VIESGO HOLDCO, S.A. AND SUBSIDIARIES. Consolidated Interim Financial Statements for the six month period ended 30 June 2016

Transcription

1 VIESGO HOLDCO, S.A. AND SUBSIDIARIES Consolidated Interim Financial Statements for the six month period ended 30 June 2016

2 VIESGO HOLDCO, S.A. AND SUBSIDIARIES CONSOLIDATED INTERIM BALANCE SHEET FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2016 ASSETS Note NON-CURRENT ASSETS 2,500,601 Intangible assets 6 74,087 Goodwill 43,840 Other intangible assets 30,247 Property, plant and equipment 7 1,248,921 Land and buildings 29,807 Plant and other property, plant and equipment 1,167,414 Fixed assets in progress and prepayments 51,700 Long-term investments in Group companies and associates 1,094,882 Investments accounted for under equity method 8 45,346 Investments accounted at cost 1.3 1,093 Loans to companies 9,10, ,048,443 Long-term investments 9, 10 20,479 Deferred income tax assets 19, 21 62,232 CURRENT ASSETS 91,970 Inventories 11 8,348 Trade and other receivables 9 53,145 Trade receivables for sales and services rendered 10 20,474 Trade receivables, Group companies and associates ,795 Sundry receivables 10 14,478 Other credits with public authorities 19 3,398 Short-term investments in Group companies and associates 9,10, ,291 Derivatives 9, Other financial assets 9 1,805 Short-term investments 9, Short-term accruals 4,838 Cash and cash equivalents 12 23,316 TOTAL ASSETS 2,592,571 1

3 VIESGO HOLDCO, S.A. AND SUBSIDIARIES CONSOLIDATED INTERIM BALANCE SHEET FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2016 EQUITY AND LIABILITIES Note EQUITY 1,155,450 Equity attributable to the parent shareholders ,806 Capital 15 Registered Capital 60 (Capital not required) (45) Shareholder contributions 851,763 Reserves 10,044 Profit/(loss) for the period/year attributable to the parent Company 47,984 Grants, donations and bequests received ,154 Non-controlling interests 14 2,490 NON-CURRENT LIABILITIES 1,298,140 Long-term provisions ,841 Long-term payables 9, 17 1,069,490 Bonds and other marketable securities 900,000 Bank loans 145,169 Finance lease liabilities 94 Derivatives 9, 18 1,948 Other financial liabilities 22,279 Long-term payables to Group companies and associates 9, 18, Derivatives 314 Deferred income tax liabilities 19, 21 94,495 CURRENT LIABILITIES 138,981 Short-term provisions Other provisions 673 Short-term payables 9, 17 16,301 Bank loans 8,760 Finance lease liabilities 82 Derivatives 9, 18 1,948 Other financial liabilities 5,511 Short-term payables to Group companies and associates 9,17, ,909 Other payables to Group companies and associates 50,909 Trade and other payables 71,098 Trade payables 9, Trade payables, Group companies and associates 9, 17, ,056 Current tax liabilities 17, 19, 21 1,979 Other amounts payable to Public Administrations 19 5,869 Other payables 9, 17 57,102 TOTAL EQUITY AND LIABILITIES 2,592,571 2

4 VIESGO HOLDCO, S.A. AND SUBSIDIARIES CONSOLIDATED INTERIM INCOME STATEMENT FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2016 Note CONTINUING OPERATIONS Revenue ,524 Sales 36,602 Provision of services 107,922 Changes in inventories of finished products and work in progress 94 Own work capitalised 7 4,652 Raw materials and consumables (432) Consumption of raw materials and other consumables 21.2 (283) Subcontracted work (149) Other operating income 1,174 Sundry and other income 1,174 Staff costs 21.3 (16,348) Wages, salaries and similar remuneration (10,284) Staff welfare expenses (5,849) Provisions (215) Other operating expenses (32,470) External services 21.4 (25,585) Taxes (4,682) Losses, impairment and changes in trade provisions (65) Other expenses (2,138) Depreciation and amortization 6, 7 (36,933) Release of non-financial capital grants and other 4,254 Overprovisions 498 Impairment and gain/(loss) on fixed asset disposals (65) Profit/loss or disposals and other (65) OPERATING PROFIT/(LOSS) 68,948 Financial income 17,419 Shares in equity instruments 17 From Group companies 17 Marketable securities and other financial instruments 17,402 From Group companies 15,665 From third parties 1,737 Financial expenses (21,699) Payables to Group companies and associates (1) Payables to third parties (19,102) Restatement of provisions (2,596) Change in fair value of financial instruments (276) Exchange differences 1 NET FINANCIAL INCOME/(EXPENSE) 22 (4,555) Share of profits/(losses) of equity method investments PROFIT/(LOSS) BEFORE INCOME TAX 64,954 Corporate income tax 19 (16,640) PROFIT/(LOSS) FOR THE PERIOD 48,314 Profit/(loss) attributable to the parent Company 47,984 Profit/(loss) attributable to non-controlling interests RESULT FOR THE PERIOD 48,314 3

