Eurogrid GmbH Berlin

Transcription

1 Dieser Prüfungsbericht richtet sich - unbeschadet eines etwaigen, gesetzlich begründeten Rechts Dritter zum Empfang oder zur Einsichtnahme - ausschließlich an Organe des Unternehmens. Soweit nicht im Rahmen der Auftragsvereinbarung zwischen dem Unternehmen und Ernst & Young ausdrücklich erlaubt, ist eine Weitergabe an Dritte nicht gestattet. Notwithstanding any statutory right of third parties to receive or inspect it, this audit report is addressed exclusively to the governing bodies of the Company. It may not be distributed to third parties unless such distribution is expressly permitted under the terms of engagement agreed between the Company and Ernst & Young. Eurogrid GmbH Berlin Short form report Consolidated Financial Statements and Group Management Report in accordance with Sec. 315a HGB and in compliance with the IFRS 31 December 2011 Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft E

2 e Translation from the German language Table of contents Audit opinion Financial reporting Engagement Terms, Liability and Conditions of Use General Engagement Terms Note: We have issued the audit opinion presented below in compliance with legal and professional requirements subject to the conditions described in the enclosed Engagement Terms, Liability and Conditions of Use.

3 e Translation of the German audit opinion concerning the audit of the financial statements [and management report] prepared in German Audit opinion We have audited the consolidated financial statements prepared by Eurogrid GmbH, Berlin, comprising the income statement, the statement of comprehensive income, the statement of financial position, the statement of cash flows, the statement of changes in equity, the notes to the consolidated financial statements and the segment reporting, together with the group management report for the fiscal year from 1 January to 31 December The preparation of the consolidated financial statements and the group management report in accordance with IFRSs as adopted by the EU and the additional requirements of German commercial law pursuant to Sec. 315a (1) HGB [ Handelsgesetzbuch : German Commercial Code] is the responsibility of the Company s management. Our responsibility is to express an opinion on the consolidated financial statements and the group management report based on our audit. We conducted our audit of the consolidated financial statements in accordance with Sec. 317 HGB and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer [Institute of Public Auditors in Germany] (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the consolidated financial statements in accordance with the applicable financial reporting framework and in the group management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Group and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the consolidated financial statements and the group management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual financial statements of those entities included in consolidation, the determination of entities to be included in consolidation, the accounting and consolidation principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements and the group management report. We believe that our audit provides a reasonable basis for our opinion.

4 e Translation of the German audit opinion concerning the audit of the financial statements [and management report] prepared in German With the exception of the following qualification, our audit has not led to any reservations: Claims from regulatory issues of EUR 136.8m and obligations from regulatory issues of EUR 256.4m have been recognized in the statement of financial position. In accordance with the current pronouncements issued by the IASB, it is in dispute as to whether these fulfill the definition of an asset or liability pursuant to IFRSs. The accounting principles for regulatory claims and obligations revised by the IASB, which will allow such items to be recognized as an asset or liability in the future, were not finally published and, accordingly, not transposed into European law. As such with regard to the fiscal year earnings before taxes have been recognized at an amount that is EUR 5.8m too low. With this qualification, in our opinion, based on the findings of our audit, the consolidated financial statements comply with IFRSs as adopted by the EU, the additional requirements of German commercial law pursuant to Sec. 315a (1) HGB and give a true and fair view of the net assets, financial position and results of operations of the Group in accordance with these requirements. With the aforementioned qualification, the group management report is consistent with the consolidated financial statements in accordance with the legal requirements and as a whole provides a suitable view of the Group s position and suitably presents the opportunities and risks of future development. Berlin, 13 April 2012 Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft - signed - - signed - Glöckner Wirtschaftsprüfer [German Public Auditor] Bährens Wirtschaftsprüfer [German Public Auditor]

5 Group management report and consolidated financial statements for fiscal year 2011 Translation from the German language Eurogrid GmbH Berlin

6 Consolidated financial statements as of 31 December 2011 Eurogrid GmbH Group management report of Eurogrid GmbH Economic and political environment General economic development in Germany continued to improve in 2011, a trend demonstrated by the 3% increase in GDP. The largely export-driven economic recovery helped boost the domestic economy, which was reflected in the rise in corporate investments as well as the slight growth in consumer spending. Medium-sized companies were the primary contributors to the rise in employment. However, the German economy began to witness the first signs of economic slowdown towards the end of year as a result of weaker growth outlooks for the global economy and, above all, the European Union. Despite economic development for the year being positive overall, a particularly mild winter 2011/2012 caused consumption in the energy sector to drop. At the end of 2011, overall energy consumption in Germany had reached its lowest level since This did not have a negative impact on the grid business of 50Hertz s balancing zone (50Hertz being the overall term for 50Hertz Transmission GmbH and 50Hertz Offshore GmbH). The effects of the considerable turbulence on the financial markets and the growing uncertainty surrounding the future of the euro zone were also marginal. The disaster at Fukushima, Japan, acted as a catalyst in ushering in a new energy era in Germany. On 14 March 2011, the federal government quickly took the decision to suspend the extension of some nuclear power plants' working lives, which resulted in eight nuclear power plants being shut down in Germany. This premature shutdown also included two nuclear power plants at Brunsbüttel and Krümmel located within 50Hertz s balancing zone as well as the Unterweser nuclear power plant likewise located in the Greater Hamburg region. An increase in load flows from north to south and east to west also had implications for 50Hertz s balancing zone. The accelerated adoption of the new energy concept meant that 50Hertz had to carry out more redispatch measures at a considerably faster rate to ensure system stability, which raised costs and placed a strain on liquidity. 2 of 91

7 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 Overview of the Group The Eurogrid GmbH Group (the Group ) comprises Eurogrid GmbH ( Eurogrid ) as the parent company, 50Hertz Transmission GmbH ( 50Hertz Transmission ) as the subsidiary and 50Hertz Offshore GmbH ( 50Hertz Offshore ) as the second-tier subsidiary of Eurogrid, as well as the equity investments of 50Hertz Transmission. All three aforementioned companies have their registered office in Berlin. Eurogrid is a wholly owned subsidiary of Eurogrid International CVBA/SCRL ( Eurogrid International ) with its registered office in Brussels, Belgium. The purpose of Eurogrid is the acquisition, holding and operation of equity investments, in particular the investment in 50Hertz Transmission GmbH. As a shareholder, Eurogrid renders services for and receives services from 50Hertz Transmission and, indirectly, from 50Hertz Offshore through the service level agreement (SLA). Holding a 60% and 40% shareholding in Eurogrid International and, thereby, an indirect shareholding in Eurogrid are transmission system operator Elia System Operator NV/SA, Brussels, Belgium (Elia), and infrastructure fund Industry Funds Management Luxembourg No. 2 S. à. r. l. (IFM), Luxembourg, Luxembourg, respectively. The latter was established by the global investment fund company IFM and is under its control. Eurogrid concluded its first fiscal year as an abbreviated fiscal year in is therefore its first full fiscal year. Significant events in the reporting period were: The conclusion of a credit agreement with a term of five years with a syndicate of 11 national and international banks at a volume of EUR 350m for the primary purpose of securing the Eurogrid Group s financial requirements (syndicated financing). These funds can be called upon at any time and in any amount. The conclusion of a credit agreement with BNP Paribas S.A., Frankfurt/Main branch, in December 2011 providing a credit account limit of EUR 120m until further notice (current account financing). The contribution of EUR 200m to 50Hertz Transmission s capital reserves as of 29 December 2011 following 50Hertz Transmission s previous partial repayment of a loan of the same amount. The provision of funds for the business operations of 50Hertz Transmission and 50Hertz Offshore in the form of credit facilities. After adjusting the corresponding contracts, the two companies had access to funds totaling EUR 650m as of the end of fiscal year of 91

8 Consolidated financial statements as of 31 December 2011 Eurogrid GmbH 50Hertz Transmission and 50Hertz Offshore As the transmission system operator, 50Hertz Transmission operates the transmission grid which, at voltage levels of 220 kv and 380 kv and a network grid length of around 9,840 km, spans the federal states of Berlin, Brandenburg, Hamburg, Mecklenburg-Western Pomerania, Saxony, Saxony-Anhalt and Thuringia, and runs through parts of the states of Schleswig-Holstein and Lower Saxony. 50Hertz Transmission s customers are distribution grid operators of regional energy companies based in the balancing zone whose plants are directly connected to the transmission grid, operators of power stations connected to the transmission grid, pumped storage plants, wind farms, major industrial consumers as well as transit and balancing group customers and customers governed by the laws EEG [ Energieerneuerungsgesetz : German Renewable Energy Act] and KWKG [ Kraft-Wärme- Kopplungsgesetz : German Combined Heat and Power Act]. As transmission system operator responsible for the balancing zone, 50Hertz Transmission is responsible for ensuring that the transmission grid remains secure, affordable, user-friendly, efficient and environmentally friendly within the full scope of operation, maintenance and need-based expansion as well as for maintaining the balance of generation and consumption within the whole electricity generation system. In accordance with the provisions under European and national law, the Company ensures free and non-discriminatory access to its transmission grid. Pursuant to the EEG, 50Hertz Transmission ensures that renewable energies are integrated into the balancing zone, that they are transported, distributed across the country and sold and that fluctuating energy input energy levels are settled as required. Due to the grid s central European location, the Company is a major contributor to electricity trading in Europe. This grid connects the grids of Denmark, Poland, the Czech Republic and Germany. 50Hertz Transmission s activities therefore focus on strengthening and expanding the 380 kv transmission grid as well as developing the European energy market to ensure the complete integration of renewable energies into the German and European transmission grids. The business activities of 50Hertz Offshore comprise the construction, acquisition, maintenance and operational management and the operation of electricity lines as well as the associated plants and facilities for connecting offshore wind turbines/farms erected in the Baltic Sea within the 12-mile zone/german Exclusive Economic Zone to an electricity transmission or distribution grid. In accordance with Sec. 17 (2a) EnWG [ Energiewirtschaftsgesetz : German Energy Industry Act], the obligation for the grid connection primarily rests with the transmission system operator. To make a distinction from its onshore activities, 50Hertz Transmission assigned this task to 50Hertz Offshore. Following the change in legislation in connection with the energy package concluded by the federal government in 2011, the previous temporal restriction on mandatory grid connections was lifted. Regardless of when construction begins, the Company is obligated to establish the connection to all 4 of 91

9 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 offshore wind farms in the abovementioned region in a manner that is both timely as well as technically and economically efficient, and subsequently to operate them. This caused the Company s business activities to expand considerably. To date, applications for grid connections for 19 offshore wind farms have been made within 50Hertz Transmission s balancing zone, with five new applications being made in the reporting year. Some of the offshore wind farm projects are competing with one another in terms of location. The first project, the offshore wind farm EnBW Baltic 1 and its grid connection, was implemented and commissioned in Hertz made investments and carried out maintenance measures as planned on the basis of a longterm financing strategy. Energy guidelines European law Following the publication of a comprehensive energy strategy for Europe for the period from 2011 to 2020, the strategic aims of the European energy policy (functionality of the energy market, security of energy supply, promotion of energy efficiency, development of renewable energy sources as well as interconnection of energy grids) were implemented in October 2010 by way of various initiatives developed by the European Commission (EU Commission). On 19 October 2011, the EU Commission published a draft ordinance with guidelines for the trans- European energy grids (EU energy infrastructure package). The ordinance aims to identify and support electricity and gas grid expansion projects of European interest and to improve the regulatory framework for the expansion of the grid across Europe by simplifying and speeding up approval procedures as well as by determining how costs are to be divided in cross-border projects. As a way of financing grid expansion projects, the EU Commission submitted a proposal for the creation of a Connecting Europe Facility infrastructure fund, which, in relation to the energy area, is to be provided with some EUR 9b from the EU budget for the period from 2014 to In the field of the energy market, the European Network of Transmission System Operators Electricity (ENTSO-E), implemented various network codes on capacity management and bottleneck assignments, grid connection and grid security, among others, based on the non-binding guidelines of the European regulatory agency ACER (Agency for the Cooperation of European Regulators). The network codes have been adopted as an EU ordinance and are directly binding for all market participants. 5 of 91

