PUBLIC BUSINESS ENTERPRISE RENFE-Operadora. Annual Accounts and Notes Thereto with Report on Compliance with Financial Obligations.

Transcription

1 Annual Accounts and Notes Thereto with Report on Compliance with Financial Obligations 31 December 2008 (Free translation from the original in Spanish. In the event of discrepancy, the Spanishlanguage

2 Balance Sheet 31 December 2008 (Expressed in thousands of Euros) Assets Note 2008 Intangible assets 5 36,064 Property, plant and equipment 6 5,751,866 Non-current investments in group companies and associates Equity instruments 8 42,312 Non-current investments 10 Equity instruments 1,700 Loans to companies 16,142 Other financial assets 67 Deferred tax assets 23 2,999 Total non-current assets 5,851,150 Non-current assets held for sale 11 2,258 Inventories 12 45,444 Trade and other receivables 13 Trade receivables current 247,777 Trade receivables from group companies and associates current 15,370 Other receivables 164,316 Current tax assets 4,134 Public entities, other 253,564 Current investments 10 Other financial assets 300 Prepayments for current assets 3,267 Cash and cash equivalents ,206 Total current assets 1,193,636 Total assets 7,044,786 The accompanying notes form an integral part of the annual accounts for 2008.

3 RENFE - Operadora Balance Sheet 31 December 2008 (Expressed in thousands of Euros) version prevails.) Equity and Liabilities Note 2008 Capital and reserves 16 Equity contributions 2,491,247 Reserves Other reserves (95,527) Other shareholders contributions 228,085 Loss for the year (177,251) Total equity 2,446,554 Grants, donations and legacies received 17 6,998 Total equity 2,453,552 Non-current provisions 18 87,552 Non-current payables Loans and borrowings 21 2,957,962 Derivatives 14 9,045 Other financial liabilities 21 25,555 Deferred tax liabilities 23 2,999 Accruals 19 11,786 Total non-current liabilities 3,094,899 Current provisions 18 75,126 Current payables 21 Loans and borrowings 216,874 Other financial liabilities 597,992 Trade and other payables 22 Current suppliers 438,323 Suppliers, group companies and associates current 45,735 Other payables 58,110 Personnel (salaries payable) 23,803 Public entities, other 19,903 Accruals 19 20,469 Total current liabilities 1,496,335 Total equity and liabilities 7,044,786 The accompanying notes form an integral part of the annual accounts for 2008.

4 RENFE - Operadora Income Statement for the year ended 31 December 2008 (Expressed in thousands of Euros) Note 2008 Revenues 24 1,935,232 Work performed by the entity and capitalised 6 18,810 Supplies 12 (97,412) Other operating income ,753 Personnel expense 26 (744,423) Other operating expenses 27 (1,413,277) Amortisation and depreciation 5 and 6 (319,973) Non-financial and other capital grants Provision surpluses 18 7,279 Impairment and gains/(losses) on disposal of fixed assets Impairment 6 (14,292) Gains on disposal and other 6 4,871 Results from operating activities (losses) (65,825) Financial income 28 57,156 Financial expenses 28 (169,734) Exchange losses 28 (7,525) Impairment and gains/(losses) on disposal of financial instruments Gains on disposal and other 8 and 28 8,859 Net financial expense (111,244) Loss before income tax (177,069) Income tax 23 (182) Loss for the year (177,251) The accompanying notes form an integral part of the annual accounts for 2008.

5 Statement of Changes in Equity for the year ended 31 December 2008 A) Statement of Recognised Income and Expense (Expressed in thousands of Euros) Note 2008 Loss for the year (177,251) Income and expense recognised in the income statement Grants, donations and legacies 17 (607) Tax effect 182 Total recognised income and expense (177,676) The accompanying notes form an integral part of the annual accounts for 2008.

6 Statement of Changes in Equity for the year ended 31 December 2008 B) Statement of Changes in Equity (Thousands of Euros) (Expressed in thousands of Euros) Equity contributions Equity Other shareholders contributions Reserves Loss for the year Grants, donations and legacies received Total Balance at 31 December ,040, ,528 (234,853) 2,078,346 Others (4,127) (4,127) I. Adjustments for change to NPGC (91,400) 7,423 (83,977) Adjusted opening balance ,040, ,528 (95,527) (234,853) 7,423 1,990,242 I. Total recognised income and expense (177,251) (425) (177,676) II. Operations with equity holders or owners: 1. Share capital increases and other: - Equity contribution , ,000 - Unrecognised assets 1,576 1, Other operations with equity holders or owners: - Offset of 2008 losses 157, ,429 - Other contributions (2008 ERE and other) 32,981 32,981 III. Other changes in equity - Application of 2007 loss (234,853) 234,853 Closing balance ,491, ,085 (95,527) -177,251 6,998 2,453,552 The accompanying notes form an integral part of the annual accounts for 2008.

