2005 ANNUAL REPORT DURO FELGUERA 2005 ANNUAL REPORT INDEX
4 MAIN FIGURES FOR THE YEAR 6 LETTER FROM THE CHAIRMAN 11 GOVERMING BODIES 12 Board of Directors 13 Committees 14 Management Committee 15 Corporate structure 17 ECONOMIC INFORMATION AND STOCK EXCHANGE EVOLUTION 18 Evolution of Profit 20 Balance sheet and Profit and Lost Accont 22 Stock Exchange evolution 23 ACTIVITIES’ REPORT 24 Commercial Activity 27 Human Resources 30 Comunication and Image 33 ACTIVITIES OF THE BUSINESS LINES 47 DIRECTORY 49 CORPORATE REPORT 71 ECONOMIC AND FINANCIAL REPORT Consolidated Annual Accounts and Management Report for the Year 2005 Annual Accounts and Management Report for the Year 2005 of the holding company MAIN FIGURES 1 FOR THE YEAR 1.a BALANCE SHEET AND PROFIT AND LOST ACCOUNT
PROFIT AND LOSS ACCOUNT (Million euros)
2001 2002 2003 2004 (*) 2005(*) ORDER INTAKE 335.99 558.17 311.13 767.05 725.59 BACKLOG 303.05 429.76 352.77 718.58 971.13 SALES 356.47 463.99 342.89 319.86 511.19 National 265.88 309.82 152.98 185.84 320.94 International 90.59 154.17 189.91 134.02 190.25 LABOUR COSTS 150.69 106.70 92.88 82.08 94.84 PROFIT BEFORE TAXES 8.19 8.59 -8.48 10.14 20.57 AVERAGE WORKFORCE 3,229 3,276 2,723 1,946 1,934 (*) Data calculated using International Financial Reporting Standards
BALANCE SHEET (Million euros) 2001 2002 2003 2004 (*) 2005(*) NON-CURRENT ASSETS 200170.81 64.23 81.75 125.14 131.68 Property, plant and equipment 53.10 41.66 54.03 95.20 96.96 CURRENT ASSETS 217.65 310.91 186.23 255.17 350.58 Cash and cash eequivalents 49.27 35.40 24.13 44.20 100.31 TOTAL ASSETS 288.46 375.14 267.98 380.31 482.26 4 EQUITY ATTRIBUTABLE TO PARENT COMPANY 66.72 67.20 53.27 78.49 95.14 MINORITY INTERESTS 3.99 4.88 7.10 6.30 7.61 DEFERRED INCOME 6.89 7.20 6.32 10.49 9.83 NON-CURRENT LIABILITIES 18.87 60.80 17.68 47.53 57.91 Long-term bank loans 11.96 48.60 14.82 25.95 31.20 CURRENT LIABILITIES 191.99 235.06 183.61 237.50 311.77 Short-term bank loans 27.48 54.10 34.83 56.54 26.25 TOTAL LIABILITIES AND EQUITY 288.46 375.14 267.98 380.31 482.26 (*) Data calculated using International Financial Reporting Standards
MAIN FIGURES FOR THE YEAR 1.b MAIN CONTRACTS
INTEGRAL PROJECT MANAGEMENT
SPAIN HC Energía /AP Combined Cycle Power Plant Soto de Ribera (400 MW) Asturias SPAIN HC Energía /AP Combined Cycle Power Plant Castejón (400 MW) Navarra SPAIN Endesa Combined Cycle Power Plant Puentes de García Rodríguez (800 MW) La Coruña ITALY Endesa Italia Monfalcone Coal Fired Power Plant Desulphurization (2 x 170 MW) QATAR KOBE Stockyard machinery VENEZUELA Ferrrominera Orinoco Phase I extension VENEZUELA Ferrrominera Orinoco Phase II engineering and equipment SPAIN Endesa Prioriño Port (El Ferrol) LIBYA ROO 3 tanks of 50,000 m3 SPAIN ENAGAS 1 tank of 150,000 m3
AUXILIARY SERVICES FOR INDUSTRY
SPAIN REPSOL YPF Extension of revamping mechanical erection (La Coruña) 5 SPAIN CEPSA Mechanical erection for SS. AA. La Rábida refinery (Huelva) SPAIN AES Erection of gas and steam turbo-generators at combined cycle power plant (Cartagena)
MANUFACTURING
SAUDI ARABIA ARAMCO 2 Columns for propylene output JAPAN REPIC CORP. 30 Vacuum Vessels FRANCE AIR LIQUIDE Service Modules GREECE ERGOSE Diverse railway track material
DURO FELGUERA 2005 ANNUAL REPORT LETTER 2 FROM CHAIRMAN
Dear shareholder,
I am writing to you again to provide you with the most important information of the year 2005 and to explain to you the main lines that will orientate our management over the next few years.
And so I do with the satisfaction of being able to affirm that Duro Felguera closed the year 2005 with excellent results that go far beyond those of previous years, and with the conviction that the company now has a more solid presence in the market and, as a consequence, faces its future with better prospects than those 6 announced a year ago.
The positive evolution of our businesses has been favourably received in the stock markets, what has translated itself into a notable revaluation of the shares. This circumstance, together with the improvement of the dividend, has been highly profitable to our shareholders.
The evolution of the company has far surpassed that registered by our sector, that of Engineering and Construction of Industrial Plants and Equipments, both in Spain and in the global market in which Duro Felguera >> The evolution of the company has far operates. surpassed that registered by our sector, that Thus, on the basis of the data provided by the business of Engineering and Construction of association SERCOBE about the forecasts for closure of Industrial Plants and Equipments, both in the year 2005, the sector in Spain grew 7.8% in turnover, Spain and in the global market. while Duro Felguera grew 60%. The Spanish exports of the sector increased 3.7%, as opposed to the 47% growth experienced by our company. At the same time, the company’s order intake amounted to 726 million euros, of which 227 million corresponded to international contracts. International order intake, which represented
LETTER FROM THE CHAIRMAN JuanEVOLUCIÓN Carlos Torres EN BOLSAInclán
>> The Integral Project Management in the fields of power systems, industrial plants and the installation of fuel storage plants was consolidated as the core business of the company.
nearly a third of the total of the group, increased 23% right path. The strategic orientation of concentrating our last year. efforts on the activity of managing major projects and on those areas in which our know-how has accumulated a Our sales volume reached 511 million euros after increasing long tradition of knowledge and experience is yielding 60%. Of this figure, 190.25 million correspond to sales fruit. Once again, the success is jot only to the credit of carried out in the international markets. one business line but also of the collective effort and contribution of all the units of the group. With the At the end of 2005, the backlog, that is, the work contracted exception of Felguera Construcciones Mecánicas all the and still pending, was at historical maximums for the subsidiaries have had extremely positive results and a clear company, being at 971 million Euros, so not only did it line of growth. grow 35% in relation to the previous year, but also tripled 7 that of 2003. This backlog is equivalent to two years’ By activity segments, the Integral Project Management in production and it gives the group the necessary stability the fields of power systems, industrial plants and the for the next three years. installation of fuel storage plants was consolidated as the core business of the company, as it concentrated 67.1% The profit after tax was of 24.9 million euros, with a 224% of the group’s sales and 81% of the year’s order intake. growth in relation to the previous year, while the EBITDA Amongst the latter, mention should be made of the was at 27.4 million, having increased 65%. combined cycle power plants of Castejón II (Navarra), Soto de Ribera (Asturias) and Puentes de García Rodríguez (La In relation to the consolidated balance sheet, it is worth Coruña), as well as of a natural liquid gas storage tank in noting the excellent liquidity and reduced bank debts Cartagena and new extensions of the project for an iron caused by an optimal economic structure of the projects ore concentration plant in Venezuela. in execution, by means of which the financial resources of the clients are obtained by advances that, in combination Within the area of major projects, some relevant contracts with a flexible financing, make it possible to adapt the were finished in 2005, the highlights being the combined economic and financial amounts of the balance in the cycle power plants of Son Reus II, in Majorca, and Barranco different cash-flow stages of the projects. de Tirajana I, in Gran Canaria, both already in commercial operation after being executed as sole contractor by our The other amounts of the balance are in keeping with the company, while other projects continued to be carried level of activity reached in the year, particularly the out, such as the simple cycle of Fiume Santo, in Italy, or Working Capital, which is at 38.8 million euros. the extension of a simple cycle power plant to a combined cycle one in Ventanilla (Peru) as well as the iron ore These figures are higher than those announced in the concentration plant in Venezuela and the liquid gas storage previous year’s report and confirm that we are on the tanks in the Barcelona regasification plant.
DURO FELGUERA 2005 ANNUAL REPORT LETTER 2 FROM CHAIRMAN
>> We are no longer a company the market identifies by its means of production, which although important have taken on a secondary role. The main asset of our group at present is clearly knowledge.
Generally speaking, in 2005 our company was consolidated by the companies Felguera Montajes y Mantenimiento, among the major Spanish companies specialising in the Mompresa and Opemasa, is to increase their relevance management of turnkey projects as it has maintained its within our business as a whole in order to achieve more leadership in the execution of combined cycles and the regular profits that are less vulnerable better to the cycles installation of fuel storage plants, entering new areas of that affect major projects. Therefore, we will reinforce our activity –amongst which mention should be made of the presence in the field of operation and maintenance desulphurisation of coal-fired power plants- and increasing contracts and enter new areas of activity that are synergetic its international presence in macro-projects such as that in relation to our traditional undertakings. of Venezuela mentioned above and with the entry in new markets such as Italy or Peru. The conclusion of all this is that our group of companies 8 is committed to a project to grow on the base of their As for the Manufacturing segment, in 2005 Duro Felguera existing, taking advantage of all the possibilities offered signed contracts for an amount of 94 million euros, a 13% by being part of a group, both in the identification of of the total of the group, and its sales amounted to 119 market opportunities and in the enhancement of its human, million, 23.3% of the total. However, this segment closed financial and common services resources. the year with losses due to the year’s results from Felguera Construcciones Mecánicas and despite the profits obtained Regarding the next few years, we will maintain the basic by other workshops of the group: Tedesa, Felguera Melt lines our management is based on and that could be y Felguera Calderería Pesada. summarised as selective internationalisation, orientation towards engineering management and construction of Regarding the situation of Felguera Construcciones industrial plants, a resolute effort in the direction of Mecánicas, last year we launched a series of measures innovation in both processes and products, as well as the that are still to be in application in 2006 and the following creation of a base of young professionals as a guarantee years, whose aim is that of resizing this business unit in for the future, the latter aspect being the subject of all order to adapt the overhead costs and advance towards of our efforts and personal dedication. productivity levels that make it competitive in the market in which it operates. In this sense, in the last two years we have incorporated 60 qualified technicians and have trained them according Finally, the Auxiliary Services for the Industry obtained to our values and company culture, with the certainty sales for 45.9 million euros, 9% of the company total, that their mid-term contribution will be fundamental for with a result before tax of 7.6 million. The order intake the international growth of our group, for the development corresponding to this area of activity reached 46 million of new innovation initiatives and for the management of euros, which constitutes 6% of the total volume of Duro projects. During 2006 we will continue with this strategy Felguera. The purpose for this activity segment, represented of training and incorporating graduates bachelors by
LETTER FROM THE CHAIRMAN EVOLUCIÓN EN BOLSA
means of our master’s degree in industrial project exporting heavy equipment for our clients in the United management which, on this occasion, we shall open for States. In the European market, as I have already told you professionals from other countries so they can contribute in previous occasions, our main goals are the Italian to the completion of our international development. markets, where we already have significant projects, as in Portugal and France. We have also had a continuous Another important aspect for Duro Felguera lies in presence in Greece, supplying equipment for railway lines, innovation, in which field our company has taken a major for several years. step forward in the last few years. We are no longer a company the market identifies by its means of production, Taking into account the favourable evolution of the profits which although important have taken on a secondary role. of the company and in accordance with the wishes of the The main asset of our group at present is clearly knowledge Board of Directors, already mentioned elsewhere, to offer - and in a permanent improvement through the innovation an appropriate compensation to the shareholder, we of the three main concepts that we apply to all of our approved the payment of two dividends into account, companies: the enhancement of both technical and chargeable to the year 2005, for a total amount of 0.32 management processes; the reduction of costs and supply euros per share, which will be compensated with a proposal deadlines, as well as a constant increase of the range of of the Board of Directors of a complementary dividend of products and technological improvements. Last year all 0.16 euros in total. The pay out – percentage of the profits companies of the group, without exception, have been used for dividends- is of 31%. This dividend reaches 0.48 involved in important developments with both economic euros per share, thus amounting to a 100% increase in and accreditation support from the regional and national relation to the previous year’s dividend. institutions related to innovation. Also, in order to increase the liquidity of the Stock Exchange As for investments, in 2005 they amounted to 10.2 million value, the General Shareholders’ Meeting has been proposed 9 euros, of which most of were dedicated to our workshops, to carry out a scrip issue charged to reserves at a ratio of mainly Felguera Construcciones Mecánicas to improve the one new share per each former seven, as well as the split competitiveness of the products its manufactures, as well of the nominal value of the shares into a 6 to 1 ratio. as the new facilities of Felguera Rail. On the other hand, mention should also be made in terms of financial The financial markets have awarded our business investments of our participation in a facility for the development with an important increase of our shares, production of biofuel in Extremadura, as a first step for which were revaluated at 110% during 2005 and had a another series of investment that we hope may take place quotation at 16.51 euros by the end of the year. The value in the sector of power systems. was among the ten most increasing values in the Spanish market, with an increase that was far beyond that registered The internationalisation of Duro Felguera is maintaining in the main index of the Madrid Exchange, the Ibex-35, a clear line of progress by the constant analysis of the which grew 18%, and the General Index, which improved risk-profit relationship. America is still our target market 21%. During the first months of 2006 the previous year’s for the next years. Currently, we are developing important upward trend was maintained. projects in Peru, Mexico and Venezuela, and we are regularly
>> The financial markets have awarded our business development with an important increase of our shares, which were revaluated at 110% during 2005.
DURO FELGUERA 2005 ANNUAL REPORT LETTER 2 FROM CHAIRMAN
>> we have optimistic prospects for this year and the following one on the basis of the current backlog and of the projects we have been recently awarded. As already stated throughout this letter, we base our results and future expectations on personal effort, the knowledge and the contribution of enthusiastic work of all the people at Duro Felguera. In my name and on behalf of the Board Since 1 July 2005, Duro Felguera has been a part of the of Directors, I thank them most sincerely, which we also new stock index Ibex Small Cap, which groups 30 companies extend to our clients and suppliers, whose trust and support quoting in the Spanish Stock Exchange and that are not make it possible for us to continue improving year after included in the Ibex-35. Our company was the third highest year. value of the Ibex Small Cap with the highest revaluation during the last year. Finally, I also thank you, dear shareholder, for the trust you have invested in us once again this year, hoping that Coinciding with the appearance of these new indexes we we have fulfilled your expectations. have reinforced our market communication policy, following the recommendations of the supervising bodies of the Stock Exchange. In 2005 we carried out presentations Juan Carlos Torres Inclán with analysts of the Stock Exchanges of Madrid and Chairman 10 Barcelona, and there was an improvement of all the contents of our web page for offering information to the shareholders and investors, adapting them to the requests of the Comisión Nacional del Mercado de Valores (National Stock Exchange Commission).
After closing a fabulous year 2005, I am pleased to inform you that we have optimistic prospects for this year and the following one on the basis of the current backlog and of the projects we have been recently awarded, which will allow us to grow and consolidate our presence in countries such as Venezuela and Italy, and enter new markets with a high future potential for our activities, more specifically India, where we have just obtained a contract worth 80 million euros for an ore handling company, in which activity we have international experience.
LETTER FROM THE CHAIRMAN DURO FELGUERA 2005 ANNUAL REPORT
GOVERMING BODIES 3 GOVERMING BODIES 3.a BOARD OF DIRECTORS
CHAIRMAN Mr. Juan Carlos Torres Inclán VICE-CHAIRMAN Mr. José Luis García Arias MEMBER TSK Electrónica y Electricidad, S. A. (Represented by Mr. Sabino García Vallina) MEMBER PHB Weserhütte, S. A. (Represented by Mr. Carlos Vento Torres) MEMBER Inversiones Somió, S. R. L. (Represented by Mr. Juan Gonzalo Alvarez Arrojo) MEMBER Inversiones el Piles, S. L. (Represented by Mr. Angel Antonio del Valle Suárez) MEMBER Construcciones Urbanas del Principado, S. R. L. (Represented by Mr. Manuel González González) MEMBER IMASA Ingeniería, Montajes y Construcciones, S. A. (Represented by Mr. Tomás Casado Martínez) MEMBER Residencial Vegasol, S. R. L. (Represented by Mr. José Antonio Aguilera Izquierdo) MEMBER Mr. Marcos Antuña Egocheaga MEMBER Mr. Acacio Faustino Rodríguez García MEMBER Mr. José Manuel Agüera Sirgo CORPORATE GENERAL MANAGER (NON-DIRECTOR) Mr. Florentino Fernández del Valle SECRETARY NON-DIRECTOR Mr. Guillermo Quirós Pintado LEGAL ADVISOR Mr. Agustín Tomé Fernández 12 HONORARY CHAIRMAN Mr. Ramón Colao Caicoya
GOVERMING BODIES 3.b COMMITTEES
AUDIT COMMITTEE
CHAIRMAN Mr. José Manuel Agüera Sirgo MEMBER Mr. Juan Carlos Torres Inclán MEMBER Mr. Juan Gonzalo Álvarez Arrojo SECRETARY NON-MEMBER Mr. Secundino Felgueroso Fuentes
APPOINTMENTS, REMUNERATION AND COMPLIANCE COMMITTEE
CHAIRMAN Mr. José Luis García Arias MEMBER Inversiones el Piles, S. L. (Represented by Mr. Ángel Antonio del Valle Suárez) MEMBER IMASA, Ingeniería, Montajes y Construcciones, S. A. (Represented by Mr. Tomás Casado Martínez) MEMBER TSK, Electrónica y Electricidad, S. A. (Represented by Mr. Sabino García Vallina) MEMBER Residencial Vegasol, S.R.L. (Represented by Mr. José Antonio Aguilera Izquierdo) MEMBER Mr. Marcos Antuña Egocheaga SECRETARY NON-MEMBER Mr. Guillermo Quirós Pintado 13 LEGAL ADVISOR NON-MEMBER Mr. Agustín Tomé Fernánez
INTERNAL GROUP OPERATION COMMITTEE
CHAIRMAN Inversiones el Piles, S. L. (Represented by Mr. Ángel Antonio del Valle Suárez) MEMBER Construcciones Urbanas del Principado, S. R. L. (Represented by Mr. Manuel González González) MEMBER Mr. José Manuel Agüera Sirgo SECRETARY NON-MEMBER Mr. Secundino Felgueroso Fuentes LEGAL ADVISOR NON-MEMBER Mr. Agustín Tomé Fernández
DURO FELGUERA 2005 ANNUAL REPORT 3 GOVERMING BODIES 3.c MANAGEMENT COMMITTEE
14 CHAIRMAN Juan Carlos Torres Inclán CORPORATE GENERAL MANAGER Florentino Fernández del Valle GENERAL MANAGER ASSISTANT TO CHAIRMAN Antonio Martínez Acebal CHIEF FINANCIAL OFFICER Mariano Blanc Díaz HEAD POWER SYSTEMS BUSINESS LINE Francisco Martín Morales de Castilla HEAD INDUSTRIAL PLANTS BUSINESS LINE Félix García Valdés
GOVERMING BODIES 3 .d CORPORATE STRUCTURE
15
* D.F. Majority Shareholding ** D.F. Minority Shareholding
DURO FELGUERA 2005 ANNUAL REPORT DURO FELGUERA 2005 ANNUAL REPORT ECONOMIC INFORMATION AND STOCK EXCHANGE EVOLUTION ECONOMIC INFORMATION AND STOCK EXCHANGE 4 EVOLUTION 4.a EVOLUTION OF PROFIT
In 2005, Duro Felguera obtained a consolidated net profit of 24.91 million euros, which means a 24.91% increase in relation to the previous year’s profit of 7.69 million. On 31 December 2005, the consolidated profit before tax was of 20.57 million euros, a figure that is 103% higher than that registered on the same date in 2004, while the EBITDA Million euros profit attributed to the parent company was at 23.19 million euros after increasing 247%,
The difference between the profit before and after tax 8 Auxiliary Services bears on the activation of negative taxable amounts and deferred taxes, as befits the application of the International Accounting Standards. -2.9 Manufacturing
The year’s EBITDA was of 27.4 million euros, a figure that 29 Major Project Integral is 65% higher than that achieved the previous year, which Management was of 16.6 million. -10 0 10 20 30 40
As a consequence of the high backlog and of a correct management of the contracts, the turnover figure 18 registered an increase of 59.8%, the resulting total being of 511.19 million euros. 37% of this amount corresponded to the invoicing carried out in the international markets.
Along with the growth of the turnover figure, the moderate increase of personnel expenses and the reduction of financial expenses also contributed to the achievement of this profit.
Consolidated Profit EBITDA By activity areas, the Integral Project Management segment Million euros reached a sales volume of 343 million euros in 2005, its EBITDA being of 29 million; that of Auxiliary Services for 30 27.4 the Industry contributed to the sales of the group with 25 46 million euros and obtained an EBITDA of 8 million, 24.9 while the Manufacturing segment registered sales worth 20 119 million euros, with a negative EBITDA of 2.9 million 16.6 euros. This latter segment was affected by the losses 15 generated by Felguera Construcciones Mecánicas, which 10 could not be compensated by the positive results achieved 7.69 by Felguera Calderería Pesada, Felguera Melt and Tedesa. 5 Finally, the central services of the group registered an expense of 7 million euros. 0 2004 2005
ECONOMIC INFORMATION AND STOCK EXCHANGE EVOLUTION SALES Million euros
Other 3
Auxiliary Services 46
Manufacturing 119
Major Project 343 Integral Management
0 100 200 300 400
The main amounts of the balance sheet currency are adapted Likewise, the balance sheet includes, within Trade and Other to the different development stages of the projects in course Payables, the amount of Clients Advances, which registered an and to their financial structures. increase of 78 million euros in relation to the previous year.
Thus, at the end of the year 2005 the company was in a stage As for the Working Capital, this increased 119% until reaching of attracting client advances, which results in strong liquidity the amount of 38.8 million euros. and a reduced bank debt, especially on a short-term basis, which means that the bank debts were reduced by 25 million 19 euros in relation to the previous year, while the cash and its equivalents increased by 56 million euros.
Working capital Bank Debt Cash and cash equivalent Million euros 110 100 100.3 90 82.5 80 70 60 57.4 50 44.2 40 38.8 30 20 17.7 10 0 2004 2005
DURO FELGUERA 2005 ANNUAL REPORT ECONOMIC INFORMATION AND STOCK EXCHANGE 4 EVOLUTION 4.b BALANCE SHEET AND PROFIT AND LOST ACCOUNT
CONSOLIDATED BALANCE SHEETS Summary (Data expressed in thousand euros) ASSETS 2005 2004 Property, plant and equipment 96,955 95,195 Investment property 9,293 9,293 Goodwill 177 - Intangible assets 2,460 2,516 Investments in associates 2,876 2,686 Held-to-maturity financial assets 3,512 3,509 Available-for-sale financial assets 523 361 Trade and other receivables 5,694 7,667 Deferred tax assets 10,185 3,913 NON-CURRENT ASSETS 131,675 125,140 Inventories 16,770 22,244 Trade and other receivables 232,607 187,847 Financial accounts receivable 842 763 Financial assets at fair value through profit or loss 53 116 Cash and cash equivalents 100,311 44,203 CURRENT ASSETS 350,583 255,173 TOTAL ASSETS 482,258 380,313
LIABILITIES 2005 2004 Share capital 44,632 44,632 Share emission 3,913 3,913 1820 Reserves (448) - Cumulated translation difference 255 233 Retained earnings and other reserves 49,170 29,713 Less: Interim dividend (2,380) - EQUITY ATTRIBUTABLE TO PARENT COMPANY´S EQUITY 95,142 78,491 HOLDERS Minority interests 7,609 6,301 EQUITY 102,751 84,792 DEFERRED REVENUES 9,833 10,486 Borrowings 39,200 34,565 Trade and other payables 904 904 Derivative financial instruments 448 - Deferred tax liabilities 9,781 9,981 Obligations in respect of provisions for employees 6,633 1,108 Provisions for other liabilities and charges 945 976 NON-CURRENT LIABILITIES 57,911 47,534 Borrowings 28,828 58,951 Trade and other payables 258,738 162,121 Current tax liabilities 730 640 Obligations in respect of provisions for employees 6,678 4,639 Provisions 16,789 11,150 CURRENT LIABILITIES 311,763 237,501 TOTAL LIABILITIES AND EQUITY 482,258 380,313
ECONOMIC INFORMATION AND STOCK EXCHANGE EVOLUTION CONSOLIDATED PROFIT AND LOST ACCOUNT Summary (Data expressed in thousand euros) 2005 2004 Ordinary revenues 511,194 319,857 Changes in inventories of finished goods and work in progress (9,858) 1,948 Raw materials and consumables (322,472) (191,532) Employee benefit expense (94,838) (82,085) Depreciation of PPE and intangible assets (6,630) (5,555) Operating expenses (60,651) (41,871) Other net gains / (losses) (1,678) 12,619 Operating profit 15,067 13,381 Net financial costs 5,616 (3,284) Share of (loss) / profit of associates (113) 50 Profit before taxes 20,570 10,147 Income tax 4,335 (2,449) Profit for the year 24,905 7,698 Attributable to: Company´s shareholders 23,188 6,691 Minority interests 1,717 1,007 Earnings per share on profit from continuing activities attributable to Company´s shareholders during the year (expressed in euro per share) - Basic 1.55 0.45 21
DURO FELGUERA 2005 ANNUAL REPORT ECONOMIC INFORMATION AND STOCK EXCHANGE 4 EVOLUTION 4.c EVOLUTION IN STOCK MARKET
In 2005, the company was included in the new Ibex Small Cap index, which groups the small capitalization values of the Continuous Market. The annual growth of this new index, composed of thirty quoting companies, was of 42.9%, which is also The stock exchange evolution of the year 2005 went hand-in-hand being far below the advances of Duro Felguera. with the good economic profits achieved by the company, to the Only two companies of the Ibex Small Cap, Mecalux extent that Duro Felguera was one of the leading values in the Madrid and La Seda de Barcelona, achieved higher Stock Exchange, with a much higher quotation increase than that revaluations. of the main market indexes. In the month of November, two meetings with stock The shares of the company registered a 110.32% annual increase, analysts were held, one at the premises of the Madrid and closed the last session of the year at 16.51 euros, this is, with a Stock Exchange and the other at the Barcelona gain of 8.66 euros per share. The value was thus among the ten Stock Exchange. In both cases, the managers of highest values in terms of revaluation in the Spanish market. The Duro Felguera explained the 2005 situation of the capitalization of the company on 31 December amounted to 244.72 group, as well as the group’s prospects for the next millions Euros. few years, emphasising the company’s good financial health and announcing various measures aimed, on Duro Felguera’s evolution in the Stock Exchange went far beyond the one hand, at improving the shareholder payment that experienced by the main indicator of the Madrid Stock Exchange, policy and, on the other hand, at increasing the the Ibex-35, which was of 18.20% and of the General Index, at 21%. liquidity of the value in the markets. u8232 Duro Felguera’s performance in the Exchange was also noted for the high volumes of order intake registered, as well as for the During the first months of 2006, the shares of Duro 22 quotation achievements, which are among the highest of the last Felguera maintained the upward trend of the twenty years. A stock minimum of 7.76 euros for the year 2005 was previous year, reaching a maximum of 25 euros and established early in the year while the maximum, at 17.90 euros, was registering important order intake volumes, higher reached on 9 December. than the average of the last few years.
120.0% Duro Felguera Madrid Stock Exchange Gen. Index 100.0% Small Cap Index
80.0% IBEX 35
60.0%
40.0%
20.0%
0.0% jan 05 feb 05 mar 05 apr 05 may 05 jun 05 jul 05 aug 05 sep 05 oct 05 nov 05 dec 05
350 Volumen (thousands) 300
250
200
150
100 50
0 jan 05 feb 05 mar 05 apr 05 may 05 jun 05 jul 05 aug 05 sep 05 oct 05 nov 05 dec 05
ECONOMIC INFORMATION AND STOCK EXCHANGE EVOLUTION DURO FELGUERA 2005 ANNUAL REPORT
ACTIVITIES’ REPORT ACTIVITIES’ 5 REPORT 5.a COMMERCIAL ACTIVITY
The year 2005 was characterised by the consecution of EVOLUTION OF TOTAL ORDER INTAKE an important volume of the order intake figure in all the activity segments in which Duro Felguera operates, as well as by an intensive productive activity, concentrated on (Million euros) the execution of the projects that were awarded in previous 900 800 767 years, which translated itself into a high production figure. 726 Another notable trait of the year was the growing 700 international presence of the group, achieving relevant 600 558 contracts in various countries and initiating important 500 400 336 works in new markets. 311 300 This year’s order intake reached 726 million euros, which 200 figure is slightly below that corresponding to 2004, 100 although it was still at maximum levels for the company 0 2005 and very much above the average of the previous years. 2001 2002 2003 2004
By activity segments, the integral project management area concentrated 81% of the year’s order intake, for By geographical areas, the order intake of 2005 was notable corresponding to contracts whose value was of 585 million for the interannual 23% increase in the volume euros, a similar amount to that obtained the previous year. corresponding to the international markets. The The manufacturing area, corresponding to the company’s international contracts amounted to a total of 226.6 four workshops, closed the year with contracts worth 94 million euros, 42.3 million more than the previous year. million euros, which means 13% of the total of the group. Emerging markets and others that are now regular 24 This segment recorded a 34% drop in its order intake, destinations of Duro Felguera contributed to strengthening especially due to the descents registered in Felguera the company’s strategic vision, which is fundamentally Construcciones Mecánicas. Finally, the segment of auxiliary based on internationalisation as its prospective source of services for the industry reached an order intake of 46 value. million euros, that is, 6% of the group’s total.
EVOLUTION OF ORDER INTAKE ORDER INTAKE BY SEGMENTS OF BY SEGMENTS OF ACTIVITY ACTIVITY 2005
(Million euros) AUXILIARY MAJOR 6 % SERVICES 584.9 584.8 PROJECT INTEGRAL 13 % MANUFACTURING 428.4 MANAGEMENT
196 179.2 137.9 94.5 MANUFACTURING 92.8 93.1 73.3 81 % MAJOR AUXILIARY PROJECT 36.2 36.7 41.8 44.2 46.2 SERVICES INTEGRAL MANAGEMENT
2001 2002 2003 2004 2005
ACTIVITIES’ REPORT EVOLUTION OR ORDER INTAKE (Million euros)
2001 2002 2003 2004 2005 Total Order Intake 336 558.2 311.1 767.1 725.6 Domestic Market 149 473.1 232.1 582.8 499 International 187 85.1 79 184.3 226.6
In the domestic market, in 2005 contracts were signed for Compostilla (León) and Monfalcone, in Trieste (Italy), which 499 million euros, which figure was slightly beneath that entails entering a new activity area, undertaken in of the year 2004, which saw the historical order intake consortium with Mitsubishi Heavy Industries (MHI). record in the domestic market. In any case, the aforementioned figure widely surpasses that achieved in In the area of industrial plants, in 2005, there were previous years. important extensions corresponding to the project for the design, supply and installation of an iron ore concentration The most relevant contracts achieved throughout 2005 plant in Venezuela. This project, contracted in several were distributed by the different activity segments, which phases along the last two years, amounts to 420 million shows the dynamism of all the group areas. dollars and it entails consolidating the presence of Duro Felguera in that country, where the company has been In the power systems sector, mention should be made of working for over a decade, carrying out important industrial the awarding by HC Energía of the combined cycle power and port terminal installations. 25 plants of Soto de Ribera (Asturias) and Castejón II (Navarra), to be carried out in consortium with Alstom, as well as Within the area of major projects, mention should also be the combined cycle of Puentes de García Rodríguez (La made of the awarding of a storage tank with a capacity Coruña), of 800 MW, in consortium with General Electric of 150.000 m3 (LNG) for ENAGAS, in Cartagena. following the contract awarded by Endesa. To these one should add the contracts for the installation of Other relevant contracts of the year include two columns desulphurisation plants in the thermal power plants of weighing over 2,000 tons each for a refinery in the Middle East, as well as equipments for railways with destination to Greece and to the Paris subway, and equipments for INTERNATIONAL ORDER INTAKE BY General Electric wind power generators. GEOGRAPHICAL AREAS 2005 Generally speaking, the year’s order intake is noted out 0.5 % NORTH AMERICA for the economic relevance of the projects obtained and 5.1 % OTHER for frequently having international markets as their 13.2 % JAPAN destinations, some of these markets being already known to the company, as is the case with Venezuela, and in 26.4 % EUROPE other cases for being countries where the activity was initiated. In 2005 there was a consolidation of the presence in the Latin American markets and access was gained to 54.8 % LATIN AMERICA such other destinations as Italy, where it is expected to have continuity over the next few years.
Thanks to the year’s high level of order intake, the backlog at the closure of 2005 raised to 971 million euros, a record
DURO FELGUERA 2005 ANNUAL REPORT ACTIVITIES 5 REPORT 5.a COMMERCIAL ACTIVITY
EVOLUTION OF TURNOTHER
Million euros 600 511 500 464 400 356 343 320 300 200 100 0 2001 2002 2003 2004 2005
the commercial functioning of the combined cycle power plants of Barranco de Tirajana I (Gran Canaria) and Son Reus II (Majorca), the first of this kind that Duro Felguera has undertaken as a turnkey contractor on its own. Besides, the first of the two gas storage tanks contracted with ENAGAS in Barcelona was delivered, more work was done on the first phase of the iron ore concentration plant for Ferrominera Orinoco, 2826 in Venezuela, and other relevant projects were undertaken in Peru (simple cycle power plant in Ventanilla) and Mexico (oil coke plant in Monterrey). figure for the company and one that guarantees activity Regarding the area of manufacturing, mention should for at least two years. The backlog grew last year with be made of the assembly of two tunnel boring machines, 252.5 million euros more than in 2004, that is, 35%. one for the underground works of the M-30, in Madrid, and another for batch IV of the railway Bypass of Pajares. Finally, the year’s sales reached 511 million euros, 59.6% more than the previous year. 2005 saw the beginning of
EVOLUTION OF BACKLOG
Million euros 1,200 971 1000 719 800 430 600 303 353 400 200 0 2001 2002 2003 2004 2005
ACTIVITIES’ REPORT 5.b HUMAN RESOURCES
This continuous improvement has the purpose of guaranteeing the future of the organisation, whose main pillar lies in the people who work in the different units and departments of the group. The professionalism of the employees of Duro Felguera makes it possible for the company to maintain a growing and proven capacity to adapt to the global and changing market within which it functions and do so in a profitable and competitive manner.
This is made possible by means of a human resources management in consonance with the company’s strategy The average workforce figure of Duro Felguera during 2005 for the future. For this purpose, the year 2005 saw the was at 1,934 people. At the end of the year, the company carrying out of the following actions in the respective areas had 1,879 employees of which 34.4% worked in the units the integral management model is composed of. belonging to the Manufacturing segment (Tedesa, Felguera Melt, Felguera Rail, Felguera Construcciones Mecánicas y As regards personnel selection, specific processes were carried Felguera Calderería Pesada); another 33.7% belonged to the out, both in relation to the localisation of young people subsidiaries integrated in the segment of Auxiliary Services with an international development profile and to the finding for the Industry (Felguera Montajes y Mantenimiento, of professionals of proven experience who could contribute Feresa, Mompresa and Opemasa) and another 26% was a greater business vision to the projects developed by the assigned to the companies dedicated to Integral Project company. Management (Energía, Plantas Industriales and Felguera- IHI). This search of new professionals has been supported by the development of training programmes adapted to the needs As one of its differentiating values, Duro Felguera maintains of each group, and capable of addressing the continuous the progressive orientation of its business towards integrated training needs of the active personnel and professional turnkey project management, with a growing presence in endowment, by means of specialised occupational training 27 international markets. The Human Resources function, among actions for unemployed young professionals who are thus all the companies the industrial group is composed of, has taught the know-how and values of Duro Felguera and its adapted to the new needs and exigencies derived from this values prior to their incorporation to the company. new business orientation, by means of integrated actions aimed at improving competitiveness on the base of Integral human resources management also includes labour continuous improvement of the company’s human capital. relations as a fundamental area. During the year 2005 the labour agreements of the following companies were carried out: Felguera Calderería Pesada, Felguera Construcciones Mecánicas, Duro Felguera Plantas Industriales, and Felguera 4.42 % CLERICAL STAFF Melt.
36.99 % ENGINEERS & Economic agreements were also concluded with the TECHNICIANS companies Felguera Montajes y Mantenimiento, and Técnicas de Entibación.
58.59 % WORKERS As for collective agreements, mention should be made of the fact that in spite of these companies having various problems and despite all the negotiations having coincided in time, all of them as well as the aforementioned economic agreements have been reached without any notable labour conflicts. DISTRIBUTION OF THE WORKFORCE BY PROFESSIONAL GROUPS Most of the collective agreements signed have a validity of three years, which means they extend until the year 2007.
