Memoria 2007 / Annual Report. Inversiones Aguas Metropolitanas S.A. Financial Statements

Transcription

1 276 Memoria 2007 / Annual Report.

2 Memoria 2007 / Annual Report 277 For the years ended December 31, 2007 and 2006

3

4 Deloitte Auditores y Consultores Ltda. RUT: Av. Providencia 1760 Pisos 6, 7, 8, 9 y 13 Providencia, Santiago Chile Fono: (56-2) Fax: (56-2) deloittechile@deloitte.com Independent Auditors Report To the Shareholders and Directors of We have audited the accompanying balance sheets of (the Company ) as of December 31, 2007 and 2006 and the related statements of income and of cash flows for the years then ended. These financial statements (including the related notes) are the responsibility of the Company s Management. Our responsibility is to express an opinion on these financial statements based on our audits. The accompanying Reasoned Analysis and Significant Events do not form an integral part of these financial statements; therefore, our report does not cover them. We conducted our audits in accordance with auditing standards generally accepted in Chile. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The financial statements referred to above have been prepared to reflect the unconsolidated financial position of Inversiones Aguas Metropolitanas S.A., based on the criteria described in Note 2, before consolidating line-by-line the financial statements of the Subsidiary detailed in Note 8. Therefore, for an adequate interpretation, these financial statements should be read and analyzed in conjunction with the consolidated financial statements of and Subsidiary, which are required by the accounting principles generally accepted in Chile. In our opinion, such financial statements present fairly, in all material respects, the financial position of as of December 31, 2007 and 2006 and the results of its operations and its cash flows for the years then ended, in conformity with the accounting principles described in Note 2. The accompanying financial statements have been translated into English for the convenience of readers outside Chile. January 29, 2008, except for Note 20, which is dated February 1, 2008 Deloitte se refiere a Deloitte Touche Tohmatsu -asociación suiza- y a su red de firmas miembro, cada una como una entidad única e independiente. Por favor, vea en la descripción detallada de la estructura legal de Deloitte Touche Tohmatsu y sus firmas miembro. Una firma miembro de Deloitte Touche Tohmatsu

5 280 Memoria 2007 / Annual Report. Balance Sheets Financial Statement At December 31, 2007 and Assets Current Cash and banks 2,507 7,509 Marketable securities 605, ,868 Miscelleaneous account receivables (net) 6,080 1,779 Accounts receivable and notes from related companies 163,195 1,146,214 Recoverable taxes - 98,631 Prepaid expenses 16,622 - Other current assets - 642,436 Total current assets 794,063 2,038,437 Property, Plant and Equipment Machinery and equipment 32,119 9,539 Other property, plant and equipment 3,735 4,011 Accumulated depreciation (9,060) (5,491) Total property, plant and equipment 26,794 8,059 Other non-current Assets Investments in related companies 216,851, ,398,954 Goodwill 271,348, ,441,902 Intangible 8,222 8,222 Accumulated amortization (2,741) (687) Total other non-current assets 488,205, ,848,391 Total Assets 489,026, ,894,887 The accompanying notes 1 to 21 are an integral part of these unconsolidated financial statements.

6 Memoria 2007 / Annual Report 281 At December 31, 2007 and Liabilities and Shareholders Equity Current Liabilities Trade accounts payable 941 6,347 Sundry creditors 4,120 - Accounts and notes payable to related companies - 997,745 Provisions 346, ,479 Withholdings 10,675 65,598 Income taxes 122,299 - Deferred taxes 11,969 13,199 Other - 3,960 Total current liabilities 496,221 1,217,328 Long-term Liabilities Deferred taxes 157, ,479 Total long-term liabilities 157, ,479 Shareholders Equity Paid-in capital 475,181, ,001,804 Other reserves 3,446,893 3,252 Retained earnings 62, ,436 Net income for the year 24,531,649 24,291,715 Interim dividends (14,849,660) (15,118,127) Total shareholders equity 488,372, ,505,080 Total Liabilities and Shareholders Equity 489,026, ,894,887 The accompanying notes 1 to 21 are an integral part of these unconsolidated financial statements.

7 282 Memoria 2007 / Annual Report. Statements of Income Financial Statement At December 31, 2007 and Operating Income Operating Revenues - 3,512,153 Operating Expenses - ( 3,220,301) Gross Profit - 291,852 Administrative and Sales Cost ( 1,117,288) ( 662,441) Total Operating Income ( 1,117,288) ( 370,589) Non-Operating Results Financial income 246, ,105 Equity in earnings of related companies 48,628,830 45,872,479 Other non-operating income 11,844 1,678,963 Amortization of goodwill ( 23,093,482) ( 23,076,331) Financial expenses ( 3,530) ( 7,622) Other non-operating expenses ( 3,363) ( 173,343) Price-level restatement, net ( 34,194) 74,605 Foreign exchange gain, net 6,468 51,320 Total Non-operating income 25,759,204 24,661,176 Income before Income Taxes 24,641,916 24,290,587 Income Taxes ( 110,267) 1,128 Net Income 24,531,649 24,291,715 The accompanying notes 1 to 21 are an integral part of these unconsolidated financial statements.

