PRESS RELEASE 15 February Approved tariffs mean stability and entail an investment budget of million

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1 Keizerslaan 20 Tel.: +32 (0) Boulevard de l'empereur, 20 Fax: +32 (0) B-1000 Brussels PRESS RELEASE 15 February 2008 Approved tariffs mean stability and entail an investment budget of million Elia s annual profit totalled 77.6 million, higher than expected. Gross dividend per share is In December 2007, the regulator approved fixed multiyear tariffs for These tariffs provide for a total investment budget of million between 2008 and Intraday allocation mechanism launched for interconnection with France and soon with the Netherlands too. Belpex: a rising number of participants and rising volumes. Transmission system operators from the Benelux, France and Germany are planning a joint venture that should ultimately lead to an integrated electricity market in those countries. 1. IFRS key figures Consolidated results for 2007 of Elia, operator of the Belgian high-voltage grid, as per the IFRS (International Financial Reporting Standards): Results (in million ) Change Operating income % EBITDA % Operating profit (EBIT) % Financial result % Taxes % Net profit (group share) % Earnings per share ( ) % Dividend per share ( ) % Balance sheet (in million ) 31 December December 2006 Change Total assets 3, , % Shareholders' equity 1, , % Net financial debt 2, , % Shareholders' equity per share ( ) % Number of shares (end of period) 48,061,695 47,898, % EBITDA = Operating profit + depreciation/amounts written off + changes in provisions 1

2 Financial (IFRS) The consolidated operating income in 2007 rose 2.8% from million to million. Detail of operating income (in million ) Change Connection revenues % Grid use revenues % Revenues from the reversal of surpluses from previous years (decision by the regulator) % Ancillary revenues % International revenues % Other operating income % Operating income subtotal % Deviation from approved budget N/A Total operating income % Income from connections to the grid increased, mainly due to a number of new connections for large industrial users in Income from use of the grid fell by 12.2%, due to the introduction of lower tariffs, but also because less electricity was taken off the Elia grid than in 2006, as a result of the milder weather in This drop in tariffs is a consequence of a larger rise in revenues from the reversal of surpluses from previous years (+71.9%) that was decided by the regulator. Income from ancillary services was down due to the lower costs of purchases from generators, from which customers benefited in the form of lower tariffs. International revenues decreased by 31.3% compared with the previous year. This was mainly a result of the launch of Belpex at the end of 2006 and the simultaneous replacement of explicit daily auctions by implicit daily auctions. Expansions in capacity at Belgium's borders have greatly reduced congestion, leading to a fall in international revenues. Coupling together the Belgian, French and Dutch electricity markets has resulted in strong convergence of wholesale prices. The sharp drop of 20.9% in other operating income is primarily due to a decrease in the pension amount to be reclaimed from the future tariffs ( 13 million). A new collective agreement concluded on 29 November 2007 enabled retirees to opt for the receipt of a one-off payment instead of annual pensions, thereby lowering the company s overall retirement obligations. On the other hand, the increase in services for investment projects ( 4.1 million) and the consolidation of Belpex ( 2.7 million) led to an increase in the activation of own production. The section headed Deviation from approved budget covers firstly the deficit vis-àvis the approved budget for 2007 ( 0.5 million), and secondly an extraordinary deficit (recuperation) of 9.4 million resulting from the bonus-malus decision for 2005 and The limited operational deviation of 0.5 million out of a total of million underscores the efficiency of the company s management. The EBITDA and EBIT rose by 5%, which was more than the progress in operating income, owing to the positive ruling handed down by the Court of Appeal on the bonusmalus decision for 2005 ( 4.9 million). In the light of this ruling, the regulator altered its bonus-malus decision for 2006 from a malus of 1.8 million to a bonus of 2.7 million. As a result of a rise in financial charges, the financial result fell by 5.8%, partly due to the rise in interest rates and partly following a 65.2 million increase in net financial debt compared with 31 December The average cost of debt capital rose from 4.8% in 2006 to 5% in Roughly 25% of all financial debt is financed on a variable interest basis. 2

