by: i) a higher electricity emission (+6.5%); ii) lower energy purchase costs at the supply activity; and iii) lower negative CTCs (€2.8 million in 2003 versus €24.7 million in 2002). Sales from the generation activity also include the “tariff deficit” for 2000 to 2002, which is being received through tariffs until 2010 (€9.2 million in 2003). The increase in operating costs versus 2002 is due to: i) the start of Castejón CCGT’s operations in October 2002 (+€4.9 million in operating costs); and ii) the lower capitalised expenses during 2003 following the conclusion of Castejón CCGT in September 2002 (+€3.0 million in operating costs).

 

Electricity Distribution: The EBITDA of the electricity distribution activity increased 23.2% as a result of: i) an increase in the transmission and distribution regulated revenues (as explained in the previous page) with an impact of €5.8 million in this activity’s gross profit; and ii) a €7.0 million reduction in supplies and services due to lower network implementation costs in 2003 (associated with the 2002 grid expansion outside Asturias).

 

Gas: The full consolidation of Naturcorp, as from August 2003, had an important impact on the gas activity’s results. Naturcorp contributed an extra €173.4 million to revenues, €51.8 million to the gross profit and €35.9 million to consolidated EBITDA of Hidrocantábrico. (See appendix I for the line by line impact on HC’s accounts and Naturcorp’s full 2003)

 

Special Regime: The 2003 net emission of Hidrocantábrico’s special regime generators increased 47% to 233 GWh. The start of the operations of P.E. Cantábrico (65 MW) and P.E. Arlanzón (only 25 MW of the total 34 MW) wind farms in the second half of 2002 contributed an extra 36 GWh in net emission. This contribution partly explains the 50% rise at the EBITDA level versus 2002.  It is important to note that HC’s subsidiary for the special regime activity, Sinae, has refocused its activity in 2003 as a special regime generator, leaving areas such as consulting, engineering and building of renewable energy projects.

 

(1) Gas supplied by HC Energia is included in “Generation & Supply” Unit. As from January 2004 will be included in the “Gas” Unit.

 

15

 

Capex (€ m)		2003		2002		Δ%
Generation		21.2		66.5		-68.1	%
Electricity Distribution		47.0		68.5		-31.5	%
Electricity Supply		5.2		2.2		134.5	%
Gas		30.0		22.7		32.5	%
Special Regime		78.3		43.1		81.5	%
Other		10.8		2.0		431.7	%
Operating Investment		192.5		205.1		-6.2	%
Recurring investment		111.3		82.6		34.6	%
Non-recurring investment		81.2		122.5		-33.7	%
(-) Subsidies		14.9		10.5		41.7	%
Capex		177.6		194.6		-8.7	%
Financial Results (€ m)		2003		2002		Δ%
Interest receivable / (payable)		(84.4	)	(81.8	)	-3.2	%
Gains / (losses) in group & assoc. comp.		2.0		(0.6	)	—
Goodwill amortization		(70.0	)	(61.5	)	-13.8	%
Other gains / (losses)		(3.7	)	(1.0	)	-277.8	%
Financial Results		(156.0	)	(144.8	)	-7.7	%
Goodwill Amortization (€ m)		2003		2002		Δ%
Merger Goodwill		46.5		46.3		0.5	%
Naturcorp		8.9		—		—
Gas Asturias		9.8		9.8		0.0	%
REE		1.9		3.2		-40.8	%
Other		2.8		2.2		29.5	%
Total		70.0		61.5		13.8	%
Extraordinary Results (€ m)		2003		2002		Δ%
Fixed assets gains / (losses)		(0.2	)	(5.2	)	95.9	%
Prior year adjustment		(11.0	)	(7.4	)	-48.8	%
Depreciation of subs. & concessions		2.7		2.2		23.4	%
Other gains / (losses) (1)		10.1		(23.9	)	—
Extraordinary Results		1.7		(34.3	)	—

 

 

Total capex decreased 8.7% compared to 2002, explained by lower investments in the Generation and Electricity Distribution activities. Investment in Special Regime had a strong increase in the period with the construction of P.E. del Cantábrico (65 MW) and P.E. Arlanzón (34 MW) wind farms. It is expected that P.E. Arlanzón wind farm will be fully operational during the 1H2004 and P.E. Albacete (124 MW) in the 4Q2004. Investments in the generation activity dropped due to the conclusion of Castejón CCGT in September 2002. As for the electricity distribution activity, lower investment was made in expanding outside Asturias (€9.4 million in 2003 versus €21.9 million in 2002). In the gas activity, Naturcorp invested €12.2 million since August 2003.

 

Hidrocantábrico’s financial charges increased 7.7% mainly due to the amortisation of Naturcorp’s acquisition goodwill, which amounted to €8.9 million from August to December 2003.

 

It is important to highlight that Naturcorp’s acquisition goodwill amounted to €428 million (after the merger process). This process, which was reflected in Naturcorp’s accounts on the 1st of January of 2003, consisted of the merger between Naturcorp Multiservicios, Gas de Asturias, Gas Figueres, Gas de Euskadi, Donostigas and Naturcorp I (acquisition vehicle). During this process, the minority shareholder of Gas de Euskadi swapped its stake (20.5%) for 8.4% of Naturcorp at the original value. Hidrocantábrico’s stake in Naturcorp was consequently diluted from the initial 62% to 56.8%. Overall, Hicrocantábrico paid €251 million in cash and swapped its 100% participation in Gas de Asturias and subsidiaries valued at €322 million.

 

As for the tax efficiencies on the goodwill amortisation, it is important to note that in the Basque Country goodwill is accepted as a fiscal cost, being amortised in 10 years, and the tax rate is 32.5% (however in Hidrocantábrico’s accounts the amortisation is adjusted for 20 years).

 

(1) In 2002 it was accounted a generic provision of €21.7 million.

 

16

 

Income Statement (€ m)		2003		2002		Δ%
Revenues		1,656.4		1,436.2		15.3	%
Direct Costs		1,125.1		964.3		16.7	%
Gross Profit		531.2		471.9		12.6	%
Gross Profit/Revenues		32.1	%	32.9	%	-0.8	p.p.
Supplies and services		83.4		71.2		17.2	%
Personnel costs		92.8		77.0		20.5	%
Other operating costs (or revenues)		6.5		0.1		—
Own work capitalised		(10.0	)	(13.0	)	23.2	%
Operating Costs		172.7		135.2		27.7	%
EBITDA		358.5		336.7		6.5	%
EBITDA/Revenues		21.6	%	23.4	%	-1.8	p.p.
Depreciation		150.3		128.7		16.8	%
Provision		2.7		6.2		-56.2	%
EBIT		205.6		201.8		1.9	%
EBIT/Revenues		12.4	%	14.1	%	-1.6	p.p.
Financial income and gains		16.4		14.9		10.1	%
Financial expenses and losses		172.4		159.7		7.9	%
Financial Results		(156.0	)	(144.8	)	-7.7	%
Extraordinary income and gains		22.4		6.6		241.8	%
Extraordinary expenses and losses		20.8		40.9		-49.2	%
Extraordinary Results		1.7		(34.3	)	—
Income Before Taxes		51.3		22.7		125.9	%
Income taxes		7.2		10.3		-29.4	%
Minority interests		13.0		(2.1	)	—
Net Profit		31.0		14.6		112.7	%
Number of employees		2003		2002		Δ%
Number of employees		1,569		1,357		15.6	%

 

 

Consolidated EBITDA in 2003 was affected by:

i) the inclusion of five months of Naturcorp contributing within €35.9;

ii) the decline in generation revenues due lower pool prices;

iii) the increase in operating costs as a result of the consolidation of Naturcorp and the start of Castejón CCGT’s operations in October 2002;

iv) lower capitalised expenses in the period with the conclusion of the construction of Castejón CCGT.

 

Pursuant to IAS rules, the tax benefit (€25 million) granted by the Navarre Autonomous Region on the investment made in Castejón CCGT, which Hidrocantábrico accounted in the 1Q2003 was reversed in the 4Q2003. This tax benefit will be accounted during the Castejón CCGT plant’s useful life (25 years) instead. The abnormal effective tax rate for 2003, is explained by the tax efficiencies in Naturcorp’s acquisition goodwill.

 

It is important to note that the net contribution of the acquisition of Naturcorp to Hidrocantábrico’s 2003 Net Profit was €11.4 million (see appendix I).

 

Note: Hidrocantábrico was proportionally consolidated in accordance with EDP’s stake in Hidrocantábrico (40%).