7 Statement of Cash Flows for the year ended 31 December 2008 (Expressed in thousands of Euros) 2008 A) Cash flows from operating activities 1 Loss for the year before tax (177,069) 2. Adjustments for: 436,130 a) Amortisation and depreciation 319,974 b) Change in provisions (7,172) c) Grants recognised in the income statement (607) d) Proceeds from disposals of fixed assets 9,421 - Impairment and losses 14,292 - Gains/(losses) on disposal and other (4,871) e) Proceeds from disposals of financial instruments (8,859) f) Financial income (57,156) g) Finance expenses 169,734 h) Exchange gains/losses 7,525 i) Other income and expenses 3, Changes in operating assets and liabilities (28,599) a) Inventories 397 b) Trade and other receivables (46,583) c) Other current assets 277 d) Trade and other payables 12,426 e) Other current liabilities 4, Other cash flows from operating activities (114,335) a) Interest paid (147,201) b) Dividends received 5,497 c) Interest received 27,396 d) Other amounts paid (received) (27) 5. Cash flows from operating activities 116,126 B) Cash flows from investing activities 6. Payments for investments a) Group companies and associates (1,268,759) (12,454) b) Intangible assets (24,577) c) Property, plant and equipment (1,231,694) d) Other assets (34) 7. Proceeds from sale of investments 7,760 a) Property, plant and equipment 6,985 b) Other financial assets Cash flows from investing activities (1,260,999) 9. Proceeds from and payments for equity instruments 593,309 a) Issue of equity instruments 449,000 b) Grants, donations and legacies received 144, Proceeds from and payments for financial liability instruments 377,542 a) Issue 567, Loans and borrowings 562, Other payables 4,687 b) Redemption and repayment of (189,945) 1. Loans and borrowings (189,945) 11. Cash flows from financing activities 970,851 C) Net increase/decrease in cash and cash equivalents (174,021) Cash and cash equivalents at beginning of year 631,227 Cash and cash equivalents at year end 457,206 The accompanying notes form an integral part of the annual accounts for 2008.

8 1 1. Nature and Activities of the Entity, Legal Status and Composition of the Group is a Public Business Enterprise, the statutory activity of which consists of the rendering of passenger and freight rail transport services. Its registered offices are located at Avenida Pío XII, 110 in Madrid. The activity and legal status applicable to Public Business Enterprise since its creation on 1 January 2005 following the restructuring of the Spanish rail sector are set out below: a) Rail Sector Law 39 of 17 November 2003 (hereinafter the RSL) and creation of Public Business Enterprise In accordance with the third additional provision of the RSL, Public Business Enterprise (hereinafter or the Entity) was created as a public business enterprise as set out in article 43.1.b) of Law 6 of 14 April 1997 governing the Organisation and Operation of the General State Administration (hereinafter LOFAGE). RENFE- Operadora is a separate legal entity with its own equity and full capacity to act. The Entity is governed by the Ministry of Public Works through the Infrastructure Secretary General. was created following the separation of infrastructure administration and rail transport operating activities in accordance with EU directives concerning deregulation of the rail sector. In order to achieve these objectives, the RSL entrusts the administration of rail infrastructures to Public Business Enterprise Red Nacional de los Ferrocarriles Españoles (hereinafter RENFE), which on 1 January 2005 changed its name to Public Business Enterprise Administrador de Infraestructuras Ferroviarias (hereinafter Adif), absorbing Gestor de Infraestructuras Ferroviarias (hereinafter GIF). Adif subrogated all rights and obligations held by GIF, while the rail service activity was spun off to a newly-created public business enterprise () entrusted with rendering all types of rail transport services to the public. b) statute The statute was approved in Royal Decree 2396 of 30 December Significant aspects of the statute include the following: i) Statutory and principal activities of the Entity The statutory activity of is to render passenger and freight rail transport services, including maintenance of rolling stock, as well as other activities or services which are complementary or related to rail transport, in accordance with the RSL and implementing regulations. Passenger transport services are currently rendered by under two different economic regimes public service and preparation for free competition:

9 2 Suburban and regional transport services are provided on a contractual basis (under a public service contract) with public contributions either from the State or from the Autonomous Communities. High speed and long distance services are subject to the regime that prepares for free competition. Freight transport services are subject to the free competition regime. In order to carry out its statutory activity, may perform all types of administrative and other arrangements provided for in civil and mercantile legislation. may also carry out any related commercial or industrial activities, including actions through interests in Spanish and foreign businesses and companies, provided such actions are in accordance with prevailing legislation. Furthermore, in accordance with section four of the third additional provision and article 45 of the RSL, the Entity is required to secure a rail licence within six months from the date the Law entered into force. Nevertheless, is authorised to render rail transport services from the date the Law entered into force and is assigned all necessary infrastructure to carry out the services being rendered at that time. The Entity may be directly assigned the necessary capacity to render new services. ii) Legal status and contracting system is subject to private law except for issues relating to decision making by its governing bodies, for administrative powers confirmed thereon and in other aspects of public business enterprises which are specifically regulated in the Law on Organisation and Operation of the General State Administration, in budgetary legislation and in the Entity s statute. In any event the Rail Sector Law and implementing regulations are applicable. is subject to private law with respect to contracting and acquisitions. Nonetheless, for the preparation and awarding of contracts, public contracting legislation for so-called special sectors is applicable. Until 30 April 2008, was subject to Law 48 of 30 December 1998 governing contracting procedures in entities operating in the water, energy, transport and telecommunications sectors, which adapts Council Directives 93/38/EEC of 14 June 1993 and 92/13/EEC of 25 February 1992 to the Spanish legal framework, as well as section 2 of the eleventh additional provision of Royal Legislative Decree 2 of 16 June 2000, which approved the revised text of the Law on Public Administration Contracts. On 1 May 2008 Law 30 of 30 October 2007, governing public sector contracts, and Law 31 of 30 October 2007, governing contracting procedures in the water, energy, transport and postal services sectors came into force adapting, respectively, European Community Directives 18/2004/EEC and 17/2004/EEC of 31 March to the Spanish legal framework. Law 31/2007 includes in its scope of application as a contracting entity with regard to contracts for which the objective scope and thresholds are established therein.