DURO FELGUERA 2005 ANNUAL REPORT ACTIVITIES 5 REPORT 5.b HUMAN RESOURCES
PREVENTIVE ACTIVITIES During the year 2005, the union representation of Felguera Tecnologías de la Información, was elected, this company 486 TECHNICAL ACTIVITIES now having a personnel delegate. 390 TECHNICAL ACTIVITIES 951 PREVENTIVE ACTIVITIES 737 PREVENTIVE Equally worthy of mention is the function of the Labour ACTIVITIES Risk Prevention Service, which has carried out a notable 1669 TRAINING effort for the integration of prevention in the companies 1547 TRAINING ACTIVITIES of the Duro Felguera group throughout the year 2005, thus ACTIVITIES encouraging a preventive culture that has made it possible to certify the OHSAS 18001 Risk Management System. The 1623 MEDICAL 1838 MEDICAL INSPECTIONS INSPECTIONS management system implanted is an efficacious tool that has notably contributed to improving results regarding labour safety and health, thus reducing both the hazards and the accident rates, which are far below the references 2004 2005 of the sector.
The certification of the risk management system has required Prevention service, the application of new forms of a considerable commitment on the part of the management epidemiological vigilance, health information systems and to prevention, establishing a preventive policy that has made the application of specific preventive action plans have been it possible in a consensual way to reach common objectives the most significant management elements as a means to and draw the lines of performance in the area of preventive reduce the rate of accidents, perceiving prevention as a planning, risk analysis and the suitability and verification social, ethical, legal and economic value that contributes of the systems. These actions have been gradually and to aiding advances in the field of labour risks, productivity, naturally integrated in each one of the productive procedures, quality employment and the dynamic character of labour permitting the flexibility needed for achieving its adequacy relations. 28 to the real needs of our companies. The Prevention Service has promoted different initiatives The certification of the management system meant the oriented towards the improvement of labour safety and support to the prevention course within the area of labour health, the following being some of the most notable data: risk management, the consecution of the objectives and the prevention policy of the industrial group, effectively • 486 technical actions by means of specific integrating risk prevention both in the productive processes prevention studies, procedures and work post and in the hierarchical lines. evaluations.
Furthermore, there has been an enhancement of remedial and protection preventive hygienic measures, as well as of organisational measures in the different labour centres that may represent deviations in work conditions. Permanent training, welcome plans, coordination with the other
7,8 % TRAINING ACTIVITIES
13,2 % MEDICAL INSPECTIONS
24,6 % TECHNICAL ACTIVITIES
29 % PREVENTIVE ACTIVITIES
PREVENTIVE ACTIVITIES EVOLUTION 2004-2005
ACTIVITIES REPORT • 1,669 training sessions. EVOLUTION OF TECHNICIANS • 951 preventive actions in the area of safety, ergonomics and industrial hygiene. 45 % 36.99 % • 1,838 medical inspections oriented towards the 40 % 35 % specific hazards of the work post by means of the 34.31 % 30 % 28.49 % application of specific medical protocols, analyses 25 % 24.10 % and evaluations that have allowed us to carry out 20 % an exhaustive control of the health state of our 15 % workers. 10 %
The fulfilment of the objectives established by the 2002 2003 management system itself has been one of the most 2004 important challenges met in the year 2005, with a passing 2005 of all the certification audits of the OHSAS 18001:1999 technical specification published by the British Standards Institute (BSI.). “Manager of integral industrial projects” was concluded. This had as its purpose the training of 21 graduates who The will of the corporation encourages us to follow this line are currently being incorporated into different units of the so as to be able to reach the Risk Prevention Corporate group assuming various responsibilities related to the Excellence model, enhancing the present movement of the management of major projects and being tutored by entities in terms of their commitment to achieving a better managers of the company so as to aid their incorporation society and a worthier labour and natural environment, as to Duro Felguera and propitiate a professional career in a commitment of our Corporate Social Responsibility. keeping with each one of their profiles.
As an act of cultural identity, this industrial group gives Also in 2005, the CETA-DF imparted the first Master’s Degree special mention to those persons who have long shown programme aimed at intermediate managers, in which particular faithfulness to the company by means of the training initiative some twenty technical engineers annual Link Awards. The Silver Badge recognises a 25-year participated and which culminated in the month of 29 link to the Company and the Golden Badge is achieved by November. The finally incorporated professionals have gone those workers who have worked in the company for 35 on to hold positions related to the execution of projects in years. In 2005, forty workers have received these awards, the different units. two of them having collaborated with us for 25 years and Throughout the year 2005, the experience of the Master thirty-eight having done so for 35. kindled the interest of the Government of the Principality of Asturias, as was shown during the cohabitation day that The development towards the Integrated Turnkey Project heads of the CETA-DF, participants of the training Management has been explicitly in evidence in our staff programmes and managers of the company held with the management for several years. Proof of this is the gradual general manager of Employment, Mr. José Luis Alvarez, who increase of professional groups ascribed to the technical had the opportunity to gain first-hand knowledge of the area maintained since 2002. functioning of the centre and its objectives. Likewise, major industrial multinational companies established in Asturias As regards the training area, in the year 2005 four have started similar training plans, inspired by the philosophy programmes have been imparted in our Occupational Training of the CETA-DF. Centres, which are homologated for the FIP (Professional Insertion Training) Plan courses: “Manager of integral industrial projects”, “Thermal Insulator”, “Industrial Boilermaker” y “Welder of heavy metal structures”. 65 unemployed young persons have participated in these actions and, by means of 3,048 hours’ training, have been taught our know-how prior to their joining the company.
Of all of these, mention should be made of the activity of the Centre of Specialisation in Advanced Techniques, where in May 2005 the second Master’s Degree programme on
DURO FELGUERA 2005 ANNUAL REPORT ACTIVITIES’ 5 REPORT 5.c COMMUNICATION AND IMAGE
During the year 2005 the activity of the Department of Canaria) and Son Reus II (Majorca), coinciding with their Communication and Image of Duro Felguera was oriented respective inaugurations, as well as other installations, towards the achievement of two priority objectives: on including the storage tanks that Felguera IHI has the one hand, that of satisfactorily attending to the high constructed at the Port of Barcelona. demand for information by the media in relation to the events that took place at the stock markets and the positive From the point of view of external communication, mention evolution of the businesses of the group and, on the other should be made of the entry into service of the new hand, updating and starting a variety of both external website portal of Duro Felguera (), which project has and internal communication mechanisms. On the whole, contributed to the updating and improvement of the the purpose was that of improving the conveyance of company in the Internet, modernising its image with a information to the interest groups of the company more attractive website design, and offering easily accessible (shareholders, workers, clients and media) so as to thus contents for the different publics this tool is aimed at. improve the image and reputation of Duro Felguera. Apart from having updated information on the company’s activities, the website also includes, in both its Spanish The presence of the company in the media was constant and English versions, a long section on shareholders and throughout the year and can be generally qualified as investors, which follows the recommendations of the satisfactory, not only for the number of appearances but National Stock Market Commission (CNMV) on transparency, also especially for the treatment received both in the contributing all of the legally required information as well regional press and in the media specialising in economic as the permanently updated data on the company’s stock information. market quotation and the historical evolution of the stocks. From the initiation of the project, which was carried out In order to improve the media’s knowledge of the company’s in collaboration with the Systems Department of Duro activities, economy journalists were made to visit the Felguera to December 2005, the website has received close 30 combined cycle centres of Barranco de Tirajana I (Gran to 30,000 visits, with 222,000 pages served.
ACTIVITIES’ REPORT Technologies), which contributed its experience in software for installations of this kind.
In August, Duro Felguera was once again present at the International Samples Fair of Asturias, celebrated in Gijón, with a stand offering information on the activities carried out by all of the group’s subsidiaries and moreover exposing a scale model of the factory that the Company once had in La Felguera and another of the tunnel boring machine that was constructed at the workshop of Felguera Construcciones Mecánicas (Mechanical Constructions) in order to undertake the underground works of M-30, in Madrid. The stand, which was attended by a considerable public throughout the entire event, was visited by several personalities, including the Minister of Education, María Jesús San Segundo, who inaugurated the exhibition centre in the company of the President of the Principality, Vicente Throughout the year 2005, the Department of Alvarez Areces, and several various councillors of the Communication tried to organise the participation of the regional Government, as well as the Dutch and Bulgarian group at fairs and events celebrated both in Spain and ambassadors in Spain, and various commercial heads of abroad and in relation to the different activity sectors others important diplomatic representations in the within which the Company operates. One year later, Duro countries, including those of India and Brazil. Felguera Energía (Power Systems) was present at the Power 31 Gen Europe international fair, which on this occasion was From the point of view of internal communication, in celebrated in Milan (Italy). The company’s stand gave 2005 works were started for the initiation of what was to information on the turnkey projects of gas power become the Duro Felguera intranet, creating a working generation plants, desulphurisation plants, as well as on group composed of the departments of Systems, the activities carried out by the Mompresa and Opemasa Organisation, Human Resources and Communication. The subsidiaries. During the three days the event lasted, several objective was that of offering the company employees a professionals belonging to the relevant companies of the working tool that would aid internal communication sector from various companies passed by the stand, which processes and also become a union link between all of the also became the scene of the negotiation of some group’s different staff sectors in order to aid the commercial agreements. In 2005, the companies Felguera transmission of relevant information for the entirety of Melt and Felguera Rail participated at two international the staff. exhibitions: Rail Forum, celebrated in Barcelona, and Nordic Rail, which took place in the Swedish town of Elmia (Jonkoping). At both events there was a presentation of the products manufactured and commercialised by these subsidiaries of the group for the railway sector, with a particular effect on mobile point crossings, both in conventional turnouts and bifurcations.
In Barcelona, Duro Felguera Plantas Industriales (Industrial Plants) went to the International Logistics Fair (SIL) with a stand presenting the company’s services offer within the automatic storage area. Also present at this event was Felguera Tecnologías de la Información (Information
DURO FELGUERA 2005 ANNUAL REPORT ACTIVITIES’ 5 REPORT 5.c COMMUNICATION AND IMAGE
The department of Communication edited a Welcome Handbook for the workers joining the company with the purpose of offering them general information on the companies the group is composed of, as well as useful data for professional performance during their initial period.
In order to open up new communication channels between the management and the rest of the staff of Duro Felguera, in 2005 two internal communication events were celebrated with the participation of over a hundred people. The first of them was aimed at those in charge of various activity areas in the group’s subsidiaries and the second was for those who participated in the two promotions of the Integral Industrial Project Manager programme imparted by the CETA-DF, as well as for its direct heads at the company. In both cases, the objective was that of archive in such a way as to improve the treatment of the interchanging opinions on the functioning of the company, documents generated by the Company and offer researchers contributing suggestions and pooling in relation to the a referent for the study of the history of Duro Felguera short- and mid-term vision and objectives established by as an outstanding part of the industrial history of the the company’s management. Principality for over a century and a half. The company presented a speech on the recovery of its documentary The department of Communication also collaborated with funds at the national congress that the Spanish Association 32 that of Patrimony in the project currently in course on of Economic History (AEHE) celebrated in Santiago de the recovery of the historical archive of Duro Felguera. In Compostela. 2005, work was carried out on the classification of all the documents belonging to the company and corresponding In 2005, Duro Felguera received one of the “Dirigentes” to the period from the constitution of the Metallurgical Awards in 2005, which was given in Asturias by the Society Duro Felguera, in 1858, until approximately 1970, economic magazine of that name, the award category once the company rid itself of its mining and metallurgical being that of “Centenary Enterprise”, in recognition for assets, thus becoming a manufacturer of capital goods. the business relevance of the group throughout its nearly The project contemplates the conditioning of a premises 150 years of existence and its future prospects. The belonging to the company for housing the quarters of the chairman of the company, Juan Carlos Torres Inclán, received the award at an act celebrated in Oviedo and presided by the president of the Principality, Vicente Alvarez Areces.
ACTIVITIES’ REPORT DURO FELGUERA 2005 ANNUAL REPORT
ACTIVITIES OF THE BUSINESS LINES ACTIVITIES OF THE BUSINESS LINES 6 DIRECTOR Félix García Valdés 6.a DURO FELGUERA PLANTAS INDUSTRIALES, S. A.
PRODUCTS In 2005, Duro Felguera Plantas Industriales maintained a strong TURNKEY PLANT ENGINEERING AND growth rhythm in all its engineering activities and turnkey projects, SUPPLY FOR: in both the national and international markets. This consolidation • Seaport terminals for solid bulk handling was mainly shown in the sector of mineral processing and handling, • Bulk handling and stockyards at power plants, with the signing of very important contracts in the international steelworks, mines, cement plants, etc. markets. • Bulk stackers and reclaimers • Grab unloaders and shiploaders • Equipment and installations for underground mining The year’s order intake amounted to 172 million euros, which means • Mineral processing plants an 83% growth in relation to the previous year. 70% corresponded to the contracts signed in the international markets where Duro Felguera Plantas Industriales has considerable experience in the DESIGN, SUPPLY, INSTALLATION AND AFTER-SALES SERVICE OF ENVIRONMENTAL MAINTENANCE development of turnkey projects. In 2005, this international presence SYSTEMS FOR: was consolidated, particularly with the awarding of important • Chain conveyors contracts in Venezuela for Ferrominera Orinoco, one of the most • Screw conveyors outstanding being that belonging to an iron ore concentration plant in Ciudad Piar, in Bolivar State, a facility of international stature, EQUIPMENT FOR SOLIDS, SLAG, ASH AND both technologically and in terms of its capacity and size. SLURRY EXTRACTION SYSTEMS FOR: • Waste water treatment plants As of writing, the first phase of the project, which includes the • Incineration plants preparation of the ore storage areas, civil works, train loading and • Cement plants unloading stations, stackers, reclaimers, conveyor belts and • Power generation plants infrastructures, is being executed and developed. In 2006 the DESIGN, DEVELOPMENT, PRODUCTION, development of the second phase of the project will begin, with the INSTALLATION AND AFTER-SALES SERVICES FOR: incorporation of important technological advances developed by 34 Duro Felguera Plantas Industriales for the different processes included • Industrial, steelworks and nuclear overhead cranes and gantry cranes in the ore concentrator of the plant. This concentrator will work on • Dockside and gantry cranes for port services 12 tons of iron ore to obtain 8 million tons of concentrated ore with • Overhead and gantry cranes for containers, general a 68% tenor, which will make it possible to increase by over 40 years and bulk loads the lifespan of the low tenor mineral yards available. STEELWORKS AND INDUSTRY • Secondary metallurgy –ladle furnaces • Process lines (pickling, tin plating, galvanization, etc.) • Continuous casting
PETROCHEMISTRY, GAS AND ENVIRONMENT • Petrochemical plants • Non-ferrous metallurgy • Acid regeneration plants • Environment –Incineration plants • Water treatment plants
PHYSICAL DISTRIBUTION SYSTEMS • Turnkey installations and systems for automated physical distribution, logistics and storage • Transelevators
INFORMATION TECHNOLOGIES • Own software products and integration with corporate systems • Management systems • Internet projects
ACTIVITIES OF THE BUSINESS LINES EVOLUCIÓN EN BOLSA
Also, in 2005 we carried out an important activity within the Physical Distribution Systems line, both in the area of automatic stocking as in that of In 2005 Duro Felguera Plantas Industriales began some other important automatic handling and transport systems. The international projects, of which mention should be made of that developed for most important projects include a cooling warehouse Qasco (HBI-DRI Combo Project), consisting in the design and supply of a stacker, for Pescainsa, in Las Palmas de Gran Canaria; an a combined machine and a ship loader for the handling of iron ore and pallets industrial products warehouse for Roeirasa, in Vigo; with destination to Mesaieed, in Qatar. a spare parts warehouse for the company Huhtaki, in Valencia, and an automatic transport system for The company has consolidated its presence in Mexico as a specialist in the Unicefar, in Bilbao. development and construction of handling and processing of petroleum coke turnkey projects, successfully initiating the first plant of this kind in the country Finally, Duro Felguera Plantas Industriales retained in 2005, and starting on another Project of the refinery of Francisco Madero, in an active presence in such other fields as the 35 Tampico. Coke is presented as the alternative fuel to be used in all the generation handling of fuels and raw materials in cement processes due to the high prices of fuel and gas. Over the next few years, there plants, supplies for port equipments and projects will be important investments in the country in this field, for which Duro Felguera in the iron and steel industry, which shows a line Plantas Industriales is strategically placing itself as a pioneer in the construction of continuity with the traditional clients and of plants of this kind. products.
Regarding the activity carried out in 2005 in the domestic market, mention should be made of the signing of a contract with Endesa to carry out the Project of the terminal of Puerto del Ferrol. This is a new port terminal for the unloading, storage and issuance of imported torbanite, with a handling capacity of five million tons per year. The facility will have two 50-ton ladle unloaders, a coal stacker, conveyor belt systems and important infrastructures. The facility will have advanced environmental protection systems, one of them for the waterproofing of the terminal to avoid the pollution of the subsoil, a waste water treatment plant that will avoid polluting spills to the sea, as well as measures for eliminating coal dust emissions with truck washing systems, stack spraying systems and dust suppression systems for spills between conveyor belts.
Duro Felguera Plantas Industriales has included environmental protection systems in all of its facilities to offer an integral service to the client in accordance with current laws. In 2005 we started several systems of these characteristics, the most outstanding being the spraying dust suppression systems for the Port Authority of Santander and for Cemex, in the petroleum coke milling plant in Monterrey, Mexico.
DURO FELGUERA 2005 ANNUAL REPORT ACTIVITIES OF THE BUSINESS LINES MANAGING DIRECTOR 6 Francisco Martín Morales de Castilla 6.b DURO FELGUERA ENERGÍA
PRODUCTS CORE BUSINESS • Execution of turnkey projects for Gas Fired Power Generation Plants turbines (open cycle or combined cycle) • Turnkey projects of conventional power plants During 2005, the power systems business line of Duro Felguera held • Desulphurization and desnitrification its leadership position in the domestic market as turnkey projects in coal thermal plants executors of gas power generation plants (simple and combined • Biomass plants cycles) thanks to an intense activity in the construction of this kind • Cogeneration plants of plants and to an order intake figure that was in line with that achieved on the previous year, when a record figure of agreements MAIN SCOPES OF WORKS signed was achieved. The company went a step forward in its growing strategy in the international markets carrying out projects in Italy • Project management • Engineering and Peru, and was awarded the first orders in a new field of activity: • Supply the escape gas desulphurization in conventional thermal plants. • Construction • Erection The perspectives for 2006 and for the following years for Duro • Start up Felguera Energía are very favourable, taking into account the high • Operation and maintenance amount of work now existing and the potential of the investments foreseen in the traditional areas of work, both in Spain and in the QUALITY MANAGEMENT Latin-American and European markets where the company already Certificates: has a long list of references. • Lloyd´s Register Quality Assurance, EN / BSEN / DIN EN- ISO 9001 / 2000 36 The company collaborated with the main technicians of the world Applicable to design, engineering, acquisitions in the energy field (General Electric, Siemens, MHI, Alstom Power and construction of projects for turnkey and Pratt & Whittney) and increased its acting capacity in the field industrial installations in the industrial and when facing new projects for generation plants as independent power generation sectors. turnkey contractor.
The most important agreements signed by the Energía department in 2005 were those belonging to the turnkey projects for thermal plants of combined cycle at Puentes de García Rodríguez (Galicia), which will have a power of 800 MW, and those of Soto de Ribera (Asturias) and Castejón II (Navarra), with 400 MW of power each. Likewise, agreements were signed to build the desulphurization plants in the groups I and II of the thermal plant of Monfalcone, in Trieste (Italy), and for the groups IV and V of the thermal plant of Compostilla, what means entering in full a new field of activity done hand in hand with Mitsubishi Heavy Industries (MHI).
ACTIVITIES OF THE BUSINESS LINES EVOLUCIÓN EN BOLSA
The activity of the year was focused in the termination of several During 2005 we also got involved in the Project of the simple facilities that began to work during the year and in the beginning cycle plant of Guía de Isora (Tenerife), of 50 MW, which termination of Works in other plants previously contracted. Thus, in the month is scheduled for this year, at the same time that the Works in the of April the thermal plant of combined cycle of Barranco de thermal plants of combined cycle of Cas Tresorer, at Mallorca, and Tirajana I, with a power of 220 MW was officially inaugurated in Barranco de Tirajana II, at Gran Canaria, both with a power capacity Gran Canaria. It is the first facility with these characteristic in the of 230 MW and that will be integrally built by the company in a Canary Islands and it is also the first that has been fully built by turnkey basis Duro Felguera Energía, like that in Son Reus II, of 220 MW, which came into operation in the month of June in the island of Mallorca. The Power Systems business line of Duro Felguera kept during 2005 an important international presence, carrying out the Project 37 The beginning of commercial operations of these two plants means of installation of the simple cycle plant of Fiume Santo (80 MW), a great step forward in the history of Duro Felguera Energía because at Sardinia (Italy), and the works for the extension to combined for the first time the company took hold alone of the complete cycle of that of simple cycle in Ventanilla, Peru, adding a steam responsibility of these kinds of projects. The construction of these cycle (160 MW). In both cases, these are markets where the group plants with the complete satisfaction of the client structures the has good business perspectives, especially in the field of energy. leading position that the company has been holding for a long time in this field of activity in the national market.
DURO FELGUERA 2005 ANNUAL REPORT ACTIVITIES OF THE BUSINESS LINES 6 DIRECTOR Francisco Morales de Castilla 6.b DURO FELGUERA ENERGÍA MOMPRESA MONTAJES DE MAQUINARIA DE PRECISIÓN, S. A. MANAGING DIRECTOR Víctor Alfaro Montañés PRODUCTS Montajes de Maquinaria y Precisión (Mompresa), a subsidiary company ERECTION AND OVERHAUL OF: of the group dependent on the Duro Felguera Power Systems line, kept, in 2005, its leadership position in the domestic market in the • Gas and steam turbines field of erection and overhaul of turbo-generators and auxiliary • Generators equipment for power plants, mainly, thermal, nuclear and combined • Auxiliary Turbines cycle power plants. • Engines • Pumps • Heaters The year 2005 was marked by an increase in the company’s activity • Condensers of more than a 50%, an increase in the turnover even more favourable • Fans and a substantial increase in the economic achievement. • Rotating equipment in general In the domestic market stands out the erection of gas and steam turbo-generators at the combined cycle plants of Cartagena (AES), ERECTION OF OPEN AND COMBINED CYCLE POWER PLANTS a 3x400 MW; Cristóbal Colón (Huelva), of 400 MW, as well as the fulfilment of the works of erection of the combined cycle power plants of Barranco de Tirajana I, in Gran Canaria (219 MW), and Son Reus II, in Mallorca (218 MW). At the same time, we began with the erection of the plants of Cas Tresorer, in Mallorca (230 MW), and 38 Barranco de Tirajana II (230 MW), and Mompresa carried out the complete construction and erection on the Guí'eda de Isora (Tenerife) open cycle (2x25 MW).
During 2005 some overhauls of the steams turbo- generators and a good number of overhauls of gas turbines were carried out, both in combined cycle plants as in refineries, an activity, this last, that is clearly increasing and in which Mompresa is reaching a relevant position in the domestic market. The whole overhauls made amounted to 22 generation units.
In the international markets, during 2005 Mompresa took part in the construction and erection works of the extension from open cycle to combined cycle and increase to a power of 160 MW of the plant in Ventanilla, Peru. Furthermore, Mompresa participated in the erection of the open cycle power plant of Fiume Santo, in Sardinia (Italy), with a power capacity of 2x40 MW. Also in Italy, several overhauls on the steam turbines at power plants were carried out.
ACTIVITIES OF THE BUSINESS LINES OPEMASA OPERACIÓN Y MANTENIMIENTO, S. A. MANAGING DIRECTOR Enrique Villanueva García
PRODUCTS CORE BUSINESS • Operation and maintenance of power generation plants • Operation of systems up to provisional acceptance • 1st level operation and maintenance • Integral maintenance of power plants • Complete maintenance of installations
COMMISSIONING SERVICES AND PEM OF THE EPC PROJECTS • Turnovers preparation (handing of erection systems to start up deeds) • O&M and start up proceedings handbook elaboration • Handing programmes • Coordination and final trial protocols • P.E.M. Trials and tests to equipments • Final documentation of the start up 39 AFTER SALE SERVICES • Spare parts management • Warehouse management
During 2005 the company Operación y Mantenimiento (Opemasa) consolidated its activity with the operation of several combined cycle power plants that were executed by Duro Felguera Energía. The work of Opemasa was done during the period previous to the provisional acceptance of the plants. Likewise, the company took charge of the operation of the open cycles of Barranco de Tirajana and Granadilla, both located in the island of Gran Canaria, during the stage of commercial production.
During the year, Opemasa was awarded O&M services at thermal power water plants and the after sale services to clients were increased, amongst others, with the awarding of spare parts management.
Opemasa has specialised its services to focus them mainly on thermal power plants and combined cycles, cogeneration plants, renewable energy facilities and water plants.
DURO FELGUERA 2005 ANNUAL REPORT ACTIVITIES OF THE BUSINESS
LINES SOLE ADMINISTRATOR 6 José Luis García Arias 6.c FELGUERA CONSTRUCCIONES MECÁNICAS, S. A.
Pontes, covers for wind tower generators of the company M Torres and several equipment for Duro Felguera Plantas Industriales, from which we can highlight the translation mechanisms and the stacker groups, reclaimer-stacker and ship loaders.
Furthermore, in 2005 an agreement for the supply of two IDF fans for the thermal power plant of Compostilla II, group 3, was signed, in which are included: design, manufacturing, assembly, tests and start ups of the equipment. At the same time, the company took part in the working groups created for the development of the ITER projects, focused in the research of nuclear fusion, and XFEL aiming at creating a rectilinear accelerator of 2.1 km of length.
Felguera Construcciones Mecánicas is a subsidiary company of Duro Felguera PRODUCTS dedicated to the manufacturing of metal mechanical parts for different WIND POWER industrial fields. Nowadays, it specialises in the manufacturing and assembly of tunnel-boring machines, equipment for labs and research centres, wind • Wind tower generators tower generators and several equipment for power plants. EQUIPMENT FOR LARGE CIVIL WORKS INFRASTRUCTURES: During 2005, most of the work done in the workshop that FCM has in Langreo TUNNEL BORING MACHINES, BACK-UPS (Asturias) was focused in manufacturing, plant assembly, transport and COMPONENTS FOR RESEARCH CENTRES assembly of two TBMs, of which we have to highlight for its size and were (CERN, FERMI, EFDA, ESO, SLAC, D.L.R. , ETC) destined for the M-30 ring road round Madrid. This machine, an EPB type is the largest in the world of its kind for its dimensions and its construction has POWER GENERATION meant the biggest challenge ever achieved in Spain in the field of capital • Heat Recovery Steam Generators (HRSG) for goods. It is a tunnel boring machine with a 15- metres diameter, a total length combined cycle power plants 40 (including the back up) of 160 meters and a weight of 4,900 tonnes. The • Exchangers, condensers • delivery of the machine to the client took place in the month of November Kilns and mills • Fans and its transport to Madrid and its assembly at the work was done at the end • Deaerators and heaters of the year. HYDRAULICS At the beginning of December, the delivery at the workshop of FCM of the • Turbines and generators second tunnel-boring machine took place. It was directed to the batch IV of • Gates and cofferdams the Pajares rail line, included in the high speed railway that will link Asturias • Penstocks with the centre of Spain. It is a simple helmet machine and mixed front of ten meters of diameter that will bore a tunnel departing from the Asturias OFF-SHORE village of Telledo up to 10.3 km in order to connect with the final point, • Swivel, central pipe, mechanical parts, turret and located in the town of Viadangos, in the province of León. The tunnel boring sea platforms machine has an approximate weight of 1,900 tonnes, of which 1,200 correspond to the machine and 700 to the back-up equipment, and a total length of 110 EQUIPMENT FOR THE IRON AND STEEL INDUSTRY meters. • Rolling mills, continuous casting, ladles • Boom shears, milling towers, coilers In the field of equipment manufacturing for labs and research centres, during 2005 the production of cryomodules for the cryogen line of the European CRANES Centre of Nuclear Research (CERN). These are equipment manufactured for the company Air Liquide that uses them in the above mentioned research • Overhead, gantry, dockside. • centre, established in Switzerland, as a part of the Project of particle accelerator, Bulk and container shiploaders / unnloaders with which FCM has been collaborating for several years as suppliers of high quality parts. Likewise, some vacuum vessels were manufactured for the QUALITY MANAGEMENT Japanese company KEK. Stamps ASME: U, U2, S y NB The productive activity of Felguera Construcciones Mecánicas was completed Certificates: with the manufacturing beater wheels for the thermal power plant of As ISO 9001/2000 TUV: AD 2000-MERKBLATT HP 0/TRD 201/DIN EN 729-2 DIN 6700-2, Class C1
ACTIVITIES OF THE BUSINESS LINES SOLE ADMINISTRATOR Florentino Fernández del Valle 6.d FELGUERA CALDERERÍA PESADA, S. A.
PRODUCTS EQUIPMENT FOR THE CHEMICAL AND PETROCHEMICAL INDUSTRIES • Strong thickness alloy reactors • Coking chambers • FCC units • Large scale columns • High pressure separators
QUALITY MANAGEMENT Stamps ASME: U, U2 y S National Board: R (for alterations and repairs on ASME equipment in service) S.Q.L. (for equipment destined for China) Certificates ISO 9000/2000 ISO 14001 / 2000 TUV: AD-Merkblatt HP0 / TRD 201 / DIN-EN 792-2
Felguera Calderería Pesada (FCP) is one of the leading companies in the international market of capital goods manufacturing for the petrochemical industry. It is mainly specialised in strong thickness alloy equipment, exotic materials or large dimensions, a field of activity in which not many companies are able to compete. 41 During 2005 FCP consolidated its presence in this field with the In the field of R+D+I, FCP worked on the traditional contract of the largest columns ever built in a sole piece. These are metal and iron research with the “Research on the two columns (for the Japanese company JGC) of more than 2,000 sensibility of a SS 321 kind for the application of tonnes of weight each that will leave FCP workshop with destination Aromax reactors in petrochemical plants”. Also, with to Saudi Arabia by mid 2007. With regard to the order intake figure the aim of increasing the competitiveness of the this contract is the most relevant one in the history of the company. company with strong thickness alloy equipment, FCP began a line development of own design It is also important the order of two coking chambers for the BP machinery adapted to the needs of the business. On plant in Castellon that reinforces FCP as one of the scarce companies the other side, the development of a specific machine in the world able to manufacture this type of equipment. for automatic welding was carried out, which consisted of an automatic welding centre of bottoms During 2005 the company worked on several projects, amongst which and a multifunction set. it should be highlighted those belonging to three gas oil hydro- desulphurization reactors delivered in the American refineries of Lima, Port Arthur and Memphis, for Valero Refining Company; eight Aromax reactors for the CEPSA plant at La Rábida; three hydro- cracker reactors for the Chilean refineries of Aconcagua and Cocon, and a hydro-desulphurization diesel reactor for the PETRONOR plant.
DURO FELGUERA 2005 ANNUAL REPORT ACTIVITIES OF THE BUSINESS
LINES MANAGING DIRECTOR 6 Carlos Ruiz Cornejo 6.e FELGUERA MELT, S. A.
an increase in the useful life both in the mobile material as in the superstructure of the track and a reduction of noises.
In relation to the foundry activity dedicated to the wind power sector, during 2005 the company reached a production higher than 7,000 t, maintaining the supply of several pieces between 10 and 15 tonnes for important clients such as Gamesa Eólica, Acciona Wind Power or Navantia. In this field, of special significance was the contract with General Electrics for the supply of parts (hubs and frames) for machines with the current commercial power.
With regard to R+D, Felguera Melt maintained the collaboration with the Science of Materials and Metal and Explosives Felguera Melt, a company specialised in the manufacturing of railway Engineering of the University of Oviedo in the field of the track material and foundry components for wind power generators, wind power components submitted to strong pressures, an has an increasing growth in its activity during 2005, achieving by initiative included in the Programme Of Encouragement on the end of the year a growth higher than the initially expected. Technical Investigation (PROFIT), at the same time that the assembly of a prototype of railway siding for high speed In the relative to the production activity destined to the railway railway lines of more than 350 km/h began once the sector, during the year Felguera Melt kept working in the design, preliminary research was done. The homologation of this manufacturing and supply of sidings and other railway track material prototype is foreseen for 2006. for the new Greek railway tracks. These are devices included in the third consecutive contract awarded by the Greek State Railway 42 Company Se (Ergose), for which 200 units have been supplied during PRODUCTS the last tree years. MANUFACTURE OF IRON AND STEEL FOUNDRY PARTS Also in the international market, a contract with Metro de Paris was • Foundry of grey iron- maximum weight per piece 40 t. signed for the supply of crossovers in manganese steel. It is an • Foundry of iron modules- maximum weight per piece important awarding not only in the technological field of the 30 t. equipment, but also because it open the doors of the French market • Foundry of carbon and manganese steel – maximum to the company in a field where the presence of Spanish companies weight per piece 3.5 t. is not very common. MANUFACTURE OF RAILWAY TRACK MATERIAL In the domestic market, Felguera Melt carried out the design, manufacturing and supply of special devices for the Metro de Madrid. • Moulded manganese steel crossings The excellent results achieved in the development of these devices • Mobile point crossings • Conventional sidings (sidings, double crossovers and rail bearers, amongst others) has • Siding for trams enabled the company with the possibility of winning most of the • Sidings for high-speed railways contracts awarded by the manager of railway infrastructures of the • Complete pre-mounted trappings on wood or concrete Community of Madrid (Mintra) for the supply of the railway track • Disconnecting gears material that is going to be installed in the new subway lines of the • Double crossovers (scissors) capital, as well as in the new parts of those already existing. Among • Rail bearers (sleepers) the designs developed, some of which are in the proceeding to be • Expansion joints • Split joints patented, it should be highlighted the mobile point crossings both for conventional and double sidings. The technology in mobile point QUALITY MANAGEMENT allows eliminating the gaps in the tracks, unavoidable with the conventional crossings, what means more comfort for the travellers, Certificates AENOR: ISO 9001:2000 LLOYD’S REGISTER QUALITY ASSURANCE: ISO 14001 RATP: UV21B – Crossings – Semi-sidings AUDITORES DEL NOROESTE: Prevention of Risks at Work Audit Certificate
ACTIVITIES OF THE BUSINESS LINES MANAGING DIRECTOR Carlos Ruiz Cornejo 6.f FELGUERA RAIL, S. A.
PRODUCTS MECHANISED AND WELDED TO RAIL MANGANESE STEEL MONOBLOCK CROSSINGS HIGH-SPEED AND UNDERGROUND RAIL MOBILE CROSSINGS COMPLETE TURNOUTS, PRE- ASSEMBLED ON WOOD/CONCRETE MECHANISED JUNCTIONS
HIGH-SPEED TURNOUTS (350 KM/H)
The company Felguera Rail, set up in 2003 to promote the workbench with 30 meters long to lessen positioning manufacturing of high-speed railway lines, continued during 2005 operations to the minimum when working with conditioning the workshop bought at the Poligono Industrial de lengthy rails (65 meters long for high-speed). Fábrica de Mieres, where it has more than 54,000 square meters of surface. Having finished the start up of the equipment, Felguera Rail workshop began to work at full capacity During 2005 the workshops dedicated to the assembly of high-speed to complement the productive processes of Felguera 43 track material and the installation of new equipment was started, Melt, carrying out the welding and termination of thus finishing with the investment planned, which amounted 12 rail crossings. million Euros. Felguera Rail is placed in the technological avant- The new production centre has already working a flash welding garde of the sector, avoiding dependency on current machine for manganese steel crossings and cradles that is able to suppliers and allowing sufficient production capacity weld these parts with the carbon steel of the standard tracks; a and response to enter the international markets totally automatic, computerised, servo-hydraulic machine designed competitively for crossings and railway track material. for tests of static flexion on track-track and track-manganese steel Duro Felguera is a major shareholder via Felguera welded samples in different track profiles and with a load capacity Melt in Felguera Rail shares. The risk capital Asturias of 2000 KN. companies Sodeco and Sadim are also shareholders.
Also installed there is a CNC machining centre for manganese steel crossings and cradles, a type of milling machine with fixed control, highly productive, controlled by CNC, automatic tool loaders and two 71 Kw. working heads. It has two independent workbenches to avoid stoppages and losses of time when having to place new crossings on the workbench, and has automatic shackling.
In 2005, it was also installed a CNC mechanised centre for rails, a milling machine with mobile control, controlled by CNC and with 278 KVA of installed power, with automatic tool loaders and two working heads, one of which can swivel to various positions. The
DURO FELGUERA 2005 ANNUAL REPORT ACTIVITIES OF THE BUSINESS
LINES MANAGING DIRECTOR 6 Eduardo Martínez San Miguel 6.g FELGUERA MONTAJES Y MANTENIMIENTO, S. A.
complete insulation of the combined cycle power plant of Son Reus II, the insulation of the combined cycle HRSGs at Escombreras (Cartagena) and the insulation of the turbine pipes in the combined cycle plants of AES (Cartagena) and Cristóbal Colón (Huelva).
On the the field of fuel storage facilities, the company carried out the insulation of a sphere of 6.000 m3 in the Cepsa refinery in Gibraltar and of two cryogenic GNL tanks, 150.000 m3, for ENAGAS, in Barcelona, as well as the cryogenic insulation and perlite proceeding of two GNL tanks, 150.000 m3, in the Sagunto plant.
