Alliander N.V. Results for 2010 and second half of February 2011

Transcription

1 Alliander N.V. Results for 2010 and second half of February 2011

2 Disclaimer This report for the whole of 2010 and the second half of 2010 is a translation of the Dutch report on the consolidated results for full year and second half of 2010 of Alliander N.V. Although this translation has been prepared with the utmost care, deviations from the Dutch report might nevertheless occur. In such cases, the Dutch report prevails. We, Alliander, the company, the Alliander group or similar expressions are used in this report as a synonym for Alliander N.V. and its subsidiaries, Liander refers to the grid manager Liander N.V. and its subsidiaries and Endinet refers to the Endinet group, which in 2010 included three grid managers, Endinet Haarlemmermeer B.V., Endinet Oost-Brabant N.V. and Endinet Regio Eindhoven B.V. Stam in this report refers to Stam Heerhugowaard Holding B.V. and its subsidiaries and Liandon refers to Liandon. B.V. Alliander N.V. is the sole shareholder of Liander N.V., Endinet Groep B.V., Liandon B.V., Alliander Finance B.V., Alliander Telecom N.V., Alliander Participaties B.V., Alliander AG and Stam Heerhugowaard Holding B.V. Parts of this report contain forward-looking information. These parts may - without exceptions - include unqualified statements on future operating results, government measures, the impact of other regulatory measures on Alliander s activities as a whole, Alliander shares and its subsidiaries and joint ventures in existing and new markets, on industrial and macro-economic trends and on Alliander s performance against that background. Such statements are preceded by, followed by or contain words such as believes, expects, anticipates or similar expressions. These forward-looking statements are based on the current assumptions concerning future activities and are subject to known and unknown factors and other uncertainties, many of which are beyond Alliander s control, so that actual future results may differ materially from these statements. This report has been prepared using the accounting policies applied in the preparation of the 2009 Annual Report of Alliander N.V., which can be found on This report has not been audited. 2

3 Contents Profile 4 Key figures 5 Summary of significant events 6 Consolidated income statement 9 Notes to the consolidated income statement 11 Consolidated balance sheet 15 Notes to the consolidated balance sheet 16 Consolidated cash flow statement 17 Notes to the consolidated cash flow statement 18 Consolidated statement of changes in equity 20 Notes on financing, financial ratios and credit rating 21 Additional explanatory notes 23 Appendix 24 Consolidated income statement in accordance with IFRS 24 Consolidated income statement excluding incidental items and fair value movements 25 Colophon 26 3

4 Profile Alliander Alliander is an energy network company comprising the companies Liander, Endinet and Liandon. The group has a workforce of around 6,000. The grid managers Liander and Endinet transport electricity to 3.0 million customers and gas to 2.6 million customers in an area extending to over one third of the Netherlands. Liander and Endinet are responsible for network maintenance, expansion and innovation in the provinces of Gelderland, Friesland, Noord-Holland, parts of Zuid-Holland, Flevoland and Noord-Brabant. Liandon provides services relating to the construction and maintenance of complex energy infrastructures. Alliander aims to discharge its public responsibilities in a dedicated and reliable manner, a fundamental aspect of this being the achievement of balanced growth for all stakeholders: customers, employees, shareholders, the environment and society at large. Alliander acts at all times with an acute awareness of the significance of energy to its customers and to society. Alliander also plays an important role in facilitating moves towards greater sustainability in Dutch energy sector. The increase in sustainable, more decentralised power generation makes demands on the energy infrastructure and means a challenge for network companies. Alliander sees it as its responsibility, together with other market participants, to make that increasing sustainability possible at an acceptable cost to society. Alliander s largest shareholders are the provinces of Gelderland, Friesland and Noord-Holland, as well as the City of Amsterdam. In addition, the province of Flevoland and various municipalities in the provinces of Flevoland, Gelderland, Noord-Holland and Zuid- Holland are shareholders. 4