10 Consolidated financial statements as of 31 December 2011 Eurogrid GmbH National law On 15 April 2011, the German federal government resolved to develop an extensive package of laws to accelerate entry into a new energy era of renewable energies and to see Germany permanently phase out nuclear power as well as to transpose the third EU internal market package into national law. On 6 June 2011, the German federal cabinet enacted the package of laws which, in addition to Germany phasing out nuclear power, included an extensive amendment to the EnWG and the EEG, a new act to accelerate expansion of the grid (NABEG) as well as number of new regulations pertaining to energy law; some of these regulations still have to be detailed and refined by means of various ordinances. Following their announcement, the new EnWG and NABEG regulations took effect in August 2011; the changes to the EEG and related ordinances took effect on 1 January Among the most important new developments for 50Hertz are: Certification: In adopting the provisions from the third EU energy package, the transmission system operators must be certified as such in accordance with the legal requirements. 50Hertz is applying for certification as a fully independent transmission system operator. Renewable energies: When determining the EEG cost allocation, a liquidity reserve of up to 10 percent of the difference between the forecast income and expenses may be taken into account in the future. All four transmission system operators took a liquidity buffer into consideration as part of the EEG cost allocation for Responsibility for managing the EEG register of installations may be assigned to the German transmission system operators. This would mean they would receive faster and better results about the EEG facilities. Connection of offshore wind turbines to the grid: The connection of offshore wind turbines to the grid is expected to generally be performed as a joint grid connection in the future. For this purpose, the Federal Maritime and Hydrographic Agency [ Bundesamt für Seeschifffahrt und Hydrografie ] must prepare an annual offshore grid plan for the exclusive economic zone identifying offshore turbines that are suitable for a joint grid connection. It remains unclear what the relationship between this offshore grid plan and the new grid development plan will be. The limitation of the obligation for offshore wind farms to connect to the grid by 2015 has been lifted. This means that 50Hertz is fully responsible also in the long term for offshore connections off the German coast of the Baltic Sea. Grid expansion: Each year, the transmission system operators must join forces to produce and broadly discuss a grid development plan. The newly created NABEG speeds up and simplifies the approval process for the construction of important extra-high-voltage lines. Responsibility for the federal planning of these lines will in the future be handed over by the state authorities previously responsible for land-use management to the Federal Network Agency (BNetzA). 6 of 91

11 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 System security: energy producers, including those producing energy from renewable energy sources, are to bear more responsibility for system security. For those plants that are technically able to, they must offer redispatch services. Transmission system operators must accept these services if they are in line with market requirements. When applying the emergency measures for maintaining system stability, the transmission system operators must carry out the compensatory measures in accordance with Sec. 11 EEG in precedence over Sec. 13 (2) EnWG and on this basis may also, albeit only indirectly, control the EEG plants connected to its grid; the transmission system operators may pass through the additional costs this creates via the network user charges if properly applied. The law also obligates distribution grid operators, energy producers and industrial customers to create the requirements for real-time data transmission. A significant portion of the EEG plant operators must now equip their facilities with remote accessibility. Network user charges/regulation: In addition to the existing individual network user charges for atypical end consumers, the amendment to Sec. 19 Ordinance on Electricity Network User Charges (StromNEV) as of 1 January 2011 means that electricity-intensive end consumers are exempt from the obligation to pay network user charges, which in the overall picture will lead to considerably higher charges for all other network customers. Furthermore, the planning cost approach for investment budgets and the enforcement of the elimination of the amount to avoid double recognition [ Betrag zur Vermeidung von Doppelanerkennungen : BVD) have been addressed, and their implementation has been linked to decisive improvements to the regulatory framework. On 27 January 2011, the lower house of German parliament resolved to amend the EnLAG [ Energieleitungsausbaugesetz : German Act to Accelerate the Extension of Extra-High-Voltage Lines]. In the four pilot projects for laying cables underground named in Sec. 2 (2) EnLAG, an extrahigh-voltage line must be constructed and operated as an underground cable on a technically and economically efficient section or modified if demanded by the authorities responsible for approving the project. This also applies for traversing the Rennsteig in accordance with Sec. 2 (2) Sentence 2 EnLAG. The previously optional cabling will thus become a conditional obligation. In February 2011, in light of the expansion of the electricity grids as a central aim of the energy policy, the German Federal Ministry of Economics and Technology created the permanent platform Sustainable energy grids. In this regard, 50Hertz is working with other grid operators as well as at federal, state and association levels on proposals for expanding the grid and modernizing the electricity networks. 7 of 91

12 Consolidated financial statements as of 31 December 2011 Eurogrid GmbH Grid provision and expansion The provision and maintenance of 50Hertz Transmission s 65 substations and switching systems with its 149 transformers is performed by means of maintenance based on technical, economic and environmental requirements (inspection, servicing and maintenance). While servicing and maintenance is largely performed by external personnel (about 80 percent), inspection and monitoring of the quality and safety of the services performed is secured at all times by its own qualified staff. Furthermore, the ability to respond to an event effectively is ensured by means of a contingency system implemented in collaboration with other grid operators and users. Based on the growing demands on the transmission grid with regard to the nationwide highperformance transport of renewable energies and on Europe-wide electricity trading, the focus in the reporting period was again on carrying out construction activities and planned measures for strengthening and expanding the network. The planning approval decision on the 380 kv overhead line from Schwerin to Hamburg has still to be made for the area of Schleswig-Holstein. Approval processes for additional overhead line projects, in particular for the European priority project relating to the southwest interconnection line from Halle (Saxony-Anhalt) to Schweinfurt (Bavaria) have been delayed as a result of making additional planning changes, which are expected to lead to greater public acceptance of the project. Environmental protection is an extremely important factor with the regard to the use of technical equipment. In this connection, additional oil collection facilities were added to transformer locations, noise protection measures implemented and decontamination performed as part of new construction measures. The high level of environmental protection is ensured by the constant training and sensitization of its employees. As a way of compensation for the not insignificant invasion of nature and landscape as a result of constructing the new overhead lines, the planned scope of compensatory measures was increased by confirming greater compensation areas to the authorities. System management As of 31 December 2011, 50Hertz s balancing zone contained onshore wind turbines with a total installed output of approximately 11,520 MW (prior year: 10,922 MW). This corresponds to 40.3% (prior year: 41.4%) of Germany s installed capacity and an increase of some 2% in comparison to the end of With the commissioning of the EnBW Baltic 1 wind farm, the installed output of offshore wind turbines now totals some 50 MW. The share of capacity from offshore wind turbines installed across Germany thus stands at 24%. The photovoltaic (PV) output installed within 50Hertz s balancing zone increased by approximately 60% in comparison to the end of 2010 and now stands at 3,540 MW. On 5 February 2011, the maximum simultaneous feed-in from wind turbines of 9,591 MW (prior year: 9,794 MW) was achieved in the reporting period in 50Hertz s balancing zone. The maximum 8 of 91

13 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 amount fed into 50Hertz s transmission grid registered on 19 January 2011 came to 14,715 MW (instantaneous one-minute value) (prior year: 14,058 MW). To avoid the default-related overloading of grid elements within 50Hertz's transmission grid, it was necessary at the beginning of 2011 to take measures on 213 days (calendar year 2010: 160 days) in accordance with Sec. 13 EnWG (thereof on 45 days with a reduction in output generated by renewable energies). This resulted in a redispatch amount of 3.85 TWh and a reduced EEG energy offering of 45 GWh. On 27 June 2011, the new Transmission Control Center (TCC) was officially put into operation in the presence of the EU Commissioner for Energy Günther H. Oettinger and a number of guests from the general public, politics and industry. Since the decision was taken by the federal government in March 2011 to suspend the extension of some nuclear power plants working lives, the situation in 50Hertz s balancing zone has been marked by increased load flows from north to south and east to west. In Hamburg, this is also leading to very high voltage levels, especially during low-load periods, as well as very low voltage levels when loads are high and wind feed-in is low. Immediately after it was announced that the extension of some nuclear power plants working lives was to be suspended, 50Hertz Transmission, together with the other German transmission system operators, carried out an extensive investigation into the effects of this for the summer and, in particular, the winter. For winter 2011/2012, it emerged that the available power station capacities would be fully utilized and imports from neighboring countries would not be secure on cold days, which could result in critical load and voltage conditions in southern Germany. In Hamburg, on cold winter days (high consumption) the voltage level can get very low without feed-ins from wind and photovoltaic systems, increasing the danger of a voltage collapse. Overall, it can be determined that the system is being run closer to its limit and that the security reserves are being increasingly exhausted. These internal investigations and those across different balancing zones have resulted in a host of measures being drafted, some of which have already been implemented. These measures are designed to avoid such critical situations, such as through increased redispatch measures, installing additional regulators and support from distribution grid operators and power plant operators as well as through the use of power factor correction (PFC) units by industrial customers in Hamburg and contractual agreements on interruptible loads. On 16 August 2011 and 8 November 2011, 50Hertz, together with the other German transmission system operators, held workshops to inform its transmission system operators in neighboring European countries about its approach to date as well as additional, some joint, steps to overcome the effects of the nuclear power plant shutdown in winter 2011/2012. For 50Hertz s balancing zone, the workshops provided confirmation of the previous statements relating to increased load flows from 9 of 91

14 Consolidated financial statements as of 31 December 2011 Eurogrid GmbH north to south and east to west, a related overall increase in capacity utilization of the transmission grid as well as the possibility of acute problems in maintaining voltage in Hamburg. In consultation with TenneT TSO, VE Distribution Hamburg and E.ON Netz, 50Hertz Transmission drafted and enacted a specific package of measures for taking coordinated action for rising/too high or falling/too low voltage. Furthermore, internal additional measures have been developed to allow the TCC s operating personnel to deal with critical situations in the winter. Grid usage/grid connection With regard to grid usage, the BNetzA published the pooling resolution in September 2011 effective as of 1 January This resolution was taken into account when performing the price calculation in fall 2011 for 50Hertz s grid usage for The pooling resolution changes how income from vertical grid usage is distributed among grid customers. 50Hertz is currently processing ten applications in accordance with the ordinance for regulating grid connections (Kraftwerks-Netzanschlussverordnung: KraftNAV) for connecting conventional power stations and storage facilities to the transmission grid as well as a planned compressed air storage plant outside of the scope of application of the KraftNAV. The projects are spread across eleven locations and together have a gross nominal capacity of around 8,800 MW, of which 50Hertz has granted grid connection permits for approximately 5,200 MW. Over the course of 2011, 50Hertz received two new grid connection applications for storage projects amounting to some 1,100 MW. At the same time, four applications for power plant projects relating to coal/gas and steam-pressure turbines and for a storage project with a total output of approximately 4,450 MW were withdrawn and the grid connection procedures stopped. As a result, the gross nominal capacity of conventional power plants and storage facilities for a network connection applied for at 50Hertz fell by around 3,350 MW to some 8,800 MW. With regard to the grid connection application that fall under the EEG, 50Hertz has received 19 applications for offshore wind farms in the Baltic Sea of up to 5,900 MW when completed (thereof five new applications in 2011 at around 1,700 MW). There are seven applications for onshore wind farms of up to 1,100 MW, bringing the total to approximately 7,000 MW for offshore and onshore wind farms. On top of this are three applications for photovoltaic farms at around 500 MW. As a result, the application volume for wind and photovoltaic farms for connecting to 50Hertz s grid increased by around 2,300 MW to 7,500 MW in the reporting period despite the loss of individual projects. Regulatory issues The revenue caps for 2011 were set as of 1 January 2011 in accordance with the provisions of the Incentive Regulation Ordinance [ Anreizregulierungsverordnung : ARegV]. An increase of around 3% 10 of 91

15 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 was recorded on the prior year. By contrast, the revenue caps for 2012 are around 15% higher and form the basis of the price list valid since 1 January By 31 December 2011, 50Hertz Transmission had received 44 approvals out of the 75 active applications made since 2008 for approving the investment budget. Based on the total application volume of EUR 6.1b, an investment volume of EUR 2.5b had been approved by the BNetzA by the aforementioned date. In the test case before the Düsseldorf higher regional court on the structure of investment budget approvals implemented by the BNetzA, 50Hertz achieved a major success. In its resolution dated 23 March 2011, Düsseldorf higher regional court deemed the amount to avoid double recognition as well as the non-recognition of changes to borrowing costs to be unlawful, thus siding with 50Hertz s argument. Settlement talks have also been held on the retroactive structuring of investment budget approvals by the BNetzA which will continue and most likely end in the first quarter of To further improve the regulatory framework for grid investments, as part of the grid platform, the possibility of a planning cost approach (t minus 0), among others, instead of the current t minus 2 default was discussed for the return of capital expenses in order to accelerate funding for new investments. As part of the ENTSO-E, 50Hertz is actively involved in determining the network codes in accordance with EU law, which will then be directly incorporated in applicable law after completion of European legislative procedure in the member states. 11 of 91