 

17

 

Brazil - Distribution

 

		Bandeirante						Escelsa						Enersul
Energy Sales & Gross Profit		2003		2002		Δ%		2003		2002		Δ%		2003		2002		Δ%
Energy Sales (GWh)
Electricity Purchases & Self Generation		11,236		13,872		-19.0	%	7,237		8,306		-12.9	%	3,449		3,704		-6.9	%
Electricity delivered to distribution		12,390		11,807		4.9	%	8,185		7,336		11.6	%	3,391		3,270		3.7	%
Distribution losses		(1,009	)	(889	)	13.5	%	(997	)	(838	)	19.0	%	(533	)	(515	)	3.5	%
Residential		2,132		2,115		0.8	%	1,195		1,134		5.5	%	872		862		1.1	%
Industrial		5,227		5,991		-12.8	%	2,745		3,290		-16.6	%	654		671		-2.5	%
Commercial		1,180		1,130		4.5	%	754		839		-10.2	%	547		527		3.7	%
Other		1,004		929		8.1	%	1,206		1,102		9.4	%	743		693		7.1	%
Electricity sales to customers		9,543		10,165		-6.1	%	5,900		6,365		-7.3	%	2,816		2,754		2.2	%
Electricity distributed to access clients		1,837		753		143.9	%	1,287		134		863.7	%	41		—		—
Electricity sales to MAE (wholesale market)		282		1,667		-83.1	%	46		588		-92.2	%	16		245		-93.7	%
Gross Profit (R$ m)
Residential		599.6		461.0		30.1	%	301.3		254.7		18.3	%	219.7		175.4		25.3	%
Industrial		734.9		694.6		5.8	%	315.9		321.1		-1.6	%	97.9		80.5		21.5	%
Commercial		283.5		233.3		21.5	%	171.0		153.4		11.4	%	135.0		104.0		29.8	%
Other		164.8		131.8		25.0	%	165.9		128.1		29.5	%	119.8		87.3		37.3	%
Electricity sales to customers		1,782.8		1,520.7		17.2	%	954.0		857.4		11.3	%	572.4		447.2		28.0	%
Electricity distributed to access clients		34.1		12.2		178.9	%	39.2		13.0		200.7	%	2.3		—		—
Electricity sales to MAE (wholesale market)		9.6		111.3		-91.3	%	0.4		36.2		-98.9	%	0.2		9.6		-97.6	%
Other Revenues (1)		(152.2	)	(109.8	)	-38.6	%	(49.9	)	(69.4	)	28.1	%	(11.4	)	(32.2	)	64.7	%
Total Revenues		1,674.4		1,534.4		9.1	%	943.7		837.2		12.7	%	563.6		424.6		32.7	%
(-) Direct activity costs		1,235.7		1,152.3		7.2	%	580.2		550.8		5.3	%	288.3		241.9		19.2	%
Gross Profit		438.7		382.1		14.8	%	363.5		286.5		26.9	%	275.3		182.7		50.7	%
Average Tariff to customers (R$/MWh)		186.8		149.6		24.9	%	161.7		134.7		20.0	%	203.3		162.4		25.2	%

 

 

Total electricity distributed by EDP’s subsidiaries in the Brazilian market increased 6.2%, reflecting the steady recovery in 2003’s consumption following the rationing programme and economic slowdown in 2001 and 2002. Regarding total electricity sales to customers, the switch of some industrial clients to the free market explains the 5.3% decline. This decline was mostly felt in Bandeirante and Escelsa, which have a higher weight of electricity distributed to industrial clients in their segment mix. Nevertheless, the clients that have switched to the free market continue to pay for the use of the distribution grid.

 

Regarding electricity sales to customers and gross profit, the three Brazilian distribution subsidiaries had a remarkable performance. This is explained by the pick-up in consumption and the tariff revisions and tariff adjustments of each distribution company during 2003:

 

•  Bandeirante – a 14.68% average increase in October 22nd 2003’s tariff revision, plus 3.40% (which is already being accrued) to be recovered between 2004 and 2006 in the annual tariff adjustments;

•  Escelsa – a 17.30% average increase on the 6th of August 2003. This is a yearly tariff adjustment;

•  Enersul – a 32.59% average increase in April 8th 2003’s tariff revision, plus 9.67% to be recovered during the next four years (which is already being accrued).

 

(1) Includes the Regulatory Tariff Repositions, Taxes over Revenues, Non-Invoiced Electricity and other revenues

 

18

 

Brazil

 

P&L (Statutory Accounts)		Bandeirante						Escelsa						Enersul						Generation & Trading (1)
R$ million		2003		2002		Δ%		2003		2002		Δ%		2003		2002		Δ%		2003		2002		Δ%
Revenues		1,674.4		1,534.4		9.1	%	943.7		837.2		12.7	%	563.6		424.6		32.7	%	231.7		112.2		106.5	%
Direct Activity Costs		1,235.7		1,152.3		7.2	%	580.2		550.8		5.3	%	288.3		241.9		19.2	%	95.3		70.9		34.4	%
Gross Profit		438.7		382.1		14.8	%	363.5		286.5		26.9	%	275.3		182.7		50.7	%	136.4		41.3		230.2	%
Gross Profit/Revenues		26.2	%	24.9	%	1.3	p.p.	38.5	%	34.2	%	4.3	p.p.	48.9	%	43.0	%	5.8	p.p.	58.9	%	36.8	%	22.1	p.p.
Sundry materials & goods for resale		7.0		7.5		-6.6	%	8.6		6.8		26.1	%	11.7		9.4		24.4	%	7.9		0.0		—
Supplies and services		75.2		77.1		-2.4	%	43.0		50.1		-14.1	%	35.7		32.9		8.4	%	61.1		13.6		—
Personnel costs		92.3		87.8		5.1	%	71.0		63.1		12.5	%	53.3		48.2		10.6	%	4.6		3.1		47.3	%
Other operating costs (or revenues)		9.5		10.9		-13.0	%	35.8		(1.7	)	—		16.2		2.2		—		2.9		(4.6	)	—
Operating Costs		184.1		183.3		0.4	%	158.4		118.3		33.9	%	116.8		92.7		26.0	%	76.5		12.1		530.7	%
EBITDA		254.7		198.7		28.1	%	205.1		168.2		21.9	%	158.5		90.0		76.1	%	59.9		29.2		105.3	%
EBITDA/Revenues		15.2	%	13.0	%	2.3	p.p.	21.7	%	20.1	%	1.6	p.p.	28.1	%	21.2	%	6.9	p.p.	25.9	%	26.0	%	-0.2	p.p.
Depreciation		72.8		71.3		2.2	%	59.1		57.1		3.6	%	54.6		53.6		1.9	%	15.0		13.8		8.6	%
Provision		5.6		—		—		17.9		16.2		10.8	%	14.7		12.2		19.9	%	—		—		—
EBIT		176.2		127.5		38.3	%	128.1		95.0		34.9	%	89.2		24.2		268.6	%	44.9		15.4		191.7	%
Capex		136.3		94.3		44.4	%	64.5		60.2		7.2	%	56.0		93.4		-40.0	%	203.0		327.4		-38.0	%
Financial Debt (Non-Group + Group)		790.6		865.4		-8.6	%	1,650.1		2,011.7		-18.0	%	587.5		577.2		1.8	%	219.8		334.0		-34.2	%
# employees		1,261		1,345		-6.2	%	1,309		1,357		-3.5	%	944		930		1.5	%	181		178		1.7	%

 

 

Bandeirante: The good performance at Bandeirante’s gross profit level, on the back of the October’s tariff revision, and a 4.2% increase in consumption along with stable operating costs, led to a 28% increase in EBITDA. Regarding personnel costs, the 5.1% increase versus 2002 is due to a 9% salary increase in June 2003.

 

Escelsa: The company was able to increase EBITDA 21.9% vis-à-vis 2002, despite the 33.9% rise in operating costs. This performance is due to the average tariff increase in 2003 and a 10.6% increase in consumption. Regarding operating costs, the increase is a result of the annual salary adjustment in August of approximately 10%, and the costs incurred with energy conservation programmes and compulsory contributions to the Energy Development Account (accounted in other costs or revenues).

 

Enersul: The strong increase of 76.1% at the EBITDA is largely explained by the tariff revision of 32.59% (plus 9.67%) occurred last April and a 3.7% increase in consumption. This tariff revision allowed a more adequate return on investments, besides reflecting the cost evolution of the company. The 26% increase in operating costs is explained by the annual salary adjustment in August of approximately 12%, higher expenses related to customer services and compulsory contributions to the Energy Development Account.