5 Key figures Key figures, unless otherwise stated 2nd half Full year * change Financial * change % Revenue 1,432 1,446-1% % Other income % % Operating expenses 1,195 1,259-5% % Operating profit % % Profit after tax % % Operating profit excluding incidental items and fair value movements % % Profit after tax excluding incidental items and fair value movements % % Investements in property, plant and equipment % % Cash flow from operating activities % % Free cash flow % 30/06/ /06/2009 change 31/12/ /12/2009 change 6,756 6,551 Total assets 7,400 6,756 2,247 2,146 Total equity 2,906 2,245 1,344 1,854 Net debt 2 1,425 1,382 Ratios 7.0% 7.6% ROIC 3 6.9% 7.8% 24.6% 22.2% FFO / net debt ** % 25.4% Interest cover ** % 46.7% Net debt / (net debt + shareholders' equity) ** 33.5% 38.7% 42.4% 41.4% Solvency ** % 41.6% Employees 4,940 4,716 5% Number of permanent staff (in FTE) 7 5,316 4,633 15% 848 1,287-34% Number of temporary staff (in FTE) ,083-33% Customers 93% 87% Customer satisfaction, consumer market 8 91% 89% 88% 79% Customer satisfaction, business market including municipalities 8 87% 87% Electricity outage (minutes) * excluding Nuon Energy, see note under the heading 'Financial' in the 'Summary of significant events' also restated for comparison purposes. ** The figures stated here are calculated according to IFRS, under which the subordinated perpetual bond loan issued in 2010 is recognised in the balance sheet entirely as equity. In the 'Notes on financing, financial ratios and credit rating' (page 21), the ratios are calculated according to the principles of Alliander s financial policy, under which the subordinated perpetual bond issued in 2010 is treated as 50% equity. 1. Free cash flow is defined as the cash flow from operating activities less the net investment in property, plant and equipment (gross investment in property, plant and equipment less disposals, construction contributions, investment grants and subsidies), investment in intangible assets and investment in associates and joint ventures. 2. Net debt is defined as interest-bearing debt less cash and cash equivalents that are not restricted. 3. Return on invested capital (ROIC) is defined as the 12-month operating profit adjusted for incidental items and fair value movements, profit after tax from associates and joint ventures and tax, as a percentage of average invested capital (= the sum of the carrying amounts of intangible assets, property, plant and equipment and working capital less deferred income). 4. The funds from operations (FFO) / net debt ratio is the 12- month profit after tax adjusted for deferred tax movements and incidental items and fair value movements plus depreciation of property, plant and equipment and amortisation of intangible assets net of accrued income, as a percentage of net debt. 5. The interest cover ratio is the 12-month profit after tax adjusted for deferred tax asset movements and incidental items and fair value movements plus depreciation of property, plant and equipment and amortisation of intangible assets plus net finance income and expense divided by net finance income and expense adjusted for incidental items and fair value movements. 6. The solvency ratio is obtained by dividing total equity including the profit for the period by total assets less the expected dividend distribution for the current year and deferred income. 7. FTE (full-time equivalent) refers to the numbers of employees calculated on the basis of a full working week. 8. Customer satisfaction is a measure of the relative satisfaction rating for Liander customers in both the consumer and business markets, calculated by an external agency several times a year using random surveys. 9. The outage duration expresses in minutes the average time for which our customers are without electricity over a 12- month period in the area served by Liander. 5

6 Summary of significant events Highlights of the second half of 2010 Acquisition and integration of Endinet On 1 July 2010, Alliander N.V. acquired the entire share capital of Endinet for 136 million. The purchase price was paid out of cash reserves. Following the acquisition, Alliander also settled all Endinet s external loans as well as an interest rate swap contract with cash, involving a total amount of 682 million. Endinet has annual revenues of around 110 million and employs a workforce of more than 300. The combination of the business with Endinet strengthens Alliander s position as the largest network company in the Netherlands, increasing the opportunities for shaping the transition to a more sustainable energy supply system in partnership with the other Dutch network companies. The takeover of Endinet is fully in line with the strategic framework established by the Kist Committee (set up to look into the public ownership of energy companies). In the Kist Committee s view, a redistribution of areas served by grid managers is called for. The Committee recommends reducing the existing number of grid managers to between three and five companies with a logical regional coverage. On 1 January 2011, Liander integrated the activities of Endinet s gas grid manager Endinet Haarlemmermeer B.V. into its existing activities. This means that, with effect from 1 January 2011, customers in the municipality of Haarlemmermeer will be dealing with Liander as grid manager for both electricity and gas. The grid managers Endinet Oost-Brabant N.V. and Endinet Regio Eindhoven B.V. were merged to form Endinet B.V. on 1 January It has been agreed that Endinet will continue to operate as a grid manager within Alliander at least until 30 June Regulatory developments In August 2010, the Dutch Office of Energy Regulation finalised the electricity and gas regulation method decisions for the regional grid managers relating to the regulatory period ( ). These decisions establish the methods used to compute the efficiency rebates (x factors) and the quality factors (q factors). Compared with the method used in the preceding regulatory period ( ), the main changes of a general nature concern an increase in the sector-wide maximum permitted return (real WACC) to 6.2% (from 5.5%) and small consumer output measurement based on notional capacities (instead of volume). In addition, in the case of gas, the connections, too, are included in the regulation with effect from And in the case of electricity, output measurement has now been extended to include feed-in to the regional networks and quality regulation is now based on two indicators, viz. outage duration and outage frequency (was average outage). The x factor and q factor values were fixed in September The x factors for nearly all the regional grid managers are negative, which means that the maximum tariffs will rise each year during the present regulatory period. The reasons for these negative factors (increasing maximum tariffs) are the alignment of incomes in the sector with the level of sector-wide costs, the increase in the real WACC and the relatively slight rise in the sector costs in recent years. Smart meters On 9 November 2010, the Lower House of the Dutch Parliament unanimously passed the bills providing for the introduction of smart meters. The bills were put before the Upper House on 7 December On 18 January 2011, the Economic Affairs Committee in the Upper House finalised the procedure for dealing with the bills, deciding on a written process in the first instance, after which the response of the Ministry of Economic Affairs, Agriculture and Innovation will be sought. Sufferance tax The Lower House of the Dutch Parliament adopted a motion on 7 December 2010 calling on the Minister to make gas, water and electricity networks legally exempt from sufferance tax. Unbundling The Dutch government went to the Supreme Court, seeking to overturn the decision by the Court of Appeal in The Hague declaring clauses in the Dutch Independent Network Operation Act (WON) prohibiting group formation and engaging in ancillary activities not binding. The ban on privatisation, i.e. the requirement that the grids must remain in public ownership, remains and is now enshrined in law in the form of an amendment. Alliander is awaiting the decision of the Supreme Court and will be considering what steps to take then in consultation with the Supervisory Board and shareholders. Rating On 6 August 2010, Standard & Poor s reaffirmed its long-term and short-term ratings of A/Stable/A-1. Moody s had already upgraded long-term rating from A2 to Aa3 in the first half of 2010, reaffirming the short-term rating of Prime-1 at the same time. These ratings and outlooks were again reaffirmed on 29 December Smart Grid Task Force vision document The Smart Grid Task Force published its On the road to smart grids in the Netherlands vision document on 2 September This task force was appointed by former Minister of Economic Affairs Van der Hoeven in October 2009 to arrive at a broadly supported vision and acceptance programme relating to the future of smart grids in the Netherlands. The key aspect of the smart grid concept is that energy metering is made possible at multiple points in a network, permitting two-way traffic between energy users and energy suppliers. This will make the use of electric vehicles, solar PV panels and electricity storage possible on a larger scale than is currently feasible. There are, however, still stumbling blocks and constraints which demand a proactive approach. Smart Energy Collective More than 20 companies in the Netherlands have joined forces on the development of smart energy concepts. In a partnership by the name of Smart Energy Collective, several large-scale 6