8 Memoria 2007 / Annual Report 283 Statements of Cash Flows At December 31, 2007 and Cash Flows from Operating Activities Collection of trade accounts receivable 1,159,493 4,246,331 Financial income received 246, ,075 Dividends and other distributions received 45,284,053 44,827,405 Other income received 58,765 55,695 Payments to suppliers and personnel ( 1,929,326) ( 4,587,315) Payment of Interest 93,494 ( 887) Payment for income tax ( 7,425) ( 198,129) Other expenses ( 7,117) ( 4,036) VAT and other similar items paid ( 1,484,060) ( 2,060,674) Total net cash flows provided by operating activities 43,414,054 42,532,465 Net Cash Flows from Financing Activities Dividends paid ( 23,501,961) ( 20,019,272) Capital distribution ( 19,703,716) ( 36,421,859) Total Net Cash Flows from Financing Activities ( 43,205,677) ( 56,441,131) Cash Flows from Investing Activities Proceeds from sales of permanent investments - 13,328,054 Purchases of fixed assets ( 22,368) ( 17,759) Net cash flows (used in) provided by investing activities ( 22,368) 13,310,295 Net increase (Decrease) in Cash Flows for the Year 186,009 ( 598,371) Price-Level Restatement of Cash and Cash Equivalents ( 369,656) ( 189,901) Net (Decrease) in Cash and Cash Equivalents ( 183,647) ( 788,272) Cash and Cash Equivalents at Beginning of the Year 791,813 1,580,085 Cash and Cash Equivalents at the End of the Year 608, ,813 The accompanying notes 1 to 21 are an integral part of these unconsolidated financial statements.

9 284 Memoria 2007 / Annual Report. Reconcilation between Net Cash Flow Provided by Operating Activities and Net Income for the Year At December 31, 2007 and Net income 24,531,649 24,291,715 Gain on sale of investments - ( 1,674,116) Adjustments to reconcile net income to net cash provided by operating activities Depreciation 3,845 1,479 Amortization of intangible 2, Equity in earnings of related companies ( 48,628,830) ( 45,872,479) Amortization of negative goodwill 23,093,482 23,076,331 Net price-level restatement 34,194 ( 74,605) Net foreign exchange differences ( 6,468) ( 51,320) Other credits to income that do not represent cash flow ( 11,844) - Other charges to income that do not represent cash flow - 344,078 Total Adjustments to reconcile net income to net cash provided by operating activities ( 25,513,566) ( 22,575,830) Changes in operating assets - decreases Trade accounts receivable 1,159, ,356 Other assets 45,263,062 44,641,345 Total Changes in operating assets - decreases 46,422,555 45,341,701 Changes in operating liabilities - increases (decreases) Accounts payable related to operating income ( 836,711) ( 625,413) Income taxes payable 196,337 ( 203,493) Other accounts payable 79,079 - VAT and similar payables ( 1,465,289) ( 2,022,099) Total Changes in operating liabilities - increases (decreases) ( 2,026,584) ( 2,851,005) Net Cash Provided by Operating Activities 43,414,054 42,532,465 The accompanying notes 1 to 21 are an integral part of these unconsolidated financial statements.

10 Memoria 2007 / Annual Report 285 Notes to the Financial Satements For the years ended December 31, 2007 and 2006 ( in thounthands Chilean pesos, ). 1.- Registration in the Secuities Register The Company is registered in the Securities Register of the Superintendency of Securities and Insurance with the number 912 and is subject to the regulatory authority of that entity. 2.- Summary of Significant Accounting Policies a) Accounting period These unconsolidated financial statements relate to the years between January 1 and December 31, 2007 and 2006, respectively. b) Basis of preparation These unconsolidated financial statements have been prepared in accordance with accounting principles generally accepted in Chile, issued by the Chilean Institute of Accountants, and the instructions of the Superintendency of Securities and Insurance, except for investments in subsidiaries which are shown on just one line in the balance sheet at their proportional equity value and have therefore not been consolidated line by line. This treatment does not modify the net income for the year or the net shareholders equity. In the event of differences between the accounting principles generally accepted as issued by the Chilean Institute of Accountants, and the instructions of the Superintendency of Securities and Insurance, the instructions of the Superintendency of Securities will prevail. These financial statements have been prepared only for the purpose of making an individual analysis of the Company and should therefore be read together with the consolidated financial statements, as required by accounting principles generally accepted in Chile. c) Basis of Presentation For comparison purposes, the financial statements at December 31, 2006 and their respective notes have been restated, off the books, by 7.4%, corresponding to changes in the Consumer Price Index during the last twelve months, with a one-month time lag. For comparison purposes some items in the financial statements at December 31, 2006 have been reclassified. d) Price-level restatements The financial statements have been restated, in accordance with accounting principles generally accepted in Chile, to reflect the effects of variations in the purchasing power of the local currency during the years 2007 and 2006, being 7.4% and 2.1% respectively, with a one-month time lag. Income statement balances have also been restated to show them at year-end values.

11 286 Memoria 2007 / Annual Report. e. Currency translation Assets and liabilities in Unidades de Fomento and/or foreign currencies are shown at their respective values and/or exchange rates at each year end, at the following rates: United States dollar Unidad de Fomento (index-linked units of account) 19, , Euro f) Marketable securities Marketable securities reflect investments in mutual funds units, shown at their redemption value at the closing date of these financial statements. g) Transactions under resale agreements The acquisition of securities under resale agreements are valued as investments in fixed-income investments and are shown in Other current assets, in accordance Circular 768 of the Superintendency of Securities and Insurance. h) Property, plant and equipment Property, plant and equipment are shown at their restated cost. i) Depreciation of property, plant and equipment Depreciation has been calculated using the straight-line method on the restated book values over the estimated useful lives of the respective assets. j) Intangibles This comprises software at price-level restated cost in accordance with Technical Bulletin No 55 of the Chilean Institute of Accountants. Software is amortized over 4 years beginning on the acquisition date, as it is believed they will provide benefits in such period.