10 3 Contracts for amounts lower than the thresholds established in Law 31/2007 are subject to the relevant standards of Law 30/2007, in accordance with the fourth additional provision thereof, whereby approval of certain internal regulatory instructions on contracting procedures, which guarantee advertising, competition, transparency, confidentiality, equality and non-discrimination principles, is required. These instructions were approved by the Secretary General and board of directors of on 29 April 2008 in the document Instrucción Administrativa IN-SGC-001/08, containing the instructions that regulate contracting procedures. iii) Accounting and control The Entity is required to adapt its accounting practices to those prescribed by applicable legislation, especially General Budget Law (hereinafter GBL) 47 of 26 November 2003, the provisions of the Code of Commerce and any implementing regulations, the Spanish General Chart of Accounts and the criteria for normalisation of the accounts of railway undertakings established in EU regulations. In accordance with General Budget Law 47 of 26 November 2003 and the Annual Audit Plan, the economic and financial management of is subject to a public audit by the Spanish State Administration Auditors (hereinafter IGAE), without prejudice to the powers of inspection granted to the Spanish Court of Auditors in the corresponding organic law and other pertinent legislation. The Ministry of Public Works, through the Secretary General for Infrastructure, is responsible for the technical control and efficient management to be carried out by, as well as for exercising the duties entrusted by Law for setting and managing rail charges (see note 1.f), for which purpose the management audits and inspections deemed necessary may be carried out. iv) Budget The Entity prepares annual estimated operating and capital expenditure budgets in line with the prevailing Contract-Programme and following the structure required by the Ministry for the Treasury. Following initial approval by the board of directors, the budgets are processed as established in General Budget Law 47 of 26 November 2003 (see note 1.e).

11 4 v) Equity and financial system In order to carry out its activities, has its own equity, separate from that of the General State Administration (hereinafter the AGE), comprising all assets, rights and obligations to which it holds title, in accordance with Ministry of Public Works Order 2909/2006, referred to in section 4 of the first additional provision of the Rail Sector Law. Management, administration and operation of assets and rights owned by RENFE- Operadora are subject to the third additional provision of the Rail Sector Law and the Entity s statute. Any matters not expressly stipulated therein are subject to the Law on Public Administration Equity. The Entity prepares and updates an inventory of assets and rights. This inventory is revised at 31 December each year and submitted for the approval of the board of directors during the first quarter of the following year. In accordance with the third additional provision of the RSL and article 65 of the LOFAGE, will avail of the following resources to meet its objectives: Ordinary and extraordinary income obtained from the Entity s activity Borrowed funds, up to the annual limit set by the respective General State Budget Laws Any subsidies established in the General State Budgets Subsidies, contributions and donations to the Entity from specific European Union funds and other public administrations, entities and individuals Returns, income from and increases in net assets Interest and returns on shareholdings in other companies Any other funds granted to the Entity by law or assigned under agreement or through any other legally established procedure may carry out all types of financial operations, particularly extend or obtain credits and loans in any form, including through the issue of debentures, bonds, promissory notes and any other financial liability, without prejudice to the provisions of General Budget Law 47 of 26 November 2003 and within the limits established in the yearly budget laws. s financial year starts on 1 January and ends on 31 December each year.

12 5 vi) Personnel The first additional provision of the RSL establishes that, for the purpose of article 44 of the revised text of the employees statute, approved by Royal Decree 1 of 24 March 1995, is the business successor of Red Nacional de los Ferrocarriles Españoles. Consequently, RENFE employees who were with the company on 1 January 2005 and who rendered services corresponding to were transferred to the latter as of its creation and remained subject to the same employees statute. c) Assignation of assets, rights and obligations from RENFE to Ministry of Public Works Order 2909 of 19 September 2006 (hereinafter the Ministerial Order) established the assets, rights and obligations to be held by. For the purpose of distributing RENFE equity between Adif and and integrating the corresponding amount in equity, all assets, rights and obligations have been valued at Euros 1,230,489 thousand, the carrying amount shown in RENFE annual accounts at 31 December 2004, without prejudice to point 2.1.b) of the Ministerial Order referred to in the following two paragraphs. The Ministerial Order assigns certain buildings to which are necessary for administrative tasks and for use by the governing bodies, as well as other properties which are considered necessary to guarantee its financial stability. In addition, is granted the right to use certain areas in railway yards (43, m 2 ) at no charge to the company for the period of time necessary for Adif and to agree on a new location in buildings to be assigned to, with Adif assuming the costs of restoring these areas. Nevertheless, should no new location be agreed within three years of this Order coming into force, the specific assets would be transferred to s equity. For the purposes of the spin-off of the activity branch attributable to at 1 January 2005, the assets transferred were valued at Euros 53,726 thousand, of which Euros 9,165 thousand correspond to the carrying amount of the premises transferred and Euros 44,561 thousand relates to the estimated costs of replacing any disturbed assets in these areas. (d) Contract - Programme On 29 December 2006 the Council of Ministers approved the Contract-Programme between the AGE and Public Business Enterprise, which will remain in force from 1 January 2006 until 31 December This Contract-Programme was approved under the terms of article 68 of General Budget Law 47 of 26 November 2003, as well as the following transitional provisions: fourth transitional provision of Rail Sector Law 39 of 17 November 2003; fourth transitional provision of Royal Decree 2387 of 30 December 2004, which approved the RSL; and second transitional provision of Royal Decree 2397 of 30 December 2004, which approved the statute. The Contract-Programme establishes the mutual objectives, duties and commitments between the AGE and within the framework of its statutory activity, economic policy in general and transport policy in particular, in line with EU regulations and in accordance with Rail Sector Law 39 of 17 November 2003, as part of the Government s general transport plan