5 VIESGO HOLDCO, S.A. AND SUBSIDIARIES CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTH PERIOD A) CONSOLIDATED INTERIM STATEMENT OF RECOGNISED INCOME AND EXPENSE FOR THE SIX MONTH PERIOD Note Consolidated profit/(loss) for the period 48,314 INCOME AND EXPENSES RECOGNISED DIRECTLY IN EQUITY Grants, donations and bequests received 15 2,745 On actuarial gains and losses and other adjustments 20 (4,417) Tax effect Total income and expense recognised directly in equity (1,254) TRANSFERS TO THE INCOME STATEMENT Grants, donations and bequests received 15 (4,628) Tax effect 19 1,157 Total transfers to the income statement (3,471) TOTAL RECOGNISED INCOME AND EXPENSE 43,589 Total income and expense attributable to the parent company 43,259 Total income and expense attributable to non-controlling interests

6 VIESGO HOLDCO, S.A. AND SUBSIDIARIES CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTH PERIOD B) CONSOLIDATED INTERIM TOTAL STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTH PERIOD ENDED 30 JUNE 216 Results for the Grants, donations Shareholder Non-controlling Capital Reserves and period and bequests contributions interests (Note 13.1) prior-year results attributable to the received TOTAL (Note 13.2) (Note 14) (Note 13.3) parent company (Note 15) BALANCE AT 31 DECEMBER ,763 3,531 9, ,566 2,160 1,211,866 Total income and expense recognised for the period ended 31 December (3,313) 47,984 (1,412) ,589 Operations with shareholders or owners: - Dividend payment - (100,000) (100,000) - Other - - (5) (5) Other changes in equity: - Transfer between reserves and prior-period results - - 9,831 (9,831) BALANCE AT 30 JUNE ,763 10,044 47, ,154 2,490 1,155,450 5

7 VIESGO HOLDCO, S.A. AND SUBSIDIARIES CONSOLIDATED INTERIM CASH FLOW STATEMENT FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2016 CASH FLOWS FROM OPERATING ACTIVITIES Profit/(Loss) for the period before income tax 64,954 Adjustments to results 36,521 Fixed asset amortization/depreciation 36,933 Impairment 65 Change in provisions (282) Release of grants (4,254) Gain/loss on write-offs and disposals of fixed assets 65 Financial income (17,419) Financial expenses 21,699 Changes in fair value of financial instruments (1) Other income and expenses 276 Share of profits/(losses) of equity method investments, net of dividends (561) Changes in working capital (39,303) Inventories (1,861) Trade and other receivables 742 Other current assets (3,273) Creditors and other payables (29,980) Other current liabilities (544) Other non-current assets and liabilities (4,387) Other cash flows from operating activities 552 Payment of interest (11,040) Collection of interest 27 Corporate income tax income/(expense) 11,565 Total cash flows from operating activities 62,724 CASH FLOWS FROM INVESTING ACTIVITIES Amounts paid on investments (15,121) Group companies, net of cash in consolidated companies (10) Intangible assets (2,395) Property, plant and equipment (12,556) Other financial assets (160) Amounts collected from disinvestments 3,181 Group companies, net of cash in consolidated companies 2,978 Other financial assets 203 Total cash flows from investing activities (11,940) CASH FLOWS FROM FINANCING ACTIVITIES Collections and payments of equity investments 1,936 Acquisition of shares from minority shareholders (5) Grants, donations and bequests received 1,941 Collections and payments of financial liabilities (1,879) Issuance - Other payables 177 Amortization - Financial liabilities (2,056) Payments dividends and remuneration of other equity instruments (100,000) - Dividends (100,000) Total cash flows from financing activities (99,943) NET INCREASE / (DECREASE) IN CASH OR CASH EQUIVALENTS (49,159) Cash and cash equivalents at beginning of the period 72,475 Cash and cash equivalents at period end 23,316 6

8 1. Group companies 1.1 Parent company Viesgo Holdco, S.A. (hereinafter the Company), was incorporated by Viesgo Infraestructuras Energéticas,S.L. in Santander on 29 September 2015 as a public liability company for an indefinite period and its registered address for mercantile and tax purposes is located in Santander. The Company's corporate purposes are as follows: - The subscription, acquisition, possession and disposal of securities, real estate shares and securities, the rendering of energy and management, promotion and real estate operation services. Viesgo Infraestructuras Energéticas, S.L., is wholly owned by Fresco Investments, S.à.r.l., a company jointly controlled by Macquarie European Infrastructure Fund IV and the Kuwait Investment Authority, after the completion of the sale agreement with the E.ON Group on 25 March 2015 and the latter is the single shareholder and the lead company of Viesgo Group, which includes companies that primarily engage in the production, distribution and marketing of electricity in Spain (thermal and renewable). On 5 November 2015 Viesgo Infraestructuras Energéticas, S.L. transferred 100% of its shares in Viesgo E2 Holdco, S.A., Viesgo Distribución Eléctrica, S.L. and Viesgo Renovables, S.L. and the subsidiaries described in Notes 1.2 and 1.3 through a non-monetary contribution to Viesgo Holdco, S.A. Viesgo Holdco, S.A. is therefore the lead company of a subgroup within Viesgo Group since 5 November 2015, which includes the Distribution and Renewable businesses and its regulatory framework is related in Note 2. For the purposes of preparing the consolidated accounts, a group is understood to exist when the parent has one or more subsidiaries over which the parent has control directly or indirectly. The principles applied in the preparation of the Group s consolidated accounts together with the consolidation scope are detailed in Note Subsidiaries Subsidiaries are all company, including special purpose entities, which are or may be directly or indirectly controlled by the head company of the Group. Control is understood as the power to direct a business financial and operational policy so as to profit economically from its activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are consolidated as from the date on which control is transferred to the Group. They are deconsolidated as from the date that control ceases. Set out below are details of the groups subsidiaries: 7

