ANNUAL REPORT 2006 _ WorldReginfo - 55e28e9b-e3ff-41cc-974f-1728fd238442 WorldReginfo - 55e28e9b-e3ff-41cc-974f-1728fd238442 WorldReginfo - 55e28e9b-e3ff-41cc-974f-1728fd238442 Index_ 08_ 42_ 2006 ANNUAL REPORT ACTIVITIES EVOLUTION 10_ Letter to the Shareholders 44_ Water and Sewerage 16_ Board of directors 54_ Health 18_ Stock Market Performance 60_ Inspection and Certifi cation 24_ Highlights 68_ Other Activities 28_ Sustainability and Commitment 32_ Agbar Foundation 40_ CETaqua WorldReginfo - 55e28e9b-e3ff-41cc-974f-1728fd238442 72_ 252_ FINANCIAL STATEMENTS PROPOSED RESOLUTIONS 74_ Sociedad General de Aguas de Barcelona, S.A. 134_ Sociedad General de Aguas de Barcelona, S.A. Grup Agbar WorldReginfo - 55e28e9b-e3ff-41cc-974f-1728fd238442 Water & Wastewater Health Inspection & Certifi cation AGBAR GROUP The Agbar Group operates in areas related with services to the ge- neral population: integral water cycle, health, and inspection and certifi cation, among others. Our international expansion, with a pre- sence in fi ve continents, confi rms our leadership and potential for growth as a company that serves more than 37 million inhabitants worldwide, with a workforce of over 25,000 employees, consolida- ted revenues of 3,121 million euros and a net income attributed to the Parent Company of 167.3 million euros in 2006. CONTRIBUTION BY SEGMENT TO OPERATING REVENUES AND INCOME Operating revenues 2006 IFRS Operating income 2006 IFRSB 45,7% 67,2% 34,9% 24,4% 17,4% 11,4% 2,0% OTHERS -3,0% WorldReginfo - 55e28e9b-e3ff-41cc-974f-1728fd238442 WWaterater & WWastewaterastewater HHealthealth IInspectionnspection & CCertifiertifi ccationation HIGHLIGHTS Share price in 2006 Stock Market Perfomance in 2006 29,00 160 28,00 155 27,00 150 26,00 145 140 25,00 135 24,00 130 23,00 125 22,00 120 21,00 115 20,00 110 19,00 105 18,00 100 17,00 95 JAN FEB MAR APR MAY JUN JUL AUG SET OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SET OCT NOV DEC (Values in euros) (Index base 100 = 30/12/05) High Low Close AGBAR IBEX-35 IBEX-MID CAP Gral. Madrid INTERNATIONAL PRESENCE Andorra Colombia Denmark Holland Mexico Slovakia Argentina Costa Rica Ecuador India Nicaragua South Korea Australia Cuba Germany Italy Nigeria Spain Belgium Chile Finland Japan Panama United Kingdom Brazil China France Luxembourg Portugal United States Canada Czech Republic Guatemala Malaysia Singapore WorldReginfo - 55e28e9b-e3ff-41cc-974f-1728fd238442 _2006 ANNUAL REPORT 10_ Letter to the Shareholders 16_ Board of Directors 18_ Stock Market Performance 24_ Highlights 28_ Sustainability and Commitment 32_ Agbar Foundation 40_ CETaqua WorldReginfo - 55e28e9b-e3ff-41cc-974f-1728fd238442 9_ WorldReginfo - 55e28e9b-e3ff-41cc-974f-1728fd238442 01_1 AGBAR GROUP: 2006 ANNUAL REPORT Letter to the Shareholders_ On the occasion of the presentation of the Annual Accounts and the Manage- ment Report for 2006, I would also like to submit to you the results achieved by the Agbar Group in 2006 and to highlight our will to continue working in order to achieve added value for the Company, pre-empt demands by administrations and the public, and reinforce the ethics and responsible commitment underly- ing our activity. The Board presents reasonably positive results. In the past few months, we have seen the end of the transition period for the restructuring of the business portfolio, which has led to very signifi cant extraordinary results, and a horizon on which the Company relies more and more on its capacity to generate recurrent profi t. From this standpoint, one can say that the balance for 2006 is satisfactory, since the Group’s three strategic sectors evolved positively, and this is shown in the rise in both revenue and operating income. Acquisitions and important opera- tions within the Water and Wastewater, Health and Inspection and Certifi cation sectors enable us to face the future in good condition. This is our conviction. It is also the main theme running through the report you are holding in your hands, which is presented in a new form and according to the standards of good cor- porate governance. A POSITIVE ECONOMIC FRAMEWORK 2006 was marked by signifi cant growth in the world’s economy, with relatively contained infl ationary pressures thanks to moderate oil prices in the second half of the year, although that did not prevent rises in interest rates. The main motor was again the United States (despite the real estate crisis the country is currently experiencing, which could have adverse effects on the global economy) together with sustained growth in China and India, and Japan’s relative recovery. WorldReginfo - 55e28e9b-e3ff-41cc-974f-1728fd238442 01_1 LETTER TO THE SHAREHOLDERS “Operations in Agbar Group’s three basic sectors evolved positively in 2006” 11_ The Spanish economy closed 2006 with 3.9% growth, 0.4% higher than in 2005 and 0.1% higher than the Spanish Government’s forecast. This growth is set against a more stable background, since