12 Memoria 2007 / Annual Report 287 k) Investments in related companies Investments in related companies with the ability to exercise a significant influence over the company are accounted for using the equity method determined on the basis of the respective financial statements of that company at December 31, 2007 and The equity in the results of such related companies for each year is recognized on an accrual basis. l) Goodwill Goodwill represents the difference between the cost of related companies and the proportional equity value of these investments at the time of purchase. Goodwill is amortized over a period of 20 years from the date of acquisition as this is the estimated period of return on the investment. m) Income tax and deferred taxes The Company has provided for income tax on the basis of the net taxable income determined in accordance with the provisions of the Income Tax Law. According to Technical Bulletin No. 60 and other instructions from the Chilean Institute of Accountants and contained in Circular 1,466 of the Superintendency of Securities and Insurance, the Company records the effects of deferred taxes resulting from temporary differences, tax benefits related to tax losses carry-forward and other events that create differences between the financial and tax basis of assets and liabilities. n) Revenues The Company s revenues relate to technological support and are show on an accrued basis. o) Derivative contracts The Company has entered into forward exchange contracts with financial institutions. These have been defined as hedging instruments against fluctuations in the exchange rate and have been recorded in accordance with Technical Bulletin No. 57 of the Chilean Institute of Accountants. p) Statement of cash flows The Company considers as cash and cash equivalents its balances held in unrestricted bank checking accounts in local and foreign currencies and those short-term investments made as part of its normal cash management and whose redemption will be made within 90 days from the date of the investment and that have no risk of significant loss at the time of redemption. Cash flows from operating activities include revenues and expenses that are treated as non-operating in the Statement of Income. 3.- Accounting Changes The accounting principles and criteria described in Note 2 were applied uniformly during the years 2007 and 2006.

13 288 Memoria 2007 / Annual Report. 4.- Marketable Securities The detail of marketable securities at December 31, 2007 and 2006 is as follows: Institution Fund Value per unit 2007 BCI Competitivo Gamma 1, ,659 Total 605,659 Instrument Book Value M$ Mutual fund units 605, ,868 Total Marketable Securities 605, , Balances and Transactions with Related Entities a) Accounts receivable and notes Taxpayer Rut I.D. Company Sociedad Short-term ,808,000-5 Aguas Andinas S.A. (1) - 1,146,214 77,329,730-4 Inversiones Aguas del Gran Santiago Ltda. (2) 163,195 - (formerly, Inversiones Aguas del Gran Santiago S.A.) Total 163,195 1,146,214 (1) The account receivable from Aguas Andinas related to the contract for technical assistance in the areas of the urban water cycle management, commercial management and strategy, data processing and hydrology, hydraulics and engineering. The contract was expressed in U.F. and had a term of 5 years ending in December 2006, with interest-free invoicing every 90 days. (2) The accounts receivable from Inversiones Aguas del Gran Santiago Ltda. (formerly Inversiones Aguas del Gran Santiago S.A.) in 2007 relates to reimbursement of expenses, to be invoiced interest-free every 30 days.

14 Memoria 2007 / Annual Report 289 b) Accounts payable and notes Taxpayer I.D. Company Short term ,046,220-9 Soc. Gral. Aguas de Barcelona S.A. (1) - 997,745 Total - 997,745 (1) The account payable to Sociedad General Aguas de Barcelona S.A. in 2006 related to a contract, entered into in 2001, expressed in Euros, wich had a term of 5 years ending in 2006, with monthly voicing and interest-free payments every 63 days. The materiality for reporting related party transactions consists in amounts in excess of 100,000. c) Transactions with related parties Company Taxpayer Relationship Description of I.D. transaction Effect on income (Charge/Credit) Amount Effect on income (Charge/Credit) Soc. Gral. Aguas de Barcelona S.A. 59,046,220-9 Related Consultancy received - - 2,765,662 (2,765,662) Suez Lyonnnaise des Eaux Related Consultancy received ,152 (379,152) Aguas Andinas S.A. 61,808,000-5 Subsidiary Consultancy provided 15,767-3,725,065 3,473,617 Aguas Andinas S.A. 61,808,000-5 Subsidiary Dividends received 45,284,053-44,535,837 - Inversiones Aguas del Gran Stgo. Ltda. 77,329,730-4 Parent Capital distribution 11,541,236-20,635,229 - Inversiones Aguas del Gran Stgo. Ltda. 77,329,730-4 Parent Dividends distribution 13,626,277-12,232,184 -

15 290 Memoria 2007 / Annual Report. 6.- Deferred Taxes and Income Tax The taxable income and other concepts at December 31, 2007 and 2006 are detailed as follows: a) Net taxable income 729,215 - Accumulated tax losses - (61,284) b) Balance of taxed earnings 29,418,582 22,842,236 c) Tax (17%) credit for shareholders 123,967 4,678,534 d) Deferred income taxes are as follows M$ Item Deferred tax assets Short Long term term Deferred tax liabilities Short Long term term Deferred tax assets Short Long term term Deferred tax liabilities Short Long term term Temporary differences Accrual for vacations 2, , Deferred expenses , , , ,479 Total 2,710-14, ,800 1,479-14, ,479

16 Memoria 2007 / Annual Report 291 Income Tax Current income tax (tax provision) (123,967) - Adjustment from prior year - (24,307) Effect on assets or liabilities of deferred taxes 15,909 15,196 Tax benefit from tax losses - 10,418 Other charges or credits (2,209) (179) Total (110,267) 1, Other Current Assets Other current assets at the close of each year include: Investments in commercial paper of Central Bank of Chile - 642,436 Total - 642, Invesments in Related Companies The detail of investments in related companies at December 31, 2007 and 2006 is as follows: Taxpayer I.D. Company Ownership percentage Equity of the company Net income for the year Equity in earnings Book value of the investment % % 61,808,000-5 Aguas Andinas S.A ,817, ,938,377 97,058,999 90,884,120 48,628,830 45,872, ,851, ,398,954 Total 216,851, ,398,954