13 6 detailed in the Strategic Infrastructures and Transport Plan (hereinafter PEIT), approved by the Council of Ministers on 15 July Its most relevant aspects are as follows: i) Organisation. The Entity is organised based on the following areas of activity: Suburban and regional area. High speed long distance area. Freight and logistics area. Manufacturing and maintenance area. ii) Preparation of accounts will determine the criteria for recognising costs, which will be subject to IGAE reporting and applied consistently throughout the duration of the Contract- Programme. The method for recognising costs will include payment of total borrowings contracted by the Entity and the related finance expenses as well as the allocation of common expenses. Should deem it necessary to amend the recognition criteria used, the previous IGAE report will be requested, and the economic and financial information contained in the Contract-Programme will be revised. Each year the IGAE will notify of the criteria for preparing income statements and balance sheets segregated by activities, and of the level of compliance with these criteria in their application. In accordance with article of the General Budget Law, the Entity has received from the State Public Sector Financial Control and Audit Division of the IGAE the final financial control report on the income statements and balance sheets segregated by areas of activity for 2007, in compliance with clause 4 of the Contract-Programme between the AGE and the Entity for iii) Objectives The main objectives of the Contract-Programme are as follows: - To strengthen the specialised development of the rail system, encouraging quality services within an integrated, harmonised transport policy, promoting the development of sustainable, safe movement and setting individual objectives based on the various areas of activity. - Sustained growth adapted to an increase in market share, by attracting new clients, developing new products and seeking new business opportunities linked to the rail network.

14 7 - The rationalisation and improvement of the Entity s management, developing an integrated management system and making the current organisational model more suitable, focusing it on a new, more flexible and compatible model, both in terms of the objective set by the PEIT to make rail transport more dynamic, and the development of the different target markets. To do so, detailed research is required into the correct allocation of resources, and into the markets which can best satisfy these, as a means to: Specialise management, permanently adjusting supply to meet demand in each specific market, in accordance with the ratios established in the Contract-Programme. Attain operational excellence through efficient, safe, reliable and quality transport, supported by innovative, agile and competitive organisation backed by technology. Incorporate the most suitable forms of co-participation with the private sector in each case, to ensure the highest possible profitability as part of the strategy to prepare the Entity to compete in an increasingly deregulated rail sector. Develop internal control systems so that each area of activity has not only a statement of profit of loss, but also a balance sheet, allowing each tool to be used as a key element for planning and monitoring the areas. - Provide the Entity with an autonomous management framework that is sufficiently flexible to allow streamlined, competitive business management in each of its markets, in accordance with specific profitability criteria and in line with corporate social responsibility obligations. - The establishment of a financial-budgetary framework compatible with achieving the above-mentioned objectives. iv) Reciprocal commitments The following reciprocal commitments have been established: By : - To incorporate into its management objectives the financial-budgetary framework defined in the Contract-Programme, with being given the power to adopt the necessary measures for ensuring compliance with this framework. - To carry out the scheduled workforce reduction plan (hereinafter the ERE) with the conditions stipulated in the Contract-Programme and included in the Social Plan as agreed with personnel representatives, the conditions of which were approved by General Directorate for Employment on 13 September To assume the expense containment commitment included in the Contract-Programme, and to put this forward for collective negotiation with personnel. - To carry out investments within the framework of the Contract-programme, and not assume expense commitments which go beyond 2010 above those established in clause 8 of the Contract-Programme. - To not exceed the borrowings foreseen in clause 10 of the Contract-Programme. - To provide the Monitoring Commission with the statements and balance sheets by area of activity.

