1 ANNUAL REPORT 2 Commercial Offices Valparaíso San Ignacio, 348 San Ignacio La Calera, 673 Latorre Av. San Felipe, 233 Freire Valparaíso Blanco, 738 Blanco Limache, 338 Urmeneta Putaendo, 670 Sarmiento Viña Del Mar, 275 1 Norte Quintero, 2025 Normandie Llay Llay, 139 San Francisco Concón, 25420 Borgoño Av. La Ligua, 255 Uribe Los Andes, 572 Santa Rosa Quilpué, 625 Claudio Vicuña Cabildo, 748 Humeres Av. San Antonio, 2352 Ramón Barros Luco Av. Villa Alemana, 654 Santiago Petorca, 535 Silva Cartagena, 390 Cartagena Av. Casablanca, 56 General Bonilla Papudo, 176 Miraflores Algarrobo, 700 Peñablanca Av. Quillota, 452 Chacabuco Zapallar, 156 Diego Sutil Central Offices Valparaíso, Cochrane 751 ANNUAL REPORT Main Offices of Esval 3 General Management and Headquarters 751 Cochrane, Valparaíso, Chile Telephone (32) 2209000, Fax (32) 2209502 Quillota Area ANNUAL REPORT 452 Chacabuco, Quillota Telephone (33) 291700, Fax (33) 310916 Mailing address: P.O. Box 66, Quillota San Felipe - Los Andes Area 233 Freire, San Felipe Telephone (34) 494300, Fax (34) 494390 Southern Coast Area 2410 Barros Luco, San Antonio Telephone (35) 205500, Fax (35) 205520 Call Center 600 600 6060 www.esval.cl [email protected] Annual Report 4 ANNUAL REPORT 5 ANNUAL REPORT Table of Contents Letter from the Chairman 7 Letter from the CEO 11 Company Information 14 Historical Account 17 Company’s Equity 20 Line of business and Activities 24 Board of Directors and Administration 26 Organizational chart 29 Management Report 31 Administration Report 55 Statement of Liability 67 Financial Statements 69 6 ANNUAL REPORT Letter from 7 the Chairman ANNUAL REPORT Dear Shareholders, On behalf of the Board of Directors, I am pleased to submit the 2011 Annual Report. Regarding the consolidated outcome at December 2011, it reached profits for $15 thousand 354 million 326 thousand, and shows a decrease of 11.2% compared to December 2010. The decrease of the outcome of 2011, compared to 2010, is of 1 thousand 938 million and 861 thousand Chilean pesos. Although the EBITDA was 3% higher than the previous year due to greater ordinary income, the significant drop of the global result is explained by a greater loss per adjustment unit (UF), when going from an UF variation of 2.45% in 2010 to 3.91% in 2011. This effect has caused a decrease in the outcome of the company for this item of -3 thousand 365 million and 363 thousand pesos. It is important to mention that the company has continued to make substantial investments that reached $25 thousand 545 million pesos, out of which 8 thousand 257 million correspond to Aguas del Valle. Said investments have mainly been aimed at improving the current infrastructure and at increasing the water resources to mitigate the effects of a severe draught that has been affecting us for the last three years. As you know, this financial year was affected by the persistence of this water shortage, which forced the company to double their human and material efforts to provide a normal supply of drinking water to the community. Regarding this matter, there are some considerations I would like to express. First, I would like to thank you, in my name and on behalf of the Board of Directors, for the personnel’s effort and for the hard work that has meant to supply all the communities under very difficult conditions, which will probably continue in the future. Second, we are pleased to report that no franchise area had any problems due to the water shortage in 2011. In this respect, the company permanently performed in a preventive manner and developed strong alternatives, broadening and interconnection works. 8 Curauma, Placilla, and the high areas of Playa Ancha, are examples of the I also want to say that, in 2011 there were important changes in the success of these efforts that had to stop being fed from the plant located senior administration of the company, because the former Chairman of at Embalse Peñuelas, due to the dramatic decrease of its reserves, which the Board of Directors, Mr. Pedro Pablo Errázuriz Domínguez, and former were practically not used. CEO, Mr. Gustavo González Doorman, submitted their resignation to ANNUAL REPORT take on other positions. We thank both for their effort and for their In order to face this situation, we had worked in advance in the commitment to the growth of Esval. interconnection of the resources existing at Las Vegas Plant, 100 kilometers away; also, Concón Plant, more than 50 kilometers away, On last 1 October, Mr. Rodrigo Azócar took on as the company’s CEO. which became the new supply sources for said areas. Given his broad professional experience, I am sure he will boost the modernization the company requires now. The Board of Directors Simultaneously, the Productive System of Concón was increased in wishes him and his work team the greatest success. 