7 smart grid demonstration projects are being set up all over the Netherlands, involving a total of around 5,000 home energy consumers and business users. Large-scale smart energy demonstration projects are necessary in order to develop and test smart energy concepts and smart grids in the real world. Customers Customer satisfaction among Liander customers has improved by 2 percentage points relative to the year-end 2009 score (to 91%) and, in the business market (including municipal authorities), the score remains unchanged relative to year-end 2009, at 87%. Compared with the position as at 30 June 2010, however, the score for both market segments shows a slight deterioration. At the end of December 2010, Alliander occupied the leading benchmark position for customer satisfaction in both the consumer market and the business market. Ensuring the continuous distribution of energy to our customers via a reliable grid is our principal objective. The reliability of the electricity supply is reflected in the outage figure. Compared with the situation at the end of June 2010, there was an increase in the average outage duration, to 31.2 minutes, owing to several extensive and prolonged power failures. Investments Investments in the electricity and gas grids in 2010 were roughly on a par with Although there was evidence of reduced demand for new connections during the year, the level of investment in the grids in 2010 still matched the 2009 figure. Other investments (mainly on ICT) were down, owing to the smaller number of projects concerned with the unbundling. Financial IFRS and comparative figures As mentioned in the interim report on the second half of 2009 published on 15 February 2010, the figures reported by Alliander with effect from 1 January 2009 no longer contain results of N.V. Nuon Energy because the latter company has been separated from n.v. Nuon, now Alliander N.V., in financial terms with retroactive force back to that date. Although the legal unbundling did not take place until 30 June 2009, with the object of providing a more accurate view, the comparative figures for 2009 in the income statement were prepared on the basis of the altered situation as at 1 January This method of presentation is not fully in line with IFRS, under which the date of transfer of control (30 June 2009) and not the date of the financial unbundling (1 January 2009) is the relevant date for recognition. The Appendix to this report presents the comparable income statement for 2009 prepared strictly in accordance with IFRS, based on the date of transfer of control; this income statement shows the result of N.V. Nuon Energy in the line Profit after tax from discontinued operations. For the financial impact of the unbundling of N.V. Nuon Energy with effect from 1 January 2009, reference is made to the interim report on the first half of 2009 published on 28 September Financial results for 2010 The profit after tax for 2010 was 222 million (2009: 312 million). The decrease is mainly accounted for by the absence of the book profit of 130 million after tax on the sale of highvoltage grids (HV grids) to TenneT in 2009, the impact of which has been mitigated to some extent by the effect of deferred tax assets of 55 million recognised in The profit after tax adjusted for incidental items (see page 25) was 174 million (2009: 160 million). The increase was the net effect of a drop in revenue due to lower tariffs imposed by the regulator, which was, however, more than offset by the effect of lower operating expenses and lower net interest charges. Financial results in the second half In the second half of 2010, the operating profit, at 201 million, was up compared with the corresponding period in 2009 (H2/2009: 167 million). The operating profit excluding incidental items for the second half of 2010 (see page 25), amounting to 189 million, was 31 million higher than for the corresponding period in This increase was mainly down to the consolidation of Endinet as from 1 July 2010 and lower operating expenses, the effect of which was partly nullified by reduced revenue due to the regulatory tariff reduction. The profit after tax for the second half of 2010 amounted to 160 million (H2/2009: 105 million). The profit after tax excluding incidental items for the second half of 2010 came in 33 million higher than for the corresponding period in 2009, at 104 million (see page 25). This increase is mainly attributable to the higher operating profit mentioned above. For a more detailed explanation of the above results, see pages 11 to 14 (Notes to the consolidated income statement). Financing On 4 November 2010, Alliander issued a subordinated perpetual bond with a nominal value of 500 million (issue price %) and a coupon rate of 4.875%. In accordance with IFRS requirements, the subordinated perpetual bond is recognised as equity in the balance sheet. The issue gives Alliander more financial latitude, aimed at maintaining a solid A rating profile. The key figures on page 5 have been prepared on the basis of IFRS. In the notes on financing, financial ratios and credit rating (see page 21), the ratios have been calculated where applicable on the basis of Alliander s financial policy, which treats the subordinated perpetual bond as being 50% equity and 50% borrowed capital. Cash flows and investments in 2010 The cash flow from operating activities in the whole of 2010 was a net inflow of 508 million (2009: 448 million). The cash flow from investing activities for the whole of 2010 amounted to a net outflow of 340 million whereas there was a net inflow of 72 million in 2009, the latter figure being mainly due to the proceeds from the sale of HV grids in The cash flow from financing activities in 2010 was a net outflow of 118 (2009: 306 million). The difference is mainly accounted for by the settlement 7