On the other side, all the revamping and insulation works were done, including the supply for the refurbishment on the first of the four boilers at the As Pontes power plant, in La Coruña. Felguera Montajes y Mantenimiento specialises in the electrical and mechanical erection of industrial projects that demand high-level Finally, Feresa has been awarded the maintenance of several requirements. It operates in the electrical, petrochemical, chemical industrial installations belonging to HC Energía -CT Soto and steelworks sectors for the most outstanding companies within Ribera- , Iberdrola -CT Lada- and Cepsa, in the refineries of the domestic market. The year 2005 was marked by an increase in Gibraltar and La Rábida. In this last, the works of insulation the activity of the company, especially in the erection activities for of the enlargement of the plant with projects such as the the electrical sector, what was translated in a notable increase in the Aromax plant, Aromax Revamping, Aromax Auxiliary Services, turnover that was over 46.5 million Euros. Interconnections and Morphylane Plant began during 2005.
With regard to the Power Systems sector, Felguera Montajes y Mantenimiento carried out the works of electrical mechanical assembly PRODUCTS of piping and auxiliary equipment of the turbo-generator at the ENGINEERING, MANAGEMENT AND DEVELOPMENT Cristóbal Colón combined cycle power plant (400 MW), in Huelva, OF ERECTION PROJECTS FOR: as well as the mechanical erection of the turbine for the three groups • Power generation plants 44 of the AES combined cycle power plant, in Cartagena (1,200 MW). • Chemical and petrochemical industries Furthermore, it carried out the assembly of three HRSG at the • Metal and steel industries Escombreras (Cartagena) combined cycle power plant, the mechanical • Cement, paper, sugar, etc. plants assembly of the engines of the groups 9 and 10 at the diesel plant • Car industry and naval sector, etc. in Punta Grande (Lanzarote) and the transport, erection and start up of a gas turbine of 25 MW from the Son Molins (Mallorca) power METAL-MECHANICAL AND ELECTRICAL plant to the diesel power plant in Ibiza. The company also took part ERECTIONS FOR LARGE INSTALLATIONS in the refurbishment on the boilers and auxiliary equipment at the As Pontes (La Coruña) power plant. In the steelworks industry, several REFURBISHMENT, REVAMPING AND OVERHAUL OF INDUSTRIAL INSTALLATION projects were executed for Arcelor, at the two customer’s installations in Asturias. ERECTION OF LININGS AND INSULATIONS DONE BY FELGUERA REVESTIMIENTOS Within the petrochemical sector, several metal works were carried • Industrial heat insulations out for Repsol YPF coinciding with the general oil outage in the • Refractory linings Cartagena plant and the mechanical erection of the Aromax Auxiliary • Revamping and reconstruction of all kinds Service Project started in 2005, in the refinery of La Rábida (Huelva). of heat and acoustic insulations
On the maintenance of industrial installation business, it should be MAINTENANCE highlighted the works executed for Elcogas (Puertollano), Asturiana • Maintenance organization and control of spares de Zinc (Avilés), Iberdrola (power plant of Lada, in Asturias) and • Kick-off and supervision Aceralia (power plant in Avilés). Likewise, we carried out maintenance • Execution of preventive, predictive and corrective works during the outages at the power plants of Lada, owned by maintenance Iberdrola, and Soto de Ribera (HC Energía). • Specialist maintenance works • Major overhauls during outages On its side, the company Felguera Revestimientos (Feresa), subsidiary • RCM of Felguera Montajes y Mantenimiento, carried out during 2005 the QUALITY MANAGEMENT
Certificates: AENOR: ISO 9001:2000
ACTIVITIES OF THE BUSINESS LINES MANAGER Carlos Ruiz Cornejo 6.h TEDESA - Técnicas de Entibación, S. A.
PRODUCTS MINING ACTIVITIES • Steel arches in TH, HEB, IPN sections • Hydraulic and friction props • Link bars • Lining sheets • Grating
UNDERGROUND WORKS • Steel arches in TH, HEB, IPN sections • Lattice girders • Formworks • Bernold-type sheet • Resin anchor bolts • TBM back-ups
ELECTRICITY PYLONS In keeping with what happened last year, 2005 was characterised by an important business growth, as shown in the improvement of MOBILE PHONE ANTENNAS the main parameters of the company, with an order intake growth above 23%, an increase in turnover reaching 35.4% and an increase STEEL STRUCTURES in economic results close to 19%. QUALITY MANAGEMENT
The business segment oriented towards supplying mining equipment Certificates: obtained acceptable levels of activity, one particularly outstanding AENOR: ISO 9001 feature being the important order intake and production figures 45 reached in the Public Works sector, mainly linked to railway and road tunnels. Regarding exports, the turnover for the international The supply of formwork and support equipment, as well as the market in 2005 meant 8.5% of the total of the manufacturing of structures for TBM back-ups led to the important company’s invoicing, the main destination countries increase in production figures registered that year. being Portugal, Peru, Ecuador, Germany, Chile, South Africa, Morocco and France. The equipments with The most important works to which these equipments were supplied the best international sales were the support systems were the following: the Barcelona-French frontier AVE tunnels; the for mines, tunnels and underground works in general, new Guadarrama (Madrid) tunnel; the tunnels of the Trubia-Grado as well as those for the concreting of tunnels and (Asturias) highway and the do Rossio tunnel, in Lisbon (Portugal). galleries (formworks).
We also provided the structure of the physical distribution systems for the TBMs that Felguera Construcciones Mecánicas (Mechanical Constructions) constructed and assembled in its workshops for the underground insertion works of the M-30 in Madrid, and the Batch IV of the Pajares Railway Bypass. Equally important was the manufacturing of steel structures for mobile telephone antennas, as well as the roof structures for the gas storage tanks that Felguera IHI constructs.
DURO FELGUERA 2005 ANNUAL REPORT ACTIVITIES OF THE BUSINESS
LINES CHAIRMAN 6 Antonio Martínez Acebal 6.i FELGUERA - IHI, S. A.
The good performance in the development of a project and the subsequent satisfaction of the client is based in the last’s trust. Felguera-IHI that was awarded with the third gas tank for the company ENAGAS, which, this time, is to be constructed in Cartagena (Murcia), which high seismic activity component will add a new complexity to this project.
The company Felguera-IHI, held during 2005 its leadership position The industrial plant business continued its growth in the domestic market in the filed of fuel storage in its multiple in 2005 with the awarding of two extensions of the kinds: construction of plants on a BOT basis, turnkey storage plants existing power plants of Endesa in Lanzarote and and supply of simple storage equipment (mobile roof tanks, fixed Fuerteventura. roof tanks, spherical deposits, cryogenics, etc.). Here it should be highlighted the difficulty that entails the work at small facilities with such a huge The strategy that began to take shape ten years ago has given some complexity of disciplines. good fruits, consolidating the diversification of the business then taken. Thus, Felguera-IHI has, during this time, become a company During 2005 Felguera-IHI carried on with the oriented to the supply of spherical and cylindrical storage tanks, to construction of two fuel storage plants in the develop from this core a business oriented to the provision of more refineries of Cartagena and Puertollano, both of added values for our clients and higher technological complexity. them contracted with CORES.
46 Nowadays, the acts of Felguera-IHI in the fields of gas storage and Likewise, several activities consisting of the repairing supply, operation, etc of full storage turnkey plants are far beyond and remodelling of petrochemical plants were also the initial business of the company. developed.
This evolution has meant a notable increase both in awarding and in the human resources of the company to face the new projects, and now the company’s workforce is fully made not only by specialists in the mechanics field, like a decade ago, but also by a multidisciplinary team of international origin able to face, with full guarantee of PRODUCTS success, the challenges of the new activities. OPERATION OF OWN STORAGE PLANTS During 2005 Felguera-IHI notably increased its international activities, supplying three mobile roof tanks for out clients ROO (REPSOL OIL TURNKEY SUPPLY OF STORAGE PLANTS OPERATIONS) in Libya. The new contracts with REPSOL YPF, CEPSA, BP OIL and ASESA allow the company being present in most of the DESIGN AND CONSTRUCTION OF projects under way for the development of the storage and fuel STORAGE TANKS industry in Spain. INSTALLATION OVERHAULS The supply, done a month before to what was planned, of the first ENGINEERING AND CONSTRUCTION OF gas tank of the LNG in Barcelona is a success at international level OFFSITES, COGENERATION PLANTS AND in the field, due to the extreme technical and coordination complexity PETROL STATIONS of a project that involves a great variety of fields with the highest technological requirements at the reach of not too many companies QUALITY MANAGEMENT in the world. ISO 9001:2000
ACTIVITIES OF THE BUSINESS LINES 7 DIRECTORY 7.a
DURO FELGUERA, S. A. MADRID OFFICE FELGUERA MONTAJES Y C/ Marqués de Sta. Cruz, 14 MANTENIMIENTO S.A. 33007 Oviedo (Asturias) DURO FELGUERA, S.A. Centro de Proyectos e Ingeniería Spain C/ Orense 58, 12ª C/ Hornos Altos, s/n (Valnalón) 28020 Madrid 33930 La Felguera - Langreo (Asturias) Spain CHAIRMAN Spain Ph.: +34 91 598 01 50 Ph.: +34 98 567 97 50 Ph.: 98 520 76 32 Fax: +34 98 567 97 97 Fax: 98 521 93 39 Fax: +34 91 598 01 26 e-mail: direccion.madrid durofelguera.com e-mail: [email protected] e-mail: [email protected] @
CHIEF EXECUTIVE OFFICER SUSIDIARIES Ph.: +34 98 522 97 00 FELGUERA REVESTIMIENTOS, S.A. Fax: +34 98 521 93 39 ACERVO, S.A. (FERESA) e-mail: [email protected] C/ Marqués de Sta. Cruz, 14 Centro de Proyectos e Ingeniería 33007 Oviedo (Asturias) C/ Hornos Altos, s/n (Valnalón) Spain SECRETARY GENERAL & 33930 La Felguera - Langreo (Asturias) Ph: +34 98 522 63 83 Spain LEGAL COUNSEL Fax: +34 98 521 23 16 Ph.: +34 98 522 60 20 Ph.: +34 98 567 97 50 Fax: +34 98 522 99 56 Fax: +34 98 567 97 97 e-mail: feresa durofelguera.com e-mail: [email protected] FELGUERA CALDERERÍA PESADA, S.A. @ Travesía del Mar, s/n 33212 Gijón (Asturias) BUSINESS Spain TÉCNICAS DE ENTIBACIÓN, S.A. & ORGANIZATION MANAGEMENT Ph.: +34 98 532 26 00 (TEDESA) Ph.: +34 98 522 97 00 Fax: +34 98 532 56 50 Polígono de Silvota, parcela 10 Fax: +34 98 521 93 39 e-mail: [email protected] 33192 Llanera (Asturias) e-mail: direccion.desarrollo durofelguera.com 47 @ Spain FELGUERA CONSTRUCCIONES Ph.: +34 98 526 04 64 FINANCE MECÁNICAS, S.A. Fax: +34 98 526 14 16 Ph: +34 98 522 63 83 / 22 99 19 Crta. de Langreo-Oviedo, s/n e-mail: [email protected] Fax: +34 98 521 23 16 / 21 96 99 33930 Barros (Asturias) e-mail: [email protected] Spain Ph.: +34 98 567 97 00 DURO FELGUERA PLANTAS Fax: +34 98 567 97 02 COMMUNICATION & IMAGE INDUSTRIALES, S.A. e-mail: [email protected] Ph.: +34 98 522 97 00 Centro de Proyectos e Ingeniería Fax: +34 98 521 93 39 C/ Hornos Altos, s/n (Valnalón) e-mail: [email protected] FELGUERA MELT, S.A. 33930 La Felguera - Langreo (Asturias) Prolg. Ing. Fernando Casariego, s/n Spain 33930 La Felguera (Asturias) Ph.: +34 98 567 98 00 HUMAN RESURCES España Fax: +34 98 569 37 20 Ph.: +34 98 522 97 00 Ph.: +34 98 569 56 11 e-mail: [email protected] Fax: +34 98 520 39 34 Fax: +34 98 569 64 65 e-mail: [email protected] e-mail: [email protected] FELGUERA TECNOLOGÍAS DE LA DURO FELGUERA, S.A. ENERGÍA FELGUERA RAIL, S.A. INFORMACIÓN S.A. C/ Rodríguez Sampedro, 5, 7º Ablaña s/n Parque Tecnológico de Asturias, P-13 B 33206 Gijón (Asturias) 33600 Mieres (Asturias) 33428 Llanera - Asturias Spain Spain Spain Ph.: +34 98 517 94 00 Ph.: +34 98 545 41 47 Ph.: +34 98 527 29 89 Fax: +34 98 534 64 74 Fax: +34 98 545 39 03 Fax: +34 98 527 59 60 e-mail: [email protected] e-mail: [email protected] e-mail: [email protected]
www.durofelguera.com
DURO FELGUERA 2005 ANNUAL REPORT 7 DIRECTORY 7.a
MONTAJES DE MAQUINARIA DE SUBSIDIARIES PERU PRECISIÓN, S.A. AND BRANCH (MOMPRESA) OFFICES ABROAD TURBOGENERADORES Centro de Proyectos e Ingeniería DEL PERÚ, S.A.C. C/ Hornos Altos, s/n (Valnalón) Avda. José Pardo 1167 33930 La Felguera - Langreo (Asturias) MEXICO Oficinas 204 y 307 Miraflores Spain (Lima) Ph.: +34 98 567 98 50 DURO FELGUERA MÉXICO, S.A. de C.V. Peru Fax: +34 98 568 31 91 Avda. Revolución, 468-PB Ph.: +(51-1) 2421672 e-mail: [email protected] 03800 Mexico DF (México) Fax: +(51-1) 5776924 Ph.: +525 51998 1600 Fax: +525 55278 4912 OPERACIÓN Y MANTENIMIENTO, S.A. e-mail: [email protected] (OPEMASA) ITALY Centro de Proyectos e Ingeniería PROYECTOS E INGENIERÍA PYCOR, S.A. C/ Hornos Altos, s/n (Valnalón) (PYCORSA) ROME OFFICE 33930 La Felguera - Langreo (Asturias) Avda. Revolución, 468-PB Vía Attilio Regalo, 19 Spain 03800 Mexico DF (México) 00192, Rome 48 Ph.: +34 98 567 98 60 Ph.: +525 51998 1600 Ph.: +(39) 063 280 3230/41 Fax: +34 98 568 31 91 Fax: +525 55278 4913 Fax: +(39) 063 280 3227 e-mail: [email protected] e-mail: [email protected]
VENEZUELA ASSOCIATED COMPANIES JAPAN FELGUERA PARQUES Y MINAS FELGUERA I.H.I., S.A. DE VENEZUELA, S.A. TOKYO OFFICE Parque Empresarial Las Rozas Urbanización Sta. Elena 3-21-2, 11th Floor, Helios Kannai Building C/ Jacinto Benavente, 4 Manzana 15, Casa B4 Motohama-cho, Naka-ku 28230 Las Rozas (Madrid) Sector Río Aro Yokohama, Kanagawa, Japan Spain Puerto Ordaz, Ciudad Guayana Ph: 81 45 222 0431 Ph.: +34 91 640 20 51 Estado Bolívar, Venezuela Fax: 81 45 222 0799 Fax: +34 91 640 21 00 Ph.: +58 4148 928 246 e-mail: [email protected] e-mail: [email protected] Fax: +58 2869 512 629 e-mail: [email protected]
CARACAS OFFICE MHI-DURO FELGUERA, S.A. Avda. Francisco de Miranda, UNITED ARAB EMIRATES C/ Serrano 21, 3º dcha. Edif. Parque Cristal 28001 Madrid Torre Este, Ofic 8 8, Los Palos ABU DHABI OFFICE Spain Grandes, Caracas 1070 Arbift Building, 7 floor, Hamdan Ph.: +34 91 787 48 40 Ph.: (58 212) 285 4025 Street, P.O. 3687. Abu Dhabi. Fax: +34 91 787 48 45 Fax: (58 212) 283 6130 Ph.: +(971) 267 67 965 e-mail: [email protected] Celular: +58(0)4122938635 Fax: +(971) 267 67 956
www.durofelguera.com
DIRECTORY CORPORATE GOVERNANCE REPORT 2005 INDEX
51 1. CORPORATE STRUCTURE Share capital and major shareholders Private agreements between shareholders Treasury stock
52 2. BOARD OF DIRECTORS Members of the board Condition of the directors Composition (number, appointment, requirements, reelection and cessation) Members of the board Chairman Vice-chairman Secretary Vice-secretary Procedures (meetings and decision making) 50 Committees of the Board Audit Committee Committee for Appointments, Remuneration and Expediting of Standards Inter-group Operations Committee
61 3. WORKING COMMITTEES OF THE MANAGEMENT Management Committee Committee of Risks
62 4. CONNECTED OPERATIONS
62 5. INTER-GROUP OPERATIONS
63 6. ANNUAL GENERAL MEETING Annual General Meeting Regulations Information on the last General Meetings held Expenditure on the last General Meeting Information available to the shareholders
68 7. AUDIT
69 8. RELEVANT EVENTS NOTIFIED TO THE CNMV 1 CORPORATE STRUCTURE
1.a SHARE CAPITAL AND MAJOR SHAREHOLDERS
The share capital of DURO FELGUERA, S.A., on 31 December 2005, was of 44,632,263.00 euros, integrated by 14,877,421 bearer shareholders represented by means of book-entry securities of a nominal value of 3 euros each, totally subscribed and disbursed. All of the shares are officially quoted in the Stock Markets of Madrid, Barcelona and Bilbao, having the same political and economic rights. On 31 December 2005, the major shareholders with a share capital of 5% or more were:
Inversiones El Piles, S.L, and connected interests 16.98 % TSK Electrónica y Electricidad, S.A. 15.87 % Residencial Vegasol, S.L. 15.86 % IMASA, Ingeniería Montajes y Construcciones, S.A. 9.53 % Cartera de Inversiones MELCA, S.L., and connected interests 8.33 % Construcciones Termoracama, S.L. 5.30 %
The rest of the shares of the company constitute participations that have not been communicated to the company and which are not on record, except for those that attended or are represented on the occasion of the celebration of the company’s general meetings.
1.b PRIVATE AGREEMENTS BETWEEN SHAREHOLDERS
The company to 31 December 2005, is not aware of any private agreement nor if the Stock Exchange commission has been informed of any. 51 1.c TREASURY STOCK
The Board of Directors has not exercised the right granted in the Annual General Meeting held on 25 May 2005, and has not acquired company shares nor have the company subsidiaries.
DURO FELGUERA 2005 ANNUAL REPORT BOARD OF 2 DIRECTORS
MEMBERS OF THE BOARD
CHAIRMAN Mr. Juan Carlos Torres Inclán VIE-CHAIRMAN Mr. José Luis García Arias
MEMBERS TSK Electrónica y Electricidad, S.A. (Represented by Mr. Sabino García Vallina) PHB Weserhütte, S.A. (Represented by Mr. Carlos Vento Torres) Inversiones Somió, S.R.L. (Represented by Mr. Juan Gonzalo Alvarez Arrojo) Inversiones El Piles, S.R.L. (Represented by Mr. Angel Antonio del Valle Suárez) Construcciones Urbanas del Principado, S.R.L. (Represented by Mr. Manuel González González) IMASA, Ingeniería, Montajes y Construcciones, S.A. (Represented by Mr. Tomás Casado Martínez) Residencial Vegasol, S.R.L. (Represented by Mr. José Antonio Aguilera Izquierdo) Mr. Marcos Antuña Egocheaga Mr. Acacio Faustino Rodríguez García Mr. José Manuel Agüera Sirgo (NON-BOARD MEMBER)CORPORATE GENERAL MANAGER Mr. Florentino Fernández del Valle NON-BOARD MEMBER SECRETARY Mr. Guillermo Quirós Pintado NON-BOARD MEMBER VICE-SECRETARY Mr. Secundino Felgueroso Fuentes LEGAL ADVISOR Mr. Agustín Tomé Fernández HONORARY CHAIRMAN Mr. Ramón Colao Caicoya 52
DIRECTORS’ STATUS EXECUTIVE DIRECTORS Mr. Juan Carlos Torres Inclán
EXTERNAL DIRECTORS PROPRIETARY DIRECTORS Mr. José Luis García Arias TSK Electrónica y Electricidad, S.A. PHB Weserhütte, S.A. Inversiones Somió, S.R.L. Inversiones El Piles, S.R.L. Construcciones Urbanas del Principado, S.R.L. IMASA, Ingeniería, Montajes y Construcciones, S.A. Residencial Vegasol, S.R.L.
INDEPENDENT DIRECTORS Mr. Marcos Antuña Egocheaga Mr. Acacio Faustino Rodríguez García Mr. José Manuel Agüera Sirgo 1. COMPOSITION
1.1 NUMBER OF BOARD MEMBERS In accordance with the company by-laws, the Board of Directors is made up of a minimum of six (6) and a maximum of twelve (12) members.
The Shareholder’s Meeting, at the Board’s proposals, will determine the number of members of the Board within the limits fixed by the company by-laws. The Shareholder’s meeting will appoint, ratify and re-elect the directors.
The Board will also designate a legal counsellor for the Board of Directors.
1.2 APPOINTMENT The Board members will be appointed by the Shareholder’s meeting or by the Board of Directors in accordance with the standards contained in Company Law (Ley de Sociedades Anónimas).
The proposals made by the Board of Directors submitted to the Shareholder’s meeting and the decisions taken by the Board by virtue of the co-opting faculties it has legally attributed must be preceded by the corresponding proposal and report by the Committee for Appointments, Remuneration and Expediting of Standards.
1.3 REQUIREMENTS FOR BEING APPOINTED DIRECTOR The Company by-laws stipulated a maximum age of 70 to be appointed or to carry out the role of board member. However, this age limit will not affect the member appointed Chairman of the Board as long as the Board agrees unanimously not to apply this limit before the December 31 in the year when he/she reaches this age.
In accordance with the Texto Refundido de la Ley de Sociedades Anónimas (TRLSA) (Revised Company Law), to be elected board member by co-option it is necessary to be a shareholder of the company.
In any case, the person to be designated board member or representative of a board member must not be involved 53 in any of the activities classified as incompatible or prohibited by Company law or the company regulations.
The post of board member will be compatible with any other function within the company.
The Board of Directors and the Committee for Appointments, Remuneration and Expediting of Standards will make every effort to elect candidates of renowned solvency, competence and experience, taking special care with the posts of independent board member who must comply with these regulations and who will be elected after a formal selection process.
1.4 RE-APPOINTMENT AND VACATION OF OFFICE BY DIRECTORS The Committee for Appointments, Remuneration and Expediting of Standards will be informed prior to the Shareholder’s Meeting of the directors proposed for re-appointment by the Board of Directors.
The directors will hold office for a maximum period of five years and may be re-appointed.
The Board members elected by co-option will occupy the post until the following Shareholder’s Meeting or until the legal period expires till the shareholder’s meeting to approve the year’s accounts takes place.
DURO FELGUERA 2005 ANNUAL REPORT BOARD OF 2 DIRECTORS
The Board members will vacate their office when the period for which they were appointed expires, when the Shareholder’s Meeting so decides or when they are found to be involved in any of the prohibitions stipulated by law.
The Board members must tender their resignations to the Board and duly resign when they are involved in any of the prohibitions stipulated in Art. 124 of the “Texto Refundido de la Ley de Sociedades Anónimas” (revised Company Law) and any other applicable legislation.
2. MEMBERS OF THE BOARD
2.1CHAIRMAN The Board of Directors will appoint a chairman from among its members. The range of powers and in particular whether the Chairman may or may not carry out the functions corresponding to the company’s top executive will be decided by the Board at the moment of appointment.
It is the chairman’s responsibility to call the Board Meetings, to decide on the agenda and to chair the debates. The chairman however will call a meeting of the Board and include in the agenda matters requested by at least two board members.
In case of a tie of votes, the chairman’s vote will be decisive.
2.2 VICE-CHAIRMAN The Board may appoint one or more vice-chairmen, who will substitute the chairman in his absence.
2.3 SECRETARY It is not a pre-requisite to be a member of the Board to be appointed secretary. 54 The Board secretary will aid the chairman in his functions and will ensure that the Board runs smoothly, being especially responsible for providing the Board members with advice and the necessary information, keep the company official documentation, record the minutes of Board meetings and witness agreements thereof.
The secretary will ensure formal and material legality of the Board’s actions and will guarantee that its procedures and rules of conduct be respected and regularly revised.
The secretary will also be responsible for interpreting corporate management law and for verifying that the company complies therewith in accordance with these regulations. In addition, the secretary will analyse corporate management law recommendations to be included in the company by-laws.
2.4 VICE-SECRETARY The Board of Directors may appoint a vice-secretary who need not be a Board member to assist and substitute in case of absence, the secretary of the Board.
The vice-secretary may attend the Board meetings to substitute or aid the secretary when the chairman so decides. 3. PROCEDURES
3.1 MEETINGS The Board of Directors will meet routinely once a month at least, and at the chairman’s initiative as many times deemed necessary for the sake of the company. The Board will also meet when two members at least so require and the chairman will call the meeting.
The routine meetings will be called by any written means addressed personally to each board member with at least one day’s notice except for extraordinary circumstances perceived by the chairman in which case the Board meeting may be called without complying with this length of notice.
Along with the requirement to attend each meeting and as long as it is possible for the extraordinary sessions, the members will be provided with the necessary documentation and information to discuss the points on the agenda.
The Board will define an annual calendar of regular meetings.
3.2 AGREEMENTS The Board will be considered valid when at least half of its members present or represented attend the meeting. When any of the Board members cannot personally attend a meeting of the Board, they will make every effort to provide the member who will represent them with the necessary instructions as long as the agenda permits.
Except for the cases where quorum is otherwise established in these regulations and in circumstances required by law, the agreements will be reached by absolute majority of the attendees.
All the matters discussed by the Board of Directors will be secret and the members will maintain the confidential nature of the matters discussed, except when the Board of Directors, considering the company’s and shareholder’s 55 interests, and the transparency regulations of the stock exchange commission agrees to make certain matters or decisions public. Confidentiality will not be required in those cases where law permits but communication will be in accordance with legal stipulations.
Legal advisor for the Board of Directors will watch and advise the Board on whether the agreements and decisions are in accordance with law, the company by-laws, the stock exchange commission standards and these regulations.
4. COMMITTEES OF THE BOARD
4.1 AUDIT COMMITTEE
4.1.1 COMPOSITION, PROCEDURES AND INTERNAL REGULATION The Audit Committee will be comprised of at least three members appointed among the Board, who will occupy the post over four years. They may be re-elected for the same or less amount of time. The Audit Committee will be made up in majority of non-executives appointed by the Board of Directors. The chairman will be appointed among the non-executive members and must be substituted every four years though the possibility of re-appointment exists one year after vacating office.
The members of the Audit Committee will be relieved of their responsibilities once the period for which they were appointed has expired, of their own volition or by not being re-appointed board member.
The members are subject to maintain secrecy and confidentiality as with the Board members. They will be directly responsible to the Board of Directors.
DURO FELGUERA 2005 ANNUAL REPORT BOARD OF 2 DIRECTORS
A secretary with the right to speak but without voting rights and who need not be a Board member will assist the Committee. In addition, any member of the management team or company personnel, with the approval of the chairman or chief executive officer is obliged to attend the Committee meetings when requested to do so, and the Committee may also request the attendance of the auditors.
The Committee will meet as many times as they deem necessary but not less than four times a year, coinciding two weeks after each three-month closure of accounts.
The Committee may operate when half of its three members plus one attend. When not all members are present, the rule of unanimous vote instead of majority will apply.
The Committee may regulate its internal conduct to improve its performance and may propose modifications to these regulations to the Board of Directors and to be submitted to the Shareholder’s Meeting.
4.1.2 OBJETIVES AND COMPETENCIES OF THE AUDIT COMMITTEE
The activity of the Committee has the following objectives:
To have unrestricted, direct access to all company financial information. To have unrestricted, direct access to the external company auditors, holding informative and explanatory meetings as necessary. To supervise compliance with the audit contract, demanding that the auditor’s opinion on the annual accounts and the contents of the report be written in a clear and precise manner. To act as a channel between the Board of Directors and the auditors. To evaluate the results of each audit and the response of the management team to the recommendations made by the auditors. To act as intermediary in case of discrepancies between the management team and the auditors, with reference to the principles and criteria to be applied in preparing the financial statements. 56 To check the company accounts and ensure that the generally accepted accounting principles are applied correctly. To inform on proposed modifications on criteria and accounting principles suggested by the management and those stipulated in law. To check the integrity and use of adequate internal control mechanisms and to propose or review the appointment or substitution of those responsible. To approve prospectuses and periodic financial information that the Board of Directors must supply to the markets and their supervisory bodies. Any other entrusted by the Board of Directors. 4.1.3 COMMITTEE MEMBERS
Mr. José Manuel Agüera Sirgo CHAIRMAN Mr. Juan Carlos Torres Inclán MEMBER Mr. Juan Gonzalo Álvarez Arrojo MEMBER Mr. Secundino Felgueroso Fuentes NON-MEMBER SECRETARY
4.2 COMMITTEE FOR APPOINTMENTS, REMUNERATION AND EXPEDITING OF STANDARDS
4.2.1 COMPOSITION, PROCEDURES AND INTERNAL REGULATION The Committee will consist of a minimum of three and a maximum of five people, members of the Board of Directors, who are not executives or executive members of the Board and appointed by majority vote of the Board members.
The appointment will have duration of five years and in any case the same duration as the post of Board member. The members may be re-appointed as many times as necessary as long as they are still members of the Board.
The chairman will be appointed among the members for a period of five years and in any case for the amount of time left to occupy the post of Committee member. Also members of the Committee with the right to speak but no voting rights will be the secretary and legal counsel of the Board of Directors.
The Committee will meet at the request of the chairman, at the company’s registered office or where the chairman decides, whenever the chairman or the majority of the members or the Duro Felguera Board of Directors decide. In any case the Committee will meet at least twice a year and coinciding with dates which will allow analysis and study of conditions and information to decide on annual remunerations, appointments of the Board members or top management of Duro Felguera and its subsidiaries. 57
Any member of the management team or the company personnel, with approval of the chairman or chief executive officer, is obliged to attend the Committee meeting when requested to do so.
The secretary will draw up the minutes of the deliberations, transcendental matters and the agreements, which must have majority votes of the members.
The chairman of the Committee will inform the Board of Directors at the first meeting held of the content of the agreements reached by the Committee.
The Committee may regulate its internal conduct to improve its performance and may propose modifications to these regulations to the Board of Directors.
DURO FELGUERA 2005 ANNUAL REPORT BOARD OF 2 DIRECTORS
4.2.2 FUNCTIONS OF THE COMMITTEE FOR APPOINTMENTS, REMUNERATION AND EXPEDITING OF STANDARDS
The functions of this Committee are:
To inform and propose for office members of the Board of Directors, to the Board itself, to decide by co- option when the need to cover a vacancy on the Board arises, or to the Shareholder’s meeting. To decide and propose contractual conditions or company agreements with the chairman and the chief executive officer for the Board’s approval. To inform and submit the remunerations of the Board members for approval by the shareholders and also that the Board may approve expenses to attend the Board meetings and Committee meetings. To inform and submit for approval by the Board of Directors the selection and appointment of Duro Felguera top level management, i.e. staff management, business line managers and managers of subsidiaries, and remuneration policies, contract conditions, and incentives which take into account results of their area of the company. To supervise management conduct, transparency of company dealings, compliance with the Internal Code of Conduct by the Board Members and management of the company and to inform the Board of conducts or non-compliance with company codes so they may be corrected or to inform the Shareholders if they are not corrected. Among its functions, to present any matters it deems necessary before the Board for review and approval.
4.2.3 MEMBERS OF THE COMMITTEE
Mr. José Luis García Arias CHAIRMAN Inversiones el Piles, S.L. (Represented by Mr. Ángel Antonio del Valle Suárez) MEMBER IMASA 58 (Represented by Mr. Tomás Casado Martínez) MEMBER TSK Ingeniería Electrónica y Electricidad, S. A. (Represented by Mr. Sabino García Vallina) MEMBER Residencial Vegasol, S.R.L. (Represented by Mr. José Antonio Aguilera Izquierdo) MEMBER Mr. Marcos Antuña Egocheaga MEMBER
Mr. Guillermo Quirós Pintado NON-MEMBER SECRETARY Mr. Agustín Tomé Fernánez NON-MEMBER LEGAL ADVISOR 4.3 INTER-GROUP OPERATIONS COMMITTEE
4.3.1 COMPOSITION, PROCEDURES AND INTERNAL REGULATION
The Committee will consist of three members of the Board, who will be so designated by the Board of Directors and for as long as their appointment as directors.
Among the aforementioned members, the Committee will choose a Chairman. A Legal Advisor will also be appointed for the above mentioned Committee, with voice but without vote, his or her appointment corresponding to whoever at the time is the Legal Advisor of the Board of Directors, and the Secretary, also with voice but without vote, will be whoever at the time is the Vice-secretary of the Board of Directors.
Technicians of the Company will also be able to attend the meetings if they have been required to do so. Likewise, the Committee can also be assisted, with exclusive dedication, by the technical personnel deemed necessary of this Committee. The appointment of this technical personnel will have to be agreed by consensus with the Chairman of the company, who will ultimately decide on the suitability of the person appointed. The technical personnel will not be part of the Committee.
The Committee will always decide according to the majority of its members, its valid constitution requiring the presence of at least two of its members. Should the totality of its members not attend, its decisions will be taken by unanimity rather than by majority.
The members of the Inter-group Operations Committee will cease to act as such following the expiry of the term for which they have been appointed, of tier own will or due to non-renewal in office of the director of the company, but they shall not be made to cease unless by majority agreement of the Board of Directors.
The members of the Inter-group Operations Committee will be subject to the regime of secrecy and confidentiality that rules for the Directors, being compelled to directly inform the Board of Directors when so requested by the 59 latter.
The Inter-group Operations Committee will meet in the place determined by its Chairman, as many times as he deems convenient and in any case as long as it is necessary for the diligent performance of its functions, and as long as it is required by corporate interest or convoked by its Chairman.
At every meeting of the Board of Directors, the Inter-group Operations Committee will be compelled to inform on each one of the agreements and relevant acts it has taken or put into effect, by virtue of the delegations held by the Board.
In terms of its procedures regime and with the exception of the provisions in the previous sections, the legal and statutory norms established for the Board of Directors and in its Internal Regulations shall be applied.
4.3.2 FUNCTIONS OF THE INTER-GROUP OPERATIONS COMMITTEE
In relation to all the contracts, from the bidding phase to its absolute conclusion, of Duro Felguera, S. A., with its managers and connected persons in the terms of Art. 127 3rd of the Corporations Law, as well as with its major shareholders, whether it be via order intakes carried out directly by the Company or indirectly via any subsidiary or because the Administrator or connected persons participate in any form, such as a Group of Contractors, Joint Ventures, consortiums, etc, or by means of any title, in the following events:
1) Contracts whose amount exceeds 200,000 euros. The Committee is entitled to:
a)Establish the terms for the presentation of order intake proposals by third parties and the mode and form of publicising and/or inviting the alter to participate in those contracts;
DURO FELGUERA 2005 ANNUAL REPORT BOARD OF 2 DIRECTORS
b)Modify the bases tender request; c) Proceed to the opening of the closed and sealed escrows which will have to contain the conditions of the tenders for the contracting; d)Decide on the formalisation of these contracts, being able for such purposes to demand what technical help is deemed necessary to motivate the convenience of subscribing them; e)Establish the contents of the contract, supervise its development, execution and exact observance until the end of the term of guarantee; f) Decide on the modifications, extensions or renovations of the contracts, and if the extension, modification or renovation exceeds 200,000 euros, it will have to put to tender the extension, modification or renovation, unless, if it deemed more favourable to the interests of the Company not to convoke the tender, abstain from doing so, in which case it will issue a motivated report to the Board of Directors, which will have to ultimately decide.
2) Contracts whose amount does not exceed 200,000 euros. The Committee will be entitled to verify that the criteria that have been followed for the granting of these contracts have been carried out in keeping with the market prices, and if the case be otherwise, propose the adoption of the remedial measures needed to the Board of Directors.
4.3.3 MEMBERS OF THE COMMITTEE
Inversiones El Piles, S.R.L. CHAIRMAN (Represented by Mr. Angel Antonio del Valle Suárez) Construcciones Urbanas del Principado, S.R.L. MEMBER (Represented by Mr. Manuel González González) Mr. José Manuel Agüera Sirgo MEMBER
60 Mr. Secundino Felgueroso Fuentes NON-MEMBER SECRETARY Mr. Agustín Tomé Fernández NON-MEMBER LEGAL ADVISOR WORKING COMMITTEES 3 OF THE MANAGEMENT
Although the Management Committee and the Risk Committee are not commissions of the Board of Directors, due to their great importance in the development of the activity of the company and the analysis of the risks in contracting, they are sufficiently relevant as to be included in this report.
1. MANAGEMENT COMMITTEE
1.1 FUNCTIONS This Committee, made up of executive directors and the directors of each line of company business, analyses performance of the company. The Committee is informed of project progress, the possibility of new business, deviations occurring in project execution and in general any relevant incidences.