9 Name % Nominal % shareholding Company holding the interest Amount Consolidation method Activity 30 June 2016 Viesgo Distribución, S.L. 100 Viesgo Holdco, S.A. 571,940 Full consolidation Power distribution Viesgo Renovables, S.L. 100 Viesgo Holdco, S.A. 191,924 Full consolidation Wind power generation Ie2 Holdco, S.L. 100 Viesgo Holdco, S.A. 60 Full consolidation Holding Barras Eléctricas Galaico Viesgo Distribución, S.L. 112,296 Full consolidation Power distribution Asturianas. S.A. Ie2 Portugal, SGPS, S.A. 100 Viesgo Renovables, S.L. 468 Full consolidation Holding Parque Eólico Barlavento, S.A Viesgo Renovables, S.L. 14,996 Full consolidation Wind power generation See - Sul Energia Eólica SA 100 Viesgo Renovables, S.L. 2,758 Full consolidation Wind power generation Eoliser SGPE lda 100 Ie2 Portugal, SGPS, S.A. See - Sul Energia Eólica SA 311 Full consolidation Maintenance services Viesgo Mantenimiento, S.L. 100 Viesgo Renovables, S.L. 155 Full consolidation Maintenance services Northeolic Montebuño, S.L. (*) 75 Viesgo Renovables, S.L. - At cost Wind farm projects Sinergia Aragonesa, S.L. (*) 60 Viesgo Renovables, S.L. - At cost Wind farm projects (*) Not consolidated for reasons of materiality The amount of the investment corresponds to the carrying value of the investment in the separate financial statement of the corresponding holding company. The consolidation basis for these companies complies with Article 2 of the Standards on the Preparation of Consolidated Financial statements (NOFCAC) as follows: 1. When the parent company is in any of the following situations with respect to another company (subsidiary): a) The parent company holds a majority of voting rights. b) The parent company is empowered to appoint or dismiss the majority of the administrative body s members c) The parent company may cast, by virtue of agreements concluded with other shareholders, the majority of voting rights d) The parent company has appointed, using its votes, the majority of the administrative body s members, who hold their positions at the time the consolidated accounts are drawn up and for the two immediately preceding periods. This is assumed to be the case when the majority of the members of the subsidiary s administrative body are members of the administrative body or senior managers of the parent company or any other company controlled by the parent company. 2. The parent company holds one half or less than one half of the voting rights, even where it holds few or no shares in another entity, or where management power has not been specified (special-purpose entities) but it has a share of the entity's risks and rewards or the capacity to participate in its operating and financial decisions. In accordance with Article 155 of the Spanish Companies Act 2010, the Company has reported to all these companies that it owns more than 10% of capital directly or through another subsidiary. 8

10 All the subsidiaries' financial years end on 31 December. 1.3 Associates Associates are entities over which any of the companies included in the consolidated financial statements exercise significant influence. Significant influence is understood to exist when the Group has an interest in the company and is authorised to take part in its financial and operational policy decisions without having control. Set out below are details of the group s associates: % shareholding Consolidation Name % Company holding the Activity Amount method Nominal interest 30 June 2016 Eos Pax IIA 48.5 Viesgo Renovables, S.L. 2,533 Equity method Wind power generation Compañía Eólica 50 Viesgo Renovables, S.L. 9,015 Equity method Wind power generation Aragonesa, SA Elecdey Carcelen, S.A. 23 Viesgo Renovables, S.L. 1,603 Equity method Wind power generation Páramo de Poza, S.L. 30 Unión de Generadores - At cost Wind power generation (*) de Energía, S.A. Eólica de Sao Juliao 45 Viesgo Renovables, S.L. 5,723 Equity method Wind power generation LDA Eólica de Levante, S.L. 25 Viesgo Renovables, S.L. 841 At cost Wind power generation (*) Unión de Generadores 50 Viesgo Renovables, S.L. 2,046 Equity method Wind power generation de Energía, S.A. Elecdey Ascoy, S.A. (*) 19,5 Viesgo Renovables, S.L. 252 At cost Wind power generation San Juan de Bargas Viesgo Renovables, S.L. 3,452 Equity method Wind power generation Eólica, S.L Geolica Magallón, S.L Viesgo Renovables, S.L. 1,232 Equity method Wind power generation (*) Not consolidated for reasons of materiality The amount of the investment corresponds to the carrying value of the investment in the separate financial statements accounts of the corresponding holding company. In accordance with Article 155 of the Spanish Companies Act 2010, the Company has reported to all these companies that it owns more than 10% of capital directly or through another subsidiary. All associates' financial years end on 31 December. 9

