FORM 6-K

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 October 2004

 

EDP- Electricidade de Portugal, S.A.

 

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    X     Form 40-F        

 

(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           No   X

 



FINANCIAL STATEMENTS

June 30, 2004, December 31, 2003 and

June 30, 2003

 

F-1


EDP - ELECTRICIDADE DE PORTUGAL, S.A. AND SUBSIDIARIES

 

Consolidated Balance Sheets as at June 30, 2004 (unaudited) and December 31, 2003

 

     Notes

   Jun 2004
USD’000 (*)


    Jun 2004
Euro’000


    Dec 2003
Euro’000


 
          (unaudited)     (unaudited)        
Assets                        

Cash and cash equivalents

   3    247,394     203,533     287,496  

Accounts receivable - trade, net

   4    1,316,056     1,082,728     1,108,064  

Accounts receivable - other, net

   5    770,104     633,570     651,843  

Inventories

   6    175,051     144,016     159,236  
         

 

 

Total Current Assets

        2,508,605     2,063,847     2,206,639  
         

 

 

Long term receivables

   7    702,123     577,641     435,842  

Investments, net

   8    2,177,591     1,791,519     1,622,451  

Fixed assets,net

   9    14,228,707     11,706,053     11,651,599  

Other assets,net

   10    3,222,218     2,650,940     2,734,138  
         

 

 

Total Non-Current Assets

        20,330,639     16,726,153     16,444,030  
         

 

 

Total Assets

        22,839,244     18,790,000     18,650,669  
         

 

 

Liabilities and Shareholders’ Equity                        

Short term debt and current portion of long term debt

   11    2,004,440     1,649,066     1,579,130  

Accounts payable - trade

   12    854,905     703,336     782,626  

Accounts payable - other

   13    261,673     215,280     187,262  

Accrued cost

   14    462,347     380,376     236,534  

Taxes payable

   15    248,733     204,634     269,103  

Deferred revenue

   16    476,623     392,121     235,764  
         

 

 

Total Current Liabilities

        4,308,721     3,544,813     3,290,419  
         

 

 

Long term debt

   11    7,063,108     5,810,866     5,913,579  

Accrued pension and post retirement liabilities

   17    647,559     532,751     562,263  

Defered revenue and other liabilities

   18    3,559,360     2,928,312     2,962,410  
         

 

 

Total Non-Current Liabilities

        11,270,027     9,271,929     9,438,252  
         

 

 

Total Liabilities

        15,578,748     12,816,742     12,728,671  
         

 

 

Minority interests

        284,228     233,836     236,485  

Hydrological correction account

   19    456,057     375,201     387,506  

Share capital

   20    3,646,500     3,000,000     3,000,000  

Treasury stock

   22    (67,554 )   (55,577 )   (49,020 )

Reserves and retained earnings

   23    2,607,182     2,144,946     1,965,918  

Consolidated net profit

   23    334,083     274,852     381,109  
         

 

 

Total Shareholders’ Equity

        6,520,211     5,364,221     5,298,007  
         

 

 

Total liabilities and Shareholders’ equity

        22,839,244     18,790,000     18,650,669  
         

 

 


(*) Converted at 1.2155 USD

 

See accompanying notes to the Consolitated Financial Statements

 

F-2


EDP - ELECTRICIDADE DE PORTUGAL, S.A. AND SUBSIDIARIES

 

Consolidated Profit and Loss Account

for the six-months ended June 30, 2004 (unaudited) and 2003 (unaudited)

 

     Notes

   Jun 2004
USD’000
(*)


    Jun 2004
Euro’000


    Jun 2003
Euro’000


 
          (unaudited)     (unaudited)     (unaudited)  

Revenues

                       

Sales

   24    3,968,458     3,264,877     3,146,515  

Services rendered

   24    324,666     267,105     199,176  
         

 

 

          4,293,124     3,531,982     3,345,691  
         

 

 

Operating costs and expenses, net

                       

Raw materials and consumables

   24    2,334,352     1,920,487     1,841,065  

Personnel costs

   25    394,714     324,734     345,273  

Depreciation and amortization

   26    472,583     388,797     408,346  

Supplies and services

   27    367,134     302,044     310,239  

Own work capitalized

   28    (126,626 )   (104,176 )   (116,659 )

Concession and power-generating rents

        115,148     94,733     87,948  

Provisions

   29    56,201     46,237     62,523  

Other operating expenses / (income)

   30    9,188     7,559     118  
         

 

 

          3,622,694     2,980,415     2,938,853  
         

 

 

Operating Margin

        670,430     551,567     406,838  

Interest and related income

   31    127,494     104,890     128,789  

Interest and related expenses

   31    (348,054 )   (286,346 )   (311,320 )

Other non-operating income / (expenses)

   32    (24,401 )   (20,075 )   59,379  
         

 

 

Profit before tax

        425,469     350,036     283,686  

Provision for income taxes

   33    125,673     103,392     110,640  
         

 

 

Profit after tax

        299,796     246,644     173,046  

Minority interests

        (34,287 )   (28,208 )   (8,997 )
         

 

 

Consolidated Net Proft

        334,083     274,852     182,043  
         

 

 

Net Profit per share - Basic - Euros

   20    0.11 USD     0.09 euros     0.06 euros  
         

 

 


(*) Converted at 1.2155 USD

 

See accompanying notes to the Consolitated Financial Statements

 

F-3


EDP - ELECTRICIDADE DE PORTUGAL, S.A. AND SUBSIDIARIES

 

Consolidated Statement of Cash Flows

for the six-months ended June 30, 2004, and 2003

 

    

Jun 2004

USD’000


   

Jun 2004

Euro’000


    Jun 2003
Euro’000


 
     (unaudited)     (unaudited)     (unaudited)  
Cash Flow from Operating Activities                   

Operating activities :

                  

Cash receipts from customers

   4,372,823     3,597,551     3,270,124  

Cash paid to suppliers

   (2,773,246 )   (2,281,568 )   (2,171,203 )

Cash paid to staff

   (463,334 )   (381,188 )   (391,511 )

Concession rents paid

   (113,593 )   (93,454 )   (87,948 )
    

 

 

Cash flows provided by operating activities

   1,022,650     841,341     619,462  
    

 

 

Income tax received / (paid)

   (83,642 )   (68,813 )   (93,031 )

Other variations of operating

   96,546     79,429     264,944  
    

 

 

     12,904     10,616     171,913  
    

 

 

Net Cash flow provided by Operating Activities

   1,035,554     851,957     791,375  
    

 

 

Cash Flow from Investing Activities                   

Cash receipts resulting from:

                  

Investments and long term-receivables

   3,846     3,164     20,677  

Tangible and intangible fixed assets

   9,011     7,413     122,916  

Fixed assets subsidies

   45,290     37,260     28,074  

Interest

   9,201     7,570     881  

Dividends

   10,909     8,975     31,481  
    

 

 

     78,257     64,382     204,029  
    

 

 

Cash payments resulting from:

                  

Investments

   (11,375 )   (9,358 )   (52,207 )

Tangible and Intangible fixed assets

   (679,818 )   (559,291 )   (422,045 )
    

 

 

     (691,193 )   (568,649 )   (474,252 )
    

 

 

Net Cash Flow used in Investing Activities

   (612,936 )   (504,267 )   (270,223 )
    

 

 

Cash Flow from Financing Activities                   

Loans repaid

   (76,284 )   (62,759 )   (96,256 )

Interest and similar costs

   (180,392 )   (148,410 )   (154,896 )

Dividends

   (325,764 )   (268,008 )   (258,895 )

Acquisition of treasury stock

   (7,970 )   (6,557 )   (1,871 )
    

 

 

     (590,410 )   (485,734 )   (511,918 )
    

 

 

Net Cash Flow used in Financing Activities

   (590,410 )   (485,734 )   (511,918 )
    

 

 

Variation of cash and cash equivalents

   (167,792 )   (138,044 )   9,234  
    

 

 

Effect of currency translation differences

   29,292     24,099     (65,732 )

Cash and cash equivalents at the beginning of the period

   (374,872 )   (308,410 )   (407,258 )
    

 

 

Cash and cash equivalents at the end of the period (*)

   (513,372 )   (422,355 )   (463,756 )
    

 

 


(*) See note 3 to the Financial Statements, detailing the breakdown of ‘Cash and Cash equivalents’

 

See accompanying notes to the Consolitated Financial Statements

 

F-4


EDP - ELECTRICIDADE DE PORTUGAL, S.A. AND SUBSIDIARIES

 

Changes in Consolidated Statements of Shareholders’ Equity

for the six-months ended June 30, 2004 (unaudited) and year ended December 31, 2003

 

     (Thousands of Euros)  
    

Total

Shareholders’

Equity


   

Share

capital


  

Legal

and special

reserve


  

Reserves

and retained

earnings


    Fair value
reserves and
other
valuation


    Treasury
stock


 

Balance as at December 31, Dec 2002

   5,494,182     3,000,000    309,631    2,497,020     (268,975 )   (43,494 )

Transfer to reserves:

                                  

Legal and special reserves

   —       —      16,760    (16,760 )   —       —    

Bonus to employees

   (25,062 )   —      —      (25,062 )   —       —    

Dividends paid (Eur 0.09 per share)

   (268,275 )   —      —      (268,275 )   —       —    

Purchase and sale of treasury stock

   (5,526 )   —      —      —       —       (5,526 )

Net profit for the year

   381,109     —      —      381,109     —       —    

Deferred taxes

   (252,296 )             (252,296 )            

Effects arising from the implementation of IAS 36 and 39 in EDP Group:

                                  

-   Financial instruments / Derivatives

   131,181               131,181     —          

-   Reclassification of impairment of BCP in 2002(*)

   —                 (247,750 )   247,750        

-   Fair value of investments available for sale

   10,758               —       10,758        

-   Reversion of Fair value of Iberdrola in 2002

   21,223               —       21,223        

Exchange differences arising on consolidation

   (193,032 )   —      —      (193,032 )   —       —    

Other reserves arising on consolidation

   3,745     —      —      3,745     —       —    
    

 
  
  

 

 

Balance as at December 31, Dec 2003

   5,298,007     3,000,000    326,391    2,009,880     10,756     (49,020 )

Transfer to reserves:

                                  

Legal and special reserves

   —       —      19,055    (19,055 )   —       —    

Bonus to employees

   (20,722 )   —      —      (20,722 )   —       —    

Dividends paid (Eur 0.09 per share)

   (268,008 )   —      —      (268,008 )   —       —    

Purchase and sale of treasury stock

   (6,557 )   —      —      —       —       (6,557 )

Net profit for the period

   274,852     —      —      274,852     —       —    

Deferred taxes

   (31,256 )   —      —      (31,256 )   —       —    

Effects arising from IAS 36 and 39 in EDP Group:

                                  

-   Financial instruments / Derivatives

   (2,147 )   —      —      (2,147 )   —       —    

-   Fair value of investments available for sale

   149,633     —      —      —       149,633     —    

Exchange differences arising on consolidation

   (12,952 )   —      —      (12,952 )   —       —    

Other reserves arising on consolidation

   (16,629 )   —      —      (16,629 )   —       —    
    

 
  
  

 

 

Balance as at June 30, 2004 (unaudited)

   5,364,221     3,000,000    345,446    1,913,963     160,389     (55,577 )
    

 
  
  

 

 


(*) This reclassification is caused by the implementation of IAS 39 and IAS 36 in 2003, specifically the application of the concept of impairment loss in the event of conditions that can be considered as being of a permanent nature. It is considered that the depreciation in value of the financial investment in BCP has these characteristics and, consequently, that the impairment loss would be recorded within retained earnings in the opening balance sheet of 2003, whilst the amount remains within equity as a fair value adjusted for 2002 in accordance with the principles of adopting new standards within the Portuguese accounting framework.