1.2 MEMBERS
Juan Carlos Torres Inclán CHAIRMAN Florentino Fernández del Valle CORPORATE GENERAL MANAGER Antonio Martínez Acebal GENERAL MANAGER ASSISTANT TO CHAIRMAN Mariano Blanc Díaz CHIEF FINANCIAL OFFICER Francisco Martín Morales de Castilla HEAD POWER SYSTEMS BUSINESS LINE Félix García Valdés HEAD INDUSTRIAL PLANTS BUSINESS LINE
2. COMMITTEE OF RISKS
2.1 FUNCTIONS 61 In general terms, this Committee analyses the risk that certain contracts may have for the company, considering their volume, execution conditions, guarantees, the risk-country component, payment conditions and whether a new field of action is involved.
2.2 MEMBERS
Mr. Juan Carlos Torres Inclán CHAIRMAN Mr. Florentino Fernández del Valle CORPORATE GENERAL MANAGER
Financial Management ADVISOR Legal Management ADVISOR
DURO FELGUERA 2005 ANNUAL REPORT CONNECTED 4 OPERATIONS
The major shareholders of the company have carried out significant business operations with the company in terms of supplies and services, in free competition with other companies that are not connected to Duro Felguera, S. A. share capital, and its subsidiaries, and at market price.
All transactions are analysed and approved by the Board of Directors without the major shareholder’s involvement in the voting and decision making process.
The final sum of the transaction and the type of operation is communicated to the Stock Exchange Commission.
The global sum of all the operations undertaken in the year 2005 has been as follows :
TSK, Electrónica y Electricidad, S.A. 4,583.41 Thousand euros IMASA, Ingeniería, Montajes y Construcción, S.A. 1,963.79 Thousand euros ARSIDE, C.M. (Grupo Cartera I. MELCA) 854.63 Thousand euros PHB Weserhütte, S.A. 303.90 Thousand euros
A Inter-group Operations Committee was created that year for the purpose of intervening in all those contracts celebrated by the Society either directly or via its subsidiaries with its administrators and connected persons in the terms of Art. 127 3rd of the Corporations Law, as well as with any major shareholder.
62
INTER-GROUP 5 OPERATIONS
Duro Felguera, S. A., constitutes a group of companies whose activities are frequently complementary and therefore the development of the business benefits from the strength derived from the activities of the different subsidiaries, which taken as a whole can offer a more thorough integrated service to the clients of Duro Felguera, S.A.
Page 155 of the economic financial report contains the breakdown of the transactions carried out during the year 2005 with the companies of the group and its partners, whether with a direct or indirect shareholding by Duro Felguera, S. A., as well as the amounts maintained on 31 December 2005. All intergroup operations carried out belong to the ordinary line of business or traffic of corporations, being carried out in ordinary market conditions, and are subject to elimination in the process of elaboration of the consolidated information, including the financial operations managed in a centralised way through the head office, and other general staff services. SHAREHOLDERS’ ANNUAL GENERAL 6 MEETING
1. GENERAL MEETING REGULATIONS
The Shareholders’ Annual General Meeting, called and constituted according to law and company statutes, is the ultimate governing body of the company and represents all of the shareholders and its agreements are mandatory even for those who do not attend and do not agree with the majority decisions taken, without prejudice to the rights of reply as provided by law.
The Shareholders’ Annual General Meeting will be held at the company’s registered office or at a place appointed by the Board of Directors in accordance with law.
1.1 RIGHT TO ATTEND Shareholders who according to Law have demonstrated ownership of shares at least five days before the date of the general meeting will have the right to attend. The right to attend the general meetings and delegation of rights will be in accordance with Ley de Sociedades Anónimas (Company Law). Despite the above, a non-shareholder may not be delegated to attend the meeting. To attend the general meeting, a personalised card will be given on request to each shareholder who has the right to attend which will include indications provided by Law or by the company by-laws.
1.2 RIGHT TO VOTE The attendees at the general shareholders’ meeting will have one vote per share owned or represented. As far as fractions are concerned, these may be grouped to exercise the right to vote in accordance with Article 105.3 of Ley de Sociedades Anónimas. Shares not carrying a vote will be governed by provisions in the Ley de Sociedades Anónimas.
1.3 ORDINARY AND EXTRAORDINARY GENERAL MEETINGS The General Meetings may be Ordinary and Extraordinary. 63
The Ordinary General Meeting will be held on the day designated by the Board of Directors within the first semester of the year, to discuss management, approve, if such is the case, the accounts of the previous year, decide on how the results will be applied, and to discuss and agree on any matter affecting the company. Any meeting not included in the above paragraph will be considered Extraordinary.
1.4. ANNOUNCEMENT AND PUBLICITY The date of General Meetings will be agreed by the Board of Directors and will be announced in the Boletín Oficial del Registro Mercantil (Company Register Official Bulletin) and in one of the newspapers with greater circulation of the province at least two weeks before the day it is to be held. The announcement will state the first day when the meeting may be held and the agenda. A second date may also be proposed which must be at least twenty- four hours after the first.
1.5 SHAREHOLDER’S RIGHT TO INFORMATION All shareholders may request in writing before the date of the meeting or verbally during the meeting any reports or clarifications as necessary on the matters included in the agenda. The Board is obliged to provide information except in those cases where the chairman considers that publishing of certain data may harm the company’s interests. This exception will not be applicable when shareholders representing at least a quarter of the share capital support the request. In the case of the Ordinary General Meeting and in other cases established by Law, the announcement of the meeting will indicate what documents are to be submitted for approval of the shareholders and, if such is the case, the report or reports legally foreseen and which are available to be examined and can be obtained immediately and freely at the company’s registered office.
DURO FELGUERA 2005 ANNUAL REPORT SHAREHOLDERS’ ANNUAL GENERAL 6 MEETING
1.6 REQUIREMENTS OF THE SHAREHOLDERS’ GENERAL MEETING The Shareholders’ General Meeting will be considered valid and will come to agreements which will oblige all shareholders, including those absent, who abstain or dissidents when the minimum share capital is represented for each case according to the revised text of the Ley de Sociedades Anónimas, both the first and second dates set for the meeting, and in accordance with items on the agenda.
1.7 CHAIRMAN AND SECRETARY OF THE SHAREHOLDERS’ GENERAL MEETING The Chairman and Secretary of the Shareholders’ General Meeting will be the same as those of the Board of Directors, or the Vice-Chairman, and in their stead those designated by the Shareholders’ General Meeting itself, proposed by the Board of Directors. The role of the Chairman is to conduct the deliberations, deal with any doubts arising from the list of shareholders and the agenda, determine turns of discussion where he can place time limits on each speaker, and close the debates when he considers that sufficient time has been spent on any given matter, and in general, all the powers required to organise and lead the Shareholders’ General Meeting. It is the secretary’s role to draw up the attendance list, the minutes of the Shareholders’ General Meeting as well as other activities related to the above. Certification of agreements is the role of the secretary or vice-secretary of the Board of Directors with the approval of the chairman or vice-chairman. If the minutes of the Shareholders General Meeting is drawn up by a notary public, this will be ruled by current law.
1.8 AGREEMENTS OF THE GENERAL MEETING For there to be consensus at the general meetings be they ordinary or extraordinary and whether they are of the first or second date proposed, at least half plus one of the votes present or represented must be in favour.
Agreements reached when the company absorbs another or other companies, will require an ordinary majority as in the first paragraph of this article.
For those cases contemplated in article 103 of the Ley de Sociedades Anónimas, a majority of votes defined therein will be mandatory unless by applying the above paragraphs of this article a larger number of votes is required, 64 then in that case the requirement for larger number of votes established in this article will prevail.
1.9 PROCEDURE TO REACH AGREEMENTS Each of the items on the agenda will be submitted to vote individually. It is the responsibility of the chairman to conduct the voting and he may be helped in this task by two or more freely appointed scrutinizers. Nevertheless, the chairman of the meeting may decide to submit various items on the agenda to be voted on jointly in which case the result will be understood as if each of the items had been voted on individually if none of the attendees express the wish to modify their vote on any one of the items. If this were not the case, the minutes will reflect voting modifications expressed by each of the attendees and the result of the vote corresponding to each of the proposals.
1.10 APPROVAL OF MINUTES Attendees at the General Meeting will be listed at the beginning of the minutes or the list may be attached as an annex signed by the secretary and approved by the chairman. The list may also be on electronic support in the manner established by applicable standards. The minutes of the General Meeting may be approved at the meeting itself or within a period of two weeks by the chairman and two representatives named at the meeting, one representing the majority and the other the minority. The minutes will have executive force once it is approved by either of the means mentioned above. 1.11 SHAREHOLDERS’ RIGHTS AT THE MEETING In compliance with Articles 144 and 212 of the Ley de Sociedades Anónimas, on the occasion of the General Meeting, the documents to be submitted for approval at the Meeting which they are entitled to request are made freely available to the shareholders: Annual Report, Balance Sheet, Profit and Loss Accounts and Management Report, all corresponding to the year ending on 31 December both for Duro Felguera, S.A. and for its subsidiaries (Consolidated). Auditors Report on Annual Accounts for Duro Felguera, S.A. and for its subsidiaries (Consolidated). Proposal and application of the Year Results.
1.12 RIGHT TO ATTEND AND REPRESENTATION Shareholders who can attend in person or by legally empowered representation are those who at least five days at least before the date of the meeting have accredited ownership of at least one (1) share at any of the entities belonging to Servicio de Compensación y Liquidación de Valores, who will provide the corresponding cards of attendance which may also be provided by the company at its registered office: Marqués de Santa Cruz, 14, 1º, Oviedo, Asturias against the deposit of the documentation accrediting ownership of the shares.
2. INFORMATION ON THE LAST GENERAL MEETINGS
2.1 ORDINARY GENERAL MEETING ON 24 JUNE 2004.
The General Meeting was held on the second date proposed with an attendance quorum of 57.15%, 118,908 being present and 8,503,098 represented. 65 All of the shareholders present at the session, whether personally or via a representative, unanimously approved all the order proposals of the agenda and as a consequence the following agreements were adopted :
FIRST Approval of the Balance Sheet, Profit and Loss Accounts, and Annual Report of Duro Felguera, S.A. and its subsidiaries (Consolidated) corresponding to the year 2003 and proposal on how to apply the results of the financial year. SECOND The management of the Board of Directors. THIRD The Corporate Governance Report. FOURTH The General Meeting Regulations. FIFTH The Internal Code of Conduct SIXTH The incorporation of the Company to the Emilio Barbón and to the Colección Museográfica de la Siderurgia (Metallurgy Museum Collection) Foundation. SEVENTH The acquisition derived from own shares up to a maximum of 5% of the share capital and for a period of eighteen months. EIGHTH The re-appointment of the auditors Pricewaterhouse Coopers Auditores, S.L. for a year.
DURO FELGUERA 2005 ANNUAL REPORT SHAREHOLDERS’ ANNUAL GENERAL 6 MEETING
2.2 ORDINARY GENERAL MEETING ON 25 MAY 2005.
The General Meeting was held on the second date and the agenda of the day, transcribed as follows, was debated:
FIRST Review and, if necessary, approval of the management report and annual accounts (Balance Sheet, Profit and Loss Accounts, and Annual Report) of Duro Felguera, Sociedad Anónima and Duro Felguera, Sociedad Anónima and its subsidiaries (Consolidated), corresponding to the year 2004 and proposal on how to apply the results of the financial year.
SECOND Approval of the management of the Board of Directors for the year 2004.
THIRD Ratification, cessation, appointment or reelection, if applicable, of members of the Board.
FOURTH Information on the Internal Regulations of the Board.
FIFTH Authorisation given to the Board of Directors of the Company for the acquisition derived from own shares by the Corporation or by its subsidiaries, in accordance with the establishment of Art. 75, Additional First Provision and related sections of the Rewritten Text of the Corporations Law, with a specification of the acquisition modalities, the maximum number of shares to be purchased, maximum and minimum purchase prices and duration of the authorisation.
SIXTH Appointment or reelection of the Auditors of Accounts, in accordance with the provision of Art. 204 of the Rewritten Text of the Corporations Law.
SEVENTH Proposal of premium payment for attendance or representation at the meeting. (0.02 per share present or represented).
66 EIGHTH Delegation of powers for the formalisation or execution of the agreements adopted, for carrying out the mandatory deposit of the annual Accounts, the Auditors reports and to execute the necessary communications and notifications to the competent bodies, indistinctly in favour of the Chairman of the Company, the Secretary of the Board of Directors and its Vice-secretary.
At the beginning of the session, the mandatory count of the number of shares attending the meeting was made, with 940,914 shares present and 11,829,234 shares represented, thus resulting, out of 14,877,421 shares in which the share capital is divided, a quorum of 85.84%. The General Meeting was presided by the Chairman of the Board of Directors, Mr. Juan Carlos Torres Inclán, its Secretary being the Secretary of the Board of Directors, Mr. Guillermo Quirós Pintado. As in other occasions, the report of the General Meeting was taken by a Notary.
The agreements reached by the General Meeting, as well as the result of the voting in each one of the points was as follows:
Review and approval, if applicable, of the management report and annual accounts (Balance Sheet, Profit And Loss Account, and President’s Report) of Duro Felguera, Sociedad Anónima and Duro Felguera, Sociedad Anónima and its subsidiaries (Consolidated), corresponding to the year 2004 and the proposal on how to apply the results of the financial year. Approved by majority, with 12,726,383 votes in favour and 43,765 abstentions.
Approval of the management of the Board of Directors for the year 2004. It was approved by majority, with 12,752,575 votes in favour and 17,573 abstentions. Ratification, cessation, appointment or reelection, if applicable, of members of the Board. It was approved by a majority of 11,495,878 votes in favour and 17,573 abstentions. It was recorded that, regarding this point, there was no computation of 1,256,697 shares, due to the grouping of Residencial Vegasol S.R.L. which had exercised the right of proportional representation during the celebration of the General Meeting and its having been elected member of the Company.
Information on the Internal regulation of the Board. This point was not target of vote, as it was included in the agenda of the day of the meeting in observance of Law 26/2003, of 17 July, for the aforementioned regulations must be approved by the Board of Directors, but the Article 115.1 of the Law requires the General Meeting to be informed about it.
Authorisation given to the Board of Directors of the Company for the acquisition derived from own shares by the Corporation or by its subsidiaries, in accordance with the establishment of Art. 75, Additional First Provision and related sections of the Rewritten Text of the Corporations Law, with a specification of the acquisition modalities, the maximum number of shares to be purchased, maximum and minimum purchase prices and duration of the authorisation. It was approved by a majority of 12,752,432 votes in favour, 143 votes against and 15,753 abstentions, there being an approval of a minimum purchase price of one euro and a half, a maximum price of twenty euros and a maximum exercise term of eighteen months.
Appointment or reelection of Auditors of Accounts, in accordance with the provision of Art. 204 of the Rewritten Text of the Corporations Law. It was agreed by a majority of 12,752,575 votes in favour and 17,573 to reelect the Corporation Pricewaterhouse Coopers Auditores, S.L. for the period of a year as auditors of the company and of its group of companies.
Proposal of premium payment for attendance or representation at the meeting. (0.02 euros per share present or represented). This point was not subject to approval by the General Meeting, as it was not necessary.
Delegation of powers for the formalisation or execution of the agreements adopted, for carrying out the mandatory 67 deposit of the annual Accounts, the Auditors reports and to execute the necessary communications and notifications to the competent bodies, indistinctly in favour of the Chairman of the Company, the Secretary of the Board of Directors and its Vice-secretary. It was approved by a majority of 12,752,575 votes in favour and 17,573 abstentions.
COSTS ARISING FROM THE LAST 3. SHAREHOLDERS’ GENERAL MEETING
The announcement for the Shareholders Meeting was published in Boletín Oficial del Registro Mercantil (Register of Companies Official Bulletin) and in the Asturias newspapers: La Nueva España, La Voz de Asturias and El Comercio, as well as the national financial daily newspaper, Expansión.
The expenditure on publication of the announcement came to the sum of 11,769.17 euros.
Publication of the Annual Report, hiring of the conference room to hold the Meeting, audiovisual means and the necessary installation to hold the meeting as well as the attentions bestowed on the Shareholders who attended produced a cost of 45,687.03 euros.
DURO FELGUERA 2005 ANNUAL REPORT SHAREHOLDERS’ ANNUAL GENERAL 6 MEETING
4. INFORMATION MEANS FOR SHAREHOLDERS
The company maintains a shareholder assistance service via the following means of contact:
ADDRESS C/ Marqués de Santa Cruz, 14 · 1º 33007 OVIEDO
TELEPHONE 900 714 342
E-MAIL [email protected]
IIt also has a web page with company information, rules and notifications made to the Stock Exchange Commission.
AUDIT
687
The auditors of the company PricewaterhouseCoopers, have received the following fees in the year 2005:
For the audit of Duro Felguera, S.A. and the audit of Duro Felguera (Consolidated) 234,420 euros.
Besides, they have been carried out other specific non-audit tasks, receiving a sum total of 63,200 euros. 8 RELEVANT EVENTS
Since the year 2003, the following relevant events have been conveyed to the National Stock Stock Exchange Commission (CNMV).
DATE Nº REG. TYPE OF EVENT
29/11/2005 62465 Changes in the Board and other governing bodies Regulation of the Board of Directors 25/11/2005 62433 Other relevant events 27/10/2005 61751 Results preview of issuing companies 28/07/2005 59916 Results preview of issuing companies 25/05/2005 58219 Changes in the Board and other governing bodies Announcement and agreements of the shareholders meetings 09/05/2005 57465 Announcement and agreements of the shareholders meetings 29/04/2005 57252 Corporate Governance Report 26/04/2005 57121 Results preview of issuing companies 25/04/2005 57069 Share acquisitions or transmissions 16/03/2005 56259 Share acquisitions or transmissions 07/03/2005 56101 Share acquisitions or transmissions 01/03/2005 55925 Results preview of issuing companies 22/02/2005 55665 Share acquisitions or transmissions 18/02/2005 55623 Share acquisitions or transmissions 04/02/2005 55371 Other relevant events 69 18/01/2005 54992 Share acquisitions or transmissions 13/01/2005 54865 Other relevant events 21/12/2004 54529 Other relevant events 20/12/2004 54495 Suspension of trading and closures 20/12/2004 54492 Share acquisitions or transmissions 20/12/2004 54490 Suspension of trading and closures 02/11/2004 53554 Results preview of issuing companies 02/08/2004 51832 Other relevant events 29/07/2004 51710 Results preview of issuing companies 19/07/2004 51322 Other relevant events 23/06/2004 50776 Other relevant events 02/06/2004 50230 Announcement and agreements of the shareholders meetings 28/05/2004 50123 Corporate Governance Report 29/04/2004 49206 Results preview of issuing companies 12/04/2004 48844 Audit Committee Law 44/2002 03/03/2004 48060 Other relevant events 01/03/2004 47959 Results preview of issuing companies 18/02/2004 47608 Corporate Web Page 17/02/2004 47578 Other relevant events
DURO FELGUERA 2005 ANNUAL REPORT 8 RELEVANT EVENTS
DATE Nº REG. TYPE OF EVENT
11/11/2003 45749 Results preview of issuing companies 19/08/2003 44073 Internal code of conduct 19/08/2003 44068 Results preview of issuing companies 19/08/2003 44072 Changes in the Board and other governing bodies 19/08/2003 44071 Modifications of company by-laws Audit Committee Law 44/2002 02/07/2003 43086 Changes in the Board and other governing bodies Audit Committee Law 44/2002 01/07/2003 43027 Changes in the Board and other governing bodies Announcement and agreements of the shareholders meetings Audit Committee Law 44/2002 24/06/2003 42858 Audit Committee Law 44/2002 04/06/2003 42413 Changes in the Board and other governing bodies 13/05/2003 41859 Discrepancies between prov. and definitive accounts of Auditors 08/05/2003 41729 Results preview of issuing companies 03/03/2003 40258 Results preview of issuing companies 70 19/02/2003 39906 Other relevant events 21/01/2003 39345 Other relevant events 21/01/2003 39344 Other relevant events ECONOMIC AND FINANCIAL INFORMATION 2005
CONSOLIDATED ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005 CONSOLIDATED ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
72 CONSOLIDATED ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
1 DURO FELGUERA, S.A. AND SUBSIDIARIES AUDITOR’S REPORT
2 CONSOLIDATED GROUP BALANCE SHEET INCOME STATEMENT STATEMENT OF INCOME AND EXPENSE RECOGNISED IN EQUITY CASH FLOW STATEMENT ACTIVITY AND STRUCTURE OF THE GROUP DIRECTOR’S REPORT A free translation of the report on the consolidated annual accounts originally issued in Spanish and prepared in accordance with generally accepted accounting principles in Spain. In the event of a discrepancy, the Spanish language version prevails.
REPORT OF THE AUDITORS ON THE CONSOLIDATED ANNUAL ACCOUNTS
To the shareholders of Duro Felguera, S.A.
1. We have audited the consolidated annual accounts of Duro Felguera, S.A. (parent company) and subsidiaries (the Group), consisting of the consolidated balance sheet at December 31, 2005, the consolidated income statement, the consolidated cash flow statement, the consolidated statement of changes in equity and notes to the consolidated annual accounts for the year then ended, the preparation of which is the responsibility of the Directors of the Parent Company. Our responsibility is to express an opinion on the consolidated annual accounts taken as a whole, based on the work carried out in accordance with auditing standards generally accepted in Spain, which require the examination, on a test basis, of evidence supporting the consolidated annual accounts and an evaluation of their overall presentation, the accounting principles applied and the estimates made.
2. The accompanying consolidated annual accounts for 2005 are the first which the Group has prepared under the International Financial Reporting Standards adopted by the European Union (IFRS-EU), which generally require that the financial statements present comparative information. In this respect, and in accordance with Spanish Corporate Law, the Parent Company’s Directors have presented for comparative purposes for each item in the consolidated balance sheet, the consolidated income statement, the consolidated cash flow statement, the consolidated statement of changes in equity and the notes to the consolidated annual accounts, the corresponding amounts for the previous year, which have been obtained through the application of IFRS –EU effective at 31 December 2005, as well as the amounts for 2005. Therefore, the figures for the previous year differ from those contained in the consolidated annual accounts for 2004 which were prepared under accounting standards effective in that year. The differences resulting from the application of IFRS-EU to consolidated equity at 1 January and 31 December 2004 and to the consolidated results for 2004 of the Group are set out in note 5 to the accompanying consolidated annual accounts. Our opinion refers solely to the 2005 consolidated 73 annual accounts. On 18 April 2005 we issued our audit report on the consolidated annual accounts for 2004, prepared under accounting standards effective in that year, in which we expressed an unqualified opinion.
3. In our opinion, the accompanying consolidated annual accounts for 2005 present fairly, in all material respects, the financial position of Duro Felguera, S.A. and its subsidiaries as at 31 December 2005 and the consolidated results of their operations, changes in consolidated net equity and consolidated cash flows for the year then ended and contain all the information necessary for their interpretation and comprehension in accordance with International Financial Reporting Standards adopted by the European Union which are consistent with those applied in the preparation of the consolidated financial statements for the previous year which have been included in the consolidated annual accounts for 2005 for comparative purposes.
4. The accompanying consolidated Directors' Report for 2005 contains the information that the Directors of Duro Felguera, S.A. consider relevant to the Consolidated Group's position, the development of its business and other matters and does not form an integral part of the consolidated annual accounts. We have verified that the financial information contained in the aforementioned Directors' Report coincides with that of the financial statements for 2005. Our work as auditors is limited to checking the consolidated Directors' Report within the scope already mentioned in this paragraph and it does not include a review of information other than that obtained from the accounting records of Duro Felguera, S.A. and subsidiary companies.
PricewaterhouseCoopers Auditores, S.L.
Enrique Cagigas Partner - Auditor
(Original in Spanish signed by Enrique Cagigas on 5 April 2006)
DURO FELGUERA 2005 ANNUAL REPORT CONSOLIDATED ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
NOTE
Consolidated balance sheet Consolidated income statement Consolidated statement of income and expense recognised in equity Consolidated cash flow statement Notes to the consolidated annual accounts 1 General information 2 Summary of the main accounting policies applied 2.1 Basis of presentation 2.2 Consolidation principles 2.3 Segment reporting 2.4 Foreign currency transactions 2.5 Property, plant and equipment 2.6 Investment property 2.7 Intangible assets 2.8 Impairment of assets 2.9 Investments 2.10 Inventories 2.11 Trade receivables 2.12 Cash and cash equivalents 2.13 Share capital 2.14 Government grants 2.15 Borrowings 74 2.16 Deferred income tax 2.17 Employee benefits 2.18 Provisions 2.19 Revenue recognition 2.20 Leases 2.21 Construction contracts 2.22 Dividend distribution 2.23 Environment 2.24 Short- and long-term balances 3 Financial risk management 3.1 Financial risk factors 3.2 Accounting for derivatives and hedge transactions 3.3 Fair value estimation 4 Accounting estimates and judgements 4.1 Significant accounting estimates and judgements 5 IFRS transition 5.1 IFRS transition basis 5.2 Reconciliation of IFRS to local GAAP NOTE
6 Segment reporting 7 Property, plant and equipment 8 Investment property 9 Intangible assets 10 Investments in associates 11 Held-to-maturity financial assets 12 Trade and other receivables 13 Inventories 14 Cash and cash equivalents 15 Share capital 16 Reserves 17 Retained earnings and other reserves 18 Interim dividend 19 Minority interests 20 Deferred revenues 21 Borrowings 22 Trade and other payables 23 Deferred income tax 24 Obligations relating to employees 25 Provisions for other liabilities and charges 26 Ordinary revenues 27 Employee benefit expenses 75 28 Operating expenses 29 Other net gains / (losses) 30 Net financial costs 31 Income tax 32 Earnings per share 33 Dividends per share 34 Cash generated from operations 35 Contingencies 36 Commitments 37 Related-party transactions 38 Joint ventures 39 Other information
DURO FELGUERA 2005 ANNUAL REPORT CONSOLIDATED ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
DURO FELGUERA, S.A. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2005 AND 2004 Thousand euros
ASSETS Notes 2005 2004 Property, plant and equipment 7 96,955 95,195 Investment property 8 9,293 9,293 Goodwill - 177 - Intangible assets 9 2,460 2,516 Investments in associates 10 2,876 2,686 Held-to-maturity financial assets 11 3,512 3,509 Available-for-sale financial assets - 523 361 Trade and other receivables 12 5,694 7,667 Deferred tax assets 23 10,185 3,913 NON - CURRENT ASSETS 131,675 125,140 Inventories 13 16,770 22,244 Trade and other receivables 12 232,607 187,847 Financial accounts receivable - 842 763 Financial assets at fair value through profit or loss - 53 116 Cash and cash equivalents 14 100,311 44,203
76 CURRENT ASSETS 350,583 255,173 TOTAL ASSETS 482,258 380,313 LIABILITIES Notes 2005 2004 Share capital 15 44,632 44,632 Share premium - 3,913 3,913 Reserves 16 (448) - Cumulative translation difference - 255 233 Retained earnings and other reserves 17 49,170 29,713 Less: Interim dividend 18 (2,380) - EQUITY ATTRIBUTABLE TO PARENT COMPANY’S EQUITY HOLDERS 95,142 78,491 Minority interests 19 7,609 6,301 EQUITY 102,751 84,792 DEFERRED REVENUES 20 9,833 10,486 Borrowings 21 39,200 34,565 Trade and other payables 22 904 904 Derivative financial instruments - 448 - Deferred tax liabilities 23 9,781 9,981 Obligations in respect of provisions for employees 24 6,633 1,108 77 Provisions for other liabilities and charges 25 945 976 NON-CURRENT LIABILITIES 57,911 47,534 Borrowings 21 28,828 58,951 Trade and other payables 22 258,738 162,121 Current tax liabilities - 730 640 Obligations in respect of provisions for employees 24 6,678 4,639 Provisions 25 16,789 11,150 CURRENT LIABILITIES 311,763 237,501 TOTAL LIABILITIES AND EQUITY 482,258 380,313
The notes on pages 81 to 134 are an integral part of these consolidated annual accounts
DURO FELGUERA 2005 ANNUAL REPORT CONSOLIDATED ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
DURO FELGUERA, S.A. AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENT FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004 Thousand euros
Notes 2005 2004 Ordinary revenues 26 511,194 319,857 Changes in inventories of finished goods and work in progress - (9,858) 1,948 Raw materials and consumables - (322,472) (191,532) Employee benefit expense 27 (94,838) (82,085) Depreciation of PPE and intangible assets - (6,630) (5,555) Operating expenses 28 (60,651) (41,871) Other net gains / (losses) 29 (1,678) 12,619 Operating profit 15,067 13,381 Net financial costs 30 5,616 (3,284) Share of (loss)/profit of associates (113) 50 Profit before taxes 20,570 10,147 Income tax 31 4,335 (2,449) Profit for the year 24,905 7,698 attributable to: Company’s shareholders 23,188 6,691
78 Minority interests 19 1,717 1,007 Earnings per share on profit from continuing activities attributable to Company’s shareholders during the year (expresed in euro per share) - Basic 32 1,55 0,45
The notes on pages 81 to 134 are an integral part of these consolidated annual accounts DURO FELGUERA, S.A. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME AND EXPENSE RECOGNISED IN EQUITY FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004 Thousand euros
Notes 2005 2004
Foreign currency translation differences 22 233 Cash flow hedges 16 (448) - Net loss recognised directly in equity (426) 233 Profit for the year 24,905 7,698 Total revenues recognised for the year 24,479 7,931
Attributable to: - Company’s shareholders 22,762 6,924 - Minority interests 1,717 1,007
79
The notes on pages 81 to 134 are an integral part of these consolidated annual accounts
DURO FELGUERA 2005 ANNUAL REPORT CONSOLIDATED ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
DURO FELGUERA, S.A. AND SUBSIDIARIES CONSOLIDATED CASH FLOW STATEMENT FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004 Thousand euros Year ended 31 December
Notes 2005 2004 Cash flows from operating activities Cash generated from operations 34 96,642 (4,781) Interest paid (1,967) (2,041) Taxes paid (2,234) (2,225) Net cash generated from/(used in) operating activities 92,441 (9,047) Cash flows from investing activities Purchases of property, plant and equipment 7 (9,188) (14,033) Proceeds from sale of property, plant and equipment 34 1,262 5,173 Purchases of intangible assets 9 (719) (1,003) Other movements in PPE and intangible assets (123) (7) Net movement from additions and disposals of grants for non-current assets 20 383 4,417 Other additions to deferred revenues from investing activities 75 704 Investments in associates 10 (303) - Interest received 1,886 1,138 Other movements from investing activities - 175 80 Net cash generated from/(used in) investing activities (6,727) (3,436) Cash flows from financing activities Income from settlement of long-term receivables 1,973 - Proceeds from borrowings (25,488) 35,775 Other movements from financing activities 268 - Dividends paid to the Company’s shareholders 33 (5,950) - Dividends paid to minority interests (409) - Net cash generated from/(used in) investing activities (29,606) 35,775 Net (decrease)/increase in cash and cash equivalents Cash and bank overdrafts at beginning of the year 44,203 20,911 Cash and bank overdrafts at end of the year 100,311 44,203
The notes on pages 81 to 134 are an integral part of these consolidated annual accounts NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS FOR 2005 AND 2004
1. GENERAL INFORMATION
Duro Felguera, S.A. (the Parent company) was incorporated as a Spanish public limited company ("sociedad anónima") for an indefinite period on 22 April 1900 under the name Sociedad Metalú'fargica Duro-Felguera, S.A. On 25 June 1991 its name was changed to Grupo Duro Felguera, S.A. and on 26 April 2001 the current name was adopted.
According to the Company’s objects, it may operate in the metal, boiler making, smelting and capital goods industries, engaging in construction, manufacturing and fitting work under turnkey contracts, as well as marketing, distribution, construction and installation services involving energy obtained from solid and liquid fuels. The Company’s objects also cover the promotion, formation, extension, development and modernisation of industrial, commercial and service companies in Spain and abroad, provided such companies are engaged in any of the activities listed above. It may also acquire and hold fixed or variable income securities issued by all kinds of entities.
In 1991 Duro Felguera, S.A. completed a process whereby certain divisions engaged in activities relating to engineering projects, fitting and maintenance of industrial equipment and machinery were transformed into individual trading companies. Duro Felguera, S.A. contributed the human, material and financial resources required to carry on the investee companies’ respective activities. Duro Felguera, S.A. transferred the personnel working in each activity and paid in the capital required through contributions in cash and in kind, mainly consisting of buildings, machinery and production equipment. The investee companies operating in the capital goods sector were grouped together in an industrial sub- group led by the wholly owned subsidiary Duro Felguera Plantas Industriales, S.A.
In the final quarter of 2000, the Group carried out further restructuring, grouping together the companies engaged in workshop activities under the subsidiary Duro Felguera Equipos y Montajes, S.A. The engineering companies were grouped together under Duro Felguera Plantas Industriales, S.A. The restructuring process was completed by deciding to execute large orders through Duro Felguera, S.A., in addition to this company’s role as Parent and holding company of the Duro 81 Felguera Group.
For the purposes of preparing the consolidated annual accounts, a group is understood to exist when the parent company has one or more subsidiaries, which are companies that the parent company controls directly or indirectly. The principles applied in the preparation of the Group’s consolidated annual accounts, together with the consolidation scope, are described in note 2.2.
DURO FELGUERA 2005 ANNUAL REPORT CONSOLIDATED ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
Set out below is a list containing information on the Group’s subsidiaries, associates and multi-group companies:
INTEREST
REGISTERED COMPANY % OFFICE ACTIVITY
Fully-consolidated: Duro Felguera Plantas Industriales, S.A. 100% La Felguera Parent company of capital goods and engineering subsidiaries Felguera Melt, S.A. 100% La Felguera Smelting Acervo, S.A. (2) 100% Oviedo Finance Inmobiliaria de Empresas de Langreo, S.A. 100% La Felguera Real estate Forjas y Estampaciones Asturianas, S.A. 100% Llanera Materials for tunnels and mines Felguera Grúas y Almacenaje, S.A. (2) 100% La Felguera Engineering of lifting equipment Felguera Montajes y Mantenimiento, S.A. 100% Langreo Industrial assembly projects Montajes de Maquinaria de Precisión, S.A. 100% Langreo Turbine fitting and maintenance Felguera Revestimientos, S.A. 100% Langreo Refractory linings Técnicas de Entibación, S.A. 100% Llanera Manufacture of shoring materials Felguera Parques y Minas, S.A. 100% La Felguera Engineering of mining equipment Felguera Calderería Pesada, S.A. 100% Gijón Pressurised containers and heavy boiler making Felguera Calderería Pesada Servicios, S.A. (2) 100% Gijón Assembly and design of metallurgical equipment and pressurised containers Felguera Construcciones Mecánicas, S.A. 100% Langreo Manufacture of mechanical equipment Felguera I.H.I., S.A. 60% Madrid Fuel and gas storage equipment Duro Felguera Equipos y Montajes, S.A. (2) 100% Gijón Preparation and execution of all kinds of projects for industrial facilities and equipment in the broadest sense Duro Felguera México, S.A. de C.V. (1) 100% Mexico Industrial project construction and assembly Turbogeneradores de México, S.A. de C.V. (2) 100% Mexico Turbine fitting and maintenance Duro Metalurgia de México, S.A. de C.V. 100% Mexico Trading and industrial activities relating to capital goods Duro Felguera Power, S.A. de C.V. (2) 100% Mexico Fitting and maintenance of boilers and turbo generators for energy industry Duro Felguera do Brasil, Ltda. (2) 100% Brazil Marketing of capital goods and industrial components Equipamientos Construcciones y Montajes, S.A. de C.V. (1) 100% Mexico Industrial project construction and assembly Operacion y Mantenimiento, S.A. (2) 100% Langreo Launch, operation and maintenance of thermal plants Felguera Tecnologías de la Información, S.A. (2) 60% Oviedo Development of management software Proyectos e Ingeniería Pycor, S.A. de C.V. (1) 100% Mexico Engineering Ingeniería Técnica, S.A. de C.V. (1) 100% Mexico Engineering Felguera Rail, S.A. 55% Mieres Manufacture and assembly of railway apparatus Turbogeneradores del Perú, S.A.C. 100% Peru Installation of electrical-mechanical equipment in electricity power plants Pontonas del Musel, S.A. (2) 70% Gijón Shipping Proportionately consolidated: UTE Duro Felguera Plantas Industriales-Kalfrisa (2) 50% La Felguera Supply, installation and start-up of a waste incineration furnace UTE Duro Felguera Plantas Industriales-Aceralia (2) 25% Gijón Tinplate line UTE Soto (2) 50% Oviedo Industrial treatments UTE Abbey Etna – S.M. Duro Felguera (2) 48,58% La Felguera Design, supply and fitting of pipeline with advanced rapid change system at Rothrist plant UTE Felguera Fluidos – S.M. Duro Felguera (2) 50% Gijón Water and effluent treatment system for combined cycle 82 power station in Castejón UTE D.F. Plantas Industriales-F. Fluidos (2) 50% Gijón Aboño water plants UTE Felguera TI-Sistemas avanzados de Tecnología (2) 50% Madrid Execution and implementation of an information system to manage shelters for minors UTE Fujitsu España Services-I68 Noroeste-Felguera TI-Dicampus (2) 14% Gijón Construction of platform for entertainment and educational services UTE CT San Roque (2) 50% Madrid Civil engineering project for combined cycle power station UTE CT Besós (2) 50% Madrid Civil engineering project for combined cycle power station UTE CT Castejón (2) 50% Gijón Civil engineering project for combined cycle power station UTE Puertollano (2) 50% Langreo Reconstruction of infrastructure and piping UTE Revamping (2) 50% Oviedo Mechanical fitting and painting in revampings of C.I. Repsol Petróleo (La Coruña) UTE As Pontes (2) 65% Langreo Transformation, review and improvements at Puentes de García Rodríguez thermal power plant UTE ATEFERM (2) 33,33% Langreo Supply and fitting of thermal insulation materials at Sagunto regasification plant UTE DF – TR Barranco II 50% Langreo Turnkey supply of Barranco II combined cycle plant UTE CTCC Puentes 50% Langreo Turnkey supply of Puentes combined cycle plant UTE CTCC Barcelona (2) 50% Madrid Construction of Puerto Barcelona combined cycle power plant UTE FIF Tanque GNL (2) 59% Madrid Turnkey construction of a liquefied natural gas storage tank - Barcelona UTE FIF Tanque TK-3001 (2) 59% Madrid Turnkey construction of a liquefied natural gas storage tank - Barcelona UTE FIF Tanque FB241 GNL (2) 59% Madrid Turnkey construction of a liquefied natural gas storage tank - Barcelona UTE Suministros Ferroviarios 2005 (2) 25% Amurrio Administration of railroad infrastructures UTE Desvios 2005 (2) 25% Amurrio Administration of railroad infrastructures Equity consolidated: Sociedad de Servicios Energéticos Iberoamericanos, S.A. (2) 33,33% Colombia Assembly and maintenance of electricity generation plants Zoreda Internacional, S.A. (2) 40% Gijón Environmental projects Kepler-Mompresa, S.A. de C.V.(2) 50% Mexico Assembly of turbines and civil engineering Secicar, S.A. (2) 29,48% Granada Marketing of fuels Ingeniería de Proyectos Medioambientales,S.A. (2) 50% La Felguera Construction and operation of hydrochloric acid regeneration plants, promotion and sale of regenerated hydrochloric acid and iron oxide MHI-Duro Felguera, S.A. 45% Madrid Engineering, construction and repair of tunnelling machinery Green Fuel Extremadura, S.A. (2) 24% Mérida Manufacture and sale of biodiesel
(1) Companies audited by auditors other than the Parent company’s auditor (2) Companies not audited
These consolidated annual accounts were approved by the Board of Directors on 29 March 2006 and will be approved by the Annual General Meeting on 18 May 2006. The directors do not envisage any significant changes. 2. SUMMARY OF THE MAIN ACCOUNTING POLICIES APPLIED
The main accounting policies adopted when preparing these consolidated annual accounts are described below. These policies have been applied consistently to all years presented unless otherwise stated.