3 The tax burden went up 10.4% following the increase in the actual tax rate from 28.2% in 2006 to 29.7% in The 2006 tax rate was exceptionally low owing to a number of changes from the past. In the wake of a tax audit covering the 2004 financial year, in 2008 Elia was considered due to pay tax on its tariff surpluses. The tax to pay totals 85 million, plus an administrative supplement of 10%. Since its sectoral counterparts are not taxed on such tariff surpluses, Elia, in conjunction with CREG, decided to appeal against this decision. Pursuant to the additional advice received from external experts, this does not impact at all on the balance sheet and income statement. In December 2007 a fiscal ruling was handed down to Elia regarding the application of transfer pricing between Elia System Operator and Elia Asset, which will lower the tax rate paid over the next few years. This decrease will positively impact on tariffs, with all consumers benefiting as a result. Net consolidated profit was 2.2% up on 2006, which is significantly better than the budget approved by the regulator, essentially owing to the positive adjustment of 5.0 million following the ruling by the Court of Appeal, and also the bonus over Earnings per share also went up 2.5% in spite of the creation of 163,643 new shares following June 2007's successful 4.2 million capital increase reserved for staff. At the General Meeting of Shareholders on 13 May 2008, the Board of Directors will propose the distribution of a gross dividend per share of 1.30, which will yield a net dividend per share of or a net dividend of for shares with a VVPR strip. The main reason for the 2.4% increase in shareholders equity to 1,339.9 million was the annual updating of IFRS entries ( 20.0 million) and the net profit of 68.0 million generated according to Belgian accounting rules in 2007, plus the 2007 capital increase of 4.2 million, minus the dividend paid out in 2006 ( 61.3 million). Fair return Although Elia draws up its consolidated results according to IFRS standards, the calculation of the distributed dividend is based on net profit according to the Belgian accounting rules. The tariffs approved by CREG are also based on these accounting regulations. A detailed reconciliation of the consolidated net result and shareholders' equity as per the IFRS and the Belgian accounting regulations (Belgian GAAP) is attached. The net profit of 68.0 million achieved by Elia in accordance with Belgian accounting rules reflects the company's fair return on its invested capital. This return is calculated on the basis of the regulated value of the power grid managed by Elia (the so-called Regulated Asset Base or RAB). The fair return on the RAB depends chiefly on the Belgian long-term rate (10-year OLO rate) and the shareholder risk premium. Operations 2007 was characterised by a number of climate-related factors, such as the mild latter half of winter, a warm spring, a normal summer and a mild autumn. All users, especially residential customers, consumed less electricity for heating and air-conditioning. As a result, electricity consumption in Elia s control area dropped by 0.8% from 89.5 TWh in 2006 to 88.8 TWh in Compared with 2006, the net offtake of electrical energy from Elia s Belgian grid dipped by 1.3% from 79.6 TWh to 78.6 TWh. The drop was primarily caused by the mild temperatures during the winter months and the rising amount of local generation by industrial customers, as well as by the increasing trend to generate power from renewable sources such as wind and biomass, which is resulting in more energy being injected into the distribution grids. Last year, physical exchanges of electrical energy with neighbouring countries via Elia s grid totalled 24.7 TWh, 9.8% less than in In 2007, Belgian electricity exports rose 4% to 9.0 TWh, whilst imports dropped 16.2% to 15.7 TWh. Consequently, in 2007 Belgium s net imports dipped sharply by 33.7% from 10.0 TWh to 6.7 TWh, a level 3