8 of Endinet s external loans, with some compensation from the issue of the subordinated perpetual bond. The net investment in property, plant and equipment in 2010 (after deduction of contributions received) totalled 287 million (2009: 296 million). The decline of 9 million was due to lower investments in the grids, owing to the relatively long period of frosty weather and the reduced demand for new connections. There was also lower investment in ICT systems, following the completion of projects concerned with the unbundling exercise. There was also a slight drop in the number of new electricity connections in 2010 compared with Arnhem, 14 February 2011 Management Board Peter Molengraaf, Chairman Mark van Lieshout, Member Cash flows and investments in the second half The cash flow from operating activities in the second half of 2010 was a net inflow of 345 million (H2/2009: 309 million). The cash flow from investing activities in the second half of the year amounted to a net outflow of 210 million (H2/2009: 161 million). The cash flow from financing activities in the second half of 2010 amounted to an outflow of 329 million (H2/2009: 34 million). The difference is mainly due to the settlement of Endinet s external loans, compensated to some extent by the issue of the subordinated perpetual bond. For a more detailed explanation of the above cash flows, see page 18 (Notes to the consolidated cash flow statement). The net investment in property, plant and equipment (net of contributions received) in the second half of 2010 amounted to 166 million (H2/2009: 161 million). Net debt position The net debt position at the end of 2010 amounted to 1,425 million (year-end 2009: 1,382 million). Balance sheet The main increase in equity shown on the face of the balance sheet as at 31 December 2010 relates to the issue of a subordinated perpetual bond totalling 494 million. Ratios Alliander s financial policy is monitored on the basis of four ratios. As at 31 December 2010, Alliander satisfied the minimum values for all four. See page 21 for further details. Other Compared with the position as at year-end 2009, the total strength of the workforce both permanent and temporary staff was up by 328 FTEs overall, at 6,044 FTEs. This increase was the combined effect of the addition of Endinet staff (301 FTEs) and staff from Stam (134 FTEs) and a reduction of 107 FTEs, mainly affecting the corporate staff departments and ICT. The number of temporary staff has been sharply reduced (down by 355 FTEs), their work being taken over by permanent staff in some cases. 8

9 Consolidated income statement Consolidated income statement nd half Full year * Revenue 1,432 1, Other income Total income 1,525 1, Purchase costs and costs of subcontracted work Employee benefits Contract staff costs Other operating expenses Total purchase costs, costs of subcontracted work and operating expenses 1,078 1, Depreciation and impairment of property, plant and equipment Less: Own work capitalised Total operating expenses 1,195 1, Operating profit (EBIT) Finance income and expense Share in results of associates and joint ventures after tax Profit before tax from continuing operations Tax Profit after tax from continuing operations Profit after tax from discontinued operations Profit after tax Earnings per share ( ) * The comparative figures for 2009 are pro forma; the income statement prepared strictly on the basis of IFRS can be found on page 24 of this report. 9