17 292 Memoria 2007 / Annual Report. 9.- Goodwill The balances of this account at December 31, 2007 and 2006 represent the difference between the cost and the proportional equity value of the company invested in, as follows: Taxpayer I.D. Company Amortization for the year Book value goodwill Amortization for the year Book value goodwill 61,808,000-5 Aguas Andinas S.A. 23,093, ,348,419 23,076, ,441,902 Total 23,093, ,348,419 23,076, ,441, Provisions and Write-Offs The detail of provisions at December 31, 2007 and 2006 is as follows: Accrued vacations 15,939 8,706 Accrued services 284, ,650 Other personnel benefits 45,618 9,123 Total 346, ,479 The Company made no write-offs during 2007 and Changes in Shareholders Equity As established in article 10 of the Corporations Law 18,046, the proportional amount of the restatement of capital was added to capital, this being divided at December 31, 2007 into 1,000,000,000 subscribed and paid shares. Changes in the Company s equity position during 2007 and 2006 are as follows: The Ordinary Shareholders Meeting held on April 24, 2007 resolved the following: - To distribute accumulated earnings equivalent to 8,845,300. This was paid in cash according to their percentage holdings to the shareholders. The Extraordinary Shareholders Meeting held on April 24, 2007 resolved the following: - To decrease the Company s capital by 19,512,800. This was formalized through a deed dated May 28, Payment was made on July 25, 2007.

18 Memoria 2007 / Annual Report 293 The board meeting held on September 26, 2007 agreed the following: - To distribute an interim dividend of 14,530,000 against the net income for This amount was distributed in cash, according to their respective shareholdings, to the shareholders on October 25, The Ordinary Shareholders Meeting held on April 27, 2006 resolved the following: - To distribute accumulated earnings equivalent to 5,974,400 (historic). This was paid in cash according to their percentage holdings to the shareholders. The Extraordinary Shareholders Meeting held on April 27, 2006 resolved the following: - To decrease the Company s capital by 33,609,900 (historic). This was formalized through a deed dated May 10, This was paid in cash according to their percentage holdings to the shareholders. The board meeting held on September 27, 2007 agreed the following: - To distribute an interim dividend of 14,133,000 (historic) against the net income for This amount was distributed in cash, according to their respective shareholdings, to the shareholders. Other reserves As required by Technical Bulletin No.72 of the Chilean Institute of Accountants, paragraph 29, groups of companies under common control based on the methodology of pooling of interests, the Company recorded under the caption Other reserves the variations generated by the increase in investments by the subsidiary Aguas Andinas S.A. through the purchases of shares in Gestión y Servicios S.A., Aguas Cordillera S.A. (formerly, Comercial ORBI II S.A.) and Aguas Manquehue S.A., and the reduction in its participation in Aguas Cordillera S.A. through the disposal of 100% of the shares. On August 31, 2007, Aguas Cordillera S.A. was dissolved, as Aguas Cordillera S.A., (formerly, Comercial Orbi II S.A.), had bought all shares of this company. On September 1, 2007 both companies merged, as established in Technical Bulletin No. 72 of the Chilean Institute of Accountants, combinations of business under common control based on the pooling of interest methodology, recording an equity of 6,725,927 of which, Aguas Andinas recognized it held % in the item Other reserves, equivalent to the participation it has in Aguas Cordillera S.A. As a consequence of this, recorded in Other Reserves the equity changes occurred in the subsidiary Aguas Andinas S.A.

19 294 Memoria 2007 / Annual Report Paid-in capital Other reserves Retained earnings Interim dividends Income for the year Item Opening balance 461,826,633 3, ,944 (14,076,468) 22,617,984 Previous year net income distribution - - 8,541,516 14,076,468 (22,617,984) Final dividend distribution (8,845,300) - - Capital distribution (19,512,800) Reserve Technical Bulletin No. 72-3,369, Price level restatement 32,867,813 74,354 61,929 (319,660) - Net income for the year 24,531,649 Interim dividends (14,530,000) - Closing balances 475,181,646 3,446,893 62,089 (14,849,660) 24,531, Paid-in capital Other reserves Retained earnings Interim dividends Income for the year Item Opening balance 485,871, ,884 (11,129,475) 17,103,981 Distribution previous year net income - - 5,974,506 11,129,475 (17,103,981) Final dividend previous year - - (5,974,400) - - Capital distributionl (33,609,900) Reserve Technical Bulletin No. 72-3, Price level restatement 9,564,721-17,954 56,532 - Net income for the year ,617,984 Interim dividends (14,133,000) - Closing balances 461,826,633 3, ,944 (14,076,468) 22,617,984 Restated balances 496,001,804 3, ,436 (15,118,127) 24,291,715

20 Memoria 2007 / Annual Report 295 Number of Shares Series No. Shares No. Shares No. Shares with subscribed paid voting rights Unique Series 1,000,000,000 1,000,000,000 1,000,000,000 Capital Series Subscribed Paid-in capital capital Unique Series 475,181, ,181, Other Non-Operating Income and Expenses In the years ended December 31, 2007 and 2006 they comprise the following: Other non-operating income Gain on sale of shares (1) - 1,674,116 Gain from derivative contract 11,844 - Other - 4,847 Total 11,844 1,678,963 Other non-operating expenses Loss on derivative contract - 90,323 Consultancy for sale of shares - 79,777 Other 3,363 3,243 Total 3, ,343 (1) In April 2006 the Company sold to third parties 67,308,616 shares that it held in Aguas Andinas S.A. The proceeds amounted to 13,079,544 with a gain of 1,674,116.