4 comparable with net imports in The high quantity of imports in 2006 was largely due to the exceptional weather, namely an unusually late, long-lasting cold winter and an exceptionally hot July. In 2007, security of supply went up again from what had already been a very high level in Investments The average interruption frequency per customer on Elia s grid was 0.09 (down from 0.13 in 2006) The average duration of an interruption was 39 minutes and 7 seconds per concerned customer. Spread over all customers, in 2007 the average interruption time (AIT) was 3 minutes and 32 seconds per customer, giving an average reliability of over %. In 2007 Elia invested million to meet customers' requirements (security and reliability of supply and market facilitation). Most of this amount was spent on upgrading high-voltage substations, laying cables and installing phase shifters. The 220/150-kV phase shifter at the Monceau high-voltage station was commissioned in early January Accordingly, the work to upgrade the entire interconnection line between Chooz (F) and Monceau to 220 kv has now been completed. This investment means that better use can be made of the cross-border connection and therefore also of the entire interconnection with France. During 2007, three more phase shifters were delivered: two for the Van Eyck high-voltage station at Kinrooi and one for the Zandvliet high-voltage station (each 1,400 MVA). These transformers are amongst the largest of their type in the world. The first of them was scheduled to come on stream in December 2007, but the date was pushed back to the first half of 2008, owing to unforeseen problems inside the transformer. Phase shifters will enable Elia to spread the energy flows over its grid more effectively, making the Belgian grid more reliable and paving the way for optimal use of the interconnections with Belgium's neighbours. Other major projects in progress are the new 150-kV Petrol high-voltage station to upgrade supply in the southern part of Antwerp, the expansion of the Scheldelaan highvoltage station to create a connection with Exxon's new generating unit in the Port of Antwerp. In 2007 the 150 kv connection between Trivières and Ville-sur-Haine was upgraded and a new 150/10kV transformer was installed at Gouy (Hainaut) to accommodate the local increase in power consumption. For the same reason, in Woluwé two new 150/11kV transformers were commissioned to replace three smaller ones. The Slijkens high-voltage substation Slijkens (West Flanders) was also upgraded (a new 150/36kV transformer was fitted, as was the Romsée (Liège) high-voltage substation, where a 220/15kV transformer came on stream. Also worthy of note was the commissioning of the 150-kV connection for the new Google site in Ghlin-Baudour in Main events in 2007 Transmission tariffs for approved CREG approved Elia s tariff proposal for , which was the result of intensive consultations between the regulator and Elia aimed at taking account of the expectations of market players and grid users, on the one hand, and the company s needs in fulfilling its contract, on the other. For the first time Elia s tariffs were approved for a 4-year period. As a result, between 2008 and 2011, consumers will benefit from a fixed transmission tariff, which should have 4

5 a positive effect on efforts to attract new electricity generators and fresh investment in Belgian industry. Launch of intraday allocation Since May 2007, Elia and RTE have offered a coordinated intraday allocation mechanism to the market players on the France-Belgium interconnection. This new mechanism offers those concerned the option of adapting their energy balance during the day by importing or exporting electricity from or to France in the event of unexpected circumstances or if a new opportunity presents itself during the day. An intraday allocation mechanism will be introduced on the border with the Netherlands in the first half of It will be based on the same system as on the south border. Belpex and market coupling 2007 was the first full calendar year of trading on the Belgian power exchange Belpex, together with market coupling. The average daily volume in 2007 was 20,788 MWh of electrical energy (up from 13,312 MWh in 2006), to be delivered the following day. The exchange derived benefited fully from market coupling with the Dutch and French markets and demonstrated that the efficient use of transmission capacity at Belgium s borders is an effective way of offsetting the limited supply available here. On Thursday, 20 December a new record volume of 53,306.6 MWh was traded, equivalent to 21.3% of Belgium s average consumption of electricity. In 2007, the average price of electricity (Belix) was per MWh, the average Belix peak price (from 8 a.m. to 8 p.m.) was per MWh, and the average Belix off-peak price was per MWh. During 2007, trading volumes on Belpex rose sharply, and its number of members rose from 18 at the end of 2006 to 24 as at 31 December Whether demand in one country can be met using supply from another country depends on the daily capacity available at the existing interconnections. If the capacity is sufficient, the price is the same on the Belpex, APX and Powernext exchanges. In 2007, this was the case for 62.7% of trading hours. Otherwise, Belpex prices mirrored French prices 26.4% of the time and Dutch prices 9.4% of the time. Only 1.6% of the time was there congestion on the north and south borders. In 2007, market coupling resulted in a daily average export volume of 2,438 MWh and a daily average import volume of 2,896 MWh. Belpex: memorandum of understanding with Powernext and EEX At the end of 2007, Belpex, the German energy exchange EEX and the French energy exchange Powernext issued a formal memorandum of understanding (MoU) about teaming up to accelerate the integration of Europe s energy markets. The MoU describes the basic principles for merging the Belgian, German and French spot electricity markets. Negotiations on this will continue in Support for C-Power's offshore wind farm C-Power's offshore wind farm is being connected via an undersea cable to Elia's Slijkens high-voltage station. Elia is financing part of the investment in this cable (up to a maximum of 25 million) via levies charged on electricity bills starting in 2008, and has signed a contract with C-Power to purchase the wind farm's green energy certificates at the legal minimum price. The costs associated with this purchase will be passed on to customers. Successful capital increase reserved for Elia personnel Elia Group personnel enthusiastically subscribed to Elia System Operator's capital increase of 4.2 million. The number of shares available was more than doubly oversubscribed. After the capital increase, which took place on 29 June 2007, the number of shares outstanding rose from 47,898,052 to 48,061,695. 5