 

See accompanying notes to the Consolitated Financial Statements

 

F-5


EDP - Electricidade de Portugal, S.A. and Subsidiaries

Notes to the Financial Statements

June 30, 2004 (unaudited), December 31, 2003 and June 30, 2003 (unaudited)

 

These interim financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interin periods presented. The interim information has been prepared on a basis consistent with those used to prepare the annual financial statements, except for matters referred in Note 2.

 

1. The business operations of the EDP Group

 

The EDP Group operates mainly in the Iberian and Brazilian markets in the electricity and telecommunications sectors.

 

Activity in the Energy Sector on the Iberian Peninsula

 

In Portugal, the National Electricity System (SEN) is based on the coexistence of a Public Service Electricity System (SEP) and of an Independent Electricity System (SEI), the latter comprising the Non-binding Electricity System (SENV) and the Special Regime Producers (PRE).

 

The SEP comprises the National Transport Network (RNT), Binding Producers, Binding Distributors and Binding Customers. The RNT, under concession to REN - Rede Eléctrica Nacional, S.A., is in charge with providing electricity transport and with the overall technical management of the SEP. Binding Producers are tied to RNT by long-term exclusive supply contracts. Binding Distributors are obliged to supply their customers in accordance with fixed prices, under the law, by the Energy Services Regulatory Entity (ERSE). Binding Customers are entities and individuals that cannot opt for a SENV supplier (currently low-tension consumers), or either those that are able to do so, but opt to acquire electricity from their respective binding distributor under conditions determined by the ERSE. The SENV essentially comprises Non-binding Producers and Non-binding Customers, the latter being entitled to use the SEP networks using fixed tariffs determined by ERSE under the terms of the law.

 

Special Regime Producers operate in the renewable energies and cogeneration areas, delivering their electricity to the SEP networks under special legislation. In accordance with the law, the ERSE is in charge with exercising the regulation of the sector, through the preparation, issue, and application of regulations, and also through the definition of the tariffs both for the use of infrastructure and for the supply of electricity to SEP customers. Through the generation and distribution companies, the EDP Group plays a fundamental role in the entire SEN, and has a relevant position within the SEP, and also owns generation companies that operate within the SEI both at the level of the SENV and at the level of the PREs.

 

In Spain, the EDP Group has a 40% shareholding in Group Hidroeléctrica del Cantábrico, S.A. (Hidrocantábrico), a company in which it undertakes a joint operational management. Hidrocantábrico is the parent company that carries on the business in the electricity (generation, transport, distribution and supply), gas (distribution and supply) and telecommunications sectors. This EDP shareholding in Hidrocantábrico constitutes part of a strategy for the integration and consolidation of the Iberian energy market.

 

Activity in the Energy Sector in Brazil

 

In Brazil, the EDP Group operates in the electricity sector, namely in generation, distribution and supply. In distribution it has a 96.5% shareholding in Bandeirante Energia S.A., and 99.97% of IVEN, S.A., which controls Escelsa Espírito Santo Centrais Eléctricas, S.A., and Enersul Empresa Energética do Mato Grosso do Sul S.A..

 

In the electricity generation sector, the EDP Group has holdings in Usina Hidroeléctrica (UHE), Lajeado (27.65%), Usina Termoeléctrica (UTE) and Fafen (79.6%); in partnership with the Rede Group of Brazil was successful in the auctions for the concession of the construction and operation of Peixe Angical and Couto Magalhães hydroelectric power stations.

 

In the supply business, in addition to the business carried on by the distribution companies, the EDP Group operates in the electricity trading market through Enertrade, a wholly owned Group company.

 

Low-tension Electricity Distribution Concession Regime

 

In accordance with specific legislation (Decree-Law 344-B/82), the right to distribute low-tension electricity in Portugal is in the hands of the municipalities (local authorities). However, EDP is allowed to carry on this activity, under concession, by entering into concession contracts generally with a 20 year term, which can be revoked with 2 years notice. Since 1994, when EDP was restructured as a Group by splitting into new companies, these concession terms were maintained in relation to the 4 electricity distribution companies set-up at that time and later merged in 2000 into EDP Distribuição S.A.. In respect to these concessions, a rent is paid to the concessor municipalities.

 

Activity in the Telecommunications Sector

 

In the telecommunications sector, the EDP Group holds 56.03% of the share capital of ONI SGPS (ONI), the remaining capital is held by BCP, GALP Energia and Brisa. ONI operates in fixed telecommunications, providing voice and data services in the Portuguese market (both corporate and residential customers) and in the Spanish market (in the corporate segment).

 

Activity in the Information Technologies Sector

 

The EDP Group operates in the information technologies through EDINFOR - Sistemas Informáticos S.A., a wholly owned subsidiary which holds 57.8% of ACE, engaged namely in consultancy, systems integration, processing, application outsourcing, IT infrastructure, georeferenced solutions, printing solutions, and finishing.

 

F-6


EDP - Electricidade de Portugal, S.A. and Subsidiaries

Notes to the Financial Statements

June 30, 2004 (unaudited), December 31, 2003 and June 30, 2003 (unaudited)

 

Public Domain Assets

 

In Portugal some fixed assets allocated to electricity generation and distribution within the SEP are subject to the public domain regime. However, EDP has the authority to operate and manage these assets in the binding sector only, and never for any other purpose. In Brazil the fixed assets used in the distribution and supply of electricity are tied to those services and cannot be withdrawn, sold, assigned or mortgaged without the prior express consent of the Regulator. ANEEL has already created regulations releasing the assets of the Public Electricity Service concessions, granting prior authorisation for the release of assets of no use to the concession, provided they are to be sold, further determining that the product of the sale be deposited in a tied bank account, to be used in the concession.

 

2. Accounting policies

 

Basis of presentation

 

The Group’s parent company, EDP – Electricidade de Portugal, S.A. (hereinafter known as EDP), was incorporated in 1976 as a consequence of the nationalisation and consequent merger of the principal companies of the electricity sector operating in mainland Portugal. Its registered office is in Lisbon at Praça Marquês de Pombal, 12, 6º. During 1994, as established by Decree-Law 7/91 and 131/94, the EDP Group was established (hereinafter known as EDP Group or Group) following the split of EDP, which led to a number of subsidiaries wholly owned by EDP itself, directly or indirectly. The Group’s businesses are currently focused on the generation, distribution and supply of electricity, on the distribution and supply of gas, on telecommunications and on information technologies. Although complementary, the Group currently operates as well in related areas such as water, engineering, laboratory tests, vocational training and property management.

 

The Consolidated Financial Statements of the EDP Group have been prepared in accordance with accounting principles generally accepted in Portugal (“Portuguese GAAP”), except as provided in notes 17 and 35 particularly as a result of the adoption of International Accounting Standards IAS 19, IAS 32, IAS 36 and IAS 39. The Consolidated Financial Statements have been prepared from the accounting records of EDP and its subsidiary companies listed below. Portuguese GAAP differs in certain significant respects from generally accepted accounting principles in the United States of America (“U.S. GAAP”). A description of these differences and their effects on consolidated net income and shareholders’ equity are set forth in Note 37. The financial statements also include certain reclassifications and additional disclosures in order to conform more closely to the form and content of financial statements required by the Securities and Exchange Commission of the United States of America.

 

Convenience translation (unaudited): the Company maintains its accounting records and prepares its financial statements in Euro. The United States dollar amounts disclosed in the accompanying financial statements are presented solely for the convenience of the reader at the June 30, 2004 rate of 1,2155 Euro to the dollar (closing rate per Bank of Portugal). Such translations should not be construed as representations that the Euro amounts represent, or have been or could be converted into United States dollars at that or any other rate.

 

The preparation of the financial statements in conformity with Portuguese GAAP, together with the reconciliation to U.S. GAAP, requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Some of the more significant estimates and assumptions relate to the hydrological correction account, depreciation and impairment of long lived assets, fair value of finacial investments, provision for employee retirement benefits and deferred taxes. Actual results could differ from those estimates.

 

The accounting standards are as described in Note 2 of Part III – Form 20F as at December, 2003 for EDP Group.

 

The accounting standards are consistent with those applied in the first half of 2003, with the exception to:

 

  a) In June 2003, under Portuguese GAAP, the EDP Group did not measure its derivatives and investments at fair value. During the second half of 2003 the EDP Group made early implementation of International Accounting Standards IAS 32, IAS 36 and IAS 39. The effect before taxes resulting from this adoption as at June 30, 2003 would be as follows:

 

     Assets

   Liabilities

    Shareholders’
Equity


    Profit before
tax for the
period


 
    

DR / (CR)

Euro’000


  

DR / (CR)

Euro’000


   

DR / (CR)

Euro’000


   

DR / (CR)

Euro’000


 

Derivatives

   294,309    (82,116 )   (131,181 )   (81,102 )

Investments

   311,058    (272,697 )   (38,361 )   —    

 

  b) Compensation of depreciation of portion funded by clients of fixed assets is presented in 2004 as a deduction to the amortizations instead of being recognized as other non-operating income. Thus in June 30, 2003 the other non-operating income included Eur 34.38 million related to the depreciation of the portion of fixed assets funded by clients.

 

F-7


EDP - Electricidade de Portugal, S.A. and Subsidiaries

Notes to the Financial Statements

June 30, 2004 (unaudited), December 31, 2003 and June 30, 2003 (unaudited)

 

3. Cash and cash equivalents

 

The balance Cash and cash equivalents is analysed as follows:

 

     Group

 
    

Jun 2004

Euro’000


    Dec 2003
Euro’000


 

Cash:

            

- Cash in hand

   2,889     20,375  
    

 

     2,889     20,375  
    

 

Bank deposits:

            

- Current deposits

   102,807     116,205  

- Short term deposits

   4,267     6,963  

- Other deposits

   4,455     —    
    

 

     111,529     123,168  
    

 

Negotiable securities:

            

- Other securities

   56,376     56,291  
    

 

     56,376     56,291  
    

 

Other treasury placements:

            

- Financial products at domestic banks

   20,300     85,300  

- Financial products at foreign banks

   12,445     2,368  
    

 

     32,745     87,668  
    

 

Provision

   (6 )   (6 )
    

 

     203,533     287,496  
    

 

 

With reference to the consolidated statement of cash flows, the breakdown for the purpose of determination and detailing the Cash and Cash equivalents components, is as follows:

 

     Group

 
    

Jun 2004

Euro’000


    Dec 2003
Euro’000


 

Cash components:

            

- Cash

   2,889     20,375  

- Bank deposits

   111,529     123,168  

- Negotiable securities

   56,376     56,291  
    

 

     170,794     199,834  
    

 

Cash equivalents:

            

- Other treasury securities

   32,745     87,668  

- Overdrafts

   (625,894 )   (595,912 )
    

 

     (593,149 )   (508,244 )
    

 

Cash and cash equivalents

   (422,355 )   (308,410 )
    

 

 

4. Accounts receivable - Trade, net

 

This balance Accounts receivable - Trade, net is analysed as follows:

 

     Group

 
    

Jun 2004

Euro’000


    Dec 2003
Euro’000


 

Resident customers:

            

State and official entities

   43,853     36,234  

Local authorities

   30,689     31,041  

Corporate sector and individuals

   767,297     789,986  

Unbilled receivables

   50,912     85,193  

Trade accounts - bills receivable

   1     46  
    

 

     892,752     942,500  
    

 

Non-resident customers:

            

Corporate sector and individuals

   187,312     158,490  
    

 

     187,312     158,490  
    

 

