The EBITDA amount reflects the positive impact of higher unit sales and the Group's ability to hold a relatively steady margin on sales in the deregulated market. On the other hand, the higher prices paid for raw materials could not be reflected fully in the prices charged. The reason for this divergence is that, while the cost of natural gas and other oil-linked fuels rose by more than 40%, the average price of energy on the Electric Power Exchange increased by about 14%.
The decrease in EBITDA reported by the Group's core businesses (-12.0% compared with 2004) is due to a negative performance by the electric power operations (-16.5%). This decline, which was in line with expectations, was caused primarily by the expiration of CIP-6 incentives for some of the Group's power plants (about 160 million euros), shutdowns of some power plants for scheduled and extraordinary maintenance and a decrease in hydroelectric output caused by a reduction in the availability of water resources, offset in part by a steady rise in sales, especially to customers in the deregulated market, made possible by the startup of the Candela power plant, and by an improvement in margins.
The EBITDA increase of 5.4% reported by the hydrocarbons operations reflects a rise both in unit sales and unit sales prices, which more than offset the impact of an extraordinary charge (about 20 million euros) incurred to use the strategic reserves during the periods of unusually intense cold that occurred during the first three months of 2005.
24. Depreciation, Amortization and Writedowns
A breakdown of depreciation, amortization and writedowns, which totaled 657 million euros, is provided below:
(in millions of euros) 2005 2004 Change % change
Depreciation of property, plant and equipment 514 487 27 5,5%
Depreciation of investment property 1 1 - -
Amortization of hydrocarbon concessions 31 32 (1) (3,1%)
Amortization of other intangible assets 33 33 - -
Writedowns of property, plant and equipment 85 71 14 19.7%
Writedowns of investment property 5 12 (7) n.a.
Writedowns (Reversals of writedowns)
of hydrocarbon concessions (12) 22 (34) n.a.
Writedowns of intangible assets - 2 (2) n.a.
Total for the Group 657 660 (3) (0,5%)
Breakdown by Type of Business
(in millions of euros) 2005 2004 Change % change
Electric power operations 546 502 44 8.8%
Hydrocarbons operations 92 134 (42) (31.3%)
Corporate activities 15 19 (4) (21.1%)
Core businesses 653 655 (2) (0.3%)
Water 1 2 (1) n.m.
Other operations 1 2 (1) n.m.
Engineering 3 3 - -
Divested operations 3 3 - -
Total for the Group 657 660 (3) (0.5%)
As mentioned earlier in this report, writedowns of property, plant and equipment of 85 million euros were booked mainly to reflect the findings of the impairment tests performed on some of the property, plant and equipment held by the electric power operations (81 million euros). In the case of the hydrocarbons operations, writedowns of certain concessions totaling 12 million euros booked in previous years were reversed in 2005. Lastly, the useful lives of certain hydroelectric power plants were changed following the official enactment of a decree that extended the term of government concessions. This change had a marginal impact on depreciation.
The increase in depreciation of property, plant and equipment reflects the commissioning of the Candela power plant.
25. Net Financial Income (Expense)
Net financial expense came to 219 million euros, for a decrease of 91 million euros compared with 2004.
This decrease reflects a reduction in indebtedness, a lower cost of funds and the absence of nonrecurring fees paid in 2004. The decrease also reflects a different presentation of the results generated by derivative transactions, a portion of which is reflected as part of the industrial margin due to the adoption of IAS 39 as of January 1, 2005. For more details see the paragraph "Analisys of Forward Transactions and Derivatives".
A breakdown of net financial expense is as follows:
(in millions of euros) 2005 2004 Change
Financial income      
Interest earned on derivatives 102 119 (17)
Interest earned on bank and postal accounts 9 7 2
Interest earned on amounts due from the tax administration 6 8 (2)
Interest earned on receivables owed by other companies 6 5 1
Other financial income 3 12 (9)
Total financial income 126 151 (25)
Financial expense      
Interest paid on bond issues (123) (124) 1
Charges paid on derivatives (111) (167) 56
Interest paid to banks (71) (104) 33
Bank fees (15) (39) 24
Capitalized interest paid on decommissioning projects (7) (6) (1)
Interest paid to other lenders (2) (6) 4
Interest paid on finance leases (2) (2) -
Interest paid in connection with employee severance benefits (3) (3) -
Other financial expense (7) (12) 7
Total financial expense (339) (463) 124
Foreign exchange translation gains (losses)      
Foreign exchange translation gains 36 28 8
Foreign exchange translation losses (42) (26) (16)
Net foreign exchange translation gain (loss) (6) 2 (8)
Net consolidated financial income (loss) (219) (310) 91
Financial income, income of 126 million euros includes the following:
  • 102 million euros in gains on derivatives, broken down as follows: 93 million euros generated by contracts that hedge the risk of interest rate fluctuations (64 million euros attributable to completed contracts and 29 million euros in fair value adjustments to existing contracts) and 9 million euros in fair value adjustments to commodity derivatives. The amount shown for 2004 is not comparable because, as already explained, it includes a portion of the gain that in 2005 is included in the industrial margins.
  • 9 million euros in interest earned on bank accounts (7 million euros in 2004).
  • 6 million euros in interest earned on amounts due from the tax administration (8 million euros in 2004).
  • 6 million euros in interest earned on long-term receivables (8 million euros in 2004).