6 Jacqueline Boucher appointed Elia director The general meeting of shareholders of Elia System Operator held on 8 May 2007 appointed Ms Jacqueline Boucher as a director for a term of 4 years that will end after the ordinary general meeting in She will complete the mandate of outgoing director Willy Bosmans, who resigned. Ms Boucher is also a director of Fluxys and Strategy Manager of Electrabel's General Management Strategy, Communication and Administration. Daniel Dobbeni re-elected as ETSO President At its Annual General Meeting held in Bergen (Norway) on 29 June 2007, the members of the association representing European transmission system operators unanimously re-elected Elia System Operator CEO Daniel Dobbeni as ETSO s president for a second 2-year term. ETSO is the association of all transmission system operators of the 27 EU countries, plus Norway and Switzerland. Phase 2 of the European Wind Integration Study launched The second phase of the European Wind Integration Study (EWIS) was officially launched on 15 June EWIS is backed by a consortium of 15 European system operators, led by Elia and with financial support from the European Commission. The EWIS website has been online since early October. The research project aims to propose solutions for integrating large-scale wind power generation into Europe's high-voltage grids. The research group is investigating the technical, regulatory and policy-related measures needed to enable the large-scale development of wind power and thus ensure that Europe can continue to enjoy high security of supply. Memorandum of understanding on a pentalateral energy market The energy ministers, regulators, transmission system operators, power exchanges and market-player representatives from Belgium, France, Germany, Luxembourg and the Netherlands signed a memorandum of understanding on 6 June The purpose of the MoU is to integrate the electricity markets in these five countries into a single, regional electricity market. The initiative will build further on the success of trilateral market coupling between Belgium, France and the Netherlands that was introduced in November 2006, in parallel with the launch of Belpex. Joint venture planned by transmission system operators Cegedel Net, Elia, ENBW TNG, E.ON Netz, RTE, RWE TSO and TenneT have decided to set up a joint venture providing cross-border services, subject to approval by the respective governments and companies. The new company, dubbed the Capacity Allocation Service Centre (Central Western Europe), or CASC-CWE, will be based in Luxembourg. The company will act as the participating system operators central body for the implementation and execution of services to do with auctioning off transmission capacity at the borders between the five countries in question. CASC-CWE will facilitate cross-border trading and deliveries for all market players in the Central Western European electricity market by standardising systems and regulations. This initiative will enhance the liquidity and competitiveness on all five markets. The incorporation of the company marks an important step towards the integration of the five electricity markets into a single, regional electricity market. 6

