economic and financial information 2003 - duro · pdf filenet turnover (note 19b) ... ute ct...

Economicand Financial

Information

2003Consolidated Annual Accounts

and Director’s ReportRelative to 2003

econ

omic

and

fin

anci

al in

form

atio

n

74

Consolidated Annual Accountsand Director’s Report

Relative to 2003

Balance sheet

Profit and loss account

Activity and structure of the Group

Statements of source and application of funds

Director’s Report

1 | Duro Felguera, S.A. and Subsidiaries

Auditor’s Report

2 | Consolidated Group

75

economic and financial inform

ation

Auditor’s report

econ

omic

and

fin

anci

al in

form

atio

n

76

Consolidated Annual Accountsand Director’s Report Relative to 2003

DURO FELGUERA, S.A. AND SUBSIDIARIESConsolidated Balance Sheets as at 31 December 2003 and 2002

ASSETS

Fixed assets

Formation expenses (note 4)Intangible fixed assets (note 5)Tangible fixed assets (note 6)Investments (note 7)

Goodwill on consolidation

Deferred expenses

Current assets

Inventories (note 8)Debtors (note 9)Current asset investments (note 10)Cash at bank and in handAccruals, prepayments and deferred income

TOTAL ASSETS

2003

81,590

2519,683

54,03817,618

17

143

186,223

24,909137,089

4,55619,573

96

267,973

2002

63,195

35110,27741,66210,905

630

408

310,906

17,900257,40225,7459,658

201

375,139

Thousand euros

77


ation

LIABILITIES

Capital and reserves (note 11)

Share capitalShare premium accountRevaluation reserveOther parent company reservesReserves in consolidated companiesTranslation differencesNegative difference on first consolidationProfit / (loss) for the year attributed to parent company

Minority shareholders (note 12)

Negative consolidation differences

Deferred income (note 13)

Provision for liabilities and charges (note 14)

Creditors: amounts falling due after more than one year (note 15)

Bank loans and overdrafts (note 15b)Uncalled amounts on shares heldOther creditors

Creditors: amounts falling due in less than one year (note 16)

Bank loans and overdrafts (note 15b)Short term payables to Associated companiesTrade creditors (note 16a)Other creditors (note 16b)Provisions for liabilities and charges and other trade provisions (note 17)Accruals, prepayments and deferred income

TOTAL LIABILITIES

2003

53,268

44,6323,913

95813,146

(3,505)(488)5,329

(10,717)

7,105

27

6,321

1,832

15,856

14,820906130

183,564

34,83417

117,46920,58310,643

18

267,973

2002

67,204

44,6323,913

95812,045(4,140)(1,226)

5,3295,693

4,878

1

7,198

12,172

48,638

48,6091712

235,048

54,10017

149,65825,507

5,74719

375,139

econ

omic

and

fin

anci

al in

form

atio

n

78


DURO FELGUERA, S.A. AND SUBSIDIARIESConsolidated profit and loss accounts for the years ended 31 December 2003 and 2002

EXPENSES

Reduction in inventories of finished goods and work in progressRaw materials and consumables (note 19c)Staff costs (note 19d)Fixed asset depreciationChanges in trade provisions (note 19f)Other operating charges

Operating profit

Financial expense and expenses and losses onfinancial investments (note 20)Interest applied to the pension provision (note 20)Losses on current asset investmentsChange in provisions for investmentsLosses on exchange (note 20)

Share in losses of companies consolidated using equity methodAmortisation of goodwill on consolidation

Profit from ordinary activities

Consolidated profit before taxes

Corporate income tax (note 18)Other taxes

Consolidated profit for the year

Profit attributable to minority shareholders

Profit for the year attributed to the Parent Company

2003

-206,593

92,8835,4014,339

46,493

3,243

2,97226

-(42)

11,666

221156

-

-

1,86613

-

362

-

2002

30,918257,819106,704

4,9863,962

44,268

17,865

3,29250218

6,946

-72

12,261

8,588

1,776492

6,320

627

5,693

Thousand euros

79


ation

INCOME

Net turnover (note 19b)- SalesIncrease in inventories of finished goods and work in progressOwn work capitalised Other operating income (note 19g)

Income and profit from financial investmentsand other interest (note 20)Gains on exchange (note 20)

Net financial loss (note 20)

Share in profits of companies consolidated using equity method

Loss on ordinary activities

Net extraordinary loss (note 21)

Consolidated loss before taxes

Consolidated loss for the year

Loss for the year attributed to the Parent Company

2003

342,8918,0366,4541,571

9156,467

7,240

-

4,374

4,102

8,476

10,355

10,717

2002

463,996-

1,642884

7383,911

5,668

136

-

3,673

-

-

-

econ

omic

and

fin

anci

al in

form

atio

n

80


Duro Felguera, S.A. (the Parent Company) was set up as a Spanish public limited company ("sociedadanónima") for an indefinite period on 22 April 1900, although the Company’s name was SociedadMetalúrgica Duro-Felguera, S.A. until 25 June 1991. Subsequently it changed its name to Grupo DuroFelguera, 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 capitalgoods industries, engaging in construction, manufacturing and fitting work under turnkey contracts, aswell as marketing, distribution, construction and installation services involving energy obtained fromsolid and liquid fuels. The Company’s objects also cover the promotion, formation, extension, develop-ment and modernisation of industrial, commercial and service companies in Spain and abroad, providedsuch companies are engaged in any of the activities listed above. It may also acquire and hold fixed orvariable income securities issued by all kinds of entities.

In 1991 Duro Felguera, S.A. completed the process whereby certain divisions which engaged in activitiesrelating to engineering projects, fitting and maintenance of industrial equipment and machinery weretransformed into companies with their own separate legal personality. In order to set up these investeecompanies, Duro Felguera, S.A. had to contribute the human, material and financial resources requiredto carry on their respective activities. Duro Felguera, S.A. therefore transferred the personnel working ineach activity and contributed the capital required in the form of contributions in cash and in kind, mainlybuildings, machinery and production equipment. It also grouped together the different investee compa-nies which operate in the capital equipment sector into an industrial sub-group led by a wholly ownedcompany, Duro Felguera Plantas Industriales, S.A.

In the final quarter of 2000, the Group carried out further restructuring, grouping together the compa-nies engaged in workshop activities under the subsidiary Duro Felguera Equipos y Montajes, S.A. Theengineering companies were grouped together under Duro Felguera Plantas Industriales, S.A. The res-tructuring process was completed through the decision whereby large orders are to be executed by DuroFelguera, S.A., in addition to this company’s role as Parent and holding company of the Duro FelgueraGroup.

1 | Activity and structure of the Group

81


ation

Company

Consolidated using full consolidation method:Duro Felguera Plantas Industriales, S.A.Felguera Melt, S.A.Acervo, S.A.Inmobiliaria de Empresas de Langreo, S.A.Forjas y Estampaciones Asturianas, S.A.Felguera Grúas y Almacenaje, S.A.Felguera Montajes y Mantenimiento, S.A.Montajes de Maquinaria de Precisión, S.A.Felguera Revestimientos, S.A.Técnicas de Entibación, S.A.Felguera Parques y Minas, S.A.Felguera Calderería Pesada, S.A.Felguera Calderería Pesada Servicios, S.A.Felguera Construcciones Mecánicas, S.A.Felguera I.H.I., S.A.Duro Felguera Equipos y Montajes, S.A.Duro Felguera México, S.A. de C.V.Turbogeneradores de México, S.A. de C.V.Duro Metalurgia de México, S.A. de C.V.Duro Felguera Power, S.A. de C.V.Duro Felguera do Brasil, Ltda.Equipamientos Construcciones y Montajes, S.A. de C.V.Operación y Mantenimiento, S.A.Felguera Tecnologías de la Información, S.A.Proyectos e Ingeniería Pycor, S.A. de C.V.Ingeniería Técnica, S.A. de C.V.Felguera Rail, S.A.Pontonas del Musel, S.A.

Consolidated using proportional consolidation method:UTE Duro Felguera Plantas Industriales-KalfrisaUTE Duro Felguera Plantas Industriales-AceraliaUTE Sinter Nº 5UTE SotoUTE Felguera Parques y Minas-Técnicas ReunidasUTE Abbey Etna – S.M. Duro Felguera

UTE Felguera Fluidos – S.M. Duro FelgueraUTE D.F. Plantas Industriales-F. FluidosUTE CD Ceuta

UTE CD Lanzarote

UTE CT San RoqueUTE CT BesósUTE CT CastejónUTE IHIUTE Puertollano

Consolidated using equity method:Sociedad de Servicios Energéticos Iberoamericanos, S.A.Zoreda Internacional, S.A.Kepler-Mompresa, S.A. de C.V.Secicar, S.A.Ingeniería de Proyectos Medioambientales, S.A.

MHI-Duro Felguera, S.A.Iberoamericana de Montajes, S.A.

Activity

Parent company of capital goods and engineering subsidiariesSmeltingFinanceReal estateMaterials for tunnels and minesEngineering of lifting equipmentIndustrial assembly projectsTurbine fitting and maintenanceRefractory liningsManufacture of shoring materialsEngineering of mining equipmentPressurised containers and heavy boiler makingAssembly and design of metallurgical equipment and pressurised containersManufacture of mechanical equipmentFuel and gas storage equipmentFreezing tunnels and conveyor beltsIndustrial project construction and assemblyTurbine fitting and maintenanceTrading and industrial activities relating to capital goodsFitting and maintenance of boilers and turbo generators for energy industryMarketing of capital goods and industrial componentsIndustrial project construction and assemblyLaunch, operation and maintenance of thermal plantsDevelopment of management softwareEngineeringEngineeringManufacture and assembly of railway apparatusShipping

Supply, installation and start-up of a waste incineration furnaceTinplate lineTransfer, dismantling and fitting of sintering plantIndustrial treatmentsConstruction and commissioning of pilot plantDesign, supply and fitting of pipeline with advanced rapid change system at RothristplantWater and effluent treatment system for combined cycle power station in CastejónAboño water plantsEngineering, civil engineering, supply, assembly and launch of combined cycleplants)Engineering, civil engineering, supply, assembly and launch of combined cycleplants)Civil engineering project for combined cycle power stationCivil engineering project for combined cycle power stationCivil engineering project for combined cycle power stationTurnkey construction of a liquid gas storage tankReconstruction of infrastructure and piping

Assembly and maintenance of electricity generation plants Environmental projectsAssembly of turbines and civil engineeringMarketing of fuelsConstruction and operation of hydrochloric acid regeneration plants, promotionand sale of regenerated hydrochloric acid and iron oxideEngineering, construction and repair of tunnelling machinery.Foreign engineering, construction and fitting projects

Set out below is a list of the subsidiaries, associated companies and multi-group companies, together with rela-ted information:

%

100%100%100%100%100%100%100%100%100%100%100%100%100%100%60%

100%100%100%100%100%100%100%100%60%

99.6%99.6%

55%70%

50%25%20%50%50%

48.58%

50%50%50%

50%

50%50%50%59%50%

25%40%50%

29.48%50%

45%25%

Registeredoffice

La FelgueraLa FelgueraOviedoLa FelgueraLlaneraLa FelgueraLangreoGijónLangreoLlaneraLa FelgueraGijónGijónLangreoMadridLa FelgueraMéxicoMéxicoMéxicoMéxicoBrasilMéxicoGijónOviedoMéxicoMéxicoMieresGijón

La FelgueraGijónAvilésOviedoOviedoLa Felguera

GijónGijónMadrid

Madrid

MadridMadridGijónBarcelonaLangreo

ColombiaGijónMéxicoGranadaLa Felguera

MadridPanamá

Interest

econ

omic

and

fin

anci

al in

form

atio

n

82


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84


2 | Basis of presentation

a | True and fair view

The consolidated accounts have been prepared on the basis of the accounting records of DuroFelguera, S.A. and the consolidated companies and include such timing and value adjustments andreclassifications as are necessary to bring the figures into line with Parent Company figures. Theseannual accounts are presented in accordance with current Spanish Company Law, the SpanishGeneral Accounting Plan and Royal Decree 1815/1991 containing the rules for drawing up consolida-ted annual accounts, so as to provide a true and fair view of the consolidated Group's net worth andfinancial situation and the results of its operations.

b | Consolidation principles

The consolidated annual accounts have been prepared by applying the full consolidation method tosubsidiaries and the proportional consolidation method to multi-group companies. Shares in associa-ted companies have been valued using the equity method.

All the annual accounts of the Group companies used in the consolidation process relate to the yearended 31 December 2003.

Third-party holdings in the capital and reserves and results of the consolidated subsidiaries are recor-ded under Minority shareholders in the accompanying consolidated balance sheets and Profit attri-buted to minority shareholders in the consolidated profit and loss accounts, respectively.

The results of the operations of companies acquired or sold have been included since or until the dateof acquisition or sale, as appropriate.

Changes in the net worth of the consolidated companies since the date of acquisition which cannotbe attributed to changes in the percentage holdings are recorded in Capital and reserves as Reservesin consolidated companies.

Set out below are the main changes regarding companies included in the scope of consolidationduring 2003:

Consolidated companies usingfull consolidation method:

Consolidated companies usingproportional consolidation method:

Consolidated companies usingequity method:

Felguera Rail, S.A.Pontonas del Musel, S.A.

UTE IHIUTE Puertollano

MHI - Duro Felguera, S.A.

--

UTE Ingemas – S.M. Duro FelgueraUTE Terquimsa

-

Additions Disposals

85


ation

3 | Accounting policies

c | Accounting principles

The accompanying consolidated annual accounts have been prepared in accordance with the accoun-ting principles and valuation rules generally accepted in Spain described in note 3. No mandatoryaccounting principle having a significant effect on the annual accounts has been omitted.

d | Groupings of items

For clarity, the consolidated balance sheet and profit and loss accounts are presented in a summari-sed form. Where appropriate, an analysis is provided in the relevant note to the accounts.

a | Goodwill on consolidation

The positive difference between the book value of the Parent Company’s direct or indirect interest inthe subsidiaries and the value of the proportional part of the subsidiary’s net worth attributable to theParent Company, adjusted for any latent capital gains existing on the date of first consolidation, isrecorded in the consolidation process as Goodwill on consolidation.

Goodwill on consolidation is written off over the estimated average payback period for the investmentsconcerned, which is between 5 and 10 years according to the company.

b | Negative consolidation differences

The item Negative difference on consolidation in the consolidated balance sheets records the diffe-rence between the book value of the Parent Company’s direct or indirect holding in the capital of thesubsidiaries and the value of the subsidiaries’ equity attributable to that holding, adjusted wherenecessary to account for any latent capital losses that exist on the date of first consolidation.

This difference is only taken to the consolidated profit and loss account when it relates to a realisedcapital gain.

The negative differences which arose on 1 January 1991, the first year in which the Group presentedconsolidated accounts, are included in Capital and reserves on the consolidated balance sheet.

c | Balances and transactions between companies included in the consolidation

All significant balances and transactions between fully and proportionally consolidated companieshave been eliminated in the consolidation process, in accordance with the consolidation method used.

d | Uniformity

To facilitate a uniform presentation of the items making up the accompanying consolidated annualaccounts, the Parent Company’s accounting principles and standards have been applied to all compa-nies included in the consolidation.

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e | Currency translation method

The balance sheets and profit and loss accounts of foreign companies which have been consolidatedusing the proportional and full consolidation method have been translated into euros using the follo-wing method: balances for assets, rights and obligations, at the year-end exchange rate; capital andreserves, at the historical exchange rate; and the profit and loss account, at the average exchange ratefor the year.

The difference resulting from the use of this translation method is recorded in the heading“Translation differences” on the consolidated balance sheets.

f | Formation expenses

Start-up expenses, consisting of formation and capital increase expenses are capitalised at cost.

These expenses relate basically to lawyers, notary and registration fees, etc., which are amortised ona straight-line basis over five years.

g | Intangible fixed assets

Intangible assets are stated at their purchase or production cost. They are amortised using thestraight- line basis.

Expenses relating to successful research and development projects are capitalised where there aresufficient reasons to expect that the assets developed will be technically sound and profitable.Capitalised amounts are amortised on a straight line basis over five years. If the circumstances whichpermitted the capitalisation of the expenditure change, the unamortised portion is expensed in theyear of change.

Software is amortised on a straight-line basis over an estimated useful life of four years. Softwaremaintenance expenses are taken to profit and loss when incurred.