10 Incidental items and fair value movements in the result General Alliander s results can be influenced by incidental items and movements in fair value. Alliander defines incidental items as items which in the opinion of management do not derive directly from the ordinary activities and/or whose nature and size are so significant that they must be considered separately to permit proper analysis of the underlying results. Incidental items and fair value movements The incidental items and fair value movements in 2010 represented a net gain of 48 million after tax (2009: 152 million). Notes on the more important items are given below. Impact on operating profit The incidental loss of 7 million in 2010 like the gain of 8 million in 2009 concerns results from investments relating to crossborder leases. Other incidental income in 2009 is made up of the gross book profit on the sale of HV grids to TenneT, amounting to 168 million and an incidental expense of 30 million, 23 million of which is accounted for by bonuses paid to employees in connection with the unbundling. Impact on profit before tax The incidental net income of 7 million in 2010 mainly concerns the gain of 18 million in the fair value of an interest rate swap connected with Endinet acquisition and incidental interest expenses totalling 11 million in connection with pre-hedging the interest rate risk on the subordinated perpetual bond. Impact on profit after tax In the second half of 2010, incidental income of 55 million was recognised because of an increase in the deferred tax asset in 2010 due to an adjustment in the projected long-term results. Also in the second half of 2010, an amount of 7 million was recognised as incidental expense following an adjustment in the deferred tax asset in connection with the reduction in the standard rate of corporation tax from 25.5% to 25% with effect from Summary of incidental items and fair value movements 2nd half Full year * 12 6 Results on cross-border lease-related investments Book profit on sale of HV grids to TenneT Book profit on Liandyn Provision for staff bonuses Total impact on operating profit from continuing operations Interest and foreign exchange results financial instruments Proceeds from sale of investment from non-controlling interest in associate Interest relating to corporate income tax payable for prior years Total impact on profit before tax from continuing operations Tax effect of incidental items Change in standard tax rate Adjustment in deferred tax asset Release of corporate income tax payable for prior years Total impact on profit after tax *The comparative figures for 2009 are pro forma. 10

11 Notes to the consolidated income statement Year 2010 Operating expenses Revenue Revenue 1,600 1, ,432 1, Total operating expenses 1,250 1, ,195 Totaal 1, Other products Metering services Gas Electricity Revenue for the whole of 2010 was down by 14 million ( 1%), at 1,432 million overall. The decrease of 16 million in the case of electricity is largely the effect of reduced tariffs for the transportation imposed by the regulator (loss of 31 million), mitigated by the effect of the consolidation of Endinet revenue with effect from 1 July 2010 ( 15 million). The increase of 31 million in the case of gas was mainly due to the consolidation of Endinet revenue with effect from 1 July The decrease of 41 million for other products is mainly connected with the loss of revenue due to the deconsolidation of Liandyn B.V. (included in Ziut B.V.) totalling 63 million, which is only partly made up for by the consolidation of revenue from acquisitions with effect from 1 July 2010 ( 29 million). Other income Other income in 2010 came in at 93 million (2009: 304 million). The drop of 211 million is largely explained by the book profit before tax of 168 million on the sale of the HV grids to TenneT recognised in 2009 plus lower income from N.V. Nuon Energy ( 36 million) for services provided by corporate staff departments and service units following the legal unbundling of N.V. Nuon Energy on 30 June 2009, as well as the book profit on the sale of Liandyn B.V. in 2009 ( 10 million). 0 The total operating expenses (purchase costs, costs of subcontracted work and operating expenses, depreciation and capitalised production) for the whole of 2010 came in at 1,195 million (2009: 1,259 million). The reduction of 64 million compared with 2009 was essentially due to: lower corporate staff costs in 2010 ( 25 million) and lower grid losses ( 19 million) compared with non-recurring unbundling costs, additions to provisions and costs for strategic projects, totalling 79 million, recognised in 2009; and an increase of 53 million in electricity procurement costs from TenneT following the sale of HV grids to TenneT plus the effect of the normal increases in energy transportation tariffs. Employee benefits were 6 million lower in 2010 despite the higher number of employees. This is due to the absence of the non-recurring costs of staff bonuses amounting to 23 million in Contract staff costs were also down as a result of switching from contract staff to permanent staff. Operating profit Operating profit Totaal The operating profit for 2010 was down by 161 million, at 330 million. Excluding incidental items, the operating profit for the full year in 2010 was marginally higher than in 2009, at 337 million 11