2.1. BASIS OF PRESENTATION
The Group’s consolidated annual accounts at 31 December 2005 have been prepared in accordance with the International Financial Reporting Standards (IFRS) adopted for use in the European Union, approved by the European Commission and effective at 31 December 2005. These are the first consolidated annual accounts prepared under IFRS (see note 5).
Until the year ended 31 December 2004, inclusive, the Group’s consolidated annual accounts were prepared in accordance with Spanish commercial legislation, the General Accounting Plan and Royal Decree 1815/1991, whereby the rules on the preparation of consolidated annual accounts were approved (Generally Accepted Accounting Principles - GAAP). Since these standards differ in some areas from IFRS, Group management has restated the figures for 2004 in order to present comparative information in accordance with IFRS, except for cases specifically mentioned in the main accounting principles.
The preparation of consolidated annual accounts under IFRS requires the use of certain critical accounting estimates. The application of IFRS also requires that management exercise judgement in the process of applying the Company’s accounting policies. Note 4 disclose the areas that require a higher level of judgement or entail greater complexity, and the areas where assumptions and estimates are significant for the consolidated annual accounts.
2.2. CONSOLIDATION PRINCIPLES a I SUBSIDIARIES
Subsidiaries are all entities (including special-purpose companies) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The 83 existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interests. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement.
Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
Note 1 sets out the particulars of the subsidiaries included in the consolidation scope.
The annual accounts/financial statements used in the consolidation process all refer to the financial year ended 31 December.
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b I ASSOCIATES
Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for by the equity method of accounting and are initially recognised at cost. The Group’s investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition.
The Group’s share of its associates’ post-acquisition profits or losses is recognised in the income statement and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group’s shares of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.
Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group.
Note 1 sets out the particulars of the associates included in the consolidation scope.
The annual accounts/financial statements used in the consolidation process all refer to the financial year ended 31 December.
c I JOINT VENTURES
A joint venture (“Unión Temporal de Empresas” - UTE) is a system in which entrepreneurs collaborate for a specified, fixed or undetermined period to carry out or execute a work of construction, service or supply.
The joint venture’s balance sheet and income statement items are included in the shareholder’s balance sheet and income 84 statement on a proportionate basis.
The relevant table contains details of each joint venture consolidated using the proportionate method.
The annual accounts/financial statements used in the consolidation process all refer to the financial year ended 31 December. d I CHANGES IN CONSOLIDATION SCOPE
Set out below are the main changes in the scope of consolidation during 2005:
ADDITIONS DISPOSALS
Associates: Green Fuel Extremadura, S.A. -
Joint ventures: UTE DF-TR Barranco II UTE Felguera Parques y Minas- Técnicas Reunidas UTE CT CC Puentes UTE CD Lanzarote UTE CT CC Barcelona UTE CD Ceuta UTE FIF Tanque FB 241 GNL UTE Suministros Ferroviarios 2005 UTE FIF Desvíos 2005 UTE Felguera TI- Sistemas avanzados de Tecnología UTE Fujitsu España Services-I68 Noroeste-Felguera TI-Dicampus
The effect of these changes in the consolidation scope on equity and results is not significant.
2.3. SEGMENT REPORTING
A business segment is a group of assets and transactions the aim of which is to supply products or services subject to risks and returns which differ from those of other business segments. A geographical segment aims to supply products or services in a specific economic environment subject to risks and returns which differ from those of other segments operating in different economic environments (note 6).
2.4. FOREIGN CURRENCY TRANSACTIONS 85 a I FUNCTIONAL AND PRESENTATION CURRENCY
The items included in the annual accounts of each of the Group companies are measured using the currency of the principal economic environment in which the company operates («functional currency»). The consolidated annual accounts are presented in euros, which is the Company’s functional and presentation currency. b I TRANSACTIONS AND BALANCES
Transactions in foreign currency are translated to the functional currency using the exchange rates in force at the transaction dates. Foreign currency gains and losses resulting from the settlement of transactions and translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currency are recognised in the income statement, except when deferred in equity as qualifying cash flow hedges or qualifying net investment hedges.
Translation differences in respect of non-monetary items such as equity instruments at fair value through profit or loss are presented as part of the fair value gain or loss. Translation differences in respect of non-monetary items such as equity instruments classed as available-for-sale financial assets are included in equity in the revaluation reserve.
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c I GROUP COMPANIES
Results and the financial situation of all Group companies (none of which has the currency of a hyperinflationary economy) whose functional currency differs from the presentation currency are translated to the presentation currency as follows:
(i) The assets and liabilities on each balance sheet presented are translated at the closing exchange rate at the balance sheet date;
(ii) The income and expenses in each income statement are translated at the average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates existing at the transaction dates, in which case income and expenses are translated at the rates on the transaction dates); and
(iii) All resulting exchange differences are recognised as a separate component of equity.
On consolidation, any exchange differences resulting from the translation of a net investment in foreign companies and loans and other instruments in foreign currency designated as hedges of those investments are taken to equity. When sold, such exchange differences are recognised in the income statement as part of the profit or loss on the sale.
2.5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recognised at cost less depreciation and cumulative impairment losses, except for land, which is presented net of impairment losses.
Historical cost includes expenses directly attributable to purchases of property, plant and equipment.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset only when it is probable that the future economic benefits associated with the asset will flow to the Group and the cost of the asset may be reliably determined. All other repair and maintenance expenses are charged to the income statement in the year in which 86 they are incurred.
Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate their costs or revalued amounts to their residual values over their estimated useful lives, as follows:
Estimated years of useful life
Buildings 7 to 57 Plant and machinery 4 to 33 Fixtures, fittings, tools and equipment 3 to 33 Other non-current assets 3 to 20 The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (note 2.8).
2.6. INVESTMENT PROPERTY
Investment property consists only of land owned, which is not depreciated, is not occupied by the Group and is held to obtain long-term gains. Investment property is carried at cost.
2.7. INTANGIBLE ASSETS a I COMPUTER SOFTWARE
Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives (four years).
Costs associated with developing or maintaining computer software programs are recognised as an expense when incurred. Costs that are directly associated with the production of identifiable and unique software products controlled by the Group, and that will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include the software development employee costs and an appropriate portion of relevant overheads.
Computer software development costs recognised as assets are amortised over their estimated useful lives (not exceeding four years). b I RESEARCH AND DEVELOPMENT COSTS
Research expenditure is recognised as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when it is probable that the project 87 will be a success considering its commercial and technological feasibility, and costs can be measured reliably. Other development expenditures are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Development costs with a finite useful life that have been capitalised are amortised from the commencement of commercial production of the product on a straight-line basis over the period of its expected benefit, not exceeding five years.
2.8. IMPAIRMENT OF ASSETS
Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped together at the lowest levels for which there are separately identifiable cash flows (cash-generating units).
2.9. INVESTMENTS
The Group classifies its investments in the following categories: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments and available-for-sale financial assets. The classification depends on the purpose for which the assets were acquired. Management determines the classification of its investments at initial recognition and re-evaluates this designation at every reporting date.
DURO FELGUERA 2005 ANNUAL REPORT CONSOLIDATED ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
a I FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
This category has two sub-categories: financial assets held for trading and those designated at fair value through profit or loss at inception. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by management. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if they are either held for trading or are expected to be realised within 12 months of the balance sheet date.
b I LOANS AND RECEIVABLES
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivable. They are included in current assets, except for maturities greater than 12 months after the balance sheet date, which are classified as non-current assets. Loans and receivables are included in trade and other receivables in the balance sheet (note 2.11).
c I HELD-TO-MATURITY INVESTMENTS
Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group’s management has the positive intention and ability to hold to maturity.
d I AVAILABLE-FOR-SALE FINANCIAL ASSETS
Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date.
Investments are initially recognised at cost. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables and held-to-maturity investments are carried 88 at amortised cost using the effective interest method. Realised and unrealised gains and losses arising from changes in the fair value of the financial assets at fair value through profit or loss category are included in the income statement in the period in which they arise. Unrealised gains and losses arising from changes in the fair value of non-monetary securities classified as available-for-sale are recognised in equity.
2.10. INVENTORIES
Raw and auxiliary materials and consumable and replacement materials are stated at the lower of their average acquisition cost and their carrying amount.
Finished goods, semi-finished goods and work-in-progress are stated at their average production cost, which includes the cost of raw materials and other materials consumed, labour and direct and indirect manufacturing expenses. The cost of these inventories is written down to their net realisable value if lower than production cost.
Obsolete and defective items are adjusted, based on estimates, to bring them into line with their potential realisable value. 2.11. TRADE RECEIVABLES
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in the income statement.
2.12. CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet.
2.13. SHARE CAPITAL
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or options, for the acquisition of a business, are included in the cost of acquisition as part of the purchase consideration.
Where any Group company purchases the Company’s equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs (net of income taxes), is deducted from equity attributable to the Company’s equity holders until the shares are redeemed, reissued or sold. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the Company’s equity holders.
2.14. GOVERNMENT GRANTS 89
Grants from the government are recognised at their fair value when there is reasonable assurance that the grant will be received and the Group will comply with all attached conditions.
Government grants relating to costs are deferred and recognised in the income statement over the period necessary to match them with the costs that they are intended to compensate.
Government grants relating to the purchase of property, plant and equipment are included in non-current liabilities as deferred government grants and are credited to the income statement on a straight-line basis over the expected lives of the related assets.
2.15. BORROWINGS
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost and any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.
DURO FELGUERA 2005 ANNUAL REPORT CONSOLIDATED ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
2.16. DEFERRED INCOME TAX
a I CORPORATE INCOME TAX
Corporate income tax expense for the year is calculated based on reported profits before taxes, as increased or decreased for any permanent and/or temporary differences envisaged in tax legislation governing the calculation of the corporate income tax base.
Tax credits and deductions and the tax effect of applying tax-loss carryforwards that have not been capitalised are treated as a reduction in the corporate income tax expense for the year in which they are applied or offset.
Duro Felguera, S.A. and the Spanish subsidiaries in which it has direct or indirect interests of more than 90% are subject to corporate income tax under the rules governing groups of companies. According to these rules, the assessment base is determined based on the consolidated results of Duro Felguera, S.A. and the Spanish subsidiaries.
b I DEFERRED INCOME TAX
Deferred income tax is calculated, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated annual accounts. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.
Tax credits for research and development are recognised when applied for tax purposes, as the deduction is subject to ministerial approval.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except 90 where the timing of the reversal of the temporary differences is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.
2.17. EMPLOYEE BENEFITS
a I COAL VOUCHERS
The Company contracted commitments with certain retired and current personnel, employees of the discontinued coal activity, for the monthly supply of a certain amount of coal. Current employees are also entitled to receive length-of- service awards after 25 and 35 years of service.
The amounts of the yearly charges for coal vouchers are determined based on actuarial studies conducted by an independent actuary and on GRMF-95 mortality tables (adjusted during the working life of the employee to take into account potential disability in accordance with the Ministerial Order of 24 January 1977), technical interest rates of 4% per annum and annual inflation of 3%. Although the tables used should be updated, in view of the small balance in the provision (K¤808 and K¤824 at year-end 2005 and 2004, respectively) no significant changes are envisaged in the event of an update.
b I LENGTH-OF-SERVICE AWARDS
The Collective Bargaining Agreement applicable to certain Group companies provides length-of-service awards for employee remaining in service for 25 and 35 years. These awards have been calculated by means of an actuarial study for 2004, applying the PER2000P mortality table and an interest rate of 3.71% per annum. c I TERMINATION BENEFITS
Termination benefits are payable when employment is terminated before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits that will not be paid within 12 months of the balance sheet date are discounted to their present value. d I PROFIT-SHARING AND BONUS PLANS
The Group recognises a liability and an expense for bonuses and profit-sharing based on a formula that takes into consideration the profit attributable to the Company’s shareholders after certain adjustments. The Group recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation.
2.18. PROVISIONS
Provisions for environmental restoration, restructuring costs and legal claims are recognised when:
(i) The Group has a present legal or constructive obligation as a result of past events;
(ii) It is more likely than not that an outflow of resources will be required to settle the obligation; and
(iii) The amount has been reliably estimated.
Restructuring provisions comprise lease termination penalties and employee termination payments. Provisions are not recognised for future operating losses.
2.19. REVENUE RECOGNITION 91 Ordinary revenues comprise the fair value for the sale of goods and services, net of value added tax, rebates and discounts and after eliminating sales within the Group. Ordinary revenues are recognised as follows: a I SALES OF GOODS
Sales of goods are recognised when a Group entity has delivered products to the customer, the customer has accepted the products and collectibility of the related receivables is reasonably assured. b I SALES OF SERVICES
Sales of services are recognised in the accounting period in which the services are rendered, by reference to the completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided.
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c I INTEREST INCOME
Interest income is recognised using the effective interest method. When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans is recognised either as cash is collected or on a cost-recovery basis as conditions warrant.
d I DIVIDEND INCOME
Dividend income is recognised when the right to receive payment is established.
2.20. LEASES
a I WHERE A GROUP COMPANY IS THE LESSEE
Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are recognised at the lease’s inception at the lower of the fair value of the leased property and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligation, net of finance charges, is included in long-term payables. The interest element of the finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Property, plant and equipment acquired under finance lease are depreciated over the lower of their useful lives and the lease period.
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight- line basis over the period of the lease.
b I WHERE A GROUP COMPANY IS THE LESSOR
92 When assets are leased out under a finance lease, the present value of the lease payments is recognised as a receivable (note 21). The difference between the gross receivable and the present value of the receivable is recognised as a financial return on capital. Lease income is recognised over the term of the lease using the net investment method, which reflects a constant periodic rate of return.
Assets leased to third parties under operating lease contracts are included in property, plant and equipment in the balance sheet. These assets are depreciated over their expected useful lives at rates consistent with those applied to similar assets owned by the Group. Lease income is recognised over the term of the lease.
c I SALE AND LEASE-BACK TRANSACTIONS WHERE THE SELLER IS A GROUP COMPANY
When a sale and lease-back transaction results in a finance lease, the immediate recognition of any excess of the selling amount over the carrying amount of the leased asset will be avoided. This amount is deferred and written off over the term of the lease.
Where the subsequent arrangement is a finance lease, the lessor has used the transaction to provide financing to the Group company, secured by the asset. Consequently, the excess of the selling amount over the carrying amount of the asset should not be treated as a realised profit. This excess is deferred and written off over the term of the lease. When a sale and lease-back transaction results in an operating lease and the transaction has clearly been completed at fair value, any profit shall immediately be recognised. In the event that the selling price is lower than the fair value, the loss is recognised immediately, unless it is offset by future instalments below market prices, in which case the loss is deferred and written off in proportion to the instalments paid during the period in which the asset is expected to remain in use. If the selling price is higher than the fair value, the excess is deferred and written off during the period in which the asset is expected to remain in use.
Where the subsequent arrangement is an operating lease, and both the instalments and the price were determined at fair value, an ordinary sale will have effectively taken place and any results will be immediately recognised.
In operating lease contracts, if the fair value of the asset at the date of sale and lease-back is lower than its carrying amount, the loss derived from the difference will be immediately recognised.
This adjustment is not necessary in the case of finance leases, however, unless the asset is impaired, in which case the carrying amount is written down to its recoverable amount in accordance with IAS 36.
2.21. CONSTRUCTION CONTRACTS
Contract costs are recognised when incurred.
Where the results of a construction contract cannot be reliably estimated, contract revenues are only recognised up to the limit of contract costs incurred that are likely to be recovered.
Where the results of a construction contract may be reliably estimated and the contract is likely to be profitable, contract revenues are recognised over the term of the contract. Where contract costs are likely to exceed total contract revenues, the expected loss is immediately charged to provisions for construction work as an expense.
The Group applies the percentage-of-completion method to determine an appropriate amount to be recognised in a given period. Percentage of completion is determined by reference to the contract costs incurred on the balance sheet date as a proportion of total costs estimated for each contract. Costs incurred during the year in relation to future activities under the contract are excluded from contract costs when calculating percentage of completion. Such costs are presented as inventories, advance payments and other assets, depending on their nature. 93 The Group records in assets the gross amount owed by customers under all contracts in progress for which costs incurred plus profits recognised (less recognised losses) exceed progress billing. Progress billing not yet settled by customers and withholdings are included in trade and other receivables.
The Group records in liabilities the gross amount owed to customers under all contracts in progress for which progress billing exceeds costs incurred plus profits recognised (less recognised losses).
2.22. DIVIDEND DISTRIBUTION
Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s consolidated annual accounts in the period in which the dividends are approved by the Company’s shareholders.
2.23. ENVIRONMENT
The cost of business actions taken to protect and improve the environment is recognised when incurred. Where such costs entail additions of property, plant and equipment to minimise environmental impacts and protect and improve the environment they are capitalised as an increase in the value of non-current assets.
DURO FELGUERA 2005 ANNUAL REPORT CONSOLIDATED ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
2.24. SHORT- AND LONG-TERM BALANCES
Long-term balances under both assets and liabilities are amounts maturing in more than 12 months as from the end of the accounting period.
3. FINANCIAL RISK MANAGEMENT
3.1. FINANCIAL RISK FACTORS
The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest risk and price risk), credit risk, liquidity risk and cash flow interest-rate risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. The Group uses, to a limited extent, derivative financial instruments to hedge certain risk exposures.
Risk management is carried out by a Risk Committee comprising the Chairman of the Board of Directors and the Corporate General Manager, who are advised by the legal counsel and by Finance Management, under policies approved by the Board of Directors. The Risk Committee identifies and evaluates all types of risks. Financial risks are hedged by Financial Management in close cooperation with the Group’s operating units.
a I MARKET RISK
(i) Foreign exchange risk
The Group operates internationally and is therefore exposed to foreign exchange risk arising from currency exposures, primarily with respect to the US dollar, although there is also a lesser degree of exposure to local currencies in projects in emerging countries. In the recent past, the most frequent exposures related to the Mexican peso, Venezuelan bolivar and Peruvian sol. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations.
To manage their foreign exchange risk arising from future commercial transactions, recognised assets and liabilities, the Group entities use forward contracts. Foreign exchange risk arises when future commercial transactions, recognised 94 assets and liabilities are denominated in a currency that is not the Company’s functional currency. Group Treasury, in close cooperation with the Group’s operating units, is responsible for managing the net position in each foreign currency using external forward currency contracts.
For reporting purposes, each subsidiary designates contracts with Group Treasury as fair value hedges or cash flow hedges, as appropriate. External foreign exchange contracts are designated at Group level as hedges of foreign exchange risk on specific assets, liabilities or future transactions, as appropriate.
The Group’s risk management policy is to hedge between 60% and 80% of transactions anticipated in each project for the duration of the project. To this end, a combined technique is applied whereby the highest possible number of contracts relating to the same project are denominated in the same currency (generally dollars in the case of foreign projects). Financing for working capital is obtained in same currency as the collection currency stipulated in the contract. The Group also buys financial hedge instruments.
The Group currently has no significant investments in foreign operations whose net assets are exposed to foreign currency translation risk.
b I CREDIT RISK
The Group has no significant concentrations of credit risk. It has policies in place to ensure that sales of products are made to customers with an appropriate credit history. Derivative counterparties and cash transactions are limited to high-credit-quality financial institutions. The Group has policies that limit the amount of credit exposure to any financial institution. c I LIQUIDITY RISK
Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, Group Treasury aims to maintain flexibility in funding by keeping committed credit lines available. d I CASH FLOW AND FAIR VALUE INTEREST-RATE RISK
As the Group has no significant interest-bearing assets, barring isolated cases, the Group’s revenues and operating cash flows are substantially independent of changes in market interest rates.
The Group’s interest-rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest-rate risk. This risk is not significant as borrowings do not exceed three years because the funding of the Group’s operations is linked to project working capital needs.
The Group’s exposure to interest-rate fluctuations is not significant as there are no long-term structural borrowings and financial products, including loans, are acquired on the basis of project cash flows. When analysing project budgets, cost calculations take into account potential tolerances in respect of interest-rate fluctuations and significant changes in interest rates are mostly passed on to customers. Borrowings are also sporadic since the terms of payment for the Group’s products usually give rise to advance payments that generate cash surpluses on a number of occasions during each project.
3.2. ACCOUNTING FOR DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, on the nature of the item being hedged. The Group designates certain derivatives as either:
(i) Hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge); (ii) Hedges of forecast transactions (cash flow hedges); or (iii) Hedges of net investments in foreign operations. 95
The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in the fair values or cash flows of hedged items.
As explained above, the company ensures that no more than 20% of the value of its contracts remains unhedged. With this aim, a combined technique is applied:
- The highest possible number of contracts are denominated in the project currency. - Working capital for each project is funded in the project currency. - Derivative financial instruments are acquired for the amount not hedged as described above, in accordance with the following policy: for collections and payments due within three months, foreign exchange fluctuation insurance or forwards are acquired; for transactions to be effected in between three and twelve months, zero-premium tunnels are usually contracted.
Movements in the hedging reserve in shareholders’ equity are shown in note 16.
DURO FELGUERA 2005 ANNUAL REPORT CONSOLIDATED ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
a I FAIR VALUE HEDGE
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.
b I CASH FLOW HEDGE
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in the income statement.
Amounts accumulated in equity are recycled in the income statement in the period when the hedged item will affect profit or loss (for instance, when the forecast sale that is hedged takes place). However, when the forecast transaction that is hedged results in the recognition of a non-financial asset (for example, inventory) or a liability, the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset or liability.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement. However, when a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement.
c I NET INVESTMENT HEDGE
Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in equity; the gain or loss relating to the ineffective portion is recognised immediately in the income statement.
Gains and losses accumulated in equity are included in the income statement when the foreign operation is disposed of.
d I DERIVATIVES THAT DO NOT QUALIFY FOR HEDGE ACCOUNTING 96 Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognised immediately in the income statement.
3.3. FAIR VALUE ESTIMATION
The fair value of financial instruments traded in active markets (such as publicly traded derivatives, and trading and available-for-sale securities) is based on quoted market prices at the balance sheet date. The market price used for financial assets held by the Group is the current bid price; the appropriate market price for financial liabilities is the current ask price.
The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date. Market prices for similar instruments are used for long-term debt. Other techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining financial instruments. The fair value of interest- rate swaps is calculated as the present value of the estimated future cash flows. The fair value of forward foreign exchange contracts is determined using forward exchange market rates at the balance sheet date.
The nominal value less estimated credit adjustments of trade receivables and payables is assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. 4. ACCOUNTING ESTIMATES AND JUDGEMENTS
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
4.1 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The Group makes estimates and judgements concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and judgements that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. a I WARRANTY CLAIMS
The Group offers warranties of between one and three years for its projects, mainly in the turnkey project line of business. Management estimates the related provision for future warranty claims based on historical warranty claim information, as well as recent trends that might suggest that past cost information may differ from future claims.
Factors that could impact the estimated claim information include the Group’s experience, the quality of project execution and the counter-guarantees for work performed by collaborating companies. b I LEGAL CLAIMS
The Group records the necessary provisions, on the basis of estimates made by its legal advisors, for foreseeable cash outflows that could arise from legal claims, which are updated where more than one year is expected to elapse. c I RECOGNITION OF TAX ASSETS
The Group has capitalised the tax losses recorded at December 2005.
Exceptionally, in 2003, the Group posted losses and the receipt of significant orders generating profit expectations was not confirmed until well after the start of 2004, the first profits having been recorded in 2005. 97 The backlog at the year end ( 990 million) and the resulting profits generated led the Group to study the amount of tax losses to be recovered in the coming three years, until the figure recorded in these annual accounts is reached.
5. IFRS TRANSITION
5.1 IFRS TRANSITION BASIS
5.1.1. APPLICATION OF IFRS 1
The consolidated annual accounts at 31 December 2005 are the first consolidated annual accounts prepared under IFRS and therefore the Group has applied IFRS 1.
The IFRS transition date in Duro Felguera, S.A. is 1 January 2004. The Group prepared its opening balance sheet in accordance with IFRS at that date.
In the preparation of these first consolidated annual accounts under IFRS 1, the Group has applied all mandatory exceptions and some of the optional exemptions to the retrospective application of IFRS.
DURO FELGUERA 2005 ANNUAL REPORT CONSOLIDATED ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
5.1.2 EXEMPTIONS TO RETROSPECTIVE APPLICATION SELECTED BY THE GROUP
Duro Felguera, S.A. has opted to apply the following exemptions to the full retrospective application of IFRS:
a I FAIR VALUE AS AN ATTRIBUTED COST
Duro Felguera, S.A. has opted to measure certain property, plant and equipment at fair value at 1 January 2004. The application of this exemption is described in note 5.2.2.(a).
b I CUMULATIVE TRANSLATION DIFFERENCES
Duro Felguera, S.A. has opted to measure cumulative translation differences arising prior to 1 January 2004 at zero. This exemption has been applied to all the subsidiaries in compliance with IFRS 1. The application of the exemption is explained in note 5.2.2.(h).
c I RESTATEMENT OF COMPARATIVES UNDER IAS 32 AND IAS 39
The Group has opted to apply IAS 32 and IAS 39 for derivatives and financial assets and liabilities as from the transition date.
5.2 RECONCILIATION OF IFRS TO LOCAL GAAP
The following reconciliations quantify the impact of the transition to IFRS. The first reconciliation provides an overview of the impact on equity of the transition at 1 January 2004 and 31 December 2004. The following three reconciliations include details of the effect of the transition on:
- Consolidated equity at 1 January 2004 (Note 5.2.2.) - Consolidated equity at 31 December 2004 (Note 5.2.3.) - Consolidated results for the year ended 31 December 2004 (Note 5.2.4.)
5.2.1. SUMMARY OF EQUITY ADJUSTMENTS 98 Thousand euros 01.01.2004 31.12.2004
Equity as per GAAP 53,268 60,261
Restatement of carrying amounts of certain PPE to their fair values under IFRS 1 27,948 27,948 Write-off of gains generated in preceding point - (56) Write-off of formation expenses (251) (205) Recognition of employee length-of-service benefits (283) (284) Restatement of debt payable to minority shareholders of an investee company under commitment acquired to buy their shares 322 587 Write-off of goodwill (17) (5) Write-off of deferred exchange gains 57 28 Write-off of negative consolidation difference 27 27 Adjustment to deferred taxes (35% of previous equity adjustments) (9,722) (9,810) Adjustment to minority interests 5,294 6,301
Total equity as per GAAP 76,643 84,792 5.2.2. RECONCILIATION OF EQUITY AT 1 JANUARY 2004
Thousand euros Effect of transition Note GAAP to IFRS IFRS ASSETS Non-current assets Property, plant and equipment a 54,038 32,095 86,133 Investment property a 0 9,451 9,451 Goodwill b 17 (17) 0 Intangible assets c 10,077 (7,875) 2,202 Investments in associates 2,636 - 2,636 Held-to-maturity financial assets 3,534 - 3,534 Available-for-sale financial assets 358 - 358 Trade and other receivables 7,753 - 7,753 Deferred tax assets d 3,337 149 3,486 81,750 33,803 115,553
Current assets Inventories e 24,909 (12,804) 12,105 Trade and other receivables f 139,352 4,318 143,670 Financial accounts receivable 865 - 865 Financial assets at fair value through profit or loss 106 - 106 Cash and cash equivalents 20,991 - 20,991 186,223 (8,486) 177,737
TOTAL ASSETS 267,973 25,317 293,290 99
DURO FELGUERA 2005 ANNUAL REPORT CONSOLIDATED ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
Thousand euros Effect of transition Note GAAP to IFRS IFRS EQUITY Capital and reserves attributable to shareholders Share capital 44,632 - 44,632 Share premium account 3,913 - 3,913 Cumulative translation difference h (488) 488 - Retained earnings and other reserves g,i 5,211 17,593 22,804 53,268 18,081 71,349
Minority interests 7,105 (1,811) 5,294
TOTAL EQUITY 60,373 16,270 76,643
Negative consolidation difference i 27 (27) 0
LIABILITIES Non-current liabilities Deferred revenues i 6,321 (57) 6,264 Borrowings j 14,950 7,463 22,413 Deferred tax liabilities k 0 9,862 9,862 Trade and other payables 906 - 906 Obligations in respect of provisions for employees l 1,072 283 1,355 Provisions for other liabilities and charges 760 - 760 24,009 17,551 41,560 100 Current liabilities Trade and other payables m 132,407 (7,277) 125, 130 Current tax liabilities 436 - 436 Financial liabilities - - - Obligations in respect of provisions for employees 5,226 - 5,226 Provisions m 10,643 (1,200) 9,443 Borrowings 34,852 - 34,852 183,564 (8,477) 175,087
TOTAL LIABILITIES 207,573 9,074 216,647
LIABILITIES AND EQUITY 267,973 25,317 293,290 EXPLANATION OF THE EFFECT OF THE TRANSITION TO IFRS
Set out below is an explanation of the most significant adjustments included in the balance sheet and income statement: a I PROPERTY, PLANT AND EQUIPMENT
Land has been selectively restated on the basis of valuations by an independent third party, in accordance with IFRS1. The gross restatement is analysed below:
Thousand euros - Land and plots 25,579 - Buildings 2,369 Transfer of assets acquired under finance leases 7,481 Inclusion of residual value of buildings due to sale and lease-back transaction 6,000 Other adjustments 117 Subtotal 41,546 Transfer of land and plots to Investment property (9,451) Total effect 32,095 b I WRITE-OFF OF GOODWILL FROM THE ASSOCIATE SECICAR
(See note i) c I INTANGIBLE ASSETS Thousand euros
Transfer of assets acquired under finance leases (7,481) Write-off of formation expenses (see note i) (251) 101 Write-off of deferred expenses (143)
Total effect (7,875) d I DEFERRED TAX ASSETS Thousand euros From write-off of formation expenses 88 From write-off of goodwill 6 From inclusion of length-of-service benefits 99
Subtotal 193
Transfer to short-term (44)
Total effect 149
DURO FELGUERA 2005 ANNUAL REPORT CONSOLIDATED ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
e I INVENTORIES
In accordance with IAS 11: Thousand euros Reclassification of work in progress: - Against advance payments from customers (8,530) - As work completed pending certification (4,274)
Total effect (12,804)
f I TRADE AND OTHER RECEIVABLES Thousand euros Reclassification of work completed pending certification 4,274 Deferred tax assets 44
Total effect 4,318
g I OTHER RESERVES Thousand euros Selective restatements of non-current assets 27,948 Tax effect (9,782)
Total effect 18,166
h I CUMULATIVE TRANSLATION ADJUSTMENT 102 This item relates to the inclusion in reserves of cumulative translation differences arising at the transition date from Mexican subsidiaries.
i I RETAINED EARNINGS
Breakdown of adjustments and reclassifications: Thousand euros Write-off of exchange gains in deferred revenues 57 Inclusion of actuarial provision for length-of-service benefits (note l) (283) Write-off of formation expenses (note c) (251) Write-off of goodwill (note b) (17) Restatement of debt payable to minority shareholders (note j) 322
Subtotal (172)
Prior tax effect 60 Transfer of translation adjustment (488) Transfer of negative consolidation difference 27
Total effect (573) j I BORROWINGS Thousand euros Inclusion of financial debt from sale and lease-back transaction 6,000 Transfer from minority interests to restated financial debt of commitment to purchase shares from minority shareholders at their carrying amount, expiring on 10.01.09 1,489 Write-off of long-term interest payable under finance leases (26)
Total effect 7,463
k I DEFERRED TAX LIABILITIES Thousand euros Gains on land, plots and buildings 9,782 Effect of restatement on debt with minority shareholders 113 Deferred exchange differences 20
Subtotal 9,915
Other (53)
Total effect 9,862 l I OBLIGATIONS IN RESPECT OF PROVISIONS FOR EMPLOYEES
Inclusion of the restated provision for employee length-of-service benefits. 103 m I TRADE AND OTHER PAYABLES Thousand euros Application of advance payments from customers to work in progress (8,530) Reclassification of invoices pending receipt 1,200 Deferred taxes from liabilities to short-term 53
Total effect (7,277)
DURO FELGUERA 2005 ANNUAL REPORT CONSOLIDATED ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
5.2.3. RECONCILIATION OF EQUITY AT 31 DECEMBER 2004
Thousand euros Effect of transition GAAP to IFRS IFRS ASSETS Non-current assets Property, plant and equipment 62,899 32,296 95,195 Investment property 0 9,293 9,293 Goodwill 5 (5) 0 Intangible assets 9,722 (7,206) 2,516 Investments in associates 2,686 - 2,686 Held-to-maturity financial assets 3,509 - 3,509 Available-for-sale financial assets 361 - 361 Trade and other receivables 7,667 - 7,667 Deferred tax assets 3,790 123 3,913 90,639 34,501 125,140 Current assets Inventories 30,621 (8,377) 22,244 Trade and other receivables 185,901 1,946 187,847 Financial accounts receivable 763 - 763 Financial assets at fair value through profit or loss 116 - 116 Cash and cash equivalents 44,203 - 44,203 261,604 (6,431) 255,173
104 TOTAL ASSETS 352,243 28,070 380,313 Thousand euros Effect of transition GAAP to IFRS IFRS EQUITY Capital and reserves attributable to shareholders Share capital 44,632 - 44,632 Share premium account 3,913 - 3,913 Other reserves - - - Cumulative translation difference (255) 488 233 Retained earnings and other reserves (see 5.2.4.) 11,971 17,742 29,713 60,261 18,230 78,491 Minority interests 8,100 (1,799) 6,301 TOTAL EQUITY 68,361 16,431 84,792 Negative consolidation difference 27 (27) 0
LIABILITIES Non-current liabilities Deferred revenues 10,514 (28) 10,486 Borrowings 26,724 7,841 34,565 Deferred tax liabilities 49 9,932 9,981 Trade and other payables 904 - 904 Obligations in respect of employee benefits 824 284 1,108 105 Provisions for other liabilities and charges 976 - 976 39,991 18,029 58,020 Current liabilities Trade and other payables 167,351 (5,230) 162,121 Current tax liabilities 640 - 640 Financial liabilities - - - Obligations in respect of provisions for employees 4,639 - 4,639 Provisions 12,350 (1,200) 11,150 Borrowings 58,884 67 58,951 243,864 (6,363) 237,501 TOTAL LIABILITIES 283,855 11,666 295,521
LIABILITIES AND EQUITY 352,243 28,070 380,313
DURO FELGUERA 2005 ANNUAL REPORT CONSOLIDATED ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
5.2.4. RECONCILIATION OF THE INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2004
Thousand euros Effect of transition Note GAAP to IFRS IFRS Net turnover a 323,018 (3,161) 319,857 Change in inventories of finished goods and work in progress a (1,213) 3,161 1,948 Raw materials and consumables (191,532) - (191,532) Employee benefit expenses (82,084) (1) (82,085) Depreciation/amortisation of PPE and intangible assets b (5,574) 19 (5,555) Operating expenses c (41,854) (17) (41,871) Other gains or losses (net) 12,619 - 12,619
OPERATING PROFIT/(LOSS) 13,380 1 13,381
Financial costs (net) d (3,197) (87) (3,284) Share of profit/(loss) of associates 50 - 50
PROFIT/(LOSS) BEFORE TAX FROM 10,233 (86) 10,147 CONTINUING ACTIVITIES
Income tax e (2,478) 29 (2,449)
PROFIT/(LOSS) FOR THE YEAR FROM CONTINUING ACTIVITIES 7,755 (57) 7,698
106 Result after tax from discontinued activities (net)
PROFIT/(LOSS) FOR THE YEAR 7,755 (57) 7,698
Minority interests (995) (12) (1,007)
PROFIT/(LOSS) ATTRIBUTABLE TO PARENT COMPANY’S EQUITY HOLDERS 6,760 (69) 6,691 EXPLANATION OF THE EFFECT OF THE TRANSITION TO IFRS ON THE INCOME STATEMENT a I NET TURNOVER
This caption relates to the difference between the opening and closing values of work in progress classified as work completed pending certification, in accordance with IAS 11. b I DEPRECIATION/AMORTISATION Thousand euros Write-off of amortisation of start-up expenses 113 Write-off of amortisation of goodwill 12 Amortisation of capital gains on buildings (56) Transfer of contract hire (“renting”) instalments classified as assets (note c)) (50)
Total effect 19 c I OTHER OPERATING CHARGES Thousand euros Transfer of contract hire instalments to asset depreciation account 50 Write-off of additions to start-up expenses (67)
Total effect (17)
d I FINANCIAL COSTS Thousand euros Financial costs of restated debt payable to minority shareholders (58) 107 Net unrealised exchange gains 31/12/03 and 31/12/04 (29)
Total effect (87)
e I INCOME TAX
The tax effect of the above-mentioned adjustments.