16 Consolidated financial statements as of 31 December 2011 Eurogrid GmbH Energy management Balancing group management The new market regulations for balancing group settlement for electricity were implemented effective as of the settlement month June In connection with the regulation of the BNetzA on the German-wide uniform standard balancing agreement, the balancing group managers holding 459 existing contracts were made new contractual offers, which were accepted by all of the managers in line with the agreement. 50Hertz Transmission invoices the ongoing balancing of the balancing zone and therefore all balancing groups on a monthly basis, including its own balancing groups. As of the end of 2011, 50Hertz managed and settled approximately 1,140 balancing groups for 459 of the traders, electricity sellers and grid operators operating in the balancing zone. The particularly high quality of 50Hertz Transmission s balancing group settlement is appreciated by market partners. This is shown in the low number of disputed invoices and customers good payment behavior. In December 2011, the number of active balancing groups increased by around 150 in connection with preparations for the implementation of the requirement set forth in the EEG 2011 on the separate accounting of electricity for the market premium model and green electricity privilege. EEG/KWKG In the reporting year, the supply of EEG electricity within the balancing zone increased by approximately 13% in comparison to the prior year. This is primarily attributable to the renewed increase in the electricity fed in from photovoltaic systems by a factor of 2.5 in comparison to In order to develop load balancing across Germany, the German transmission system operators jointly drafted the technical and contractual requirements for introducing ongoing physical load balancing for electricity and solar power similar to the load balancing for wind. Routine operations began on 1 January After extensive discussion in the media about the amount of the EEG cost allocation for 2011, the cost allocation of 3.53 ct/kwh was found to be justified and overall led to the cost deficit being reduced. In the course of amending the EEG as part of the package of measures relating to Germany s new energy concept, it was therefore possible to convince the political decision-makers of the necessity of a liquidity buffer for subsequent years. This is designed to prevent financial difficulties for transmission system operators as a result of high payment obligations to plant operators. The cost allocation for 2012 of 3,592 ct/kwh was disclosed on time. 12 of 91

17 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 International Grid Control Cooperation 2011 was influenced by preparations for the international expansion of the grid balancing organization of the German transmission system operators. In this regard, the contractual arrangements were laid down in the form of a cooperation agreement and the first agreements negotiated with Energinet.dk, TenneT Niederlande and CEPS. Furthermore, we explained the benefits of the expansion to the BNetzA and other affected regulators in order to obtain their approval and also to involve those European transmission system operators that are indirectly affected. With the international expansion of the grid balancing organization, the German transmission system operators are making a major contribution to the European single market. Covering grid losses During 2011, 50Hertz established the organizational and technical prerequisites needed in connection with the procurement of energy to cover grid losses to use the forward market of European Energy Exchange AG for the procurement of long-term components. Since 1 November 2011, 50% of the energy volumes to be procured each month were procured on the forward market. The analysis of the remaining volumes that continue to be procured by tendering is expected to result in an enhanced model in the future for improving procurement. Cooperation with TenneT TSO The cooperation with TenneT TSO, primarily dealing with the procurement and sale of electricity positions on the spot market of the European Power Energy Exchange (EPEX), was intensified further in This includes taking on additional electricity positions as well as preparing the use of the ¼ h intraday trading on the EPEX Spot beginning in January All necessary organizational prerequisites were concluded in of 91

18 Consolidated financial statements as of 31 December 2011 Eurogrid GmbH Economic situation of the Group Results of operations The figures for fiscal year 2010 relate to the abbreviated fiscal year from 2 March to 31 December Hertz Transmission is included for the period from 1 June to 31 December 2010 and 50Hertz Offshore pro rata temporis for the period from 1 June to 31 December The figures for fiscal year 2011 relate to the entire calendar year for all group companies. For this reason, comparison with the prior year is somewhat restricted. Presentations and explanations are based on the accounting system in accordance with IFRSs. Income statement 1 Jan to 31 Dec 2011 in EUR m 2 Mar to 31 Dec 2010 in EUR m Revenue and income 7, ,335.9 Operating expenses -6, ,227.9 EBITDA Amortization, depreciation and write-downs Income from business combinations and financial result Income taxes Group net profit The Group s income and expenses were largely characterized by the implementation of the EEG and KWKG, which do not affect profit or loss. As a result of the settlement mechanism in place since 2010, the transmission system operators sell the electricity fed in by upstream grid operators and directly connected producers to an electricity exchange. In addition to this sales revenue, the transmission system operators levy a charge for all trading and distribution companies operating in the balancing zone, which is designed to balance out the costs not covered by the selling activities. The implementation of the EEG and the KWKG generated revenue of EUR 4,415.7m (prior year: EUR 2,066.3m) and EUR 45.6m (prior year: EUR 4.7m), respectively. This revenue and income is matched by expenses of the same amount. The settlement volume of services rendered to third parties increased since the beginning of the year as a result of the change to the EEG settlement mechanism. In this fiscal year, this generated revenue of EUR 1,783.6m (prior year: EUR 806.5m), which is matched by expenses of the same amount. 14 of 91

19 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 In the fiscal year, income from regulatory issues amounted to EUR 0.7m whereas EUR 36.2m had been deducted from income in the prior year. Other income of EUR 156.4m (prior year: EUR 90.0m) includes reversals from provisions, special items and construction cost subsidies. The total income from the grid business, adjusted for the components of other comprehensive income relating to the implementation of the EEG, KWKG as well as EEG electricity selling for third parties, also taking into account several items of other income, breaks down as follows: EUR m 1 Jan to 31 Dec Mar to 31 Dec 2010 Revenue from grid business Recognized under other income: Balancing group management Income from measures in accordance with Sec. 13 EnWG Other grid-related income Total income from grid business Personnel expenses amount to EUR 57.6m (prior year: EUR 28.5m); the increase on 2010 is due, among other things, to a collectively bargained wage and salary adjustment and also represents the constant growth in the number of employees as a result of the ever-increasing scope of tasks. Other expenses amount to EUR 4.5m (prior year: EUR 19.1m), including fees, other taxes, bad debt allowances on receivables and losses from the retirement and sale of assets. Earnings before interest, taxes, depreciation and amortization (EBITDA) the Group s performance indicator amount to EUR 157.9m (prior year: EUR 108.0m). Amortization, depreciation and write-downs amount to EUR 63.6m (prior year: EUR 36.6m). Converting the useful lives to the prescribed calculated rates tends to result in longer useful lives and, therefore, lower amortization, depreciation and write-downs. The negative interest result as a portion of the financial result amounts to EUR 18.5m (prior year: EUR 17.5m); of this, EUR 6.5m (prior year: EUR 11.3m) relates to regulatory issues. Earnings before taxes amount to EUR 75.8m (prior year: EUR 531.4m). After deducting income taxes (EUR 21.5m; prior year: EUR 22.1m), the group net profit comes to EUR 54.3m (prior year: EUR 509.3m). 15 of 91

20 Consolidated financial statements as of 31 December 2011 Eurogrid GmbH Net assets and financial position Statement of financial position 31 Dec Dec 2010 in EUR m in EUR m Assets Non-current assets 1, ,462.8 Current assets 1, , , ,581.4 Equity and liabilities Equity Non-current liabilities Current liabilities 1, Regulatory items (net) , ,581.4 As of the reporting date, the Group s assets comprised non-current assets (primarily property, plant and equipment and assets under construction) as well as current assets (primarily trade receivables and cash and cash equivalents). Liabilities break down into non-current liabilities (primarily liabilities to bond creditors), current liabilities (primarily trade payables) and the surplus obligation from regulatory items. Within the current assets and liabilities, the high billing volumes are attributable to the non-profit business. The development of the items of the statement of financial position is largely dependent on the feed-in and weather conditions as well as the associated energy costs of the balancing zone. 16 of 91

21 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 Consolidated statement of cash flows (condensed) 1 Jan to 31 Dec 2011 in EUR m 2 Mar to 31 Dec 2010 in EUR m Cash flow from operating activities Cash flow from investing activities Cash flow from financing activities Change in cash and cash equivalents Cash and cash equivalents at the end of the period The cash flow from operating activities increased considerably on the prior year. The seasonal effects with regard to cash flows are largely due to weather conditions and the associated relief or burden for the payable feed-in remuneration as well as energy costs. The cash flow from investing activities primarily contains additions to property, plant and equipment. The cash flow from financing activities results from the profit distribution to the shareholder. The financing of the Group was secured throughout the entire reporting period. As well as issuing the fixed-interest 10-year bond, Eurogrid has additional credit facilities in place with several banks of EUR 470m. The rating agency Moody s confirmed its current Baa1 rating in October Investments 50Hertz Transmission has a 12.5% shareholding in CAO (Central Allocation Office GmbH) based in Freising. This company was founded on 17 July 2008 for the purpose of providing bottleneck management services for electric transmission grids. 50Hertz Transmission holds 20% of the shares in EMCC (European Market Coupling GmbH) based in Hamburg. The company was founded on 28 August 2008 for the purpose of providing bottleneck management services for electric transmission grids by means of market coupling, in particular with the involvement of electricity exchanges. 50Hertz Transmission has a 10.1% shareholding in CORESO SA based in Brussels, Belgium. CORESO is the coordination and service center for load forecasts and load flows in the CWE region. 17 of 91

22 Consolidated financial statements as of 31 December 2011 Eurogrid GmbH Employees The number of employees at the Eurogrid Group rose from 623 as of 31 December 2010 to 669 as of 31 December 2011, an increase of around 7%. The number of trainees remained unchanged as of the end of 2011 at 20. Health and safety The primary aim is to shape conditions at the workplace or in the working environment in such a way that they fulfill the employees' health and safety requirements at all times. In the reporting period, there was one reportable work-related accident, 8 accidents while traveling on business and 17 commuting accidents, which resulted in a total of 9 days of absence. Overall picture of the economic situation of the Group The economic situation of the Group is largely shaped by the regulatory framework of the Group companies grid business. In addition to generating an adequate rate of return from grid operations, this means the Group is subject to strong influences from the high and, above all, difficult financing requirements from the development of the EEG business. The financial obligations of fiscal year 2011 were covered at all times by the available liquidity, the provision of a credit account limit until further notice as well as, in particular, the syndicated financing. 18 of 91

23 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 Risk report Risk management system The aim of the risk management system is to avoid any risks jeopardizing the Group s ability to continue as a going concern, reduce existing risk items and optimize the risk/opportunity profile. Risks are recognized, recorded, evaluated and monitored in a standardized manner applying the risk guidelines in place. The assessment of potential damages and the likelihood of their occurrence is based on scenarios. This ensures that the risk situation is continually monitored, especially the early recognition of risks to the Group s ability to continue as a going concern, and supports the selection and implementation of measures to overcome such risks. Enhancement of the risk management system hinges on the systematic preparation and central pursuit of plans of action forms for combating key corporate risks. Relevant individual risks and the entire risk situation are reported regularly to management, the supervisory board and the shareholders. The responsible decision makers are informed ad hoc in the event of any significant changes. The functionality and effectiveness of the risk management system is regularly subject to review. Opportunities and risks The opportunities of the Group chiefly involve it achieving a solid position as an independent transmission system operator as well as being a reliable and high-performing partner for the customers being served in the balancing zone. This also involves creating a sound financial basis together with the existing equity investments. Uncertainties continue to exist with respect to interest on investments. An inadequate return on investment poses a considerable economic risk with regard to past and future investments, which are essential for ensuring supply reliability. The equity interest rate determined by the BNetzA is regularly and systematically far from being reached as a result of the restrictive interpretation of the regulatory requirements. In particular, the time delay and reduction of the interest basis in approved investment budgets by offsetting against the write-offs against any investments already made in the past (the amount to avoid double recognition) reduce the actual attainable return considerably. The full recognition of the submitted investment budget is essential to ensure the Group s long-term investment reliability. Settlement negotiations taken up with the BNetzA following a ruling by Düsseldorf higher court may lead to an improvement in the regulatory framework. Also uncertain are the results of the cost review for the base year as well as the efficiency comparison by the BNetzA. The approved costs and efficiency rating form a significant basis for the revenue caps for the second regulation period. As experience with cost reviews and efficiency comparisons has been minimal to date, the associated opportunities and risks are difficult to assess. 19 of 91

24 Consolidated financial statements as of 31 December 2011 Eurogrid GmbH Risks from the energy business result from cost increases and fluctuations, in particular with regard to the procurement of balancing energy and energy volumes to cover the grid losses as well as redispatch costs. Such cost increases can result from quantity effects and/or from unforeseeable increases in market prices. By having a model in place that is equipped with synchronous incentive mechanisms (benefits and penalties system as part of the corridor model), the long-term effect on earnings for 50Hertz Transmission is limited, although the time delay of two years can effect whether or not profit can be distributed based on the HGB [ Handelsgesetzbuch : German Commercial Code] result. This relates to risks as well as opportunities. In order to reduce dependency on short-term price fluctuations and to adhere as close as possible to the period stipulated in the corridor model for the calculating the price for zeroing, 50Hertz Transmission procures the expected energy requirements to cover the grid losses via public invitations to tender as well as via futures traded on the stock market. Due to prescribed procurement procedures (especially with regard to balancing energy), not all procurement transactions can be secured in the long term. Based on the price peaks in prior years primarily on the minutes reserve market, 50Hertz Transmission has since 2006 largely automated the short-term monitoring of all risks pertaining to electricity prices. Status reports are issued regularly to ensure all decision-makers and affected areas are informed about the current status and expected development of the energy business. Since 1 January 2010, the regulations of the EEG settlement mechanism have provided for implementation of the EEG without an effect on profit or loss for the transmission system operators. However, the procedure for selling the EEG feed-in as part of implementing the regulations of the settlement mechanisms result in significant liquidity risks for the Group. In the event that the fixed EEG cost allocation, based on forecast values and each relating to one year, and the generated sales revenue are not sufficient to cover the differences between the costs of feed-in remuneration and the generated income, this can create an interim financing requirement which, as witnessed in the past two years, can be considerable. The statutory option to factor a liquidity buffer into the cost allocation can help cushion this interim financing requirement in the future. An important aspect of 50Hertz Transmission's business activities is ensuring the legally regulated responsibility of the system for the transmission of electricity as a contribution of the transmission system operator for a secure and reliable energy supply system. Liability risks resulting from interruptions and irregularities in the energy supply are covered for the most part. Taking into account the considerable and ever-increasing influence of the fluctuating feed-in levels from wind turbines, 50Hertz Transmission focuses on ensuring a system balance between generation and consumption is maintained at all times. This also requires as a primarily objective of all parties involved in the process that the approval process be sped up considerably, not least to maintain the rapidly progressing expansion of generation capacities from wind turbines as well as on the grid side. 50Hertz 20 of 91