21 296 Memoria 2007 / Annual Report Price-Level Restatements The detail of price-level restatements credited (charged) to income is as follows: Indexation unit Assets Property, plant and equipment CPI 2, Investment in related companies CPI 12,340,220 3,806,496 Goodwill CPI 20,287,431 6,651,317 Other monetary assets CPI 6,096 - Other non-monetary assets CPI - 2,842 Expense and cost accounts CPI 41,163 41,696 Total credits 32,677,155 10,502,579 Liabilities Shareholders equity CPI (32,684,436) (10,352,508) Monetary liabilities UF (30) - Non-monetary liabilities CPI (13,197) (4,307) Revenue accounts CPI (13,686) (71,159) Total charges (32,711,349) (10,427,974) (Loss) gain from price-level restatement (34,194) 74,605

22 Memoria 2007 / Annual Report Foreign Exchange Differences Exchange differences arising in the years ended December 31, 2007 and 2006 comprise the following: Item Currency Assets Cash and banks US Dollar (385) 3,402 Marketable securities Euros ,339 Accounts receivable from related companies Euros Sundry debtors Euros (278) (136) Total (charges) credits (271) 49,605 Liabilities Accounts payable US Dollar Accounts payable to related companies Euros (919) 9,203 Withholdings US Dollar 7,113 (7,169) Withholdings Euros - (319) Total (charges) credits 6,739 1,715 Gain from exchange differences 6,468 51,320

23 298 Memoria 2007 / Annual Report Statement of Cash Flows In the Statement of cash flows, cash equivalents are taken to include marketable securities and securities held under resale agreements of less than 90 days from their investment date. The detail of cash and cash equivalents is as follows: Cash and banks 2,507 7,509 Marketable securities 605, ,868 Other current assets - 642,436 Balance of cash and cash equivalents 608, ,813 The Company has no committed cash flows at December 31, 2007 and Contingencies and Restrictions At December 31, 2007 the Company had not given any performance bond in favor of third parties. However, at December 31, 2006, the Company had given a performance bond issued by Banco Santander in favor of its subsidiary Aguas Andinas S.A. for 93,128 to guarantee the conditions of the contracted services. Outstanding balances at closing date of financial statements Debtor Creditor to guarantee Name Relationship Type of guarantee Aguas Andinas S.A. Subsidiary Performance bond - 93,128 Total - 93, Guarantees Received from Third Parties has received no guarantees from other parties.

24 Memoria 2007 / Annual Report Local and Foreign Currencies The Company shows the following assets and liabilities in local and foreign currency at December 31, 2007 and 2006: Assets Activo Item Currency Current assets Cash and banks In pesos Ch$ 2,507 1,786 Cash and banks US dollar - 5,723 Marketable securities In pesos Ch$ 605,659 79,510 Marketable securities Euros - 62,358 Miscelleaneous account receivables In pesos Ch$ 6,080 - Notes & Accounts Related companies In pesos Ch$ 163,195 1,146,214 Recoverable taxes Indexed Ch$ - 98,631 Prepaid expenses Indexed Ch$ 16,622 - Other current assets In pesos Ch$ - 642,436 Miscelleaneous account receivables Indexed Ch$ - 1,779 Fixed assets Property, plant and equipment Indexed Ch$ 26,794 8,059 Other assets Investments in related companies Indexed Ch$ 216,851, ,398,954 Goodwill Indexed Ch$ 271,348, ,441,902 Intangibles (net) Indexed Ch$ 5,481 7,535 Total assets In pesos Ch$ 777,441 1,869,946 US dollar - 5,723 Euros - 62,358 Indexed Ch$ 488,249, ,956,860

25 300 Memoria 2007 / Annual Report. Current Liabilities Up to 90 days 90 days to 1 year Item Pasivos Circulantes Average Average Average Average annual annual annual annual interest interest interest interest Currency Amount rate Amount rate Amount rate Amount rate % % % % Accounts payable In pesos Ch$ 941-6, Sundry creditors In pesos Ch$ 4, Accounts payable and notes to related companies Euros , Accruals In pesos Ch$ 346, , ,507 - Withholdings In pesos Ch$ 10,675-65, Income tax In pesos Ch$ , Deferred taxes Indexed Ch$ 2,992-3,300-8,977-9,899 - Other current liabilities In pesos Ch$ - - 3, Total current liabilities Indexed Ch$ 2,992-3,300-8,977-9,899 - In pesos Ch$ 361, , ,299-1,507 - Euros - 997, Long-term liabitilites, current year to 3 years 3 to 5 years 5 to 10 years Over 10 years Item Average Average Average Average annual interest annual interest annual interest annual interest Currency Amount rate Amount rate Amount rate Amount rate % % % % Deferred taxes Indexed Ch$ 29,358-29,358-73,395-25,689 - Total long-term liabilities 29,358-29,358-73,395-25,689 -

26 Memoria 2007 / Annual Report 301 Long-term liabitilites, previous year to 3 years 3 to 5 years 5 to 10 years Over 10 years Item Average Average Average Average annual interest annual interest annual interest annual interest Currency Amount rate Amount rate Amount rate Amount rate % % % % Deferred taxes Indexed Ch$ 28,747-28,747-71,867-43,118 - Total long-term liabilities 28,747-28,747-71,867-43, Sanctions No sanctions have been applied by the Superintendency of Securities and Insurance or any other administrative authority on the Company or its Management at December 31, 2007 and Subsequent Events The Board meeting held on February 01, 2008 was notified of the fact that Mr. Mario Marcel Cullel resigned from his position of incumbent Director and it accepted his resignation as from that date. Mr. Ignacio Guerrero Gutiérrez, Mr. Cullel s deputy, will be the new incumbent Director. At the date of issue of these financial statements, the management of the Company are unaware of any other subsequent events that might significantly affect the financial position and/or results of the Company at December 31, The Environment had no projects for environmental improvements during the years ended December 31, 2007 and 2006.

