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FINANCE.
SOLID RESULTS
SOLID RESULTS
Financial Position
Consolidated net indebtedness decreased to 4,256 million euros at December 31, 2006, down from 4,820 million euros at the end of 2005. This reduction was accomplished without slowing the rapid implementation pace of the Group’s capital investment program, which is budgeted at 4.5 billion euros in the 2007-2012 Industrial Plan.
The Group’s debt structure includes four bond issues totaling 2,630 million euros, 1,430 million euros of which are due in 2007. Indebtedness owed to banks and other lenders totaled 1,963 million euros at December 31, 2006. Cash and cash equivalent assets, which consist exclusively of short-term bank deposits, amounted to 340 million euros.
Consolidated net indebtedness decreased to 4,256 million euros at December 31, 2006, down from 4,820 million euros at the end of 2005. This reduction was accomplished without slowing the rapid implementation pace of the Group’s capital investment program, which is budgeted at 4.5 billion euros in the 2007-2012 Industrial Plan.
The Group’s debt structure includes four bond issues totaling 2,630 million euros, 1,430 million euros of which are due in 2007. Indebtedness owed to banks and other lenders totaled 1,963 million euros at December 31, 2006. Cash and cash equivalent assets, which consist exclusively of short-term bank deposits, amounted to 340 million euros.
Relations with Investors and Financial Communications
The Group’s investor relations activities are carried out through an ongoing dialog with the financial community, which is carried out in compliance with the rules and regulations that govern the handling of insider and confidential information and are designed to ensure transparency and provide equal access to information.
The Group’s investor relations activities are carried out through an ongoing dialog with the financial community, which is carried out in compliance with the rules and regulations that govern the handling of insider and confidential information and are designed to ensure transparency and provide equal access to information.
All relevant documents — from the draft Annual Report (immediately upon being approved by the Board of Directors) to press releases, required corporate notices and any other price-sensitive disclosure — are published promptly on the Company website (www.edison.it).
The Company website, which was extensively redesigned in 2006, was named the second best Italian corporate website in the annual ranking published by Hallvarsson & Hallvarsson.
The Company website, which was extensively redesigned in 2006, was named the second best Italian corporate website in the annual ranking published by Hallvarsson & Hallvarsson.
In 2006, the Company’s financial communications activity was particularly intense. Specifically, it organized four conference calls in connection with the release of year-end, semiannual and quarterly reports (in February, May, August and November, respectively). At the beginning of the year, a presentation was organized at the Group’s headquarters, with remote audio-link capability, to explain the 20062011 Business Plan. Another conference call was held at the end of the year to present the 2007-2012 Business Plan. In addition, Edison attended three utility industry conferences that were organized by investment firms to present companies to institutional investors and two large-scale meetings that were also organized by investment firms, in these instances for customers who had a specific interest in Edison. Lastly, numerous one-on-one meetings were held at the Group’s headquarters, a roadshow was organized in Frankfurt and a meeting with financial analysts was held to illustrate a project for an LNG terminal in Spain and explain Edison’s natural gas strategy in detail.
Assessment by the Rating Agencies
The ratings provided by both Moody’s Investors Services and Standard & Poor’s give Edison a stable outlook, reflecting the Company’s stronger balance sheet and its success in pursuing its growth plans.
Edison engages in an ongoing, active dialog with the main rating agencies, providing regular updates and offering specific information in connection with special events that could have a material impact on its financial position.
The annual management review provides the occasion for a meeting during which the rating agencies and Edison’s top management can meet and go over the Group’s operating performance and its short-term and long-term strategies in detail.
For a number of years, Edison has maintained a dialog with the segment of the financial markets that includes mutual funds and investors who are concerned with corporate social responsibility issues, providing useful information to assess its performance in specific areas.
The ratings provided by both Moody’s Investors Services and Standard & Poor’s give Edison a stable outlook, reflecting the Company’s stronger balance sheet and its success in pursuing its growth plans.
Edison engages in an ongoing, active dialog with the main rating agencies, providing regular updates and offering specific information in connection with special events that could have a material impact on its financial position.
The annual management review provides the occasion for a meeting during which the rating agencies and Edison’s top management can meet and go over the Group’s operating performance and its short-term and long-term strategies in detail.
For a number of years, Edison has maintained a dialog with the segment of the financial markets that includes mutual funds and investors who are concerned with corporate social responsibility issues, providing useful information to assess its performance in specific areas.
| Rating | ||||
| 2004 | 2005 | 2006 | ||
| Standard & Poor’s | Medium/Long-term rating | BBB+ | BBB+ | BBB+ |
| Short-term rating | A-2 | A-2 | A-2 | |
| Medium/Long-term outlook | Stable | Stable | Stable | |
| Moody’s | Rating | Baa3 | Baa2 | Baa2 |
| Medium/Long-term outlook | Positive | Stable | Stable |
DISTRIBUTION
OF VALUE ADDED
OF VALUE ADDED
The value added created by Edison is the incremental wealth that the Company creates through its industrial activities.