25 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 Transmission combats the risks from delays and extra costs stemming from the expansion of the highvoltage grid through early and targeted public relations activities as well as open discussions with authorities, nature conservation associations and people living near where the lines pass through. One focus is the southwest interconnection line. According to European regulations, under which each delay must be reported, a report is issued every year to the federal government and the EU coordinator responsible. The lacking line capacity in this area of our balancing zone gives rise to the risk of a system failure, which is being combated by means of extensive temporary measures. The situation will only be properly remedied by dramatically speeding up the approval, construction and commissioning stages including compensatory measures. Conditions on the procurement markets continue to be shaped by a high concentration on the supplier side. In addition to higher prices, this can also lead to longer delivery times for materials and services. Targeted observation of the procurement market as well as professional asset management help limit this risk. Significant risks primarily result from the obligation of the offshore wind farms to be connected to the grid. There are still major legal and technical uncertainties in this regard. In the event of culpable delay when establishing offshore wind farms connections to the grid as well as connection failure, it is not legally clear as to who must pay for the resulting losses. In addition to monitoring the individual connection projects, separate project documentation must be created and implemented in order to avoid the risk. Nevertheless, delays resulting from submarine cable technology still undergoing development and the associated technical risks as well the dependency of maritime processes in particular on weather and ground conditions cannot be ruled out. The Group must obtain significant funding on the capital market in order to fulfill all of its functions. Restrictions on the money and capital markets can therefore lead to financing bottlenecks. Beginning in 2010, the main purpose of Eurogrid is to invest in 50Hertz Transmission and 50Hertz Offshore. As a holding company, it is associated with the economic development of 50Hertz. 50Hertz Transmission and 50Hertz Offshore act as guarantor of the Euro Medium Term Note program as part of the syndicated financing and current account facilities. The resulting risks are identified and limited through the monitoring of the two companies. Other risks arise from the extent to which Eurogrid is active on the international capital markets. Combating these risks requires drawing on extensive experience and constant monitoring by the companies within the Eurogrid Group. Risks from investing in time deposits are combated by means of careful and diversified investment strategy, constant market observations and strictly ensuring that the investment policy is adhered to. Cost-related risks when providing services under the service level agreements are minimized by applying the measures used by 50Hertz Transmission. 21 of 91

26 Consolidated financial statements as of 31 December 2011 Eurogrid GmbH Overall risk situation The Group s ability to continue as a going concern was not jeopardized by individual risks or its aggregated risk position. Taking into account the measures taken, there are no such risks for fiscal year 2012 either. Forecast The Group will continue to invest in grid expansion. It is also committed to the unimpeded use and development of storage capacity facilities for electricity. Realizing these projects helps to channel the exceedingly high levels of EEG electricity in 50Hertz Transmission's balancing zone into the consumer centers. The Group s largest onshore projects are the construction of the northern line, the Uckermark line and the additional sections of the southwest interconnection line and, offshore, the connection of the EnBW Baltic 2 wind farm. Particularly as a result of connecting offshore wind farms to the grid, grid strengthening and expansion measures are also necessary. Investing activities are therefore likely to increase considerably over the next few years. As a result of the physical inevitability of the processes involved in the balancing of generation and load in its balancing zone, 50Hertz Transmission is highly dependent on the cost to produce electrical energy and costs for redispatch measures, which will in turn have a particular influence on future net income. Further cost development for actual grid operations, i.e., maintenance, personnel, administration and operations, are primarily shaped by the energy policy as well as the regulatory framework. Even today, for example, there are high administrative expenses for coordinating the BNetzA s activities. With regard to offshore grid costs, the implementation of the Infrastructure Planning Acceleration Act [Infrastrukturplanungsbeschleunigungsgesetz] is expected to cause an increase in costs over the next few years. Costs for system services and grid losses are also greatly influenced by electricity price developments. The increasing grid expansion, along with the associated growth in the investment volume that needs to be maintained and the increase in personnel requirements, will also result in higher maintenance and personnel costs. For the next two fiscal years, the Group, assuming the continuation of the current framework conditions, expects to generate positive results; however, this hinges on the legal framework improving, with the planning cost approach for investment budgets and the elimination of the amount to avoid double recognition making particular contributions (also for the budgets submitted in the past). As a result of the increasing investment activities and the volumes from the EEG to be pre-financed, the financing volume will increase, with the liquidity situation becoming tenser for the EEG business due to the influence of market premiums and direct marketing. This requires the development of our financial instruments and more intensive cash management. Financing will continue to be secured as a result of Moody s confirming the Company s Baa1 rating in October of 91

27 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 On all accounts, 50Hertz will fulfill the legally assigned tasks regarding the transport of electricity in the balancing zone, the promotion of renewable energies and the European single market at high quality and above all in the interest of all of its customers and European partners, thereby contributing to a secure electricity supply system. In this regard, 50Hertz makes a contribution to climate protection and development of the economy, particularly in the eastern German economic area. As a holding company and parent company of the Eurogrid Group, Eurogrid will grow in parallel to and in phase with its investment. Subsequent events For the period from the reporting date up to the authorization of the consolidated financial statements for issue, it must be noted that the planning cost approach (t minus 0) came into legal force when applying for the investment budgets as of 2012 as a result of a change to the ARegV. Furthermore, a settlement was reached with the BNetzA in February with regard to the investment budgets. This now means the individual financing terms of the grid operators as well as the replacement portion of specific projects will be taken into account, and, in return, the amount to avoid double recognition will no longer apply in the future. Accounting-related internal control and risk management system In order to identify risks at an early stage, analyze their cause, evaluate and avoid or at least minimize them, there is a group-wide risk management system in place. This system regulates the identification, recording, evaluation and reporting of risks and is integrated into the strategy, planning and budgeting processes as well as the Company s management and reporting systems. So that the Group can successfully operate as a company in its complex economic environment, it has also created an effective and integrated internal control system, which, in its entirety, contains all relevant business processes. The internal control system forms an integral component of the risk management system. This system comprises preparing reports for the supervisory board, audit and investment committees at the level of Eurogrid International as well as management, and is tailored to company-specific requirements in terms of its scope and structure. 23 of 91

28 Consolidated financial statements as of 31 December 2011 Eurogrid GmbH Key elements of the management systems are the clear allocation of responsibilities and controls inherent in the system when preparing the financial statements. The widely applied dual control principle, exclusively document-based booking methods and the consistent segregation of duties, are basic characteristics of control. Furthermore, through guidelines on accounting and preparation of the financial statements as well as appropriate data access rights for the IT system, the Group ensures compliance of its financial reporting with law and regulations. Berlin, 21 March 2012 The management 24 of 91

29 Eurogrid GmbH Consolidated financial statements as of 31 Dec 2011 Consolidated financial statements for fiscal year 2011 Translation from the German language Eurogrid GmbH Berlin 25 of 91

30 Consolidated financial statements as of 31 December 2011 Eurogrid GmbH Consolidated income statement EUR m Note 1 Jan to 31 Dec Mar to 31 Dec 2010 Revenue 7.1 6, ,282.1 Income increase (prior year: decrease) from regulatory issues Cost-matching revenue 7.1-6, ,877.5 Revenue from grid business and other revenue Other income Expenses for material and purchased services 7.4-6, ,180.3 Personnel expenses Revenue-matching costs 7.4 6, ,877.5 Cost of grid operations, personnel and other purchased services Other expenses Earnings before interest, taxes, depreciation and amortization (EBITDA) Amortization, depreciation and write-downs Result from business combinations Financial result thereof finance income thereof finance expenses Profit before tax Income taxes Group profit for the year Consolidated statement of comprehensive income EUR m Note 1 Jan to 31 Dec Mar 31 Dec 2010 Group profit for the year Actuarial losses in accordance with IAS 19 Deferred tax on changes recognized directly in equity Total comprehensive income The entire total comprehensive income disclosed is attributable to Eurogrid International. 26 of 91

31 Eurogrid GmbH Consolidated financial statements as of 31 Dec 2011 Consolidated statement of financial position EUR m Note 31 Dec Dec 2010 ASSETS Non-current assets Intangible assets Property, plant and equipment 6.3 1, ,420.1 Financial assets Deferred tax assets Non-current receivables , ,462.8 Current assets Inventories Trade receivables Receivables from income taxes Other receivables Cash and cash equivalents , , , ,581.4 EUR m Note 31 Dec Dec 2010 EQUITY AND LIABILITIES Equity Issued capital Reserves Retained earnings Other comprehensive income Non-current liabilities Provisions for deferred taxes Provisions for pensions and personnel obligations 6.12, Other provisions Financial liabilities Other liabilities Current liabilities Other provisions Trade payables Liabilities from income taxes Other liabilities , Regulatory items Regulatory claims Regulatory obligations , , of 91

32 Consolidated financial statements as of 31 December 2011 Eurogrid GmbH Consolidated statement of cash flows EUR m Note 1 Jan to 31 Dec Mar to 31 Dec 2010 Group profit for the year (2010: prior to business combination) Net finance expenses Income tax expenses Group profit for the year before interest and taxes Depreciation of property, plant and equipment and amortization of intangible assets Gain/loss on disposal of intangible assets and property, plant and equipment 6.2, 6.3, Changes in inventories, trade receivables and other assets 6.6, , Changes in provisions Changes in trade payables and other liabilities Changes in deferred taxes Interest paid Interest received Income taxes paid Cash flow from operating activities Cash paid for the procurement of property, plant and equipment and intangible assets 6.2, Cash received from construction cost subsidies Cash received from disposals of property, plant and equipment Cash paid for the acquisition of financial assets Cash paid for business combinations net of cash acquired Cash flow from investing activities Cash received from the raising of loans Cash received from shareholder paid into equity Dividend payment Cash received from issuing the bond Cash paid from issuing loans to affiliates Cash paid for loan repayments Cash flow from financing activities Changes in cash and cash equivalents Cash and cash equivalents at the beginning of the fiscal year Cash and cash equivalents at the end of the fiscal year 6.8, of 91

33 Eurogrid GmbH Consolidated financial statements as of 31 Dec 2011 Consolidated statement of changes in equity Period: 2 March to 31 December 2010 EUR m Issued capital (*) Reserves Retained earnings Other comprehensive income Total As of 2 Mar Group profit for the year Gain from business combinations Total comprehensive income Cash received from shareholder Distribution Other changes As of 31 Dec Period: 1 January to 31 December 2011 EUR m Issued capital (*) Reserves Retained earnings Other comprehensive income Total As of 1 Jan Group profit for the year Total comprehensive income ,026.8 Distribution Other changes thereof relating to business combination As of 31 Dec Note: * = Eurogrid GmbH s issued capital amounts to EUR 25, of 91

34 Notes to the consolidated financial statements for fiscal year 2011 Translation from the German language Consolidated financial statements of Eurogrid GmbH, Berlin

35 Eurogrid GmbH Consolidated financial statements as of 31 Dec 2011 Table of contents 1 Basic information Summary of significant accounting policies Basis of presentation Basis of consolidation Foreign currency translation Property, plant and equipment Intangible assets Impairment of non-monetary assets Financial instruments Offsetting financial instruments Impairment of financial instruments Inventories Trade receivables Cash and cash equivalents Financial liabilities Trade payables Income tax Pensions and other long-term employee benefits Provisions Regulatory issues Revenue recognition Grants and subsidies Leases Financial risk management Financial risk factors Capital management Estimates and assumptions Accounting estimates and assumptions Fair value measurement Judgments in applying accounting policies Segment reporting Notes to the statement of financial position Categorization of financial instruments of 91