     1,080,064     1,100,990  
    

 

Doubtful debt

   191,977     188,689  

Provision for doubtful debt

   (189,313 )   (181,615 )
    

 

     1,082,728     1,108,064  
    

 

 

F-8


EDP - Electricidade de Portugal, S.A. and Subsidiaries

Notes to the Financial Statements

June 30, 2004 (unaudited), December 31, 2003 and June 30, 2003 (unaudited)

 

5. Accounts receivable - Other, net

 

This balance is analysed as follows:

 

     Group

 
    

Jun 2004

Euro’000


    Dec 2003
Euro’000


 

Other accounts receivable - Short term / Current

            

State and other public entities:

            

- Income tax

   3,972     73,398  

- Value added tax

   85,937     100,730  

- Other taxes

   14,550     5,647  

Other related companies

   3,948     1,178  

Advances to suppliers

   3,408     2,478  

Other debtors:

            

- Account with the Pension Fund

   12,120     12,120  

- Amounts owed to staff

   2,863     8,536  

- Amounts owed by the State and Concessors

   10,697     6,879  

- Debtors in respect of other goods and services

   90,721     94,437  

- Regulatory assets

   27,269     51,732  

- INAG/EDP Protocol - Alqueva

   26,082     26,082  

- Advances to pensioners

   17,024     8,497  

- Other debtors and sundry operations

   29,152     7,344  
    

 

     327,743     399,058  
    

 

Provision for short-term debtors

   (10,646 )   (9,335 )
    

 

     317,097     389,723  
    

 

Accrued income

            

- Interest receivable

   294,109     193,234  

- For sales and services provided

   5,321     7,368  

- Other accrued income

   17,043     61,518  
    

 

     316,473     262,120  
    

 

     633,570     651,843  
    

 

 

6. Inventories

 

This balance is analysed as follows:

 

     Group

    

Jun 2004

Euro’000


    Dec 2003
Euro’000


Merchandise

   13,498     15,794

Purchases and advances on account of purchases

   5,834     2,291

Finished and intermediate products

   619     569

Products and work in progress

   3,998     3,648

Sub-products, waste, residues and scrap

   2,188     1,989

Raw and subsidiary materials and consumables:

          

Coal

   19,833     24,920

Fuel

   29,919     47,530

Other consumables

   68,137     62,495
    

 
     144,026     159,236

Provision for inventories

   (10 )   —  
    

 
     144,016     159,236
    

 

 

F-9


EDP - Electricidade de Portugal, S.A. and Subsidiaries

Notes to the Financial Statements

June 30, 2004 (unaudited), December 31, 2003 and June 30, 2003 (unaudited)

 

7. Long term receivables, net

 

The balance Long term receivables, net is analysed as follows:

 

     Group

 
    

Jun 2004

Euro’000


    Dec 2003
Euro’000


 

Trade accounts receivable - Medium and long-term / Non Current:

            

Resident customers:

            

Customers - Local government - Debt at December 31, 1988 (i)

   180,452     181,689  

Corporate sector and individuals

   17,885     5,017  

Trade accounts - bills receivable

   414     413  
    

 

     198,751     187,119  
    

 

Provision for local government customers at December 31, 1988

   (88,228 )   (101,322 )
    

 

     110,523     85,797  
    

 

Trade accounts receivable - Medium and long term / Non Current

            

Other related companies

   10,934     —    

Other debtors:

            

- Fixed assets in compensated integration (ii)

   9,270     9,270  

- Regulatory assets:

            

Portugal (iii)

   223,328     148,352  

Brazil

   128,138     127,256  

- Performance bonds and tied deposits

   49,748     44,991  

- Other debtors and sundry operations

   53,242     20,176  
    

 

     474,660     350,045  
    

 

Provision for medium-/long-term debtors - Non current

   (7,542 )   —    
    

 

     467,118     350,045  
    

 

     577,641     435,842  
    

 


(i) The amount of this heading is shown net of the compensation of debits related to assets undergoing integration to be transferred to the Group and of the rents owed by the Group on that date.
(ii) Compensated fixed assets undergoing integration correspond to the net amounts, on integration date, of the debts of local authorities up to December 31, 1988, compensated by means of the respective assets undergoing integration (Tangible Fixed Assets under the regime of Decree-law 344-B/82). The transfer of these amounts to tangible fixed assets is awaiting formalisation of the concession contracts or debt regularisation protocols to be entered into by EDP and the local authorities.
(iii) The regulatory assets Portugal heading shows the costs associated with the 2003 Human Resources Rationalisation Plan in EDP Distribuição, which were accepted by the Energy Services Regulatory Entity as an investment amortizable over a period of 20 years, beginning in 2005.

 

F-10


EDP - Electricidade de Portugal, S.A. and Subsidiaries

Notes to the Financial Statements

June 30, 2004 (unaudited), December 31, 2003 and June 30, 2003 (unaudited)

 

8. Investments

 

This balance is analysed as follows:

 

     Group

 
    

Jun 2004

Euro’000


    Dec 2003
Euro’000


 

Shareholdings

            

Subsidiary companies

   65     1,305  

Associate companies

   431,527     441,449  

Investments in other companies

   1,485,224     1,351,958  
    

 

     1,916,816     1,794,712  
    

 

Investment in properties

            

Buildings and other constructions

   1,390     1,417  
    

 

     1,390     1,417  
    

 

Other financial investments

            

Bank deposits

   5,000     —    

Public debt securities

   19     19  

Other securities

   38,244     70,143  

Other financial investments

   6,245     4,029  

Amounts recoverable from the sale of Oniway

   90,339     39,667  
    

 

     139,847     113,858  
    

 

     2,058,053     1,909,987  
    

 

Provision for financial assets :

            

Shareholdings

   (265,012 )   (285,790 )

Other financial investments

   (1,161 )   (1,391 )
    

 

     (266,173 )   (287,181 )
    

 

Amortization of investment in properties

   (361 )   (355 )
    

 

     (361 )   (355 )
    

 

     (266,534 )   (287,536 )
    

 

     1,791,519     1,622,451  
    

 

 

The breakdown of Shareholdings is analysed as follows:

 

     Group

    

Jun 2004

Euro’000


   Dec 2003
Euro’000


Investment in subsidiary companies:

         

Other

   65    1,305
    
  
     65    1,305
    
  

Investment in associated companies:

         

DECA - Distribucion Eléctrica Centroamerica, SA

   69,135    67,894

Companhia de Electricidade de Macau

   59,649    65,129

REN - Rede Eléctrica Nacional, SA

   248,694    254,223

Associated Companies of Hidrocantábrico Group

   36,813    39,398

Portsines - Terminal de Sines

   7,501    7,501

Turbogás - Produtora Energética

   7,499    5,211

Other

   2,236    2,093
    
  
     431,527    441,449
    
  

Investment in other companies

         

CERJ - Companhia Eléctrica do Estado Rio Janeiro

   95,050    97,767

Galp, SGPS

   457,201    328,211

BCP - Banco Comercial Português

   552,789    552,789

OPTEP (Optimus)

   315,000    314,750

Other companies

   65,184    58,441
    
  
     1,485,224    1,351,958
    
  
     1,916,816    1,794,712
    
  

 

The subsidiary and associated companies incorporated in the consolidated accounts by the full consolidated method, the proportional method and by the equity method are referred in the 2003 Financial Statements.

 

F-11


EDP - Electricidade de Portugal, S.A. and Subsidiaries

Notes to the Financial Statements

June 30, 2004 (unaudited), December 31, 2003 and June 30, 2003 (unaudited)

 

The new Subsidiary Companies acquired and incorporated since December 31, 2003, fully consolidated were as follows:

 

Subsidiary Companies


  

Head

office


  

Share capital

/ Currency


  

Shareholders’

Equity

31 Dec 2003

Euro’000


   

Net

Profit

31 Dec 2003

Euro’000


   

%

Group


 

Digihotel, S.A.

   Lisbon    249 500 EUR    153     99     57.77 %

Digigest, S.A.

   Lisbon    149 700 EUR    (45 )   —       57.77 %

Digitec, S.A.

   Lisbon    74 850 EUR    8     —       57.77 %

Greatplains, S.A.

   Lisbon    224 550 EUR    (363 )   —       55.65 %

Case Edinfor ÁSIA, Lda

   Macao    25 000 MOP    12     (10 )   57.77 %

EDP - Investments and Services, Limited

   Cayman Island    1,000 USD    792     —       100.00 %

 

After December 31, 2003, Subsidiary Companies sold were as follows:

 

Subsidiary Companies


  

Head

office


  

Share capital

/ Currency


  

Shareholders’

Equity

31 Dec 2003

Euro’000


  

Net

Profit

31 Dec 2003

Euro’000


   

%

Group


 

ONI Way

   Lisbon    300 000 000 EUR    5,810    (14,369 )   56.02 %

 

9. Fixed assets

 

This balance is analysed as follows:

 

     Group

 
     Jun 2004
Euro’000


   

Dec 2003

Euro’000


 

Fixed assets under the Decree Law 344-B/82 regime

   240,607     240,607  

Land and natural resources

   128,051     128,169  

Buildings and other constructions

   393,047     410,982  

Plant and machinery:

            

Hydroelectric generation

   6,937,749     6,952,258  

Thermoelectric generation

   3,602,883     3,405,254  

Renewables generation

   61,245     42,795  

Electricity distribution

   12,857,159     12,675,981  

Other plant and machinery

   721,166     714,415  

Transport equipment

   74,845     75,761  

Office equipment and utensils

   357,498     344,250  

Other tangible fixed assets

   36,243     22,393  

Fixed assets in progress

   1,183,812     1,187,302  
    

 

     26,594,305     26,200,167  
    

 

Accumulated depreciation

            

Depreciation charges for the year

   (404,757 )   (391,467 )

Other accumulated depreciation

   (14,483,495 )   (14,157,101 )
    

 

     (14,888,252 )   (14,548,568 )
    

 

     11,706,053     11,651,599  
    

 

 

‘Tangible fixed assets under the Decree-Law 344-B/82 regime’ are those assets allocated to low-tension in electricity distribution transferred from the local authorities under the concession regime. These assets, though operated by the Group, continue to be the property of the local authorities and are accounted as follows:

 

     Group

 
    

Jun 2004

Euro’000


   

Dec 2003

Euro’000


 

Fixed assets under the DL 344-B/82 regime

   240,607     240,607  

Accumulated depreciation

   (232,831 )   (231,528 )
    

 

Net amount

   7,776     9,079  
    

 

 

Part of these assets may be transferred to Group ownership by settlement, by offsetting accounts in respect of debts of the respective municipalities (State and oficial entities) pending settlement (see Note 4).