 

Generation & Trading: The generation activity in Brazil was able to increase its net emission from 910 GWh to 1,386 GWh (considering 100% of Fafen and 27.37% of UHE Lajeado’s net emission). It is important to note that Fafen cogeneration started first phase operations in August of 2002 and the Lajeado hydro power plant started operating fully in November 2002.  The trading and supply activity was able to sell 2,736 GWh of which 1,920 GWh were sold to direct clients (+43% vis-à-vis 2002).The remainder is sold to Bandeirante, Escelsa, Enersul and Cerj. The increase of more than 50% of the electricity generated and a better performance at the trading/supply activity contributed to the improvement at EBITDA level.

 

(1) This section includes the power stations Lajeado and Fafen, and the trading/supply company Enertrade.

 

19

 

Capex (R$ million)		2003		2002		Δ%
Recurring		164.9		164.1		0.5	%
Non-Recurring		91.8		83.8		9.5	%
Distribution		256.7		247.9		3.6	%
Investco - Lajeado (27.65%)		20.2		67.4		-70.0	%
Fafen		109.7		100.6		9.1	%
Peixe Angical		70.3		154.1		-54.4	%
Other		2.8		5.4		-48.8	%
Generation & Trading		203.0		327.4		-38.0	%
EDP Brasil S.A.		1.4		1.0		48.5	%
Total Capex		461.1		576.3		-20.0	%
Financial Debt (R$ million)		2003		2002		Δ%
Local Currency		486.1		431.3		12.7	%
Dollar Denominated Debt		42.6		51.9		-17.9	%
Bandeirante		528.7		483.2		9.4	%
Local Currency		417.0		445.8		-6.5	%
Dollar Denominated Debt		1,274.4		1,645.3		-22.5	%
Escelsa (including Magistra)		1,691.4		2,091.1		-19.1	%
Local Currency		303.3		311.8		-2.7	%
Dollar Denominated Debt		148.0		199.4		-25.8	%
Enersul		451.3		511.2		-11.7	%
Distribution		2,671.4		3,085.6		-13.4	%
Investco - Lajeado (27.65%)		219.8		215.4		2.0	%
Fafen		—		115.5		—
Other		—		3.2		—
Generation & Trading		219.8		334.0		-34.2	%
EDP Brasil S.A.		148.0		32.0		362.0	%
Total Financial Debt		3,039.2		3,451.6		-11.9	%
Asset to Recover (Rationing and Parcela A)		626.2		614.2		2.0	%
Financial Results (R$ million)		2003		2002		Δ%
Net Financial Interest paid		(428.6	)	(313.8	)	-36.6	%
Net foreign exchange differences		192.3		(506.8	)	—
Selic on rationing losses and ‘Parcela A’		173.9		120.0		44.9	%
Other		(16.6	)	(114.1	)	85.5	%
Financial Results		(79.0	)	(814.7	)	90.3	%

 

Total capital expenditure in Brazil dropped 20% in comparison with 2002, explained by lower investments in the Generation activity.

 

The drop in investments in the generation activity was mostly felt in the Lajeado and Peixe Angical hydro power plants. Lajeado (902.5 MW) started operating fully in November 2002 with the conclusion of the last generation group. While Peixe Angical’s (450 MW) construction was put on hold from 2002 until October 2003, only resuming its construction after the agreement reached between EDP and Furnas (an Eletrobrás subsidiary). Through this agreement EDP will hold a 59% stake in Peixe Angical, Furnas 40% and Grupo Rede 1%. At the same time, an agreement was made with BNDES for the financing of R$670 million. The total operating investment is estimated to be around R$1,400 million. EDP has already equity invested around R$200 million and will equity invest a further R$200 million until 2006. Regarding Fafen cogeneration, the 2003 investment is related to the capacity increase from 54 MW to 133 MW, which should be concluded in the 1H2004.

 

As for the distribution activity, Bandeirante increased its investment due to the modernisation of the distribution grid in order to reduce maintenance costs and improve quality of service. While Enersul’s drop in investment follows 2002’s investment in a gas turbine at the Campo Grande thermoelectric plant, which EDP already decided to divest after gaining control of the company in October 2002.

 

Financial Debt decreased R$412.4 million mostly explained by the effect of the appreciation of the Real against the US Dollar (22% in 2003). This effect had a positive impact on financial results, which improved R$735.7 million. The increase in interest charges is mainly due to the increase of the Brazilian benchmark interest rate during 2003(declining only at the end of the year). The Selic rate increase from an average of 19.1% in 2002 to 23.29% in 2003 (26.35% in March). During the 2H2003 the Selic rate declined to 16.3% at December 2003.

 

 

20

 

		R$ million						€ million
Income Statement		2003		2002 (1)		Δ%		2003		2002 (1)		Δ%
Revenues		3,362.9		2,847.8		18.1	%	972.2		989.8		-1.8	%
Direct Activity Costs		2,148.9		1,946.5		10.4	%	621.2		676.6		-8.2	%
Gross Profit		1,214.0		901.2		34.7	%	351.0		313.3		12.0	%
Gross Profit/Revenues		36.1	%	31.6	%	4.5	p.p.	36.1	%	31.6	%	4.5	p.p.
Sundry materials & goods for resale		35.3		23.7		48.5	%	10.2		8.3		23.5	%
Supplies and services		227.6		159.0		43.1	%	65.8		55.3		19.1	%
Personnel costs		239.0		217.3		10.0	%	69.1		75.5		-8.5	%
Other operating costs (or revenues)		66.3		34.5		92.4	%	19.2		12.0		60.0	%
Operating Costs		568.2		434.6		30.7	%	164.3		151.0		8.7	%
EBITDA		645.9		466.7		38.4	%	186.7		162.2		15.1	%
EBITDA/Revenues		19.2	%	16.4	%	2.8	p.p.	19.2	%	16.4	%	2.8	p.p.
Depreciation		201.9		194.5		3.8	%	58.4		67.6		-13.6	%
Provision		38.2		32.4		18.0	%	11.0		11.3		-1.9	%
EBIT		405.7		239.8		69.2	%	117.3		83.4		40.7	%
EBIT/Revenues		12.1	%	8.4	%	3.6	p.p.	12.1	%	8.4	%	3.6	p.p.
Financial Results		(79.0	)	(814.7	)	90.3	%	(22.9	)	(283.2	)	91.9	%
Extraordinary Results		(166.4	)	(107.4	)	-55.0	%	(48.1	)	(37.3	)	-28.9	%
Income Before Taxes		160.3		(682.3	)	—		46.3		(237.2	)	—
Income taxes		140.3		(86.1	)	—		40.6		(29.9	)	—
Minority Interests		78.1		(297.3	)	—		22.6		(103.4	)	—
Net Profit		(58.2	)	(298.9	)	80.5	%	(16.8	)	(103.9	)	83.8	%

 

 

Brazilian operations had a remarkable performance at the EBITDA level on the back of the tariff revisions and tariff adjustments at the Brazilian distribution companies, which allowed a more adequate return of the invested capital. However, such performance was not felt at the Net Profit level due to extraordinary provisions (approximately R$230 million) related to the possible drop in tariffs foreseen in the Lajeado and Fafen industrial projects. On the extraordinary gains side, Escelsa was able to revert a R$75 million provision related to the potential drop in market value of its dollar denominated assets. Excluding this effect (which is not tax deductible), Net Profit would have been positive in R$170 million.

 

The 30.7% increase in operating costs, is due to: i) the rise in personnel costs following annual salary adjustments; ii) increase in supplies and services due to the full operations of Lajeado since November 2002 and the complete year of Fafen’s first phase; and iii) by compulsory contributions for the Energy Development Account, which had an impact of R$28.0 million on the “other operating costs (or revenues)” line. Nevertheless, this compulsory contribution is a pass-through to final tariffs.

 

In Euro terms, the increase in EBITDA was lower due to the depreciation of the Real since the 2H2002, whose recovery was not felt in 2003 due to the strong appreciation of the Euro against both the Real and the US Dollar. Average BRL/€ in 2002 was 2.88 against 3.46 in 2003, representing a 17% fall in average terms of the Real.

 

(1) Pro-Forma accounts, considering the full year of Escelsa and Enersul. In 2002 Escelsa and Enersul were fully consolidated in EDP as from the 1st of October.