15 8 - To keep up-to-date with tax and social security payments. - To develop environmental management and a social responsibility policy in line with general sustainability objectives. By the AGE: - To provide with an autonomous management framework that is sufficiently flexible to allow streamlined, competitive business management in each of its markets, in accordance with specific profitability criteria and in line with corporate social responsibility obligations and financial equilibrium. - To make the foreseen contributions and settlement thereof. - To promote the incorporation of authorisation for established net borrowings in the General State Budget (hereinafter the GSB) Law for each year. v) Investments The Contract-Programme establishes the investment schedule for each year in the period. However, these figures may be modified (without exceeding the global value of Euros 5,772,418 thousand for the duration of the Contract-Programme), in which case the authorisation for annual borrowings to be included in the General State Budgets for will also be affected. vi) Human resources agrees that the average headcount for each year will not surpass the figures established in the Contract-Programme, and also agrees to implement the 2005/2009 Social Plan, with measures that include an early retirement and voluntary redundancy plan (workforce reduction plan or ERE, approved by the General Directorate for Employment on 13 September 2005), which will remain in force until 31 December 2009, as well as a recruitment plan. e) State contributions The third and fourth transitional provisions of the RSL, as well as the second transitional provision of Royal Decree 2396/2004 approving the statute, establish that until Chapters II and III of Title IV of the RSL is applicable to passenger rail transport, which will not occur until the European Union opens the market for this type of transport, the State will contribute subsidies and compensations to for rendering loss-making transport services. The amount of these contributions is established in the Contract-Programme to be entered into by the Entity and the AGE. The new Contract-Programme establishes that the AGE will make the agreed contributions, charged to the GSB for each year, within which current transfers will be used to offset larger expenses incurred by in rendering suburban and regional services with respect to the operating income these services generate, and also, to finance generic losses for the rest of s activities, as well as those arising as a result of the ERE.

16 9 Details of the current transfers and capital foreseen by the Contract-Programme for , in thousands of Euros, are as follows (figures in thousands of Euros): Contributions from the AGE Total Current transfers 558, , , , ,779 2,624,493 Compensation for suburban and regional rail services rendered 300, , , , ,872 1,657,789 Contribution to offset losses (*) 257, , , ,386 45, ,421 Compensation for suburban and regional rail services from , ,728 Compensation ERE , ,555 Equity contributions 404, , , , ,000 2,140,000 TOTAL CONTRIBUTIONS 962, ,000 1,033, , ,779 4,764,493 (*) Includes the cost of the ERE or Human Resources Plan. The GSB for 2008, approved on 26 December 2007, reallocated current transfers for 2008 in respect of compensation for suburban and regional rail services and to offset losses, initially foreseen in the Contract-Programme at Euros 343,416 thousand and Euros 226,974 thousand, respectively, based on the Entity s actual requirements.

17 10 The reconciliation between total State contributions recognised in accordance with the Contract- Programme and the allocations established by GSB Law 51 of 26 December 2007 is as follows: State contributions Thousands of Euros 2008 Contract- Programme 2008 GSB For public service agreements (note 4 (l)) 343, ,980 Offset of operating deficit (note 4 (l)) 185, ,429 For Human Resources Plan (note 4 (l)) Accrued and allocated in the 2008 GSB 41,440 32,981 Total current transfers accrued in , ,390 Contribution accrued in 2007 and allocated in the 2008 GSB 9,728 9,728 Contribution accrued in 2006 and allocated in the 2008 GSB 4,555 4,555 Total current transfers , ,673 Equity contributions 2008 (note 16) 449, ,000 Total contributions 1,033,673 1,033,673

18 11 According to the Contract-Programme, AGE contributions in the form of current transfers and equity contributions are fixed and not updated. If current transfers exceed losses before the aforementioned contributions recognised in the Entity s annual accounts, the surplus will be used for financial restructuring of the Entity. Nevertheless, if losses before the inclusion of the current transfers appearing in the GSB exceed the transfers, the AGE will not make any contributions to cover this difference, with the Entity assuming responsibility to take the necessary steps to ensure limitation of debt. The Contract-Programme establishes the contributions from current transfers and equity contributions for the period, to be charged to the GSB for each year. Contributions through current transfers accrued at 31 December 2008 have been allocated in accordance with the criteria set out in the Contract-Programme, as follows (see note 4 (l)): Current transfers in respect of compensation for suburban and regional rail services have been recognised in the income statement as operating subsidies, amounting to Euros 379,980 thousand. Current transfers to offset losses of Euros 190,410 thousand, a contribution that includes Euros 32,981 thousand in respect of the ERE, have been recognised as other shareholders contributions to equity. has recognised Euros 48,723 thousand in current receivables reflecting balances receivable at 31 December 2008 in relation to the aforementioned current transfers from the State (see note 13 (e)). The IGAE will prepare a financial control report as outlined in article 171 of General Budget Law 47 of 26 November 2003, and in the fourth transitional provision of the RSL, based on the proposed Contract-Programme settlement prepared by the Monitoring Commission and submitted to the Ministry for the Treasury s Special Delegation for. The financial control report will contain the results of the examination of compliance with the economic forecasts set out in the Contract-Programme. This report will include a technical opinion on the settlement of contributions, prepared by the Monitoring Commission.