 

F-12


EDP - Electricidade de Portugal, S.A. and Subsidiaries

Notes to the Financial Statements

June 30, 2004 (unaudited), December 31, 2003 and June 30, 2003 (unaudited)

 

Tangible fixed assets during the 1st half of 2004, are analysed as follows:

 

    

Balance

January 1st

Euro’000


  

Acquisitions

/ Charge year

Euro’000


  

Disposals

Euro’000


   

Transfers

Euro’000


   

Changes in

Subsidiaries

/ Other

Euro’000


   

Balance

June 30

Euro’000


Cost :

                                

Fixed assets under the DL 344-B/82 regime

   240,607    —      —       —       —       240,607

Land and natural resources

   128,169    717    (419 )   462     (878 )   128,051

Buildings and other constructions

   410,982    2,054    (3,117 )   (12,487 )   (4,385 )   393,047

Plant and machinery

   23,790,703    76,995    (32,286 )   402,044     (57,254 )   24,180,202

Transport equipment

   75,761    2,052    (3,576 )   990     (382 )   74,845

Office equipment and utensils

   344,250    4,672    (982 )   10,006     (448 )   357,498

Other tangible fixed assets

   22,393    44,032    —       13,599     (43,781 )   36,243

Fixed assets in progress

   1,187,302    377,588    (116 )   (414,614 )   33,652     1,183,812
    
  
  

 

 

 
     26,200,167    508,110    (40,496 )   —       (73,476 )   26,594,305
    
  
  

 

 

 

Accumulated depreciation :

                                

Fixed assets under the DL 344-B/82 regime

   231,528    1,303    —       —       —       232,831

Buildings and other constructions

   166,403    4,658    (1,153 )   —       (1,518 )   168,390

Plant and machinery

   13,911,573    368,789    (29,753 )   —       (20,828 )   14,229,781

Transport equipment

   54,532    4,815    (2,875 )   —       (230 )   56,242

Office equipment and utensils

   180,109    23,276    (905 )   —       (7,308 )   195,172

Other tangible fixed assets

   4,423    1,916    —       —       (503 )   5,836
    
  
  

 

 

 
     14,548,568    404,757    (34,686 )   —       (30,387 )   14,888,252
    
  
  

 

 

 

 

As at June 30, 2004, for the Group, the cost of tangible fixed assets financed by leasing is in the amount of Eur 39.8 million (accumulated depreciation in the amount of Eur 8.5 million) and the respective falling due in the amount of Eur 28.3 million.

 

10. Other assets

 

The balance Other assets is analysed as follows:

 

     Group

    

Jun 2004

Euro’000


  

Dec 2003

Euro’000


Intangible assets

   933,715    950,182

Goodwill

   873,849    899,514

Deferred taxes

   546,683    609,338

Deferred costs

   296,693    275,104
    
  
     2,650,940    2,734,138
    
  

 

The balance Intangible assets is analysed as follows:

 

     Group

 
    

Jun 2004

Euro’000


   

Dec 2003

Euro’000


 

Intangible assets

            

Set-up costs

   85,455     85,157  

Research and development costs

   98,129     103,302  

Industrial property and other rights

   176,775     158,057  

Fixed assets in progress and other fixed assets

   13,148     21,944  

Other intangible assets on telecommunications business

   40,209     40,209  

Concession rights in Brazil and Spain

   835,583     835,366  
    

 

     1,249,299     1,244,035  
    

 

Accumulated amortization

            

Amortization of concession rights during the period

   (15,220 )   (30,439 )

Amortization of intangible fixed assets during the period

   (22,015 )   (42,501 )

Other accumulated amortization

   (278,349 )   (220,913 )
    

 

     (315,584 )   (293,853 )
    

 

     933,715     950,182  
    

 

 

F-13


EDP - Electricidade de Portugal, S.A. and Subsidiaries

Notes to the Financial Statements

June 30, 2004 (unaudited), December 31, 2003 and June 30, 2003 (unaudited)

 

Intangible assets during the 1st half of 2004, are analysed as follows:

 

    

Balance

January 1st

Euro’000


  

Acquisitions

/ Charge year

Euro’000


  

Disposals

Euro’000


   

Transfers

Euro’000


   

Changes in

Subsidiaries

/ Other

Euro’000


    Balance
June 30
Euro’000


Cost :                                 

Set-up costs

   85,157    308    (133 )   (74 )   197     85,455

Research and development costs

   103,302    190    (5,946 )   323     260     98,129

Industrial property and other rights

   158,057    269    (4 )   20,030     (1,577 )   176,775

Fixed assets in progress and other fixed assets

   21,944    4,040    (179 )   (14,568 )   1,911     13,148

Other intangible assets on telecommunications business

   40,209    —      —       —       —       40,209

Concession rights in Brazil and Spain

   835,366    2,167    —       (5,711 )   3,761     835,583
    
  
  

 

 

 
     1,244,035    6,974    (6,262 )   —       4,552     1,249,299
    
  
  

 

 

 
Accumulated amortization :                                 

Set-up costs

   64,855    7,785    (39 )   —       (6,391 )   66,210

Research and development costs

   44,606    8,879    (2,342 )   —       (95 )   51,048

Industrial property and other rights

   32,376    4,243    17     —       (8,086 )   28,550

Other intangible assets on telecommunications business

   14,571    1,108    —       —       1,457     17,136

Concession rights in Brazil and Spain

   137,445    15,220    —       —       (25 )   152,640
    
  
  

 

 

 
     293,853    37,235    (2,364 )   —       (13,140 )   315,584
    
  
  

 

 

 

 

The Concession rights heading, resulting from the difference between cost and the proportional fair value of the company’s assets on the date of acquisition, is analysed as follows for the following acquisitions:

     Jun 2004

   Dec 2003

    

Concession

Rights

Euro’000


  

Accumulated

amortization

Euro’000


   

Net

Amount

Euro’000


  

Concession

Rights

Euro’000


  

Accumulated

amortization

Euro’000


    Net
Amount
Euro’000


Electricity Business - Brazil                                

Bandeirante Energia

   274,949    (58,876 )   216,073    275,279    (54,483 )   220,796

Escelsa / Enersul

   560,634    (93,764 )   466,870    560,087    (82,962 )   477,125
    
  

 
  
  

 
     835,583    (152,640 )   682,943    835,366    (137,445 )   697,921
    
  

 
  
  

 

Amortization charges for the period

        (15,220 )             (30,439 )    
         

           

   

 

The Concession rights over the Brazilian electricity distribution subsidiaries, particularly over Bandeirante Energia SA, Escelsa - Espírito Santo Centrais Eléctricas SA, and Enersul - Empresa Energética do Mato Grosso do Sul SA, are amortized using the straight-line method over the life of the concessions, up to 2025 and 2030 respectively. In June 2003, amortization of the period was Eur 22,977 thousand.

 

As at June 30, 2004, by business area, the main Research and development projects are as follows:

 

    

Amount

invested

Euro’000


  

Accumulated

amortization

Euro’000


    Net
Amount
Euro’000


Development projects by business area:                

Electricity generation

   18,498    (12,167 )   6,331

Information technologies

   8,751    (5,544 )   3,207

Telecommunications

   67,254    (32,387 )   34,867

Other

   3,626    (950 )   2,676
    
  

 
     98,129    (51,048 )   47,081
    
  

 

 

As at June 30, 2004, the breakdown of the Industrial property and other rights assets, is as follows:

 

     EDP Group Company

  

Amount

invested

Euro’000


  

Accumulated

amortization

Euro’000


    Net
Amount
Euro’000


Software licensing

   Brazil and Hidrocantábrico    66,093    (19,516 )   46,577

Optic fibre usage rights

   ONI Telecom    108,932    (8,071 )   100,861

Other

   Other companies    1,750    (963 )   787
         
  

 
          176,775    (28,550 )   148,225
         
  

 

 

F-14


EDP - Electricidade de Portugal, S.A. and Subsidiaries

Notes to the Financial Statements

June 30, 2004 (unaudited), December 31, 2003 and June 30, 2003 (unaudited)

 

The breakdown of Goodwill is as follows:

 

     Jun 2004

   Dec 2003

    

Goodwill

Euro’000


  

Accumulated

amortization

Euro’000


   

Net

Amount

Euro’000


  

Goodwill

Euro’000


  

Accumulated

amortization

Euro’000


    Net
Amount
Euro’000


Electricity Business                                

Hidrocantábrico Group

   758,014    (78,488 )   679,526    752,676    (46,319 )   706,357

Investco

   2,108    (158 )   1,950    2,177    (127 )   2,050

Enerpeixe

   1,014    (28 )   986    1,629    (4 )   1,625
    
  

 
  
  

 
     761,136    (78,674 )   682,462    756,482    (46,450 )   710,032
    
  

 
  
  

 
Telecommunications Business                                

Comnexo

   21,103    (9,454 )   11,649    21,103    (8,399 )   12,704

Comunitel Global

   91,393    (27,266 )   64,127    86,157    (22,889 )   63,268

Other

   12,782    (2,024 )   10,758    12,779    (1,385 )   11,394
    
  

 
  
  

 
     125,278    (38,744 )   86,534    120,039    (32,673 )   87,366
    
  

 
  
  

 
Information Technology Business                                

ACE, SGPS

   58,844    (10,298 )   48,546    58,844    (8,827 )   50,017

Case Edinfor

   3,612    (1,264 )   2,348    3,612    (1,084 )   2,528

Copidata

   4,064    (4,064 )   —      4,064    (3,861 )   203

S-Tecno Serviços TI

   3,926    (1,374 )   2,552    3,926    (1,178 )   2,748

Other

   8,660    (2,742 )   5,918    8,827    (2,428 )   6,399
    
  

 
  
  

 
     79,106    (19,742 )   59,364    79,273    (17,378 )   61,895
    
  

 
  
  

 
Other Businesses                                

Affinis Serviços

   12,725    (1,007 )   11,718    12,725    (689 )   12,036

Turbogás

   18,174    (1,363 )   16,811    18,174    (908 )   17,266

Companhia Electricidade Macau

   17,110    (7,842 )   9,268    16,543    (6,893 )   9,650

Other

   9,254    (1,562 )   7,692    2,127    (858 )   1,269
    
  

 
  
  

 
     57,263    (11,774 )   45,489    49,569    (9,348 )   40,221
    
  

 
  
  

 
     1,022,783    (148,934 )   873,849    1,005,363    (105,849 )   899,514
    
  

 
  
  

 

Amortization charges for the period

        (29,644 )             (54,439 )    
         

           

   

 

Goodwill in respect of subsidiary and associate companies is amortized using the straight-line method over the estimated useful life (10 years in general, and 20 years for ACE, Affinis, Turbogás and Hidrocantábrico). In June 2003, amortization of the period was Eur 25,704 thousand.

 

In respect of Deferred tax assets, the EDP Group records in its accounts the tax effect arising from temporary differences between the assets and liabilities determined from an accounting standpoint and from a taxation standpoint, and this is broken down by company as follows:

 

     Deferred Tax Assets

    

Jun 2004

Euro’000


  

Dec 2003

Euro’000


Individual - EDP, SA    284,231    336,924

ONI Group

   101,915    107,831

EDP Produção Group

   1,037    1,037

EDP Brazil Group

   131,313    131,707

Hidrocantábrico Group

   9,162    12,814

EDP Finance BV

   18,510    18,510

Other

   515    515
    
  
EDP Group    546,683    609,338
    
  

 

The balance Deferred costs is analysed as follows:

 

     Group

    

Jun 2004

Euro’000


   Dec 2003
Euro’000


Deferred costs :

         

- Rents

   14,158    1,771

- Expenditure on concessions

   11,148    11,499

- Accrued maintenance

   3,828    18,172

- Compensation of fuel costs

   140,455    130,502

- Deferred retirement benefit obligation

   47,991    50,993

- Cost of negotiating loans (BEI)

   22,316    24,537

- Discounts on bond issues

   5,959    6,434

- Other deferred costs

   50,838    31,196
    
  
     296,693    275,104
    
  

 

F-15


EDP - Electricidade de Portugal, S.A. and Subsidiaries

Notes to the Financial Statements

June 30, 2004 (unaudited), December 31, 2003 and June 30, 2003 (unaudited)

 

11. Debt - Short and long term

 

This balance is analysed as follows:

 

     Group

    

Jun 2004

Euro’000


  

Dec 2003

Euro’000


Short term loans - Current          

Overdrafts :

         

- EDP, SA

   20,424    —  

- ONI Group

   595,100    592,298

- Grupo Edinfor

   10,248    —  

- Other

   122    3,614
    
  
     625,894    595,912
    
  