Assets being acquired under finance leases are recorded under intangible fixed assets when theterms of the lease imply that the assets should be capitalized. They are depreciated over their usefullives at the same rates as those set for similar tangible fixed assets. Financial expense is charged toprofit and loss over the term of the lease using a financial method.

h | Tangible fixed assets

Tangible fixed assets are stated at acquisition or production cost plus legally approved revaluations,including the 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 taxperiods 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 rene-wed assets are written off the accounts.

Costs relating to extensions, modernisation or improvements which increase productivity, capacity orefficiency, or extend the useful lives of the assets are capitalised as an increase in the cost of theassets concerned.

87


ation

Own work capitalised by the consolidated companies is stated at the accumulated cost calculated byadding together external and internal costs, determined based on consumption of warehouse mate-rials and manufacturing expenses, applying inventory valuation rules.

Tangible fixed assets are depreciated on a straight-line basis over their estimated useful lives. Set outbelow are the useful lives applied by the Company:

Years

Buildings 7 to 57Plant and machinery 4 to 33Fixtures, fittings, tools and equipment 3 to 33Other fixed assets 3 to 20

i | Investments

The Group uses the following accounting principles when recording investments:

1 · Fixed-income securities:

Fixed-income securities are stated at the lower of cost, including related expenses, and repaymentvalue. If the repayment value exceeds market value, which is the lower of the average market pricefor the final quarter and the year-end price, the repayment value is maintained, since the securitieswill be held to maturity.

2 · Variable-income securities:

Except for holdings in companies consolidated using the equity method, investments in all othervariable-income securities are stated at the lower of cost or market value. Market value is the lower ofthe average listed price for the final quarter and the year-end price, in the case of listed securities, orthe proportional book value of the holding as per the latest available balance sheet in the case of unlis-ted securities.

Any negative differences between cost and market value at the year end are recorded under“Investments-Provisions”.

j | Inventories

Raw and auxiliary materials and consumable and replacement materials are stated at the lower of ave-rage acquisition 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 indi-rect manufacturing expenses. The cost of these inventories is written down to their net realisablevalue if lower than production cost.

Obsolete and defective items are adjusted, based on estimates, to bring them into line with their poten-tial realisable value.

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k | 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 analy-sis of trade debtor balances.

l | 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.

m | Deferred income

Capital grants are recorded in the accounts when officially awarded, under “Deferred income”. Theyare taken to income at the same rate as the depreciation charged on the assets financed.

Other deferred income relates to capital gains on sales of certain buildings in respect of which saleoptions are held by the purchaser, lease agreements have been concluded by the Parent Company andguarantees have been furnished to the purchaser.

The amount recorded under this heading equals total lease expenses until the date the purchaseoption expires. This amount is released to profit and loss at the same rate as the costs deriving fromthe lease of these assets.

n | Provisions for pensions and similar obligations

The Company has contracted commitments with certain retired and active personnel, employees of thediscontinued 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 inde-pendent actuary and on GRMF-95 mortality tables (adjusted during the working life of the employee totake into account the possibility of disability in accordance with the Ministerial Order of 24 January1977), technical interest rates of 4% per annum and annual inflation of 3%.

o | Other provisions for liabilities and charges

These provisions relate mainly to guarantees furnished to third parties, assessments issued by ins-pectors and other items. When calculating these provisions each year, the Group companies estimatepotential future payments, charging the estimated amounts to profit and loss for the year.

p | Creditors

Long and short-term creditors are recorded at repayment value.

q | Classification of amounts payable

In the consolidated balance sheet debts are classified in accordance with the General AccountingPlan, based on when they fall due with regard to the year end. Debts which fall due within twelvemonths are regarded as short term, while debts falling due after twelve months are regarded as longterm.

89


ation

r | Transactions and balances denominated in foreign currency

Transactions denominated in foreign currency are stated at their equivalent value in euros, using theexchange rates applicable on the transaction date.

Gains or losses on exchange arising when balances are settled are taken to the profit and loss accountwhen they occur.

Every year-end balances receivable and payable denominated in foreign currency are stated in eurosat the year-end exchange rates or, where applicable, at the hedged exchange rates. Unrealised net los-ses on exchange are determined for balances due on similar dates in currencies showing similar mar-ket behaviour and are expensed. Any unrealised net gains determined in the same way are deferreduntil they are realised. In general, the Group accounts for long-term construction contracts in theamount of the specific manufacturing costs incurred in relation to each project or contract. The profitgenerated is recognised based on the percentage of completion, provided there are reasonable andreliable estimates of contract budgets, revenues, costs and progress made and there are no unusualor extraordinary risks relating to the project. Loss-making contracts are expensed in full as soon asthe relevant amounts are known.

The Group records these negative differences in order to avoid the distortion of profits obtained underthese contract as a result of losses on exchanges (which are offset on completion of the contract bygains on exchange on amounts invoiced).

s | Income and expense

Income and expense are recorded on an accruals basis, i.e. in the period in which the income orexpense deriving from the goods or services in question is earned or incurred rather than the periodin which the cash is actually received or disbursed.

For reasons of prudence, however, the Group only records profits realised at the year end, while fore-seeable risks and potential losses arising in the year or in prior years are recorded as soon as theyare known.

t | Severance indemnities

Under current employment regulations, Duro Felguera, S.A. and the consolidated companies must payindemnities to workers and employees whose contracts are terminated in certain circumstances. TheDirectors of the Parent Company and the consolidated companies do not envisage any dismissals andhave not recorded any provisions for this item in the consolidated annual accounts.

u| Corporate income tax

Corporate income tax expense for the year is calculated based on the reported profit before tax asadjusted to account for any permanent differences between reported profits and taxable income andthe effect of any tax credits and deductions, excluding any withholdings and interim payments.

Tax credits for double taxation or to encourage investment in certain activities are treated as a reduc-tion in corporate income tax expense for the year in which they are applied.

Duro Felguera, S.A. and the Spanish subsidiaries in which it has direct or indirect interests of morethan 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 DuroFelguera, S.A. and the Spanish subsidiaries.

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v | Environment

The costs incurred on acquiring systems, equipment and installations whose purpose is the elimina-tion, limitation or control of potential impact the company’s activities may have on the environmentare considered to be investments in fixed assets. All other environmental expenses other than thosearising from the acquisition of fixed assets are expensed in the year they are incurred.

Movements in Formation expenses during 2003 are as follows:

4 | Formation expenses

5 | Intangible fixed assets

Formation expensesStart-up costsCapital increase expenses

Opening balance

-1

350

351

Additions

124

38

54

Closing balance

114

236

251

Amortisation

(1)(1)

(152)

(154)

Thousand euros

Thousand euros

9,246409

-(7)

-

9,648

(767)(920)

-1

(1,686)

8,4797,962

R&D expensesComputer software Other Total

COSTOpening balanceAdditionsTranslation differencesDisposalsTransfers

Closing balance

DEPRECIATIONOpening balanceCharge for the yearTranslation differencesDisposals

Closing balance

NET BOOK VALUEOpening balanceClosing balance

3,080247

---

3,327

(1,954)(363)

--

(2,317)

1,1261,010

2,832222(6)(1)63

3,110

(2,160)(242)

21

(2,399)

672711

15,158878(6)(8)63

16,085

(4,881)(1,525)

22

(6,402)

10,2779,683

Movements in Intangible assets during 2003 are set out below:

91


ation

a| Assets being acquired under finance leases

Intangible fixed assets includes, under Leased assets, those assets which are being acquired throughfinance leases. Details of the relevant lease contracts are as follows:

a| Restatements

The Parent Company and subsidiaries have restated tangible fixed assets as permitted under various legal provisions,including Royal Decree-Law 7/1996 (7 June 1996).

Oil-storage tanks 48 months 8,951

Cost

115 1,349 5,129 3,379

Purchase optionvalue

Term of the lease 2003

Instalments paid in year

2002 andprior years

Instalmentsoutstanding at

31.12.03

Thousand euros

Thousand euros

6 | Tangible fixed assets

Movements in Tangible fixed assets during 2003 are set out below:

12,2371,147

-(85)

24

13,323

(6,094)(884)

-17

(6,961)

6,1436,362

Land andbuildings

Plant andmachinery

Other fixedassets Total

COSTOpening balanceAdditionsDisposalsTranslation differencesTransfers

Closing balance

DEPRECIATIONOpening balanceCharge for the yearDisposalsTranslation differences

Closing balance


25,0693,602

(5)-

83

28,749

(5,112)(452)

1-

(5,563)

19,95723,186

23,3032,395

(5)-

1,284

26,977

(10,786)(1,840)

4-

(12,622)

12,51714,355

1,0108,698

--

(1,458)

8,250

----

-

1,0108,250

67,29316,350

(86)(229)

(63)

83,265

(25,631)(3,722)

5967

(29,227)

41,66254,038

5,674508(76)

(144)4

5,966

(3,639)(546)

5450

(4,081)

2,0351,885

Fixtures, fittings,tools and

equipment

Payments on accountand assets in course

of construction

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The accounts restated in accordance with Royal Decree-Law 7/1996 and the effect of the restatementas at 31 December 2003 are set out below:

Increase

Land and buildingsPlant and machineryFixtures, fittings, tools and equipmentPayments on account and assets in course of constructionOther fixed assets

2,025406376

276

2,885

Accumulateddepreciation

(305)(293)(221)

-(76)

(895)

Disposals

(672)(58)(44)

(2)-

(776)

Net effect

1,04855111

--

1,214

Thousand euros

The effect of this restatement on the annual depreciation charge and therefore on the result for theyear was an increase of approximately K¤ 67.

b | Tangible fixed assets located abroad

As at 31 December 2003 the consolidated Group held tangible fixed assets located abroad with a netvalue of K¤ 645.

c | Fully-depreciated assets

As at 31 December 2003 fully depreciated tangible fixed assets with an original or restated cost ofapproximately K¤ 12,160 are still in use.

d | Additions and disposals of fixed assets

The main additions for the year that are recorded under the heading “Payments on account and assetsin course of construction” relate to the construction of a 110,000 cubic meter crude oil storage facilityon land located at the Port of Cartagena and ceded to the company under a concession agreement. Thetotal investment has been budgeted at K¤ 15,172. The subsidiary Felguera IHI, has concluded an agre-ement to operate this plant for ten years as from the date it enters into service, which is expected tobe in January 2005.

e | Insurance

The consolidated Group has taken out several insurance policies to cover risks affecting its tangiblefixed assets. As at 31 December 2003, the Directors consider insurance coverage to be adequate.

93


ation

Thousand euros

Thousand euros

COSTShareholdings in companies consolidated using the equity method (note 7 a)Long-term securities portfolio (note 7b)Other loans (note 7c)Long-term deposits and guarantees (note 7 d)Public institutions, long-term (note 18)

PROVISIONSLong-term securities portfolio (note 7 b)

(221)(106)(48)

(1,818)-

(2,193)

-

-

(2,193)

Openingbalance

Additionsand charges

Closingbalance

1,057470537

4,6754,171

10,910

(5)

(5)

10,905

1,8002

7,318707

-

9,827

(2)

(2)

9,825

--

(54)(31)

(834)

(919)

-

-

(919)

2,636366

7,7533,5333,337

17,625

(7)

(7)

17,618

DisposalsTransfers toshort term

Set out below is an analysis of movements in Investments during 2003:

7 | Investments

a | Shareholdings in companies consolidated using the equity method

Set out below is an analysis of this heading showing movements during the year:

Zoreda Internacional, S.A.Kepler – Mompresa, S.A. de C.V.Sociedad de Servicios EnergéticosIberoamericanos, S.A.Ingeniería y Proyectos Medioambientales, S.A. MHI- Duro Felguera, S.A.Secicar, S.A.

--

-(26)

(193)(2)

(221)

228

4200

-823

1,057

--

--

1,800-

1,800

228

4174

1,607821

2,636

Openingbalance AdditionsCompany

Closingbalance

Share of resultsfor the year

The main transactions carried out during 2003 with these companies consisted of auxiliary operatingincome totalling K¤ 19.

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b | Long-term securities portfolio

Unlisted sharesLess provisions

361-

361

366(7)

359

Nominal value Book cost

20042005200620072008Subsequent years

Less amounts falling due within one year

Creditors falling due after more than one year

23148

2,3975651

5,201

7,984

(231)

7,753

Maturity date

c | Other loans

Set out below is an analysis of the annual maturity dates of the balances included in Other loans:

The balances included under Creditors falling due after more than one year basically relate to a debtgenerated in 2003 as a result of an agreement reached with a partner to liquidate some joint ventu-res. Under this agreement the partner recognises it owes the Company K¤ 6,950, payable within fiveyears. This amount will be paid in cash or by offsetting the amounts due the partner as a result of cer-tain commercial agreements concluded. The amount bears interest at the Euribor rate. If after threeyears after this agreement was concluded no amount has been offset, a cash payment of K¤ 2,333 willbe made or the differences between this amount and the amount offset during that period.

The other balances included under this heading basically relate to loans granted to personnel in theamount of K¤ 287.

d | Long-term deposits and guarantees

The balance under this heading relates basically to a fixed-term deposit of K¤ 2,498 securing com-pliance with obligations assumed by the Parent Company under the private agreement to sell fixedassets dated 28 December 1998, including sale option and lease-back arrangements (Note 13 a).

It also includes the provisional execution of a court ruling for K¤ 696. In 2001 the Company becameaware of a lawsuit filed against it with respect to completed work. On 28 February 2003 the Court ofFirst Instance No.1 in Madrid ruled against the Company and awarded K¤ 537 plus legal interestaccrued up to the date of payment. An appeal has been filed and therefore the Company has put K¤

696 in escrow at the Court, which is recorded under long-term deposits. To be prudent the Companyhas recorded a provision for this amount under the heading trade provisions.

Thousand euros

Thousand euros

95


ation

Set out below is an analysis of this heading on the accompanying consolidated balance sheet:

8 | Inventories

Raw materials and consumablesWork in progress and semi-finished goodsFinished goodsGoods purchased for resaleAdvance payments to suppliers

Provisions

6,78015,948

5397

2,398

25,672(763)

24,909

7,7738,741

21611

1,309

18,050(150)

17,900

2003 2002

Thousand euros

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Duro Felguera, S.A.

Felguera Parques y Minas, S.A.

Duro Felguera Plantas Industriales, S.A.

Felguera Montajes y Mantenimiento, S.A.

Felguera Melt, S.A.

Felguera Construcciones Mecánicas, S.A.

Felguera Calderería Pesada, S.A.

Felguera IHI, S.A.

Montajes de Maquinaria de Precisión, S.A.

Combined cycle power station in Son Reus II for Gas yElectricidad Generación, S.A. (Spain)Combined cycle power station in Barranco de Tirajana(Canary Islands) for Unelco (Spain)As Pontes Plant for Endesa- SpainCo-generation plant for Petroquímica Pajaritos, S.A.de C.V. – Mexico

Loading machinery L. Beach- USARepairs – HolcimBelt system- Unión FENOSAConstruction of 3 port cranes – S.Le Nickel –FranceConstruction of 6 port cranes – Israel

Remodelling of Vagón de Carga- AceraliaExtension of chlorized derivatives plant - MexicoAutomatic warehouse- Nireo CorporaciónBackup T.B.M.- M.H.I.

P. Grande– Salinas treatment plant for UNELCOTrack strengtheners, stripping line - Aceralia.

Track switches for the Greek railway- Ergose- GreeceCast iron parts for wind-driven generators for Gamesa

12 70M towers – GE Wind España8 Cryostats – Cern-Suiza

Separator for Fischer Klosterman Inc/Buell- USAFlash Drum for Galaxy Projects FZCO- UAEVacuum column for Chevron- USA

Pool repair- Repsol150,000 m3 LNG tank - Enagas

Turbogroup revision at C.T. CompostillaAssembly of emergency plant- San Lorenzo- MexicoAssembly of emergency plant- Tuxpan- Mexico

-

-

-2,285

1,069405211408

6

6---

-322

701641

407382

213--

2985,298

226--

7,317

7,367

9252,713

-167307854

2,412

3001,052

530249

112-

--

--

149227221

-5,974

-313100

Company InventoriesAdvance payments

from customers Description of project

The main amounts, prior to adjustments and consolidation write-offs being applied, relating to long-termcontracts valued by Group companies as explained in note 3j), as well as advance payments receivedfrom customers under those contracts, are as follows:

a | Insurance

The companies of the consolidated Group have taken out several insurance contracts to cover risksrelating to inventories. As at 31 December 2003, the Directors consider insurance coverage to be ade-quate.