19 12 f) Relationship with Adif i) Rail security levy Articles 65 to 68 of the RSL establish all of the aspects relating to this levy. In order to apply this levy, surveillance and access control services must be provided both for passengers and their luggage at stations and other rail installations owned by the State or Adif. This levy is payable by passengers or the railway undertaking or agency from which the passenger has contracted the transport service (in this case ). The railway undertaking is required to settle the levy with Adif. ii) Charges paid to Adif Articles 74 and 75 of the RSL establish the amounts payable by rail transport operators to Adif for use of the rail infrastructures. The amount is prescribed in Ministry of Public Works Order 898 of 8 April 2005, subsequently amended by Ministry of Public Works Order 3852 of 20 December The law grants legal coverage to the existing economic relationship between Adif and the parties subject to these charges, and establishes the essential components thereof. These charges are classified as follows: Use of rail lines forming part of the public service rail network: - Access (category A), the amount of which is based on the yearly volume of traffic foreseen in the corresponding declaration of activity - Capacity reservation (category B), based on kilometres reserved, distinguishing between type of line and time of day of the reservation, as well as type of transport service and train. - Circulation (category C), based on kilometres effectively travelled, taking into account the same parameters established in the charge for capacity reservation. - Traffic (category D), based on the economic value of the passenger rail transport service, measured in terms of capacity (seats per kilometre), taking into account the type of line and the time of day of the service. Use of stations and other rail installations: - Use of stations by passengers (category A), based on the number of passengers using the rail transport service, distance travelled and the classification of the departure and arrival stations. - Stopping and use of station platforms (category B), based on the time a train is stopped and the classification of the station, especially taking into account those stations which could encounter traffic congestion problems (first category stations). - Use of gauge-changing installations (category C), based on the number of times the train passes through a gauge-changing installation.

20 13 - Use of sidings (category D), based on the time trains are stopped on sidings, which are tracks that are not considered mainline circulation tracks in the rail network statement published by Adif, and on the type of line on which the corresponding station is located (only applicable in the case of high-speed lines). - Rendering of services which require authorisation for use of public rail assets (category E), which represents a charge for use of the public rail assets, based on the surface area occupied and the type of land. On 29 December 2007, Ministry of Public Works Order 3852 of 20 December 2007 was published, modifying appendices II and V of Order 898 of 2005, setting the amounts for the railway charges established by articles 74 and 75 of Rail Sector Law 39/2003. The aforementioned appendices reflect the classification of railway lines and to stations. The charges for 2008 were increased by 2% compared to 2007, in accordance with article 74, section one of Law 51/2007 setting the GSB for iii) Agreements and other relationships In order to guarantee continuity of services, from the moment of the spin-off a number of agreements have been negotiated between Adif and affecting different areas of the relationship between the two entities. These form part of a series of agreements approved by the boards of directors and signed by the chairpersons of both entities, whose economic implications for 2008 are detailed in notes 25 and 27. h) Settlement of pending State contributions to RENFE during the period from 1 January 2001 to 31 December 2004, which partially affect On 19 July 2006 the IGAE issued a financial control report on State contributions to RENFE for , approving the settlement proposed by Adif and. The Contract-Programme states the government s intention to settle the debt listed below during As a result, there is a balance of Euros 214,084 thousand receivable from the State, the breakdown of which between Adif and is as follows: Thousands of Euros Adif 132,939 81,145 Total 214,084 The amount allocated to reflects unrealised exchange rate differences at 31 December 2004 on loans and credits pending repayment by RENFE, and which were assigned to in accordance with the ministerial order. In accordance with article 52 of Law 51 of 26 December 2007, setting the GSB for 2008, the State assumed the debt of, for Euros 81,145 thousand, and of Adif, for Euros 132,939 thousand, with effect from 1 January 2008.

21 14 The Spanish Public Treasury resolution of 30 January 2008 sets out the procedures for the State to settle the debt assumed from Adif and. This resolution establishes that the Spanish Public Treasury would manage the debt as from 1 January 2008, as it is not necessary to make use of the procedure described in article 52, section 3 of Law 51 of 26 December transferred the documentation on the loan covering debt prior to the aforementioned resolution to the Spanish Public Treasury and the financial institution settled the corresponding interest accrued up to 31 December In January 2008 the State subrogated the aforementioned loan and the liability associated with the bank loan was derecognised, as was the balance receivable at that date. h) Composition of the group The Entity holds interests in subsidiaries. Consequently, in accordance with prevailing legislation, the Entity is the parent of a group of companies. In accordance with generally accepted accounting principles in Spain, consolidated annual accounts must be prepared to present fairly the financial position of the Group, the results of operations and changes in its equity and cash flows. Details of interests in group companies and associates are provided in note 8. At the date of formulation of these annual accounts, the consolidated annual accounts of Public Business Enterprise and subsidiaries have not yet been prepared. 2. Basis of Presentation a) Fair view The Entity has prepared these annual accounts for 2008 in accordance with the accounting principles and criteria established by the General Charts of Accounts, article 28 of its statute and section 3 of article 121 of the GBL, as well as communication from the State Public Accounts Office s General Subdirectorate of Accounting Planning and Management, carried out in line with the development functions and accounting principles and criteria applicable to the entities outlined in section 3 of article 121 of the GBL, granted to the State Public Accounts Office by this law in section b) of article The annual accounts for 2008 have been prepared by finance and planning management and officially authorised by the chairman of the Entity on the basis of the Entity s accounting records and in accordance with the above-mentioned accounting principles and criteria to present fairly the equity and financial position at 31 December 2008 and the results of operations, changes in equity, and cash flows for the year then ended. The annual accounts for 2008 are the first the Entity has prepared applying the Spanish General Chart of Accounts approved by Royal Decree 1514/2007. In accordance with section one of the fourth transitional provision of this Royal Decree, the 2008 annual accounts have been considered as the opening annual accounts and, therefore, do not include comparative figures.