Bank loans:

         

- EDP, SA

   258,231    315,711

- ONI Group

   91,071    51,395

- Edinfor Group

   4,947    —  

- Produção Group

   4,718    —  

- Brazil Group

   199,286    225,530

- Hidrocantábrico Group

   27,623    24,360

- EDP Finance BV

   93,524    93,524

- Other

   33,897    46,977
    
  
     713,297    757,497
    
  

Bonds issued - Non convertible:

         

- EDP, SA

   9,975    10,221

- EDP Finance BV

   45,500    45,500
    
  
     55,475    55,721
    
  

Commercial paper

         

- EDP, SA

   220,000    170,000

- Grupo Hidrocantábrico

   34,400    —  
    
  
     254,400    170,000
    
  
     1,649,066    1,579,130
    
  
Medium and long term loans - Non Current          

Bank loans:

         

- EDP, SA

   592,133    631,021

- ONI Group

   —      41,732

- Edinfor Group

   6,488    —  

- Produção Group

   30,664    —  

- Brazil Group

   336,101    237,662

- Hidrocantábrico Group

   666,134    761,800

- EDP Finance BV

   550,000    550,000

- Other

   15,895    67,032
    
  
     2,197,415    2,289,247
    
  

Bonds issued - Non convertible:

         

- EDP, SA

   2,466,323    2,476,551

- EDP Finance BV

   963,694    963,694

- Brazil Group

   83,434    84,087
    
  
     3,513,451    3,524,332
    
  

Commercial paper

         

- EDP, SA

   100,000    100,000
    
  
     100,000    100,000
    
  
     5,810,866    5,913,579
    
  
     7,459,932    7,492,709
    
  

 

F-16


EDP - Electricidade de Portugal, S.A. and Subsidiaries

Notes to the Financial Statements

June 30, 2004 (unaudited), December 31, 2003 and June 30, 2003 (unaudited)

 

As of June 30, 2004, the scheduled repayments of the long-term portion of the group’s debt was as follows:

 

     Euro’000

Since Jul 01, 2005 until Jun 30, 2006

   715,393

Since Jul 01, 2006 until Jun 30, 2007

   942,683

Since Jul 01, 2007 until Jun 30, 2008

   842,268

Since Jul 01, 2008 until Jun 30, 2009

   367,741

Jul 01, 2009 and following years

   2,942,847
    
     5,810,932
    

 

At the EDP, SA, level, the Group has short-term credit facilities in the sum of Eur 797 million, indexed to the Euribor rate for the agreed period of use, with margin conditions agreed in advance, of which Eur 777 million have a firm underwriting commitment. There is also a Eur 350 million commercial paper programme with guaranteed placement. As far as medium-term credit facilities are concerned, Eur 700 million is available to EDP, SA, with a firm underwriting commitment, also indexed to Euribor under previously agreed conditions. As at June 30, 2004, no credit facilities had been used.

 

The bank loans in Brazil involve floating-rate interest on the real, mostly indexed to the CDI. On the other hand, bank loans in euros are associated with floating-rate interest indexed to the three- or six-month Euribor rates.

 

The breakdown of Bonds issued as at June 30, 2004 is as follows:

 

Issuer


  

Issue

date


  

Interest

rate


   Repayment/
conditions


 

Group

Euro’000


Issued by EDP, S.A.

                  

EDP, SA 22nd Issue

   May 13, 1996    Euribor 6 months - 0.10%    (i)   13,424

EDP, SA 23rd Issue

   Dec 20, 1996    Euribor 6 months - 0.125%    (ii)   10,332

EDP, SA 24th Issue

   Dec 22, 1997    Euribor 6 months + 0.10%    (iii)   3,263

EDP, SA 25th Issue

   Nov 23, 1998    Euribor 6 months + 0.225%    (iv)   299,279

EDP, SA 26th Issue

   Mar 26, 2003    Euribor 6 months + 0.5%    On Mar 26, 2013   150,000
                  
                   476,298
                  

 

Issuer


   Issue date

  

Interest

rate


 

Repayment/

conditions


  

Group

Euro’000


Issued by EDP within the ‘Euro Medium Term Notes Programme’

EDP, SA               1st Issue

   Oct 29, 1999    Fixed rate EUR 6.40%   On Oct 29, 2009    1,000,000

EDP, SA               2nd Issue

   Mar 27, 2001    Fixed rate EUR 5.875%   On Mar 28, 2011    1,000,000

EDP Finance BV 3rd Issue (*)

   Oct 29, 2001    JPY Libor 3 months + 0.20%   On Oct 29, 2004    45,500

EDP Finance BV 4th Issue

   Nov 26, 2001    Coupon Zero   On Nov 26, 2009    22,455

EDP Finance BV 5th Issue (*)

   Nov 28, 2001    Fixed rate JPY 0.70%   On Nov 28, 2006    27,882

EDP Finance BV 6th Issue (*)

   Aug 9, 2002    Fixed rate GBP 6.625%   On Aug 9, 2017    320,000

EDP Finance BV 7th Issue

   Dec 16, 2002    Fixed rate EUR 5.00%   On Dec 16, 2008    500,000

EDP Finance BV 8th Issue

   Dec 23, 2002    Fixed rate EUR 2.661%   On Dec 23, 2022    93,357
                  
                   3,009,194
                  

Issued by Escelsa (Brazil) (International Bond)

Escelsa USD 430 Million (**)

   On Jul 28, 1997    Fixed rate USD 10.0%   On Jul 15, 2007    57,388

Issued by Investco (Brazil) (Domestic bond)

Investco 1st Issue

   Nov 1, 2001    IGPM + 12.80%   On Nov 1, 2011    19,721

Investco (FINAM)

   Nov 14, 2003    TJLP + 4%   On Nov 14, 2011    6,325
                  
                   26,046
                  
                   3,568,926
                  

(i) : 4 annual payments beginning in June 2, 2003. It may be repaid early at the request of bondholders.
(ii) : 4 annual payments beginning in December 20, 2008. As from December 20, 2006 it may be repaid in part or in full at the
     request of EDP to all the bondholders.
(iii) : 4 annual payments beginning in January 5, 2002.
(iv) : 6 semi-annual payments beginning in May 23, 2006.
(*) : These issues by EDP Finance BV have associated floating-interest-rate euro currency swaps.
(**) : The EDP Group holds 83% of the value of this issue in an intra-group portfolio, as a result of the international takeover bid
     launched in 2002.

 

F-17


EDP - Electricidade de Portugal, S.A. and Subsidiaries

Notes to the Financial Statements

June 30, 2004 (unaudited), December 31, 2003 and June 30, 2003 (unaudited)

 

The breakdown of the fair value of the EDP Group’s debt, that is the market value of the debt, is as follows:

 

     Jun 2004

   Dec 2003

     Carrying
Value
Euro’000


   Market
Value
Euro’000


   Carrying
Value
Euro’000


   Market
Value
Euro’000


Short term loans - Current

   1,649,066    1,649,066    1,579,130    1,579,130

Medium and long term loans - Non current

   5,810,866    6,142,875    5,913,579    6,251,355
    
  
  
  
     7,459,932    7,791,941    7,492,709    7,830,485
    
  
  
  

 

The market value of the medium/long-term loans is calculated on the basis of the cash flows discounted at the rates ruling on June 30, 2004. In current short-term debt, the book value is considered to be the market value

 

12. Accounts payable - Trade

 

This balance is analysed as follows:

 

     Group

    

Jun 2004

Euro’000


  

Dec 2003

Euro’000


Short term creditors - Current

         

Suppliers

   643,475    678,741

Supplies of fixed assets

   59,861    103,885
    
  
     703,336    782,626
    
  

 

13. Accounts payable - Other

 

This balance is analysed as follows:

 

     Group

    

Jun 2004

Euro’000


  

Dec 2003

Euro’000


Other shareholders

   27,888    10,541

Advances to customers

   2,908    1,204

Other creditors

         

- Employees

   9,406    20,625

- Supply of other goods and services

   12,138    12,946

- Concession rents

   7,739    6,690

- Creditors for collections

   28,544    20,115

- For interest and financial credits

   77    13,960

- INAG/EDP Protocol - Alqueva

   35,893    35,893

- Other creditors and sundry operations

   90,687    65,288
    
  
     215,280    187,262
    
  

 

14. Accrued cost

 

The balance Accrued cost is analysed as follows:

 

     Group

     Jun 2004
Euro’000


   Dec 2003
Euro’000


Accrued costs:

         

- Holiday pay, bonus and other charges

   64,409    68,393

- Interest payable

   226,327    121,874

- Other accrued costs

   89,640    46,267
    
  
     380,376    236,534
    
  

 

15. Taxes payables

 

This balance is analysed as follows:

 

     Group

     Jun 2004
Euro’000


   Dec 2003
Euro’000


State and other public entities:

         

- Income tax

   104,142    173,924

- Withholding tax

   9,530    11,686

- Social security contributions

   12,933    11,359

- Value added tax

   14,955    12,197

- Other taxes

   63,074    59,937
    
  
     204,634    269,103
    
  

 

F-18


EDP - Electricidade de Portugal, S.A. and Subsidiaries

Notes to the Financial Statements

June 30, 2004 (unaudited), December 31, 2003 and June 30, 2003 (unaudited)

 

16. Deferred revenue

 

The balance Deferred revenue is analysed as follows:

 

     Group

     Jun 2004
Euro’000


   Dec 2003
Euro’000


Deferred revenue:

         

- Equal Installment Account EDP Distribuição

   134,744    101,096

- Other deferred revenue (i)

   257,377    134,668
    
  
     392,121    235,764
    
  

(i) The deferred revenue include personnel rationalisation programme deferred income amounting Eur 192 million. (December 2003, Eur 133 million)

 

17. Accrued pension and post retirement liabilities

 

The balance Accrued pension and retirement liabilities is analysed as follows:

 

     Group

    

Jun 2004

Euro’000


  

Dec 2003

Euro’000


Defined benefit pension plan

   106,026    149,636

Post retirement medical benefits

   426,725    412,627
    
  
     532,751    562,263
    
  

 

Some companies of the EDP Group grant their employees post-retirement benefits, both under the form of defined-benefit plans and under the form of defined-contribution plans. These include pension benefits that pay complimentary old-age, disability and surviving-relative pension complements, and also early retirement pensions. In some cases medical care is provided during the period of retirement and of early retirement, through mechanisms complementary to those of the National Health Service.

 

The existing plans are presented hereunder, with a brief description of each and of the companies covered by them, as well as of the economic and financial data.

 

I. Pension Plans - Defined-Benefit Type

 

In Portugal, the companies of the EDP Group resulting from the split of EDP in 1994 have defined benefits plan financed through a closed Pension Fund, covered by a specific provision. This Pension Fund covers liabilities for retirement pension benefits (old age, disability and surviving relative) as well as liabilities for early retirement.

 

In Brazil, Bandeirante, Escelsa and Enersul have defined-benefit plans managed by a closed complementary welfare entities with its own assets: CESP, ESCELSOS and ENERSUL foundation, respectively.

 

Bandeirante has two defined-benefit plans:

 

- BD Plan in force up to March 31, 1998, a Balance Benefit Plan that grants Balanced Proportional Supplementary Benefit (BSPS) in the form of an annuity payable to participants enrolled by March 31, 1998, of an amount defined in proportion to past length of service accumulated by the reference date, based on compliance with regulatory granting requirements. The company is liable in full for the cover of any actuarial insufficiencies of this Plan.