27 302 Memoria 2007 / Annual Report. Significant Events Financial Statement 1. On February 28, 2007 the SVS was informed of the following: The Board meeting held on February 28, 2007 agreed by unanimous decision: a) To call an Ordinary Shareholders Meeting for April 24, 2007, to be held at 11 a.m. at Avenida Presidente Balmaceda No. 1398, 10 th floor, Santiago, in order for it to consider issues typical of an ordinary shareholders meeting. b) To seek the approval of the Ordinary Shareholders Meeting mentioned in the preceding paragraph for the board proposal of distributing a final dividend of 8,845,300 equivalent to Ch$ per share, that would be paid on May 23, c) To call an Extraordinary Shareholders Meeting for April 24, 2007, to be held immediately after the Ordinary Shareholders Meeting mentioned at a) above, at Avenida Presidente Balmaceda No. 1398, 10 th floor, Santiago, in order for it to decide on the Board proposal of distributing 19,512,800 to the shareholders according to their shareholdings, at Ch$ per share, by decreasing the Company s capital by that amount; and also to decide on whether to allow the Board to set the date for paying the distributions. 2. On March 12, 2007 a Supplement to Essential Event was reported to the SVS. The Board meeting held on February 28, 2007 agreed to call an Ordinary Shareholders Meeting for April 24, 2007, to be held at 11 a.m. at Avenida Presidente Balmaceda No. 1398, 10 th floor, Santiago, in order for it to: a) Examine the external auditors report; approve or reject the annual report, the balance sheets and the financial statements for the year between January 1 and December 31, b) Decide on the distribution of profits and dividends from the year c) Renewal of Board members. d) Appoint External Auditors charged of examining the books, inventory, balance sheets, and other financial statements of the Company.

28 Memoria 2007 / Annual Report 303 e) Appoint risk classifiers. f) Set the Directors fees for g) Set the Directors Committee s fees and expense budget for h) Report on the operations mentioned in article 44 of Corporations Law No. 18,046. i) Discuss other issues important for the Company and located within the scope of the ordinary shareholders meeting. 3. On March 15, 2007 an amendment to Essential Event reported on February 28, 2007 was sent to the SVS. Pursuant to article 90 and the second paragraph of article 10 of Law 18,045, and in accordance with the General Standard No. 30 of the SVS, the Company hereby amends the Essential Event reported on February 28, 2007 as regards the hour at which the meetings then mentioned were held, which was 12 a.m. instead of the 11 a.m. then reported. 4. In April 25, 2007 the SVS was informed of the following: a) The Extraordinary Shareholders Meeting of Aguas Metropolitanas S.A. held on April 24, 2007 agreed to reduce the company s capital by Ch$19,512,800,000, from Ch$461,826,632,520 to Ch$442,313,832,520. As a consequence, it was decided to distribute to the shareholders based on their shareholdings the amount of Ch$19,512,800,000 at Ch$ per share. b) The Ordinary Shareholders Meeting of held on April 24, 2007 renewed the Board members, electing the following persons for a full 3-year term, according to the by-laws:

29 304 Memoria 2007 / Annual Report. Directors Alternate Directors Ángel Simón Joaquín Villarino Jean Louis Chaussade Juan Antonio Guijarro Herman Chadwick Mario Marcel Jaime Ravinet Josep Bagué Pedro Buttazzoni Albert Martínez Xavier Amorós Rodrigo Castro Ignacio Guerrero Juan Toro c) The Board Meeting held on April 25, 2007 declared the Board as constituted, electing Mr. Ángel Simón as Chairman and Mr. Joaquín Villarino Herrera as Vice-Chairman. d) The Board Meeting held on April 25, 2007 also elected Mr. Herman Chadwick, Mr. Jaime Ravinet, and Mr. Joaquín Villarino Herrera as members of the Directors Committee. e) Finally, the Board Meeting held on April 25, 2007 accepted the resignation of the Company s Chief Executive Officer Mr. Albert Martínez Lacambra, electing Mrs. Marta Colet Gonzalo as his replacement. 5. On June 28, 2007 the SVS was informed of the following: The Board Meeting held on June 27, 2007 sets July 25, 2007 for paying Ch$ per share to the shareholders, as part of the capital decrease decided by the Extraordinary Shareholders Meeting held on April 24, On September 26, 2007 the SVS was informed of the following: The Board Meeting held on September 26, 2007 agreed to distribute an interim dividend of 14,530,000 against the net income for In this regard, dividend No. 7 amounted to Ch$14.53 per share and was payable beginning on October 25, On September 28, 2007 the SVS was informed of the following: In accordance with article 44 of Corporations Law No. 18,046, the Board meeting held on August 29, 2007, considering that Joaquín Villarino Herrera and Marta Colet Gonzalo are Directors of Aguas Andinas S.A. and also Directors of Empresa Depuradora de Aguas Servidas Ltda., decided to report to the SVS that the two companies entered on September 27, 2007 into a Contract for Operating and Maintaining the La Farfana Sewage Water Treatment Plant.