The table below shows the process for computing value added.
Value added is the difference between production value and intermediate costs paid to acquire goods and services. The data are those of the Group’s core businesses (electric power operations, hydrocarbons operations and corporate activities) from the consolidated financial statements. Obviously, this year as well, the Annual Report was prepared in consolidated form in accordance with Consob Resolution No. 11971/99, as amended, and with International Financial Reporting Standards (IAS/IFRS).
In 2006, about 58% of the net overall value added generated by Edison was distributed to stakeholders, with the wealth retained by the Company accounting for the remaining 42%. The remuneration earned by the Company was boosted by a gain earned on the sale of equity investments.
The table below shows the process for computing value added.
Value added is the difference between production value and intermediate costs paid to acquire goods and services. The data are those of the Group’s core businesses (electric power operations, hydrocarbons operations and corporate activities) from the consolidated financial statements. Obviously, this year as well, the Annual Report was prepared in consolidated form in accordance with Consob Resolution No. 11971/99, as amended, and with International Financial Reporting Standards (IAS/IFRS).
In 2006, about 58% of the net overall value added generated by Edison was distributed to stakeholders, with the wealth retained by the Company accounting for the remaining 42%. The remuneration earned by the Company was boosted by a gain earned on the sale of equity investments.
A breakdown of how value added was allocated to the different categories of stakeholders is as follows:
- Personnel (direct and indirect compensation: wages and salaries, social security and retirement benefits, bonuses, supplemental training and development costs), equal to 203 million euros (18% of the total).
- Public administration (income taxes), equal to 7.07 million euros, or 0.6% of the total. This figure, which is in line with the figure for 2005, reflects the impact of a reversal of a provision for deferred taxes, net of which the actual tax liability for the year would have been 9 million euros.
- Lenders (remuneration of debt capital), equal to 246 million euros (22% of the total). The increase from 2005 is mainly due to higher interest rates.
- Remuneration of risk capital (dividends), equal to 183 million euros (16% of the total), remunerating the shareholders after a four-year hiatus.
- Host communities (noncommercial sponsorships, community initiatives and charitable contributions), equal to 2.51 million euros (about 0.2% of the total).
Breakdown of Value Added (in millions of euros)
| 2005 | 2006 | ||
| a) Personnel | 199.73 | 203.37 | |
| b) Public Administration | 9.23 | 7.07 | |
| c) Remuneration of debt capital | |||
| (financial expense) | 215.59 | 246.31 | |
| d) Remuneration of the Company | 502.93 | 474.50 | |
| e) Remuneration of risk capital | - | 183.00 | |
| f) | Charitable contributions | 0.37 | 0.44 |
| g) Host communities | 0.89 | 2.07 | |
| Net overall value added | 928.74 | 1,116.77 | |
Detailed Schedule of the Computation of Overall Value Added (in millions of euros)
| 2005 (IAS/IFRS) | 2006 (IAS/IFRS) | |
| A) Production value | ||
| Sales and service revenues | 6,405.36 | 8,489.34 |
| Changes in inventory of work in progress, semifinished goods and finished goods | 20.57 | 73.99 |
| Changes in contract work in process | 7.36 | (1.00) |
| Increase in Company-produced additions to fixed assets | 9.28 | 14.44 |
| Other revenues | 561.27 | 775.36 |
| Total operating revenues | 6,989.12 | 9,352.54 |
| Revenues from non operating production (internal building construction) | - | - |
| Overall production value | 6,989.12 | 9,352.54 |
| B) Intermediate cost of production | ||
| Raw materials and outside services used (items B6 - B7 - B8 - B11 - B14 P&L) | 5,452.92 | 7,560.61 |
| Additions to provisions for risks (12) | 28.32 | 40.12 |
| Other additions to provisions (13) | 8.83 | 1.98 |
| Intermediate cost of production | 5,490.07 | 7,602.71 |
| Gross value added from operations | 1,499.05 | 1,749.83 |
| C) Extraordinary items and incidentals | ||
| Financial income | - | - |
| Other income and expense, net | 6.54 | 4.00 |
| Incidental revenues and expenses | 6.54 | - |
| Extraordinary income and expense (item E in P&L) | 93.15 | 166.27 |
| Gross overall value added | 1,598.73 | 1,920.10 |
| Depreciation, amortization and writedowns | 670.01 | 803.33 |
| Net overall value added | 928.73 | 1,116.77 |