7 3. Main events since 31 December 2007 On 18 January 2008, the Arco Group reported that it owns 9.06% of the shares in Elia and has put options on Elia shares representing 1.08% of the share capital. 4. Prospects Multi-year tariffs and the impact on net profits In the future Elia s regulated net profits will comprise three different elements: Future investments The calculation of the fair profit margin on the regulated asset base will be based on the actual value of the Belgian 10-year interest rate (daily mean value) and the actual beta value of the Elia share at the end of the year. The offsetting in tariffs of the drop in goodwill following the disposals of fixed assets. Elia estimates that amount at a net profit of roughly 14 million per annum. This part of the net profit may not be distributed as a dividend. The 25 million in savings in operational expenditure requested by the regulator over a 4-year period ( ). Should Elia save more than the stipulated 25 million between 2008 and 2011, the company will benefit from these additional savings up to a maximum of 25 million, spread over the 4-year period. In connection with the multi-year tariffs Elia expects to invest a total of million over the period That amount gained the regulator s acceptance in the approved multi-year tariffs. Elia expects to invest million of that total in That budget is in line with previous investment budgets over the last few years. These investments take account of the rising need for substitute investments, the strengthening and expansion of the Belgian grid with a view to the arrival of new generators in various places around the country and the growth of industry and construction of local production units by various major industrial customers. Investments in the grid are also planned in connection with the connection of renewable energy facilities, like offshore wind farms, to the grid. The strengthening of interconnections possibly with the United Kingdom and Germany are being further examined but have not yet been included in the investment programme. Expansion of market coupling to Germany and Luxembourg Grid operators and power exchanges are making good progress in the flow-based market coupling project, which will enable the market coupling between France, Belgium and the Netherlands to be expanded to Germany and Luxembourg. The orientation study was completed at the end of Further studies for the technical design and implementation of market coupling will follow in the first half of HGRT interested in NYSE Euronext s shares in Powernext HGRT, the Holding des Gestionnaires de Réseau de Transport, in which Elia holds a 24.5% stake, the other shareholders being its French and Dutch counterparts RTE (51%) and TenneT (24.5%), is interested in acquiring the shares in the French power exchange Powernext that NYSE Euronext intends to sell, subject to a green light from the competent banking authorities. According to this scenario, NYSE Euronext would only retain the trade in Powernext emission rights and would sell its stake in the energy exchange. HGRT already owns a 17% stake in Powernext and would like to be the majority shareholder, owning a 51% stake. In this connection, at the end of 2007 HGRT went ahead with a capital increase of 31 million, in which Elia participated in proportion with its shareholding. That interest strengthens Elia s position and that of its subsidiary Belpex, making them major players in the development of a regional electricity market in West Continental Europe. 7

8 5. Auditors report The joint auditors Ernst & Young Bedrijfsrevisoren/Reviseurs d Entreprises represented by Jacques Vandernoot and Klynveld Peat Marwick Goerdeler Bedrijfsrevisoren/ Reviseurs d Entreprises represented by Erik Clinck, have confirmed that the accounting data shown in this press release are in conformity with the financial statements as prepared by the board of directors and are not giving cause for a qualification from their side. The joint auditors although want to draw the attention to the uncertainty resulting from the result of the tax audit and from the settlement mechanism, already in use in prior years, which determines the results of the financial year and the estimated amount of the tariff deficit The latter has been integrally recorded under the deferred income caption. 6. Financial calendar Availability of the 2007 annual report early April 2008 Annual general meeting of shareholders 13 May 2008 Payment of the dividend for May 2008 About Elia Elia is the Belgian transmission system operator, transmitting electricity from producers to distribution system operators and major industrial users. Elia also imports electricity from and exports it to neighbouring countries. Elia owns the entire very-high-voltage grid (150 to 380 kv) and some 94% (ownership and user rights) of the high-voltage grid infrastructure (30 to 70 kv) in Belgium. The Elia grid comprises 5,641 km of overhead lines and 2,765 km of underground cables and constitutes a key link between the electricity markets of northern and southern Europe. Recent investments in interconnection capacity with neighbouring countries mean that Belgium is one of the most open and interconnected countries in Europe. Please contact Elia for more information: Media Lise Mulpas lise.mulpas@elia.be Erik De Leye erik.deleye@elia.be Investor relations Bert Maes bert.maes@elia.be Website: This press release and its annexes are available on ANNEXES (Tables with key figures in million ) Consolidated income statement as at 2007 and 2006 Consolidated balance sheet as at 31 December 2007 and 31 December 2006 Overview of the change in consolidated shareholders' equity Cash flow statement as at 2007 and 2006 IFRS/Belgian GAAP information and reconciliation for net profit and shareholders' equity 8

9 ANNEXES 1. Basis of financial reporting Elia's consolidated yearly report contains data from 1 January 2007 up to and including 31 December The report was drawn up in accordance with the presentation and valuation rules of published International Financial Reporting Standards (IFRS) and in line with the interpretations approved by the International Accounting Standards Board (IASB). The financial report consists of the balance sheet as at 31 December 2007 compared with the figures from the balance sheet as at 31 December 2006, plus the income statement, the cash flow statement and an overview of the change in shareholders' equity as at 31 December 2007, compared with the corresponding data from the 31 December There are also notes on specific points. 2. Financial information 2.1. Consolidated income statement IFRS ( ) (in million ) Change Operating income % Turnover % Other operating income % Total operating charges % Cost of materials % Services and other goods % Personnel expenses and pensions % Depreciation, write-offs and amortisation % expenses, changes in provisions Other operating charges % Operating result % Financial results % Financial income % Financial charges % Profit before taxes % Income taxes % Profit after taxes % Share of the minority interests Share of the shareholders of the parent company % Share of profit of investments accounted for using the "equity" method Profit of the period % 9