 

- BD Plan in force after March 31, 1998, which grants an annuity in proportion to the accumulated past length of service after March 31, 1998, on the basis of 70% of the average actual monthly wage for the last 36 months in service. In the event of death or disability caused by works accident, beneficiaries incorporate the whole of the past service (including that accumulated up to March 31, 1998), not just the past service accumulated after March 31, 1998. The Company and the participants equally share liability for the cover of the actuarial insufficiencies of this plan.

 

Escelsa and Enersul has a defined-benefit plan that grants a complementary benefit for past length service, disability, age and pension. Escelsa also has grants a special complementary benefit for retirement, for the former combatants and for dead.

 

The change in benefit obligation of consolidated liabilities for past services linked to these pension plans has been as follows:

 

     Jun 2004

    Dec 2003

 
    

Portugal

Euro’000


    Brazil
Euro’000


    Group
Euro’000


    Portugal
Euro’000


    Brazil
Euro’000


    Group
Euro’000


 

Change in benefit obligation

                                    

Liabilities at the beginning of period

   1,412,541     64,750     1,477,291     1,394,075     54,658     1,448,733  

Cost of current services

   4,435     499     4,934     11,193     1,047     12,240  

Cost of Interest

   34,776     4,158     38,934     78,843     6,006     84,849  

Benefits paid

   (66,577 )   (1,854 )   (68,431 )   (139,459 )   (1,516 )   (140,975 )

Actuarial losses

   90,329     21,119     111,448     67,889     4,147     72,036  

Currency fluctuation

   —       (2,161 )   (2,161 )   —       407     407  
    

 

 

 

 

 

Liabilities at the end of the period

   1,475,504     86,511     1,562,015     1,412,541     64,750     1,477,291  
    

 

 

 

 

 

 

F-19


EDP - Electricidade de Portugal, S.A. and Subsidiaries

Notes to the Financial Statements

June 30, 2004 (unaudited), December 31, 2003 and June 30, 2003 (unaudited)

 

As at June 30, 2004, the Actuarial losses from Brasil includes the responsabilities reclassified from the Defined Contribution Plan to Defined Benefit Plan of Escelsa and Enersul in the amount of Eur 10.6 million and Eur 7.9 million, respectively.

 

In calculating the liabilities inherent in these pension plans within the EDP Group the following financial and actuarial assumptions were used:

 

     Jun 2004

 

Dec 2003


    

Portugal

Euro’000


   Brazil Euro’000

 

Portugal

Euro’000


   Brazil Euro’000

Assumptions

                  

Rate of return of the Funds

   5.70%    10.24% - 12.82%   5.70%    10.24%

Discount rate

   5.20%    10.24% - 10.76%   5.20%    10.24%

Wage growth rate

   3.30%    6.08% - 7.12%   3.30%    7.12%

Pension growth rate

   2.25%    7.12%   2.25%    7.12%

Social Security wage appreciation rate

   2.00%    4.00%   2.00%    4.00%

Inflation rate

   2.00%    4.00%   2.00%    4.00%

Mortality table

   TV 88/90    AT-49(qx)   TV 88/90    AT-49(qx)

Disability table

   50% EKV 80    Light-Average (ix)   50% EKV 80    Light-Average (ix)

Expected % of subscription by employees eligible for early retirement

   40% of the eligible
actives
   Not applicable  

40% of the eligible

actives

   Not applicable

 

As mentioned above, only part of the liabilities for the Pension Plan is financed through the Pension Funds, the remainder being recognised in accordance with IAS 19, by means of a provision detailed hereunder:

 

     Jun 2004

    Dec 2003

 
    

Portugal

Euro’000


   

Brazil

Euro’000


   

Group

Euro’000


   

Portugal

Euro’000


   

Brazil

Euro’000


    Group
Euro’000


 

Provision for Pension Plans

                                    

Liabilities at the end of the period

   1,475,504     86,511     1,562,015     1,412,541     64,750     1,477,291  

Fund assets at the end of the period

   (805,685 )   (61,075 )   (866,760 )   (785,147 )   (31,355 )   (816,502 )
    

 

 

 

 

 

Unfunded liabilities

   669,819     25,436     695,255     627,394     33,395     660,789  

Deferred actuarial losses (i)

   (585,661 )   (1,525 )   (587,186 )   (506,600 )   (4,553 )   (511,153 )
    

 

 

 

 

 

Value of the provision at the end of the period

   84,158     23,911     108,069     120,794     28,842     149,636  
    

 

 

 

 

 


(i) The international accounting standards adopted by EDP allowed deferred actuarial gains/losses to be recognised systematically in the statement of income for the year by amortizing the amount that exceeded, in the previous year, 10% of the value of the greater of the liabilities or assets of the Fund. Such amortizations are calculated for the period corresponding to the average remaining length of service of the active population.

 

The components of consolidated net cost recognised during the period with these plans are as follows:

 

     Jun 2004

 
    

Portugal

Euro’000


   

Brazil

Euro’000


   

Group

Euro’000


 

Cost for the period

                  

Cost of the service

   4,435     499     4,934  

Cost of interest

   34,776     4,158     38,934  

Return on the Funds’ assets

   (21,438 )   (5,084 )   (26,522 )

Worker contributions

   —       (233 )   (233 )

Amortization of deferred actuarial losses

   12,168     —       12,168  
    

 

 

Net cost for the period

   29,941     (660 )   29,281  
    

 

 

 

As at June 30, 2003, the Cost for the period was in the amount of Eur 36.3 million and the breakdown is not available.

 

F-20


EDP - Electricidade de Portugal, S.A. and Subsidiaries

Notes to the Financial Statements

June 30, 2004 (unaudited), December 31, 2003 and June 30, 2003 (unaudited)

 

The plan assets of the Pension Funds was as follows:

 

     Jun 2004

    Dec 2003

 
    

Portugal

Euro’000


   

Brazil

Euro’000


   

Group

Euro’000


   

Portugal

Euro’000


   

Brazil

Euro’000


    Group
Euro’000


 

Change in plan assets

                                    

Assets at the beginning of period

   785,147     31,355     816,502     727,258     22,687     749,945  

Group Contributions

   22,609     2,129     24,738     54,340     3,947     58,287  

Worker contributions

   —       233     233     —       552     552  

Pensions paid during the period

   (22,609 )   (1,780 )   (24,389 )   (50,340 )   (1,516 )   (51,856 )

Return of the Funds

   20,538     5,084     25,622     44,286     15,403     59,689  

Actuarial gains (losses)

   —       25,269     25,269     9,603     (10,016 )   (413 )

Currency fluctuation

   —       (1,215 )   (1,215 )   —       297     297  
    

 

 

 

 

 

Assets at the end of the period

   805,685     61,075     866,760     785,147     31,355     816,502  
    

 

 

 

 

 

 

As at June 30, 2004, the Actuarial losses from Brazil includes the responsabilities reclassified from the Defined Contribution Plan to Defined Benefit Plan of Escelsa and Enersul in the amount of Eur 12.5 million and Eur 12.7 million, respectively.

 

As a result of the fact that in accounting the costs of pensions and associated charges the EDP Group transposed the provisions of IAS 19 earlier than required, derogating in this way and to this extent the provisions of Accounting Directive 19 – which transposed to Portuguese accounting standards the earlier version of the international standard – we present hereunder the effects and impacts on the said the derogation. In analysing the differences in this particular case, the EDP Group makes use of the “corridor” method to recognise actuarial gains and losses, allowing deferral of their impact on results. This technique is one of the options provided for in IAS 19 in paragraphs 92 and 93. Accounting Directive 19, on the contrary, imposes in this matter recognition of actuarial losses and gains directly in results for the year in which they occur and does not accept the “corridor” alternative or allow deferral of actuarial gains and losses in excess of the said “corridor”. It therefore imposes a systematic method of immediate recognition in results.

 

II. Pension Plans - Defined Contribution Type

 

Hidrocantábrico in Spain and Bandeirante, Escelsa and Enersul in Brazil have social benefits Defined-contribution plans that complement those benefits granted by the Social Welfare Systems to the Group companies’ employees, under which they pay a contribution to these plans each year, calculated in accordance with the rules established in each case.

 

III. Liability for Medical Care Plans - Defined Benefit Type

 

In Portugal, Group companies resulting from the split of EDP in 1994 have a Medical Care Plan of the defined-benefit type, supported through a provision that covers the whole of these liabilities. The evolution of consolidated liabilities for past services inherent in the EDP Group medical care plan has been as follows:

 

     Jun 2004

    Dec 2003

 
    

Portugal

Euro’000


   

Brasil

Euro’000


   

Group

Euro’000


   

Group

Euro’000


 

Change in benefit obligation

                        

Liabilities at the beginning of the period

   660,255     —       660,255     496,201  

Cost of current services

   3,952     58     4,010     5,942  

Cost of interest

   16,823     541     17,364     29,049  

Benefits paid

   (13,208 )   (289 )   (13,497 )   (24,099 )

Actuarial losses

   10,804     12,196     23,000     153,162  

Currency translation

   —       (12 )   (12 )   —    
    

 

 

 

Liabilities at the end of the period

   678,626     12,494     691,120     660,255  
    

 

 

 

 

The following financial and actuarial assumptions were used in calculating the liabilities associated with this medical care plan:

 

    

Group


    

Jun 2004

Euro’000


  

Dec 2003

Euro’000


Assumptions

         

Discount rate

   5.20%    5.20%

Annual growth rate of medical services costs

   4.5% (a)    4.5% (a)

Mortality table

             (b)              (b)

Disability table

             (b)              (b)

Expected % of subscription by employees eligible for early retirement

             (b)              (b)

(a) 4.5% during the next 9 years and 4.0% during the remaining years
(b) As mentioned in the Pension Plan assumptions

 

F-21


EDP - Electricidade de Portugal, S.A. and Subsidiaries

Notes to the Financial Statements

June 30, 2004 (unaudited), December 31, 2003 and June 30, 2003 (unaudited)

 

As mentioned above, Medical Care Plan liabilities are recognised in the Group’s accounts through a provision, which is presented below:

 

     Jun 2004

    Dec 2003

 
    

Portugal

Euro’000


   

Brasil

Euro’000


   

Group

Euro’000


    Group
Euro’000


 

Provision for Medical Care Plans

                        

Liabilities at the end of the period

   678,626     12,494     691,120     660,255  

Deferred actuarial losses (i)

   (251,901 )   (5,139 )   (257,040 )   (247,628 )
    

 

 

 

Value of the provision at the end of the period

   426,725     7,355     434,080     412,627  
    

 

 

 


(i) The international accounting standards adopted by EDP allowed deferred actuarial gains/losses to be recognised systematically in the statement of income through amortization of the amount exceeding, in the previous year, 10% of the amount of the greater of the liabilities or of the assets of the Fund. These amortizations are calculated for the period corresponding to the estimated average remaining length of service of the active population.

 

The components of net consolidated cost recognised during period with this plan are as follows:

 

     Jun 2004

    

Portugal

Euro’000


  

Brasil

Euro’000


    Group
Euro’000


Cost for the period

               

Cost of the service

   3,952    58     4,010

Cost of interest

   16,823    541     17,364

Amortization of the deferred transitory obligation (i)

   6,532    (290 )   6,242
    
  

 

Net cost for the period

   27,307    309     27,616
    
  

 

 

As at June 30, 2003, the Cost for the period was in the amount of Eur 20 million and the breakdown is not available.