Thousand euros

97


ation

Trade debtorsAssociated companiesSundry debtorsLoans to employeesTaxes payable (Note 18)

Less provisions

114,320101

1,249168

23,188139,026

(1,937)

137,089

237,676127

7,958295

13,706259,762(2,360)

257,402

2003 2002

Trade debtorsCustomers, work completed pending interim billingCustomers, trade bills receivableDoubtful debtors

83,68622,470

6,4721,692

114,320

U.S. dollarsPounds sterlingVenezuelan BolivarSwiss francMexican peso

14,281765162

1,015263

16,486

9 | Debtors

Existing projects have been extended for a total of K¤ 6,374. These extensions have been accepted inprinciple by customers but prices are still being negotiated. The final result of these negotiations will beknown in the coming months.

Set out below is an analysis of trade debtors at the 2003 year-end:

Set out below is a breakdown of amounts falling due within one year denominated in foreign currency:

Currency

Thousand euros

Thousand euros

Equivalent value in thousand Euros

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Loans to associated companiesShort-term securities portfolio (note 10a)Other loansDeposits and guarantees furnished (note 10b)

Less provisions

-1,552

8652,167

4,584(28)

4,556

8,70012,510

2194,389

25,818(73)

25,745

2003 2002

COST

Sinking fund in eurosFixed-income securitiesEuro notesEuro depositsInterest accrued

Total fixed income

Listed shares

Provisions

Net book value

2%2.11%0.69%

30112819271384

1,418

1341,552

(28)

1,524

Interest rates Thousand euros

Set out below is an analysis of Current asset investments recorded on the consolidated balance sheet asat 31 December 2003:

10 | Current asset investments

Other loans includes K¤ 231, consisting of the short-term portion of the amount indicated in Note 7 c.

a | Short-term securities portfolio

A breakdown of this heading as at 31 December 2003 is set out below:

Thousand euros

b | Deposits and guarantees

This items includes the amount of K¤ 1,806 in frozen deposits. These deposits relate to bank financingobtained for major long-term projects. The relevant amounts become available as payments are made tosuppliers in connection with these projects. In each case, interim billing issued must be approved by anarbitration entity.

99


ation

11 |

Cap

ital

an

d re

serv

es

Thou

sand

eur

os

Ope

nin

g ba

lan

ce

App

licat

ion

of 2

002

resu

lt:- t

o di

vide

nds

- to

rese

rves

- to

reta

ined

ear

ning

s

Gen

eral

Mee

ting

atte

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ce a

llow

ance

Oth

er m

ovem

ents

Resu

lt fo

r th

e ye

ar

Clo

sin

g ba

lan

ce

44,6

32

- - - - - -

44,6

32

3,91

3 - - - - - -

3,91

3

3,34

2 -50

6 - - - -

3,84

8

958 - - - - - -

958

8,57

2 -58

5 - - - -

9,15

7

50

- -24

7

(237

) - -

60

81

- - - - - -

81

(5,7

52) -

635 - - - -

(5,1

17)

1,61

2 - - - - - -

1,61

2

(1,2

26) - - - -

738 -

(488

)

5,32

9 - - - - - -

5,32

9

5,69

3

(3,7

20)

(1,7

26)

(247

) - -

(10,

717)

(10,

717)

67,2

04

(3,7

20) - -

(237

)

738

(10,

717)

53,2

68

Shar

eca

pita

l

Shar

epr

emiu

mac

coun

tLe

gal

rese

rve

Rev

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rese

rve

Volu

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earn

ings

Oth

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aren

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ompa

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eser

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Res

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s in

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dco

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s

Rev

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res

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sin

con

soli

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dco

mpa

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sTr

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s

Neg

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edi

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on

firs

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Pro

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and

loss

attr

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par

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ompa

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Mov

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ts in

Cap

ital a

nd r

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ves

are

set

out

belo

w:

econ

omic

and

fin

anci

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form

atio

n

100


% Shareholding

Cartera de Inversiones Melca, S.L.Inversiones Somió S.R.L.TSK Electrónica y Electricidad, S.A.IMASA Ingeniería, Montajes y Construcciones, S.A.

6.327%9.63%

15.87%9.53%

Shareholder

Adjustment, Royal Decree-Law 12/1973Restatement Budget Act 1979Restatement Budget Act 1983

7538,989

17,573

27,315

Share capital was increased in previous years by applying the following reserves:

a | Share capital

As at 31 December 2003 the Company's share capital consisted of 14,877,421 fully subscribed andpaid registered shares represented by account entries, each with a par value of three euros. All theshares are listed on the Madrid, Barcelona and Bilbao stock exchanges and carry the same voting anddividend rights.

As at 31 December 2003, according to data submitted to the Spanish Securities and ExchangeCommission (CNMV), the following companies hold an interest of 3% or more in the Company:

Thousand euros

b | Revaluation reserve

Following the three-year period during which the tax authorities may inspect the balance in the reva-luation reserve, this reserve may be used, free of tax, to offset prior, current or future losses or toincrease capital. As from 1 January 2007 the balance may be taken to freely distributable reservesprovided that the monetary capital gain has been realised. The part of the capital gain relating todepreciation that has been recorded in the accounts and capital gains on restated assets which havebeen transferred or written off are deemed to have been realised. In the event that the balance in thisaccount is used in any way other than as provided under Royal Decree-Law 7/1996, the balance willbecome taxable.

c | Share premium account

The balance in the “Share premium” account is the result of share capital increases carried out in July1998 and in January and July 1999.

The current Spanish Companies Act expressly provides that the balance in the share premiumaccount may be used to increase capital and establishes no restriction whatsoever on the use of thisbalance.

101


ation

Thousand euros

Thousand euros

d | Legal reserve

Appropriations to the legal reserve are made in compliance with Article 214 of the Spanish CompaniesAct which stipulates that 10% of the profits for each year must be transferred to this reserve until itrepresents 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 noother reserves being available, it must be replenished out of future profits.

e | Restrictions on the payment of dividends

The reserves designated in other sections of this note as being freely available for distribution, as wellas the profit for the year are, however, subject to the restriction on distribution described below:

- The payment of dividends may not cause the balance in reserves to fall below total unamortisedbalances for start-up and R&D expenses. Consequently, the balance of approximately K¤ 1,261 infreely distributable reserves may not be distributed.

f | Result for the year

Set out below is the proposal for the distribution of the Parent Company’s profits for 2003 to be sub-mitted for the approval of the Annual General Meeting:

Available for distributionLoss for the year

DistributionVoluntary reserves

(10,717)

(10,717)

(10,717)

(10,717)

Movements in the heading Minority shareholders during 2003 are as follows:

4,878 (342) (87) 1,952 7,105

Openingbalance

Participation inresults

704

Losses due to sharecapital reductioncharged to results Disposals

Scope of consoli-dation

Closingbalance

Minorityshareholders

12 | Minority shareholders

econ

omic

and

fin

anci

al in

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atio

n

102


The closing balances are analysed below:

Felguera IHI, S.A.Felguera Tecnologías de la Información, S.A.Proyectos e Ingeniería Pycor, S.A. de C.V.Felguera Rail, S.A.Pontonas del Musel, S.A.

84136

21,799

153

2,831

3,51156

3--

3,570

6888

(5)121

704

5,040100

-1,811

154

7,105

Share capital Reserves Profit/loss Total

Thousand euros

Thousand euros

Movements in Deferred income are as follows:

13 | Deferred income

Opening balanceAdditionsReleased to incomeReleased to income from prior years

Closing balance

285-

(228)-

57

4,778382

(679)(5)

4,476

2,135-

(347)-

1,788

7,198382

(1,254)(5)

6,321

Capitalgrants

Gains onexchange

Other deferredincome Total

a | Other deferred income

Other deferred income relates to income from the sale of certain buildings owned by the Company,including sale option and leasing arrangements with the purchaser, under private agreements dated28 December 1998 and executed in a public deed on 19 February 1999. Set out below are the mostsignificant details of these operations:

- Lease of the buildings for a term of 10 years as from 1 January 1999, stating the amount of the leaseinstalments for each year (approximately K¤ 348 for 1999 and annual increases of 1%). In the eventof early termination, the purchaser may demand payment of all outstanding lease instalments. DuroFelguera, S.A. may also sublet to third parties subject to prior authorisation by the purchaser. During1999 part of the properties were sublet.

- Sale options held by the purchaser for each building. These options may be exercised during 2007at the selling prices of the buildings (approximately K¤ 6,749). The buyer may also assign the optionsto third parties in the event that the buildings are sold, under the same terms.

103


ation

- Duro Felguera, S.A. has arranged a fixed-term deposit of K¤ 2,498 (note 7d) which is pledged to thepurchaser/lessor as security for compliance with all the obligations entered into by the Companyunder the above agreements. Duro Felguera, S.A. may use a pre-established part of this deposit in theevent that the buyer transfers ownership of any of the buildings to third parties.

These sale transactions generated net capital gains totalling approximately K¤ 4,072, which theCompany has deferred for accounting purposes until the gains are deemed to be realised.

During 2000 the subsidiary Felguera Revestimientos, S.A. repurchased certain buildings at a price K¤

12 higher than the price obtained by Duro Felguera, S.A. on the transaction described above. Thesame buildings have subsequently been sold at a profit of K¤ 66.

The selling price obtained by the subsidiary Felguera Revestimientos, S.A. represents 133.4% of thesale option price fixed in favour of the purchaser, an option which may be exercised by the purchaserduring 2007.

This situation reflects the sharp rise in real estate prices. The Directors of the Company consider thatthe initial purchaser will not exercise the option to sell the buildings in view of the capital gains thatwould be forfeited.

Based on the above, in 2000 the Company’s Directors decided to record the cost of renting propertyas income as from the signing of the initial purchase agreement until the end of 2000, in order to con-tinue recording the cost of annual rent in subsequent years, which in 2003 resulted in K¤ 347 beingrecorded in the profit and loss account. The remaining amount recorded under “Deferred income”relates to the portion of the capital gain equal to the total pending rent amount up until the purchaseoption expires.

Ministry of IndustryMinistry of IndustryMinistry of Science and TechnologyMinistry of Education and ScienceEuropean Commission–DirectorateGeneral for ResearchPrincipality of AsturiasPrincipality of Asturias

75403159

424788

382

R&D expensesR&D expensesR&D expensesR&D expenses

R&D expenses (Ecopress Project)R&D expensesR&D expenses

4/08/200319/09/200310/09/200326/09/2002

26/12/200310/12/200326/09/2002

PurposeGrantorThousand

euros Award date

b | Capital grants

Set out below is an analysis of Capital grants received in the year:

Certain grants are subject to conditions relating to specific levels of equity which must be maintainedby the recipient company and the creation and maintenance of jobs.

econ

omic

and

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anci

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The balances recorded under this heading as at 31 December 2003 and movements during the year asper the consolidated balance sheet are as follows:

Opening balanceAppropriations charged to profit and lossPaymentsReversals credited to profit and loss

Closing balance

1,360128

(149)(267)

1,072

10,81299

(9,056)(1,095)

760

12,172227

(9,205)(1,362)

1,832

Other provisionsProvision for

pensions Total

Provision for tax assessments (I.G.T.E.)Other items

393367

760

Opening balanceAppropriations charged to profit and loss:

Financial expense (note 20)Staff costs (note 19d)

PaymentsReversals credited to profit and loss

Closing balance

428

47

(24)(184)

231

932

2295

(125)(83)

841

1,360

26102

(149)(267)

1,072

Retired personnelActive personnel Total

a | Provision for pensions

b | Other provisions

As at 31 December 2003 these provisions relate to the best estimate made by the Group companies ofthe final cost of the following items:

Of all movements recorded during the year, the most significant relates to the payment of K¤ 6,952 in2003 as a result of the litigation involving the parent company with respect to certain projects.

14 | Provisions for liabilities and charges

Thousand euros

Thousand euros

Thousand euros

105


ation

15 | Creditors: amounts falling due after more than one year

Thousand euros

Banks:With personal guarantees:

In EurosIn US dollars

Official bodiesDiscounted billsInterest

Euribor + 0,75%Libor + 0,5%

-4.00%

10,480-

4,340--

14,820

28,9343,045

8541,863

138

34,834

Long-termInterest rates Short-term

Limit Available balance

Credit linesDiscount facilities

129,1786,567

135,745

171,6378,430

180,067

854611454615540

2,1205,194

(854)

4,340

Bankloans

Discounted billsand similar items

Uncalledamounts onshares held Total


Less amounts falling duewithin one year

Creditors falling dueafter more than one year

32,1172,8926,939

215129305

42,597

(32,117)

10,480

1,863-----

1,863

(1,863)

-

-474239

2-

130

-

130

34,8344,4567,435

869671

2,42550,690

(34,834)

15,856

-906

----

906

-

906

Official bodies Other creditors

a | Analysis by maturity dates

The maturity dates of non-trade creditors are as follows:

b | Bank loans

Set out below are the credit limits for credit lines and discount facilities, including amounts availableas at 31 December 2003:

Thousand euros

Thousand euros

econ

omic

and

fin

anci

al in

form

atio

n

106


2003 2002

Creditors for purchases or services receivedAdvances received for orders

106,50843,150

149,658

85,32832,141

117,469

Taxes payable (note 18)Accrued wages and salariesOther creditors

16,8115,7172,979

25,507

12,2835,2263,074

20,583

a | Trade creditors


Movements under this heading during 2003 are as follows:

A list of the main advances received for orders is set out in note 8.

b | Other creditors


Opening balanceCharge for the yearReversalsPayments/applicationsTransfers

Closing balance

4,42710,046(3,909)

(10)(439)

10,115

1,320-

(375)(417)

-

528

5,74710,046(4,284)

(427)(439)

10,643

Other provisionsTrade provisions Total

16 | Creditors: amounts falling due within one year

17 | Provisions for liabilities and charges and other trade provisions

Thousand euros

2003 2002

Thousand euros

Thousand euros

Thousand euros

Guarantees and penalties relating to projects and other similar itemsOther items

9,933710

10,643

As at 31 December 2003, the balance in “Trade provisions” and “Other provisions” relates to the bestestimate made by the Group companies of the final cost of these items:

Debtor balances (note 9):Deferred tax assetsCurrent year corporate income tax refundableVAT refundableForeign VAT refundableInput VAT pending accrualCanary Island General Tax refundableCanary Island General Tax pending accrualSocial security refundableForeign withholdingsTax credits for international double taxationGrants and subsidies receivable from public bodiesOther items

Less long-term deferred tax assets (note 7)

Creditor balances (note 16 b):VAT payableForeign VAT payableOutput VAT pending accrualCanary Island General Tax payableOutput Canary Island General Tax pending accrualPersonal income tax withholdingsCorporate income taxForeign corporate income taxProvision for corporate income taxDeferred tax liabilitiesSocial security contributionsOther items

107


ation

18 | Corporate income tax and tax situation

Thousand euros

4,171139

10,2116,597

4612,777

22051

320717847

1426,525(3,337)

23,188

1,3325,817

701121

161,123

41224

278275

2,082102

12,283

Set out below is an analysis of tax and social security balances as at 31 December 2003:

Duro Felguera, S.A. and the Spanish subsidiaries in which it has direct or indirect interests of more than90% are subject to corporate income tax under the rules governing groups of companies. According tothese rules, the assessment base is determined based on the consolidated results of Duro Felguera, S.A.and the Spanish subsidiaries.

Under the special tax scheme applicable to groups of companies, the entire consolidated group must betreated as a single taxpayer.

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Each of the consolidated companies must, however, calculate the tax expense that would have been recor-ded had a separate tax return been filed. Corporate income tax payable or receivable (tax credit) must berecorded depending on whether the company contributes a profit or a loss.

Corporate income tax expense is calculated based on the reported profit calculated in accordance withaccounting principles generally accepted in Spain, which is not necessarily equal to the figure for taxa-ble income calculated for corporate income tax purposes.