11 2 Regulatory framework The reference framework for electricity sector regulation in Spain is Law 24/2013 (26 December) on the Electricity Sector, which abolished Law 54/1997 (27 November). This new version of the law, in force since 28 December 2013, arose due to the need to bring the former law into line with numerous regulatory changes over the past 15 years and with the new requirements stipulated in the electricity sector's structural reform included in the Council Recommendation on Spain's 2013 National Reform Programme. This law has also spawned comprehensive enabling regulations, including Royal Decree 2019/1997 (26 December), which organises and regulates the electricity production market, Royal Decree 1955/2000 (1 December), on electricity transmission, distribution, supply and facility authorisation procedures, Royal Decree 1048/2013 (27 December) on the methodology for calculating distribution remuneration, Royal Decree 216/2014 (28 March) on the methodology for calculating voluntary prices for small electricity consumers and the related contracting scheme, and Royal Decree 413/2014 (6 June) on electricity production using renewable sources, cogeneration and waste. The Ministry of Industry, Energy and Tourism has competence to regulate the gas and electricity sectors, while the National Market and Competition Commission (which was created under Law 3/2013 (4 June) and groups together the functions required for the proper operation of the markets and sectors previously overseen by the National Energy Commission, the Telecommunications Market Commission, the National Competition Commission, the Railways Regulation Committee, the National Postal Sector Commission, the Airports Economic Regulations Commission and the State Audio-visual Media Council) is the regulator responsible for assuring effective competition in power systems and for objectivity and transparency in its operations, for the benefit of all system agents and consumers. The corresponding Regional Government Departments have powers to issue and enforce regulations. The Nuclear Security Council has specific authority over facilities that employ nuclear technology. Furthermore, the System Operator, Red Eléctrica de España, S.A.U. (REE), is engaged mainly in assuring the proper functioning of the Spanish electricity system and guaranteeing at all times the continuity and security of the electricity supply and coordination of the production and transmission system. It should be noted that Law 24/2013 imposes a general restriction on shareholdings in REE, applicable to all natural or legal persons, so that the sum of their direct or indirect stake in REE does not exceed 5% of share capital and their voting rights do not exceed 3%; additionally, entities operating in the electricity sector and natural or legal persons holding direct or indirect interests of more than 5% in the latter entities may not exercise voting rights of more than 1% in the company in charge of system operations. Order IET/2209/2014, authorises and designates Red Eléctrica de España, S.A.U. as the Spanish electricity system's electricity transmission grid management company. The main characteristics of the electricity sector are as follows: Regulated and unregulated activities coexist in this sector; electricity transmission and distribution are regulated, while generation, supply and the charging management company activity are unregulated. Pursuant to Law 17/2007, tariff supply by distribution companies was discontinued as from 1 July 2009 and consumers were forced to participate in the deregulated market (although, as explained below, a voluntary price for small consumers and a social or last-resort tariff for vulnerable consumers and consumers that do not qualify for the voluntary price for small consumers but, temporarily, do not have a supply contract in force with a free-market supply company, were maintained). 10

12 Electricity consumed in Spain is mainly produced in Spain, since the international interconnections with Morocco, France and Portugal have a low capacity. As from 1 July 2007, the Iberian Electricity Market (MIBEL) effectively became operational, Spain and Portugal having integrated their electricity systems. As regards revenue, the electricity system has not been self-sufficient in recent years, an annual deficit having been generated and financed by the electricity companies was the first year with a surplus in the electrical system after more than a decade which large deficits accumulated, through the comprehensive reform rush to end the appearance of tariff deficit and allow economic financial equilibrium: Royal Decree-Law 9/2013 (12 July) introduced urgent measures to guarantee the electricity system's financial stability, a new remuneration scheme for facilities using renewable energies, cogeneration and waste, and a number of additional remuneration principles for electricity transmission and distribution, establishing the concept of reasonable return on the basis of a project return, which will refer to the average secondary-market yield on 10-year government debentures, applying a suitable spread, before taxes. This law also envisages measures to rebalance electricity system revenues and costs, such as the imposition of social bond financing on vertically-integrated companies or the reduction of the investment incentive in exchange for the doubling of the time remaining for the receipt of this incentive. Law 24/2013 (26 December) abolished Law 54/1997 (27 November) on the Electricity Sector. This law is the core component of the regulatory reform undertaken in the sector to guarantee the system's long-term sustainability. The principle governing economic and financial sustainability was established, whereby any regulation relating to the sector that entails an increase in costs for the electricity system or a reduction in revenue must also bring an equivalent reduction in other cost items or an equivalent increase in revenue to ensure a balance in the system. This principle is supported by weighted restrictions on the appearance of temporary annual mismatches. For regulated-remuneration activities, the law bolstered and clarified the principles and criteria for the creation of remuneration schemes so as to take into account the costs necessary for an efficient, well-managed company to carry on the activity, applying a consistent approach throughout Spain. These economic regimes will permit returns that are deemed to be adequate in relation to the risks associated with the activity. Electricity sector activities are classified as follows: 1) regulated activities: electricity transmission and distribution; and 2) unregulated activities: electricity generation and supply, and the charging management company activity. 2.1 Regulated activities The regulated activities are characterised by the fact that their economic and operating regulations are defined by sector legislation, the most relevant aspects being: Need for prior administrative authorisation: Prior administrative authorisation, stipulated in regulations, is required to engage in regulated activities; applicants must basically demonstrate their legal, technical and economic capacity to carry on the activity. Authorisation grants a legal monopoly for a given territory. 11