 

18. Deferred revenue and other liabilities

 

The balance Deferred revenue and other liabilities is analysed as follows:

 

     Group

    

Jun 2004

Euro’000


   Dec 2003
Euro’000


Subsidies for investment in fixed assets

   1,528,910    1,546,101

Deferred taxes

   532,221    616,056

Provision for financial assets

   90,449    92,696

Provisions for other contingencies and liabilities

   181,618    164,615

Concession fixed assets held - (Reg. DL 344-B/82)

   7,775    9,079

State share in Multipurpose hydroelectric power stations

   14,996    14,996

Concession fixed assets held - (Reg. DL 344-B/82)

   40,748    39,843

Recognition of liabilities on the sale of OPTEP in 2002

   315,000    315,000

Supplies of fixed assets

   64,659    74,618

Electricity tariff compensations in Brazil

   20,035    35,013

Other creditors and sundry operations

   131,901    54,393
    
  
     2,928,312    2,962,410
    
  

 

Subsidies for investment in fixed assets is the deferred income related to the portion of fixed assets finded by clients

 

As an immediate consequence of the full application by the EDP Group for the first time of IAS 39: Measurement and Recognition of financial instruments, the Creditors – Medium/long-term heading of the Group, includes an entry of the EDP Group’s liability as a result of the sale of 100% of the OPTEP/Optimus asset (see Note 7) in 2002, since there is an “Optimus/OPTEP selling price adjustment mechanism” clause with the buyer, and consequently, in accordance with the IAS 39, it cannot be specified as a sale/firm commitment. In accordance with the international standard, the asset sold in 2002 is carried in full under assets and the respective liability, also in full, is carried under the Group’s liability, while price fluctuations are recognized as though the matter was one of ‘investments available for sale’ for as long as the said clause is in force until March 22, 2005.

 

As at June 30, the provision for financial assets includes a provision in the amount of Eur 30 million (December 2003: 30 million) related to investments in Brasil and Cabo Verde and associated commitments and another provision in the amount of Eur 60 million (December 2003: 60 million) recorded by EDP Brazil and related with impairment charges resulting from its investments in EDP Lajeado and FAFEN Energia.

 

F-22


EDP - Electricidade de Portugal, S.A. and Subsidiaries

Notes to the Financial Statements

June 30, 2004 (unaudited), December 31, 2003 and June 30, 2003 (unaudited)

 

In respect of Deferred tax liabilities, the EDP Group records in its accounts the tax effect arising from temporary differences between the assets and liabilities determined from an accounting standpoint and from a taxation standpoint, and this is broken down by company as follows:

 

     Deferred Tax
Liabilities


    

Jun 2004

Euro’000


  

Dec 2003

Euro’000


Individual - EDP, SA

   376,967    474,839

ONI Group

   719    719

EDP Brasil Group

   114,657    103,066

Hidrocantábrico Group

   39,878    37,432
    
  

EDP Group

   532,221    616,056
    
  

 

19. Hydrological correction account

 

The balance Hydrological correction account is analysed as follows:

     Group

 
    

Jun 2004

Euro’000


    Dec 2003
Euro’000


 

Opening balance on January 1

   387,506     324,111  

Differential for the year.

   (17,124 )   71,916  

Hydrological correction bonuses

   —       (19,350 )

Financial charges

   4,819     10,829  
    

 

Closing balance

   375,201     387,506  
    

 

 

The Hydrological Correction Account is a mechanism that was legally instituted (Decree-Law 338/91) to compensate variable electricity production costs. In dry years the thermoelectric system is overused and the spending on fuel or on the import of electricity increases significantly. In wet years the situation is reversed. Electricity supply tariffs for the customers of the SEP cannot be altered in the light of the cost fluctuations caused by the hydraulicity. In accordance with Order-in-Council 987/2000, the hydrological correction account is assigned to the EDP accounts and, consequently, it is carried in an account under liabilities in its balance sheet, and the corresponding movements for the year are detailed in the notes to the financial statements.

 

The annual amount of the hydrological correction is calculated in accordance with parameters established by law, and includes:

 

(i) The differential between the economic cost of electricity production and the reference economic cost, which is borne by REN as the RNT concessionaire and sole manager of the hydrological correction account. EDP pays REN each month the positive differentials and receives from REN the negative differentials. These payments and revenues are recorded with a contra entry in the hydrological correction account;

 

(ii) the financial costs or income associated with the accumulated balance of this account constitute an EDP cost or income; (iii) the part corresponding to the amount necessary to make the expected value of the balance, within 10 years, equal to an adequate benchmark, when it reflects a debit to the hydrological correction account, constitutes EDP income, when it reflects a credit, the REN is obliged to make the respective payment to EDP. The corresponding cost is included in the REN electricity-selling tariff to the tied distribution company (EDP Distribuição), constituting a cost for the latter to be recovered through its customer selling prices. Movements under the hydrological correction account are subject to approval by ministerial order.

 

20. Share capital

 

The share capital amounts to Euro 3 billion represented by 3,000,000,000 ordinary shares each of a par value of 1 euro, and is fully paid-up.

 

The breakdown of the earnings per share (EPS) is as follows:

 

     Group

     Jun 2004

   Jun 2003

Consolidated net profit in Euros

   274,852,348    182,043,997
    
  

Average number of shares in the year net from treasury stock

   2,975,651,332    2,980,342,044
    
  

Net Profit per share - Basic - Euros

   0.09 euros    0.06 euros
    
  

 

EDP, which began as a state-owned Company, was successively transformed into a sociedade anónima (limited liability company under Portuguese law) wholly owned by the public sector and then into a sociedade anónima with a majority of its share capital owned by the public sector. It is currently a sociedade anónima in whose share capital the State and other Public Entities have a minority holding. The privatisation process began in 1997, and the second and third stages of the privatisation took place in 1998 and the fourth stage in 2000, following which the State now holds about 30% of the share capital, directly and indirectly.

 

The EDP Group calculates its basic and diluted earnings per share under the terms of which earnings per share are calculated using the weighted average of the shares issued during the reporting period.

 

F-23


EDP - Electricidade de Portugal, S.A. and Subsidiaries

Notes to the Financial Statements

June 30, 2004 (unaudited), December 31, 2003 and June 30, 2003 (unaudited)

 

21. Legal reserve

 

In accordance with article 295 of Companies Code and with the EDP articles of association, the Legal Reserve must be increased by a minimum of 5% of the annual profits until such time as its value equals 20% of the company’s share capital. This reserve may be used only to cover losses or to increase share capital.

 

22. Treasury stock

 

This balance is analysed as follows:

 

    

Group


    

Jun 2004

Euro’000


  

Dec 2003 Euro’000


Book value of EDP, SA shares

   55,577    49,020
    
  

Number of EDP SA shares

   24,348,668 shares    21,430,964 shares
    
  

Market price of EDP, SA shares as at June 30, 2004 and December 31, 2003

   2.30 euros    2.09 euros
    
  

Market value of EDP, SA shares as at June 30, 2004 and December 31, 2003

   56,002    44,791
    
  

 

The treasury shares held by EDP, S.A., lie within the limits established by the Company’s articles of association and by the Companies Code.

 

23. Reserves and retained earnings

 

This balance is analysed as follows:

 

     Group

 
    

Jun 2004

Euro’000


    Dec 2003
Euro’000


 

Legal reserves

   345,446     326,391  

Revaluation reserves

   89,449     89,449  

Other reserves and retained earnings

   3,127,938     3,031,892  

Fair-value adjustments of investments available for sale

   160,389     10,756  

Net profit

   274,852     381,109  

Currency translation arising on consolidation

   (585,452 )   (572,500 )

Other reserves arising on consolidation

   (992 824 )   (920,070 )
    

 

     2,419,798     2,347,027  
    

 

 

The amount resulting from the fluctuation in local currency of the Shareholders’ Equity of the Subsidiary and Associate Companies expressed in foreign currencies resulting from the fluctuation of the respective exchange rates is recorded under Currency Translation arising on consolidation. The exchange rates used in the preparation of the Financial Statements are as follows:

 

          Exchange rates in June 30, 2004

   Exchange rates in June 30, 2003

Currency


        Rates
Closing


   Average
exchange-rate


   Rates
Closing


   Average
exchange-rate


American dollar

   USD    1.2155    1.2240    1.1427    1.1146

Brazilian Real

   BRL    3.7839    3.6367    3.2888    3.5527

Macao Pataca

   MOP    9.7647    9.8194    9.1000    8.8833

 

The contra entry of the adjustments made to the headings of tangible fixed assets and financial investments in properties caused by the various revaluations undertaken, net of amounts used to increase the share capital and to cover retained losses, and the corresponding deferred taxes are carried under Revaluation Reserves. These revaluations were undertaken pursuant to the following legislation:

 

Decree-law no. 430/78

   Decree-law no. 111/88

Decree-law no. 219/82

   Decree-law no. 7/91

Decree-law no. 399-G/84

   Decree-law no. 49/91

Decree-law no. 171/85

   Decree-law no. 264/92

Decree-law no. 118-B/86

    

 

Article 8 of Decree-Law 7/91, of January 8, which determined the formation of new sociedades anónimas constituted by means of the simple split of EDP, called for the valuation of EDP’s assets, the valuation having been undertaken by entities selected from among those previously qualified by the Finance Ministry for the purpose and subjected to the approval of the Finance Minister. This evaluation, pursuant to Decree-Law 22/92 of February 14, is used for tax purposes, particularly with regard to the calculation of depreciation charges for the year.

 

F-24


EDP - Electricidade de Portugal, S.A. and Subsidiaries

Notes to the Financial Statements

June 30, 2004 (unaudited), December 31, 2003 and June 30, 2003 (unaudited)

 

24. Revenues

 

The Revenues, with breakdown by Sales and Services rendered, and by contribution of each business, is analysed as follows:

 

     Group

    

Jun 2004

Euro’000


  

Jun 2003

Euro’000


Sales by sector of activity/business:

         

Electricity

   3,137,687    3,115,611

Steam and ashes

   12,061    9,601

Gas

   90,623    —  

Information systems and technologies

   8,121    9,208

Telecommunications

   2,500    5,319

Other sales

   13,885    6,776
    
  
     3,264,877    3,146,515
    
  

Services rendered by sector of activity/business:

         

Associated with electricity sales

   44,654    26,284

Thermo/Hydro electricity engeneering

   3,877    3,485

Information systems and technologies

   35,423    21,599

Telecommunications

   156,044    142,642

Consultancy and services

   3,191    1,251

Other

   23,916    3,915
    
  
     267,105    199,176
    
  

TOTAL TURNOVER by business:

         

Electricity

   3,182,341    3,141,895

Steam and ashes

   12,061    9,601

Gas

   90,623    —  

Thermo/Hydro electricity

   3,877    3,485

Information systems and technologies

   43,544    30,807

Telecommunications

   158,544    147,961

Other

   40,992    11,942
    
  
     3,531,982    3,345,691
    
  

 

The breakdown of Gross profit on Sales is as follows:

 

     Group

    

Jun 2004

Euro’000


  

Jun 2003

Euro’000


Sales:

         

Electricity

   3,137,687    3,115,611

Steam and ashes

   12,061    9,601

Gas

   90,623    —  

Other sales

   24,506    21,303
    
  
     3,264,877    3,146,515
    
  

Cost of sales - Raw materials and consumables :

         

Electricity

   1,621,769    1,598,222

Fuel, steam and ashes

   219,987    129,322

Other costs

   78,731    113,521
    
  
     1,920,487    1,841,065
    
  
     1,344,390    1,305,450
    
  

 

F-25


EDP - Electricidade de Portugal, S.A. and Subsidiaries

Notes to the Financial Statements

June 30, 2004 (unaudited), December 31, 2003 and June 30, 2003 (unaudited)

 

The breakdown of Services rendered is as follows:

 

     Group

    

Jun 2004

Euro’000


  

Jun 2003

Euro’000


Associated with electricity sales

   44,654    26,284

Engineering studies and designs

   3,877    3,485

IT services

   35,423    21,599

Other telecommunications services

   156,044    142,641

Other services provided

   27,107    5,167
    
  
     267,105    199,176
    
  

