Annual Report 2000 RED ELECTRICA

Annual Report 2000 RED ELÉCTRICA DE ESPAÑA RED ELÉCTRICA DE ESPAÑA TABLE OF CONTENTS KEY INDICATORS 4 THE CHAIRMAN’S LETTER 6 BOARD OF DIRECTORS AND HIGHER MANAGEMENT 10 HIGHLIGHTS OF THE YEAR 2000 12 BUSINESS ACTIVITIES 15 DEVELOPMENT OF THE TRANSMISSION GRID 16 MAINTENANCE OF THE TRANSMISSION GRID FACILITIES 26 OPERATION OF THE POWER SYSTEM 30 OTHER BUSINESSES 35 TELECOMMUNICATIONS 36 INTERNATIONAL DEVELOPMENT 40 CORPORATE MANAGEMENT 45 HUMAN RESOURCES 46 ECONOMIC AND FINANCIAL MANAGEMENT 50 MEMBERSHIP IN INTERNATIONAL ORGANISATIONS 56 CO-OPERATION AND SPONSORING ACTIVITIES 58 RESEARCH, DEVELOPMENT AND INNOVATION 60 QUALITY 64 THE ENVIRONMENT 68 SHAREHOLDERS AND STOCK MARKET PERFORMANCE 73 STATUTORY INFORMATION 77 ANNUAL ACCOUNTS 78 BALANCE SHEETS 78 PROFIT AND LOSS ACCOUNTS 80 NOTES TO THE ANNUAL ACCOUNTS 82 DIRECTORS’ REPORT 124 PROPOSAL FOR DISTRIBUTION OF RESULTS 128 AUDITORS’ REPORT 129 CODE OF GOOD GOVERNANCE 130 3 KEY INDICATORS Operating Revenues Profit after Tax billions of pesetas / millions of euros % billions of pesetas / millions of euros % 100 16 16 14 95.7 90.8 92.0 € 88.0 574.90M 15 14 13 80 13.8 14.5% 14.4% 83.13M€ 14 12 12.5 12 60 13.6% 11.5 66.3 11.2% 13 10 10.5 11 12.7% 9.5 40 10.6% 12.0% 12 8 10 9.9% 20 11 6 9 8.9% 8.4% 0 10 4 8 1996 1997 1998 1999 2000 1996 1997 1998 1999 2000 ENERGY AND POWER SALES AND OTHER REVENUES PROFIT AFTER TAX (PAT) REVENUES FROM TRANSMISSION AND SYSTEM OPERATION ROE (PAT/EQUITY) MARGIN (PAT/OPERATING REVENUES) Cash-Flow after tax Tangible Fixed Assets billions of pesetas / millions of euros % billions of pesetas / millions of euros % 32 40 400 16 38.9% 30.8 30.7 394.7 30 38 390 € 15 30.0 184.35M€ 2,371.90 M 28 36 380 381.5 13.8% 14 376.6 373.7 26 25.6 33.5% 34 370 13 25.8 12.7% 33.0% 12.4% 24 32.1% 32 360 360.8 12 11.1% 22 30 350 11.0% 11 29.1% 20 28 340 10 1996 1997 1998 1999 2000 1996 1997 1998 1999 2000 CASH-FLOW AFTER TAX GROSS TANGIBLE FIXED ASSETS CASH-FLOW AFTER TAX/OPERATING REVENUES ROA (BAIT/NET ASSETS) Financial liabilities Dividend per share billions of pesetas / millions of euros % pesetas / euros 100 100 70 98.4 69 96.2 92.0% 0.41€ 90 90 60 61 80 80.6 80 77.0% 50 51 70 69.5% 70 65.8 40 40* 60 60 55.7% 58.9 35 354.21 M€ 30 50 50 47.8% 40 40 20 1996 1997 1998 1999 2000 1996 1997 1998 1999 2000 FINANCIAL LIABILITIES FIGURES ADJUSTED TO A 3 FOR 1 SPLIT * Excluding extraordinary dividend of Pta 163 per share FINANCIAL LIABILITIES/EQUITY Size of the Grid Lines and Substations in service Trend of non-availability rate number of circuit ends kilometres of circuit % 700 20,000 3.0 2.63 OTHER REASONS 19,014 2.5 2.42 SCHEDULED MAINTENANCE 680 19,000 UNEXPECTED NON-AVAILABILITIES 18,634 18,634 18,138 18,335 2.0 660 18,000 672 1.5 1.35 646 1.17 640 17,000 1.24 1.02 637 1.0 1.15 1.1 632 0.98 620 16,000 619 0.5 0.62 0.06 0.04 0.05 0.06 0.06 600 15,000 0.0 1996 1997 1998 1999 2000 1996 1997 1998 1999 2000 THE CHAIRMAN’S LETTER Pedro Mielgo Álvarez Chairman of Red Eléctrica de España THE CHAIRMAN’S LETTER TO THE SHAREHOLDERS, The year 2000, a very important and decisive one for In the year recently ended, after tax profits amounted RED ELÉCTRICA, saw the launch of new activities. to 13,832 million pesetas, up 10.6% over the preceding Together with the service rendered to the Spanish electric year, essentially as a result of ongoing efforts to constrain power system, these activities will contribute to the costs which, as in previous years, have had visible effects. creation of value in this new stage in the life of the Return on equity came to 11.2%, in keeping with the company, initiated three years ago with the enactment of pattern of continuous improvement in profitability the Spanish Electricity Industry Act. established in recent years. The commitment to serve the Spanish electric power The company's cash flow amounted to 30,676 million industry to the very highest quality standards - the pesetas, similar to the levels reached in the last few years, company's original corporate purpose - and the creation which enables us to secure financing for new investments of value for our stockholders by developing new business under suitable terms and undertake new business initiatives activities, are the two keys to RED ELÉCTRICA's with our own resources.The excellent credit grade obtained strategy, which, in a nutshell, hinges on profitability, by RED ELÉCTRICA from the major rating agencies, sound business practice and growth. in particular as compared to similar firms in other European countries, facilitates our access to capital markets, where the The first of these items translates into excellence in company's financial solvency has been duly acknowledged. the exercise of regulated activities, in three areas: service quality, continuous improvements in internal