13 Remuneration established by the authorities: The general guidelines establishing remuneration for these activities are contained in Royal Decree 1047/2013 (27 December) on transmission and Royal Decree 1048/2013 (27 December) on distribution; they seek to ensure adequate remuneration for the activities and for network development. The remuneration receivable for these activities is revised annually by means of a Ministerial Order. Similarly, the general guidelines for both activities (transmission and distribution) have been affected by the changes brought in by Royal Decree-Law 13/2012 (30 March), Royal Decree-Law 2/2013 (1 February) and Royal Decree-Law 9/2013, as well as by Law 2/2015 (30 March) on the DE indexation of the Spanish Economy, subsequently developed by Royal Decree 1073/2015 amending certain provisions of the electricity grid remuneration royal decrees and eliminating certain articles of Royal Decrees 1047/2013 and 1048/2013, which stipulated the annual update of unit values based on the Consumer Price Index and the Industrial Price Index for capital goods. The publication in December 2015 of, Order IET/2660/2015 (1 December) approving standard facilities and reference unit values for investment, operation and maintenance per fixed asset and remuneration unit values for other regulated tasks that will be used to calculate remuneration for electricity distribution companies. This Ministerial Order is the essential milestone for the start of the new regulatory period defined in Royal Decree 1048/2013 and thus the discontinuance of the transitional remuneration mechanism defined in Royal Decree-Law 9/2013. The effective implementation of this legislation was reflected in Order IET/980/2016 which established the remuneration of electricity companies for The remuneration approved in that Order is effective from 1 January 2016 and an independent remuneration value is defined for Viesgo Distribución Eléctrica, S.L. and Barras Eléctricas Galaico-Asturianas, S.A. The regulatory framework for Spain's electricity sector includes a settlement procedure to redistribute among the sector companies the billings obtained (mainly access fees) and other costs, so that each agent receives the remuneration recognised for its regulated activities. Specific obligations: The performance of regulated activities is subject to specific obligations to ensure the development of competition in the supply phase. The two main obligations consist of allowing thirdparty access to transmission and distribution grids and keeping regulated activities separate from unregulated activities. Law 24/2013 regulates the general principles for access and connection to the transmission and distribution grid, determining entitlement, technical requirements necessary to obtain the relevant rights or permits, and causes for access denial, as well as the bodies having competence to resolve disputes. Additionally, Royal Decree 1955/2000 regulates the rights and obligations of each of the agents involved in the system. The owners of transmission and distribution grids are entitled to receive fees in return for access; the fees are revised annually in a Ministerial Order. The regulations impose a functional separation duty which entails both accounting and legal separation, and the independent operating of regulated subsidiaries with respect to the rest of their group companies. 12

14 Transmission The objective of the transmission activity is to transmit electricity through an interconnected grid comprising transportation facilities so as to supply it to the distributors or, if applicable, to final consumers, as well as to complete international exchanges. Transmission is performed by transmission companies, which are trading companies engaged in the transmission of electricity, as well as in the construction, operation and maintenance of transmission facilities Distribution The main objective of the distribution activity is the transmission of electricity from the transmission network, or from other distribution networks or from generation plants connected to the distribution network itself to consumption points or other distribution networks under suitable quality conditions, the ultimate purpose being the supply of the electricity to consumers. Distributors manage the distribution grid. Distribution is performed by distributors, which are trading companies or cooperatives of consumers and users whose function is to distribute electricity, as well as to build, maintain and operate the distribution facilities used to take the electricity to the consumption points, plus all the functions stipulated in electricity sector legislation Unregulated activities Electricity generation Electricity generation remuneration includes the following: a) Electricity traded through daily and intra-day markets which is remunerated based on the price resulting from the balance between supply and demand of electricity offered on those markets resulting from the arrangements in place. b) Electricity traded through bilateral contracts or physical markets or forwards which is remunerated based on the price of operations under firm contracts on those markets. c) System adjustment services necessary to guarantee an adequate supply to consumers. d) If warranted, the remuneration in respect of the capacity mechanism, providing an adequate coverage margin for the system and promoting the availability of manageable power. e) If appropriate, additional remuneration for electricity production activities carried out through the electricity systems in territories not on mainland Spain. This market remuneration system is supplemented by a collection of regulated income to cover the medium-term power availability service defined by Order ITC/3127/2011 (17 November), in addition to an investment incentive for combined cycle plants and environmental investments in coal plants that give rise to reductions in sulfur dioxide emissions, in the case of thermal production plants under the former ordinary system and hydraulic plants (excluding river plants). 13