 

21

 

Telecoms - ONI Group

 

Operating Revenues (€ m)		2003		2002		Δ%
Voice telecom. services		230.9		160.0		44.3	%
Data & Internet telecom. services		80.9		84.0		-3.7	%
Other telecom. services		25.1		29.8		-15.6	%
Revenues from telecom. services		337.0		273.8		23.0	%
Equipment sales		4.6		23.7		-80.5	%
Revenues from equipment sales		4.6		23.7		-80.5	%
Operating revenues		341.6		297.5		14.8	%

 

Direct Activity Costs (€ m)		2003		2002		Δ%
Cost of telecommunications services		183.2		142.5		28.5	%
Cost of equipment sales		4.0		14.9		-73.0	%
Direct activity costs		187.2		157.4		18.9	%

 

Gross Profit (€ m)		2003		2002		Δ%
Gross profit on telecom. services		153.8		131.3		17.1	%
Gross profit on equipment sales		0.6		8.8		-93.1	%
Gross Profit		154.4		140.1		10.2	%

 

 

Operating Revenues generated at the fixed line operator increased 14.8% year-on-year to €341.6 million in 2003, on the back of a 44.3% growth in proceeds from voice telecommunication services.

 

By the end of 2003, voice traffic operated by ONI totalled 2,638.6 million minutes, of which 404.4 million were related to OLA Internet’s activity (corporate segment). The number of equivalent client lines (CLIs) totalled 648.575 (OLA Internet: 81.978), up 28.1% year-on-year. Voice services, which accounted for 67.6% of total revenues, benefited from:(i) OLA Internet consolidation from January 2003, which contributed with an additional €36.9 million in 2003; (ii) a 26.3%growth in Comunitel’s proceeds from voice services and (iii) a 14.5% growth at ONI Portugal’s revenues from this activity.

 

The number of registered Internet accounts increased 19.1% to 436.471, while ISP traffic decreased 10.9% to 667.3 million minutes, as ONI encouraged clients to transfer from dial-up to xDSL access (always on). Proceeds from data services totalled €80.9 million in 2003 (23.7% of total revenues), down 3.7% year-on-year mostly due to a 52% decrease in proceeds from capacity rental at ONI Spain.

 

Despite a 10% drop in interconnection costs at ONI Portugal (May 2002) and ONI’s extensive use of its own access network, gross margin from telecommunication services fell from 47.9% to 45.6%, due to a lower contribution from rented capacity (termination of some contracts within the Operators’ segment), which presents higher margins.

 

Important Notes: Germinus was consolidated through the Equity Method in ONI’s 2003 Financial Statements (€ 3.0million loss) as it is in the process of being sold.

In view of the shut down of UMTS operations and for analysis purposes, ONI Way was consolidated through the Equity Method in ONI’s 2003 Financial Statements ( € 7.0 million loss).

Oni Spain’s operating data for 2003 includes the contribution from OLA Internet (acquired in 2003).

 

22

Telecoms - Fixed Line (Portugal & Spain)

 

Operating Income Statement (€ m)		ONI PT		ONI Spain		ONI Group
Revenues from telecommunic. services		165.5		171.4		337.0
Revenues from equipment sales		3.7		1.0		4.6
Operating revenues		169.2		172.4		341.6
Cost of telecommunications services		75.0		108.1		183.2
Cost of equipment sales		3.0		1.0		4.0
Direct activity costs		78.1		109.1		187.2
Gross Profit		91.1		63.3		154.4
Gross Profit/Revenues		53.9	%	36.7	%	45.2	%
Supplies and services		55.4		33.6		89.9
Personnel costs		32.3		22.9		57.3
Other operating costs (or revenues)		(1.0	)	0.4		(1.8	)
Own work capitalised		—		—		—
Operating costs		86.8		56.9		145.5
EBITDA		4.4		6.4		8.9
EBITDA/Revenues		2.6	%	3.7	%	2.6	%

 

Balance Sheet (€ m)		ONI PT		ONI Spain		ONI Group
Intangible Assets		132.8		107.1		283.6
Fixed Assets		174.0		52.7		230.0
Other Assets		164.7		71.8		319.9
Total Assets		471.5		231.5		833.5
Financial debt		202.6		50.8		682.9
Provisions		1.3		6.5		37.2
Other Liabilities		198.2		165.3		246.1
Total Liabilities		402.0		222.6		966.2
Minority interests		0.1		0.0		0.1
Shareholders’ equity		69.3		8.9		(132.8	)
Total liab. & shareholders’ equity		471.5		231.5		833.5

 

Number of Employees		2003		2002		Δ%
Fixed Line Portugal		591		732		-19.3	%
Fixed Line Spain		589		594		-0.8	%
Comunitel		340		381		-10.8	%
Germinus		43		213		—
OLA Internet		206		—		—
Total		1,180		1,326		-11.0	%

 

 

ONI Portugal - By the end of 2003, operating revenues increased 1.5% year-on-year. This evolution is the result of: (i) a 6.1% increase in revenues from telecommunication services, which was mostly offset by (ii) a decrease in revenues from equipment sales, since 2002 benefited from the completion of a major contract for equipment supply.

 

Data and internet services, which represent 81.2% of ONI Group’s revenues from this activity decreased 0.7%: (i) revenues from internet services increased 16% on the basis of an increase in both the average price per minute (+15%) and xDSL access, but this positive evolution was more than offset by (ii) a 5% decrease in revenues from data services, due to a decrease in both rented capacity and the average price of bandwidth.

 

ONI Spain - Operating revenues increased 31.8% year-on-year, up to €172.4 million. Voice services, which accounted for 66.1% of ONI Group’s total revenues from this activity, rose 66.6% mostly due to: (i) OLA Internet’s consolidation (€36.9 million) and (ii) a 41.1% growth in voice traffic commuted by Comunitel (mostly achieved at the Operators’ segment).

 

Data and Internet services, which totalled €15.2 million in 2003, fell by 14.9% year-on-year, as a result of two opposite effects: (i) a 43% rise in proceeds from Internet services due to increased xDSL access, which was more than offset by (ii) a 52% decrease in rented capacity (data services) due to the termination of some contracts within the Operators’ segment.

 

23

 

Telecoms - ONI Group

 

Operating Income Statement (€ m)		2003		2002		Δ%
Revenues from telecommunications service		337.0		273.8		23.0	%
Revenues from equipment sales		4.6		23.7		-80.5	%
Operating revenues		341.6		297.5		14.8	%
Direct activity costs		187.2		157.4		18.9	%
Gross Profit		154.4		140.1		10.2	%
Gross Profit/Revenues		45.2	%	47.1	%	-1.9	p.p.
Supplies and services - Group		0.8		1.0		-24.5	%
Supplies and services - Non-Group		89.2		121.8		-26.8	%
Personnel Costs		57.3		69.8		-17.9	%
Other operating costs (or revenues)		(1.8	)	(6.8	)	74.2	%
Own work capitalised		—		(0.5	)	—
Operating costs		145.5		185.3		-21.5	%
EBITDA		8.9		(45.1	)	—
EBITDA/Revenues		2.6	%	(15.2	)%	17.8	p.p.
Depreciation and amortisation		68.6		63.5		8.1	%
Provisions		4.3		7.9		-46.0	%
EBIT		(64.0	)	(116.5	)	45.1	%
EBIT/Revenues		(18.7	)%	(39.2	)%	20.4	p.p.

 

The cost-cutting program implemented by ONI continues to bear fruit as total operating costs at the ONI group decreased by 21.5% year-on-year. ONI Group’s good performance enabled the company to achieve EBITDA break-even in 2003 with €8.9 million.

 

Most of the decrease in supplies and services was achieved at ONI Portugal (down 34.1% year-on-year to €55.4 million). The major savings were in advertising costs (down 60%), specialised works (namely IT and O&M expenditures – down 25%) and fixed network costs (down 22%).

 

Investment (€ m)		2003		2002		Δ%
Fixed line Portugal		15.2		53.2		-71.4	%
Recurrent		3.2		4.4		-26.8	%
Non-recurring		12.0		48.8		-75.4	%
Fixed line Spain (1)		30.9		87.6		-64.7	%
Recurring		8.2		5.0		—
Non-recurring		22.8		82.6		-72.4	%
Total operating investment		46.2		140.8		-67.2	%

 

 

The 17.9% decrease in personnel costs reflects: (i) the reduction in the number of employees at ONI Portugal and ONI Spain (see previous page) and (ii) Germinus Equity consolidation.