Set out below is the reconciliation of the reported consolidated profit for 2003 and taxable income:

Consolidated reported loss for yearCorporate income taxOther taxes

Reported loss before corporate income tax

Permanent differences:From individual companiesFrom consolidation adjustments

Timing differences:From individual companies arising in prior years:

Other increasesDecreases, pension commitments

Offset of tax-loss carryforwards from outside the Tax Group

Taxable income

Taxable income attributed to consolidated group

Taxable income attributed to non-consolidated Group companies

(10,355)1,866

13

(8,476)

4,4921,737

8(2,265)

(18)

(4,522)

(7,462)

2,940

Thousand euros

Thousand euros

Set out below is an analysis of corporate income tax expense as per the consolidated profit and lossaccount:

Current year tax expense from non-consolidated Group companiesCurrent year tax expense from companies not included in the Tax GroupReversal of deferred tax asset from timing differencesReversal of deferred tax liability from timing differencesDeductions for double taxation pending of applicationForeign taxes and other itemsOther

1,029-

798(3)

(86)100

41

1,879

Deferred tax assets mainly relate to the restatement of the tax effect of the amounts to be deducted overthe next five years. This restatement has been carried out based on the single premium for the group lifeinsurance contract taken out to cover pension commitments with retired employees 31 December 2003(note 14 a), in accordance with Transitional Provision Sixteen of Law 30/95 (8 November 1995) introdu-ced under Law 43/1995 (27 December 1995).

In accordance with current legislation, tax losses from one year may be offset for tax purposes againstprofits recorded over the following fifteen years. However, the final amount that may be offset could bechanged as a result of a tax inspection. The accompanying balance sheet as at 31 December 2003 doesnot record the possible tax effect of offsetting tax-loss carryforwards, for reasons of prudence. Set outbelow is an analysis of tax-loss carryforwards pending offset as at 31 December 2003:

109


ation

Thousand euros

Thousand euros

Million euros

Set out below is an analysis of permanent differences derived from the recognition of income and expen-se for accounting and tax purposes:

Net pensionsProvision for liabilities and chargesTransfer from deferred incomeBad debtsOther net items

(873)5,721(347)(254)

245

4,492

Set out below is an analysis of the timing differences derived from the recognition of income and expen-se for accounting and tax purposes and the resulting accumulated tax effect as at 31 December 2003:

Timing differences Tax effect

Deferred tax assetsPensions and similar obligations

Deferred tax liabilitiesCapital gains on transactions involving tangible fixed assetsand other items

4,170

52

11,915

150

199319941995199920012003

2.813

4.30.44.37.5

32.3

econ

omic

and

fin

anci

al in

form

atio

n

110


Available until

20042005200620072008200920102011201220132014201520162017

552223

44331177

7105304

9160292413

1,573

At 31 December 2003 tax credits pending application for double taxation and investments are as follows:

All the Company’s and subsidiaries’ returns for the main taxes to which they are subject and the yearswhich have not become statute-barred are open to inspection by the tax authorities. Taxes may not bedeemed to be finally paid until the four-year prescription period has elapsed. The Directors of the parentcompany do not expect any additional significant contingencies that could affect the accompanying con-solidated annual accounts to arise in the event of an inspection.

Thousand euros

a | Transactions denominated in foreign currency

Transactions effected in foreign currencies are set out below:

Net purchases and external expenses

Sales

91,125

63,910

b | Analysis of net turnover

Net turnover from the consolidated Group’s ordinary activities is analysed below by geographical area:

Market %

Domestic marketExports

4555

100

19 | Income and expense

Equivalent value in thousands of euros

111


ation

Thousand euros

%

Equivalent value in thousands of euros

Product line

Currency

2003 2002

Heavy boilermakingMining equipmentEngineering servicesMetallurgical equipmentConstruction of power plantsErectionFoundry

64

207

41166

100

U.S. dollarsJordanian dinarsVenezuelan BolivarsPounds sterlingGerman marksEurosSwiss francsMexican pesos

58,75410184

1,5354,370

121,6343,405

31

189,914

Set out below is an analysis of net turnover by product line:

Set out below is a breakdown of the Group's export turnover:

c | Supplies

Materials consumed:Net purchasesDifference between opening and closing inventories

Other external expenses

140,400(2,009)

138,391119,428

257,819

107,089993

108,08298,511

206,593

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omic

and

fin

anci

al in

form

atio

n

112


d | Staff costs

Wages, salaries and similar remunerationAppropriations to pensions (note 14a)Staff welfare expenses

85,368326

21,010

106,704

73,913102

18,868

92,883

Thousand euros

2003 2002

Thousand euros

2003 2002

Thousand euros

2003 2002

e | Average number of employees by category

f | Changes in trade provisions

Changes in inventory provisionChange in provision for bad debtsBad debts written offLosses on enforcement of guarantees (Note 16b)Release of guarantees covered by provisionsTrade provisions

60(259)

822,469

-1,610

3,962

642(88)117

-(2,469)

6,137

4,339

University graduatesSkilled techniciansOther techniciansAdministrative staffUnskilled workersSemi-skilled personnel

311210227

981,864

13

2,723

Category Average number

g | Other operating income

Sundry incomeOperating grantsExcess provision for liabilities and charges

239173472

884

160138

1,273

1,571

113


ation

Thousand euros

2003 2002

Financial profit:Income and profits from investments and other interest:

· Income from shareholdings· Income from loans and other negotiable securities· Other interest and similar income· Profit on current asset investments

Gains on exchange

Less financial losses:Financial expense and expenses and losses on investments

· Financial and similar expenses· Losses on current asset investments· Changes in provisions for investments

Interest applied to the pension provision (note 14 a)Losses on exchange

Net financial loss

1410318

9

738

3,911

4,649

(3,292)(21)(8)

(3,321)

(50)(6,946)

(10,317)

(5,668)

2525383

5

915

6,467

7,382

(2,972)-

42

(2,930)

(26)(11,666)

(14,622)

(7,240)

Net financial income/expense is composed as follows:

20 | Financial income and expense

econ

omic

and

fin

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114


344

1,354505

1,372282

3,857

(6)(7,479)

(45)

(7,530)

(3,673)

347

108679

1,298163

2,595

(812)(5,841)

(44)

(6,697)

(4,102)

Extraordinary profit:Gain on sale of fixed assets taken to profit and loss (Note 13a)Profit on disposal of tangible and intangible fixed assets andcontrolling shareholdingsCapital grants released to income for the yearExtraordinary incomeIncome relating to prior years

Less extraordinary losses:Losses on tangible and intangible fixed assets and controllingshareholdingsExtraordinary expensesPrior-year expenses and losses

Net extraordinary loss

The Company has reversed a capital gain totalling K¤ 4,849 arising on the same of land in 2001 becau-se the buyer has not made payment.

Extraordinary items are analysed as follows:

21 | Extraordinary items

22 | Other information

Thousand euros

2003 2002

Thousand euros

Supplies and otheroperating charges

8,893

Meeting attendanceallowances

104

a | Parent Company Directors’ remuneration

Salaries, expense allowances and other remuneration accruing in favour of the Parent Company’s Boardof Directors during 2003 amount to K¤ 1,016.

The breakdown of balances and transactions with companies that pertain to the Parent Company’s Boardof Directors is set out below:

115


ation

For the purposes of the provisions of Article 127 of the Spanish Companies Act, in accordancewith the wording of Law 26/2003 (19 July 2003) as it relates to the activities of members of theparent company’s Board of Directors, the following should be noted:

The Chairman Mr. Juan Carlos Torres Inclán, is a Mining Engineer and up until his appointmenthe was the Managing Director of the Company’s Power Systems line of business. He is a memberof the Executive Team at Duro Felguera S.A., and owns shares representing 0.397% of share capi-tal. He is also a member of the Board of Directors and Chairman, for which he receives no remu-neration, of Duro Felguera Plantas Industriales S.A. and Duro Felguera Equipos y Montajes S.A.,both of which are Subsidiaries of Duro Felguera S.A.

The Vice-Chairman Mr. José Luis García Arias is the Legal Representative of Cartera deInversiones Melca S.L., a Shareholder of Duro Felguera S.A. that owns a direct interest of 0.203%and an indirect interest of 6.327% in the Company’s share capital. He is also the LegalRepresentative of the Companies ARSIDE and Construcciones Melca S.A., which carry out activi-ties that are similar or complementary to those carried out by Duro Felguera S.A.. He is also amember of the Board of Directors, for which he receives no remuneration, of Duro FelgueraPlantas Industriales S.A. and Duro Felguera Equipos y Montajes S.A., both of which areSubsidiaries of Duro Felguera S.A.

The CEO Mr. Florentino Fernández del Valle is an Industrial Engineer and until his appointmenthe was the General Manager of the Company’s Equipment and Erection line of business, and thenits Managing Director. He is a member of the Company’s Executive Team and owns shares repre-senting 0.421% of share capital. He is also a member of the Board of Directors, for which he recei-ves no remuneration of Duro Felguera Plantas Industriales S.A., Duro Felguera Equipos yMontajes S.A., Felguera Rail S.A., MHI-Duro Felguera S.A., Felguera IHI S.A., Proyectos eIngeniería Pycor, S.A. de C.V. and Duro Felguera México, S.A. de C.V., all of which are Subsidiariesof Duro Felguera S.A.

The Director Mr. Sabino García Vallina, is the General Manager of the shareholders “TSKElectrónica y Electricidad S.A.” which is represented on the Board by Mr. Carlos Vento Torres andthe Company “PHB Weserhütte S.A.”, which is represented on the Board by Mr. Acacio FaustinoRodríguez García, and therefore controls three Board positions and the direct shareholding inDuro Felguera S.A. held by these companies totals 15.87% and the indirect interest totals 15.876%.Mr. Carlos Vento Torres, who represents “TSK Electrónica y Electricidad S.A.” is a Sales repre-sentative for the Dutch Group NEM BV, domiciled at Kanaalpark 159, LEIDEN- THE NETHER-LANDS, which is engaged in the design and manufacturing of heat recovery steam generators,which is similar and complementary to the activities carried out by Duro Felguera S.A. Mr. SabinoGarcía Vallina, Mr. Acacio Faustino Rodríguez García and Mr. Don Carlos Vento Torres are alsomembers of the Board of Directors, for which they receive no remuneration, of Duro FelgueraPlantas Industriales S.A. and Duro Felguera Equipos y Montajes S.A, both of which areSubsidiaries of Duro Felguera S.A.

Mr. José Manuel Agüera Sirgo, is a Professor of Economy at the University of Leon and is a mem-ber of the Board of Directors of CAJASTUR. He is also a member of the Board of Directors, forwhich he receives no remuneration, of Duro Felguera Plantas Industriales S.A. and Duro FelgueraEquipos y Montajes S.A., both of which are Subsidiaries of Duro Felguera S.A.

Mr. Marcos Antuña Egocheaga is a Mining Engineer and holds a 0.01% interest in share capitaland is an Executive at Hidroeléctrica del Cantábrico S.A., a Shareholder of Duro Felguera S.A.,

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which holds an interest of less than 5%. He is also a member of the Board of Directors, for whichhe receives no remuneration, of Duro Felguera Plantas Industriales S.A. and Duro FelgueraEquipos y Montajes S.A., both of which are Subsidiaries of Duro Felguera S.A.

Mr. Juan Gonzalo Álvarez Arrojo is the Legal Representative of the company “TransportesUrbanos de Zaragoza, S.A.”, (TUZSA), a Shareholder of Duro Felguera, and of the Companies“Inversiones Somió S.R.L” (represented by Mr. Álvarez Arrojo) and “Inversiones El Piles S.R.L.”(represented by Mr. Ángel Antonio del Valle Suárez), members of the Board of Directors of DuroFelguera S.A., and therefore Mr. Álvarez Arrojo controls two positions on the Board of Directorsthat represent a direct stake of 5.39% and an total stake, together with indirect interests of10.014%. Mr. Juan Gonzalo Álvarez Arrojo and Mr. Ángel Antonio del Valle Suárez are also mem-bers of the Board of Directors, for which they receive no remuneration, of Duro Felguera PlantasIndustriales S.A. and Duro Felguera Equipos y Montajes S.A, both of which are Subsidiaries ofDuro Felguera S.A.

The board member “Proyectos Modulares PMP S.A.”, represented by Mr. Tomás Casado Martínezand the board member “IMASA, Ingeniería, Montajes y Construcciones S.A.”, represented by Mr.Saturnino Martínez Zapico, are companies controlled by Mr. Tomás Casado Martínez, both ofwhich are Shareholders of Duro Felguera S.A., and therefore this Director controls two positionson the Board of Directors, representing a total stake in Duro Felguera of 9.53%. The board mem-ber “IMASA, Ingeniería, Montajes y Construcciones S.A.”, carries out activities that are similar orcomplementary to those carried out by Duro Felguera S.A.. Mr. Tomás Casado Martínez and Mr.Saturnino Martínez Zapico also members of the Board of Directors, for which they receive noremuneration, of Duro Felguera Plantas Industriales S.A. and Duro Felguera Equipos y MontajesS.A, both of which are Subsidiaries of Duro Felguera S.A.

b | Environmental information

The Company has adopted the necessary measures to the protect and improve the environmentand to minimise the environmental impact, if applicable, in compliance with current environ-mental legislation.

c | Auditors’ fees

The fees charged in 2003 by PricewaterhouseCoopers Auditores, S.L., for audit services amoun-ted to K¤ 195. The fees charged by PricewaterhouseCoopers Auditores, S.L. for other servicesamounted to K¤ 29.

117


ation

Bids submitted to tenderGuarantees under sales agreements in the process of enforcementGuarantee facilities and multi-user credit linesOther items

3,617148,017161,176

5,290

318,100

Thousand euros

In 2003 discrepancies arose with various sub-contractors regarding the final price of several clo-sed projects. The claims made are approximately K¤ 7,776 higher than the Directors’, and theirlegal advisors’ accounting estimates, which already include increases due to extensions of thecontracts initially concluded. According to technical and legal studies carried out these estimateseasily cover the work carried out.

In addition to the above, claims have been received from sub-contractors totalling K¤ 12,135 thatthe Directors have not taken into consideration since they have no contractual or legal supportwhatsoever and, according to the Company’s legal advisors, should the claims reach litigation iswill be difficult for sub-contractors to support their positions.

As at 31 December 2003 the Group has furnished the following guarantees:

23 | Guarantees and other contingencies

Resources applied to operations

Formation and loan arrangement expenses

Purchases of fixed assets:

Intangible fixed assetsTangible fixed assetsAdditions due to inclusion in scope of consolidationInvestments:

- Companies consolidated using equity method- Other investments

Goodwill

Dividends and attendance allowances

Deferred expenses

Other movements in capital and reserves (translation differences)

Repayment or reclassification to short term liabilitiesof liabilities due after one year

Provisions for pensions and similar obligations

Total application of funds

Surplus of sources over application of funds (Increase in Working Capital)

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omic

and

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APPLICATION OF FUNDS

-

57

7,459

1,0375,287

235

136764

614

3,967

407

1,238

-

1,865

15,607

50,203

6,824

54

27,051

87416,350

-

1,8008,027

-

3,957

-

-

33,671

9,205

80,762

Thousand euros

2003 2002

Set out below are the Statements of Source and Application of Funds for 2003 and 2002:

24 | Statements of source and application of funds

Funds generated from operations

Capital grants received

Differences on exchange

Negative consolidation difference

Proceeds from disposal of fixed assets:Tangible fixed assetsDifferences on conversion of tangible fixed assetsIntangible fixed assetsInvestments

Provisions for liabilities and chargesAdditions due to inclusion in scope of consolidation

Other movements in capital and reserves (translation differences)

Early redemption or reclassification to short-term of:InvestmentsLong-term debtors

Net change in minority interests

Uncalled amounts on shares held

Total sources of funds

Surplus of applications over sources of funds (Reduction in Working Capital)

119


ation

SOURCE OF FUNDS

15,261

1,532

63

-

5,8555,600

145-

110

2525

-

42,1855,553

36,632

889

-

65,810

-

382

-

26

18921

1626-

--

738

3,1123,112

-

2,227

889

7,563

73,199

Thousand euros

2003 2002

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a | Change in working capital

b| Calculation of funds generated from operations

InventoriesDebtorsCreditorsCurrent asset investmentsCash at bank and in handAccruals, prepayments and deferred income

Total

Change in Working Capital

7,009-

51,484-

9,915-

68,408

-(120,313)

-(21,189)

-(105)

(141,607)

(73,199)

-135,264

---

144

135,408

50,203

(28,276)-

(43,057)(10,692)

(3,180)-

(85,205)

Increases Decreases Increases Decreases2003 2002

5,693

4,986398

7,1976

72-

12,659

(1,354)(344)(768)(176)(53)

(393)(3)

(3,091)

15,261

(10,717)

5,401128101

6613265

6,514

-(347)(684)(228)

(1,095)(267)

-

(2,621)

(6,824)

Result for the year

Increases:

Fixed asset depreciationAppropriations to provision for pensions and similar obligationsAppropriations to other provisionsLosses from tangible and intangible fixed assetsAmortisation of goodwillCancellation of deferred expenses

Total increases

Decreases:

Profit on disposal of tangible and intangible fixed assetsDeferred income taken to profit and loss for the yearCapital grants released to income for the yearGains on exchangeReversal of provision for liabilities and chargesReversal of provision for pensions and similar obligationsReversal of provisions for investments

Total decreases

Total funds generated from operations

Thousand euros

Thousand euros

2003 2002

121


ation

DURO FELGUERA, S.A. AND SUBSIDIARIESDirectors’ Report for 2003

2003 may be considered as a transition period between two peaks of contracts and activity for the Group.