30 Memoria 2007 / Annual Report On October 3, 2007 the SVS was informed of the following: Through order No. 11,603 issued on October 2, 2007, the SVS asked to report on certain aspects of the Contract for Operating and Maintaining the La Farfana Sewage Water Treatment Plant entered into by and between Aguas Andinas S.A. and Empresa Depuradora de Aguas Servidas Ltda. on September 27, The Contract for Operating and Maintaining the La Farfana Sewage Water Treatment Plant originated from an International Public Bidding launched, in accordance with article 67 of General Law on Sanitary Services DFL No. 382/88, by Aguas Andinas S.A. on May 12, The bidding bases were acquired by 9 companies, but in the end only Cadagua S.A., Omnium de Traitment et de Valorisation S.A. (OTV), and the consortium formed by Degrémont S.A. and Sociedad General de Aguas de Barcelona S.A. (Agbar) (the latter two being companies related to Aguas Andinas S.A.) submitted economic offers (which were reported to the SVS). On August 2, 2007, Aguas Andinas S.A. informed the Consortium that its offer, because, it presented the highest technical and economic qualification, have been selected. This was based on a favorable decision made by the Aguas Andinas S.A. Directors Committee in a meeting held on July 23, 2007 and on a favorable decision of the Aguas Andinas S.A. Board meeting No. 351 held on July 24, These decisions were made with the favorable vote of all attending members, who declared that the transaction matched usual market equanimity conditions. To materialize the contract, and in accordance with the bidding bases, Degrémont and Agbar (through its Chilean subsidiary Agbar Conosur Ltda.) set up a company called Empresa Depuradora de Aguas Servidas Ltda (EDAS) which appointed as incumbent Directors Mr. Joaquín Villarino and Mrs. Marta Colet, who are also Directors of Aguas Andinas S.A. Therefore, the contract with EDAS is an operation authorized under article 44 of Corporations Law No. 18,046. The contract with EDAS was approved by the Aguas Andinas S.A. Directors Committee in a meeting held on August 27, 2007 and by the Aguas Andinas S.A. Board meeting No. 352 held on August 28, These decisions were made with the favorable vote of all attending Directors, except for Mr. Joaquín Villarino and Mrs. Marta Colet, who did not vote.

31 306 Memoria 2007 / Annual Report. The Contract was entered into under the single price modality, for a price of UF 2,774,994.4 plus Value-Added Tax, for a term of 60 months beginning on October 1, 2007, and can be extended for another consecutive 60-month period under the conditions set forth in the contract itself. Finally, it should be pointed out that the contract intends to provide the service of operating and maintaining La Farfana Sewage Water Treatment Plant, which is owned by Aguas Andinas S.A., including all the aspects involved in the proper operation and maintenance of the plant, such as staff, electricity expenses, chemical supplies, spare parts, etc, in keeping with the bidding bases and the other contract documentation.

32 Memoria 2007 / Annual Report 307 Reasoned Analysis Financial Statement Share Ownership The capital of is divided into 1,000,000,000 no par value shares. At December 31, 2007, our principal shareholders are Inversiones Aguas del Gran Santiago Ltda., with 56.6%, and the Bank of New York (depositary bank acting on behalf of the holders of ADRs) with 19.18% of the share capital. Sales For the period ended December 31, 2006, sales are those made under the technological support contract entered into with Aguas Andinas S.A. in December 2001 for a term of 5 years and finalized in December 2006 Operating costs and expenses Our operating costs and expenses comprise the cost of sales and administration and sales expenses. The cost of sales relates to the invoicing under the technological support contract finalized in December Administration and sales expenses relate to personnel and general expenses. Market risk The Company s principal business is linked to its subsidiary Aguas Andinas so the relevant risk for our company is determined by the relevant risk of that subsidiary, a situation described in the financial reports of that company. Balance Sheets The composition of assets and liabilities at December 31, 2007 and 2006, is as follows: December December Change Assets Activos A Ch$ millions Ch$ millions % Current assets 794 2,038 (61.04) Property, plant and equipment (net) Other assets 488, ,848 ( 3.30) Total 489, ,894 ( 3.52)

33 308 Memoria 2007 / Annual Report. Current assets have decreased by Ch$1,244 million compared to the year before, mainly due to the reduction of Ch$983 million in notes and accounts receivable from related companies associated with debts arising in 2006 in connection with the technical assistance contract with Aguas Andinas S.A., and a Ch$179 million decrease in financial investments. Other assets decreased by Ch$16,642 million, due mainly to a reduction in goodwill of Ch$23,093 million, caused by the amortization in the period, which was offset in part by an increase of Ch$6,453 million in investment in related companies due to the increase of the profits and the equity reserve in the subsidiary Aguas Andinas S.A. December December Change Liabilities Activos Ch$ millions Ch$ millions % Current liabilities 496 1,217 (59.24) Long-term liabilities ( 8.14) Total liabilities 654 1,389 (52.92) Shareholder s Equity 488, ,505 ( 3.39) Total 489, ,894 ( 3.52) Current liabilities decreased by Ch$721 million mainly due to a Ch$998 million reduction of accounts payable to related companies due to the cessation of the invoicing derived from the technological support contract, which ended in December Long-term liabilities decreased by Ch$14 million compared to 2006, mainly under the heading of long-term deferred taxes. Shareholders equity decreased by Ch$17,132 million relative to 2006, which is explained basically by a Ch$19,513 million capital distribution agreed in April 2007, offset by an increase in Other reserves.

34 Memoria 2007 / Annual Report 309 Financial Indicators Indicators Indicadores December December Change % Liquidity Current ratio (times) ( 4.76) Acid test ratio (times) Debt Debt ratio ( % ) ( 51.85) Short-term debt ( % ) ( 13.44) Long-term debt ( % ) Financial expense coverage (times) 6, , Financial expense coverage Return on equity ( % ) (average) Return on assets ( % ) (average) Earnings per share ( Ch$) Dividend yield ( % ) Current liabilities decreased by Ch$721 million and current assets decreased by Ch$1,244 million, causing the Company s liquidity level to fall by 4.76% relative to The net debt ratio declined by 51.85%, due to the 52.92% decrease in total liabilities and the 3.39% reduction in shareholders equity. The return on average equity improved by 6.24% compared to the previous year, mainly because of the 3.39% reduction in shareholders equity. The return on dividends increased by 19.48% due to the 17.40% increase in dividends paid and a 9.17% decline in the price of each share.