 

The 8.1% increase in depreciation and amortisation is mostly due to: (i) ONI Spain’s recent investments made in the acquisition of cable access rights (IRU - Indefeasible Rights of Use), which are accounted for as “intangible assets” and last year’s strong investment at ONI Portugal regarding the expansion of the network and acquisition of direct access infrastructures.

 

Operating Investment totalled €46.2 million in 2003, down 67.2% year-on-year. Investment at ONI Portugal fell 71.4% as the expansion of the network in the fixed line business and direct access infrastructure was done in 2002. Investment at ONI Spain decreased by 64.7% because investment in 2002 includes €52.1 million related to the acquisition of IRU’s, vs. €7.9 million in 2003. Investments at ONI Spain for 2003 also include €7.5 million related to the acquisition of direct access equipment (recurring).

 

(1) Includes OLA Internet

 

24

 

Information Technology

 

Operating Income Statement (€ m)		2003		2002		Δ%
Sales		27.0		35.5		-23.9	%
Services Provided		159.4		188.5		-15.4	%
Operating Revenues		186.5		224.0		-16.8	%
Sundry materials and goods for resale		24.5		31.6		-22.7	%
Supplies and services - Group		13.6		17.2		-21.1	%
Supplies and services - Non-group		56.6		57.9		-2.3	%
Personnel Costs		66.4		75.5		-12.0	%
Other operating costs (or revenues)		(0.3	)	(0.9	)	65.9	%
Own work capitalised		(8.4	)	(12.6	)	33.5	%
Operating Costs		152.4		168.7		-9.7	%
EBITDA		34.1		55.3		-38.3	%
EBITDA/Operating Revenues		18.3	%	24.7	%	-6.4	p.p.
Depreciation and amortisation		24.3		18.9		28.4	%
Provisions		0.5		0.8		-35.0	%
EBIT		9.3		35.6		-73.9	%
EBIT/Operating Revenues		5.0	%	15.9	%	-10.9	p.p.

 

Number of employees		2003		2002		Δ%
Number of Employees		1,615.0		1,713		-5.7	%

 

Operating Investment (€ m)		2003		2002		Δ%
Operating Investment		55.4		41.8		32.5	%

 

 

Operating Revenues at Edinfor totalled €186.5 million, down 16.8% year-on-year, mostly due to: (i) the economic slowdown of the Portuguese economy and (ii) the already mentioned reallocation to EDP Distribuição of assets related to an IT system that implied a fall in services invoiced by Edinfor to EDP Distribuição. In 2003, sales and services provided to non-EDP Group companies accounted for 40,6% of Edinfor’s operating revenues.

 

The decrease in supplies and services is the result of both the economic slowdown and the above-mentioned transfer of assets to EDP Distribuição. Personnel costs benefited from: (i) a reduction of 98 employees (ii) successful wage negotiations and (iii) the on-going restructuring process.

 

The company’s efforts in reducing operating costs (down 9.7% year-on-year), were not enough to compensate for the 16.8% decrease in operating revenues, which reflected in a 38.3% drop of EBITDA, while the EBITDA margin fell 6.4 p.p. to 18.3% in 2003.

 

The amortisation of assets related to an IT project ISU/Communications that had been accounted for as “work in progress” and was now transferred to “fixed assets”, resulted in a 28.4% increase in depreciation and amortisation. All together, EBIT dropped 73.9% to €9.3 million in 2003.

 

Edinfor’s Operating Investment increased 32.5% year-on-year due to a €22 million leasing contract that was signed in 2003 for the acquisition of equipment for the data processing centre.

 

25

 

Consolidated Financial Results and Pro-forma Analysis

 

Financial Results (€ m)		2002 Real	+	40% HC Jan-May	-	Equity HC Jan-May	+	Esce.&Ener. Jan-Sep	-	Equity IVEN Jan-Sep	-	Escelsa Bonds Effect	=	2002 Pro-Forma
Income from group&associated companies		(78.7	)	0.6		7.9		0.4		(102.9	)			17.3
Investment income		40.0		0.0										40.0
Goodwill amortisation		(66.4	)	(12.7	)									(79.0	)
Financial Investments Gains/(Losses)		(105.1	)	(12.0	)	7.9		0.4		(102.9	)	0.0		(21.7	)
Net Interest paid		(201.3	)	(9.7	)			(70.8	)			89.8		(371.5	)
Net foreign exchange differences		67.4		0.2				(175.4	)			56.4		(164.1	)
Selic on rationing losses and ‘Parcela A’		24.0						19.7						43.8
Other		(8.0	)	0.1				(46.4	)					(54.3	)
Financing Gains/(Losses)		(117.8	)	(9.4	)	0.0		(272.9	)	0.0		146.2		(546.2	)
Financial results		(222.8	)	(21.4	)	7.9		(272.5	)	(102.9	)	146.2		(567.9	)

 

Financial Results (€ m)		2003 Real	-	Escelsa Bonds Effect	-	Equity Electra	=	2003 Pro-Forma
Income from group&associated companies		33.2				(8.8	)	41.9
Investment income		36.7						36.7
Goodwill amortisation		(92.4	)					(92.4	)
Financial Investments Gains/(Losses)		(22.5	)	0.0		(8.8	)	(13.8	)
Net Interest paid		(334.4	)	28.9				(363.3	)
Net foreign exchange differences		(10.7	)	(65.0	)			54.3
Selic on rationing losses and ‘Parcela A’		50.3						50.3
Other		(41.6	)					(41.6	)
Financing Gains/(Losses)		(336.5	)	(36.1	)	0.0		(300.4	)
Financial results		(359.0	)	(36.1	)	(8.8	)	(314.2	)

 

EDP’s consolidation method and perimeter both changed: (i) Escelsa and Enersul, previously consolidated by the equity method, were fully consolidated as from September 2002; (ii) Hidrocantábrico, which was equity consolidated for the first five months of 2002, was 40% consolidated as from June 2002; (iii) EDP S.A. purchased in 2002 approximately 83% of Escelsa bonds issue and (iv) Electra’s accumulated loss was for the first time equity consolidated in EDP’s 2003 accounts.

 

In order to better understand EDP’s Financial Results, we present a Pro forma for both 2002 and 2003, in which: (i) in 2002, we 40% consolidate Hidrocantábrico and fully consolidate Escelsa and Enersul; (ii) we revert, in both years, the effects on the P&L of the purchase of Escelsa bonds and (iii) in 2003, we remove the effect of the first time consolidation of Electra.

 

Real

 

Financial Results (€ m)		2003		2002		Δ%
Income from group&associated companies		33.2		(78.7	)	—
Investment income		36.7		40.0		-8.2	%
Goodwill amortisation		(92.4	)	(66.4	)	39.2	%
Financial Investments Gains/(Losses)		(22.5	)	(105.1	)	-78.6	%
Net Interest paid		(334.4	)	(201.3	)	66.2	%
Net foreign exchange differences		(10.7	)	67.4		—
Selic on rationing losses and ‘Parcela A’		50.3		24.0		109.1	%
Other		(41.6	)	(8.0	)	—
Financing Gains/(Losses)		(336.5	)	(117.8	)	185.7	%
Financial results		(359.0	)	(222.8	)	61.1	%

 

Pro-Forma

 

Financial Results (€ m)		2003		2002		Δ%
Income from group&associated companies		41.9		17.3		141.8	%
Investment income		36.7		40.0		-8.3	%
Goodwill amortisation		(92.4	)	(79.0	)	16.9	%
Financial Investments Gains/(Losses)		(13.8	)	(21.7	)	-36.4	%
Net Interest paid		(363.3	)	(371.5	)	-2.2	%
Net foreign exchange differences		54.3		(164.1	)	—
Selic on rationing losses and ‘Parcela A’		50.3		43.8		14.9	%
Other		(41.6	)	(54.3	)	-23.3	%
Financing Gains/(Losses)		(300.4	)	(546.2	)	-45.0	%
Financial results		(314.2	)	(567.9	)	-44.7	%

 

26

 

 

Real

 

Net Interest Paid (€ m)		2003		2002		Δ%
Net Interest - Debt		(383.5	)	(306.6	)	25.1	%	(1)
Net Interest - Derivatives		57.5		28.0		105.7	%
Interests Hydraulicity Account		(10.8	)	(12.7	)	-14.6	%
Escelsa Bonds Financial Gain		—		89.8		—		(2)
Other Interests		2.4		0.2		—
Total		(334.4	)	(201.3	)	66.2	%

 