In mid-2003 the Construction of five Combined Cycle Plants contracted for in prior years were success-fully completed, and in the last few months of the year production only involved the Barranco de Tirajanaand Son Reus II plants, the contracts for which were concluded in August 2002. These had an importantcontribution to production during the year but could not replace the volume contributed by the fiveplants built in 2002.

The strengthening of the Euro also gave rise to a momentary reduction of the contracts concluded byFelguera Calderería Pesada. The delay in the awarding of projects expenses at the end of the year in thetunnelling machine market has caused the business volume at Felguera Construcciones Mecánicas toalso be lower than expected.

As a result of the above, production fell by 18% in 2003 compared with the previous year.

The Group has reacted with flexibility and reduced the number of employees by 17% during the year,which gave rise to non-recurring restructuring costs. Indirect and Structural Costs were reduced by 33%compared with last year.

The evolution of the dollar also affected results for the year, as it gave rise to negative valuation diffe-rences in the financial statements of subsidiaries, particularly those in Mexico.

During the third quarter of 2003 the Group reversed the capital gain totalling ¤ 4.8 million obtained onthe sale of land in 2001 as the transaction that was initially planned failed to be completed. Given thehigh value of this land it is reasonable to project that the loss recorded during the year will be recove-red within a reasonably short period as this land will be sold in the future.

Over the course of the year the work involving the Pajaritos Project has been extended. This has led theCompany to present the customer with price increases, the result of which will be known when the pro-ject is completed in 2004.

A sharp increase in contracts is expected in 2004, particularly, but not exclusively, in the electricity sec-tor. The year started with an ¤ 8 million project being awarded to Felguera Calderería Pesada, S.A. by theUS company Exxon Mobile de USA for the construction of Reactors. Several tunnelling machines areexpenses to be requested by the subsidiary M.H.I.-Duro Felguera, based on engineering contracts thathave already been signed. This market has delayed expected contracting that was initially forecast for theend of 2003 and therefore the first few months of 2004 are expected to bring a significant volume of con-tracts.

Significant litigation that was underway in 2003 has been definitively resolved in favour of the company,one case through a friendly agreement with the claimant and the Arbitration court in Paris ruled infavour of Duro Felguera in the other case.

The evolution of the balance sheet reflects end-of-cycle circumstances, with large amounts being collec-ted from customers and the return of ¤ 52 million in project loans during the last few months of the year.

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The temporary reversal of the capital gains on the sale of land, the distribution of dividends and inves-tments totalling ¤ 19.3 million reduced working capital although this is compatible with maintainingabundant cash for the Company’s needs. Net bank debt at 31 December 2003 is very low.

R&D expenses incurred by the Group totalled ¤ 1.3 million during the year.

The Company holds none of its own shares.

Economicand Financial

Information

2003Annual Accounts

and Director’s ReportRelative to 2003

Annual Accountsand Director’s Report

Relative to 2003

Balance Sheet

Profit and loss account

Activities

Statements of source and application of funds

Director’s Report

1 | Duro Felguera, S.A. Auditor’s Report

2 | Duro Felguera, S.A.

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125


ation

Auditor’s report

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annual accountsand director’s report relative to 2003

DURO FELGUERA, S.A.Balance sheets as at 31 December 2003 and 2002

ASSETS

Fixed assets

Formation expenses (note 4)Intangible fixed assets (note 5)Tangible fixed assets (note 6)Investments (note 7)

Current assets

Inventories (note 8)Debtors (note 9)Current asset investments (note 10)Cash at bank and in hand

TOTAL ASSETS

2003

82,675

1134

5,29677,244

90,735

5,12938,81039,428

7,368

173,410

2002

83,108

44142

5,14977,773

200,351

2,719146,94648,786

1,900

283,459

Thousand euros

127


ation

LIABILITIES

Capital and reserves (note 11)

Share capitalShare premium accountRevaluation reserveOther reservesRetained earningsProfit / (loss) for the year

Deferred income (note 12)

Provision for liabilities and charges (note 13)

Creditors: amounts falling due after more than one year (note 14)

Bank loansAmounts owed to Group companiesUncalled amounts on shares held:

- Associated companies

Creditors: amounts falling due within one year

Bank loans and overdrafts (note 14)Amounts owed to Group and associated companies (note 7)Trade creditors (note 15 a)Other creditors (note 15 b)Provisions for liabilities and charges and other trade provisions (note 16)

TOTAL LIABILITIES

2003

53,561

44,6323,913

95813,086

60(9,088)

1,788

770

15,953

5,05310,000

900

101,338

9,90419,28661,9483,9736,227

173,410

2002

66,607

44,6323,913

95811,995

515,058

2,135

8,446

47,925

37,92510,000

-

158,346

22,48339,41786,189

7,1363,121

283,459

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DURO FELGUERA, S.A.Profit and loss accounts for the years ended 31 December 2003 and 2002

EXPENSES

Reduction in inventories of finished goods and work in progressRaw materials and consumables (note 18 c)Staff costs (note 18 d)Fixed asset depreciationChanges in trade provisionsOther operating charges:

- External services- Taxes

Operating profit

Net financial Profit (note 19)

Profit from ordinary activities

Profit before taxes

Corporate income taxOther taxes

Profit for the year

2003

-120,723

10,730316

3,647

24,410478

8,085

-

7,225

-

(474)3

-

2002

13,347197,37510,885

3162,586

23,412308

8,737

1,120

9,857

5,576

278240

5,058

Thousand euros

129


ation

INCOME

Net turnover:- Sales- Services rendered

Increase in inventories of finished goods and work in progress

Other operating income:- Sundry income- Surplus provisions for liabilities and charges

Net financial loss (note 19)

Net extraordinary loss (note 20)

Loss before taxes

Loss for the year

2003

161,1183,824

2,750

78619

860

16,784

9,559

9,088

2002

252,9773,393

-

275321

-

4,281

-

-

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omic

and

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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. until26 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 capitalgoods industries, engaging in construction, manufacturing and fitting work under turnkey contracts, aswell as marketing, distribution, construction and installation services involving energy obtained fromsolid and liquid fuels. The Company’s objects also cover the promotion, formation, extension, develop-ment and modernisation of industrial, commercial and service companies in Spain and abroad, providedsuch companies are engaged in any of the activities listed above. It may also acquire and hold fixed orvariable income securities issued by all kinds of entities.

In 1991 Duro Felguera, S.A. completed the process whereby certain divisions which engaged in activitiesrelating to engineering projects, fitting and maintenance of industrial equipment and machinery weretransformed into companies with their own separate legal personality. In order to set up these investeecompanies, Duro Felguera, S.A. had to contribute the human, material and financial resources requiredto carry on their respective activities. Duro Felguera, S.A. therefore transferred the personnel working ineach activity and contributed the capital required in the form of contributions in cash and in kind, mainlybuildings, machinery and production equipment. It also grouped together the different investee compa-nies which operate in the capital equipment sector into an industrial sub-group led by a wholly ownedcompany, Duro Felguera Plantas Industriales, S.A.

In the final quarter of 2000, the Group carried out further restructuring, grouping together the compa-nies engaged in workshop activities under the subsidiary Duro Felguera Equipos y Montajes, S.A. Theengineering companies were grouped together under Duro Felguera Plantas Industriales, S.A. The res-tructuring process was completed through the decision whereby large orders are to be executed by DuroFelguera, S.A., in addition to this company’s role as Parent and holding company of the Duro FelgueraGroup.

a | True and fair view

The annual accounts have been prepared on the basis of the Company's accounting records, whichhave been kept in euros since 1 January 2001, and are presented in accordance with the SpanishGeneral Accounting Plan as adapted to the construction industry so as to give a true and fair view ofthe 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 theapproval of the Annual General Meeting. The Directors consider that the accounts will be approvedwithout any changes.

b | Accounting principles

The accompanying annual accounts have been prepared in accordance with accounting principles andstandards generally accepted in Spain, as described in note 3. No mandatory accounting principlehaving a significant effect on the annual accounts has been omitted.

1 | Activities

2 | Basis of presentation

131


ation

3 | Accounting policies

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 Decree1815/1991 (20 December) and must therefore file consolidated annual accounts.

For clarity, the Directors have opted to present separate consolidated accounts.

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 amorti-sed 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 produc-tion cost and amortised on a straight-line basis over an estimated useful life of four years. Softwaremaintenance 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 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 taxperiods 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 rene-wed assets are written off the accounts.

Costs relating to extensions, modernisation or improvements which increase productivity, capacity orefficiency, or extend the useful lives of the assets are capitalised as an increase in the cost of theassets concerned.

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Tangible fixed assets are depreciated on a straight-line basis over their estimated useful lives. Set outbelow are the years of useful life applied by the Company:

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 repaymentvalue.

ii | Variable-income securities:

Investments in securities (irrespective of the percentage interest) are stated at the lower of cost, adjus-ted and updated in accordance with Law 9/1983, where appropriate, and market value. Market valueis the lower of the average listed price for the final quarter and the year-end price, in the case of lis-ted securities, or the proportional book value of the holding as per the latest available balance sheetin 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 Directorsor General Meetings.

The Company has a majority holding in certain companies and holds interests of 15% or more inothers. The accompanying accounts relate solely to the Company since, in accordance with currentSpanish Company Law, the Directors present separate consolidated accounts for 2003 (Note 7).

e | Inventories

Raw and auxiliary materials and consumable and replacement materials are stated at the lower of ave-rage acquisition 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 indi-rect manufacturing expenses. The cost of these inventories is written down to their net realisablevalue if lower than production cost.

Obsolete and defective items are adjusted, based on estimates, to bring them into line with their poten-tial realisable value.

Years

Buildings 17 to 50Plant and machinery 6 to 17Fixtures, fittings, tools and equipment 8 to 20Other fixed assets 4 to 20

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ation

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 analy-sis 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 12) to capital gains on sales of certain buildings in respect ofwhich sale options are held by the purchaser, lease agreements have been concluded by the Companyand guarantees have been furnished to the purchaser.

The amount recorded under this heading equals total lease expenses until the date the purchaseoption expires. This amount is released to profit and loss at the same rate as the costs deriving fromthe lease of these assets.

i | Provisions for pensions and similar obligations

The Company has contracted commitments with certain retired and active personnel, employees ofthe 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 inde-pendent actuary and on GRMF-95 mortality tables (adjusted during the working life of the employeeto take into account the possibility of disability in accordance with the Ministerial Order of 24 January1977), 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 theCompany estimates the amounts of payments that could arise in the future and makes provision accor-dingly, charged to profit and loss for the year. Each year the Company estimates the amounts of pay-ments that could arise in the future and makes provision accordingly, charged to profit and loss forthe year.

k | Creditors

Long and short-term creditors are recorded at repayment value.

l | Classification of amounts payable

Debts are classified on the balance sheet as laid down in the Spanish General Accounting Plan, basedon when they fall due. Amounts falling due within twelve months are regarded as short term anddebts which fall due after more than one year are classed as long term.

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m | Transactions denominated in foreign currency

Transactions denominated in foreign currency are stated at their equivalent value in euros, using theexchange rates applicable on the transaction date.

Gains or losses on exchange arising when balances are settled are taken to the profit and loss accountwhen they occur.

Every year-end balances receivable and payable denominated in foreign currency are stated in eurosat the year-end exchange rates or, where applicable, at the hedged exchange rates. Unrealised net los-ses on exchange are determined for balances due on similar dates in currencies showing similar mar-ket behaviour and are expensed. Any unrealised net gains determined in the same way are deferreduntil they are realised.

n | Recognition of profits under long-term contracts

The Company records long-term construction contracts in the amount of specific manufacturingexpenses incurred during each project or contract. The profit generated is recognised based on thepercentage 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 pro-ject. In the case of loss-making contracts, the relevant amounts are taken to profit and loss as soon asthey are known.

o | Income and expense

Income and expense are recorded on an accruals basis, based on the actual flow of assets and servi-ces, 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 whoseemployment is terminated under certain conditions. The Directors of the Company envisage no dis-missals 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 asadjusted to account for any permanent differences between reported profits and taxable income andthe effect of any tax credits and deductions, excluding any withholdings and interim payments.

Tax credits for investments in new fixed assets and, whenever appropriate, for job creation, are trea-ted 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, togetherwith the companies of the Duro Felguera Group. Under this tax system, the tax assessment base iscalculated based on the Group’s consolidated results.

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ation

r | Environment

The costs incurred on acquiring systems, equipment and installations whose purpose is the elimina-tion, limitation or control of potential impact the company’s activities may have on the environmentare considered to be investments in fixed assets. All other environmental expenses other than thosearising 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 at31 December 2003 the Company participated in several joint ventures (note 22 a ), the balances forwhich at that date are recorded in the Company’s accounts in proportion to the interest held in thejoint 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 com-panies, as explained in section n) above.

t | Integration of branches

The inclusion of the branch the Company owns in Mexico, named Duro Felguera S.A, Sucursal México,into its annual accounts for 2003 has been completed in accordance with current legislation, inclu-ding all the branch’s balances and transactions (note 22 b).

4 | Formation expenses

5 | Intangible fixed assets

Capital increase expenses

Opening balance

44

Additions

-

Closing balance

1

Depreciation

43

Thousand euros

Computersoftware

Openingbalance

941

Cost Depreciation

Additions

45

Closingbalance

986

Openingbalance

(799)

Net bookvalue

Charge forthe year

(53)

Closingbalance

(852)

Closingbalance

134

Openingbalance

142

Thousand euros

Movements in Intangible assets during 2003 are set out below:

Movements in Formation expenses during 2003 are as follows:

COSTOpening balanceAdditionsDisposals

Closing balance

DEPRECIATIONOpening balanceCharge for the yearDisposals

Closing balance


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Thousand euros

6 | Tangible fixed assets

Movements in Tangible fixed assets during 2003 are set out below:

9319-

940

(557)(38)

-

(595)

374345

Land andbuildings

Plant andmachinery

Other fixedassets Total

4,899241(5)

5,135

(683)(48)

2

(729)

4,2164,406

95--

95

(95)--

(95)

--

6,926383(20)

7,289

(1,777)(220)

4

(1,993)

5,1495,296

1,001133(15)

1,119

(442)(134)

2

(574)

559545

Fixtures, fittings,tools and

equipment

a | Restatements

The Company has restated tangible fixed assets as permitted under various legal provisions, includingRoyal Decree-Law 7/1996 (7 June 1996).

The accounts restated in accordance with Royal Decree-Law 7/1996 and the effect of the restatementas at 31 December 2003 are set out below:

Increase

Land and buildingsPlant and machineryFixtures, fittings, tools and equipmentOther fixed assets

9026

709

987

Accumulateddepreciation

(76)(6)

(51)(9)

(142)

Disposals

(535)-

(17)-

(552)

Net effect

291-

2-

293

Thousand euros

The effect of this restatement on the annual depreciation charge and therefore on the result for 2003was an increase of approximately K¤ 2.3.