36 Consolidated financial statements as of 31 December 2011 Eurogrid GmbH 6.2 Intangible assets Property, plant and equipment Financial assets Long-term receivables Inventories Trade receivables and other receivables Cash and cash equivalents Equity Retained earnings and reserves Deferred taxes Provisions for pensions and similar obligations Financial and other liabilities Provisions Regulatory issues Notes to the income statement Revenue and income from the grid business Income increase (prior year: decrease) from regulatory issues Other income Cost of materials, purchased services and personnel Other expenses Amortization, depreciation and impairment Financial result Income tax Other notes Net gains/losses from financial instruments Notes to the statement of cash flows Contingent liabilities Other financial obligations Leases Business combinations Related party disclosures Subsequent events Auditor s fees in accordance with Sec. 314 (1) No. 9 HGB Exemption options pursuant to Sec. 264 (3)/Sec. 264b HGB Management List of shareholdings as of 31 December of 91

37 Eurogrid GmbH Consolidated financial statements as of 31 Dec Basic information Eurogrid GmbH, Berlin ( Eurogrid or the Company ), is a limited liability company founded in accordance with the law of the Federal Republic of Germany. Via the shareholder Eurogrid International CVBA/SCRL, Brussels, Belgium (Eurogrid International), the Belgian transmission system operators Elia System Operator NV/SA (Elia) and the Australian infrastructure fund Industry Funds Management (IFM) have shareholdings in the Company. The ultimate parent is Elia System Operator NV/SA. As a parent company domiciled in Germany, Eurogrid GmbH is obligated to prepare consolidated financial statements within the meaning of Sec. 315a HGB [ Handelsgesetzbuch : German Commercial Code]. Eurogrid has its registered office at Berlin, Eichenstrasse 3A, and is filed in the commercial register of the Berlin-Charlottenburg district court under HRB Eurogrid was founded on 2 March 2010, and as a result its first group fiscal year is an abbreviated fiscal year from 2 March to 31 December Eurogrid invests in electric grid infrastructure and in fiscal year acquired 100% of the shares in 50Hertz Transmission GmbH. The Group is responsible for the operation, maintenance, planning and expansion of the 380/220 kilovolt transmission grid in eastern Germany, Berlin and Hamburg. The consolidated financial statements were authorized for issue by management on 21 March Summary of significant accounting policies The principal accounting policies adopted in preparing these consolidated financial statements are presented in the following. The methods described below were consistently applied. 2.1 Basis of presentation We complied with the legal obligation to prepare consolidated financial statements and a group management report in accordance with Sec. 290 HGB by preparing consolidated financial statements pursuant to International Financial Reporting Standards (IFRSs) as endorsed by the EU as well as a group management report in accordance with Sec. 315 HGB (Sec. 315a (1) HGB). This version of the consolidated financial statements complies with the requirements of Sec. 315a HGB. It represents the legal basis for group accounting according to international financial reporting standards in Germany in conjunction with EC Directive No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the adoption of international financial reporting standards. The consolidated financial statements fully comply with all International Financial Reporting Standards (IFRSs) and interpretations of the International Reporting Interpretations Committee (IFRS IC) endorsed by the European Union (EU). All accounting standards and interpretations whose adoption is mandatory as of 31 December 2011 have been applied. Unless otherwise stated, all figures in the notes are presented in millions of euro ( million). Prior-year disclosures were restated individually in order to create consistency and comparability with the figures for fiscal year of 91

38 Consolidated financial statements as of 31 December 2011 Eurogrid GmbH Continuation of the Group The Group s planning and forecasts show that, taking into account expected changes to operating profit, the Group can continue its business operations on the basis of current financing. Management expects the Group to have sufficient liquidity available to continue its business operations in the near future. As a result, the Group prepared the consolidated financial statements assuming the continued existence of the Company as a going concern. Accounting standards applied New and amended standards and interpretations applied for the first time in fiscal year 2011: IAS 24 (revised) Related Party Disclosures, was issued in November 2009 and replaces IAS 24 (2003). The new standard is effective for annual periods beginning on or after 1 January The amendment to IAS 24 involved completely revising the definition of related parties. In applying the standard, the Group specifies transactions between subsidiaries and associates. This interpretation did not have any material effect on the Group. IAS 32 Amendment to IAS 32: Classification of Rights Issues. Stock options, options and warrants on a fixed number of treasury shares are now recognized for a fixed amount in any currency as an equity instrument, provided these are issued proportionately to all existing shareholders of the same class. The amendments are effective for fiscal years beginning on or after 1 February 2010 and do not have any effect on the Group. IFRS 1 Amendment to IFRS 1, Limited Exemptions from Comparative IFRS 7 Disclosures for Firsttime Adopters, Financial Instruments: Disclosures. This amendment gives first-time IFRS adopters the option to apply the transitional provisions for the new disclosure requirements adopted in March 2009 in IFRS 7. Under the option, first-time adopters can also choose not to disclose comparative figures for the new disclosure requirements of IFRS 7 for comparative periods ending before 31 December The amendments are effective for fiscal years beginning on or after 1 July 2010 and do not have any effect on the Group. IFRIC 14, IAS 19 Prepayments of a Minimum Funding Requirement. The amendment to interpretation IFRIC 14, IAS 19 Prepayments of a Minimum Funding Requirement is effective for fiscal years beginning on or after 1 January The economic benefits from the Company s prepayments, which reduce the future payments as a result of the minimum funding requirement, are recognized as an asset. The amendments are not relevant for the Group. IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments is effective for annual periods beginning on or after 1 July The interpretation regulates the accounting treatment at the debtor, if newly negotiated contractual conditions of a financial liability allow for it to partly or fully extinguish the financial liability by issuing equity instruments of its own, with a third party acting as the creditor. This interpretation does not have any effect on the Group. 34 of 91

39 Eurogrid GmbH Consolidated financial statements as of 31 Dec 2011 As part of the annual improvements project 2010, an annually appearing omnibus of amendments was issued in May 2010 with a view to making a number of amendments to IFRSs. The omnibus of amendments contains editorial corrections and smaller amendments to seven IFRSs and one interpretation. The amendments concern IFRS 1 First-time Adoption of IFRS. IFRS 3 Business Combinations, IFRS 7 Financial Instruments: Disclosures, IAS 1 Presentation of Financial Statements, IAS 27 Consolidated and Separate Financial Statements, IAS 34 Interim Financial Reporting and IFRIC 13 Customer Loyalty Programmes. The amendments are effective for fiscal years beginning on or after 1 July 2010 or 1 January 2011 and do not have a significant effect on the Group s financial position or performance. Standards, interpretations and amendments to standards that were not yet subject to mandatory adoption in 2011 and that have not been early adopted by the Group. IAS 1 Presentation of Financial Statements Presentation of Items of Other Comprehensive Income. The items of other comprehensive income are divided into amounts that are reclassified to the income statements and others for which this is not the case. It has yet to be transposed into European law. The amendments are effective for fiscal years beginning on or after 1 July IAS 12 Income Taxes: Recovery of Underlying Assets. The amendments contain an obligatory derogation rule for particular cases under the basic regulation of IAS 12.51, according to which deferred taxes must be measured to reflect the tax consequences from the manner in which the entity expects to recover or settle the underlying asset (or liability). It has yet to be transposed into European law. The amendments are applicable for fiscal years beginning on or after 1 January The effects on the Group are currently being assessed. IAS 19 Employee Benefits : The amendments do away with the corridor method and provide that finance costs be calculated on a net basis. It has yet to be transposed into European law. The amendments are applicable for fiscal years beginning on or after 1 January There are not expected to be any effects on the Group. IAS 27 Separate Financial Statements : IAS 27 (revised in 2011) contains all remaining provisions on separate financial statements after the provisions on control were moved to IFRS 10. It has yet to be transposed into European law. The amendments are applicable for fiscal years beginning on or after 1 January The effects on the Group are currently being assessed. IAS 28 Investments in Joint Ventures and Associates : IAS 28 (revised in 2011) contains provisions on jointly controlled entities or associates measured at equity following publication of IFRS 11. It has yet to be transposed into European law. The amendments are applicable for fiscal years beginning on or after 1 January The effects on the Group are currently being assessed. IAS 32 Offsetting of Financial Assets and Financial Liabilities. Clarifications regarding the terms currently and simultaneously were adopted into the application guidelines of IAS 32. It has yet to be transposed into European law. The amendments are expected to be effective retroactively for 35 of 91

40 Consolidated financial statements as of 31 December 2011 Eurogrid GmbH reporting periods beginning on or after 1 January The effects on the Group are currently being assessed. IFRS 1 Severe Hyperinflation and Removal of Fixed Dates of Application for First-time Adopters. This relates to two amendments to IFRS 1. The first amendment replaces all references to the fixed date 1 January 2004 by the date of transition to IFRSs, such that first-time adopters of IFRSs do not need to subsequently account, in accordance with IFRSs, for the derecognition of transactions that occurred before the date of transition to IFRSs and change the presentation. The second amendment provides guidance on how an entity should resume presenting financial statements in accordance with IFRSs after a period of severe hyperinflation, during which the entity had been unable to comply with IFRSs. It has yet to be transposed into European law. The amendments are effective for fiscal years beginning on or after 1 July 2011 and will not have any effect on the Group. IFRS 7 Financial Instruments: Disclosures Transfer of Financial Assets relates to the extension of disclosure requirements for transactions for the purpose of transferring financial assets for which certain rights and obligations remain with the transferring company or which were acquired as part of the transaction. The disclosures are designed to identify the relationships between the transfer of financial assets and the corresponding financial liabilities. The transferring entity is required to make extensive disclosures on the rights and obligations associated with the transaction. It was transposed into European law on 23 November The amendments are effective for fiscal years beginning on or after 1 July Potential effects on the Group are currently being assessed. IAS 7 Financial Instruments: Disclosures Offsetting of Financial Assets and Financial Liabilities. New mandatory disclosures for financial instruments were introduced to IFRS 7 under global netting agreements or similar agreements. This is expected to permit reconciliation from a gross to net risk position as the offsetting of underlying instruments under IAS 32 is no longer possible. It has yet to be transposed into European law. The amendments are expected to be effective retroactively for reporting periods beginning on or after 1 January The effects on the Group are currently being assessed. IFRS 9 Financial Instruments. This standard is the first step towards replacing the standard IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 fundamentally changes the previous provisions on the categorization and measurement of financial assets and liabilities. The standard has not yet been transposed into European law and is expected to be effective for fiscal years beginning on or after 1 January 2015, but can be early adopted. The Group has yet to analyze the effects of IFRS 9. IFRS 10 Consolidated Financial Statements. For all entities, a uniform consolidation model is to be introduced that is based on the parent s control of the subsidiary. The standard defines the principle of control and establishes it as a basis for consolidation. It has not yet been transposed into European law and is expected to be effective for fiscal years beginning on or after 1 January The Group has yet to analyze the effects of IFRS of 91

41 Eurogrid GmbH Consolidated financial statements as of 31 Dec 2011 IFRS 11 Joint Arrangements. The new standard provides a more realistic basis for joint arrangements, in which a greater focus is placed on the rights and obligations than on the contractual agreement. The amended definitions now provide for two types of joint arrangements: jointly controlled operations and joint ventures. The possibility of proportionate consolidation is to be abolished. The standard has not yet been transposed into European law and is expected to be effective for fiscal years beginning on or after 1 January The Group has yet to analyze the effects of IFRS 11. IFRS 12 Disclosure of Shares in Entities. The new standard will merge the revised disclosure requirements under IAS 27/IFRS 10, IAS 31/IFRS 11 and IAS 28 into one standard. The standard has not yet been transposed into European law and is expected to be effective for fiscal years beginning on or after 1 January The Group has yet to analyze the effects of IFRS 12. IFRS 13 Measurement at Fair Value. The new standard defines the term fair value, how measurement is determined and what disclosures have to be made. The standard has not yet been transposed into European law and is expected to be effective for fiscal years beginning on or after 1 January The Group has yet to analyze the effects of IFRS 13. IFRIC 20: Stripping Costs in the Production Phase of a Surface Mine. The standard has not yet been transposed into European law and is expected to be effective for fiscal years beginning on or after 1 January It will not have any implications for the Group. 2.2 Basis of consolidation The consolidated financial statements are prepared in accordance with following consolidation principles. Generally speaking, all subsidiaries are included in the Group s consolidated financial statements. Subsidiaries are all entities for which it is possible for Eurogrid to determine their financial and operating policy so as to benefit from their activities (controlled entities). When determining whether control exists, the existence of any potential voting rights is taken into account. This is not the case within the Group. Subsidiaries are generally included in the Eurogrid s consolidated financial statements (full consolidation) as of the date on which control is transferred to Eurogrid. They are deconsolidated on the date on which Eurogrid ceases to have control. Subsidiaries classified as held for sale are accounted for in accordance with the provisions of IFRS 5. The purchase method is used to account for acquired subsidiaries. The cost of the business combination corresponds to the fair value of the assets given, the equity instruments issued and the liabilities incurred and assumed as of the date of exchange. Acquisition-related costs are always treated as expenses, regardless of whether they can be directly allocated or not. Identifiable assets, liabilities and contingent liabilities in the course of the business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of non-controlling interests. 37 of 91