22 15 Note 33, "Issues Arising from Transition to the New Accounting Principles", presents the balance sheet and statement of profit and loss forming part of the 2007 annual accounts approved by the Entity s board of directors on 1 July 2008, which were prepared in accordance with the Spanish General Chart of Accounts in force during that year. This note also contains an explanation of the main differences between the accounting principles applied in the current year and those applied in the previous year, as well as a quantification of the impact of this change in accounting criteria on equity at 1 January 2008, which is the transition date and, therefore, the opening balance sheet date. As mentioned in note 33 and pursuant to the first transitional provision of Royal Decree 1514/2007, the Entity has opted to measure all equity items in the opening balance sheet in accordance with principles and standards prevailing at 31 December 2007, except for financial instruments which are measured at fair value. The chairman of the Entity considers that the 2008 annual accounts will be approved by the board of directors with no significant changes. b) Critical issues regarding the valuation and estimation of relevant uncertainties and judgements used when applying accounting principles Relevant accounting estimates and judgements, and other estimates and assumptions have to be made when applying the Entity s accounting principles to prepare the annual accounts. A summary of the items requiring a greater degree of judgement or which are more complex, or where the assumptions and estimates made are significant to the preparation of the annual accounts is as follows: (i) Relevant accounting estimates and assumptions The Entity tests for impairment of interests in group companies on an annual basis, where these interests show signs of impairment. The calculation of the recoverable amount of interests in group companies requires the use of estimates by management. The recoverable amount is the higher of fair value less costs to sell and value in use. The Entity generally uses cash flow discounting methods to calculate these values. Cash flow discounting calculations are based on the 5-year projections of the budgets approved by management. The flows take into consideration past experience and represent management s best estimate of future market performance. The key assumptions employed to calculate the fair value less costs to sell and value in use include growth rates, the weighted average capital rate and tax rates. The estimates, including the methodology employed, could have a significant impact on the values and the impairment loss. Provisions and, in this case, termination benefits for voluntary redundancy relating to the current ERE are recognised when there is a contractual or legal obligation or, in the case of a tacit obligation, when there is a valid expectation among employees that they will be able to adhere to the plan. The Entity measures these provisions as the best estimate at the start of the period based on experience and on the probable number of employees that will avail of voluntary redundancy and early retirement.

23 16 (ii) Change in accounting estimate Although estimates are calculated by the Entity s directors based on the best estimate available at 31 December 2008, future events may take place requiring these estimates to be modified in subsequent years. The effect on the annual accounts of modifications resulting from adjustments to be made in subsequent years are recognised prospectively. c) Going concern basis At 31 December 2008 the balance sheet reflects negative working capital of Euros 302,699 thousand. However, the Entity s Chairman has prepared these annual accounts on a going concern basis, in light of financial support from the Ministry of Public Works under the terms of the Contract-Programme and the GSB for 2009, and considering that the Entity has available credit facilities for an amount of Euros 482,000 thousand at 31 December 2008 (see note 21). 3. Application of Losses The Entity will propose to the board of directors that the losses of Euros 177,251 thousand for the year ended 31 December 2008 be used to offset equity, specifically other shareholders contributions. Details of the application of the Entity s losses for the year ended 31 December 2007 are presented in the Statement of Changes in Equity. 4. Significant Accounting Policies The accompanying annual accounts have been prepared in accordance with the accounting principles and measurement and classification criteria contained in the Spanish General Chart of Accounts, the most significant of which are as follows: (a) Incorporation of the activity branch In order to measure and recognise the integration in the Entity of the assets and liabilities received from RENFE s rail transport services activity as set out in the aforementioned Ministerial Order, management has followed the criteria established by the IGAE General Subdirectorate of Accounting Planning and Management.

24 17 The most significant aspects of these criteria are as follows: Spin-off of assets and liabilities recognised the assets and liabilities received from RENFE at their carrying amount, according to their nature and with a balancing entry in equity. Recognition of user rights and obligations to replace disturbed assets The user rights mentioned in note 1 (c) were recognised by under intangible assets, to be amortised over the term of the concession, at the carrying amount for the three years of the concession, with a balancing entry in equity. These rights are amortised over the term of the concession. The Entity initially recognised a balance receivable from Adif for the estimated cost of replaced assets, with a balancing entry in equity. Due to application of the new Spanish General Chart of Accounts and in accordance with the criteria established by the IGAE General Subdirectorate of Accounting Planning and Management regarding the measurement and recognition method applicable to the aforementioned replacement right, the Entity has reclassified the receivable in under construction and advances in property, plant and equipment, also recognising the effect of the financial discount. At the date ownership of the replaced assets is transferred, should recognise these assets at the carrying amount disclosed in Adif accounts. In accordance with the Ministerial Order determining the assets, rights and obligations assigned to and for the sole purposes of determining shareholders equity, this user and replacement right has been valued at Euros 53,726 thousand, of which Euros 9,165 thousand reflect the carrying amount and Euros 44,561 thousand relate to the estimated cost of replacing the disturbed assets (see notes 5 and 6). (b) Transactions, balances and cash flows in currencies other than the Euro Transactions in currencies other than the Euro have been translated into Euros using the exchange rate prevailing at the transaction date. Monetary assets and liabilities denominated in currencies other than the Euro have been translated into Euros at the closing rate, while non-monetary assets and liabilities measured at historical cost have been translated at the exchange rate prevailing at the transaction date. In the Statement of Cash Flows, transaction cash flows in currencies other than the Euro have been translated into Euros at the exchange rates at the dates the cash flows occur. Exchange gains and losses arising on the settlement of transactions in currencies other than the Euro and the translation into Euros of monetary assets and liabilities denominated in those currencies are recognised in profit or loss.