250 liters per second and, by means of an agreement with national and regional authorities and the people who irrigate, it was possible As our shareholders know, once the construction of the great works was to reinforce Los Aromos level, with the contribution of 10 wells located over, we dedicated to the renewal and broadening of the networks. In in the surroundings of Llay Llay. As a result, the supply for Concón and this context, one of the main works we carried out was the renewal of the North Coast was guaranteed; also, some areas of Viña del Mar and the water main of Alemania Avenue, between Las Cañas and Mariposas Valparaíso, including the aforementioned areas of Curauma and Placilla. Hills, with an extension of 2,678 meters and with an investment of $1,741 million. Also, a decanter in the Productive System of Poza Azul (Quilpué) was built to increase the treatment capacity from 301/s to 801/s. Likewise, Additionally, and with an investment above 754 million Chilean pesos, the conduction system from Cachagua to Zapallar was reinforced, so, the strengthening of the drinking water San Antonio-Algarrobo net all the North Coast, including Papudo, from 2011, is supplied from the was carried out. A water main was renewed and enlarged in 1,247 lineal Concón plant, as mentioned in the previous paragraph. meters to increase the availability of drinking water in 15% for the South Coast. In total, during this financial year, as a result from the draught, Esval allocated more than 6 thousand 300 million Chilean pesos to expenses It is also worth highlighting that we advanced six years of investments and investment. above 500 million Chilean pesos to change the drinking water matrices and the waste water collectors of Concepción and Alegre hills. In order to do so we entered into an agreement with the Recovery and Urban 9 ANNUAL REPORT Development Program of Valparaíso (PRDUV, in Spanish), the Honorable Municipality of Valparaíso and Serviu (Housing and Urbanism Service). We think it was a very good decision to join this urban remodeling project with the modernization of the sanitary infrastructure, because it will boost tourism and the services for these historical neighborhoods of our city. Finally, I want to thank my Board of Directors’ colleagues, and the shareholders, who trusted me to chair this important company in the V Region and Aguas del Valle, of IV Region. Therefore, I will continue working to add value to the company and to contribute with the best of all the team to the development of the Valparaíso and Coquimbo regions. Jorge Lesser García-Huidobro Chairman of the Board of Directors 10 ANNUAL REPORT Letter 11 from the CEO ANNUAL REPORT Messrs Shareholders, As CEO of Esval, I am pleased to inform you about the most relevant events occurred during financial year 2011, which, as the Chairman of the Board of Directors said, was marked by complex situations arising from the water shortage that is affecting the Valparaíso Region. In this situation, the company acted with diligence and precaution, without sparing any resources or efforts, and was able to comply with their usual customers and with the thousands of tourists that arrived to the region to enjoy the beaches, rivers, mountains and countryside. It was not an easy task, as my arrival to the company coincided with the end of the winter, when the Aconcagua River flow had decreased 87% with respect to a normal year. For this reason, I would like to leave on record the dedication and responsibility of the company’s personnel, especially those who were on the front line of the draught; also, of the authorities and representatives of the private area, with whom I found, from the first moment, a commendable collaboration spirit to face an extremely complex situation. This allowed us to face summer 2011-2012 without any important stress and to make sure that every home and family of the V Region had a secure and continuous supply. As from the last quarter of 2011, we have been working on the update of the Strategic Plan, focusing each and every worker on our clients, to be acknowledged for the service quality, closeness, empathy, credibility, regional leadership and care for the environment, closing relationships with the community and the authorities. This was made with a long- term perspective of increasing our operations level and margin, thus adding value to our shareholders. Together with the aforementioned, in the different areas an administration analysis was carried out in order to detect the most important risks at an earlier stage to determine its possible impact and mitigation measures. 12 As part of the improvement and update of the company’s practices, in In this respect, I would like to highlight that in 2011 we made an the internal order we also work for the re-certification of our Integrated important effort to de-centralize the activities and so this is how the Management System, that includes ISO 9001: 2008 (Quality Management launching of the Campaign was carried out in Valparaíso, but also in System), OHSAS 18:2007 (Occupational Safety and Health Management Las Cruces, Algarrobo and San Antonio.