DURO FELGUERA 2005 ANNUAL REPORT CONSOLIDATED ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
6. SEGMENT REPORTING
The Group has evolved in recent years from a typically industrial, manufacturing business to one based mainly on services and has progressively sold its manufacturing assets.
The remaining manufacturing assets form the business segment referred to as “Manufacturing”, consisting of four workshops. This business operates in the railway sector, manufacturing equipment for tunnels, tunnelling machines and equipment for research laboratories.
A second business segment comprises ancillary services for industry. These include detail engineering, fitting, operation and maintenance of industrial plants.
However, the majority of the Group’s activities are concentrated in the segment referred to as turnkey project management and supply. The Group’s products integrate basic engineering, detail engineering, civil engineering, equipment supply, assembly, commissioning and financing of complex facilities.
The main projects undertaken in this business segment entail the construction of power plants, mineral fleet facilities and fuel storage. Despite the diversity of the Group’s specialised areas, the types of returns and risks are similar in projects of this kind.
The Group has the capacity to operate internationally and, in fact, some of its contracts relate to foreign projects. Nonetheless, in 2005, particularly, a high percentage of the Group’s activities took place in Spain and, despite the large number of foreign contracts secured, no other geographical area was sufficiently significant or generated different risks to require separate treatment from the activities carried out in Spain. Consequently, no information is provided on secondary geographical segments.
108 Segment-level results for the year ended 31 December 2004 are as follows:
Thousand euros Integrated Manufacture project Ancillary of capital management services goods Unallocated Group Total gross segment sales 200,788 56,474 82,097 4,648 344,007 Inter-segment sales (443) (17,006) (3,490) (3,211) (24,150) Sales 200,345 39,468 78,607 1,437 319,857
Amortisation/Depreciation (1,897) (194) (3,135) (329) (5,555) Operating results 13,131 5,720 (5,475) 5 13,381 Exchange differences (2,817) (1) 367 70 (2,381) EBITDA 12,211 5,913 (1,973) 404 16,555
Segment-level results for the year ended 31 December 2005 are as follows:
Thousand euros Integrated Manufacture project Ancillary of capital management services goods Unallocated Group Total gross segment sales 343,452 68,001 121,554 4,517 537,524 109 Inter-segment sales (221) (21,823) (2,266) (2,020) (26,330) Sales 343,231 46,178 119,288 2,497 511,194
Amortisation/Depreciation (2,329) (197) (3,776) (328) (6,630) Operating results 21,237 7,882 (7,036) (7,016) 15,067 Exchange differences 5,508 0 306 (117) 5,697 EBITDA 29,074 8,079 (2,954) (6,805) 27,394
Inter-segment transfers or transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties.
DURO FELGUERA 2005 ANNUAL REPORT CONSOLIDATED ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
The segment assets and liabilities at 31 December 2004 and capital expenditure for the year then ended are as follows:
Thousand euros Integrated Manufacture project Ancillary of capital management services goods Unallocated Group Assets 220,505 31,343 137,948 (9,483) 380,313 Liabilities 169,892 25,129 99,773 727 295,521 Capital expenditure 6,916 240 7,862 18 15,036
The segment assets and liabilities at 31 December 2005 and capital expenditure for the year then ended are as follows:
Thousand euros Integrated Manufacture project Ancillary of capital management services goods Unallocated Group Assets 292,481 37,280 140,888 11,609 482,258 Liabilities 227,676 31,431 93,147 27,253 379,507 Capital expenditure 1,434 176 8,184 113 9,907
Segment assets consist primarily of property, plant and equipment, intangible assets, inventories, receivables and operating 110 cash. They exclude deferred taxation.
Segment liabilities comprise operating liabilities and exclude items such as taxation and corporate borrowings and related hedging derivatives.
Capital expenditure comprises additions to property, plant and equipment (note 7) and intangible assets (note 10). 7. PROPERTY, PLANT AND EQUIPMENT
Set out below is a breakdown of property, plant and equipment showing movements during 2004 and 2005:
2004 Thousand euros
Land Fixtures, fittings, In course and Plant and tools and and on Other non- buildings machinery equipment account current assets Total COST Opening balance 53,622 36,046 13,323 8,250 6,014 117,255 Additions 85 998 615 11,448 887 14,033 Disposals (136) (378) (982) - (1,511) (3,007) Transfers 334 771 (400) (1,105) 400 - Closing balance 53,905 37,437 12,556 18,593 5,790 128,281 DEPRECIATION Opening balance (5,444) (14,158) (6,961) - (4,083) (30,646) Appropriations (520) (2,981) (904) - (468) (4,873) Disposals 20 350 766 - 1,297 2,433 Transfers - - 165 - (165) - Closing balance (5,944) (16,789) (6,934) - (3,419) (33,086) CARRYING AMOUNT 111 Opening balance 48,178 21,888 6,362 8,250 1,931 86,609 Closing balance 47,961 20,648 5,622 18,593 2,371 95,195
DURO FELGUERA 2005 ANNUAL REPORT CONSOLIDATED ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
2005 Thousand euros Fixtures, Land fittings, In course and Plant and tools and and on Other non- buildings machinery equipment account current assets Total COST Opening balance 53,905 37,437 12,556 18,593 5,790 128,281 Additions 1,552 2,387 443 4,308 498 9,188 Disposals (1,327) (422) (113) (4) (319) (2,185) Transfers 14,044 7,933 579 (22,505) (4) 47 Other - (123) - - - (123) Closing balance 68,174 47,212 13,465 392 5,965 135,208 DEPRECIATION Opening balance (5,944) (16,789) (6,934) - (3,419) (33,086) Appropriations (1,076) (3,299) (968) - (522) (5,865) Disposals 67 246 110 - 287 710 Other - - - - (12) (12) Closing balance (6,953) (19,842) (7,792) - (3,666) (38,253) CARRYING AMOUNT Opening balance 47,961 20,648 5,622 18,593 2,371 95,195 Closing balance 61,221 27,370 5,673 392 2,299 96,955 112
a I OWN WORK CAPITALISED
In 2005 the Company capitalised labour costs and sundry supplies in respect of work performed on its own PPE totalling K¤ 1,983 (note 29), as compared with K 6,993 in 2004 (note 29).
b I PROPERTY, PLANT AND EQUIPMENT SUBJECT TO GUARANTEES
Mortgage debts totalling K¤ 4,000 at 31 December 2005 (2004, K¤ 3,000) are secured by property, plant and equipment.
c I INSURANCE
The consolidated Group has taken out a number of insurance policies to cover risks relating to property, plant and equipment. The coverage provided by these policies is considered to be sufficient. d I FINANCE LEASES Land, machinery and other PPE include the following finance leases in which the Group is the lessee:
Thousand euros 2005 2004 Capitalised finance lease cost 9,381 9,377 Accumulated depreciation (3,358) (2,444) Carrying amount 6,023 6,933 e I OPERATING LEASES
Plant includes two facilities leased to third parties under operating leases:
Thousand euros 2005 2004 Capitalised finance lease cost 21,795 21,309 Accumulated depreciation (3,841) (2,444) Carrying amount 17,954 18,865
Lease income totalling K¤ 4,452 was recognised in the income statement in 2005 (2004: K 2,686).
8. INVESTMENT PROPERTY
Set out below is an analysis of investment property showing movements in 2005 and 2004: 113
Thousand euros 2005 2004 At beginning of the year 9,293 9,451 Property sold - (158) At end of the year 9,293 9,293
Investment property is carried at historical cost and relates entirely to land, most of which is located in the municipality of Langreo (Asturias), having a total plot area of 524,434 square metres. Of this total, 462,385 square metres relate to 20 plots classed as rural land, at different locations in the municipality. The remaining 62,049 square metres relate to plots classed as industrial land.
At year-end 2004, investment property was carried at the market value calculated by an independent third party on 31 December 2003, as all investment property was included in the assets selected for restatement at the initial conversion date, under the exemption provided by IFRS 1. The Group considered, given the nature of the assets, that their market value had not changed significantly at 31 December 2004 and therefore no new valuations were commissioned.
At year-end 2005, the Company commissioned new valuations of the industrial land by an independent third party, as the Group’s directors consider that the value of the rural land has not changed. The market value and carrying amount of the industrial land at 31 December 2005 are K¤ 6,342 and K¤ 5,944, respectively.
DURO FELGUERA 2005 ANNUAL REPORT CONSOLIDATED ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
9. INTANGIBLE ASSETS
Set out below is an analysis of the main intangible asset classes showing movements in assets generated internally and other intangible assets:
2004 Thousand euros
Development Computer and innovation software Other Pre-payments Total COST Opening balance 3,327 3,110 429 197 7,063 Additions 855 148 - - 1,003 Disposals (4) (203) (77) (83) (367) Transfers - 82 - - 82 Closing balance 4,178 3,137 352 114 7,781 AMORTISATION Opening balance (2,317) (2,399) (145) - (4,861) Appropriations (379) (275) (28) - (682) Disposals 5 196 77 - 278 Closing balance (2,691) (2,478) (96) - (5,265) CARRYING AMOUNT Opening balance 1,010 711 284 197 2,202 114 Closing balance 1,487 659 256 114 2,516 2005 Thousand euros
Development Computer Brands and and innovation software licences Pre-payments Total COST Opening balance 4,178 3,137 352 114 7,781 Additions 507 212 - - 719 Disposals - (13) - - (13) Transfers - 114 - (114) - Closing balance 4,685 3,450 352 - 8,487 AMORTISATION Opening balance (2,691) (2,478) (96) - (5,265) Appropriations (483) (260) (22) - (765) Disposals - 3 - - 3 Closing balance (3,174) (2,735) (118) - (6,027) CARRYING AMOUNT Opening balance 1,487 659 256 114 2,516 115 Closing balance 1,511 715 234 - 2,460
10. INVESTMENTS IN ASSOCIATES Thousand euros 2005 2004 Opening balance 2,686 2,636 Acquisitions 303 - Share of profit/(loss) (113) 50 Closing balance 2,876 2,686
DURO FELGUERA 2005 ANNUAL REPORT CONSOLIDATED ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
The Group’s interest in its principal associates, all of which are unlisted, is as follows:
Thousand euros
Country of % Name incorporation Assets Liabilities Interest 2004
• Zoreda Internacional, S.A. Spain 51 - 32% • Kepler-Mompresa, S.A. Spain (*) (*) 50% • Sociedad de Servicios Energéticos Iberioamericanos, S.A. Spain (*) (*) 15% • Ingeniería y Proyectos Medioambientales, S.A. Spain 5,133 4,718 50% • MHI-Duro Felguera, S.A. Spain 22,784 19,184 45% • Secicar, S.A. Spain 19,355 16,647 29.48%
2005
• Zoreda Internacional, S.A. Spain 51 - 32% • Kepler-Mompresa, S.A. Spain (*) (*) 50% • Sociedad de Servicios Energéticos Iberioamericanos, S.A. Spain (*) (*) 15% • Ingeniería y Proyectos Medioambientales, S.A. Spain 3,998 3,552 50% • MHI-Duro Felguera, S.A. Spain 34,911 30,918 45% • Secicar, S.A. Spain 32,979 31,212 29.48% • Green Fuel Extremadura, S.A. Spain 1,368 104 24%
(*) Dormant companies
116 11. HELD-TO-MATURITY FINANCIAL ASSETS
The balance in this caption at 31 December 2005 and 2004 relates to a restricted fixed-term deposit of K 2,556 securing compliance with obligations assumed by the Parent company under the fixed-asset sale and lease-back agreement concluded on 28 December 1998, which includes an option for the buyer to sell the assets (note 20).
It also includes the sum of K¤ 696 for the provisional enforcement of a court ruling. In 2001 the Company became aware of a lawsuit filed against it with respect to completed work. On 28 February 2003, Court of First Instance No. 1 in Madrid ruled against the Company and awarded K¤ 537 plus legal interest accrued up to the date of payment. An appeal was filed and therefore the Company put K¤ 696 in escrow at the Court, as recognised at 31 December 2005 and 2004 under Long-term deposits. At 31 December 2005 and 2004 the Company records a provision of K¤ 696 in Other provisions.
The remaining held-to-maturity financial assets amount to K¤ 260 and K¤ 257 at 31 December 2005 and 2004. 12. TRADE AND OTHER RECEIVABLES Thousand euros 2005 2004 Trade receivables 166,052 113,338 Less: Provision for impairment of trade receivables (1,552) (1,319) Work completed pending certification 38,082 49,609 Other receivables 26,157 30,211 Less: Provision for impairment of other receivables (198) (198) Pre-payments 156 161 Receivables from related parties (note 37) 9,458 3,562 Loans granted to related parties 146 150 Total 238,301 195,514 Less: Non-current portion: other receivables (5,694) (7,667) Current portion 232,607 187,847
All trade and other receivables are carried at fair value. Set out below is an analysis of the annual maturity dates of the balances included in Other receivables:
Maturity date Thousand euros 2006 20,463 2007 135 2008 5,067 2009 55 2010 40 Subsequent years 397 117 26,157 Less current portion (20,463)
Total non-current 5,694
The balances included in non-current receivables relate basically to a debt generated in 2003 as a result of an agreement reached with a partner to liquidate joint ventures. Under this agreement, the joint venture partner recognises a debt of K¤ 6,950 payable to the Company within five years. This amount will be paid in cash or by offsetting the amounts due the partner as a result of certain commercial agreements concluded. It bears interest at a Euribor rate. Should no amount have been offset within three years as from the signing date of the agreement, a cash payment of K¤ 2,333 will be made. Otherwise, the difference between that amount and the sum actually offset will be paid.
There is no concentration of credit risk with respect to trade receivables, as the Group has a large number of customers, internationally dispersed.
DURO FELGUERA 2005 ANNUAL REPORT CONSOLIDATED ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
13. INVENTORIES Thousand euros 2005 2004 Goods purchased for resale 21 7 Materials and Production supplies 7,694 11,202 Work in progress 4,557 6,015 Finished products 903 885 Pre-payments to suppliers 3,595 4,135 16,770 22,244
14. CASH AND CASH EQUIVALENTS Thousand euros 2005 2004 Cash at bank and in hand 50,755 19,289 Short-term bank deposits 49,556 24,914 100,311 44,203
Short-term bank deposits relate to investments of cash surpluses maturing in more than three months. The effective interest rate on short-term bank deposits was the market rate (between 2% and 3% in 2004 and 2005).
15. SHARE CAPITAL
118 At 31 December 2004 the share capital of Duro Felguera, S.A. consisted of 14,877,421 fully-subscribed and paid shares represented by book entries, each with a par value of three euros. All the shares are listed on the Madrid, Barcelona and Bilbao stock exchanges and carry the same voting and dividend rights. There were no movements in share capital or the share premium account in 2005 and 2004.
At 31 December 2005, according to data submitted to the Spanish National Securities Market Commission (CNMV), the following companies hold an interest of 5% or more in the Company:
% Shareholder Interest Inversiones Somió, S.R.L. 16,969% TSK Electrónica y Electricidad, S.A. 15,87% Residencial Vegasol, S.L. 15,865% IMASA, Ingeniería, Montajes y Construcciones, S.A. 9,53% Cartera de Inversiones Melca, S. L. 6,327% Construcciones Termoracama, S.L. 5,297% 16. RESERVES
This caption relates entirely to hedge reserves. The only movement in 2005 was the measurement of the Company’s derivative financial instruments at the year end, totalling K¤ 448. In 2004 these reserves did not exist.
17. RETAINED EARNINGS AND OTHER RESERVES
Movements in this caption are shown below: Thousand euros Reserves in consolidated Parent Revaluation Other companies company’s reserve Royal Parent and effect of legal Decree-Law company first Profit/ (loss) reserve 7/1996 reserves conversion for the year Total At 1 January 2004 (following application of 2003 results) 3,848 958 210 18,006 - 23,022 Profit for the year - - - - 6,691 6,691 At 31 December 2004 3,848 958 210 18,006 6,691 29,713 Distribution of 2004 profit 408 - (61) 2,613 (6,691) (3,731) Profit for the year - - - - 23,188 23,188 At 31 December 2005 4,256 958 149 20,619 23,188 49,170
LEGAL RESERVE
Appropriations to the legal reserve have been made in compliance with Article 214 of the Spanish Companies Act, which stipulates that 10% of the profits for each year must be transferred to this reserve until it represents at least 20% of share capital. 119
The legal reserve is not available for distribution. Should it be used to offset losses in the event of no other reserves being available, it must be replenished out of future profits.
REVALUATION RESERVE ROYAL DECREE-LAW 7/1996
Following the three-year period during which the tax authorities may inspect the balance in the revaluation reserve, the balance may be used, free of tax, to offset prior, current or future losses or to increase capital. As from 1 January 2007 the balance may be taken to freely distributable reserves provided that the monetary capital gain has been realised. The part of the capital gain relating to depreciation that has been recorded in the accounts and capital gains on restated assets which have been transferred or written off is deemed to have been realised. Should the balance in this account be used for any purpose other than those defined by Royal Decree-Law 7/1996, the balance will become taxable.
DURO FELGUERA 2005 ANNUAL REPORT CONSOLIDATED ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
Reserves and retained earnings pertaining to fully-consolidated companies, the distribution of which is subject to legal requirements, relate to: Thousand euros 2005 2004 Legal reserve 15,987 15,307 Revaluation reserves Royal Decree-Law 7/1996 2,593 2,593 18,580 17,900
RESTRICTIONS ON DIVIDEND DISTRIBUTION
The distribution of the reserves described as available for distribution and of profits for the year is, however, subject to the following restriction:
- Dividends may not be distributed if by so doing the balance in reserves is reduced to below aggregate unamortised development and innovation expenses. Consequently, approximately K¤ 1,511 of the balance in distributable reserves is not available for distribution (K¤ 1,487 in 2004).
18. INTERIM DIVIDEND
On 30 November 2005, the Parent company’s Board of Directors resolved to distribute an interim dividend on account of 2005 profits. The gross dividend is 0.16 per share, making a total dividend of K¤ 2,380, payable on 16 December 2005.
In accordance with Article 216 of the Spanish Companies Act, the Directors prepared the following statement reflecting the existence of sufficient liquidity:
Thousand euros Forecast of distributable 2005 profits Projected profits net of taxes at 31.12.05 18,588 120 Estimated distributable 2005 profits 16,729 Interim dividend payable 2,380
Forecast of cash resources for the period 30.11.05 to 30.11.06 Cash at bank and in hand at 30.11.05 3,100 Projected collections 178,169 Projected payments including interim dividend (139,452) Projected cash at bank and in hand at 30.11.06 41,817
19. MINORITY INTERESTS
Movements in Minority interests are as follows:
Thousand euros 2005 2004 Opening balance 6,301 5,294 Profit for the year 1,717 1,007 Dividends (409) - Closing balance 7,609 6,301 The distribution by company is set out below: Thousand euros Company 2005 2004 Felguera IHI, S.A. 7,293 6,032 Felguera Tecnologías de la información, S.A. 153 116 Pontonas del Musel, S.A. 163 153 7,609 6,301
20. DEFERRED REVENUES
The balance in this caption breaks down as follows: Thousand euros 2005 2004 Capital grants 7,966 8,344 Other deferred revenues 1,867 2,142 9,833 10,486 a I CAPITAL GRANTS
In 2005 the Group received capital grants amounting to K¤ 383 (2004, K¤ 4,417). The amount of K¤ 761 was credited to the income statement in 2005 (2004, K¤ 549).
The Group has fulfilled all grant conditions. b I OTHER DEFERRED REVENUES
Other deferred revenues include apportioned gains from the sale and lease-back of certain buildings under a private 121 agreement concluded on 28 December 1998. This operation included a sale option for the buyer. The Company’s directors consider that the option will not be exercised as it is not a market price in view of growth in the property sector.
21. BORROWINGS
Thousand euros 2005 2004 Non-current Bank borrowings 31,202 25,945 Finance lease liabilities 6,715 7,408 Restated debt for commitment to purchase shares from minority shareholders 1,101 1,212 Other borrowings 182 - 39,200 34,565 Current Credit lines utilised 26,247 56,541 Bills discounted pending maturity 1,762 571 Finance lease liabilities 582 1,508 Interest and other payables 237 331 28,828 58,951 Total borrowings 68,028 93,516
DURO FELGUERA 2005 ANNUAL REPORT CONSOLIDATED ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
Average interest rates paid on utilised credit lines in 2005 and 2004 were between Euribor + 0.5 and Euribor +0.9. The average rate on bills discounted pending maturity was 3% in both years.
Non-current borrowings have the following maturities:
Thousand euros 2005 2004 Between 1 and 2 years 17,647 12,713 Between 2 and 5 years 13,309 16,101 More than 5 years 8,244 5,751 39,200 34,565
The Group has the following unused credit lines: Thousand euros 2005 2004 Variable rate: – maturing in less than one year 76,985 53,049 – maturing in more than one year 83,388 33,822 160,373 86,871
a I LEASES
Lease liabilities are effectively secured if the rights to the leased asset revert to the lessor in the event of default.
Thousand euros 2005 2004 Finance lease liabilities, minimum lease payments: 122 Less than 1 year 582 1,508 Between 1 and 5 years 6,715 7,408 More than 5 years - - 7,297 8,916
22. TRADE AND OTHER PAYABLES
Thousand euros 2005 2004 Trade payables 106,176 91,356 Uncalled amounts on shares held 904 904 Payables to related parties (note 37) 4,244 4,537 Other payables 1,973 4,798 Advances received on contracted work 127,022 49,169 Social Security and other taxes 19,323 12,261 259,642 163,025 Non-current portion (904) (904) 258,738 162,121 23. DEFERRED INCOME TAX
Deferred tax assets and liabilities are offset if there is a legally enforceable right to set off current and deferred tax assets and liabilities relating to the same tax authorities. The following amounts have been offset:
Thousand euros 2005 2004 Deferred tax assets: – Deferred tax assets to be recovered in more than 12 months 5,363 2,873 – Deferred tax assets to be recovered within 12 months 4,822 1,040 10,185 3,913 Deferred tax liabilities: – Deferred tax assets to be recovered in more than 12 months (9,746) (9,981) – Deferred tax liabilities to be recovered within 12 months (35) - (9,781) (9,981) 404 (6,068)
The gross movement in deferred income tax is shown below: Thousand euros 2005 2004 Opening balance (6,068) (5,817) Charged to income statement (note 31) 6,627 (251) Transfers (155) - Closing balance 404 (6,068)
Movements during the year in deferred tax assets and liabilities are as follows: 123
Thousand euros Provision for Provisions for obligations relating completion of Deferred tax assets to employees work Tax losses Other Total At 1 January 2004 4,320 - - - 4,320 Charged / (credited) to income statement (407) - - - (407) At 31 December 2004 3,913 - - - 3,913 Charged / (credited) to income statement 1,164 1,962 2,624 522 6,272 At 31 December 2005 5,077 1,962 2,624 522 10,185
Thousand euros
Gains on non-current Asset Deferred tax liabilities asset transactions restatement Other Total At 1 January 2004 - 9,782 80 9,862 Charged / (credited) to income statement - (40) 159 119 At 31 December 2004 - 9,742 239 9,981 Charged / (credited) to income statement 197 (324) (73) (200) At 31 December 2005 197 9,418 166 9,781
DURO FELGUERA 2005 ANNUAL REPORT CONSOLIDATED ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
In 2005 the Group recognised deferred tax assets in respect of tax losses in the amount of K¤ 2,624. The Parent company’s directors have decided to recognise these assets on the basis of business plans that guarantee future taxable profits over a period sufficient to recover the tax credit.
24. OBLIGATIONS RELATING TO EMPLOYEES Thousand euros 2005 2004 Non-current obligations Coal vouchers 808 824 Other obligations relating to employees 5,825 284 6,633 1,108 Current obligations Accrued wages and salaries 4,613 3,372 Profit sharing and bonuses 2,065 1,267 6,678 4,639
a I COAL VOUCHERS
The movement in the liability recognised in the balance sheet is as follows: Thousand euros Current Retired employees employees Total At 1 January 2004 231 841 1,072 Appropriations charged to income statement - 113 113 Payments (6) (123) (129) Reversals credited to income statement (121) (111) (232) 124 At 31 December 2004 104 720 824 Payments - (16) (16) At 31 December 2005 104 704 808
The amount of the annual appropriations for coal vouchers is determined based on actuarial studies conducted by an independent actuary and on GRMF-95 mortality tables (adjusted during the employee’s working life to take into account potential disability in accordance with the Ministerial Order of 24 January 1977), technical interest rates of 4% per annum and annual inflation of 3%. Although updated tables should be applied, no significant changes are expected due to the small balance in the provision.
b I OTHER OBLIGATIONS RELATING TO EMPLOYEES
The movement in the liability recognised in the balance sheet is as follows: Thousand euros At 1 January 2004 - Appropriations charged to income statement 284 At 31 December 2004 284 Appropriations charged to income statement 5,541 At 31 December 2005 5,825 25. PROVISIONS FOR OTHER LIABILITIES AND CHARGES Thousand euros Provision for construction work Other Total At 1 January 2004 8,733 1,470 10,203 Charged to income statement: - Appropriations 5,015 1,950 6,965 - Applications (4,423) (619) (5,042) At 31 December 2004 9,325 2,801 12,126 Charged to income statement: - Appropriations 9,415 1,258 10,673 - Applications (3,618) (1,326) (4,944) Transfers (177) 56 (121) At 31 December 2005 14,945 2,789 17,734
Thousand euros 2005 2004 Analysis of total provisions: - Non-current 945 976 - Current 16,789 11,150 17,734 12,126
26. ORDINARY REVENUES Thousand euros 2005 2004 125 Sale of capital goods 119,288 78,607 Integrated management of industrial projects 343,231 200,345 Ancillary services 46,178 39,468 Other 2,497 1,437 Sales and services rendered 511,194 319,857
27. EMPLOYEE BENEFIT EXPENSES Thousand euros 2005 2004 Wages and salaries 69,909 62,867 Indemnities 6,363 820 Social Security expense 18,093 17,046 Own work capitalised 473 1,255 Cost of employee benefits - 97 94,838 82,085
DURO FELGUERA 2005 ANNUAL REPORT CONSOLIDATED ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
28. OPERATING EXPENSES Thousand euros 2005 2004 Leases 5,178 3,298 Independent professional services 26,507 14,652 Research and development expenses 6 - Transport 3,609 2,675 Advertising 1,513 1,370 Insurance premiums 1,993 1,865 Repairs and maintenance 2,203 2,204 Bank and similar services 2,295 2,813 Supplies 4,744 3,313 Sale commissions 2,983 713 Other services 9,620 8,960 60,651 41,871
29. OTHER NET GAINS / (LOSSES) Thousand euros 2005 2004 Capital grants 761 549 Operating grants 921 742 Profit/(loss) on sale of property, plant and equipment (220) 4,949 Own work capitalised 1,983 6,993 Taxes (952) (878) Change in trade provisions (5,608) (1,923) Other 1,437 2,187 (1,678) 12,619
126 30. NET FINANCIAL COSTS Thousand euros 2005 2004 Financial expense and similar costs (1,967) (2,041) Income: – Interest 1,533 1,112 – Other financial income 353 26 Subtotal (81) (903) Net exchange gain/(loss) 5,697 (2,381) Total net financial cost 5,616 (3,284)
31. INCOME TAX Thousand euros 2005 2004 Current income tax 2,455 2,372 Foreign taxes 58 147 Tax credits not recognised in prior years (221) (147) Current-year deferred income tax (1,435) 251 Tax credits recognised in prior years (2,624) - Deferred income taxes not recognised in prior years (2,439) - Other (129) (174) (4,335) 2,449 The reconciliation between consolidated reported profits and taxable profits is set out below:
Thousand euros 2005 2004 Consolidated profit 23,188 6,691 Minority interests 1,717 1,007 Corporate income tax (4,335) 2,449 Consolidated reported profit for the year before taxes 20,570 10,147 Consolidation adjustments 310 105 Permanent differences 4,457 (1,705) Temporary differences 4,099 (717) Utilisation of tax losses not previously recognised (23,080) (1,218) Taxable income: Attributable to the Tax Group 638 1,660 Taxable income not attributable to the Tax Group 6,375 5,118 Tax losses not attributable to the Tax Group (657) (166) 6,356 6,612
The net temporary differences of the individual companies relate basically to differences between accounting and tax treatment in the timing of appropriations to and reversals of provisions.
Duro Felguera, S.A. and the Spanish subsidiaries in which it has direct or indirect interests of more than 90% are subject to corporate income tax under the tax scheme for groups of companies. Accordingly, the assessment base is determined based on the consolidated results of Duro Felguera, S.A. and the Spanish subsidiaries.
Under the special tax scheme for groups of companies, the entire consolidated group is treated as a single taxpayer.
Set out below is an analysis of tax-loss carryforwards pending offset as at 31 December 2005: 127 Year Thousand euros 2001 434 2003 7,045
7,479
DURO FELGUERA 2005 ANNUAL REPORT CONSOLIDATED ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
At 31 December 2005, tax credits pending application for double taxation and investments are as follows:
Available until Thousand euros 2006 44 2007 33 2008 11 2009 77 2010 7 2011 105 2012 519 2013 221 2014 919 2015 198 2016 24 2017 13 2018 338 2019 1,247 3,756
Each of the consolidated companies must, however, calculate the tax expense that would have been recorded had an individual tax return been filed. Corporate income tax payable or receivable (tax credit) must be recorded depending on whether the company contributes a profit or a loss.
All the Company’s and subsidiaries’ returns for the main taxes to which they are subject and the years that have not become statute-barred are open to inspection by the tax authorities. Taxes may not be deemed definitively paid until 128 the four-year lapsing period has expired. The Directors of the Parent company do not expect any additional significant contingencies that could affect the accompanying consolidated annual accounts to arise in the event of an inspection.
32. EARNINGS PER SHARE
a I BASIC
Basic earnings per share are calculated by dividing the profit attributable to the Company’s shareholders by the weighted average number of outstanding ordinary shares for the year (note 15).
2005 2004 Profit attributable to the company’s shareholders (K¤ ) 23,188 6,685 Weighted average number of outstanding ordinary shares (thousand) 14,877 14,877 Basic earnings per share ( per share) 1.55 0.45 b I DILUITED
Diluted earnings per share are calculated by adjusting the weighted average number of outstanding ordinary shares to reflect the conversion of all potentially dilutive ordinary shares. The Company has no potentially dilutive ordinary shares.
33. DIVIDENDS PER SHARE
The dividend paid out on 18 August 2005, for 2004, was 0.24 per share, plus an attendance premium of ¤ 0.02 per share. During the General Shareholders’ Meeting in 2006, a supplementary dividend of 0.16 per share will be proposed, to be charged to 2005 profits. This dividend, plus the interim dividends of ¤ 0.16 per share approved by the Board of Directors on 30 November 2005 (note 18) and 31 January 2006, will entail a total gross dividend of 0.48 per share
34. CASH GENERATED FROM OPERATIONS
Thousand euros 2005 2004 Profit for the year 24,905 7,692 Adjustments for: – Taxes (note 31) (4,335) 2,449 – Depreciation of property, plant and equipment (note 7) 5,865 4,873 – Amortisation of intangible assets (note 9) 765 682 – (Profit)/loss on sale of property, plant and equipment (see below) 213 (4,599) – Grants credited to income statement (note 29) (761) (549) - Net movements in provisions (315) 217 - Net movements in obligations relating to employees (note 24) 5,541 (248) - Gain on lease-back operation (350) (350) - Other movements in financial assets (162) 22 - Other movements in non-current trade and other receivables - 86 129 – Interest income (note 30) (1,533) (1,112) – Other financial income (note 30) (353) (26) – Interest expense (note 30) 1,967 2,041 – Share in loss/(profit) of associates (note 11) 112 (50) Changes in working capital (excluding effects of acquisition and exchange differences on consolidation): – Inventories 5,474 (10,139) – Trade and other receivables (44,665) (44,177) – Other financial assets at fair value through profit or loss 63 (10) – Financial accounts receivable (79) 102 – Trade and other payables 104,290 38,315 Cash generated from operations 96,642 (4,781)
In the cash flow statement, proceeds from the sale of property, plant and equipment include:
Thousand euros 2005 2004 Carrying amount (note 7) 1,475 574 Profit/(loss) on sale of property, plant and equipment (213) 4,599 Proceeds from sale of property, plant and equipment 1,262 5,173
DURO FELGUERA 2005 ANNUAL REPORT CONSOLIDATED ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
35. CONTINGENCIES
he Group has contingent liabilities in respect of bank and other guarantees arising in the ordinary course of business. It is not anticipated that any material liabilities will arise from contingent liabilities.
At 31 December 2005 and 2004 the Group presented the following guarantees (thousand euros):
Thousand euros 2005 2004 Bids submitted to tender 628 3,583 Guarantees under sale agreements in the process of enforcement 297,718 221,183 Multi-user guarantee and credit facility 168,106 178,212 Other 15,602 10,052 482,054 413,030
36. COMMITMENTS
a I CAPITAL COMMITMENTS
Capital expenditure contracted for at the balance sheet date but not yet incurred is as follows:
Thousand euros 2005 2004 Property, plant and equipment 785 - 785 -
The commitment relates to the purchase of a plot of land in a technology park. 130 There is also a commitment to buy shares from minority shareholders, the effect of which has already been recognised in the balance sheet (see note 5.2.2.j).
37. RELATED-PARTY TRANSACTIONS
The following transactions were carried out with related parties:
a I SALES OF GOODS AND SERVICES
Thousand euros 2005 2004 Sales of goods and services: - Associates 30,490 10,803 - Related parties - 3,000 30,490 13,803
Goods and services are sold on the basis of price lists in force with non-related parties. b I PURCHASES OF GOODS AND SERVICES Thousand euros 2005 2004 Purchases of goods and services: - Associates 447 - - Related parties 7,706 8,313 8,153 8,313
All the above-mentioned transactions were effected in the ordinary course of business on an arm’s length basis. c I COMPENSATION FOR KEY MANAGEMENT AND DIRECTORS Thousand euros 2005 2004 Salaries and other short-term compensation for employees, managers and directors 2,191 1,580 Termination benefits - - Post-employment benefits - - Other long-term benefits - - Share-based payments - - 2,191 1,580 d I YEAR-END BALANCES ARISING FROM SALES/PURCHASES OF GOODS/SERVICES 131 Thousand euros 2005 2004 Receivables from related parties (note 12) - Associates 9,458 3,562 9,458 3,562 Payables to related parties (note 22) - Associates 235 18 - Related parties 4,009 4,519 4,244 4,537
DURO FELGUERA 2005 ANNUAL REPORT CONSOLIDATED ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
For the purposes of Article 127 of the Spanish Companies Act (LSA) and in connection with the activities of the Board members, the following should be noted:
The Chairman, Mr. Juan Carlos Torres Inclán, holds no shares or offices in companies whose activities are the same as or similar or complementary to those of DURO FELGUERA, S.A. He does not engage in any activities for his own account or for the account of third parties that are the same as or similar or complementary to those of DURO FELGUERA, S.A. and its subsidiaries.
The Vice-Chairman, Mr. José Luis García Arias, holds a 37.78% interest in the company Cartera de Inversiones Melca, S.L., which is in turn the single shareholder of Arside Construcciones Mecánicas, S.A., a company engaged in activities the same as or similar or complementary to those of Duro Felguera, S.A. and its subsidiaries.
The Director TSK ELECTRONICA Y ELECTRICIDAD, S.A. is engaged in an activity complementary to that of Duro Felguera, S.A. Its representative on the Board of Directors, Mr. Sabino García Vallina, is the CEO of TSK ELECTRONICA Y ELECTRICIDAD, S.A. and is also a director of the company PHB WESSERHÜTE, S.A. and its subsidiaries. Mr. García Vallina holds a 50% interest in TSK ELECTRONICA Y ELECTRICIDAD, S.A.