 

25. Personnel costs

 

The balance Personnel costs is analysed as follows:

 

     Group

    

Jun 2004

Euro’000


  

Jun 2003

Euro’000


Corporate officers’ remuneration

   6,014    6,562

Employees’ remuneration

   201,912    214,070

Charges on remuneration and other

   116,808    124,641
    
  
     324,734    345,273
    
  

 

26. Depreciation and amortization

 

The balance Depreciation and amortization is analysed as follows:

 

     Group

    

Jun 2004

Euro’000


   

Jun 2003

Euro’000


Tangible fixed assets:

          

Fixed assets under concession the Decree-law 344-B/82

   1,303     1,866

Buildings and other constructions

   4,658     2,854

Plant and machinery:

          

Hydroelectricity generation

   59,685     62,701

Thermoelectric generation

   56,259     50,811

Electricity distribution

   220,392     217,801

Other plant and machinery

   32,453     29,723

Transport equipment

   4,815     4,325

Administrative equipment and utensils

   23,276     19,527

Other tangible fixed assets

   1,916     1,859
    

 
     404,757     391,467
    

 

Intangible fixed assets:

          

Set-up costs

   7,785     7,680

Research and development costs

   8,879     7,645

Industrial property and other rights

   4,243     1,554

Other intangible assets on telecommunications business

   1,108     —  
    

 
     22,015     16,879
    

 

Compensation of depreciation of part-funded fixed assets:

          

Compensated fixed assets

   (37,975 )   —  
    

 
     (37,975 )   —  
    

 
     388,797     408,346
    

 

 

In June 30, 2003, ‘Compensation of depreciation of part-funded fixed assets’ was included in other non-operating income and amounted EUR 34.3 million.

 

F-26


EDP - Electricidade de Portugal, S.A. and Subsidiaries

Notes to the Financial Statements

June 30, 2004 (unaudited), December 31, 2003 and June 30, 2003 (unaudited)

 

27. Supplies and services

 

This balance is analysed as follows:

 

     Group

     Jun 2004
Euro’000


   Jun 2003
Euro’000


Subcontracts:

         

Subcontracts

   93,839    93,892

Other subcontracts

   7,887    —  

Supplies and services:

         

Water, electricity and fuel

   4,638    2,678

Utensils and office material

   2,441    1,808

Leases and rents

   22,804    26,802

Communications

   14,045    11,104

Insurance

   10,578    9,522

Transport, travel, and the board and lodging

   5,842    3,633

Commissions and fees

   5,065    7,424

Maintenance and repairs

   42,708    27,805

Advertising and propaganda

   6,118    6,758

Specialised work

   75,388    92,192

Other supplies and services

   10,691    26,621
    
  
     302,044    310,239
    
  

 

28. Own work capitalized

 

This balance is analysed as follows:

 

     Group

    

Jun 2004

Euro’000


  

Jun 2003

Euro’000


Consumption of materials

   47,614    46,085

Direct internal costs and overheads

   40,841    42,395

Financial charges

   11,833    16,360

Other own work capitalized

   3,888    11,819
    
  
     104,176    116,659
    
  

 

29. Provisions for the year

 

This balance is analysed as follows:

 

     Group

     Jun 2004
Euro’000


  

Jun 2003

Euro’000


Charge for doubtful debt

   13,059    37,101

Charge for healthcare liabilities

   27,345    20,006

Charge for other contingencies and liabilities

   5,833    5,416
    
  
     46,237    62,523
    
  

 

30. Other operating expenses net

 

This balance is analysed as follows:

 

     Group

 
    

Jun 2004

Euro’000


   

Jun 2003

Euro’000


 

Other operating income:

            

Supplementary income

   4,439     2,033  

Operating subsidies

   201     110  

Other operating income

   3,356     7,347  
    

 

     7,996     9,490  
    

 

Other operating expenses:

            

Direct taxes

   784     189  

Indirect taxes

   8,968     4,276  

Other operating costs and losses

   5,803     5,143  
    

 

     15,555     9,608  
    

 

Other net operating income / (expenses)

   (7,559 )   (118 )
    

 

 

F-27


EDP - Electricidade de Portugal, S.A. and Subsidiaries

Notes to the Financial Statements

June 30, 2004 (unaudited), December 31, 2003 and June 30, 2003 (unaudited)

 

31. Interest and related income and expenses

 

The balance Interest and related income and expenses, are analysed as follows:

 

     Group

 
     Jun 2004
Euro’000


   

Jun 2003

Euro’000


 

Interest and related income :

            

Interest income

   23,817     29,307  

Income on application of the equity method

   21,172     17,474  

Investment income

   8,976     31,481  

Favourable exchange differences

   15,156     8,259  

Other financial gains

   35,769     42,268  
    

 

     104,890     128,789  
    

 

Interest and related expenses :

            

Interest expense

   167,837     185,076  

Banking services

   7,525     —    

Losses on application of the equity method

   1,054     10,283  

Unfavourable exchange differences

   33,193     5,799  

Other financial losses

   29,964     61,480  
    

 

     239,573     262,638  
    

 

Amortization of investments (Goodwill):

            

- Concession rights

   15,220     22,978  

- Goodwill assets

   29,644     25,704  

- Other intangible assets on telecommunications business

   1,909     —    
    

 

     46,773     48,682  
    

 

     286,346     311,320  
    

 

Net Financial Income / (Expenses)

   (181,456 )   (182,531 )
    

 

 

32. Other non-operating income / (expenses)

 

The balance Other non-operating income / (expenses) is analysed as follows:

 

     Group

    

Jun 2004

Euro’000


   

Jun 2003

Euro’000


Other non-operating income

          

Gains on fixed assets

   1,906     22,737

Recovery of debt

   269     232

Reduction of provisions

          

- For customer debt

   32     —  

- For financial assets

   562     —  

- For other contingencies and liabilities

   4,833     23,280

Corrections to previous years

   5,321     2,639

Compensation of depreciation of part-funded fixed assets

   —       34,385

Investment subsidies

   3,313     4,062

Compensation of cost of human resources rationalisation

   6,627     —  

Other extraordinary gains

   9,519     6,538
    

 
     32,382     93,873
    

 

Other non-operating (expenses)

          

Losses on stocks

   1,293     616

Losses on fixed assets

   6,524     16,323

Bad debt

   2,420     288

Fines and penalties

   41     50

Corrections to previous years

   10,270     5,047

Extraordinary provisions

          

- For other contingencies and liabilities

   1,066     —  

Loss on ‘Baixa UTE Campo Grande’ (Enersul)

   1,502     —  

Cost of human resources rationalisation

   23,199     —  

Other extraordinary losses

   6,142     12,170
    

 
     52,457     34,494
    

 

Net Non-Operating Results

   (20,075 )   59,379
    

 

 

In 2004, Compensation of depreciation of part-funded fixed assets was reclassified to depreciation and amortization.

 

Cost of human resources rationalisation mainly includes charges with pensioners, compensation from contract rescissions and ‘Flexible Retirement Program’ promoted by EDP Group.

 

F-28


EDP - Electricidade de Portugal, S.A. and Subsidiaries

Notes to the Financial Statements

June 30, 2004 (unaudited), December 31, 2003 and June 30, 2003 (unaudited)

 

33. Provisions for income taxes

 

In accordance with prevailing legislation, tax returns are subject to review and correction by the tax authorities during subsequent years. In Portugal this period is four years, and 1998 was the last year considered to be definitively liquidated by the tax authorities.

 

Tax losses calculated for given year, also subject to inspection and adjustment, may be deducted from taxable profits during subsequent years. The companies of the EDP Group are taxed, whenever possible, under the consolidated systems allowed by the tax law of the respective countries.

 

The breakdown of income tax expense is as follows:

 

     Group

 
    

Jun 2004

Euro’000


   

Jun 2003

Euro’000


 

Tax base

            

Income before income taxes

   350,036     283,686  

Permanent differences

   25,934     28,334  
    

 

     375,970     312,020  
    

 

Normal charge

   103,392     102,967  

Adjustments

   —       7,672  
    

 

Income tax expenses

   103,392     110,639  
    

 

Current income taxes

   174,007     141,835  

Deferred income taxes

   (70,615 )   (31,195 )
    

 

Income tax expense

   103,392     110,640  
    

 

 

The inverse in deferred income taxes relates mainly to reversal of deferred tax liabilities related with capital gains taxes.

 

The breakdown of the reconciliation between the nominal and the actual income tax (IRC) rate for the Group in June 30, 2004 is as follows:

 

     Jun 2004

 
    

Tax Base

Euro ‘000


   

Tax

Euro ‘000


   

Rate

%


 

Nominal tax on profits

   350,036     96,260     27.5 %

Amortization resulting from revaluation fixed assets

   35,979     9,894     2.8 %

Book losses not compensated

   36,766     10,111     2.9 %

Other adjustments to taxable income

   (46,811 )   (12,873 )   -3.7 %
          

 

Effective rate and actual tax on profits

         103,392     29.5 %
          

 

 

     Jun 2003

 
    

Tax Base

Euro ‘000


  

Tax

Euro ‘000


  

Rate

%


 

Nominal tax on profits

   283,686    93,616    33.0 %

Book losses not compensated

   23,565    7,776    2.7 %

Change in prior year estimates

   23,248    7,672    2.7 %

Other adjustments

   4,764    1,576    0.6 %

Effective rate and actual tax on profits

        110,640    39.0 %
         
  

 

Corporate income tax returns are subject to review and correction by the income tax authorities for a period of four years after the filing of such returns. Accordingly, the last taxation year that can be considered definitively assessed by the income tax authorities in 1998.

 

34. Segmental reporting

 

The Segmental Reporting was prepared in accordance with Portuguese Accounting Directive 27 and with international best practices.

 

F-29


EDP Group Business by Business Segment

 

Information by business segment - 1st Half 2004

 

(Amounts expressed in thousands of euros)

 

    Portugal

    Spain

    Brazil

   

Telecoms


   

Information

Technology


   

Services

and Other
Adjustments


   

EDP

Group


 
    Generation (a)

    Distribution
+ Supply


    Generation

    Distribution
+ Supply


    Gas (b)

    Generation

    Distribution

         

Turnover

                                                                 

Sales of electricity

  678,224     1,745,221     110,949     124,056     9,286     13,506     462,576     —       —       (6,130 )   3,137,688  

Other sales

  10,393     1,211     3,595     31,596     82,735     1,700     —       5,222     13,083     (22,346 )   127,189  

Services rendered

  36,030     11,800     843     8,533     7,677     3,766     31,908     160,596     77,940     (71,988 )   267,105  
   

 

 

 

 

 

 

 

 

 

 

    724,647     1,758,232     115,387     164,185     99,698     18,972     494,484     165,818     91,023     (100,464 )   3,531,982  
   

 

 

 

 

 

 

 

 

 

 

Raw materials and consumables

                                                                 

Purchase of electricity

  17,974     1,143,337     7,982     124,805     64,532     3,302     302,872     —       —       (43,035 )   1,621,769  

Fuel costs

  163,121     —       53,105     979     407     2,375     —       —       —       —       219,987  

Other materials

  1,430     53,407     2,480     6,180     2,853     48     4,041     4,495     11,549     (7,751 )   78,732  
   

 

 

 

 

 

 

 

 

 

 

    182,525     1,196,744     63,567     131,964     67,792     5,725     306,913     4,495     11,549     (50,786 )   1,920,488  
   

 

 

 

 

 

 

 

 

 

 

Gross Margin

  542,122     561,488     51,820     32,221     31,906     13,247     187,571     161,323