10 2.2. Consolidated balance sheet IFRS (31 December December 2006) (in million ) 31 December December 2006 Assets Fixed assets 3, ,683.4 Tangible fixed assets 1, ,943.3 Intangible fixed assets 1, ,718.3 Investments in associates Hedging instruments Deferred tax assets Current assets Inventories Trade and other receivables Recoverable tax assets Cash and cash equivalents Deferred charges and accrued income Total assets 3, ,898.1 Equity & liabilities Shareholders' equity 1, ,308.6 Shareholders' equity imputable to the holders of equity instruments of the parent company 1, ,307.5 Issued share capital 1, ,196.9 Share premium account Reserves Hedging reserve 3.6 (1.5) Retained earnings Conversion difference Minority interest Minority interest Non-current liabilities 2, ,302.5 Long-term borrowings 2, ,119.8 Employee benefits Hedging instruments Provisions for risk and charges Deferred tax liabilities Various long term liabilities Accrued charges and deferred income Current liabilities Short-term borrowings Provisions for risks and charges Trade and other payables Income tax liabilities Accrued charges and deferred income Total equity & liabilities 3, ,

11 2.3. Consolidated cash-flow statement IFRS ( ) (in million ) Operating activities Profit for the year Share of profit of investments accounted for using the "equity" method Interest expenses Income taxes Adjustments for: Depreciation/ amortisation of tangible and intangible assets Results on disposals on tangible assets Write offs of current assets Increase (decrease) in provisions Valuation towards the fair value of financial instruments Increase (decrease) in deferred taxes Other non cash adjustments Cash flow from operating activities Changes in Inventories Trade and other receivables Deferred charges and accrued income Trade and other payables Accrued charges and deferred income Changes in working capital Interest paid (Paid) reimbursed income tax Net total cash flow from operating activities New investments in (in)tangible fixed assets Investments in associates Total cash flow from investing activities Change in capital (+) or (-) Costs linked to capital increase Dividends paid (-) Reimbursements of loans (-) New loans (+) Minority interests Total cash flow from financing activities Cash flow variations Cash & Cash equivalents at the beginning of the year Cash & Cash equivalents at the end of the year Net variations in cash & cash equivalents

12 2.4. Change in consolidated shareholders' equity (IFRS) (in million ) Share capital Share premium Hedging reserve Legal Reserves Retained earnings Total Minority interests Total equity Balance at 1 january , , ,282.7 * Valuation towards the fair value of financial instruments * Actuarial gains and losses related to employee benefits - Total income and expenses recognised directly in equity - Profit for the period Net income of year Increase reserves Own shares acquired Shares issued Issuance costs Dividends to shareholders Balance at 31 december , , ,308.6 Changes in accounting method Balance at 1 january , , ,300.8 * Valuation towards the fair value of financial instruments * Actuarial gains and losses related to employee benefits - Total income and expenses recognised directly in equity - Profit for the period Net income of year Increase reserves Own shares acquired Shares issued Issuance costs Dividends to shareholders Balance at 31 december , , ,

13 2.5. Overview of the differences between Belgian GAAP and IFRS and the impact on shareholders' equity (in million) 31 December December 2007 Shareholders' equity Be GAAP 1, ,340.7 IFRS adjustments previous years IFRS adjustments Capital/ shareholder's equity Hedging reserve IAS 32/39 Profit for the year Capital/ shareholder's equity Hedging reserve IAS 32/39 IAS 19 movements recognised directly in equity Profit for the year Profit Shareholders equity Software Bel Engineering goodwill Formation expenses Belpex Hardware Valuation inventory Employee offering: amounts receivables from personnel Long term debts Employee benefits Provisions ligations Deferred taxes Provisions environment Elia RE consolidation Balance future tariffs Dividends Capital increase: charges Capital grants Contracts Share of profit of investments accounted for using the "equity" method Total Shareholders' Equity IFRS 1, ,338.6 Profit of the year Be GAAP IFRS adjustments Profit of the year IFRS