35 310 Memoria 2007 / Annual Report. Statements of Income The following shows the most important items in the statement of income for the years ended December 31, 2007 and 2006: Estado Statements de Resultados of Income December December Change Ch$ millions Ch$ millions % Revenues - 3,512 (100.00) Operating expenses - (3,220) (100.00) Administrative & sales cost (1,117) (662) Operating income (1,117) (370) (201.89) Non-operating results 25,759 24, Net income 24,532 24, Financial expenses (less) (4) (8) EBITDA 24,651 24, (EBITDA is income before taxes, depreciation, amortization and interest) Revenues: At December 31, 2007 had no revenues due to the cessation of the technological support contract, causing a Ch$ 3,512 million reduction in sales relative to Operating costs and expenses: At December 31, 2007 the operating costs and expenses of was Ch$1,117 million, a decreased of Ch$2,765 million compared to This difference is explained by: The cost operating diminished by Ch$3,220 million due to the cessation of the technological support contract. Administrative and sales expenses increased by Ch$455 million, equivalent to 68.73%, to Ch$1,117 million, compared to the Ch$662 million of the previous year. This is basically due to an increase in general expenses and in remunerations, offset in part by third-party services.

36 Memoria 2007 / Annual Report 311 Operating Income The net operating income of for the period ended December 31, 2007 therefore amounted to Ch$(1,117) million, a Ch$747 million decrease relative to Non-Operating Results The non-operating result of amounted to Ch$25,759 million, a Ch$1,098 million increase relative to The main change was a Ch$1,667 million decreased in other non-operating income resulting from the sale of the 1.1% interest in the subsidiary Aguas Andinas S.A. in 2006, which was offset in part by a Ch$2,756 million increased in income from investments in related companies. Income Tax The provision for income tax in 2007 is Ch$110 million higher than the year before, in line with the higher pre-tax income. Net Income Because of the various factors mentioned, the net income of for 2007 amounted to Ch$24,532 million, Ch$240 million more than in 2006.

37 312 Memoria 2007 / Annual Report. Statement of Direct Cash Flows Statement Estado de flujo of cash de efectivo flows December December Variación Ch$ millions Ch$ millions % Operating activities 43,414 42, Financing activities (43,206) (56,441) (23.45) Investment activities (22) 13,310 (100.17) Net cash flow for the year 186 (598) Effect of inflation for the year (370) (190) Decrease in cash (184) (788) (76.65) Starting balance of cash 792 1,580 ( 49.87) Closing balance of cash ( 23.23)

38 Memoria 2007 / Annual Report 313 At December 31, 2007, there was a positive change in cash flows from operating activities of Ch$881 million, compared to the previous year, the principal reason being the increase in dividends and other distributions received of Ch$457 million, a Ch$2,658 decreased in payments to suppliers and remunerations, a Ch$576 decrease in payment of Value Added and similar taxes, and a Ch$191 reduction in income taxes. This was offset in part by a Ch$3,087 decrease in amounts collected from trade accounts receivable. The cash flows from financing activities increased by Ch$13,235 million over 2006, mainly due to the Ch$16,718 decrease in capital distributions, which was partially offset by a Ch$3,483 million increase in dividends distributions. The cash flows from investing activities decreased by Ch$13,332 relative to 2006 due to a Ch$13,328 decreased in sales of permanent investments. Difference between the book values and the economic value of the principal assets The property, plant and equipment are accounted for in accordance with accounting principles generally accepted and standards and the instructions issued by the Superintendency of Securities and Insurance. We therefore believe that there should not be significant differences between the economic or market value and the book value of the Company s assets and liabilities.

39 314 Memoria 2007 / Annual Report.

40 Memoria 2007 / Annual Report 315 of Subsidiaries For the years ended December 31, 2007 and 2006

41 316 Memoria 2007 / Annual Report. Aguas Andinas S.A. and Subsidiaries General Information Name Type of entity Address : Aguas Andinas S.A. : Public Corporation : Avenida Presidente Balmaceda N 1398, Santiago, Chile Telephone : (56-2) Fax : (56-2) Tax I.D. : 61,808,000-5 P.O. Box : 1537 Santiago Corporate purpose : Abstraction, purification and distribution of water and the collection and disposal of sewage. External Auditors : Deloitte Auditores y Consultores Ltda. External Auditors Tax I.D. : 80,276,200-3 Service phone : (56-2) Registered in Securities Record : N 0346 Sitio web : Paid-in capital : $142,853,400,915 Incorporation of the Company Aguas Andinas SA. was incorporated as a public corporation by public deed dated May 31, 1989 in Santiago, at the notary Raúl Undurraga Laso. An extract of the bylaws was published in the Official Gazette on June 10, 1989 and registered in the Santiago Trade Register (folio 13,981, No. 7,040) in Legal Aspects The Company is registered in the Securities Register of the Superintendency of Securities and Insurance under number 0346, in accordance with Law Nº 18,777. As a company in the sanitation services sector, it is regulated by the Superintendency of Sanitation Services in accordance with Law Nº 18,902 and Decree Laws Nº 382 and 70, both of Corporate Purpose The Company s corporate purpose are the provision of sanitation services which include the construction and exploitation of public-utility services for the production and distribution of water and the collection and disposal of sewage within the concession area covering Greater Santiago and peripheral locations. To provide an integral service for customers, the Company has non-sanitation subsidiaries that provide diversified services like the treatment of industrial waste, the commercialization of materials and technical analyses.