The Director PHB WESSERHÜTE, S.A. is engaged in an activity that is similar and complementary to that of Duro Felguera, S.A. Its Board representative, Mr. Carlos Vento Torres, is the commercial representative of the Dutch group NEM BV, which designs and manufactures steam recovery boilers, an activity that is similar or complementary to that of Duro Felguera, S.A. and its subsidiaries.
The Director INVERSIONES SOMIO, S.R.L. holds no shares or offices in companies whose activities are the same as or similar or complementary to those of DURO FELGUERA, S.A. Additionally, its Board representative, Mr. Juan Gonzalo Álvarez Arrojo, does not engage in any activities for his own account or for the account of third parties that are the same as or similar or complementary to those of DURO FELGUERA, S.A. and its subsidiaries.
The Director INVERSIONES EL PILES, S.R.L. holds no shares or offices in companies whose activities are the same as or similar or complementary to those of DURO FELGUERA, S.A. Additionally, its Board representative, Mr. Ángel Antonio 132 del Valle Suárez, does not engage in any activities for his own account or for the account of third parties that are the same as or similar or complementary to those of DURO FELGUERA, S.A. and its subsidiaries.
The Director CONSTRUCCIONES URBANAS DEL PRINCIPADO, S.R.L. holds no shares or offices in companies whose activities are the same as or similar or complementary to those of DURO FELGUERA, S.A. Additionally, its Board representative, Mr. Manuel González González, does not engage in any activities for his own account or for the account of third parties that are the same as or similar or complementary to those of DURO FELGUERA, S.A. and its subsidiaries.
The Director RESIDENCIAL VEGASOL, S.R.L. holds no shares or offices in companies whose activities are the same as or similar or complementary to those of DURO FELGUERA, S.A. Additionally, its Board representative, Mr. José Antonio Aguilera Izquierdo, does not engage in any activities for his own account or for the account of third parties that are the same as or similar or complementary to those of DURO FELGUERA, S.A. and its subsidiaries.
The Director IMASA INGENIERIA, MONTAJE y CONSTRUCCIONES, S.A. engages in activities the same as or similar or complementary to those of DURO FELGUERA, S.A. It’s Board representative, Mr. Tomás Casado Martínez, is a director and significant shareholder of IMASA INGENIERIA, MONTAJE y CONSTRUCCIONES, S.A. Mr. Casado Martínez holds a 20.75% interest in IMASA INGENIERIA, MONTAJE y CONSTRUCCIONES, S.A.
The Director Mr. Marcos Antuña Egocheaga holds no shares or offices in companies whose activities are the same as or similar or complementary to those of DURO FELGUERA, S.A. He does not engage in any activities for his own account or for the account of third parties that are the same as or similar or complementary to those of DURO FELGUERA, S.A. and its subsidiaries.
The Director Mr. José Manuel Agüera Sirgo holds no shares or offices in companies whose activities are the same as or similar or complementary to those of DURO FELGUERA, S.A. He does not engage in any activities for his own account or for the account of third parties that are the same as or similar or complementary to those of DURO FELGUERA, S.A. and its subsidiaries. The Director Mr Acacio Faustino Rodríguez García holds no shares or offices in companies whose activities are the same as or similar or complementary to those of DURO FELGUERA, S.A. He does not engage in any activities for his own account or for the account of third parties that are the same as or similar or complementary to those of DURO FELGUERA, S.A. He is the Managing Director of the consultancy UNILOG, which engages in business advisory services, and is occasionally required to take minor shareholdings in companies whose activities are the same as or similar or complementary to those of Duro Felguera, S.A. However, these are not controlling interests and generally relate to companies operating in a different market segment from DURO FELGUERA, S.A. and its subsidiaries.
38. JOINT VENTURES
The Group is involved in a number of joint ventures. The Group’s interest in the operating funds, receivables and payables of the joint ventures, as well as transactions with the joint ventures, are eliminated when the joint venture’s balance sheet items are proportionally integrated. Any surplus (or shortfall) in balances paid to the other venturers remains in the balance sheet.
Set out below is an analysis of the Group’s most significant joint ventures at 31 December 2005 showing shareholdings and other relevant information:
Information on companies (thousand euros)
% Result for Company Activity Address interest Assets the year UTE S y M Duro Felguera Felguera Fluidos Aboño water plants Gijón 50 602 (461) UTE Puertollano Reconstruction of infrastructure and piping Langreo 50 159 141 UTE Revamping Mechanical fitting and painting in revampings Oviedo 50 150 107 of C.I. Repsol Petróleo (La Coruña) UTE As Pontes Transformation, review and improvements at Puentes de García Rodríguez thermal power plant Langreo 65 1,526 168 133 UTE Soto Industrial treatments Oviedo 50 671 76 UTE DF – TR Barranco II Turnkey supply of Barranco II Langreo 50 16,996 1,612 combined cycle plant UTE CTCC Puentes Turnkey supply of Puentes combined Langreo 50 69,796 414 cycle plant UTE CTCC Barcelona Construction of Puerto Barcelona combined Madrid 50 542 756 cycle power plant UTE FIF Tanque GNL Turnkey construction of a liquefied Madrid 59 3,271 - natural gas storage tank - Barcelona UTE FIF Tanque TK-3001 Turnkey construction of a liquefied Madrid 59 13,649 - natural gas storage tank - Barcelona UTE FIF Tanque FB241 GNL Turnkey construction of a liquefied Madrid 59 848 - natural gas storage tank - Barcelona
DURO FELGUERA 2005 ANNUAL REPORT CONSOLIDATED ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
39. OTHER INFORMATION
a I AVERAGE NUMBER OF GROUP EMPLOYEES BY CATEGORY
2005 2004 Unskilled workers 1,183 1,159 Employees 751 787 1,934 1,946
b I ENVIRONMENTAL INFORMATION
The Group has taken the necessary measures to protect and improve the environment and to minimise environmental impact, if applicable, in compliance with current environmental legislation.
c I FEES OF AUDITORS AND THEIR GROUP OR RELATED COMPANIES
The fees charged in 2005 by PricewaterhouseCoopers Auditores, S.L. for audit services amounted to K¤ 232. The fees charged by PricewaterhouseCoopers Auditores, S.L. for other services amounted to K¤ 119.
The fees charged in 2005 by PricewaterhouseCoopers Auditores, S.L. for audit services amounted to K¤ 270, no fees having been billed for other services.
134 DURO FELGUERA, S.A., AND SUBSIDIARIES Directors’ Report 2005
Duro Felguera’s current situation confirms the wisdom of the Group’s choice of strategic options in previous years. In recent years, the Duro Felguera Group has been transformed from a typical industrial group to engage in engineering, plant construction and industrial services.
The Group’s activities are performed in three main segments: Integrated Management of Large Industrial Projects, Ancillary and Specialised Services for Industry and Manufacturing in the Group’s workshops.
Industrial Project Management comprises three main business areas: power plant projects, mineral and general industrial handling projects and liquefied fuel storage projects. Despite the differing nature of these business areas, the type of risks, risk management and profit generation are highly similar in each area.
In the last few years, business growth has been driven by power plant projects. For the second consecutive year, the Group’s order intake reached record levels in 2005. In this business area, order intake totalled 358 million in 2005 (¤399 million in 2004).
This activity is focused on the construction of combined-cycle power plants, single-cycle power plants and desulphurisation facilities. Sales and EBITDA amounted to 199 million and 17 million, respectively, in 2005. In 2004, sales and EBITDA amounted to 103 million and 6.2 million, respectively.
Over the years, projects in this business area have shown regular behaviour patterns and similar favourable results. The Group therefore has proven technical experience and a statistical base that allows us to make reliable estimates of results based on our insight into the orders received. None of the guarantees furnished have ever been enforced and no penalty has ever been applied in this business area as a result of our failure to comply with technical commitments or deadlines. 135
The Group’s subsidiaries that operate in this area have been involved in occasional lawsuits with suppliers. At the beginning of the year there were four actions in progress that have now been resolved as anticipated by the Group and there has been no significant impact on the reported figures.
The Group’s foreign order intake increased in 2005 in this business area, particularly in Italy and Peru. In 2006 order intake is expected to remain at similar levels, although a larger contribution is envisaged from international projects in 2006 and subsequent years, above all in Europe and Latin America.
Mining and bulk handling projects have begun to follow a similar trend to that of power plant projects in the past.
DURO FELGUERA 2005 ANNUAL REPORT CONSOLIDATED ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
In the last 10 years, mining and bulk handling projects have been significant and generated favourable results in the Venezuelan mining industry, although the total order book was small and unfavourable results were generated in certain projects in the Middle East and Mexico. 2005 saw the definitive launch of the business and favourable results in this area.
In recent months, highly significant contracts have been secured, such as the construction of a mineral concentration plant in Venezuela for a total of USD 440 million. Previous, though much smaller, projects include a pilot plant for the plant now to be built (small experimental version), for the same customer. Other significant projects secured include the contract to equip the Port of Prioriño in Ferrol (Galicia) for a total of 44 million and the contract to fit out the Port of Gangavaram in Andhra Pradesh (India) for a total of USD 96 million.
The subsidiaries operating in this business area continued to work on smaller projects contracted in the past, such as the construction of a turnkey travelling crane for the Port of Long Beach (Los Angeles – California) and six cranes for the Port of Ashdod in Israel.
Sales in the mining business area totalled 58 million in 2005 and EBITDA amounted to 3 million (in 2004, sales and EBITDA totalled 47 milllion and 0.2 million, respectively). This already reflects substantial growth in business and profits. As recently secured orders are only in their initial phases, it is reasonable to expect that both business and results in this area will increase significantly in 2006 and subsequent years.
The Group’s liquefied fuel storage business area has performed consistently well for years. Although production and results have risen constantly, its relative significance for the Group has reduced due to the strong growth achieved in the other business areas. In 2005, sales and EBIT totalled 86 million and 9 million, respectively, as compared with 50 million and 5.8 million in 2004.
In prior years, together with our power plant projects, this area formed the basis of the Group’s profit generation, year 136 after year, and still complements the other two areas magnificently, despite being relatively less significant than in the past.
The business segment formed by ancillary services for industry encompasses fitting, operation of existing plants and plant maintenance.
Segment sales and EBITDA totalled 46 million and 8 million in 2005 ( 39 million and 5.9 million in 2004). As may be observed, this segment has large margins, reflecting the Group’s prestige and the quality of our specialised services. The manufacturing segment encompasses the activities of four workshops engaged in highly diversified activities. As indicated above, the volume of manufacturing activities has remained stable for years and its significance for the Group has therefore declined sharply. Three of the workshops are generating profits and high returns. However, the fourth, Felguera Construcciones Mecánicas, posted a pre-tax loss of 10.9 million in 2005 (pre-tax loss of 9.1 million in 2004). Significant technical projects were in progress in 2005, such as the construction of the world’s largest-diameter tunnelling machine. The losses are explained by the insuffient size of this project to keep the high-capacity workshop occupied and the workshop therefore considerably exceeds current needs.
Overall, the manufacturing segment posted sales and EBITDA of 119 million and ¤-2.9 million in 2005 (as compared with 78.6 million and ¤-1.9 million in 2004).
The Duro Felguera Group places emphasis on managing risks affecting trade receivables. This takes a variety of forms depending on the type of business and geographical area. In the power area, the Group’s customers and large technology partners with which it forms joint ventures show high solvency and liquidity, which means that collection insurance is not necessary in the majority of cases.
In the mining business area, the Group ensures that the buyer’s credits are sufficient to cover all Duro Felguera’s collection requirements. Insurance is also obtained for contract termination and supplier credit.
The Duro Felguera Group has no special-purpose companies and all its financial credits and risks are therefore recognised in the consolidated balance sheet. Project financing and guarantees are obtained and furnished by contracting integrated financial products with highly reputable entities. All balance sheet risks are processed through risk management procedures applied to each project, analysed individually and approved by a risk committee. As the Company currently has no large investments, there are also no long-term debts other than financing for working capital. Consequently, the possible impact of interest-rate fluctuations is limited to the short term. The Group does not therefore perceive the need to insure against interest-rate fluctuations and potential variance in financial costs is budgeted through tolerances within project costs and therefore taken into account and hedged from project inception. 137
DURO FELGUERA 2005 ANNUAL REPORT CONSOLIDATED ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
The Duro Felguera Group is exposed to foreign currency risks, relating basically to the euro-dollar exchange rate and, to a far lesser extent, to certain emerging currencies. Special attention is paid to risks of this nature. In general, the Group ensure that contracts with suppliers are concluded in the same currency as the contract between Duro Felguera and its customer. Secondly, pre-financing for working capital is also contracted in the currency of the principal contract, such that the exchange rate is known from loan inception. As regards cross flows in different currencies, simulations are carried out at the start of projects and forwards are generally contracted at a date and for an amount that matches the date and estimated amounts of invoices to and from customers and suppliers. In the event of longer periods, tunnels are contracted, generally with zero premiums, which also match the amounts and dates of actual underlying movements. The Duro Felguera Group has not bought or sold any exotic derivative or speculative derivative that does not relate to actual business flows in plant construction projects. The Group’s approach to hedging risks of this nature is therefore comprehensive, but it does not acquire financial products of this kind without a clear and specific hedging purpose.
As regards environmental risks, the customers of major projects are highly rigorous with respect to analysis and certification. The appropriate treatment of environmental circumstances forms part of the product requirements that are fulfilled by Duro Felguera to the highest standards.
At 31 December 2005, the workforce stands at 1,934 employees, of which 825 are fixed and 1,109 are temporary, as compared with 1,946, 860 and 1,087, respectively, at 31 December 2004.
The Duro Felguera Group holds no treasury shares. R&D investments amounted to K 507 during the year, as compared with K 855.1 in 2004.
138 ECONOMIC AND FINANCIAL INFORMATION 2005
ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005 ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
140 ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
1 DURO FELGUERA, S.A. AUDITOR’S REPORT
2 DURO FELGUERA, S.A. BALANCE SHEET INCONME STATEMENT ACTIVITY STATEMENTS OF SOURCE ON APPLICATION OF FUNDS DIRECTOR’S REPORT A free translation of the report on the annual accounts originally issued in Spanish and prepared in accordance with generally accepted accounting principles in Spain. In the event of a discrepancy, the Spanish language version prevails.
AUDIT REPORT ON THE ANNUAL ACCOUNTS
To the shareholders of Duro Felguera, S.A.
1. We have audited the annual accounts of Duro Felguera, S.A. consisting of the balance sheet as at 31 December 2005, the profit and loss account and the notes to the accounts for the year then ended, the preparation of which is the responsibility of the Directors of Duro Felguera, S.A. Our responsibility is to express an opinion on the annual accounts taken as a whole, based on work carried out in accordance with auditing standards generally accepted in Spain which require examination, on test basis, of the evidence supporting the annual accounts and an evaluation of their overall presentation, the accounting principles applied and the estimates made.
2. In accordance with Spanish Corporate Law, the Company's Directors have presented, for comparative purposes only, for each item in the balance sheet, profit and loss account and statement of source and application of funds, the corresponding amounts for the previous year as well as the amounts for 2005. Our opinion refers solely to the 2005 accounts. On 18 April 2005 we issued our audit report on the 2004 accounts in which we expressed an unqualified opinion.
3. As mentioned in note 2 d) to the accompanying annual accounts, the Company is the parent of a group of companies. The accompanying annual accounts are presented in accordance with current Spanish Company Law and state the investments in group companies in accordance with the accounting principles and standards described in note 3 d). On 5 April 2006 we issued an unqualified audit opinion on the Group’s consolidated annual accounts as at 31 December 2005, which show a consolidated profit following International Financial Reporting Standars of Euros 24.905 thousand attributable to the 141 parent company and consolidated shareholders' equity also reported under IFRS totaling Euros 102.751 thousand.
4. In our opinion, the accompanying annual accounts for the year 2005 give, in all material respects, a true and fair view of the state of affairs and financial situation of Duro Felguera, S.A. as at 31 December 2005 and the results of operations and source and application of funds for the year then ended, and contain sufficient information for an adequate understanding in accordance with accounting principles and standards generally accepted in Spain applied on a consistent basis
5. The accompanying Directors’ Report for the year 2005 contains such explanations of the state of affairs of Duro Felguera, S.A., developments in the business and other matters as the Directors consider appropriate and does not form part of the annual accounts. We have checked that the accounting information contained in the Directors’ Report matches the figures contained in the annual accounts for 2005. Our work as auditors is limited to checking the Director’s Report to the extent set out in this paragraph and does not include a review of information other than that obtained from the Company’s accounting records.
PricewaterhouseCoopers Auditores, S.L.
Enrique Cagigas Partner - Auditor
(Original in Spanish signed by Enrique Cagigas on 5 April 2006)
DURO FELGUERA 2005 ANNUAL REPORT ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
DURO FELGUERA, S.A. BALANCE SHEETS AS AT 31 DECEMBER 2005 AND 2004 Thousand euros
ASSETS 2005 2004
Fixed assets 81,596 78,789
Intangible fixed assets (Note 4) 212 125 Tangible fixed assets (Note 5) 4,869 4,988 Investments (Note 6) 76,515 73,676
Current assets 179,124 117,528
Inventories (Note 7) 2,415 4,447 Debtors (Note 8) 86,484 70,095 Current asset investments (Note 9) 50,430 35,601 Cash at bank and in hand 39,795 7,385
TOTAL ASSETS 260,720 196,317
142 LIABILITIES 2005 2004
Capital and reserves (Note 10) 70,116 57,638
Share capital 44,632 44,632 Share premium account 3,913 3,913 Revaluation reserve 958 958 Other reserves 4,405 3,998 Retained earnings - 60 Profit for the year 18,588 4,077 Interim dividend paid during the year (2,380) -
Deferred income (Note 11) 1,084 1,438
Provision for liabilities and charges (Note 12) 690 653
Creditors: amounts falling due after more than one year (Note 13) 19,788 17,311
Bank loans 9,688 7,406 Amounts owed to Group companies 9,000 9,000 Public institutions, long-term 195 - Uncalled amounts on shares held: - From Group companies 5 5 - Associated companies 900 900
Creditors: amounts falling due within one year 169,042 119,277
Bank loans and overdrafts (Note 13) 8,961 40,596 143 Amounts owed to Group and associated companies (Note 6) 40,805 21,360 Trade creditors (Note 14 a) 98,112 45,821 Other creditors (Note 14 b) 11,767 5,008 Provisions for liabilities and charges and other trade provisions (Note 15) 9,397 6,492
TOTAL LIABILITIES 260,720 196,317
DURO FELGUERA 2005 ANNUAL REPORT ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
DURO FELGUERA, S.A. PROFIT AND LOSS ACCOUNTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004 Thousand euros
EXPENSES 2005 2004
Reduction in inventories of finished goods and work in progress 275 2,321 Raw materials and consumables (Note 17 c) 145,853 83,167 Staff costs (Note 17 d) 14,989 11,125 Fixed asset depreciation 249 257 Changes in trade provisions 2,347 295 Other operating charges: - External services 33,529 21,285 - Taxes 248 281
Operating profit 5,981 4,374
Net financial income (Note 18) 5,542 1,082
Profit from ordinary activities 11,523 5,456
Net extraordinary profit (Note 19)) 3,526 -
Profit before taxes 15,049 5,070
Corporate income tax 3,539 (989) Other taxes - (4)
Profit for the year 18,588 4,077
144 INCOME 2005 2004
Net turnover: - Sales 199,166 118,507 - Services rendered 3,460 4,007
Other operating income: - Sundry income 68 73 - Operating grants 682 412 - Surplus provisions for liabilities and charges 95 106
Net extraordinary loss (Note 19) - 386
145
DURO FELGUERA 2005 ANNUAL REPORT ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
1 ACTIVITIES
Duro Felguera, S.A. (the Company) was set up as a Spanish public limited company ("sociedad anónima") for an indefinite period on 22 April 1900, although the Company’s name was Sociedad Metalúrgica Duro-Felguera, S.A. until 25 June 1991, subsequently it changed its name to Grupo Duro Felguera, S.A. until 26 April 2001, at which time it adopted its current name.
According to the Company’s objects, it may operate in the metal, boiler making, smelting and capital goods industries, engaging in construction, manufacturing and fitting work under turnkey contracts, as well as marketing, distribution, construction and installation services involving energy obtained from solid and liquid fuels. The Company’s objects also cover the promotion, formation, extension, development and modernisation of industrial, commercial and service companies in Spain and abroad, provided such companies are engaged in any of the activities listed above. It may also acquire and hold fixed or variable income securities issued by all kinds of entities.
In 1991 Duro Felguera, S.A. completed the process whereby certain divisions which engaged in activities relating to engineering projects, fitting and maintenance of industrial equipment and machinery were transformed into companies with their own separate legal personality. In order to set up these investee companies, Duro Felguera, S.A. had to contribute the human, material and financial resources required to carry on their respective activities. Duro Felguera, S.A. therefore transferred the personnel working in each activity and contributed the capital required in the form of contributions in cash and in kind, mainly buildings, machinery and production equipment. It also grouped together the different investee companies which operate in the capital equipment sector into an industrial sub-group led by a wholly owned company, Duro Felguera Plantas Industriales, S.A.
In the final quarter of 2000, the Group carried out further restructuring, grouping together the companies engaged in workshop activities under the subsidiary Duro Felguera Equipos y Montajes, S.A. The engineering companies were grouped together under Duro Felguera Plantas Industriales, S.A. The restructuring process was completed through the decision whereby large orders are to be executed by Duro Felguera, S.A., in addition to this company’s role as Parent and holding company of the Duro Felguera Group. 146 2 BASIS OF PRESENTATION
a | TRUE AND FAIR VIEW
The annual accounts have been prepared on the basis of the Company's accounting records, which have been kept in euros since 1 January 2001, and are presented in accordance with the Spanish General Accounting Plan as adapted to the construction industry so as to give a true and fair view of the Company's net worth and financial situation and the results of its operations.
These accounts have been drawn up by the Directors of the Company and are to be submitted for the approval of the Annual General Meeting. The Directors consider that the accounts will be approved without any changes.
b | ACCOUNTING PRINCIPLES
The accompanying annual accounts have been prepared in accordance with accounting principles and standards generally accepted in Spain, as described in note 3. No mandatory accounting principle having a significant effect on the annual accounts has been omitted. c | GROUPINGS OF ITEMS
For clarity, the balance sheet and the profit and loss account are presented in summarised form. Where appropriate, an analysis is provided in the relevant note to the accounts. d | CONSOLIDATED ACCOUNTS
The Company is the parent of a group of companies meeting the requirements of Royal Decree 1815/1991 (20 December) and must therefore file consolidated annual accounts.
For clarity, the Directors have opted to present separate consolidated accounts.
3 ACCOUNTING POLICIES a | FORMATION EXPENSES
Formation expenses consist of capital increase expenses and are capitalised at cost.
These expenses relate basically to lawyers, notarisation and registration fees, etc., which are amortised on a straight- line basis over five years. b | INTANGIBLE FIXED ASSETS
All intangible fixed assets relate to computer applications, which are stated at acquisition or production cost and amortised on a straight-line basis over an estimated useful life of four years. Software maintenance expenses are taken to profit and loss when incurred. c | TANGIBLE FIXED ASSETS
Tangible fixed assets are stated at acquisition or production cost plus legally approved revaluations, including the 147 restatement carried out in accordance with Royal Decree-Law 7/1996 (7 June 1996).
Any capital gains or net gains in value resulting from such restatements are written off over the tax periods remaining until the end of the assets’ estimated useful lives.
Maintenance and repair expenses are charged to profit and loss in the year in which they occur. Replacements or renewals of tangible fixed assets are recorded under assets and the replaced or renewed assets are written off the accounts.
Costs relating to extensions, modernisation or improvements which increase productivity, capacity or efficiency, or extend the useful lives of the assets are capitalised as an increase in the cost of the assets concerned.
Tangible fixed assets are depreciated on a straight-line basis over their estimated useful lives. Set out below are the years of useful life applied by the Company:
Years
Buildings 17 to 50 Plant and machinery 6 to 17 Fixtures, fittings, tools and equipment 8 to 20 Other fixed assets 4 to 20
DURO FELGUERA 2005 ANNUAL REPORT ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
d | INVESTMENTS
The Company accounts for investments in accordance with the following principles:
i | Fixed-income securities:
Fixed-income securities are stated at the lower of cost, including related expenses, and repayment value.
ii | Variable-income securities:
Investments in securities (irrespective of the percentage interest) are stated at the lower of cost, adjusted and updated in accordance with Law 9/1983, where appropriate, and market value. Market value is the lower of the average listed price for the final quarter and the year-end price, in the case of listed securities, or the proportional book value of the holding as per the latest available balance sheet in the case of unlisted securities.
Any negative differences between cost and the year-end market price are recorded in the account "Investments - Provisions".
Dividends received are taken to income on approval of payment by the respective Boards of Directors or General Meetings.
The Company has a majority holding in certain companies and holds interests of 15% or more in others. The accompanying accounts relate solely to the Company since, in accordance with current Spanish Company Law, the Directors present separate consolidated accounts for 2005 (Note 6).
e | INVENTORIES
Raw and auxiliary materials and consumable and replacement materials are stated at the lower of average acquisition 148 price and market price.
Finished goods, semi-finished goods and work-in-progress are stated at the average production cost, which includes the cost of raw materials and other materials consumed, labour and direct and indirect manufacturing expenses. The cost of these inventories is written down to their net realisable value if lower than production cost.
Obsolete and defective items are adjusted, based on estimates, to bring them into line with their potential realisable value.
f | TRADE DEBTORS AND TRADE BILLS RECEIVABLE
Accounts receivable are stated at their nominal value on the balance sheet. Value adjustments have, however, been made and bad debts provisions recorded, where necessary, based on an itemised analysis of trade debtor balances.
g | CURRENT ASSET INVESTMENTS
Current asset investments are stated at the lower of acquisition cost and market/repayment value. Market/repayment value is determined using the same method as is applied to investments. h | DEFERRED INCOME
Deferred income relates mostly (Note 11) to capital gains on sales of certain buildings in respect of which sale options are held by the purchaser, lease agreements have been concluded by the Company and guarantees have been furnished to the purchaser.
The amount recorded under this heading equals total lease expenses until the date the purchase option expires. This amount is released to profit and loss at the same rate as the costs deriving from the lease of these assets. i) PROVISIONS FOR PENSIONS AND SIMILAR OBLIGATIONS
The Company has contracted commitments with certain retired and active personnel, employees of the discontinued coal activity, for the monthly supply of a certain amount of coal.
The amount of yearly appropriations is determined based on actuarial studies conducted by an independent actuary and on GRMF-95 mortality tables (adjusted during the working life of the employee to take into account the possibility of disability in accordance with the Ministerial Order of 24 January 1977), technical interest rates of 4% per annum and annual inflation of 3%. j) OTHER PROVISIONS FOR LIABILITIES AND CHARGES
These provisions relate mainly to guarantees furnished to third parties and other items. Each year the Company estimates the amounts of payments that could arise in the future and makes provision accordingly, charged to profit and loss for the year. Each year the Company estimates the amounts of payments that could arise in the future and makes provision accordingly, charged to profit and loss for the year. k | CREDITORS
Long and short-term creditors are recorded at repayment value. 149 l | CLASSIFICATION OF AMOUNTS PAYABLE
Debts are classified on the balance sheet as laid down in the Spanish General Accounting Plan, based on when they fall due. Amounts falling due within twelve months are regarded as short term and debts which fall due after more than one year are classed as long term. m | TRANSACTIONS AND BALANCES DENOMINATED IN FOREIGN CURRENCY
Transactions denominated in foreign currency are stated at their equivalent value in euros, using the exchange rates applicable on the transaction date.
Gains or losses on exchange arising when balances are settled are taken to the profit and loss account when they occur.
Every year-end balances receivable and payable denominated in foreign currency are stated in euros at the year-end exchange rates or, where applicable, at the hedged exchange rates. Unrealised net losses on exchange are determined for balances due on similar dates in currencies showing similar market behaviour and are expensed. Any unrealised net gains determined in the same way are deferred until they are realised.
DURO FELGUERA 2005 ANNUAL REPORT ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
n | RECOGNITION OF PROFITS UNDER LONG-TERM CONTRACTS
The Company records long-term construction contracts in the amount of specific manufacturing expenses incurred during each project or contract. The profit generated is recognised based on the percentage of completion, provided there are reasonable and reliable estimates of contract budgets, revenues, costs and progress made and there are no unusual or extraordinary risks relating to the project. As a general rule profits are not recognized if the percentage of completion is not at least 10%, although depending on the circumstances of each project this rule may vary. In the case of loss-making contracts, the relevant amounts are taken to profit and loss as soon as they are known.
o | INCOME AND EXPENSE
Income and expense are recorded on an accruals basis, based on the actual flow of assets and services, irrespective of when the relevant amounts are collected or disbursed.
For reasons of prudence, however, the Company only accounts for income realised at the year end, while any contingent liabilities and losses are recorded as soon as they are known.
p | SEVERANCE INDEMNITIES
Under current employment law, the Company must pay indemnities to workers and staff whose employment is terminated under certain conditions. The Directors of the Company envisage no dismissals in the future and have not therefore set up any provision for this item in the annual accounts.
q | CORPORATE INCOME TAX
Corporate income tax expense for the year is calculated based on the reported profit before tax as adjusted to account for any permanent differences between reported profits and taxable income and the effect of any tax credits and deductions, excluding any withholdings and interim payments. 150 Tax credits for investments in new fixed assets and, whenever appropriate, for job creation, are treated as a reduction in corporate income tax expense for the year in which they are applied.
The Company pays corporate income tax under the rules governing groups of companies, together with the companies of the Duro Felguera Group. Under this tax system, the tax assessment base is calculated based on the Group’s consolidated results.
r | ENVIRONMENT
The costs incurred on acquiring systems, equipment and installations whose purpose is the elimination, limitation or control of potential impact the company’s activities may have on the environment are considered to be investments in fixed assets. All other environmental expenses other than those arising from the acquisition of fixed assets are expensed in the year they are incurred.
s | ACCOUNTING FOR JOINT VENTURES
Certain work is performed through the grouping of two or more companies into a joint venture. As at 31 December 2002 the Company participated in several joint ventures (Note 22 a ), the balances for which at that date are recorded in the Company’s accounts in proportion to the interest held in the joint venture and in accordance with accounting principles generally accepted in Spain. As at 31 December 2005 the Company participated in several joint ventures (Note 21 a ), the balances for which at that date are recorded in the Company’s accounts in proportion to the interest held in the joint venture and in accordance with accounting principles generally accepted in Spain.
The same policy is followed to record the result of work executed by the joint ventures with other companies, as explained in section n) above. t | INTEGRATION OF BRANCHES
The integration of its branch offices located in Mexico and Italy (named Duro Felguera S.A., Sucursal México and Duro Felguera S.A., Stabile Organizazione in Italia) into the 2005 annual accounts prepared by the Company, has been reflected, in accordance with current legislation, by including all balances and transactions (note 21 b).
4. INTANGIBLE FIXED ASSETS
Movements in Intangible assets during 2005 are set out below:
Thousand euros Net book Cost Amortisation value Opening Closing Opening Charge for Closing Opening Closing balance Additions Disposals balance balance the year Disposals Balance balance Balance Computer software 1,026 158 - 1,184 (901) (71) - (972) 125 212
5 TANGIBLE FIXED ASSETS
Movements in Tangible fixed assets during 2005 are set out below:
Thousand euros
Land and Plant and Fixtures, fittings, Other buildings machinery tools and equipment fixed assets Total COST 151 Opening balance 4,858 95 813 869 6,635 Additions 12 - 19 113 144 Disposals (147) - - (8) (155)
Closing balance 4,723 95 832 974 6,624
DEPRECIATION Opening balance (654) (95) (434) (464) (1,647) Charge for the year (42) - (36) (100) (178) Disposals 65 - - 5 70
Closing balance (631) (95) (470) (559) (1,755)
NET BOOK VALUE Opening balance 4,204 - 379 405 4,988 Closing balance 4,092 - 362 415 4,869
DURO FELGUERA 2005 ANNUAL REPORT ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
a | RESTATEMENTS
The Company has restated tangible fixed assets as permitted under various legal provisions, including Royal Decree-Law 7/1996 (7 June 1996).