42 Consolidated financial statements as of 31 December 2011 Eurogrid GmbH The difference between acquisition costs and the pro rata net assets acquired at fair value is recognized as goodwill. If the cost of acquisition is less than the net assets of the subsidiary acquired measured at fair value, the difference is checked again and then recognized directly in profit or loss under other operating income. All transactions, balances and unrealized gains resulting from transactions between entities included in the consolidated financial statements of Eurogrid are eliminated. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. The financial statements of the domestic subsidiaries included in the consolidation are prepared using uniform accounting and measurement methods in accordance with IAS 27. The accounting policies of subsidiaries were adjusted as appropriate. Associates are entities over which the Group has significant influence but not exclusive control. These entities are initially measured at cost and then reported using the equity method. 2.3 Foreign currency translation The items in the financial statements of each group entity are measured in the currency of the primary economic environment in which the respective entity operates (functional currency). The consolidated financial statements are prepared in euro, which is the functional and reporting currency of Eurogrid. Transactions in foreign currencies are translated to the functional currency at the rates prevailing at the date of the transaction or at the measurement date for revaluations. Gains and losses from the settlement of such transactions and from the translation at the closing rate of monetary assets and liabilities in foreign currencies are recognized in the income statement unless they are recognized in equity as part of a hedging relationship. Foreign currency gains and losses resulting from the translation of cash and cash equivalents as well as financial liabilities are generally disclosed in the income statement under finance income or finance cost. 2.4 Property, plant and equipment Property, plant and equipment are measured at cost. They relate to any costs directly attributable to bringing the asset to the condition necessary for it to be capable of operating in the manner intended less accumulated depreciation (with the exception of land and assets under construction) and accumulated impairment losses. Costs for easement rights are included in the cost of the related item of property, plant and equipment. All directly allocable costs as well as appropriate portions of overheads are included in the cost of the asset. Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset within the meaning of IAS 23 are capitalized as part of the cost of that asset. The following useful lives are used when measuring depreciation. Depreciation on property, plant and equipment is recorded using the straight-line method. They are generally based on the useful lives 38 of 91

43 Eurogrid GmbH Consolidated financial statements as of 31 Dec 2011 prescribed by the regulatory framework and which appropriate reflect the economic usability of the asset. Useful life Buildings High-voltage grid facilities 25 to 60 years 25 to 40 years Furniture and fixtures, vehicles 5 to 15 years The residual values and economic useful lives are reviewed at each reporting date and adjusted if necessary. Should the carrying amount of an item of property, plant and equipment exceed its recoverable amount, the carrying amount is adjusted for the impairment loss, accordingly. No use is made of the revaluation method. 2.5 Intangible assets Intangible assets are measured at cost upon recognition and amortized over the respective useful life using the straight-line method. Amortization is based on the following useful lives: Useful life Standard and system/user software Rentals, leases and similar rights Franchises, patents, licenses and similar rights Company-specific software 4 years based on the underlying agreement 5 years Internally generated intangible assets 4 years Additional impairment losses are recognized, if required. 2.6 Impairment of non-monetary assets Assets which have an indefinite useful life are not depreciated. They are instead subject to an annual impairment test. Assets which are subject to regular depreciation or amortization are reviewed for impairment if conditions or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. An impairment loss reflects the excess of the carrying amount over the recoverable amount. The recoverable amount is the higher of fair value of the asset less costs to sell and value in use. For the purpose of impairment testing, assets are summarized at the level of the cash generating unit. For non-monetary assets subjected to an impairment adjustment in the past are reviewed at each reporting date to determine whether a write-up is required. No impairment losses on non-monetary assets were determined as of the reporting date. 39 of 91

44 Consolidated financial statements as of 31 December 2011 Eurogrid GmbH 2.7 Financial instruments Depending on the intended use, assets and financial liabilities are divided into the following measurement categories in accordance with IAS 39. Classification The classification depends on the characteristics as well as the purpose for which the financial asset in question was acquired. Ultimately, management determines the classification upon initial recognition. The Group does not have any assets in the measurement categories Financial assets at fair value through profit or loss and Held-to-maturity investments. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are generally disclosed under non-current assets. These are only disclosed under current assets if they do not fall due in more than 12 months from the end of the reporting period. The Group s loans and receivables are disclosed in the statement of financial position under Trade receivables and other assets as well as under Cash and cash equivalents. Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets which were classified under this category directly or were not classified to another category. They are disclosed under non-current assets, unless management plans to sell them within 12 months of the reporting date and they do not fall due within this period. Other investments are classified as available for sale. Financial liabilities measured at amortized cost Financial liabilities, trade payables and other non-current liabilities are disclosed under financial liabilities. These are only disclosed under current liabilities if they do not fall due in more than 12 months from the end of the reporting period. Recognition and measurement Acquisitions and sales of financial assets are recognized on the date of trading; this is regularly the day on which the Group makes a commitment to buy or sell the asset. All financial assets are recognized initially at fair value plus transaction costs, except in the case of financial assets recorded at fair value through profit or loss. Financial assets and financial liabilities are subsequently measured depending on their category in accordance with IAS 39. Loans and receivables as well as financial liabilities are measured as amortized cost using the effective interest method. 40 of 91

45 Eurogrid GmbH Consolidated financial statements as of 31 Dec 2011 Available-for-sale financial assets are generally measured at fair value. It is not possible to determine a fair value for other investments as the entities are not publically listed. Measurement at cost is maintained insofar as there is no indication of an objective and sustainable impairment of the investment. Financial assets are derecognized if the rights to cash flows from financial assets have expired or if the right to receive the cash flows has been transferred and the Group has substantially transferred all risks and rewards incidental to ownership. The Group recognized financial liabilities not measured at fair value through profit or loss at amortized cost using the effective interest method. 2.8 Offsetting financial instruments Financial assets and financial liabilities are offset and the net amount reported in the consolidated statement of financial position if, and only if, there is a legal right and intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously. 2.9 Impairment of financial instruments Whether there is any objective evidence that financial assets are impaired is determined at each reporting date. Impairment losses are only incurred if there is objective evidence of impairment as a result of an event that occurred after the first-time recognition of an asset and if this event has an impact on the estimated future cash flow of the financial asset that can be reliably estimated. With regard to financial assets, discernible risks and general credit risks are accounted for by recognizing appropriate write-downs based on past experience. Assets carried at amortized cost The Group regularly monitors whether the assets carried at amortized cost may be impaired on an objective basis. In this regard, various different criteria are applied as part of the individual assessment of customer or contractual relationships. Accounted for are, among others, indications of financial difficulty on the part of the customer or borrower, indications of a possible breach of contract or nonpayment, changes in the general market conditions, the threat of customers insolvency or other known facts that could have a negative impact on group profit. The amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset's original effective interest rate. The carrying amount of the asset is reduced and the loss recognized through profit or loss. If a loan or receivable has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Group may measure impairment of a financial asset carried at amortized cost on the basis of an instrument's fair value. If the impairment loss is reduced in the period subsequent to initial recognition, a reversal of impairment is recognized in profit or loss. 41 of 91

46 Consolidated financial statements as of 31 December 2011 Eurogrid GmbH Assets classified as available for sale A significant or prolonged decline in the fair value below cost constitutes objective evidence of impairment. If there is such evidence of impairment, the accumulated loss determined as the difference between its cost and current fair value, less any impairment loss on the asset previously recognized is taken from equity and released to profit or loss. As long as there is a reason for the reversal, reversals of impairment losses are recognized in profit or loss Inventories Inventories are stated at the lower of cost or net realizable value. Inventories solely include replacement and spare parts as well as, to a limited extent, raw materials and supplies. They are recognized at amortized cost. As a rule, they are measured at average prices. Cost of conversion does not contain any borrowing costs. Net realizable value is the estimated selling price in the ordinary course of business Trade receivables Trade receivables relate to the goods and services sold in the Group s core business during the ordinary course of its business. Trade receivables are recognized at fair value and subsequently measured at amortized cost using the effective interest method after deducting impairment losses Cash and cash equivalents Cash includes cash, checks and bank balances. Cash equivalents are short-term, highly liquid investments that are readily or within a period of not more than three months convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Cash and cash equivalents are recognized as fair value upon recognition and at amortized cost in subsequent periods Financial liabilities Financial liabilities are measured at amortized cost upon initial recognition using the effective interest method. They are subsequently measured at amortized cost; any difference between the amount received and the amount repayable resulting from transaction costs or a discount is released to the income statement over the term of the liability using the effective interest method Trade payables Trade payables are payment obligations for the Group relating to the goods or services purchased in the Group s core business during the ordinary course of its business. They are classified under current liabilities if the payment obligation falls due within one year or within the normal business cycle. Otherwise they are recognized under non-current liabilities. 42 of 91

47 Eurogrid GmbH Consolidated financial statements as of 31 Dec 2011 Trade payables are initially recognized at fair value. They are subsequently measured at amortized cost using the effective interest method Income tax The current tax expense/income is determined on the basis of the taxable income for the year. Taxable income differs from the net profit taken from the income statement as it does not include expenses and income that are never or only taxable or tax deductible in later years. Liabilities or receivables at Eurogrid from current taxes are calculated on the basis of the applicable tax rates in Germany due to the fact that the Group operates here and generates taxable income. In accordance with IAS 12, deferred taxes are generally recognized on all temporary differences between the tax carrying amounts and the carrying amounts pursuant to the IFRS financial statements if this results in tax relief or liabilities in the future. Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be offset. Deferred tax liabilities for taxable temporary differences associated with investments in subsidiaries are recognized unless the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Expected future tax reductions from loss carryforwards, interest carryforwards and tax credits are recognized if it is likely in the foreseeable future that sufficient taxable income will be generated and offset against unused tax loss carryforwards or tax credits. Deferred taxes are measured using the tax rates and tax law enacted or substantively enacted by the reporting date and that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax assets and deferred tax liabilities are offset if these income tax claims and liabilities relates to the same tax authority and the same taxable entity. Deferred income tax assets and liabilities are recognized and carried such that - depending on the treatment of the underlying item - they are recognized either under income taxes though profit and loss or directly in equity in the appropriate equity item Pensions and other long-term employee benefits The entities included in the Group have both defined benefit and defined contribution plans. A defined benefit contribution plan involves a fixed pension to be paid to an employee upon retirement, which is usually based on one or several factors such as the employee s age, years of service and salary. The provision for defined benefit plans recognized in the statement of financial position corresponds to the present value of the defined benefit obligation (DBO) as of the end of the reporting period, the past service costs and less the fair value of any existing plan assets. The DBO is calculated annually by an independent actuary using the projected unit credit method (PUCM). The present value of the DBO is calculated by discounting the future expected cash outflows using the interest rate on top-rated corporate bonds denominated in the currency in which the benefits are paid and with the same maturities as the pension obligation. 43 of 91

48 Consolidated financial statements as of 31 December 2011 Eurogrid GmbH Actuarial gains and losses based on experience adjustments and changes in actuarial assumptions are recorded in other comprehensive income. Past service cost is recognized immediately unless changes in the pension plan depend on the employee s service at the Company for a fixed period. In such cases, the past service costs are recognized as an expense on a straight-line basis over the period until the benefits become vested. All expenses for benefits to employees are disclosed under personnel expenses. Similar obligations also arise for pension and one-off payments paid to employees if they are still employed at a Group entity upon retirement or at the time they become entitled to such a payment. The provision for the German phased retirement scheme is measured in accordance with actuarial reports based on the 2005 G mortality tables from Prof. Dr. Klaus Heubeck using an appropriate discount rate. The provision for long-service bonuses was calculated in accordance with actuarial principles taking into account an appropriate markdown allowing for employee turnover and discount rate. It is measured on the basis of the 2005 G mortality tables from Prof. Dr. Klaus Heubeck for the earliest possible age of inclusion for the statutory pension insurance scheme. The provisions for working lifetime accounts measured in accordance with actual reports based on the 2005 G mortality tables from Prof. Dr. Klaus Heubeck using an appropriate discount rate. Vacation provisions and flexitime accounts are measured at the daily rates or the average hourly rate including the social security contributions due. The covering assets recognized as a result of the insolvency hedging of employee entitlements for the German phased retirement scheme and working lifetime accounts are netted with provisions Provisions Provisions for compensation payments to easement providers, environmental protection measures and litigation are recognized when the Group has a present legal or constructive obligation from a past event, it is more likely than not that its settlement will lead to an outflow of resources and the amount of the provision can be determined reliably. Provisions are not recognized for future operating losses. Provisions are measured at the present value of the expected cash outflows using a pre-tax discount rate that reflects current market assessments of the time value of money and risks specific to the given obligation. Increases in provisions relating to additions to reflect the passage of time are posted to the income statement as interest expenses Regulatory issues The Group is subject to the regulatory framework, which has a direct and significant impact on the network user charges levied (revenue) by 50Hertz Transmission as a transmission system operator. Based on the revenue caps determined by the Federal Network Agency (Bundesnetzagentur: BNetzA) for each calendar year relating to the expected or budgeted cost approaches for the regulatory activities of the transmission system operator as well as the permitted returns, there are regularly 44 of 91