12 (2009: 335 million). The explanation of these figures has been given above. Finance income and expense Over the whole of 2010, finance income and expense resulted in a net expense of 108 million (2009: 128 million). The difference of 20 million is largely the effect of a reduced average net debt position due to repayments. Net finance income and expense excluding incidental items and fair value movements in 2010 was 115 million (2009: 132 million). Results of associates and joint ventures The share in the results of associates and joint ventures after tax in the whole of 2010 amounted to 8 million (2009: 20 million) and is chiefly made up of the share in the profits of the joint ventures Ziut B.V. and N.V. Kema. The 2009 figure includes incidental income of 13 million connected with the sale of an investment on the part of N.V. Kema. Tax The effective tax burden (the tax burden expressed as a percentage of profit before tax from continuing operations excluding the share in the results after tax of associates and joint ventures) amounts to 3.6% over the whole of 2010 (2009: 19.6%). The huge difference between the standard rate of taxation and the effective tax burden is mainly due to the 55 million increase in deferred tax assets recognised as a consequence of an adjustment in the projected long-term results. There was, however, also a downward adjustment of 7 million in the recognised deferred tax asset in connection with the reduction in the standard rate of corporation tax from 25.5% to 25% with effect from Profit after tax Profit after tax Totaal The profit after tax for the whole of 2010 came in at 222 million (2009: 312 million). As already explained, this lower figure is largely accounted for by the absence of the book profit in 2009 on the sale of HV grids to TenneT ( 130 million after tax), partially made up for by the increase in the deferred tax assets in The result after tax excluding incidental items and fair value movements over the whole of 2010 was 174 million compared with 160 million in The lower tax burden in 2009 compared with the standard rate was mainly the effect of the release of 12 million from provisions recognised on the basis of estimates of the corporation tax payable in respect of preceding years. Additionally, a deferred tax asset not recognised at face value was realised in 2009 in connection with the sale of HV grids. 12

13 2nd half of 2010 Revenue compared with non-recurring unbundling costs, additions to provisions and costs for strategic projects recognised in 2009 ( 15 million). The reduction in costs was partially cancelled out by an increase of 13 million in electricity procurement costs from TenneT following the sale of HV grids to TenneT plus the effect of the normal increases in energy transportation tariffs. Operating profit Operating profit 300 Totaal 0 Other products Metering services Gas Electricity H H Revenue in the second half of 2010 was up by 27 million, at 753 million. The increase of 5 million in the case of electricity is mainly due to the consolidation with effect from 1 July 2010 of Endinet, partly offset by the effect of reduced tariffs for the transportation of energy imposed by the regulator ( 10 million). The increase of 30 million in the case of gas was mainly due to the consolidation of Endinet with effect from 1 July The decrease of 18 million for other products is mainly connected with the loss of revenue due to the deconsolidation of Liandyn B.V., which is only partly made up for by the consolidation of revenue from acquisitions ( 29 million). Other income Other income in the second half of 2010 came in at 42 million (H2/2009: 63 million). The drop of 21 million is largely explained by the book profit on the sale of Liandyn B.V. in 2009 ( 10 million) and lower other income ( 11 million). Operating expenses Total operating expenses Totaal 622 H H The total operating expenses compared with H2/2009 were down by 28 million, at 594 million. This reduction was due to lower staff costs ( 15 million) and lower grid losses ( 11 million) 0 H H The operating profit for the second half of 2010 was up by 34 million, at 201 million. Excluding incidental items, the operating profit showed an increase of 31 million to 189 million (H2/2009: 158 million). Finance income and expense In the second half of 2010, finance income and expense resulted in a net expense of 59 million (H2/2009: 52 million expense). The difference of 7 million is largely the effect of an exceptional fair value loss. Net finance income and expense excluding exceptional items and fair value movements in the second half of 2010 amounted to 57 million (H2/2009: 71 million). Results of associates and joint ventures The share in the results of associates and joint ventures after tax in the second half of 2010 amounted to 5 million (H2/2009: 16 million) and is chiefly made up of the share in the profits of the joint ventures Ziut B.V. and N.V. Kema. As mentioned above, the 2009 figure includes incidental income connected with the sale of an investment on the part of N.V. Kema, amounting to 13 million. Tax The effective tax burden (the tax burden expressed as a percentage of profit before tax from continuing operations excluding the share in the results after tax of associates and joint ventures) amounts to 9.2% over the second half of 2010 (H2/2009: 22.6%). The huge difference between the tax burden at the standard rate and the effective tax burden is mainly due to a positive effect on the deferred tax asset by 55 million due to an adjustment in the projected long-term results. 13

14 Profit after tax Profit after tax Totaal H H The profit after tax for the second half of 2010 came in at 160 million compared with 105 million for the corresponding period in As already explained, this increase is largely accounted for by a higher operating profit and the increase in the deferred tax asset mentioned above. The result after tax excluding incidental items and fair value movements over the second half was 104 million (H2/2009: 71 million). The increase of 33 million was mainly due to the previously mentioned higher operating result. 14