The accounts restated in accordance with Royal Decree-Law 7/1996 and the effect of the restatement as at 31 December 2005 are set out below: Thousand euros
Accumulated Increase depreciation Disposals Net effect Land and buildings 902 (76) (561) 265 Plant and machinery 6 (6) - - Fixtures, fittings, tools and equipment 70 (51) (17) 2 Other fixed assets 9 (9) - -
987 (142) (578) 267
This restatement has had little effect on the allocation to depreciation for the year due to the fact that its net effect in the period relates essentially to land.
b | FULLY-DEPRECIATED ASSETS
As at 31 December 2005 fully depreciated tangible fixed assets with an original or restated cost of approximately K 836 are still in use.
c | INSURANCE
The Company has taken out a number of insurance policies to cover risks relating to tangible fixed assets. As at 31 December 2005, the Directors of the Company consider insurance coverage to be adequate. 152
6 INVESTMENTS AND GROUP AND ASSOCIATED COMPANIES
Set out below is an analysis of the movements relating to the Company's investments during 2005:
Thousand euros Opening Additions Transfers to Closing balance and charges Disposals Reversals short term balance COST Shareholdings in Group companies (Note 6 a) 85,761 - - - - 85,761 Loans to Group companies (Note 6 a) 87 - - - - 87 Shareholdings in associated companies (Note 6 a) 1,848 481 - - - 2,329 Long-term securities portfolio (Note 6 b) 366 - - - - 366 Other loans (Note 6 c) 7,037 183 (2,078) - (48) 5,094 Long-term deposits and guarantees (Note 6 d) 2,557 8 - - - 2,565 Public institutions, long-term (Note 16) 2,327 2,100 - - (1,561) 2,866
99,983 2,772 (2,078) - (1,609) 99,068
PROVISIONS Shareholdings in Group companies (Note 6 a) (26,004) - - 3,580 - (22,424) Bad debts – loans to group companies (84) - - - - (84) Shareholdings in associated companies (Note 6 a) (212) - - 177 - (35) Long-term securities portfolio (Note 6 b) (7) (3) - - - (10)
(26,307) (3) - 3,757 - (22,553)
73,676 76,515 a I GROUP AND ASSOCIATED COMPANIES
Set out below is a list of Group and associated companies, including relevant data, as at 31 December 2005: Thousand euros
Book value Information regarding the companies at 31 December 2005 % Provision for Share Reserves Book Activity and address Shareholding Cost decline in value Net capial (1) Profit / (Loss) value
Direct shareholdings (3)
Group companies: Duro Felguera Plantas Industriales, S.A. Capital goods (La Felguera) 100% 26,673 - 26,673 19,773 3,814 4,566 28,152 Acervo, S.A. Finance (Oviedo) 100% 8,516 - 8,516 2,460 5,965 126 8,551 Inmobiliaria de Empresas de Langreo, S.A. Real estate (La Felguera) 100% 219 - 219 120 198 10 328 Montajes de Maquinaria de Precisión, S.A. Turbine fitting and maintenance (Langreo) 100% 859 - 859 174 (1,338) 2,165 1,001 Felguera I.H.I., S.A. Fuel and gas storage equipment (Madrid) 60% 4,927 - 4,927 2,103 12,472 4,345 11,352 Duro Felguera Equipos y Montajes, S.A. Freezing tunnels and conveyor belts (La Felguera) 100% 30,553 (8,508) 22,045 19,793 1,774 479 22,046 Duro Felguera do Brasil, Ltda. Industrial project construction and assembly (Sao Paulo) 95% 10 (10) - 11 (98) - (83) Duro Felguera México, S.A. de C.V. Industrial project construction and assembly (Mexico D.F.) 100% 13,996 (13,906) 90 13,485 (13,397) 2 90 Turbogeneradores del Perú, S.A.C. Industrial project construction and assembly (Peru) 90% 8 - 8 8 2 53 57
Group total 85,761 (22,424) 63,337
Associated companies: Zoreda Internacional, S.A. Environment (Gijón) 32% 48 (32) 16 150 (98) - 17 MHI-Duro Felguera Engineering, construction and repair of tunnelling machinery (Madrid) 45% 1,800 (3) 1,797 4,000 (399) 392 1,797 Green Fuel Extremadura, S.A. Production and marketing of biodiesel (Merida) 24% 481 - 481 751 601 (88) 303
Total associated companies 2,329 (35) 2,294
Indirect shareholdings (3)
DURO FELGUERA 2005 ANNUAL REPORT Forjas y Estampaciones Asturianas, S.A. Materials for tunnels and mines (Llanera) 100% - - - 102 65 29 - Felguera Grúas y Almacenaje, S.A. Engineering of lifting equipment (La Felguera) 100% - - - 902 97 172 - Felguera Montajes y Mantenimiento, S.A. Industrial assembly (Langreo) 100% - - - 1,803 (1,614) 3,163 - Felguera Rail, S.A. Manufacture and assembly of railway apparatus (Mieres) 55% - - - 3,997 (127) (658) - Pontonas del Musel, S.A. Shipping (Gijón) 70% - - - 510 - 30 - Felguera Melt, S.A. Smelting (La Felguera) 100% - - - 4,399 3,558 1,522 - Felguera Revestimientos, S.A. Refractory linings (Langreo) 100% - - - 60 (145) 416 - Técnicas de Entibación, S.A. Manufacture of shoring materials (Llanera) 100% - - - 3,936 (281) 1,564 - Felguera Parques y Minas, S.A. Engineering of lifting equipment (La Felguera) 100% - - - 902 (2) 105 - Felguera Calderería Pesada, S.A. Pressurised containers and heavy boiler making (Gijón) 100% - - - 7,852 3,537 1,168 - Felguera Construcciones Mecánicas, S.A. Manufacture of mechanical equipment (Langreo) 100% - - - 5,507 3,966 (4,949) - Turbogeneradores de México, S.A. de C.V. Turbine fitting and maintenance (Mexico) 100% - - - 5 15 - - Felguera Tecnologías de la Información, S.A. Development of management software (Llanera) 60% - - - 90 201 92 - Felguera Calderería Pesada Servicios, S.A. Assembly and design of metallurgical equipment (Gijón) 100% - - - 301 (10) 58 - Secicar, S.A. Sale of fuel (Granada) 29,48% - - - 3,005 (297) (941) - 153 ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005 ------Book value - - - 1 8 4 31 (2) 334 Profit / (Loss) Profit - - - (1) 295 (61) (75) (1) (473) (7 , 349) Reserves at 31 December 2005 at 31 - - - 6 65 481 120 120 Information regarding the companies Information regarding 7,354 Share capial ------Net Thousand euros ------Provision for Provision Book value decline in value ------Cost 50% 99% 50% 25% % 100% 100% 100% 100% 99,6% Shareholding
154 Activity and address Commercial and industrial projects relating and industrial projects Commercial to capital goods industry (Mexico) acid regeneration of hydrochloric Construction and operation acid hydrochloric plants. Marketing and sale of regenerated oxide (La Felguera) and iron Engineering (Mexico) Engineering (Mexico) construction and assembly (Mexico) Industrial project and turbo generators Fitting and maintenance of boilers industry (Mexico) for energy and maintenance of Launch, operation thermal plants (Langeo) Assembly of turbines and civil engineering (Mexico) Assembly and maintenance of electricity plants (Colombia) generation Duro Metalurgia de México, S.A. C.V. Metalurgia Duro Ingeniería de Proyectos Medioambientales, S.A. S.A. de C.V. e Ingeniería Pycor, Proyectos Ingeniería Técnica, S.A. de C.V. (2) Equipamientos Construcciones y Montajes, S.A. de C.V. S.A. de C.V. Power, Felguera Duro y Mantenimiento, S.A. Operación S.A. de C.V. Kepler-Mompresa, Sociedad de Servicios Energéticos S.A. Iberoamericanos, These figures are shown after deducting interim dividends paid out during the year. are 1 | These figures interest. 2 | Consolidated data included in direct included in the companies accounts, accordance consortiums, which are in temporary shareholdings and indirect 3 | The Company holds direct held. interest with the percentage ------615 100 2 , 094 2 , 809 received Dividends ------3 1 1 50 17 16 107 278 678 120 444 955 765 3 , 411 1 , 129 1 , 796 1 , 052 2 , 342 8 , 374 1 , 838 19 , 347 42 , 724 creditors Short-term ------5 900 9 , 000 9 , 905 creditors Long-term ------3 Balances 11 75 18 36 16 93 113 210 224 288 146 145 334 139 136 1 , 987 Debtors falling due within one year ------2 7 10 86 112 710 106 459 487 238 865 1 , 719 2 , 862 1 , 799 1 , 122 3 , 324 6 , 390 9 , 283 12 , 537 42 , 118 receivables Short-term ------Long-term receivables Thousand euros ------4 4 1 2 17 32 15 12 36 174 203 500 expense Financial ------1 3 6 8 68 22 22 14 13 182 338 168 192 1 , 037 income Financial 155 Transactions ------4 36 25 13 96 62 103 151 338 4.612 1 , 748 2 , 923 1 , 304 7 , 158 2 , 459 , 032 21 charges Supplies and other operating ------5 11 31 66 35 24 29 63 216 577 930 398 269 152 296 374 3 , 476 income Turnover operating and other Set out below are details of transactions effected in 2005 with Group and associated companies (direct and indirect interests) and balances as at 31 December 2005: and balances as at 31 interests) and indirect and associated companies (direct effected in 2005 with Group details of transactions Set out below are Group compa nies Group : interest a) Direct I.H.I., S.A. Felguera Acervo, S.A. S.A. de Langreo, Inmobiliaria de Empresas Equipos y Montajes, S.A. Felguera Duro Plantas Industriales, S.A. Felguera Duro S.A. Montajes de Maquinaria Precisión, México, S.A. de C.V. Felguera Duro S.A.C. del Perú, Turbogeneradores : interest b) Indirect de México, S.A. C.V Metalurgia Duro S.A. de C.V. e Ingeniería Pycor, Proyectos Grúas y Almacenaje, S.A. Felguera Montajes y Mantenimiento, S.A. Felguera Revestimientos, S.A. Felguera Técnicas de Entibación, S.A. Forjas y Estampaciones Asturianas, S.A. Construcciones Mecánicas, S.A. Felguera y Minas, S.A. Parques Felguera S.A. Pesada, Calderería Felguera Melt, S.A. Felguera Servicios, S.A. Pesada Calderería Felguera Equipamientos Construcciones y Montajes, S.A. de C.V. y Mantenimiento, S.A. Operaciones de la Información, S.A. Tecnologías Felguera Rail, S.A. Felguera As s ociated companies : IMASA, Ingeniería, Montajes y Construcciones, S.A. TSK Electrónica y Electricidad, S.A. Internacional, S.A. Zoreda Felguera MHI-Duro ARSIDE Construcciones Mecánicas, S.A.
DURO FELGUERA 2005 ANNUAL REPORT ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
The above tables relate mainly to current account balances and trade accounts receivable from and payable to Duro Felguera, S.A. and Group companies, as well as loans granted to certain Group companies bearing interest at market rates. The interest in 2005 on these current accounts and loans accrues at a rate of approximately 3,65 % per annum, in the case of debtor balances, and 2,15% per annum in the case of creditor balances.
b | LONG-TERM SECURITIES PORTFOLIO
Thousand euros Nominal value Book cost Unlisted shares 361 366 Less provisions - (10)
361 356
c | OTHER LOANS
Set out below is an analysis of the annual maturity dates of the balances included in Other loans:
Maturity date Thousand euros 2006 168 2007 40 2008 5,013 2009 28 2010 13 Subsequent years - 5,262 Less amounts falling due within one year (168) 156 Creditors falling due after more than one year 5,094
The balances included under Creditors falling due after more than one year basically relate to a debt generated in 2003 as a result of an agreement reached with a partner to liquidate some joint ventures. Under this agreement the partner recognises it owes the Company K 6,950, payable within five years. This amount will be paid in cash or by offsetting the amounts due the partner as a result of certain commercial agreements concluded. The amount bears interest at the Euribor rate. If after three years after this agreement was concluded no amount has been offset, a cash payment of K 2,333 will be made or the differences between this amount and the amount offset during that period.
d l LONG-TERM DEPOSITS AND GUARANTEES
The balance under this heading relates basically to a fixed-term deposit of K 2,498 (arranged in February 1999) securing compliance with obligations assumed by the Company under the private agreement to sell fixed assets dated 28 December 1998, including sale option and lease-back arrangements (Note 11). 7 INVENTORIES
Set out below is an analysis of this caption on the accompanying balance sheet: Thousand euros 2005 2004 Work in progress and semi-finished goods 177 409 Advance payments to suppliers 2,238 4,038
2,415 4,447 a | BREAKDOWN OF INVENTORIES
The main amounts relating to long-term contracts stated in accordance with the explanations stated in Note 3 e) and maintained by the Company are as follows:
Thousand euros Advance Sales % Amount of payments from pending Degree of Description the contract Inventories customers certification completion
Combined cycle plant Son Reus II (Palma de Mallorca) 137,172 - - 1,605 100 Gas turbine Plant in Guía de Isora (Tenerife) 22,784 - - 1,180 88 Adaptation of 4 boilers at the thermal plant in A Pontes (Galicia) 19,748 - - 1,992 100 Combined cycle plant in Ventanilla (Peru) 20,761 - 4,998 - 61 Combined cycle plant in Cas Tresorer (Palma de Mallorca) 167,682 - 6,180 - 34 CT gas turbines in Fiume Santo 157 (Italy) 29,482 - - 3,682 100 Combined Cycle Plant in Barranco de Tirajana (Lanzarote) UTE Barranco II 75,217 - - - 34 CT Combined cycle plant in Puentes (Galicia) UTE Puentes 79,460 - 27,902 - 12
b | INSURANCE
The Company has taken out a number of insurance policies to cover risks relating to construction work. As at 31 December 2005, the Directors consider insurance coverage to be adequate.
DURO FELGUERA 2005 ANNUAL REPORT ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
8 DEBTORS
Set out below is an analysis of Current asset investments as at 31 December 2005:
Thousand euros 2005 2004 Trade debtors 66,402 23,892 Sales pending certification (Note 7 a) 9,279 32,897 Group and associated companies (Note 6 a) 1,987 2,771 Sundry debtors 1,000 1,487 Loans to employees 7 4 Taxes payable (Note 16) 8,007 9,242
86,682 70,293 Less provisions (198) (198)
86,484 70,095
9 CURRENT ASSET INVESTMENTS
Set out below is an analysis of Current asset investments as at 31 December 2005:
Thousand euros 2005 2004 Loans to Group and associated companies (Note 6 a) 42,118 31,660 Short-term securities portfolio 8,062 3,727 Other loans 168 173 Deposits and guarantees furnished 82 41 158 50,430 35,601
a | SHORT-TERM SECURITIES PORTFOLIO
At 31 December 2005 this heading mainly records fixed term deposits totalling 8 million. 10 CAPITAL AND RESERVES
Movements in Capital and reserves are set out below:
Thousand euros
Share Share premium Revaluation Reserves Retained Profit for Interim capital account reserve (Note 10 d) earnings the year dividend Total
Opening balance 44,632 3,913 958 3,998 60 4,077 - 57,638
Distribution of 2004 results: - to dividends - - - - - (3,572) - (3,572) - to reserves - - - (407) 98 (505) - - -to retained earnings ------Attendance bonus to General Meetings - - - - (158) - - (158) Profit for the year - - - - - 18,588 - 18,588 Interim dividend ------(2,380) (2,380)
Closing balance 44,632 3,913 958 4,405 - 18,588 (2,380) 70,116
a | SHARE CAPITAL
As at 31 December 2005 the Company's share capital consisted of 14,877,421 fully subscribed and paid registered shares represented by account entries, each with a par value of three euros. All the shares are listed on the Madrid, Barcelona and Bilbao stock exchanges and carry the same voting and dividend rights.
As at 31 December 2005, according to data submitted to the Spanish Securities and Exchange Commission (CNMV), the 159 following companies hold an interest of 5% or more in the Company:
% Shareholder Shareholding
Cartera de Inversiones Melca, S. L. 6,327% Residencial Vegasol, S.L. 15,865% Inversiones Somió, S.R.L. 16,969% TSK Electrónica y Electricidad, S.A. 15,87% IMASA, Ingeniería, Montajes y Construcciones, S.A. 9,53% Construcciones Termoracama, S.L. 5,297%
Share capital was increased in previous years by applying the following reserves:
Thousand euros
Adjustment, Royal Decree-Law 12/1973 753 Restatement Budget Act 1979 8,989 Restatement Budget Act 1983 17,573
27,315
DURO FELGUERA 2005 ANNUAL REPORT ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
b | REVALUATION RESERVE
Following the three-year period during which the tax authorities may inspect the balance in the revaluation reserve, this reserve may be used, free of tax, to offset prior, current or future losses or to increase capital. As from 1 January 2007 the balance may be taken to freely distributable reserves provided that the monetary capital gain has been realised. The part of the capital gain relating to depreciation that has been recorded in the accounts and capital gains on restated assets which have been transferred or written off are deemed to have been realised. In the event that the balance in this account is used in any way other than as provided under Royal Decree-Law 7/1996, the balance will become taxable.
c | SHARE PREMIUM ACCOUNT
The balance in the Share premium account is the result of share capital increases carried out in July 1998 and in January and July 1999.
The current Spanish Companies Act expressly provides that the balance in the share premium account may be used to increase capital and establishes no restriction whatsoever on the use of this balance.
d | RESERVES
Movements in the Reserve accounts are as follows:
Thousand euros Conversion share Legal Voluntary capital into reserve reserves euros Other Total Opening balance 3,849 68 75 6 3,998 Application of 2004 profit 407 - - - 407 160 Closing balance 4,256 68 75 6 4,405
Legal reserve
Appropriations to the legal reserve are made in compliance with Article 214 of the Spanish Companies Act which stipulates that 10% of the profits for each year must be transferred to this reserve until it represents at least 20% of share capital.
The legal reserve is not available for distribution. Should it be used to offset losses in the event of no other reserves being available, it must be replenished out of future profits. e | PROFIT FOR THE YEAR
Set out below is the proposal for the distribution of 2005 profits that will be submitted to the Annual General Meeting:
Thousand euros Available for distribution Profit for the year 18,588 18,588 Distribution Legal reserve 1,859 Voluntary reserve 9,000 Retained earnings 588 Dividends 7,141
18,588
11 DEFERRED INCOME
Set out below are movements in Deferred income:
Thousand euros
Opening balance 1,438 Taken to profit and loss (354)
Closing balance 1,084
161 The heading Deferred income records the apportionment of the capital gains obtained on the sale and subsequent lease of certain buildings carried out in accordance with a private contract dated 28 December 1998. This operation included a sale option benefiting a buyer which, according to the Directors of the Parent Company, will likely not be exercised as the conditions in place are not market conditions, bearing in mind the growth of the real estate sector.
12 PROVISIONS FOR LONG-TERM LIABILITIES AND CHARGES
Set out below are the balances in these provisions as at 31 December 2005 and movements during 2005:
Thousand euros
Opening balance 653 Appropriations charged to profit and loss Staff costs (Note 17 d) 37
Closing balance 690
DURO FELGUERA 2005 ANNUAL REPORT ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
13 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
a | ANALYSIS BY MATURITY DATES
The maturity dates of non-trade creditors are as follows:
Thousand euros Amounts owed to Uncalled Taxes and Bank Group and associated amounts on social security loans companies shares held refundable Total 2006 8,961 40,805 - - 49,766 2007 5,327 - - - 5,327 2008 2,878 - - - 2,878 Indefinite 1,483 9,000 905 195 11,583 18,649 49,805 905 195 69,554 Less amounts falling due within one year (8,961) (40,805) - - (49,766)
Creditors falling due after more than one year 9,688 9,000 905 195 19,788
b | BANK LOANS
Set out below is an analysis of bank loans and overdrafts as at 31 December 2005:
Thousand euros Utilised Interest rates Limit Long-term Short-term Credit facilities: 162 Secured by real property In euros Euribor + 0.5% - 2,832 7,371 In euros Euribor + 0.6% - - 737 In euros Euribor + 0.65% - - 13 In euros Euribor + 0.7% - 504 - In euros Euribor + 0.75% - 3,018 676 In euros Euribor + 0.8% - 1,482 - In euros Euribor + 0.9% - 1,852 - In euros Euribor + 1% - - 5
Interest - 159
9,688 8,961 14 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR a | TRADE CREDITORS Thousand euros 2005 2004 Creditors for purchases or services received 47,872 33,183 Advance payments from customers 50,240 12,638
98,112 45,821 b | OTHER NON-TRADE CREDITORS Thousand euros 2005 2004 Taxes and Social Security contributions (Note 16) 8,816 2,905 Accrued wages and salaries 2,253 1,277 Other creditors 698 826
11,767 5,008
15 PROVISIONS FOR LIABILITIES AND CHARGES AND OTHER TRADE PROVISIONS
Movements under this heading during 2005 are as follows: Thousand euros
Provision for Other guarantees provisions Total Opening balance 5,172 1,320 6,492 163 Charge for the year 4,463 390 4,853 Reversals and applications (916) (1,200) (2,116) Translation differences 168 - 168
Closing balance 8,887 510 9,397
The balance recorded under the heading Provision for guarantees mainly relates to provisions set up to in order to meet contractual terms and conditions for the completion of construction work.
DURO FELGUERA 2005 ANNUAL REPORT ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
16 CORPORATE INCOME TAX AND TAX SITUATION
Set out below is an analysis of tax and social security balances as at 31 December 2005:
Thousand euros
Debtor balances (Note 8): Deferred tax assets 5,782 Value-added tax: Spanish VAT refundable 2,040 Foreign VAT refundable 804 Input VAT pending accrual 974 International double taxation tax credits 320 Canary Island General Tax refundable 852 Current year corporate income tax refundable 60 Other 41
Less long-term deferred tax assets (Note 6) (2,866)
8,007
Creditor balances (Note 14 b): Value-added tax: VAT payable (1,996) Foreign VAT payable (1,077) Output VAT pending accrual (5,077) Output general Canary Island indirect tax pending accrual (27) Canary Island General Tax refundable (86) Withholdings on personal income tax (197) Investment income (134) Social security contributions (179) 164 Other items (43)
(8,816)
The Company pays corporate income tax on the consolidated profits of the Duro Felguera Group. The assessment bases for all the other taxes and levies are calculated separately.
Under the tax consolidation scheme, the group of companies which forms the tax assessment base must be treated as a single taxpayer for all purposes.
However, each company which forms part of the consolidated group must calculate the tax liability that would have been recorded had a separate return been filed and must record the amount of corporate income tax payable or receivable (tax credit), depending on whether the company contributes a profit or a loss to the Group.
Corporate income tax expense is calculated based on the reported profit calculated in accordance with accounting principles generally accepted in Spain, which is not necessarily equal to the figure for taxable income calculated for corporate income tax purposes. Set out below is the reconciliation between the book profit for the year and taxable income:
Thousand euros
Reported profit 18,588 Corporate income tax (3,539)
Reported profit before corporate income tax 15,049
Permanent differences (4,080)
Timing differences Arising during the year: Increases 433 Arising in prior years: Increases 5 Decreases (2,216)
Prior-year tax losses (11,011)
Taxable income (1,820)
Set out below is an analysis of corporate income tax expense recorded in the profit and loss account:
Thousand euros
Current year tax base contributed to consolidated tax base (637) Reversal of deferred tax liability from timing differences (154) Reversal of deferred tax asset from timing differences 776 (15) 165 Tax credits applied due to tax-loss carryforwards yet to be offset (1,355) Capitalisation of tax credits arising for timing differences in prior years (1,948) Prior-year tax credits for double taxation (221)
(3,539)
The net permanent differences recorded by the Company basically consists of intergroup dividends, non-deductible expenses and allocations to provisions for portfolios.
Set out below is an analysis of the timing differences derived from the recognition of income and expense for accounting and tax purposes and the resulting accumulated tax effect as at 31 December 2005:
Thousand euros Timing differences Tax effect Deferred tax assets Pensions and similar obligations 8,969 3,139 Capital gains on property 1,083 379 Provisions 1,934 677 Tax-loss carryforwards applied 3,871 1,355 Other 663 232 5,782
Deferred tax liabilities Capital gains on transactions involving tangible fixed assets 563 197
DURO FELGUERA 2005 ANNUAL REPORT ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
Deferred tax assets for Pensions and similar obligations relate to the restatement of the tax effect of the amounts to be deducted over the next five years. This restatement has been made based on the single premium paid under the group life insurance contract covering pension commitments relating to retired employees externalised as at 31 December 1999, in accordance with Transitional Provision Sixteen of Law 30/95 (8 November 1995), which was declared to be in force under Law 43/1995 (27 December 1995).
In accordance with Law 24/2001 (27 December), tax losses from one year may be offset for tax purposes against profits recorded over the following fifteen years. In 2005 the tax group has capitalized the tax-loss carryforwards that it had pending at the year end. At the end of 2005 the order portfolio and the good results obtained during the year made it possible this year to determine the amount to be recovered from tax-loss carryforwards over the coming three years which has resulted in the figure reflected in these annual accounts and at the current time there are no further tax- loss carryforwards to be recognized.
The tax-loss carryforwards yet to be offset at 31 December 2005 total K¤3,871 and relate to 2003.
At 31 December 2005 tax credits pending application for double taxation and investments are as follows:
AVAILABLE UNTIL Thousand euros 2007 13 2008 8 2009 77 2010 3 2011 30 2012 252 2013 123 2014 152 658 166 All the Company’s tax returns for the main taxes to which it is subject are open to inspection by the tax authorities for the years which are not statute-barred. Taxes may not be deemed to be finally paid until the four-year prescription period has elapsed. The Directors do not envisage any further significant liabilities in the event of a tax inspection and have therefore recorded no provisions in the accompanying annual accounts.
17 INCOME AND EXPENSE
a I TRANSACTIONS DENOMINATED IN FOREIGN CURRENCY
Transactions effected in foreign currencies are set out below: Equivalent value in thousand euros
Net purchases 11,892
Other external expenses 1,611
Sales 18,424
At 31 December 2005 the Company had obtained currency hedges for an approximate total of $6 million at an exchange rate ranging between 1.19 USD/ and 1.25 USD/ falling due at different dates over the course of 2006. b | ANALYSIS OF NET TURNOVER
Net turnover from the Company’s ordinary activities is analysed below by geographical area:
Market %
Domestic market 54 Foreign market 46
100
Set out below is an analysis of net turnover by activity:
Activity %
ndustrial plants line 4 Energy line 94 Other 2
100 c | SUPPLIES Thousand euros 2005 2004 Materials consumed: - Net purchases 78,581 51,148 - Other external expenses 67,272 32,019
145,853 83,167 167 d | STAFF COSTS Thousand euros 2005 2004 Wages, salaries and similar remuneration 12,886 9,510 Contributions and provisions for pensions (Note 12) 37 97 Staff welfare expenses 2,066 1,518
14,989 11,125 e | AVERAGE NUMBER OF EMPLOYEES BY CATEGORY
Category Average Number University graduates 105 Skilled technicians 31 Other technicians 52 Administrative staff 22 Other 1
211
DURO FELGUERA 2005 ANNUAL REPORT ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
18 FINANCIAL INCOME AND EXPENSE
Net financial income/expense is composed as follows: Thousand euros 2005 2004 Extraordinary profit: Income from shareholdings: - Group companies (Note 6 a) 2,809 1,920 Income from other negotiable securities and long-term loans to: - From non-Group companies 487 498 Other interest and similar income: - Group companies (Note 6 a) 1,015 1,244 - Other interest 251 120 Gains on exchange 4,884 985
9,446 4,767
Less extraordinary losses: Financial and similar expenses: - Amounts owed to Group companies (Note 6 a) (500) (523) - Amounts owed to third parties and similar expenses (942) (831) Changes in provisions for investments (3) - Interest applied to the pension provision - (16) Losses on exchange (2,459) (2,315)
(3,904) (3,685)
Net financial income/(expense) 5,542 1,082
19 EXTRAORDINARY ITEMS 168 Extraordinary items are analysed as follows: Thousand euros 2005 2004 Extraordinary profit: Reclassification to gain on sale of fixed assets (Note 11) 354 350 Profit on disposal of tangible and intangible fixed assets and controlling shareholdings 52 4,046 Extraordinary income 41 1,028 Income relating to prior years 14 36
461 5,460
Less extraordinary losses: Loss on fixed assets (4) (17) Changes in provisions for tangible and intangible fixed assets and controlling shareholdings 3,757 (5,035) Extraordinary expenses (688) (794)
3,065 (5,846)
Net extraordinary income/(expense) 3,526 (386) 20 OTHER INFORMATION a | DIRECTORS’ REMUNERATION
Salaries, expense allowances and other remuneration accruing in favour of the Board of Directors during 2005 amount to K 1,273.
The breakdown of balances and transactions with companies that pertain to the Company’s Board of Directors is set out below:
Thousand euros
Supplies and other Disposals of Meeting attendance operating charges fixed assets allowances
3,123 - 789
For the purposes of Article 127 of the Spanish Companies Act and with respect to the activities of the Members of the Board of Directors, the following is hereby noted:
The Chairman, Mr. Juan Carlos Torres Inclán, holds no interest in, and no position at, companies with an identical, similar or complementary corporate purpose as DURO FELGUERA, S.A. Neither does he carry out activities on his own behalf, or on behalf of third parties, that are identical, similar or complementary to those carried out by DURO FELGUERA, S.A. and subsidiaries.
The Vice-Chairman, Mr. José Luis García Arias holds a 37.78% interest in the Company Cartera de Inversiones Melca, S.L. which is, in turn, the single shareholder of Arside Construcciones Mecánicas, S.A., which carries out activities that are similar or complementary to those carried out by Duro Felguera, S.A. and subsidiaries. 169 The Director TSK ELECTRONICA Y ELECTRICIDAD, S.A. carries out activities that are complementary to those of Duro Felguera, S.A. Its representative on the Board of Directors, Mr. Sabino García Vallina, is the Managing Director of TSK ELECTRONICA Y ELECTRICIDAD, S.A. and is also a Director of the company PHB WESSERHÜTE, S.A. and subsidiaries. Mr. García Vallina holds 50% of the shares in TSK ELECTRONICA Y ELECTRICIDAD, S.A.
The Director PHB WESSERHÜTE, S.A. engages in activities that are similar and complementary to those of Duro Felguera, S.A. Its representative on the Board of Directors, Mr. Carlos Vento Torres represents the Dutch Group NEM BV, which is dedicated to the design and manufacture of steam recovery boilers and, therefore, an activity that is similar or complementary to that of Duro Felguera, S.A. and subsidiaries.
The Director, INVERSIONES SOMIO, S.R.L., holds no interest in, and no position at, companies with an identical, similar or complementary corporate purpose as DURO FELGUERA, S.A. Similarly, its representative on the Board of Directors, Mr. Juan Gonzalo Álvarez Arrojo does not carry out activities on his own behalf, or on behalf of third parties, that are identical, similar or complementary to those carried out by DURO FELGUERA, S.A. and subsidiaries.
The Director, INVERSIONES EL PILES, S.R.L., holds no interest in, and no position at, companies with an identical, similar or complementary corporate purpose as DURO FELGUERA, S.A. Similarly, its representative on the Board of Directors, Mr. Ángel Antonio del Valle Suárez does not carry out activities on his own behalf, or on behalf of third parties, that are identical, similar or complementary to those carried out by DURO FELGUERA, S.A. and subsidiaries.
The Director, CONSTRUCCIONES URBANAS DEL PRINCIPADO, S.R.L., holds no interest in, and no position at, companies with an identical, similar or complementary corporate purpose as DURO FELGUERA, S.A. Similarly, its representative on the Board of Directors, Mr. Manuel González González does not carry out activities on his own behalf that are identical, similar or complementary to those carried out by DURO FELGUERA, S.A. and subsidiaries.
DURO FELGUERA 2005 ANNUAL REPORT ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
The Director, RESIDENCIAL VEGASOL, S.R.L., holds no interest in, and no position at, companies with an identical, similar or complementary corporate purpose as DURO FELGUERA, S.A. Similarly, its representative on the Board of Directors, Mr. José Antonio Aguilera Izquierdo does not carry out activities on his own behalf, or on behalf of third parties, that are identical, similar or complementary to those carried out by DURO FELGUERA, S.A. and subsidiaries.
The Director IMASA INGENIERIA, MONTAJE y CONSTRUCCIONES, S.A. carries out activities that are similar or complementary to those carried out by DURO FELGUERA, S.A. Its representative on the Board of Directors, Mr. Tomás Casado Martínez is a Director and significant shareholder of IMASA INGENIERIA, MONTAJE y CONSTRUCCIONES, S.A. Mr. Casado Martínez holds a 20.75% interest in IMASA INGENIERIA, MONTAJE y CONSTRUCCIONES, S.A.
The Director, Marcos Antuña Egocheaga , holds no interest in, and no position at, companies with an identical, similar or complementary corporate purpose as DURO FELGUERA, S.A. Neither does he carry out activities on his own behalf, or on behalf of third parties, that are identical, similar or complementary to those carried out by DURO FELGUERA, S.A. and subsidiaries.
The Director, Mr. José Manuel Agüera Sirgo, holds no interest in, and no position at, companies with an identical, similar or complementary corporate purpose as DURO FELGUERA, S.A. Neither does he carry out activities on his own behalf, or on behalf of third parties, that are identical, similar or complementary to those carried out by DURO FELGUERA, S.A. and subsidiaries.
The Director Mr. Acacio Faustino Rodríguez García holds on interest in and no position at companies with an identical, similar or complementary corporate purpose as DURO FELGUERA, S.A. Neither does he carry out activities on his own behalf, or on behalf of third parties, that are identical, similar or complementary to those carried out by DURO FELGUERA, S.A, and is the Managing Director of the consulting firm UNILOG, which advises companies and sporadically acquires small shareholdings in companies with corporate purposes that are similar or complementary to that of Duro Felguera, S.A. but these shareholdings do not allow for control and generally relate to companies that are not in the same market segment as DURO FELGUERA, S.A. and subsidiaries.
b I ENVIRONMENTAL INFORMATION 170 The Company has adopted the necessary measures to protect and improve the environment and to minimise the environmental impact, if applicable, in compliance with current environmental legislation.
c I AUDITORS’ FEES
The fees charged in 2005 by PricewaterhouseCoopers Auditores, S.L., for audit services amounted to K 83. 21 JOINT VENTURES AND BRANCH OFFICE a I JOIN VENTURES
The Company participates in several joint ventures with other companies. The percentage interest in their operating funds and accounts receivable and payable, as well as transactions with the joint ventures (UTES), are offset when balances are proportionally recorded in the joint venture’s balance sheet and profit and loss account items, while excess amounts (or shortfalls) recorded with respect to the other partners in the joint venture remain in the account.
A breakdown of these joint ventures as at 31 December 2005, the interest held and other relevant information is set out below: Thousand euros
Registered % Share Profit for Company Activity office Shareholding capital Reserves the year
UTE C.C.San Roque Civil engineering for combined cycle plants Madrid 50% 6 - (15) UTE C.C. Besos Civil engineering for combined cycle plants Madrid 50% 6 - (3) UTE C.C. Castejón Civil engineering for combined cycle plants Gijón 50% 6 - (4) UTE C.C. Puentes Civil engineering for combined cycle plants La Felguera 50% 10 - 413 UTE C.C. Barranco II Civil engineering for combined cycle plants La Felguera 50% 10 - 1,612 UTE C.C. Barcelona Civil engineering for combined cycle plants Madrid 50% 10 - 2 b | BRANCH OFFICE
As indicated in Note 3 s), the Company has two branch offices. Duro Felguera S.A., Sucursal México was formed on 15 January 2002 and its corporate purpose is the assembly, maintenance and repair of mechanical equipment and installations. Duro Felguera S.A., Stabile Organizazione in Italia was formed on 15 September 2005 and its corporate purpose is the turn-key construction of a de-sulphuring plant at the Thermal plant in Monfalcone (Italy). 171 This branches’ most significant transactions incorporated into Duro Felguera, S.A.’s accounts in 2005 are set out below:
Branch in Mexico Branch in Italy
Net turnover 25,476 613 Supplies 21,900 517 External services 6,391 90 Financial expense 4 - Profit for 2005 to be included 805 -
22 POST BALANCE SHEET EVENTS
The Company’s Board of Directors held a meeting on 31 January 2006 and agreed to distribute an interim dividend charged against 2005 results, totalling 0.16 per share.
DURO FELGUERA 2005 ANNUAL REPORT ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
23 GUARANTEES AND OTHER CONTINGENCIES
As at 31 December 2005 the Company had furnished the following guarantees, directly or indirectly, relating basically to guarantees for sale agreements and guarantee deposits for loans and bank guarantees: Thousand euros
Felguera Montajes y Mantenimiento, S.A. 1,500 Montajes de Maquinaria de Precisión, S.A. 1,000 Felguera Revestimientos, S.A. 453 Técnicas de Entibación, S.A. 601 Felguera Construcciones Mecánicas, S.A. 6,101 Duro Felguera Plantas Industriales, S.A. 45,499 Felguera Parques y Minas, S.A. 600 Felguera Calderería Pesada, S.A. 9,363 Felguera Melt, S.A. 5,062 Felguera Rail, S.A. 13,420 Felguera Calderería Pesada Servicios, S.A. 150 Turbogeneradores de México, S.A. de C.V. 7,088
90,837
The Company also records the following commitments as at 31 December 2005: Thousand euros
Guarantee facilities and multi-user credit lines 168,106 Guarantees under sales agreements in the process of enforcement 150,205 Other items 660
318,971 172 5 5 53 775 343 828 2004 4,288 4,631 4,999 2,353 12,816 - - - Thousand euros 133 133 2005 1,561 2,126 2,477 3,687 14,718 21,015 From Group companies Group From Other investments Public institutions, long-term Tangible fixed assets Tangible Investments Uncalled amounts on shares held on shares Uncalled amounts of funds sources Total SOURCE OF FUNDS operations from Funds generated falling due after one year Debts of fixed assets disposal from Proceeds to or reclassification Early redemption of Investments short-term - 46 154 124 2004 2,638 1,000 2,838 1,000 3,962 8,854 - - - 158 144
Thousand euros 173 2005 2,772 6,110 3,074 9,184 11,831 Amounts owed to Group companies Amounts owed to Group Intangible fixed assets fixed assets Tangible Investments APPLICATION OF FUNDS APPLICATION of fixed assets Purchases Dividends and attendance allowances liabilities of due after one year to current Repayment or reclassification obligations and similar for pensions Provisions application of funds Total in working capital) over application of funds (Increase of sources Surplus Set out below are the Statements of Source and Application of Funds for 2005 2004: the Statements of Source Set out below are STATEMENTS OF SOURCE AND APPLICATION OF FUNDS OF SOURCE 24 STATEMENTS
DURO FELGUERA 2005 ANNUAL REPORT ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2005
a | CHANGE IN WORKING CAPITAL
Thousand euros 2005 2004 Increases Decreases Increases Decreases Inventories - (2,032) - (682) Debtors 16,389 - 31,285 - Creditors - (49,765) - (17,939) Current asset investments 14,829 - - (3,827) Cash at bank and in hand 32,410 - 17 -
Total 63,628 (51,797) 31,302 (22,448)
Change in working capital 11,831 8,854
b | CALCULATION OF FUNDS GENERATED FROM OPERATIONS
Thousand euros 2005 2004 Profit for the year 18,588 4,077
Increases:
Fixed asset depreciation 249 257 Appropriations to provision for pensions and similar obligations 37 113 Allocation to the provision for investments 3 7,016 174 Losses from tangible and intangible fixed assets 4 17
Total increases 293 7,403
Decreases:
Profit on disposal of tangible and intangible fixed assets (52) (4,044) Deferred income taken to profit and loss for the year (354) (350) Reversal of provision for pensions and similar obligations - (106) Net reversal of provision for investments (3,757) (1,981)
Total decreases (4,163) (6,481)
Total funds generated from operations 14,718 4,999 DURO FELGUERA, S.A. Directors’ Report for 2005
The activities of Duro Felguera, S.A. may be classified into three areas:
- It acts as a holding company for several subsidiaries and collects the dividends that they distribute. - It renders services together with all group companies. - It directly carries out the group's activities related to the energy segment.
As a holding company it is the leading Company of a group of 22 entities, among which there are four diverse manufacturing shops, six auxiliary industrial service companies and 11 companies focusing on the integral management of large projects in the fields of energy, mining and fuel storage.
The shared services that Duro Felguera, S.A. renders relate to Board of Directors, legal advisory services, human resource management and financial management. These services cover taxes, administration and consolidation, foreign commerce services and all the activities relating to financial investments and the financing of the Company. Financial management is carried out on a centralized basis and during the year a modern cash management information system has been installed.
In terms of business activities, the group channels the integral management of large energy projects.
In prior years Duro Felguera made a strategic choice that allowed it to grow from a typical industrial group into an engineering, plant construction and industrial service company whose customers are all in the industrial fields. The development of the sector on a worldwide basis over the past few years has tended to be more focused on turn-key contracts under which a manager is responsible for the necessary integration of several specialties to attain the objectives that the customer proposes in terms of quality, deadlines and budget for the construction of large industrial plants. Duro Felguera, due to its extensive experience as an industrial group held the knowledge necessary to carry out this type of activity.
In this connection the Company's energy section quickly became the driver of the Group's growth and at this time it 175 has been fully consolidated.
For the second consecutive year, in 2005 it has attained record contract figures. Contract volumes reached ¤ 358 million this year.
Its activity focuses on the construction of combined cycle of electric plants, simple cycle plants and de-sulphuring plants. Sales during the year totalled 199 million with EBITDA amounting to 17 million.
Over the course of the years the projects in this area have been developed under regular performance patterns and have obtained similar positive results. Therefore the Company not only has extensive technical experience but also a statistical basis that allows it to make reliable estimates of results based on its knowledge of the portfolio for which it is under contract. The activities of this area have never given rise to the execution of any guarantees provided or the application of any penalty for any failure to comply with technical commitments or group deadlines.
The subsidiaries involved in this area have on occasion entered into litigation with suppliers. At the start of the year four litigation processes were open which, at this date, have been resolved in full in a manner anticipated by the Group. The end of these litigation processes has therefore not given rise to any modification with respect to the previous accounts.
During the year foreign contracts in this area have increased, particularly in Italy and in Peru. Expectations are that in 2006 contract levels will continue to be close to those obtained in prior years although in 2006 and subsequent years higher international activity is expected, particularly focused on Europe and Latin America.
Duro Felguera, S.A. owns none of its own shares. The Company did not make any research and development investments during the year.
DURO FELGUERA 2005 ANNUAL REPORT