49 Eurogrid GmbH Consolidated financial statements as of 31 Dec 2011 corrections that are subsequently made to the originally determined revenue caps. In addition to determining and, if necessary, subsequently correcting the revenue caps, the BNetzA also determines other important fee-based issues relating to follow-up invoices in subsequent periods; such follow-up invoices are issued at the request of/in consultation with the BNetzA. The IFRS standards and interpretations subject to mandatory application in the EU are not currently applicable to regulatory issues; a basis for recognizing the issues described here in the consolidated financial statements is therefore lacking. Referring to IAS 8.10 et seq., management believes that the regulatory issues must be included in the consolidated financial statements in order to give a true and fair view of the financial position and performance of the Group as this is the only way to provide a basis for the economic decision-making of the users of the financial statements. Failing to present these regulatory issues would result in the regulatory framework that is of such importance for the Group as well as the true impact on the economic situation of the Group not being adequately taken into account in the consolidated financial statements. Regulatory claims and obligations are recognized in these consolidated financial statements. Claims arise if the Group can expect higher network user charges in future periods as compensation for expenses or losses already incurred; obligations arise if lower network user charges are expected in future periods as compensation for income or cash inflows already received. The Group is able to very accurately determine amounts due in future periods based on recalculations. The effect of regulatory issues on profit and loss is recognized directly in revenue. The corresponding interest effect is included in the financial result Revenue recognition Revenue is only generally recognized when the risk has been transferred to the customer. Substantially all the risks and rewards are transferred to the customer together with the transfer of title or ownership. Revenue is measured at the fair value of the consideration received or receivable for goods or services. Revenue is recognized net of any sales deductions, price discounts or rebates and VAT as well as after elimination of intercompany sales. Adjusting for the business recognized directly in equity, revenue largely results from the transfer of electrical energy via grids, additional services relating to the grid-based business as well as from the establishment and operation of power lines and the related facilities for connecting offshore wind turbines to an electricity transmission or distribution grid. Revenue from services is recognized on performance of the services if the amount of revenue can be reliably measured and the inflow of economic benefit from the transaction is probable. Other income is recognized if the amount of revenue can be reliably measured and the inflow of economic benefit from the transaction is probable. Interest income is recognized using the effective interest method. 45 of 91

50 Consolidated financial statements as of 31 December 2011 Eurogrid GmbH 2.20 Grants and subsidies Payments from customers relating to the creation of grid connections are immediately recognized in profit or loss at the time of commissioning of the facility being constructed. Depending on whether they are allocated to individual assets or certain purposes, payments from public institutions are handled in such a way that reflects the conditions at which they are granted. Expense subsidies are recognized in profit and loss in the periods in which the corresponding expenses are incurred; investment-related grants are generally amortized over the useful life of the asset concerned Leases Leases that substantially transfer all the risks and rewards incident to ownership to the lessee are recognized as finance leases at the lessee pursuant to IAS 17 in conjunction with IFRIC 4. All other leases that do not transfer the key risks and rewards of ownership of the asset to the Group are recognized as operating leases; payments received or made as part of such agreements are recognized in the income statement in the period they relate to on a straight-line basis over the term of the lease. 3 Financial risk management 3.1 Financial risk factors Group-wide risk management focuses on the uncertainty of developments on financial markets and aims at minimizing potential adverse effects on the cash flows of the Group. Risk management is performed in accordance with the policies issued by management. It identifies, assesses and hedges financial risks in close cooperation with the operating units of the Group. Management defines principles for cross-functional risk management and issues policies for the handling of currency, interest and credit risks, the use of derivative and non-derivative financial instruments as well as the use of liquidity surpluses. As a result of the Group s operations, Eurogrid and its subsidiaries are generally exposed to a variety of financial risks. Market risk The market risk takes into account negative effects on the financial position and cash flows of the Group arising as a result of price changes on the market which cannot be avoided otherwise. The activities of the Group extend to the electricity market in particular as part of selling the electricity generated from renewable energies as well as procurement of energy to cover grid losses as well as to the market for short-term deposits. The Group is not subject to any foreign currency risks for its investments. Market risks stemming from the procurement of commodities are also largely excluded. 46 of 91

51 Eurogrid GmbH Consolidated financial statements as of 31 Dec 2011 Foreign currency risk The Group is only exposed to an insignificant foreign currency risk as a result of the very limited volume of transactions it performs in foreign currency. Interest rate risk The interest rate risk takes into account any negative effects (e.g., resulting from a fall in market liquidity and/or the rating) by means of changes to the interest rates available on the market. It reflects the danger of the Group making repurchases with its financial resources at poorer conditions. The Group actively manages interest rate risks by continuously observing the market as well as regularly following up on short and mid-term financial planning, allowing it to manage risks and optimize its cash and cash equivalents. The fixed-interest bond of EUR 500m issued in 2010 serves as a key basis for the Group s debt financing, protecting the Group from short-term interest rate risks. Liquidity risk The liquidity risk can generally arise at any time as a result of a major deviation between incoming and outgoing cash flows. Liquidity risks can arise from the core business of the group entities 50Hertz Transmission and 50Hertz Offshore if the actual financial requirements deviate significantly from the underlying financial planning in the short term. In particular in connection with the obligation to accept and provide payment for electricity generated from renewable energies as well as the sale of this electricity on the electricity exchange, there are considerable liquidity fluctuations that arise everyday which the Group tries its best to anticipate. The Group s short-term and medium-term liquidity position is regularly monitored to manage liquidity risks. The Group is soundly equipped with funds and credit lines that can also be drawn at short notice for any liquidity needs that arise. The credit lines available to but not drawn by the Group total EUR 470m and are provided by banks. The solvency of the Group and its Group entities is secured at all times. Credit risk The credit risk is managed across the Group. When entering into contractual relationships as well as concluding transactions, the credit rating and creditworthiness is reviewed as standard. Business transactions are generally only conducted with partners recognized as being creditworthy. As a way of limiting the credit risk on a case-by-case basis, suitable measures are taken to prevent any damage to the Group or subsidiaries. As a result of the long-standing customer relationships in some areas and the resulting partnerships that have developed, the Group is also able to limit potential credit risks. Observing an investment policy, the Group participates in the short-term investment of freely available funds with various banks with excellent credit ratings; investments are only made up to the deposit protection limit. As such, there are no significant risks posed for the Group as a result of the short-term nature of the term deposits and the high rating requirements placed on the banks; for this reason, the Group does not expect a credit risk to arise. No credit limit was exceeded during the reporting period. 47 of 91

52 Consolidated financial statements as of 31 December 2011 Eurogrid GmbH The maximum credit risk on the reporting date was equivalent to the total of the loans and receivables issued (EUR 1,074.4m; prior year: EUR 915.0m) less the cash and cash equivalents contained therein (EUR 352.7m; prior year: EUR 218.9m), i.e., EUR 721.7m (prior year: EUR 696.1m). On the basis of past experience of actual defaults, the actual credit risk is deemed to be low. 3.2 Capital management As part of its medium to long-term planning, the Group uses a forecast of its statement of financial position taking into account the requirements of capital maintenance. Management of the Group s equity ratio is of major importance for the Group with regard to the regulatory framework and attainable return and is constantly monitored and actively managed. The Group is not subject to any statutory or other such provisions on capital maintenance Note in EUR m in EUR m Total financial liabilities Less: cash and cash equivalents Net debt Equity Total equity 1, ,250.5 Debt ratio* 15% 28% Note: * Debt ratio calculated as ratio of net debt to equity 4 Estimates and assumptions Estimates and assumptions are made when preparing the consolidated financial statements. All judgments are reassessed continuously based on experience and expectations as to future events that appear to be appropriate in the circumstances. However, by their very nature, such estimates can only represent an approximation of actual events. 4.1 Accounting estimates and assumptions The Group makes estimates and assumptions especially when calculating/deriving fair values, measuring fixed assets, calculating and measuring provisions as well as determining deferred revenue in the energy business. In addition to estimates on the amount of the future expected cash flows, the forecast utilization, escalation factors and discount rate have a particularly large influence on the measurement of provisions. The interest rates used for discounting are derived from interest rate curves with appropriate maturities taking into account the financing situation of the Group and the market interest rate. Provisions for litigation are subject to uncertainly regarding the outcome of the court case. The Group recognizes provisions for pending and contingent litigation proceedings if the outcome is likely to result in an obligation of an uncertain amount. The useful lives of the fixed assets are chosen so as to obtain the best possible match with the actual depreciation of each asset. Depreciation of property, plant and equipment at 50Hertz Transmission is 48 of 91

53 Eurogrid GmbH Consolidated financial statements as of 31 Dec 2011 calculated based on the useful lives recognized by the BNetzA for regulatory purposes; the Group believes that these values represent the best possible approximation of actual events in terms of economic utilization. When preparing the consolidated financial statements, expenses and income and the corresponding receivables and liabilities for the implementation of the EEG process as well as for the accounting of the balancing group were determined based on preliminary data provided by third parties and partly based on forecasts. A final statement on the actual expenses and income incurred in the EEG process can only be made if there are audit certificates available for the electricity volumes fed in from EEG plants. With regard to the accounting of the balancing group, 50Hertz is reliant on the complete data from all balancing groups. Due to the very nature of the activity, these data are not available in their entirety as of the time of preparing the consolidated financial statements, resulting in uncertainties surrounding the amount of expenses and income in these areas. The related items of the consolidated financial statements were determined using the data available as well as relying on estimates and take into account the information available as of the time of preparing the consolidated financial statements. 4.2 Fair value measurement Fair values are determined on the basis of quoted market prices in active markets. If necessary, the values are derived from observed market prices. If there is no active market, fair values are determined using generally accepted valuation techniques on the basis of other observable transactions. 4.3 Judgments in applying accounting policies There of no special findings to report on with regard to judgments in applying accounting policies. 49 of 91

54 Consolidated financial statements as of 31 December 2011 Eurogrid GmbH 5 Segment reporting Segment reporting is performed in line with the Group s reporting and organizational structure underlying its internal management reporting system. The financial and economic situation of the segments is assessed on this basis and decisions are made on the allocation of resources to the segments. The chief operating decision-maker for the allocation of resources is Eurogrid s international board of directors. The board of directions assesses the result of the business segments on the basis of EBITDA (earnings before interest, tax, depreciation and amortization). Segment reporting comprises the reportable segments Non-profit business and Grid business. The segment Non-profit primarily comprises based on the EEG and its regulations the sale of feed-in volumes to the electricity exchange remaining after deliveries to other transmission system operators for settling the burdens on the transmission system operators stemming from the EEG. The costs not covered by sales revenue are compensated for by levying an annually constant and standard nationwide EEG cost allocation from the electricity distributors. Furthermore, this segment also reports services rendered for third parties if they relate to the EEG business and do not have any impact on earnings for the Group with the exception of any agreed fees for services. The allocation procedure in accordance with the KWKG as well as system services rendered for other transmission system operators also do not have any impact on earnings for the Group and are reported within this segment. The segment Grid business primarily comprises grid provision and grid management as well as balancing group management. Items are recorded under other when they cannot be directly allocated to any other segment. The segment figures have been determined in accordance with the Group s accounting policies. EBITDA was selected as the segment result. 50 of 91

55 Eurogrid GmbH Consolidated financial statements as of 31 Dec 2011 Segment reporting by business segment for the period from 2 March 2010 to 31 December 2010 Disclosures in EUR m Non-profit business Grid business Other and consolidation Total Revenue 2, ,282.1 Income reduction from regulatory issues Other income Expenses for material and purchased services -2, ,180.3 Other expenses EBITDA Amortization, depreciation and writedowns Financial result Income from business combinations Taxes Group profit for the year Segment reporting by business segment for the period from 1 January 2011 to 31 December 2011 Disclosures in EUR m Non-profit business Grid business Other and consolidation Total Revenue 6, ,884.0 Income reduction from regulatory issues Other income Expenses for material and purchased services -6, ,821.1 Other expenses EBITDA Amortization, depreciation and writedowns Financial result Income from business combinations Taxes Group profit for the year The implementation of the EEG gives rise to interest income and interest expenses for the Group which are refinanced via the EEG cost allocation. These items do not have any impact on earnings for the Group and are shown to fully present earnings generated in the operating business recognized directly in equity. In the reporting year, this related to interest income of EUR 1.3m (prior year: EUR 0.8m) and interest expenses of EUR 3.0m (prior year: EUR 0.7m). 51 of 91