15 At the end of 2012, Law 15/2012 (27 December) was approved, bringing in tax measures for energy sustainability. Three new taxes were imposed on generation companies: a tax on the value of electricity produced, a tax on the production of spent nuclear fuel and radioactive waste as a result of nuclear power generation and a tax on the storage of spent nuclear fuel and radioactive waste in centralised facilities. A royalty was implemented for the use of continental waters to produce electricity, tax rates applicable to natural gas and coal were altered and exemptions for energy products employed in electricity production and in the cogeneration of electricity and useful heat were removed. - Generation of electricity using renewable energy sources, cogeneration and waste The high penetration of production technologies using renewable energy sources, cogeneration and waste, which are included in the so-called special electricity production scheme, has led to a review of the specific regulations governing capacity and technology. The new regulations afford these facilities the same treatment as the rest of the market technologies, on the basis of the technology employed and the implications for the system, instead of their capacity. Law 24/2013 (26 December) ceased to distinguish between the ordinary and special schemes, without affecting the specific considerations that must necessarily be established. The remuneration scheme for renewable energies, cogeneration and waste is based on the manner in which these facilities participate in the market, supplementing market revenue with specific regulated revenue that allows the technologies to compete on equal terms with the rest of the technologies in the market. This specific additional remuneration must be sufficient to reach the minimum amount necessary to cover costs which, unlike conventional technologies, cannot be recovered in the market, and will allow the facilities to obtain an adequate return by reference to the standard facility in each applicable case. The rate of return for production using renewable energy sources, cogeneration and waste for the first regulatory period is stipulated in Royal Decree-Law 9/2013 (12 July), whereby urgent measures were adopted to guarantee the electricity system's financial stability. The specific remuneration will be calculated for a standard facility, taking into consideration electricity sales revenue valued at production market price, average operating costs necessary to do business and the value of the initial investment in the standard facility, for an efficient and well-managed company in all cases. In 2014, the following legislative provisions were published on the new legal and economic structure applicable to production technologies using renewable energy sources, cogeneration and waste under privet economic structure, as from the effective date of Royal Decree-Law 9/2013: Royal Decree 413/2014 (6 June) on electricity production using renewable energy sources, cogeneration and waste stipulates the methodology applicable to the specific remuneration scheme, which will apply to qualifying production facilities that employ renewable energy sources, highly-efficient cogeneration and waste. Order IET/1045/2014 (16 June) brought in remuneration parameters for standard facilities applicable to certain facilities generating electricity from renewable sources, cogeneration and waste Electricity supply activity The supply activity is based on the principles of freedom of contracting and the customer's freedom to choose a supplier. As a deregulated activity, supply remuneration is freely agreed between the parties. 14

16 Voluntary prices for small consumers are a new phenomenon, introduced under Law 24/2013 (and subsequently developed by Royal Decree 216/2014, 28 March, which provided the methodology for calculating voluntary prices for small electricity consumers and the related contracting arrangements). These prices are defined, in line with the former social or last-resort tariffs, as the maximum prices that may be charged by reference supply companies to qualifying consumers (consumers having a contracted capacity of less than 10 kw and wishing to avail themselves of this option as opposed to bilateral negotiations with a supply company). These prices will be the same throughout Spain. The term 'last-resort tariff' is reserved for two consumer groups: vulnerable consumers and consumers that do not qualify for the voluntary prices for small consumers but temporarily lack a supply contract with a supply company. The voluntary prices for small consumers will include, by analogy with the social tariff, on an additive basis, electricity production costs, access fees and applicable expenses and supply costs. Royal Decree 216/2014 (28 March) provided the methodology for calculating voluntary prices for small consumers and the related legal scheme for contracting, determining the structure of voluntary prices for small consumers (formerly last-resort tariffs), which will apply to low-voltage consumers with a contracted capacity of up to 10 kw. It also stipulated the procedure for calculating the cost of electricity production to be included in the voluntary price for small consumers, which will be based on the hourly price in the daily market during the relevant billing period. Additionally, this royal decree provided an alternative whereby a consumer may contract a fixed power price for one year with the reference supply company. Provisions were also made for the designation of reference supply companies and their obligations in connection with supplies to certain consumer groups, as well as regulating supply contracts with reference supply companies, including minimum contractual content. The main revisions of access fees for 2015 are as follows: Access fees: Order IET/2444/2014 (19 December), revised electricity access fees for Royal Decree-Law 8/2014 (4 July) on urgent measures for growth, competitiveness and efficiency (and subsequently Law 18/2014, 15 October) created a national system of energy efficiency obligations for gas and electricity supply companies, petroleum product wholesalers and liquefied petroleum gas wholesalers, as from the effective date of the law. Under this system, an Order will be issued annually by the Ministry of Industry, Energy and Tourism containing the annual saving target and the target quota for each liable party, which will be used to calculate the mandatory annual contribution to the National Energy Efficiency Fund. Order IET/289/2015 of 20 February, establishes the obligations of contribution to the National Energy Efficiency Fund in System charge operators System charge operators are trading companies authorized to resell electricity and to provide electric vehicle charging services. It is a liberalized wholesale customer activity. 15