25 18 (c) Capitalisation of finance expenses In accordance with the second transitional provision of Royal Decree 1514/2007 enacting the Spanish General Chart of Accounts, the Entity has opted to apply this accounting policy to work in progress at 1 January 2008 which will not be available for use or capable of operating for more than one year. Until that date the Entity opted to recognise borrowing costs as expenses when incurred, as permitted under accounting legislation prevailing until 1 January Borrowing costs related with specific financing directly attributable to the acquisition, construction or production of property, plant and equipment which will not be available for use for more than one year are included in the cost of the asset. The amount of borrowing costs eligible for capitalisation is determined as the actual borrowing costs incurred on funds borrowed specifically for the purpose of obtaining a qualifying asset. The Entity begins capitalising borrowing costs as part of the cost of a qualifying asset when it incurs expenditures for the asset and it undertakes activities that are necessary to prepare the asset for its intended use or operation, and ceases capitalising borrowing costs when all the necessary activities are complete, even though the necessary administrative permits may not have been obtained. Interruptions in the active development of a qualifying asset are not considered. Capitalised borrowing costs are recognised in the income statement under the caption borrowing costs capitalised on part of the cost of qualifying assets. (d) Intangible assets Intangible assets are recognised at cost of acquisition or production. Intangible assets are carried at cost, less any accumulated amortisation and accumulated impairment valuation allowances, as follows. o o Software acquired and produced by the Entity is recognised when it meets the conditions for capitalisation and is usually amortised on a straight-line basis over the five-year period of expected use. Software maintenance costs are charged as expenses when incurred. Concessions and licences are amortised on a straight-line basis over the term of the concession. o Other intangible assets, which mainly comprise the user rights mentioned in note 4(a), are amortised on a straight-line basis over the concession period. Expenditure on activities that contribute to increasing the value of the Entity s business as a whole, such as goodwill, trademarks and other similar items generated internally, as well as establishment costs, are recognised as expenses when incurred. Subsequent costs incurred on intangible assets are recognised in profit and loss, unless they increase the expected future economic benefits attributable to the intangible asset.

26 19 The Entity assesses whether the useful life of each intangible asset acquired is finite or indefinite. An intangible asset is regarded by the Entity as having an indefinite useful life when there is no foreseeable limit to the period over which the asset will generate net cash inflows. At 31 December 2008 the Entity has no intangible assets with an indefinite useful life. The Entity reviews the residual value, useful life and amortisation method for intangible assets at each financial year end. Changes to initially established criteria are accounted for as a change in accounting estimates. (e) Property, plant and equipment Cost of property, plant and equipment Property, plant and equipment received from Adif in the spin-off of the rail transport service activity have been recognised at the carrying amounts disclosed by RENFE (see note 4(a)). Other property, plant and equipment are recognised at cost of acquisition or production. Property, plant and equipment are carried at cost less any accumulated depreciation and any accumulated impairment valuation allowances. Work carried out by the Entity to improve or extend the useful lives of its assets is treated as an investment and is recognised at the accumulated cost, which is the sum of external costs, based on supplier invoices, internal costs, determined on the basis of in-house consumption of materials in warehouses, and the remaining costs incurred. Capitalised production costs are recognised as self-constructed assets in the income statement. Non-current investments in property held by the Entity under operating leases are classified as property, plant and equipment. These assets are depreciated over the shorter of the lease term and their useful life. In accordance with the Ministerial Order determining the assets, rights and obligations to be assigned to, the asset and rights which were held by or assigned to RENFE prior to entry into force of Rail Section Law 39/2003, specifically workshops and installations used for the repair and installation of trains (detailed in appendices V.1 and V.2 to the Order) and land on which these assets are located, up to the point of access to circulation tracks of the general rail network, will be incorporated in the equity of the Entity. At 31 December 2008 is in the process of defining the land on which the workshops and installations mentioned in the preceding paragraph are located. Accordingly, this land has not yet been accounted for under property, plant and equipment at that date. The effect of not recognising this land at 31 December 2008 is not considered significant to the annual accounts taken as a whole. Subsequent to initial recognition of the asset, only the costs incurred which increase capacity or productivity or lengthen the useful life of the asset are capitalised. The carrying amount of parts that are replaced is derecognised. Costs of day-to-day servicing are recognised in profit and loss as incurred.