efficiency From the operational standpoint, investment in and the incorporation of the most advanced technologies transmission grid facilities reached historic records and and practices as support for these objectives. numerous stretches of line and substation busbar positions were commissioned; this will contribute to The second materialises in the development of new maintaining and improving grid capacity and quality, in activities, capitalising on our company's assets and technical, keeping with the expected growth of the electric power professional and financial capacities, in two lines of system on the peninsula. business: on the one hand, the development of a telecommunications business strategy and on the other, The need to shorten outage times has led to the develop- foreign investment in electric power transmission grids and ment and use of cutting edge technologies, such as live wire systems, selecting investment targets that combine suitable works, which translate into better grid availability rates and degrees of profitability and risk. entitlement to higher availability incentive earnings. 7 THE CHAIRMAN’S LETTER Likewise, system operation has been conducted to the Chartered in November, RED ELÉCTRICA usual high standards of quality with a low cost to the TELECOMUNICACIONES, the subsidiary that will electric power system, thereby maintaining its place in implement that business plan, is looking forward to the upper brackets in all international comparisons. magnificent business prospects.The strategy for this new activity focuses on the provision of carriers' carrier services One very important aspect deriving from the ongoing for large companies as well as operators, in the areas of both improvement in working methods is the project for signal transmission and Internet infrastructures and services; enhancing management information systems. In this regard, it will make a gradual and decisive contribution to the electric power system operation is being restructured at a pace enhancement of the group's results in the years to come. significantly ahead of schedule.All of this will contribute to greater security and flexibility in this increasingly complex The company's investment in Peru, initiated in 1999, area, of key importance to the electric power system. reached a landmark last year with the commissioning of the first facilities, which have been generating income since The company's concern for its employees has taken a September.All the deadlines and other conditions set out in number of directions: one prominent development is a skill- the contract with the Government of Peru have been met, based management project, applied initially to executive levels much to the satisfaction and appreciation of the authorities and people with executive potential, that will subsequently be in that country and above all, in confirmation of RED extended to the entire organisation.This three-year plan will ELÉCTRICA's professional and technical capacity to rise make it possible to identify and develop executive and to challenges of this nature. professional skills to raise the organisation's quality levels and foster personal development and employability. To conduct foreign investment activities and comply with legal imperatives in connection with unbundling, the Actions for internal improvement have been Board of Directors decided to create the subsidiary RED implemented on the grounds of surveys conducted to ELÉCTRICA INTERNACIONAL, a company evaluate employee satisfaction with various aspects of which, once chartered in the first few weeks of the year, working conditions, organisation and other issues. will strengthen the development of this line of business. The company's telecommunications business strategy is Share performance was very satisfactory in 2000, once reflected in the business plan approved by the Board of the markets fully understood the company's potential for Directors in May and presented to the markets shortly development, its solvency and profitability, particularly with thereafter, with excellent results, mirrored in the price of its respect to the telecommunications business.The rise in value shares since that time. 8 THE CHAIRMAN’S LETTER of the RED ELÉCTRICA security was the second pursuit of quantifiable results that are applicable to highest recorded on the Spanish exchange and higher than working systems and procedures and, in many cases, of rises for all other public utilities listed anywhere in Europe. commercial value as well.The number of patents or Total returns for shareholders, including dividends and operational models registered stands as eloquent proof of appreciation, amounted to 71%.A year and a half since the excellence achieved in this area.

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