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ation

b | Tangible fixed assets located abroad

As at 31 December the Company held tangible fixed assets located abroad with a net value of K¤ 98.

c | Fully-depreciated assets

As at 31 December 2003 fully depreciated tangible fixed assets with an original or restated cost ofapproximately ¤ 1 million are still in use.

d | Insurance

The Company has taken out a number of insurance policies to cover risks relating to tangible fixedassets. As at 31 December 2003, the Directors of the Company consider insurance coverage to be ade-quate.

Thousand euros

COSTShareholdings in Group companies (note 7 a)Loans to Group companies (note 7 a)Shareholdings in associated companies (note 7 a)Long-term securities portfolio (note 7b)Other loans (note 7c)Long-term deposits and guarantees (note 7 d)Public institutions, long-term (note 17)

PROVISIONSShareholdings in Group companies (note 7 a)Bad debts – loans to group companiesShareholdings in associated companies (note 7 a)Long-term securities portfolio (note 7b)

-(2,907)

-(105)(33)

--

(3,045)

----

-

(3,045)

Openingbalance

Additions andcharges

Closingbalance

70,9986,852

48470321

2,5633,877

85,129

(7,254)(65)(32)

(5)

(7,356)

77,773

12,344193

1,800-

6,9632-

21,302

(13,765)(19)

(193)(2)

(13,979)

7,323

-(4,051)

--

(38)(6)

(775)

(4,870)

----

-

(4,870)

83,34287

1,848365

7,2132,5593,102

98,516

(20,956)(84)

(225)(7)

(21,272)

77,244

Disposals

-------

-

63---

63

63

ReversalsTransfers toshort term

Set out below is an analysis of the movements relating to the Company's investments during 2003:

7 | Investments and Group and associated companies

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Dir

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Man

ufac

ture

of h

eavy

dut

y st

eel c

ompo

nent

s (L

a Fe

lgue

ra)

Indu

stri

al p

roje

ct c

onst

ruct

ion

and

erec

tion

(Sao

Pau

lo)

Indu

stri

al p

roje

ct c

onst

ruct

ion

and

erec

tion

(Méx

ico

D.F

.)

Gro

up t

otal

Envi

ronm

ent

(Gijó

n)En

gine

erin

g, c

onst

ruct

ion

and

repa

ir o

f tu

nnel

ling

mac

hine

ry(M

adri

d)

Tota

l ass

ocia

ted

com

pan

ies

Mat

eria

ls fo

r tu

nnel

s an

d m

ines

(Ll

aner

a)En

gine

erin

g of

lift

ing

equi

pmen

t (L

a Fe

lgue

ra)

Indu

stri

al a

ssem

bly

(Lan

greo

)M

anuf

actu

re a

nd a

ssem

bly

of r

ailw

ay a

ppar

atus

(M

iere

s)Sh

ippi

ng (

Gijó

n)Sm

eltin

g (L

a Fe

lgue

ra)

Refr

acto

ry li

ning

s (L

angr

eo)

Man

ufac

ture

of s

hori

ng m

ater

ials

(Ll

aner

a)En

gine

erin

g of

lift

ing

equi

pmen

t (L

a Fe

lgue

ra)

Pres

sure

ves

sels

and

hea

vy b

oile

rmak

ing

(Gijó

n)M

anuf

actu

re o

f mec

hani

cal e

quip

men

t (L

angr

eo)

Turb

ine

erec

tion

and

mai

nten

ance

(M

exic

o)D

evel

opm

ent

of m

anag

emen

t so

ftw

are

(Ovi

edo)

Ass

embl

y an

d de

sign

of m

etal

lurg

ical

equ

ipm

ent

(Gijó

n)Sa

le o

f fue

l (G

rana

da)

100%

100%

100%

100% 60

%10

0% 95%

100% 32

%45

%

100%

100%

100% 55

%70

%10

0%10

0%10

0%10

0%10

0%10

0%10

0% 60%

100%

29.4

8%

26,6

738,

516

220

859

4,92

730

,553 10

11,5

84

83,3

42 481,

800

1,84

8 - - - - - - - - - - - - - -

(5,0

54) - - - -

(4,9

55)

(10)

(10,

937)

(20,

956)

(32)

(193

)

(225

) - - - - - - - - - - - - - -

21,6

198,

516

220

859

4,92

725

,598

-64

7

62,3

86 161,

607

1,62

3 - - - - - - - - - - - - - -

19,7

732,

460

120

174

2,10

319

,793 11

11,0

74 150

4,00

0

102

902

1,80

33,

997

510

3,60

6 603,

936

902

3,84

65,

507 5 90 301

3,00

5

2,63

15,

947

190

(1,4

09)

8,81

27,

849

(88)

4,10

1

(99) -

56(6

4) (3) - -

3,98

814

260

6 91,

318

1,91

7 14 146

246

(209

)

(785

)11

3 52,

106

1,75

6(2

,043

)(1

0)(1

4,52

8) -(4

30) 4

283

741 39 3

(1,0

35)

62 556

485

(1,1

50)

(2,4

85) 1 13

(338

)(8

)

21,6

198,

520

315

871

7,60

225

,599

(87)

647 16

1,60

7 - - - - - - - - - - - - - - -

a |

Gro

up a

nd

asso

ciat

ed c

ompa

nie

sSe

t ou

t be

low

is a

list

of G

roup

and

ass

ocia

ted

com

pani

es, i

nclu

ding

rel

evan

t da

ta, a

s at

31

Dec

embe

r 20

03:

Act

ivit

y an

d ad

dres

s%

Shar

ehol

din

gC

ost

Prov

isio

n f

orde

clin

e in

val

ue

Info

rmat

ion

reg

ardi

ng

the

com

pan

ies

at 3

1 D

ecem

ber

2003

Boo

k va

lue

Net

Shar

eca

pita

lR

eser

ves

(1)

Pro

fit/

(Lo

ss)

Boo

kva

lue

Thou

sand

eur

os

139


ation

Act

ivit

y an

d ad

dres

s%

Shar

ehol

din

gC

ost

Prov

isio

n f

orde

clin

e in

val

ue

Info

rmat

ion

reg

ardi

ng

the

com

pan

ies

at 3

1 D

ecem

ber

2003

Boo

k va

lue

Net

Shar

eca

pita

lR

eser

ves

(1)

Pro

fit/

(Lo

ss)

Boo

kva

lue

Thou

sand

eur

os

Dur

o M

etal

urgi

a de

Méx

ico,

S.A

. de

C.V

.

Inge

nier

ía d

e Pr

oyec

tos

Med

ioam

bien

tale

s, S

.A.

Proy

ecto

s e

Inge

nier

ía P

ycor

, S.A

. de

C.V

.In

geni

ería

Téc

nica

, S.A

. de

C.V

. (2)

Equi

pam

ient

os C

onst

rucc

ione

s y

Mon

taje

s, S

.A. d

e C

.V.

Dur

o Fe

lgue

ra P

ower

, S.A

. de

C.V

.

Ope

raci

ón y

Man

teni

mie

nto,

S.A

.

Kep

ler-

Mom

pres

a, S

.A. d

e C

.V.

Soci

edad

de

Serv

icio

s En

ergé

ticos

Ibe

roam

eric

anos

, S.A

.

Iber

oam

eric

ana

de M

onta

jes,

S.A

.

Com

mer

cial

and

indu

stri

al p

roje

cts

rela

ting

to c

apita

l goo

ds in

dust

ry (

Mex

ico)

Con

stru

ctio

n an

d op

erat

ion

of h

ydro

chlo

ric

acid

rege

nera

tion

plan

ts. M

arke

ting

and

sale

of

rege

-ne

rate

d hy

droc

hlor

ic a

cid

and

iron

oxi

de(L

a Fe

lgue

ra)

Engi

neer

ing

(Mex

ico)

Engi

neer

ing

(Mex

ico)

Indu

stri

al p

roje

ct c

onst

ruct

ion

and

asse

mbl

y (M

exic

o)Er

ectio

n an

d m

aint

enan

ce o

f bo

ilers

and

tur

boge

nera

tors

for

ener

gy in

dust

ry (

Mex

ico)

Laun

ch,

oper

atio

n an

d m

aint

enan

ce o

f th

erm

alpl

ants

(G

ijon)

Ass

embl

y of

tu

rbin

es

and

civi

l en

gine

erin

g(M

exic

o)A

ssem

bly

and

mai

nten

ance

of e

lect

rici

ty g

ener

a-tio

n pl

ants

(C

olom

bia)

Fore

ign

engi

neer

ing,

co

nstr

uctio

n an

d fit

ting

proj

ects

(Pa

nam

a)

100% 50

%99

.6%

99%

100%

100%

100% 50

%

25%

25%

- - - - - - - - - -

- - - - - - - - - -

- - - - - - - - - -

65 120

481 -

10,6

28 6

120

N/A

N/A

N/A

(6)

281

698 -

(1,7

01)

(7)

83

N/A

N/A

N/A

23

(53)

(1,1

75) -

(1,4

52)

61 106

N/A

N/A

N/A

- - - - - - - - - -

(1)

Thes

e fig

ures

are

sho

wn

afte

r de

duct

ing

inte

rim

div

iden

ds p

aid

out

duri

ng t

he y

ear.

(2)

Con

solid

ated

dat

a in

clud

ed in

dir

ect

inte

rest

.(3

) The

Com

pany

hol

ds d

irec

t and

indi

rect

sha

reho

ldin

gs in

tem

pora

ry c

onso

rtiu

ms,

whi

ch a

re in

clud

ed in

the

com

pani

es a

ccou

nts,

in a

ccor

danc

e w

ith

the

perc

enta

ge in

tere

st h

eld.

econ

omic

and

fin

anci

al in

form

atio

n

140

Gro

up c

ompa

nie

s

a) D

irec

t in

tere

st:

Felg

uera

I.H

.I., S

.A.

Ace

rvo,

S.A

.In

mob

iliar

ia d

e Em

pres

as d

e La

ngre

o, S

.A.

Dur

o Fe

lgue

ra E

quip

os y

Mon

taje

s, S

.A.

Dur

o Fe

lgue

ra P

lant

as I

ndus

tria

les,

S.A

.M

onta

jes

de M

aqui

nari

a de

Pre

cisi

ón, S

.A.

Dur

o Fe

lgue

ra M

éxic

o, S

.A. d

e C

.V.

b) I

ndi

rect

in

tere

st:

Dur

o M

etal

urgi

a de

Méx

ico,

S.A

. de

C.V

Proy

ecto

s e

Inge

nier

ía P

ycor

, S.A

de

C.V

.Fe

lgue

ra G

rúas

y A

lmac

enaj

e, S

.A.

Felg

uera

Mon

taje

s y

Man

teni

mie

nto,

S.A

.Fe

lgue

ra R

eves

timie

ntos

, S.A

.Té

cnic

as d

e En

tibac

ión,

S.A

.Fo

rjas

y E

stam

paci

ones

Ast

uria

nas,

S.A

.Fe

lgue

ra C

onst

rucc

ione

s M

ecán

icas

, S.A

.Fe

lgue

ra P

arqu

es y

Min

as, S

.A.

Felg

uera

Cal

dere

ría

Pesa

da, S

.A.

Felg

uera

Mel

t, S.

A.

Felg

uera

Cal

dere

ría

Pesa

da S

ervi

cios

, S.A

.Eq

uipa

mie

ntos

Con

stru

ccio

nes

y M

onta

jes

S.A

. de

C.V

.O

pera

ción

y M

ante

nim

ient

o, S

.A.

Felg

uera

Tec

nolo

gías

de

la I

nfor

mac

ión,

S.A

.Fe

lgue

ra R

aíl,

S.A

.

Ass

ocia

ted

com

pan

ies:

Zore

da I

nter

naci

onal

, S.A

.M

HI-D

uro

Felg

uera

, S.A

.

520 37 10 61

1,38

828

123

4 - - -26

3 39 173 -

363

297

329

260 84- 7 5 - -

26

4,37

7

494 - - 2

2,79

74,

197

12,2

09

8,73

488

2 -1,

326

118 - -

1235

4 62- 2 32

1,13

7 1 - - -

32,3

59

3 - -36

-54 25

1 - - -32

9 - 1 -24

9 80 170 97- - - -

10

- -

1,28

0

-19

2 19-

380 3 - - -

32- 1 3 - 1 - - -

12- 4 - - - -

647

- - - - - -87

- - - - - - - - - - - - - - - - - -

87

-10

5 8 -29

44,

578 12

- -39

7,63

6 37 995 2

12,7

55 326

6,46

15,

806 - 3 - 2 48

- -

39,1

07

110 11-

23 239 28 557 - - -

151 12 52-

224 85 144

146 48- - 4 9 - -

1,84

3

Turn

over

an

d ot

her

oper

atin

g in

com

eSu

ppli

es a

nd

othe

rop

erat

ing

char

ges

Fin

anci

alin

com

e

Bal

ance

sTr

ansa

ctio

ns

Fin

anci

alex

pen

seLo

ng-

term

rece

ivab

les

- - - -10

,000

- - - - - - - - - - - - - - - - - - -90

0

10,9

00

Shor

t-te

rmre

ceiv

able

sLo

ng-

term

cred

itor

s

Deb

tors

fal

lin

gdu

e w

ithi

non

e ye

arSh

ort-

term

cred

itor

s

847,

922

759 98

5,95

9 -84

3

361 57 516

163 73- -

509

635

223

216

523 32 297 - -

16-

19,2

86

Div

iden

dsre

ceiv

ed

-45

- - -2,

196 - - - - - - - - - - - - - - - - - - -

2,24

1

Set

out

belo

w a

re d

etai

ls o

f tra

nsac

tions

effe

cted

in 2

003

wit

h G

roup

and

ass

ocia

ted

com

pani

es (

dire

ct a

nd in

dire

ct in

tere

sts)

and

bal

ance

s as

at

31 D

ecem

ber

2003

:

Thou

sand

eur

os

141


ation

The above tables relate mainly to current account balances and trade accounts receivable from and paya-ble to Duro Felguera, S.A. and Group companies, as well as loans granted to certain Group companiesbearing interest at market rates. The interest on these current accounts and loans accrues at a rate ofapproximately 3.9 % per annum, in the case of debtor balances, and 2.4% per annum in the case of cre-ditor balances. Interest for 2003 has been paid.

b | Long-term securities portfolio

Unlisted sharesLess provisions

361-

361

365(7)

358

3837

2,3632927

4,7577,251(38)

7,213

Nominal value Book cost


Less amounts falling due within one year

Creditors falling due after more than one year

Maturity date

c | Other loans

Set out below is an analysis of the annual maturity dates of the balances included in “Other loans”:

Thousand euros

Thousand euros

The balances included under Creditors falling due after more than one year basically relate to a debtgenerated in 2003 as a result of an agreement reached with a partner to liquidate some joint ventu-res. Under this agreement the partner recognises it owes the Company K¤ 6,950, payable within fiveyears. This amount will be paid in cash or by offsetting the amounts due the partner as a result of cer-tain commercial agreements concluded. The amount bears interest at the Euribor rate. If after threeyears after this agreement was concluded no amount has been offset, a cash payment of K¤ 2,333 willbe made or the differences between this amount and the amount offset during that period.

d | Long-term deposits and guarantees

The balance under this heading relates basically to a fixed-term deposit of K¤ 2,498 (arranged inFebruary 1999) securing compliance with obligations assumed by the Company under the privateagreement to sell fixed assets dated 28 December 1998, including sale option and lease-back arran-gements (note 12).

econ

omic

and

fin

anci

al in

form

atio

n

142


Set out below is an analysis of this caption on the accompanying balance sheet:

8 | Inventories

Work in progress and semi-finished goodsAdvance payments to suppliers

2,7302,399

5,129

4292,290

2,719

2003 2002

Thousand euros

The Company records advance payments to Group company suppliers in the amount of K¤ 139.

a | Breakdown of inventories

The main amounts included in “Work in progress and semi-finished goods” relating to long-term con-tracts valued as explained in note 3 e), as well as advance payments received from customers underthose contracts, as follows:

Amount of thecontractDescription

Engineering Concentration Plant (Venezuela)Adaptation of 4 boilers at the thermal plantin A Pontes (Galicia)Co-generation Plant (Mexico)Extension of Chlorized Derivatives Plant (Mexico)Combined Cycle Plant Son Reus II(Palma de Mallorca)Combined Cycle Plant in Barrancode Tirajana (Canary Islands)

1,749

69,7019,738

65,277

136,262

152,616

Inventories

-

-2,285

-

-

-

Advancepayments from

customers

199

9252,713

-

7,317

7,367

Degreeof com-pletion

31%

0%25%94%

57%

67%

b | Insurance

The Company has taken out a number of insurance policies to cover risks relating to constructionwork. As at 31 December 2003, the Directors consider insurance coverage to be adequate.