Income from Equity Method (€ m)		2003		2002		Δ%
REN (30%)		28.0		19.4		44.6	%
Escelsa (54.74%) (1)		—		(102.9	)	—		(3)
HidroCantábrico (19% x 50%) (2)		—		7.9		—		(3)
CEM (22%)		10.6		7.9		33.6	%
Electra (30.6%)		(8.8	)	—		—		(3)
Other		3.3		(11.0	)	—
Total		33.2		(78.7	)	—

 

Goodwill amortisation (€ m)		2003		2002		Δ%
Hidrocantábrico		33.8		17.7		90.6	%	(4)
EBE		8.9		8.4		5.0	%
IVEN		21.7		18.4		17.6	%
ACE Holding		4.3		4.5		-5.3	%
Comunitel		16.1		8.9		80.7	%
Other		7.8		8.4		-7.4	%
Total		92.4		66.4		39.2	%

 

Other Financials (€ m)		2003		2002		Δ%
Net foreign exchange differences		(10.7	)	67.4		—		(5)
Selic on rationing losses and ‘Parcela A’		50.3		24.0		109.1	%	(6)

 

Pro-Forma

 

Net Interest Paid (€ m)		2003		2002		Δ%
Net Interest - Debt		(412.4	)	(387.0	)	6.6	%	(7)
Net Interest - Derivatives		57.5		28.0		105.7	%	(8)
Interests Hydraulicity Account		(10.8	)	(12.7	)	-14.6	%
Escelsa Bonds Financial Gain		—		—		—
Other Interests		2.4		0.2		—
Total		(363.3	)	(371.5	)	-2.2	%

 

Income from Equity Method (€ m)		2003		2002		Δ%
REN (30%)		28.0		19.4		44.6	%
Escelsa (54.74%) (1)		—		—		—
HidroCantábrico (19% x 50%) (2)		—		—		—
CEM (22%)		10.6		7.9		33.6	%
Electra (30.6%)		—		—		—
Other		3.3		(10.0	)	—
Total		41.9		17.3		141.8	%

 

Goodwill amortisation (€ m)		2003		2002		Δ%
Hidrocantábrico		33.8		30.4		11.2	%	(9)
EBE		8.9		8.4		5.0	%
IVEN		21.7		18.4		17.6	%	(10)
ACE Holding		4.3		4.5		-5.3	%
Comunitel		16.1		8.9		80.7	%
Other		7.8		8.4		-7.4	%
Total		92.4		79.0		16.9	%

 

Other Financials (€ m)		2003		2002		Δ%
Net foreign exchange differences		54.3		(164.1	)	—		(11)
Selic on rationing losses and ‘Parcela A’		50.3		43.8		14.9	%

 

To Pro-forma:

(1) In 2002: €70.8 million - inclusion of Escelsa and Enersul’s interest charges (Jan Sep); €9.7 million - inclusion of HC’s interest charges (Jan-May)

In 2003: €28.9 million - elimination of netting off of coupon paid by Escelsa to EDP S.A.

(2) In 2002:Elimination of financial gain from the acquisition of Escelsa bonds at a 25% discount to par

(3) In 2002: Deconsolidation of Equity contributions from IVEN and HC

In 2003: Deconsolidation of Equity contribution from Electra

(4) In 2002: Adjustment for full year HC’s goodwill amortisation

(5) In 2002: €175.4 million - inclusion of forex loss on Escelsa US$ bonds (Jan-Sep); €56.4 million - exclusion of forex gain on US$ asset at Holding level

In 2003: €65 million - exclusion of forex loss on US$ asset at Holding level

(6) In 2002: Inclusion of Escelsa and Enersul’s income from Selic on rationing losses and ‘Parcela A’(Jan-Sep)

 

Pro-forma Analysis:

(7) Average debt at the holding level went up as a result of the acquisition of HC and approximately 83% of Escelsa’s senior notes

(8) EDP actively manages interest rate risk on financial debt at the holding level, in order to reduce its cost of funding

(9) Reflects the acquisition of Naturcorp

(10) EDP started to amortise in 2003 the goodwill from the tender offer on IVEN. There was a subsequent fall in goodwill amortisation from the €28.1 million accounted for in 9M2003 following the revaluation of Escelsa and Enersul’s fixed assets

(11) This difference merely reflects the effect of forex swings on the US$ denominated debt at the Brazilian subsidiaries

 

27

 

Consolidated Extraordinary Results

 

Extraordinary Results (€ m)		2002	=	Write-offs(1)	+	Buildings Sale to P. F.(2)	+	Sale of Redal(2)	+	Excess Provisions(3)	+	Hydrolicity correction	+	Other Extraord.
Fixed assets gains / (losses)		11.9		(41.3	)	27.9		15.8						9.6
Increase/(decrease) in deprec. and provisions		(222.9	)	(299.2	)					58.6				17.8
Prior year adjustment (net)		(4.2	)											(4.2	)
Hydrological correction												0.0		0.0
Depreciation of subsidies and concessions		76.1												76.1
Bad debts		(9.1	)											(9.1	)
Inventory gains / (losses)		(2.3	)											(2.3	)
Other gains / (losses)		11.5		70.0										(58.5	)
Extraordinary Results		(138.9	)	(270.6	)	27.9		15.8		58.6		0.0		29.3

 

Extraordinary Results (€ m)		2003	=	Sale of Iberdrola(4)	+	INAG/EDP Protocol(5)	+	Escelsa’s NBCEs(6)	+	Deval. of Fin. Invest.(7)	+	Hydrolicity correction(8)	+	Other Extraord.
Fixed assets gains / (losses)		34.2		17.8		12.8								3.6
Increase/(decrease) in deprec. and provisions		(56.7	)			29.9		21.6		(119.2	)			10.9
Prior year adjustment (net)		(31.6	)			(35.9	)							4.3
Hydrological correction		19.3										19.3		0.0
Depreciation of subsidies and concessions		79.8												79.8
Bad debts		(15.1	)											(15.1	)
Inventory gains / (losses)		(1.4	)											(1.4	)
Other gains / (losses)		(42.9	)											(42.9	)
Extraordinary Results		(14.4	)	17.8		6.8		21.6		(119.2	)	19.3		39.2

 

The EDP Group’s net extraordinary loss amounted to €14.4 million, €124.5 million lower than in 2002. This variation results from a number of one-offs in each year, namely:

(1) 2002 accounts include the shutdown provision of ONI Way (€299.2 million), the sale of its tax shield to Vodafone (€70 million) and the write-off of Shopping Direct by ONI Web (€20.3 million).

(2) During 1H2002 EDP sold some office buildings to its pension fund at the price established by an independent valuation, registering a capital gain of €27.9 million and during the 2H2002 the approval of the sale of Redal by the Morrocan authorities booked an extra capital gain of €15.8 million.

(3) According to IAS, the provisions that had been created for the initial personnel restructuring plan of the company were deemed excessive and thus reduced in 2002.

(4) As of the 1stof October 2003,EDP is no longer a shareholder of Iberdrola, following the sale of its 3% stake in the company to BBVA (1.11%on the 25th of September) and to BANCAJA (the remainder 1.89% on the 30th of September and 1st of October), resulting in a €17.8 million capital gain.

(5) An agreement with the portuguese state (INAG) was reached over the joint investments in hidroelectric sites, namely Aguieira, Raiva and Alqueva. The total amounts invested in these projects were recognised and this resulted in an uplift in value on Alqueva (€12.8 million). The provision on these projects was then reversed.

(6) In 1H2003 Escelsa reverted a provision it had created to mitigate the eventual market loss on its US$ denominated assets (NBCE’s).

(7) In order to account for the possible devaluation and contingencies in Brazil and Cape Verde, EDP created an extraordinary provision specifically for: (i) the possible reduction of the tariff forseen in Fafen (€37.9 million) and Lageado (€24.3 million) industrial projects, (ii) the loss of equity at Electra (€27 million) and (iii) other contingencies (€30 million).

(8) During 2003 the Hidrologic correction account exceded its €387.5 million set limit and, as such, EDP S.A. registred an extraordinary gain of €19.3 million.