15 Consolidated balance sheet Consolidated balance sheet as at 31 December 2010 Assets Non-current assets Property, plant and equipment 5,402 4,638 Intangible assets Investments in associates and joint ventures Financial assets 40 7 Available-for-sale financial assets Deferred tax assets Total assets 6,448 5, Current assets Inventories Trade and other receivables Financial assets Derivatives 1 11 Tax assets 19 - Cash and cash equivalents Total current assets 952 1,125 Total assets 7,400 6,756 Equity and liabilities Equity Share capital Share premium Subordinated perpetual bond Hedge reserve Revaluation reserve Other reserves Profit after tax Total equity 2,906 2,245 Non-current liabilities Interest-bearing debt 2,152 2,152 Derivatives Finance lease liabilities Deferred income 1,474 1,436 Deferred tax liabilities 1 2 Provisions for employee benefits Other provisions ,965 3,919 Current liabilities Trade and other payables Tax liabilities Interest-bearing debt Derivatives 7 4 Provisions for employee benefits Accruals Total liabilities 4,494 4,511 Total equity and liabilities 7,400 6,756 15

16 Notes to the consolidated balance sheet General The following notes explain the significant changes in the balance sheet as at 31 December 2010 relative to the situation as at 31 December Non-current assets Property, plant and equipment The non-current assets increased by 764 million compared with 31 December The increase is due to the acquisition of Endinet with effect from 1 July There was also a higher level of investment relative to depreciation in Current liabilities Current liabilities as at 31 December 2010 were down by 82 million compared with the position as at year-end 2009, at 510 million, mainly due to lower trade payables, a reduction in the tax liabilities and repayment of current interest-bearing liabilities. Intangible assets The increase of 111 million relative to the balance sheet position as at year-end 2009 concerns the goodwill totalling 104 million paid when acquiring Endinet and Stam plus 7 million from the consolidation of Endinet s intangible assets. Other The main change affecting the other non-current assets concerns the reduction of 119 million in the deferred tax assets. This reduction results from utilisation of the tax break permitting accelerated depreciation of investments, among other things. Partially offsetting this reduction was an adjustment in the projected long-term results, which had the effect of lifting the deferred tax assets by 55 million. In addition, Endinet had deferred tax liabilities totalling 59 million, which have been set against Alliander s existing deferred tax assets, given the ability to net the tax position within the tax group, which Endinet forms part of with effect from 1 July Current assets The decrease in current assets by 173 million compared with the position as at 31 December 2009, to 952 million, is largely a consequence of the decrease in the cash and financial assets (time deposits) position connected with the acquisition of Endinet. This effect was partially offset by proceeds from the issue of the subordinated perpetual bond in November. The balance of trade receivables also declined, following the receipt of several large amounts in Equity Equity as at 31 December 2010 increased by 661 million compared with the level as at year-end 2009, to 2,906 million. A statement of the changes can be found on page 20. The subordinated perpetual bond has a face value of 500 million and the issue price was %, making the amount received 498 million. From this, directly attributable costs totalling 4 million were deducted, leaving an increase in equity of 494 million. Non-current liabilities The non-current liabilities are almost unchanged compared with the position as at 31 December

17 Consolidated cash flow statement Consolidated cash flow statement 2nd half Full year * * Cash flow from operating activities Profit after tax Adjustments for: Finance income and expense Tax Profit after tax from associates and joint ventures Depreciation and impairment less amortisation Changes in working capital: Inventories Trade and other receivables Trade and other payables and accruals Total changes in working capital Changes in deferred tax, provisions, derivatives and other Cash flow from operations Net interest paid and received Dividends received from associates and joint ventures Corporate income tax paid Total Cash flow from operating activities Cash flow from investing activities Investments in property, plant and equipment Investments in associates/joint ventures Construction contributions received from third parties Proceeds from assets held for sale Cash flow from investing activities Cash flow from financing activities - - Repayment of current account with Nuon Energy - -1, New/repaid other current interest-bearing liabilities and current part of non-current debt New non-current debt 24 1, Repaid non-current debt/new lending Change in current deposits Subordinated perpetual bond Capital contribuition Dividend paid Cash flow from financing activities Net cash flow Cash and cash equivalents as at the start of the period Net cash flow Cash and cash equivalents as at 31 December * Pro forma and restated for comparison purposes 17