Thousand euros

Trade debtorsSales pending certificationGroup companies (note 7 a)Sundry debtorsLoans to employeesTaxes payable (note 17)

Less provisions

17,9515,1451,843

8842

13,18339,008

(198)

38,810

119,79115,756

1,5105,443

44,640

147,144(198)

146,946

2003 2002

9 | DebtorsThousand euros

143


ation

The balance under “Sales pending certification” relates mainly to K¤ 5,081 for the extension of theChlorized Derivative Plant in Mexico.

Existing projects have been extended for a total of K¤ 6,374. These extensions have been accepted inprinciple by customers but prices are still being negotiated. The final result of these negotiations will beknown in the coming months.

Loans to Group companies (note 7 a)Loans to non-Group companiesShort-term securities portfolioOther loansDeposits and guarantees furnished

Less provisions

39,107-

59158104

39,428-

39,428

30,0528,7009,738

21796

48,803(17)

48,786

2003 2002

Set out below is an analysis of “Current asset investments” as at 31 December 2003:

10 | Current asset investments

Movements in Capital and reserves are set out below:

11 | Capital and reserves

Thousand euros

Thousand euros

a | Other loans

At 31 December 2003 this heading includes accounts receivable totalling K¤ 120 on the sale of pro-perty to Gestinor, S.A. and the short-term portion (K¤ 38) of loans granted to employees (note 7 c).

Opening balance

Distribution of2002 results:

- to dividends- to reserves- to retained earnings

Attendance bonus toGeneral MeetingsResult for the year

Closing balance

44,632

---

--

44,632

3,913

---

--

3,913

958

---

--

958

Sharecapital Total

Sharepremiumaccount

Revaluationreserve

11,995

-1,091

-

--

13,086

51

--

246

(237)-

60

5,058

(3,721)(1,091)

(246)

-(9,088)

(9,088)

66,607

(3,721)--

(237)(9,088)

53,561

Reserves(Note 11 d)

Retaineearnings

Result forthe year

econ

omic

and

fin

anci

al in

form

atio

n

144


a | Share capital

As at 31 December 2003 the Company's share capital consisted of 14,877,421 fully subscribed andpaid registered shares represented by account entries, each with a par value of three euros. All theshares are listed on the Madrid, Barcelona and Bilbao stock exchanges and carry the same voting anddividend rights.

As at 31 December 2003, according to data submitted to the Spanish Securities and ExchangeCommission (CNMV), the following companies hold an interest of 3% or more in the Company:

b | Revaluation reserve

Following the three-year period during which the tax authorities may inspect the balance in the reva-luation reserve, this reserve may be used, free of tax, to offset prior, current or future losses or toincrease capital. As from 1 January 2007 the balance may be taken to freely distributable reservesprovided that the monetary capital gain has been realised. The part of the capital gain relating todepreciation that has been recorded in the accounts and capital gains on restated assets which havebeen transferred or written off are deemed to have been realised. In the event that the balance in thisaccount is used in any way other than as provided under Royal Decree-Law 7/1996, the balance willbecome taxable.

c | Share premium account

The balance in the Share premium account is the result of share capital increases carried out in July1998 and in January and July 1999.

The current Spanish Companies Act expressly provides that the balance in the share premiumaccount may be used to increase capital and establishes no restriction whatsoever on the use of thisbalance.

% Shareholding

Cartera de Inversiones Melca, S.L.Inversiones Somió S.R.L.TSK Electrónica y Electricidad, S.A.IMASA Ingeniería, Montajes y Construcciones, S.A.

6.327%9.63%

15.87%9.53%

Shareholder

Adjustment, Royal Decree-Law 12/1973Restatement Budget Act 1979Restatement Budget Act 1983

7538,989

17,573

27,315

Share capital was increased in previous years by applying the following reserves:

Thousand euros

145


ation

d | Reserves

Movements in the Reserve accounts are as follows:

Legalreserve

Opening balanceApplication of 2002 profit

Closing balance

3,343506

3,849

Voluntaryreserves

8,571585

9,156

Conversionshare capital

into euros

75-

75

Other

6-

6

Total

11,9951,091

13,086

Thousand euros

d |Legal reserve

Appropriations to the legal reserve are made in compliance with Article 214 of the Spanish CompaniesAct which stipulates that 10% of the profits for each year must be transferred to this reserve until itrepresents 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 noother reserves being available, it must be replenished out of future profits.

e | Restrictions on the payment of dividends

The reserves designated in other sections of this note as being freely available for distribution, as wellas the profit for the year are, however, subject to the restriction on distribution described below:

- Dividends may not be distributed if by so doing the balance in reserves is reduced to an amountlower than the aggregate unamortised formation expenses. Consequently, the balance in such reser-ves (approximately K¤ 1) is not available for distribution.

f | Result for the year

Set out below is the proposal for the distribution of 2003 result that will be submitted to the AnnualGeneral Meeting:

Thousand euros

Available for distributionResult for the year

DistributionVoluntary reserves

(9,088)

(9,088)

(9,088)

(9,088)

econ

omic

and

fin

anci

al in

form

atio

n

146


Thousand euros

Set out below are movements in Deferred income:

12 | Deferred income

Opening balanceTaken to profit and loss

Closing balance

2,135(347)

1,788

Deferred income

Deferred income relates to income from the sale of certain buildings owned by the Company, includingsale option and leasing arrangements with the purchaser, under private agreements dated 28 December1998 and executed in a public deed on 19 February 1999. Set out below are the most significant detailsof these operations:

- Lease of the buildings for a term of 10 years as from 1 January 1999, stating the amount of the leaseinstalments for each year (approximately K¤ 348 for 1999 and annual increases of 1%). In the eventof early termination, the purchaser may demand payment of all outstanding lease instalments. DuroFelguera, S.A. may also sublet to third parties subject to prior authorisation by the purchaser. During1999 part of the properties were sublet.

- Sale of sale options held by the purchaser for each building. These options may be exercised during2007 at the selling prices of the buildings (approximately K¤ 6,749). The buyer may also assign theoptions to third parties in the event that the buildings are sold, under the same terms.

- Duro Felguera, S.A. has arranged a fixed-term deposit of K¤ 2,498 (note 7d) which is pledged to thepurchaser/lessor as security for compliance with all the obligations entered into by the Companyunder the above agreements. Duro Felguera, S.A. may use a pre-established part of this deposit in theevent that the buyer transfers ownership of any of the buildings to third parties.

These sale transactions generated net capital gains totalling approximately K¤ 4,072, which theCompany has deferred for accounting purposes until the gains are deemed to be realised.

During 2000 the subsidiary Felguera Revestimientos, S.A. repurchased certain buildings at a price K¤

12 higher than the price obtained by Duro Felguera, S.A. on the transaction described above. The samebuildings have subsequently been sold at a profit of K¤ 66.

The selling price obtained by the subsidiary Felguera Revestimientos, S.A. represents 133.4% of the saleoption price fixed in favour of the purchaser, an option which may be exercised by the purchaser during2007.

This situation reflects the sharp rise in real estate prices. The Directors of the Company consider that theinitial purchaser will not exercise the option to sell the buildings in view of the capital gains that wouldbe forfeited.

147


ation

Based on the above, in 2000 the Company’s Directors decided to record the cost of renting property asincome as from the signing of the initial purchase agreement until the end of 2000, in order to continuerecording the cost of annual rent in subsequent years, which in 2003 resulted in K¤ 347 being recordedin the profit and loss account. The remaining amount recorded under Deferred income relates to the por-tion of the capital gain equal to the total pending rent amount up until the purchase option expires.

Set out below are the balances in these provisions as at 31 December 2003 and movements during 2003:

Opening balanceAppropriations charged to profit and lossApplications credited to profit and lossPayments

Closing balance

1,025121

(250)(126)

770

7,421-

(469)(6,952)

-

8,446121

(719)(7,078)

770

Other provisionsProvision for

pensions Total

Opening balanceAppropriations charged to profit and loss

Financial expense (note 19)Staff costs (note 18 d)

Applications credited to profit and lossPayments

Closing balance

165

4-

(169)-

-

860

2295

(81)(126)

770

1,025

2695

(250)(126)

770

Retired personnelActive personnel Total

a | Provision for pensions

13 | Provisions for long-term liabilities and charges

Thousand euros

Thousand euros

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omic

and

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148


b | Other provisions

In 2003 K¤ 6,952 was paid as a result of litigation that the Company was involved in with respect tocertain projects.

b | Analysis by currency

Of the total figure for non-trade creditors falling due within one year, the Company records bank loansand overdrafts amounting to K¤ 3,046 in US dollars.

14 | Creditors: amounts falling due after more than one year

Thousand euros

Bank loans

Amounts owed toGroup and associated

companies

Uncalledamounts onshares held Total

200420052006

Less amounts falling duewithin one year

Creditors falling dueafter more than one year

9,90455

4,99814,957

(9,904)

5,053

19,28610,000

-29,286

(19,286)

10,000

-900

-900

-

900

33,16310,9554,99849,116

(33,163)

15,953

3,973--

3,973

(3,973)

-

Other creditors

a | Analysis by maturity dates

The maturity dates of non-trade creditors are as follows:

149


ation

c | Bank loans

Set out below is an analysis of bank loans and overdrafts as at 31 December 2003:Thousand euros

Credit facilities:Secured by real property

In USDIn eurosIn eurosIn eurosIn eurosIn eurosIn eurosIn euros

Interest

Interest rates

Libor + 0.5%Euribor + 0.5%

Euribor + 0.75%Euribor + 0.6%

Euribor + 0.65%Euribor + 0.8%

Euribor + 1%Euribor + 0.9%

Limit

17,250 USD19,5105,0007,8033,0003,0002,679

36,000

Long-term

Utilised

-1,0922,005

442810704

--

-

5,053

Short-term

3,0465,223

-902

--

679-

54

9,904

2003 2002

Creditors for purchases or services receivedAdvance payments from customers

60,15026,039

86,189

43,42718,521

61,948

Taxes and Social Security contributions (note 17)Accrued wages and salariesOther creditors

5,8121,161

163

7,136

1,9371,282

754

3,973

a | Trade creditors

b | Other non-trade creditors

15 | Creditors: amounts falling due within one year

Thousand euros

2003 2002

Thousand euros

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omic

and

fin

anci

al in

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atio

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150


Movements under this heading during 2003 are as follows:

Opening balanceCharge for the yearReversals and applicationsTranslation differences

Closing balance

2,0403,367(370)(130)

4,907

1,0811,200(961)

-

1,320

3,1214,567

(1,331)(130)

6,227

Other provisionsProvision for guarantees Total

16 | Provisions for liabilities and charges and other trade provisions

Set out below is an analysis of tax and social security balances as at 31 December 2003:

17 | Corporate income tax and tax situation

Thousand euros

The balance recorded under the heading “Provision for guarantees” mainly relates to provisions set upto in order to meet contractual terms and conditions for the completion of construction work.

Debtor balances (note 9):Deferred tax assetsValue-added tax:

Spanish VAT refundableForeign VAT refundableInput VAT pending accrual

International double taxation tax creditsInput Canary Island General Tax pending accrualCanary Island General Tax refundableCurrent year corporate income tax refundableOther

Less long-term deferred tax assets (note 7)

Creditor balances (note 15 b):Value-added tax:

VAT payableVAT payable to other tax authoritiesOutput VAT pending accrual

Output general Canary Island indirect tax pending accrualWithholdings on personal income taxDeferred tax liabilities - corporate income taxForeign deferred corporate income taxSocial security contributionsProvision for corporate income taxOther items

Thousand euros

3,878

6,2662,359

406207220

2,77713933

16,285(3,102)

13,183

53988149

1615052

120128278

3

1,937

151


ation

The Company pays corporate income tax on the consolidated profits of the Duro Felguera Group. Theassessment 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 mustbe treated as a single taxpayer for all purposes.

However, each company which forms part of the consolidated group must calculate the tax liability thatwould have been recorded had a separate return been filed and must record the amount of corporate inco-me tax payable or receivable (tax credit), depending on whether the company contributes a profit or aloss to the Group.

Corporate income tax expense is calculated based on the reported profit calculated in accordance withaccounting principles generally accepted in Spain, which is not necessarily equal to the figure for taxa-ble income calculated for corporate income tax purposes.

Set out below is the reconciliation between the book profit for the year and taxable income:

Reported lossCorporate income taxOther taxes

Reported loss before corporate income tax

Permanent differences

Timing differences:Arising in prior years:

Increases:Amortisation of intercompany capital gainsDecreases

Tax-loss carryforwards not offset in the consolidated tax return

Taxable income

(9,088)474(3)

(9,559)

4,166

8(2,216)(7,601)4,038

(3,563)

Thousand euros

Thousand euros

Set out below is an analysis of corporate income tax expense recorded in the profit and loss account:

Current year tax base contributed to consolidated tax baseForeign taxesReversal of deferred tax liability from timing differencesReversal of deferred tax asset from timing differences

(1,247)3

(3)776

(471)

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omic

and

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152


Deferred tax assets relate to the restatement of the tax effect of the amounts to be deducted over the nextfive years. This restatement has been made based on the single premium paid under the group life insu-rance contract covering pension commitments relating to retired employees externalised as at 31December 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 purpo-ses against profits recorded over the following fifteen years. However, the final amount that may be off-set could be changed as a result of a tax inspection. The accompanying balance sheet as at 31 December2003 does not record the possible tax effect of offsetting tax-loss carryforwards, for reasons of pruden-ce.

Set out below is an analysis of unused tax-loss carryforwards as at 31 December 2003:

Thousand euros

Thousand euros

Thousand euros

Set out below is an analysis of permanent differences derived from the recognition of income and expen-se for accounting and tax purposes:

Inter-company dividendsNet pensionsProvisions for liabilities and chargesMonetary adjustment for sale of propertyCorrection to JV resultsTransfer from deferred incomeChange in long-term financial investmentsOther net items

(2,241)(931)2,682

731,685(347)2,764

481

4,166

Set out below is an analysis of the timing differences derived from the recognition of income and expen-se for accounting and tax purposes and the resulting accumulated tax effect as at 31 December 2003:

Timing differences Tax effect

Deferred tax assetsPensions and similar obligations

Deferred tax liabilitiesCapital gains on transactions involving tangiblefixed assets

3,878

52

11,081

149

1993199419951999

3168,3582,229

254

11,157

153


ation

Available until

20042005200720082009201020112012

122221

138

773

30252

726

At 31 December 2003 tax credits pending application for double taxation and investments are as follows:

All the Company’s tax returns for the main taxes to which it is subject are open to inspection by the taxauthorities for the years which are not statute-barred. Taxes may not be deemed to be finally paid untilthe four-year prescription period has elapsed. The Directors do not envisage any further significant lia-bilities in the event of a tax inspection and have therefore recorded no provisions in the accompanyingannual accounts.