 

28

 

Consolidated Income Statement

 

Consolidated Income Statement (€ m)		2003		2002		Δ%
Electricity Sales		6,318.2		5,876.2		7.5	%
Other Sales		138.2		112.0		23.4	%
Services Provided		521.3		398.4		30.8	%
Operating Revenues		6,977.6		6,386.6		9.3	%
Electricity		3,360.3		3,005.5		11.8	%
Fuel		398.0		465.5		-14.5	%
Sundry materials and goods for resale		162.7		219.6		-25.9	%
Supplies and services		632.6		675.1		-6.3	%
Personnel costs		646.6		624.8		3.5	%
Concession fees		175.6		158.2		11.0	%
Other operating costs (or revenues)		10.3		(9.3	)	—
Own work capitalised		(235.6	)	(241.8	)	2.5	%
Operating costs		5,150.6		4,897.7		5.2	%
EBITDA		1,827.0		1,488.9		22.7	%
EBITDA/Revenues		26.2	%	23.3	%	2.9	p.p.
Depreciations		845.6		739.5		14.3	%
Provisions		75.7		100.6		-24.8	%
EBIT		905.7		648.7		39.6	%
EBIT/Revenues		13.0	%	10.2	%	2.8	p.p.
Financial Results		(359.0	)	(222.8	)	-61.1	%
Extraordinary Results		(14.4	)	(138.9	)	89.6	%
Pre-tax profit		532.3		286.9		85.5	%
Income Taxes		195.5		171.7		13.9	%
Minorities^		(44.4	)	(220.0	)	79.8	%
Net Profit		381.1		335.2		13.7	%

 

 

 

 

 

 

^                                          Minorities were €175.7 million lower due to lower net losses at ONI and the positive contribution of the Brazilian subsidiaries EDP now fully consolidates.

 

29

 

Adjusted Cash Flow and Consolidated Balance Sheet

 

Cash Flow (€ m)		2003		2002		Δ%
Net Profit		381.1		335.2		13.7	%
Depreciation		845.6		739.5		14.3	%
Provisions		75.7		100.6		-24.8	%
Cash-Flow		1,302.4		1,175.4		10.8	%
Tariff Adjustment		73.1		70.5		3.7	%
Hydrolicity Correction		71.9		(76.1	)	—
Hydrolicity Account Interest		10.8		12.7		-14.6	%
Adjusted Cash-Flow		1,458.3		1,182.5		23.3	%

 

Assets (€ m)		2003		2002
Currents assets
Cash and cash equivalents		285.6		214.0
Accounts receivable - trade, net		921.5		864.6
Accounts receivable - other, net		1,028.7		833.8
Inventories		159.2		150.3
		2,395.1		2,062.7
Fixed assets
Investments, net		1,582.8		1,896.0
Fixed assets, net		11,651.6		11,204.2
Intangible assets, net		1,849.7		1,843.1
Accruals and Deferals		668.0		573.2
Deferred Tax		611.1		546.0
Total assets		18,758.2		18,125.2

 

Liabilities (€ m)		2003		2002
Current liabilities
Short-term debt & current portion of long-term debt		1,457.7		1,887.0
Accounts payable - trade, net		782.6		1,017.8
Accounts payable - other, net		1,061.1		351.0
		3,301.4		3,255.8
Other liabilities
Long-term debt		6,035.3		6,107.0
Provisions		819.6		806.3
Accruals and Deferals		2,085.7		1,728.4
Deferred Tax		594.3		344.1
Total liabilities		12,836.2		12,241.7
Minority interest		236.5		65.2
Hydrolicity correction account		387.5		324.1

 

Shareholders’ equity (€ m)		2003		2002
Share capital		3,000.0		3,000.0
Own shares		(49.0	)	(43.5	)
Retained earnings and other reserves		1,965.9		2,202.5
Net profit for the year		381.1		335.2
Sharehoders’ equity		5,298.0		5,494.2
Total liabilities and shareholders’ equity		18,758.2		18,125.2

 

The Escelsa bonds bought by EDP S.A. (accounted in EDP S.A.’s balance sheet), serve the sole purpose of covering Escelsa’s US Dollar liability, therefore on a consolidated basis this asset and the corresponding liability are netted off.

 

30

 

Income Statement by Business Areas

 

2003 (€ m)		EDP Produção(1)		EDP Distribuição		HC(2)		Brazil(3)		ONI		Information Technology		EDP Consolidated
Electricity Sales		1,305.6		3,546.4		647.5		923.1		—		—		6,318.2
Other Sales		19.7		1.9		—		—		4.6		27.0		138.2
Services Provided		16.9		24.7		15.0		49.1		337.0		159.4		521.3
Operating Revenues		1,342.1		3,573.1		662.5		972.2		341.6		186.5		6,977.6
Electricity		65.3		2,364.0		358.2		621.0		—		—		3,360.3
Fuel		310.3		—		85.5		0.3		—		—		398.0
Sundry materials and goods for resale		3.5		111.3		6.3		10.2		4.0		24.5		162.7
Supplies and services		67.9		206.3		33.4		65.8		273.1		70.2		632.6
Personnel costs		119.3		393.8		37.1		69.1		57.3		66.4		646.6
Concession fees		3.6		171.7		—		—		—		—		175.6
Other operating costs (or revenues)		(3.8	)	(13.4	)	2.6		19.2		(1.8	)	(0.3	)	10.3
Own work capitalised		(37.3	)	(183.8	)	(4.0	)	—		—		(8.4	)	(235.6	)
Operating costs		528.9		3,049.9		519.1		785.5		332.6		152.4		5,150.6
EBITDA		813.2		523.2		143.4		186.7		8.9		34.1		1,827.0
EBITDA/Revenues		60.6	%	14.6	%	21.6	%	19.2	%	2.6	%	18.3	%	26.2	%
Depreciations		230.5		345.5		60.1		92.5		68.6		24.3		845.6
Provisions		12.7		42.7		1.1		11.0		4.3		0.5		75.7
EBIT		570.0		135.0		82.2		83.2		(64.0	)	9.3		905.7
EBIT/Revenues		42.5	%	3.8	%	12.4	%	8.6	%	-18.7	%	5.0	%	13.0	%
Financial Results		(74.8	)	(37.2	)	(62.4	)	(19.1	)	(76.5	)	(12.5	)	(359.0	)
Extraordinary Results		(3.5	)	79.2		0.7		(48.1	)	(10.1	)	(4.1	)	(14.4	)
Pre-tax profit		491.7		177.0		20.5		16.0		(150.6	)	(7.3	)	532.3
Income taxes		163.4		58.4		2.9		38.9		(17.8	)	3.0		195.5
Minority interests		(0.2	)	—		5.2		14.8		0.8		(4.1	)	(44.4	)
Net Profit		328.5		118.6		12.4		(37.7	)	(133.6	)	(6.2	)	381.1

 

Note: Business segment accounts not audited

 

(1) The Special Regime Producers (SRP) Enernova and EDP Bioeléctrica (Renewable Energy) were Excluded from the EDPP consolidation perimeter

(2) 40% Consolidation

(3) The accounts presented above do not correspond to the statutory accounts presented in the Brazil section (page 21), and are used for consolidation purposes in EDP Group. The main difference is the asset revaluation on Bandeirante, Escelsa and Enersul taken only into consideration for accounting purposes in Portugal.

 

31

 

2002 (€ m)		EDP Produção(1)		EDP Distribuição		HC(2)		Brazil(3)		ONI(4)		Information Technology		EDP Consolidated
Electricity Sales		1,414.3		3,456.4		321.4		715.3		—		—		5,876.2
Other Sales		18.7		1.7		—		—		23.7		35.5		112.0
Services Provided		19.1		21.6		—		—		273.8		188.5		398.4
Operating Revenues		1,452.0		3,479.7		321.4		715.3		297.5		224.0		6,386.6
Electricity		37.2		2,346.8		156.2		506.7		—		—		3,005.5
Fuel		465.5		—		—		—		—		—		465.5
Sundry materials and goods for resale		4.4		80.1		39.3		4.0		14.9		31.6		219.6
Supplies and services		73.0		203.3		41.1		57.8		265.4		75.1		675.1
Personnel costs		118.5		379.6		18.3		45.9		69.8		75.5		624.8
Concession fees		3.6		154.0		—		—		—		—		158.2
Other operating costs (or revenues)		(5.0	)	(12.6	)	1.3		4.4		(6.8	)	(0.9	)	(9.3	)
Own work capitalised		(26.0	)	(160.7	)	(2.7	)	(0.8	)	(0.5	)	(12.6	)	(241.8	)
Operating costs		671.1		2,990.4		253.6		618.1		342.7		168.7		4,897.7
EBITDA		780.9		489.2		67.8		97.2		(45.1	)	55.3		1,488.9
EBITDA/Revenues		53.8	%	14.1	%	21.1	%	13.6	%	-15.2	%	24.7	%	23.3	%
Depreciations		225.9		330.2		26.9		53.7		63.5		18.9		739.5
Provisions		18.7		65.1		2.9		0.3		7.9		0.8		100.6
EBIT		536.3		93.9		38.1		43.2		(116.5	)	35.6		648.7
EBIT/Revenues		36.9	%	2.7	%	11.8	%	6.0	%	-39.2	%	15.9	%	10.2	%
Financial Results		(89.3	)	(46.8	)	(37.7	)	(108.4	)	(217.0	)	(13.9	)	(222.8	)
Extraordinary Results		14.3		85.7		(5.2	)	(32.8	)	(48.3	)	(6.9	)	(138.9	)
Pre-tax profit		461.3		132.8		(4.9	)	(98.0	)	(381.8	)	14.8		286.9
Income taxes		169.4		40.0		(1.8	)	(27.2	)	(33.6	)	6.6		171.7
Minority interests		2.3		—		(0.4	)	18.1		(3.1	)	0.5		(220.0	)
Net Profit		289.6		92.8		(2.7	)	(88.9	)	(345.1	)	7.7		335.2