18 Notes to the consolidated cash flow statement Year 2010 Net cash flow 2nd half of 2010 Net cash flow H H Operating activities Investing activities Financing activities Operating activities Investing activities Financing activities The cash flow from operating activities over the year of 2010 was 508 million (2009: 448 million). The increase of 60 million is partly the effect of the restatement for comparison purposes of the non-cash income of 130 million relating to the book profit after tax on the sale of HV grids to TenneT in It should also be mentioned that the comparative figures for the first half of 2009 include the activities of N.V. Nuon Energy. On 30 June 2009 N.V. Nuon Energy officially demerged from the parent company n.v. Nuon, of which the name of the company at the same date changed to Alliander N.V. The cash flow from investing activities over the whole of 2010 was 340 million (outflow) compared with an inflow of 72 million in The decrease of 412 million is largely explained by the proceeds from the sale of HV grids to TenneT in 2009, amounting to 368 million, contrasting with the expenditure - totalling 56 million - for the acquisition in 2010 of Endinet and Stam, allowing for the cash and cash equivalents acquired with these companies. The figure of 56 million is made up of 47 million relating to Endinet (amount paid 136 million; cash acquired 89 million) and 9 million relating to Stam (amount paid 11 million; cash acquired 2 million). The cash flow from financing activities over the whole of 2010 was a cash outflow of 118 million, compared with a cash outflow in 2009 of 306 million. The difference of 188 million is mainly accounted for by the repayment of the current account with N.V. Nuon Energy in 2009 ( 1,499 million), the issue of the EMTN programme in 2009 ( 1,250 million), a subordinated perpetual bond in 2010 ( 494 million) and the settlement of Endinet credit lines totalling 682 million. The latter item relates to the repayment by Alliander of a total amount of 625 million in external loans contracted by Endinet and the cancellation fee of 57 million in respect of an interest rate swap contracted by Endinet. In the second half of 2010, the cash flow from operating activities was 345 million (H2/2009: 309 million). The increase of 36 million was the effect of a higher profit for the period, partially offset by a smaller decrease in working capital. The cash flow from investing activities in the second half of 2010 was 210 million (H2/2009: 161 million). The increased outflow of cash is largely explained by the previously mentioned purchase of Endinet for an amount of 47 million. The cash flow from financing activities in the second half of 2010 was a cash outflow of 329 million (H2/2009: 34 million). The difference of 295 million is the result of settling Endinet s credit lines and interest rate swap (totalling 682 million) less the proceeds from the issue of the subordinated perpetual bond amounting to 494 million, among other things. Free cash flow in 2010 The free cash flow over the whole of 2010 amounted to 168 million (2009: 152 million). The free cash flow in the second half of 2010 was 135 million, compared with 148 million in H2/2009. The amount paid to purchase the Endinet shares was offset by a higher net profit than in the corresponding period in

19 Reconciliation of free cash flow 2nd half full year * * Cash flow from operating activities Investments in non-current assets Investments in associates/joint ventures Construction contributions received from third parties Free cash flow * Restated for comparison purposes 19

20 Consolidated statement of changes in equity Consolidated statement of changes in equity Subordinated Currency Revalu- Non- Share Share perpetual Hedge translation ation Other Profit for controlling capital premium bond reserve reserve reserve reserves the period Subtotal interest Total Equity as at 1 January , , ,270 Unbundling N.V. Nuon Energy, 30 June , , ,102 Movement in fair value of cash flow hedges after tax Currency translation differences Revaluation of available-for-sale financial assets Other movements Profit after tax for Comprehensive income for Dividend for Profit appropriation for Equity as at 31 December ,245-2,245 Movement in fair value of cash flow hedges after tax Revaluation of available-for-sale financial assets Profit after tax for Comprehensive income for Issue of subordinated perpetual bond Dividend for Profit appropriation for Equity as at 31 December ,906-2,906 Notes Subordinated perpetual bond On 4 November 2010, Alliander issued a subordinated perpetual bond with a nominal value of 500 million and a coupon rate of 4.875% at an issue price of %, raising an amount of 498 million. Directly attributable costs of 4 million were deducted from the amount raised, so that 494 million was added to equity. Dividend The dividend relating to the 2009 financial year ( 54 million) was paid out in May

21 Notes on financing, financial ratios and credit rating Financial policy and financial position Alliander s financial policy is aimed at achieving a balance between protection of bond holders and other providers of borrowed capital and an adequate shareholders return while preserving the necessary flexibility to enable the company to grow and invest. The financial framework within which Alliander operates, which treats the subordinated perpetual bond issued in 2010 as 50% equity and 50% borrowed capital, is based on the four ratios presented in the following table and explained in greater detail beneath the statement showing the reconciliation of the net debt position. The general principles of the financial policy are to ensure a balanced repayment schedule, to have available sufficient cash and cash equivalents and committed credit facilities and to maintain a solid A rating profile. Net debt position and financing The net debt position as at 31 December 2010, based on IFRS, amounted to 1,425 million and, based on Alliander s financial policy, 1,672 million, compared with a net debt position of 1,382 million as at 31 December Reconciliation of net debt position as at 31 December 31 december december 2009 Non-current interest-bearing debt 2,152 2,152 Current interest-bearing debt Finance lease liabilities Gross debt 2,312 2,345 Cash and cash equivalents Non-current financial assets Current financial assets Investments held for lease obligations related to cross-border leases Less: Restricted cash and cash equivalents (notably guarantee deposits relating to collateral) Total cash and cash equivalents and investments Net debt in accordance with IFRS 1,425 1,382 50% of the subordinated perpetual bond loan Net debt on the basis of Alliander s financial policy 1,672 1,382 Ratios on the basis of Alliander's financial policy norm 31/12/ /12/2009 FFO / net debt > 20% 31.9% 25.4% Interest cover > 3, Net debt / (net debt + equity) < 60% 39.3% 38.7% Solvency > 30% 44.3% 41.6% 21