Thousand euros

a | Transactions denominated in foreign currency

Transactions effected in foreign currencies are set out below:

Net purchases

Other external expenses

Sales

12,770

23,692

36,394

b | Analysis of net turnover

Net turnover from the Company’s ordinary activities is analysed below by geographical area:

%

Domestic marketForeign market

7822

100

18 | Income and expense

Equivalent value in thousand euros

Market

econ

omic

and

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al in

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154


Thousand euros

%

Equivalent value in thousand euros

Activity

Currency

2003 2002

Industrial Plants LineEnergy LineOther

2275

3

100

US dollars 36,394

Set out below is an analysis of net turnover by activity:

Details of the Company’s export figure is set out below:

c | Supplies

Materials consumed:- Net purchases- Other external expenses

98,80398,572

197,375

59,00961,714

120,723

d | Staff costs

Wages, salaries and similar remunerationContributions and provisions for pensions (note 13 a)Staff welfare expenses

9,133202

1,550

10,885

9,19895

1,437

10,730

Thousand euros

2003 2002

e | Average number of employees by category

University graduatesSkilled techniciansOther techniciansAdministrative staffUnskilled staff

74234120

2

160

Average numberCategory

2,241

-456

1,280254

3,013

7,244

(647)(1,472)

(3)(26)

(5,956)

(8,104)

(860)

155


ation

Thousand euros

2003 2002

Financial profit:Income from shareholdings:

- Group companies (note 7 a)Income from other negotiable securities and long-term loans to:

- Group companies (note 7 a)- From non-Group companies

Other interest and similar income:- Group companies (note 7 a)- Other interest

Gains on exchange

Less financial losses:Financial and similar expenses:

- Amounts owed to Group companies (note 7 a)- Amounts owed to third parties and similar expenses

Changes in provisions for investmentsInterest applied to the pension provision (note 13 a)Losses on exchange

Net financial profit/(loss)

3,207

272356

1,45557

1,329

6,676

(787)(1,625)

(45)(50)

(3,049)

(5,556)

1,120

Net financial income/expense is composed as follows:

19 | Financial income and expense

econ

omic

and

fin

anci

al in

form

atio

n

156


344

449

990995

-

2,778

(2)

-(7,057)

-

(7,059)

(4,281)

347

-

39675

6

1,067

(6)

(13,895)(3,884)

(66)

(17,851)

(16,784)

Extraordinary profit:Reclassification to gain on sale of fixed assets (note 12)Changes in provisions for tangible and intangible fixed assets and controllingshareholdingsProfit on disposal of tangible and intangible fixed assets and controllingshareholdingsExtraordinary incomeIncome relating to prior years

Less extraordinary losses:Loss on fixed assetsChanges in provisions for tangible and intangible fixed assetsand controlling shareholdingsExtraordinary expensesPrior-year expenses and losses

Net extraordinary loss

The Company has reversed a capital gain totalling K¤ 3,642 arising on the same of land in 2001because the buyer has not made payment.

Extraordinary items are analysed as follows:

20 | Extraordinary items

Thousand euros

2003 2002

157


ation

21 | Other information

Thousand euros

Supplies and otheroperating charges

5,785

Meeting attendanceallowances

104

a | Directors’ remuneration

Salaries, expense allowances and other remuneration accruing in favour of the Board ofDirectors during 2003 amount to K¤ 1,016.

The breakdown of balances and transactions with companies that pertain to the Company’sBoard of Directors is set out below:

For the purposes of the provisions of Article 127 of the Spanish Companies Act, in accordancewith the wording of Law 26/2003 (19 July 2003) as it relates to the activities of members of theBoard of Directors, the following should be noted:

The Chairman Mr. Juan Carlos Torres Inclán, is a Mining Engineer and up until his appointmenthe was the managing Director of the Company’s Power Systems line of business. He is a memberof the executive team at Duro Felguera S.A., and owns shares representing 0.397% of share capi-tal. He is also a member of the Board of Directors and Chairman, for which he receives no remu-neration, of Duro Felguera Plantas Industriales S.A. and Duro Felguera Equipos y Montajes S.A.,both of which are subsidiaries of Duro Felguera S.A.

The Vice-Chairman Mr. José Luis García Arias is the legal representative of Cartera de InversionesMelca S.L., a Shareholder of Duro Felguera S.A. that owns a direct interest of 0.203% and an indi-rect interest of 6.327% in the Company’s share capital. He is also the legal representative of thecompanies ARSIDE and Construcciones Melca S.A., which carry out activities that are similar orcomplementary to those carried out by Duro Felguera S.A.. He is also a member of the Board ofDirectors, for which he receives no remuneration, of Duro Felguera Plantas Industriales S.A. andDuro Felguera Equipos y Montajes S.A., both of which are subsidiaries of Duro Felguera S.A.

The CEO Mr. Florentino Fernández del Valle is an Industrial Engineer and until his appointmenthe was the General Manager of the Company’s Equipment and Erection line of business, and thenits Managing Director. He is a member of the Company’s executive team and owns shares repre-senting 0.421% of share capital. He is also a member of the Board of Directors, for which he recei-ves no remuneration of Duro Felguera Plantas Industriales S.A., Duro Felguera Equipos yMontajes S.A., Felguera Rail S.A., MHI-Duro Felguera S.A., Felguera IHI S.A., PYCORSA and DuroFelguera México, S.A. de C.V., all of which are subsidiaries of Duro Felguera S.A.

The Director Mr. Sabino García Vallina, is the General Manager of the Shareholders “TSKElectrónica y Electricidad S.A.” which is represented on the Board by Mr. Carlos Vento Torres andthe company “PHB Weserhütte S.A.”, which is represented on the Board by Mr. Acacio FaustinoRodríguez García, and therefore controls three Board positions and the direct shareholding inDuro Felguera S.A. held by these companies totals 15.87% and the indirect interest totals 15.876%.

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Mr. Carlos Vento Torres, who represents “TSK Electrónica y Electricidad S.A.” is a Sales repre-sentative for the Dutch Group NEM BV, domiciled at Kanaalpark 159, LEIDEN- THE NETHER-LANDS, which is engaged in the design and manufacturing of steam recovery boilers, which issimilar and complementary to the activities carried out by Duro Felguera S.A. Mr. Sabino GarcíaVallina, Mr. Acacio Faustino Rodríguez García and Mr. Don Carlos Vento Torres are also membersof the Board of Directors, for which they receive no remuneration, of Duro Felguera PlantasIndustriales S.A. and Duro Felguera Equipos y Montajes S.A, both of which are subsidiaries ofDuro Felguera S.A.

Mr. José Manuel Agüera Sirgo, is a Professor of Economy at the University of Leon and is a mem-ber of the Board of Directors of CAJASTUR. He is also a member of the Board of Directors, forwhich he receives no remuneration, of Duro Felguera Plantas Industriales S.A. and Duro FelgueraEquipos y Montajes S.A., both of which are subsidiaries of Duro Felguera S.A.

Mr. Marcos Antuña Egocheaga is a mining engineer and holds a 0.01% interest in share capitaland is an executive at Hidroeléctrica del Cantábrico S.A., a Shareholder of Duro Felguera S.A.,which holds an interest of less than 5%. He is also a member of the Board of Directors, for whichhe receives no remuneration, of Duro Felguera Plantas Industriales S.A. and Duro FelgueraEquipos y Montajes S.A., both of which are subsidiaries of Duro Felguera S.A.

Mr. Juan Gonzalo Álvarez Arrojo is the General Manager of the company “Transportes Urbanosde Zaragoza, S.A.”, (TUZSA), a Shareholder of Duro Felguera, and of the companies “InversionesSomió S.R.L” (represented by Mr. Álvarez Arrojo) and “Inversiones El Piles S.R.L.” (representedby Mr. Ángel Antonio del Valle Suárez), members of the Board of Directors of Duro Felguera S.A.,and therefore Mr. Álvarez Arrojo controls two positions on the Board of Directors that representa direct stake of 5.39% and an total stake, together with indirect interests of 10.014%. Mr. JuanGonzalo Álvarez Arrojo and Mr. Ángel Antonio del Valle Suárez are also members of the Board ofDirectors, for which they receive no remuneration, of Duro Felguera Plantas Industriales S.A. andDuro Felguera Equipos y Montajes S.A, both of which are subsidiaries of Duro Felguera S.A.

The member “Proyectos Modulares PMP S.A.”, represented by Mr. Tomás Casado Martínez andthe member “IMASA, Ingeniería, Montajes y Construcciones S.A.”, represented by Mr. SaturninoMartínez Zapico, are companies controlled by Mr. Tomás Casado Martínez, both of which areShareholders of Duro Felguera S.A., and therefore this Director controls two positions on theBoard of Directors, representing a total stake in Duro Felguera of 9.53%. The member “IMASA,Ingeniería, Montajes y Construcciones S.A.”, carries out activities that are similar or comple-mentary to those carried out by Duro Felguera S.A. Mr. Tomás Casado Martínez and Mr. SaturninoMartínez Zapico are also members of the Board of Directors, for which they receive no remune-ration, of Duro Felguera Plantas Industriales S.A. and Duro Felguera Equipos y Montajes S.A, bothof which are subsidiaries of Duro Felguera S.A.

159


ation

b | Environmental information

The Company has adopted the necessary measures to the protect and improve the environ-ment and to minimise the environmental impact, if applicable, in compliance with currentenvironmental legislation.

c | Auditors’ fees

The fees charged in 2003 by PricewaterhouseCoopers Auditores, S.L., for audit servicesamounted to K¤ 41. The fees charged by PricewaterhouseCoopers Auditores, S.L. for other ser-vices amounted to K¤ 8.

econ

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and

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a | Joint ventures

The Company participates in several joint ventures with other companies. The percentage interest intheir operating funds and accounts receivable and payable, as well as transactions with the joint ven-tures (UTES), are offset when balances are proportionally recorded in the joint venture’s balance sheetand profit and loss account items, while excess amounts (or shortfalls) recorded with respect to theother partners in the joint venture remain in the account.

A breakdown of these joint ventures as at 31 December 2003, the interest held and other relevantinformation is set out below:

UTE C.C. San Roque

UTE C.C. Besós

UTE C.C. Castejón

UTE C.C. CeutaUTE C.C. Lanzarote

50%

50%

50%

50%50%

CompanyRegistered

officeActivity

Civil engineering for combinedcycle plantsCivil engineering for combinedcycle plantsCivil engineering for combinedcycle plantsAssembly of combined cycle plantsAssembly of combined cycle plants

Madrid

Madrid

Gijón

MadridMadrid

6

6

6

1.21.2

-

-

-

--

4,932

8,975

-

(66)30

%Shareholding

Sharecapital Reserves

Profit / (loss)for the year

b | Branch office

As indicated in note 3s), the Company has a branch in Mexico named Duro Felguera S.A, SucursalMéxico, which was incorporated on 15 January 2002. The objects of this company covers the assembly,maintenance and operation of metalomechanic equipment and facilities.

This branch’s most significant transactions incorporated into Duro Felguera, S.A.’s accounts in 2003are set out below:

Net turnoverIncrease in inventories of finished goods and work in progressSuppliesChanges in trade provisionsExternal servicesFinancial expenseLoss for 2003 to be included

35,8633,043

38,383931

1,3431,0212,804

Thousand euros

Thousand euros

22 | Joint ventures and branch office

161


ation

Felguera Montajes y Mantenimiento, S.A.Montajes de Maquinaria de Precisión, S.A.Felguera Revestimientos, S.A.Técnicas de Entibación, S.A.Felguera Construcciones Mecánicas, S.A.Duro Felguera Plantas Industriales, S.A.Felguera Parques y Minas, S.A.Felguera Calderería Pesada, S.A.Felguera Melt, S.A.Duro Felguera Equipos y Montajes, S.A.Duro Felguera México, S.A. de C.V.Felguera Rail, S.A.Felguera Calderería Pesada Servicios, S.A.Turbogeneradores de México, S.A. de C.V.Duro Felguera Power, S.A. de C.V.

2,77713,712

601601

8,2673,312

8405,1666,051

15011,7366,270

9017,088

13,449

80,921

Guarantee facilities and multi-user credit linesGuarantees under sales agreements in the process of enforcementOther items

203,49396,657

535

300,685

As at 31 December 2003 the Company had furnished the following guarantees, directly or indirectly,relating basically to guarantees for sale agreements and guarantee deposits for loans and bank guaran-tees:

The Company also records the following commitments as at 31 December 2003:

23 | Guarantees and other contingencies

Thousand euros

Thousand euros

In 2003 discrepancies arose with various sub-contractors regarding the final price of several closed pro-jects. The claims made are approximately K¤ 7,776 higher than the Directors’, and their legal advisors’accounting estimates, which already include increases due to extensions of the contracts initially con-cluded. According to technical and legal studies carried out these estimates easily cover the work carriedout.

In addition to the above, claims have been received from sub-contractors totalling K¤ 12,135 that theDirectors have not taken into consideration since they have no contractual or legal support whatsoeverand, according to the Company’s legal advisors, should the claims reach litigation is will be difficult forsub-contractors to support their positions.

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Purchases of fixed assets:

Intangible fixed assetsTangible fixed assetsInvestments

Dividends and attendance allowances

Repayment or reclassification to short term liabilities of liabilitiesdue after one year:

Amounts owed to Group companiesRepayment of other debts

Provisions for pensions and similar obligations

Total application of funds

Surplus of sources over application of funds (Increase in Working Capital)

APPLICATION OF FUNDS

3,486

119347

3,020

3,966

2,027

2,00027

601

10,080

49,193

21,730

45383

21,302

3,958

32,872

-32,872

7,078

65,638

Thousand euros

2003 2002

Set out below are the Statements of Source and Application of Funds for 2003 and 2002:

24 | Statements of source and application of funds

10,521

37,889

7,387

5,1132,274

3,476

2,700776

-

59,273

163


ation

Funds generated from operations

Debts falling due after one year

Proceeds from disposal of fixed assets:

Tangible fixed assetsInvestments

Early redemption or reclassificationto short-term of Investments

Other investmentsPublic institutions, long-term

Uncalled amounts on shares held: Associated companies

Total sources of funds

Surplus of applications over sources of funds (Reduction in Working Capital)

SOURCES OF FUNDS

4,205

-

3,055

103,045

4,870

4,095775

900

13,030

52,608

Thousand euros

2003 2002

econ

omic

and

fin

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164


a | Change in Working Capital

b | Calculation of funds generated from operations

InventoriesDebtorsCreditorsCurrent asset investmentsCash at bank and in hand

Total

Change in Working Capital

2,410-

57,008-

5,468

64,886

-(108,136)

-(9,358)

-

(117,494)

(52,608)

-117,655

---

117,655

49,193

(11,112)-

(48,653)(6,697)(2,000)

(68,462)

Increases Decreases Increases Decreases2003 2002

5,058

3166,952

25278

6172

8,217

(990)(344)

(79)(321)

(1,020)

(2,754)

10,521

(9,088)

316-

121-

13,9166

14,359

-(347)

-(719)

-

1,066

4,205

Result for the year

Increases:

Fixed asset depreciationAppropriations to provision for liabilities and chargesAppropriations to provision for pensions and similar obligationsAppropriations to other provisionsAllocation to the provision for investmentsLosses from tangible and intangible fixed assets

Total increases

Decreases:

Profit on disposal of tangible and intangible fixed assetsDeferred income taken to profit and loss for the yearGains on exchangeReversal of provision for pensions and similar obligationsNet reversal of provision for investments

Total decreases

Total funds generated from operations

Thousand euros

Thousand euros

2003 2002

165


ation

DURO FELGUERA, S.A.

Directors’ Report for 2003

The parent company carries out a dual role as a holding company and the company that directly fulfilsthe largest projects awarded to the Group. For this reason the activity of the Power Systems line of busi-ness is included under Duro Felguera, S.A.

In mid-2003 the construction of the combined cycle plants awarded in prior years was successfully com-pleted and only the Barranco de Tirajana and Son Reus II plants remained in production at the end of theyear. The gross operating profit was K¤ 8,085, which is higher than the figure recorded last year. Thisreflects the positive development of activities in progress in this area.

Heavy contracting is expected in this field in the coming months.

Profits from ordinary activities amounted to K¤ 7,225, although this has been affected by the valuationof financial statements presented by foreign subsidiaries as a result of the decline in the dollar.

Extra-ordinary results reflected sharp negative impact (K¤ 16,784), notable among which is the reversalof the capital gain totalling K¤ 3,642 on the sale of land in 2001 that was not successfully completed.However, this impact is expected to be eliminated in a reasonably short period upon the sale of the land,which is of high value.

A negative effect was also recorded with respect to the portfolio provisions for the activities of FelgueraCalderería Pesada (K¤ 1,150), Felguera Construcciones Mecánicas (K¤ 2,158) and Duro Felguera México(K¤ 10,937). In the case of Duro Felguera Mexico, costs have been incurred on the extension of workrequested by the customer, which has resulted in price increases being requested. The company inclu-ded K¤ 6,374 as income in this respect although the final result of these extensions will not be knownuntil the project is completed, which will take place in early 2004.

At the end of the year several cost-cutting measures were implemented and employee levels were adjus-ted to adapt to the lower activity levels which, combined with the high levels of new contracts expectedduring the year in the most profitable line of business, make it foreseeable that results will respond veryfavourably over the coming three years. Although this is the horizon that can be projected with the mostconfidence, long-term perspectives are also very promising.

The company holds none of its own shares and did not make any investments in R&D during the year.

economic and financial information 2003 - duro · pdf filenet turnover (note 19b) ... ute ct...

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