17 System charge operators are regulated mainly by Royal Decree 647/2011 (9 May) on system charge operators engaged in electricity charging services. The company must submit a firm declaration on compliance with legal, technical and economic requirements to the Directorate General of Energy Policy and Mines (Ministry of Industry, Tourism and Trade) Self-consumption Law 24/2013 defines self-consumption to be the consumption of electricity originating from generation plants connected to a consumer network or through a direct electricity line associated with a consumer. Electricity self-consumption regulations make a distinction between three types and establish that the plants that are connected to the system must contribute to the coverage of electrical system costs and services in the same terms as the energy consumed by the rest of the participants in the system. The administrative, technical and financial conditions of the types of electricity self-consumption supply and self-consumption production are regulated by Royal Decree 900/2015. The particular conditions applicable to access tolls for the networks defined by Royal Decree 1164/2001 are established together with the charges associated with the system costs that are applicable to self-consumer Social bond financing Law 24/2013 modified the social bond allocation mechanism. The cost is no longer borne by generation companies or the electricity system itself but by the parent companies of groups or, if applicable, by companies engaged simultaneously in electricity production, distribution and supply activities. Royal Decree 968/2014 (21 November) developed the methodology for determining allocation percentages applicable to social bond financing. Order IET/350/2014 (7 March) set the percentages for the allocation of amounts to finance the social bond for 2014, applicable to the relevant groups of companies Tariff deficit for 2013 and subsequent periods Royal Decree 1054/2014 (12 December) established the procedure for assigning 2013 debt claims arising from the electricity system deficit and the method for calculating the rate of interest that will accrue on the debt claims and, if applicable, on negative temporary mismatches in periods after After 2014 any temporary mismatch between income and costs in the electrical system that results from the year-end settlements and gives rise to a shortfall in income, as well as any transitory deviations between income and costs in monthly settlements on account of the closing in each year that may appear, will be financed by the members of the settlement system in a manner that is proportional to the compensation to which they are entitled due to the activity that they carry out. In the event that there is a mismatch due to a shortfall of income in a year, the amount may not exceed 2% of estimated system income for the year. Furthermore, the accumulated debt due to mismatches in prior years cannot exceed 5% of the estimated system income for that year. Any tolls or charges that are applicable will be revised at least by an amount equivalent to that which exceeds the aforementioned limits. 16

18 3 Basis of presentation of the interim consolidated financial statements 3.1 Applicable accounting legislation The interim consolidated financial statements were prepared from the accounting records of Viesgo Holdco, S.A. and subsidiaries. It includes the adjustments and reclassifications required to adapt the timing and valuation with the accounting criteria established by the Group, if necessary. These Interim Consolidated financial statements have been prepared, considering the regulation set out by the current mercantile legislation contained in the Code of Commerce, as amended under Law 16/2007 (4 July) on the reform and adaptation of accounting legislation for international harmonisation on the basis of EU legislation; Royal Decree 1514/2007 (16 November) whereby the Spanish Chart of Accounts was approved; and Royal Decree 1159/2010 (17 September) on standards for drawing up consolidated financial statements, for all matters not conflicting with the amended mercantile regulations mentioned above, in order to present the Group s financial position and results and the cash flows included in the cash flow statement. Although IE2 Holdco, S.A. issues securities (debt) admitted to trading, the company have not used the International Financial Reporting Standards (IFRS) adopted by the European Union in the preparation of these consolidated financial statements as the market in which emits is not a regulated market. 3.2 Comparability Considering that the Group was created in 29 September 2015, these consolidated annual accounts do not include comparative financial information. 3.3 Use of estimates and sources of uncertainty The preparation of the interim consolidated financial statements requires the use by the Group of certain estimates and judgements in relation to the future and that are assessed constantly and are based on historical experience and other factors, including expectations of future events considered reasonable in the circumstances. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are explained below. Useful lives of property, plant and equipment and intangible assets The Group's management determines the estimated useful lives and related depreciation and amortisation charges for its property, plant and equipment and intangible assets taking into account their technical characteristics, the period over which they are expected to generate economic benefits and the applicable legislation. However, the estimates could change significantly as a result of technical innovations, regulatory changes and competitor actions in response to future developments in the sector. The depreciation charge will be increased should useful lives be shorter than previously estimated, and technically obsolete or nonstrategic assets that have been abandoned or sold will be written down or written off. 17

19 Impairment loss of assets The Group verifies annually whether there is an impairment loss in respect of goodwill, in accordance with the accounting policy described in Note 5.6. The recoverable amounts of cash-generating units (CGUs) have been determined based on value-in-use calculations. These calculations require the use of estimates (Note 6.1). The estimates are based on sensitivity analyses of the most relevant variables, paying particular attention to situations in which there could be indicators of potential impairment. The measurement of other non-current assets other than financial assets requires that estimates be made in order to determine their recoverable amounts, for the purpose of assessing possible impairment. To determine this recoverable amounts, the Group s director s estimate expected future cash flows from the assets or cashgenerating units of which they form part, using an appropriate discount rate to calculate the present value of the cash flows. Income tax The legal status of the tax regulations applicable to the Group entails that estimates are employed and the final quantification of tax is uncertain. Tax is calculated based on Management's best estimates, always taking into account prevailing tax legislation and foreseeable legislative changes. The Group assesses the recoverability of deferred income tax assets based on estimates of future taxable profits and on the capacity to generate profits in the periods during which the deferred income taxes may be deducted. Where the final tax outcome differs from the amounts that were initially recorded, such differences will impact income tax in the period in which such determination is made. Pension obligations The present value of retirement pension commitments depends on certain factors that are determined using actuarial assumptions. The assumptions employed to determine the net cost (income) arising from pensions include a discount rate. Any change in these assumptions will have an impact on the carrying amount of pension commitments. The Group determines the appropriate discount rate at each year end. This is the interest rate that must be used to calculate the present value of cash outflows that are expected to be necessary to settle the pension commitments. When determining the appropriate discount rate, the Group takes into account the interest rates on high-quality Company bonds denominated in the currency in which the pensions will be paid, for maturity periods similar to the term of the relevant pension liability. Other key assumptions for retirement pension commitments are based in part on current market conditions. See Note 20 for further information on pension commitments. Other provisions The Group recognises Other provisions in accordance with the accounting policy described in Note 5.17) to these accounts. 18

