a Letter
to the shareholders
Dear Shareholders:
In 2005, our Company reported the best result in its history.
The year that just ended was particularly important, also due in part to the arrival of new industrial shareholders who brought to Edison the long-term stability that the Company needs to continue to grow and develop. Thanks to this new ownership base, Edison can now rely on Italian and international shareholders who, by contributing industry expertise and potential synergies, will help it achieve the strategic objective of growing as a major Italian energy player with a presence in the international market.
In 2005, Edison sales volumes increased significantly, with sales rising to 52.6 Terawatt-hours (+4.3%) for electricity and to 13.6 billion cubic meters for natural gas (+19%). Sales to customers in the deregulated market were up sharply, enabling Edison to increase its market share and achieve a leadership position, both in the electric power (+17%) and natural gas (+19%). Edison was a also a key player on the Electric Power Exchange, in operation for a full year for the first time in 2005. As a result, the Group was able to report total revenues of 6.6 billion euros, or 18.2% more than in 2004.
Net profit rose to 500 million euros, compared with 354 million euros in 2004. This achievement was particularly rewarding, considering that it was attained in a year characterized by a number of unfavorable events: elimination of the incentives on sales of energy under CIP6 contracts, cost of usage of the strategic natural gas reserves, lower margins caused by a scarcity of rainfall and some technical problems at our production facilities.
The negative impact of these events was more than offset by strong sales volumes, the efficiency and high yield of the Group's new facilities, the good margins earned by the hydrocarbon production operations, a drastic reduction of financial expense, the containment of overhead and the optimization of the tax burden, made possible by the corporate restructuring implemented in recent years.
A positive operating performance and the sale of non core activities, which marked the completion of a process started four years ago to divest the Group's diversified operations, caused indebtedness to fall from 4,906 to 4,878 million euros. As a result of the decrease in indebtedness and the increase in earnings, the main international rating agencies improved or confirmed the Group's rating.
In 2005, Edison made fundamental progress in implementing its capital investment plan, which is one of the most ambitious launched in Europe in the last 10 years: the Candela power plant, the most efficient and environmentally friendly facility in Europe was inaugurated; the Altomonte and Torviscosa facility were virtually completed and will be commissioned early in 2006; and Edipower continued to carry out its repowering program on schedule, bringing on line the Chivasso, Piacenza and Sermide power plants.
Edison also reaffirmed its commitment to renewable energy and, with 200 Megawatt of installed capacity is now a leading player in wind energy generation.
With those achievements, in the period between 2001 and 2005, the addition of new facilities increased the installed capacity of Edison and Edipower (for the pro rata share attributable to Edison) by about 7,000 Megawatt to a total of more than 12,000 Megawatt.
The natural gas industry experienced a particularly challenging period toward the end of 2005. The well known natural gas crisis validated the farsightedness of Edison's strategic decision to invest in new infrastructures. Working in partnership with Exxon Mobil and Qatar Petroleum, Edison is currently the only company with a regasification terminal under development. This facility, which is located in the North Adriatic, is scheduled to come on stream in 2008. It will have a capacity of 8 billion cubic meters a year and will provide Edison and the Italian energy system
in general with a more diversified, safer and more cost effective supply of natural gas.
In addition, work on the design of a second regasification terminal near Rosignano continued, while waiting for the issue of the necessary permits.
To further improve the safety of its supplies, Edison is also working on two new natural gas pipelines that will link Italy with Algeria and Greece. In November, Italy, Greece and Turkey signed an intergovernmental agreement that laid the groundwork for construction of the second of these two pipelines. Edison is determined to be a key player in the field of natural gas, with infrastructures and contracts that will place it in the restricted circle of the top international players. During 2005, Edison significantly strengthened its commitment to hydrocarbon exploration and production. As a result, its reserves increased by more tan 10%, due mainly to new discoveries in Algeria.
In 2005, Edison's achievements were not limited to reporting gratifying results: it also continued to pursue a long-term strategic vision that enabled it to lay a foundation for its future growth. Lever-