it is more dependent on the foreign sector and on higher investment in capital goods. However, Spain’s trade defi cit has continued to grow faster than that of neighbouring countries. This is undoubtedly an obstacle to sustainable growth of the Spanish economy in the medium term. The Government foresees a positive scenario for the next two years, with 3.4% growth in 2007 and infl ationary pressures in check. Throughout 2006, infl ation was better behaved. The Consumer Price Index (CPI) was 2.7%, one point less than in 2005 and closer to the Government’s initial target. But, at 0.8% above that in the rest of our European partners, infl ation has still continued to weigh down competitiveness. In spite of some worrying geopolitical events which could impact upon energy prices, the background against which the Group’s activity will develop in the next few months, both in Spain and abroad, forms a favourable framework for the consolidation and expansion of our business units. THE FOUNDATIONS OF GROUP GROWTH Over the year, the Group continued to create the grounds for sustained growth. It opted for the growth-profi tability binomial, focusing on three main sectors (Water and Wastewater, Health, Inspection and Certifi cation), with an important disinvest- ment from activities without the same value for the Group. Along these lines, dis- investment from the Installations and Construction sector was completed, with the selling of the remaining 40% stake in ACSA and the transfer of the total 50% stake in EMTE. Within the same strategy, Agbar left Argentina and Uruguay, as it believed it was not possible to achieve the profi tability and safety objectives the Company had established. WorldReginfo - 55e28e9b-e3ff-41cc-974f-1728fd238442 01_1 AGBAR GROUP: 2006 ANNUAL REPORT This strategy was completed with important acquisitions, among which Bristol Water Group, in the Water and Wastewater sector in the United Kingdom, stands out; the RTD Group, involved in certifi cation in Holland; the K1 Group, a company dealing with vehicle inspections (MOT) in Finland; and the acquisition by Adeslas of three clinics in Spain. After this reorganization of activities, it can safely be said that the Agbar Group has the solid foundations to face the challenges of the next few years, from the standpoint of a reinforced leadership in the markets in which it operates. HIGHLIGHTS OF THE YEAR Net profi t as attributed to the Parent Company reached 167.3 million euros. Its fall compared to 2005 was due to lower, non-recurrent, atypical results, higher taxes and higher profi t attributed to minority shareholders. Net turnover reached the fi gure of 3,044 million euros, 13.5% higher than in the previous year. Interna- tional turnover increased signifi cantly, from 15.7% to 21.3%, a rise due largely to the activities developed by Agbar Chile and Bristol Water (Water), and RTD (Inspection and Certifi cation). Operating income (EBIT) reached 372.1 million euros, 22.8% more than in the pre- vious year. Without taking into consideration variations in the fi eld of consolida- tion and exchange rate evolution, organic growth of EBIT was 3.3%. This, however, would be over 10% if it did not include several non-recurrent, adverse impacts. As in other years, the item “Other Results” stands out, reaching 107.3 million euros and includes capital gains from several operations, including sales of stakes in EMTE (50%), ACSA (40%), and Aguas Décima (100%), as well as the transfer of stakes in Applus+, Caja Madrid (2.90%) and Unión Fenosa (2.32%). Corporate tax expenditure for 2006 includes 15.3 million euros in extraordinary charges, due to re-estimation of advance and deferred taxes for the Agbar Group, as a result of variations in the tax rates in Spain, and 9.3 million euros due to tax effects derived from the restructuring of the portfolio in Chile. Net profi t attrib- uted to minority shareholders amounted to 140.8 million euros, compared with 86 million the previous year, the increase corresponding mainly to the minority shareholders in Aguas Andinas. In consolidated terms, investment made by the Group’s companies as a whole was 909.5 million euros, of which 209.5 million corresponds to tangible fixed assets, 98.8 million to intangible fixed assets and 601.2 million to financial investments. The work developed by all the Group’s employees, as well as the effort made by the management team, were the determining factors in the achievement of the year’s result. At the end of the year, the total number of staff in the Group’s companies stood at 27,000, of whom 21,000 corresponded to the companies consolidated by global integration. Sociedad General de Aguas de Barcelona, S.A., Parent Company of the Agbar Group, attained a turnover of 233.5 million euros, a 1.4% increase on 2005 due to a moderate increase in average water charges and drop in water consumption re- sulting from the successful adoption of conservation habits.