20 As a general rule, liabilities are accounted for when an obligation is likely to give rise to a payment. The Group assesses the amounts to be paid in the future, including any income tax, contractual commitments, outstanding litigation and other liabilities. The estimates are subject to interpretations of current events and circumstances, projections of future events and estimates of the financial effects of those events. Revenue recognition. Remuneration of regulated distribution activity Order IET/980/2016, which established the remuneration for electricity distribution companies for 2016, establishes the remuneration for 2016 in accordance with the methodology regulated in Royal Decree 1048/2013. The remuneration of the distribution activity approved by said Order amounts to a total of 154,855 thousand for Viesgo Distribución Eléctrica, S.L. and a un total of 52,092 thousand for Barras Eléctricas Galaico- Asturianas, S.A (Begasa). Such amount includes the Quality and Fraud incentives. It does not include the loss incentive for 2016 which should be approved by the Ministry of Industry, Energy and Tourism. The approval of this Order entails the recognition of an independent distribution for Viesgo Distribución Eléctrica, S.L. and Begasa, ending the previous methodology under which Viesgo Distribución Eléctrica, S.L. and Unión Fenosa Distribución, S.A. included in their remuneration the amount relating to Begasa. This approved remuneration took effect as from 1 January 2016 and as is set out in Order IET/2735/2015, the National Markets and Competition Commission has updated the settlements of the Electricity Sector s Regulated Activities, introducing Viesgo Distribución Eléctrica and Begasa as independent agents, with their corresponding remuneration, since Provisional Settlement 5 of 2016, which updates the amounts of the previous settlements regulated in the year. 3.4 Grouping of items For clarity, the items presented in the balance sheet, income statement, statement of changes in equity and cash flow statement are grouped together and, where necessary, a breakdown is included in the relevant notes to the interim financial statements. 4 Results for the year The proposed distribution of results for 2015 of the parent Company of the Group was the following: Thousand euros Viesgo Holdco, S.A Available for distribution Balance of the income statement (losses) (2,607) Distribution to: Prior-year profit/(loss) (2,607) 19

21 In addition, a dividend against reserves (shareholder contributions) was agreed by 100,000 thousand. These proposals were approved by the single shareholder of the parent Company on 6 April 2016 and the dividend was paid on 8 April Accounting policies 5.1 Subsidiaries a) Acquisition of control The acquisition of control by the parent company (or other Group entity) over a subsidiary is a business combination recognised using the acquisition method. Under this method, the acquiring entity must recognise, at the acquisition date, the identifiable assets acquired and liabilities assumed in the business combination and, if applicable, the resulting goodwill or negative difference. Subsidiaries are consolidated as from the date on which control is transferred to the Group and are de-consolidated as from the date on which control ceases. Acquisition cost is the sum of the fair values, at the acquisition date, of the assets handed over, liabilities incurred or assumed and equity instruments issued by the acquiring entity, and the fair value of any contingent consideration subject to future events or to the fulfilment of certain conditions that must be recognised as an asset or liability, or in equity, depending on its nature. Costs relating to the issuance of the equity instruments or financial liabilities handed over do not form part of the cost of the business combination and are recognised in accordance with the standards applicable to financial instruments (Note 5.10). Fees paid to legal advisors or other professionals involved in the business combination are expensed when incurred. Related costs generated internally and any costs that may have been incurred by target entity are not included in the cost of the business combination. The excess, at the acquisition date, of the cost of the business combination over the proportional part of the value of the identifiable assets acquired less that of the liabilities assumed, representing the percentage shareholding in the target entity, is recognised as goodwill. In the exceptional event that this amount is higher than the cost of the business combination, the excess is recognised as income in the consolidated income statement. b) Step Acquisition When control over a subsidiary is acquired through a number of transactions effected on different dates, the goodwill (or negative difference) is the difference between the cost of the business combination, plus the fair value at the acquisition date of any prior investment by the acquiring entity in the target entity, and the value of the identifiable assets acquired less liabilities assumed. Any gain or loss arising from fair value measurement of the prior shareholding at the date on which control is obtained is recognised in the income statement. Where the investment was previously recognised at fair value, measurement adjustments pending allocation to results for the period are taken to the consolidated income statement 20