 

Note: Business segment accounts not audited

 

(1) The Special Regime Producers (SRP) Enernova and EDP Bioeléctrica (Renewable Energy) were Excluded from the EDPP consolidation perimeter

(2) 40% of June 2002

(3) The accounts presented above do not correspond to the statutory accounts presented in the Brazil section (page 21), and are used for consolidation purposes in EDP Group. The main difference is the asset revaluation on Bandeirante, Escelsa and Enersul taken only into consideration for accounting purposes in Portugal. Escelsa and Enersul were accounted by the Equity Method until September 2002.

(4) Includes ONI Way (Equity Method)

 

32

 

Balance Sheet by Business Areas

 

2003 (€ m)		EDP Produção(1)		EDP Distribuição		HC(2)		Brazil(3)		ONI		Information Technology		EDP Consolidated
Intangible assets		6.7		0.8		607.7		44.2		283.6		70.8		1,849.7
Fixed assets		4,241.6		4,389.2		1,088.4		1,255.1		230.0		95.4		11,651.6
Financial Investments		7.7		0.2		40.7		53.5		63.3		0.5		1,582.8
Other assets		1,015.8		1,009.5		108.8		617.1		131.7		82.6		2,109.4
Cash and Equivalents		10.1		30.3		42.3		83.9		6.2		2.4		285.6
Accruals and deferrals		68.5		12.7		14.3		346.5		118.7		27.1		1,279.1
Total assets		5,350.4		5,442.6		1,902.0		2,400.2		833.5		278.8		18,758.2
Provisions		92.8		341.1		39.2		164.1		37.2		2.3		819.6
Financial debt		2,487.7		778.1		786.1		829.5		682.9		89.2		7,492.9
Other liabilities		754.7		1,187.6		131.2		519.9		199.7		114.8		1,843.7
Accruals and deferrals		138.0		1,568.8		94.0		259.3		46.4		15.3		2,680.0
Total liabilities		3,473.2		3,875.6		1,050.5		1,772.8		966.2		221.6		12,836.2
Minority interests		0.2		—		175.3		96.2		0.1		3.3		236.5
Hydrolicity correction account		—		—		—		—		—		—		387.5
Shareholders’ equity		1,877.1		1,566.9		676.2		531.2		(132.8	)	53.8		5,298.0
Total liabilities + equity		5,350.4		5,442.6		1,902.0		2,400.2		833.5		278.8		18,758.2

 

Note: Business segment accounts not audited

 

(1) The Special Regime Producers (SRP) Enernova and EDP Bioeléctrica (Renewable Energy) were Excluded from the EDPP consolidation perimeter

(2) 40% Consolidation

(3) The accounts presented above do not correspond to the statutory accounts presented in the Brazil section (page 21), and are used for consolidation purposes in EDP Group. The main difference is the asset revaluation on Bandeirante, Escelsa and Enersul taken only into consideration for accounting purposes in Portugal.

 

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2002 (€ m)		EDP Produção		EDP Distribuição		HC(1)		Brazil(2)		ONI		Information Technology		EDP Consolidated
Intangible assets		5.9		0.1		444.4		60.7		344.1		75.6		1,843.1
Fixed assets		4,239.0		4,329.8		983.6		876.5		242.9		86.1		11,204.2
Financial Investments		25.9		0.2		92.0		53.1		68.4		1.0		1,896.0
Other assets		835.7		604.6		177.9		706.9		139.6		135.9		1,848.7
Cash and Equivalents		—		46.6		10.6		103.7		11.1		5.6		214.0
Accruals and deferrals		—		160.0		1.5		234.9		105.4		21.9		1,119.1
Total assets		5,106.5		5,141.4		1,710.0		2,035.8		911.4		326.1		18,125.2
Provisions		1.1		312.4		38.5		118.0		22.1		2.8		806.3
Financial debt		2,419.1		945.7		816.6		929.9		628.2		90.2		7,994.1
Other liabilities		724.3		1,076.6		162.1		239.5		291.6		142.6		1,368.8
Accruals and deferrals		84.1		1,287.4		23.5		62.6		56.6		15.9		2,072.6
Total liabilities		3,228.7		3,622.2		1,040.8		1,349.9		998.5		251.5		12,241.7
Minority interests		34.9		—		4.9		71.1		(0.8	)	6.8		65.2
Hydrolicity correction account		—		—		—		—		—		—		324.1
Shareholders’ equity		1,842.9		1,519.2		664.4		614.8		(86.3	)	67.8		5,494.2
Total liabilities + equity		5,106.5		5,141.4		1,710.0		2,035.8		911.4		326.1		18,125.2

 

Note: Business segment accounts not audited

 

(1) 40% Consolidation

(2) The accounts presented above do not correspond to the statutory accounts presented in the Brazil section (page 21), and are used for consolidation purposes in EDP Group. The main difference is the asset revaluation on Bandeirante, Escelsa and Enersul taken only into consideration for accounting purposes in Portugal. 2002 is a Pro-Forma balance sheet.

 

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Appendix I - Naturcorp

 

Full Year

 

Income Statement		2003
Revenues		439.2
Direct Costs		305.4
Gross Profit		133.8
Personnel Costs		15.5
Other Operating Costs (net)		21.9
Own Work Capitalised		(0.6	)
Operating Costs		36.8
EBITDA		96.9
EBITDA / Revenues		22.1	%
Depreciation		29.4
Provisions		0.0
EBIT		67.5
Financial Results		(31.1	)
Extraordinary Results		1.1
Income Before Taxes		37.5
Income Taxes		12.6
Minority Interests		0.0
Net Profit		24.8

 

Balance Sheet		2003
Intangible assets		604.9
Fixed assets		391.7
Financial Investments		4.6
Current assets		88.5
Cash and Equivalents		36.1
Long-term receivables		2.9
Accruals and deferrals		0.8
Total assets		1,129.5
Provisions		14.6
Financial debt		17.4
Other medium and long term liabilities		2.4
Other short term liabilities		76.7
Accruals and deferrals		28.3
Total liabilities		139.5
Minority interests		1.3
Shareholders’ equity		988.7
Total liabilities and shareholders’ equity		1,129.5

 

Impact on Hidrocantábrico Accounts

 

Income Statement		HC w/o NC		Impact		HC 2003
Revenues		1,483.0		173.4		1,656.4
Direct Costs		1,003.6		121.5		1,125.1
Gross Profit		479.4		51.8		531.2
Personnel Costs		87.2		5.6		92.8
Other Operating Costs (net)		79.5		10.4		89.9
Own Work Capitalised		(9.9	)	(0.1	)	(10.0	)
Operating Costs		156.7		16.0		172.7
EBITDA		322.7		35.9		358.5
EBITDA / Revenues		21.8	%	20.7	%	21.6	%
Depreciation		142.6		7.7		150.3
Provisions		2.6		0.1		2.7
EBIT		177.5		28.1		205.6
Financial Results		(142.4	)	(13.5	)	(156.0	)
Extraordinary Results		1.5		0.2		1.7
Income Before Taxes		36.5		14.7		51.3
Income Taxes		16.5		(9.2	)	7.2
Minority Interests		0.5		12.6		13.0
Net Profit		19.6		11.4		31.0

 

 

 

 

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SIGNATURES

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

Dated March 4, 2004
	EDP- Electricidadé de Portugal
	By:	/s/ João Ramalho Talone
	Name: João Ramalho Talone
	Title: Chief Executive Officer

 

 

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