56 Consolidated financial statements as of 31 December 2011 Eurogrid GmbH Within the grid business segment, the EEG bonus generated by the transmission system operator in fiscal year 2011 as well as the service fees as part of rendering services to third parties are disclosed under electricity sales. All revenue was generated with external customers. Revenue generated with external customers from other countries is not material in terms of the amount. Segment reporting by business segment for the period from 2 March 2010 to 31 December 2010 Disclosures in EUR m Non-profit business Grid business Other and consolidation Total Non-current assets - 1, ,462.8 Current assets ,118.6 Non-current liabilities Current liabilities Equity and other liabilities - 1, ,021.0 Segment reporting by business segment for the period from 1 January 2011 to 31 December 2011 Disclosures in EUR m Non-profit business Grid business Other and consolidation Total Non-current assets - 1, ,703.5 Current assets ,254.1 Non-current liabilities Current liabilities ,172.8 Equity and other liabilities - 1, ,081.4 Of the current assets and liabilities from business recognized directly in equity, EUR 666.3m (prior year: EUR 417.2m) relates to the development of the EEG business. 52 of 91

57 Eurogrid GmbH Consolidated financial statements as of 31 Dec Notes to the statement of financial position 6.1 Categorization of financial instruments Based on the consolidated statement of financial position, the recognized financial instruments refer to the following measurement categories: EUR m Loans and receivables Available-forsale financial assets Non-financial assets (outside the scope of IFRS 7) 31 Dec 2010 Non-current assets Intangible assets Property, plant and equipment - - 1, ,420.1 Financial assets Investment in associates Other investments Deferred tax assets Non-current receivables Total , ,462.8 Current assets Inventories and work in process Trade and other receivables Prepayments Trade receivables Receivables from income taxes Other receivables Cash and cash equivalents Total ,118.6 Total assets , , of 91

58 Consolidated financial statements as of 31 December 2011 Eurogrid GmbH EUR m Loans and receivables Available-forsale assets Non-financial assets (outside the scope of IFRS 7) 31 Dec 2011 Non-current assets Intangible assets Property,plant and equipment - - 1, ,660.8 Financial assets Investment in associates Other investments Deferred tax assets Non-current receivables Total , ,703.5 Current assets Inventories and work in process Trade and other receivables Prepayments Trade receivables Receivables from incometaxes Other receivables Cash and cash equivalents Total 1, ,254.1 Total assets 1, , , of 91

59 Eurogrid GmbH Consolidated financial statements as of 31 Dec 2011 EUR m Equity Available-for-sale financial liabilities Non-financial liabilities (outside the scope of IFRS 7) 31 Dec 2010 Issued capital Reserves Retained earnings Other comprehensive income Total Non-current liabilities Provision for deferred taxes Personnel provisions Other non-current provisions Financial liabilities Interest-bearing liabilities (bond) Other non-current liabilities Total Current liabilities Other provisions Trade payables Liabilities from income taxes Other liabilities Regulatory issues Regulatory claims Regulatory obligations Total Total equity and liabilities 1, , , of 91

60 Consolidated financial statements as of 31 December 2011 Eurogrid GmbH EUR m Available-for-sale financial liabilities Non-financial liabilities (outside the scope of IFRS 7) 31 Dec 2011 Equity Issued capital Reserves Retained earnings Other comprehensive income Total Non-current liabilities Provision for deferred taxes Personnel provisions Other non-current provisions Financial liabilities Interest-bearing liabilities (bond) Other non-current liabilities Total Current liabilities Other provisions Trade payables Liabilities from income taxes Other liabilities Regulatory issues Regulatory claims Regulatory obligations Total 1, ,292.4 Total equity and liabilities 1, , ,957.6 The bond had a fair value of EUR 492.0m (prior year: EUR 484.8m) on the reporting date. The fair value is the market value as of the reporting date plus amortized transaction costs. According to the opinion of the Group, the amount recognized for current financial assets and current financial liabilities (carrying amount) using information available as of the reporting date represents the best possible approximation of the fair values of these financial instruments. The fair value of the available-for-sale assets cannot be reliably determined; a fair value for this measurement category has not been disclosed due to the lack of an active market for trading with equity investments. The credit quality of financial assets that are neither past due nor impaired is determined based on available credit ratings or past loss experiences of business partners. No new terms were negotiated in the fiscal year for an asset that would otherwise have been impaired or past due. No financial assets deemed to be material by the Group are past due or impaired. 56 of 91

61 Eurogrid GmbH Consolidated financial statements as of 31 Dec Intangible assets Intangible assets break down as follows: EUR m Standard software and other intangible assets KONTEK right of use Total Cost As of 2 March Additions from business combinations Additions in abbreviated fiscal year Reclassifications Disposals As of 31 December Accumulated amortization As of 2 March Amortization in abbreviated fiscal year Reclassifications Disposals As of 31 December Carrying amounts As of 2 March As of 31 December of 91

62 Consolidated financial statements as of 31 December 2011 Eurogrid GmbH EUR m Standard software and intangible assets KONTEK right of use Total Cost As of 1 January 2011 before corrections Corrections As of 1 January 2011 before corrections Additions As of 31 December Accumulated amortization As of 1 January 2011 before corrections Corrections As of 1 January 2011 after corrections Additions As of 31 December Carrying amounts As of 1 January 2011 before corrections As of 1 January 2011 after corrections As of 31 December As of 31 December 2011, there were no indications of existing or emerging impairment. No internally generated intangible assets were recognized. The KONTEK right of use relates to the transmission link between Denmark and Germany and the continuing exchange of electrical output via this connection. The right of use has been in place since 1 July 2006 and is amortized over a total period of 27 years. The average remaining useful life of other intangible assets is 2.2 years. 58 of 91

63 Eurogrid GmbH Consolidated financial statements as of 31 Dec Property, plant and equipment EUR m Land and buildings High-voltage grid facilities Furniture and fixtures, vehicles Prepayments on property, plant and equipment and assets under construction Total Cost As of 2 March Additions from business combinations , ,347.6 Additions in abbreviated fiscal year Reclassifications Disposals As of 31 December , ,450.9 Accumulated depreciation As of 2 March Depreciation in abbreviated fiscal year Reclassifications Disposals As of 31 December Carrying amounts As of 2 March As of 31 December , , of 91

64 Consolidated financial statements as of 31 December 2011 Eurogrid GmbH EUR m Land and buildings High-voltage grid facilities Furniture and fixtures, vehicles Prepayments on property, plant and equipment and assets under construction Total Cost As of 1 January , ,450.9 Additions Reclassifications Disposals As of 31 December , ,742.3 Accumulated depreciation As of 1 January Additions Reclassifications Disposals As of 31 December Carrying amounts As of 1 January , ,420.1 As of 31 December , ,660.8 Borrowing costs totaling EUR 6.0m (prior year: EUR 1.9m) were recognized as an asset in the fiscal year in accordance with IAS 23. The average interest rate was 4.5%. 6.4 Financial assets EUR m 31 Dec Dec 2010 Shares in associates Other investments Total of 91

65 Eurogrid GmbH Consolidated financial statements as of 31 Dec 2011 The Company holds 20% of the shares in European Market Coupling Company GmbH (EMCC), Hamburg, as an associate. As of 31 December 2011, EMCC had six (prior year: five) employees. In its statutory financial statements as of 31 December 2011, EMCC discloses the following key data: EUR m 31 Dec Dec 2010 Receivables Cash and cash equivalents Total assets Liabilities Revenue and other income Net profit for the year The other investments comprise a 12.5% shareholding in Central Allocation Office GmbH (CAO), Freising, as well as a 10.07% shareholding in CORESO SA (Coreso), Brussels, Belgium, acquired in In accordance with IAS 39, the other investments are allocated to the category Available-forsale financial assets ; however, the Group does not intend to discontinue these investments. The Group believes the carrying amount to represent the best possible approximation to the fair value of the investments. There has not previously been any need for impairments or reversals of impairments. 6.5 Long-term receivables At EUR 2.3m, non-current receivables contain receivables from long-term customer contracts (prior year: EUR 3.9m). There are also loans issued to GridLab GmbH of EUR 1.4m (prior year: 0.0m) as well as to EMCC and CAO of EUR 0.4m (prior year: EUR 0.4m). 61 of 91

66 Consolidated financial statements as of 31 December 2011 Eurogrid GmbH 6.6 Inventories Inventories solely include replacement and spare parts as well as, to a limited extent, raw materials and supplies. They are recognized at cost. They are measured at average prices. EUR m 31 Dec Dec 2010 Raw materials and supplies Replacement and spare parts Total In the prior year, depreciation of EUR 14k was recognized on inventories as a result of carrying out an impairment test. 6.7 Trade receivables and other receivables EUR m 31 Dec Dec 2010 Trade receivables (including prepayments) Other receivables Other financial assets Receivables from taxes thereof income taxes Total Trade receivables are due within 12 months. Other receivables primarily comprise claims in connection with the implementation of the Renewable Energies Act. 62 of 91

67 Eurogrid GmbH Consolidated financial statements as of 31 Dec 2011 Maturity profile of receivables EUR m 31 Dec Dec 2010 not past due to 30 days past due to 60 days past due days up to one year past due more than one year past due Receivables without impairment losses Doubtful receivables Impaired receivables Net value of receivables Trade receivables of EUR 722.8m (prior year: EUR 691.7m) were fully recoverable as of 31 December Trade receivables due in less than two months are not regarded as impaired by the Company. As of 31 December 2011, trade receivables of EUR 3.6m (prior year: EUR 168.8m) were due in more than two months but not impaired. The receivables due result from transactions with various independent customers with no bad debts recorded in the past or at present. For non-impaired trade receivables, there were no indications of an urgent need for impairment. The maximum exposure to credit risk on the reporting date corresponds to the recorded net value of the receivables. The Group has received no security deposits. Write-downs on trade receivables break down as follows: EUR m 31 Dec Dec 2010 As of 1 January 2011 / 2 March Addition Utilization Net addition As of 31 December All recorded impairment losses were accounted for means of specific bad debt allowances. 63 of 91

68 Consolidated financial statements as of 31 December 2011 Eurogrid GmbH 6.8 Cash and cash equivalents Cash and cash equivalents relate to bank balances, largely in the form of overnight and weekly deposits. EUR m 31 Dec Dec 2010 Cash on hand, bank balances thereof restricted Time deposits Total Restricted cash (EUR 10.1m; prior year: EUR 30.0m) relates to a prepayment received on EU funding. Provision of these funds is the responsibility of the syndicate, which is responsible for the joint development of the assisted project. With a proportional share of 75%, a Group company is a part of this syndicate and manages the syndicate account. However, the Group may only have free access to its share of the funds at a later date; as a result, a current liability due from the EU was recognized in the same amount. 6.9 Equity The capital stock of Eurogrid is fully paid in, comprises one capital share and amounts to EUR 25,000. The share is wholly held by Eurogrid International. Changes in equity as well as other comprehensive income are presented separately in the statement of changes in equity and the statement of comprehensive income Retained earnings and reserves Reserves comprise capital reserves and retained earnings. In 2011, EUR 487.8m (earnings for 2010 of EUR 509.3m less the distribution of profits from 2010 of EUR 21.5m to Eurogrid International) was transferred to retained earnings. EUR 477.5m thereof relates to the negative difference from the business combination. For fiscal year 2011, there was consolidated net income of EUR 54.3m as well as distributions of EUR 65.0m to Eurogrid International. Deferred taxes recorded directly in equity relate exclusively to the effect from the measurement of the pension provisions recognized in other comprehensive income. We refer to the Group s statement of changes in equity and the statement of comprehensive income. 64 of 91

69 Eurogrid GmbH Consolidated financial statements as of 31 Dec Deferred taxes Deferred tax assets and liabilities are presented in the following tables: EUR m 31 Dec 2010 Deferred tax Deferred tax assets liabilities Property, plant and equipment Financial assets Other assets Provisions Liabilities and subsidies Deferred taxes before netting Netting Deferred taxes after netting EUR m 31 Dec 2011 Deferred tax assets Deferred tax liabilities Property, plant and equipment Financial assets - - Other assets Provisions Liabilities and subsidies Deferred taxes before netting Netting Deferred taxes after netting Deferred tax assets of EUR 15.0m (prior year: EUR 3.2m) were netted with deferred tax liabilities in Temporary differences in accordance with IAS 12.81(f), for which no deferred tax liabilities were recognized, amounted to EUR 19.6m (prior year: EUR 41.9m). In connection with the acquisition of 50Hertz Transmission by Eurogrid, deferred tax assets of EUR 2.4m (prior year: EUR 2.5m) were recognized from the purchase price allocation. The Group does not have any unused corporate income tax or trade tax losses. 65 of 91

70 Consolidated financial statements as of 31 December 2011 Eurogrid GmbH The maturity structure of deferred taxes can be summarized as follows: EUR m 31 Dec 2010 current non-current Deferred tax assets Deferred tax liabilities Net amount EUR m 31 Dec 2011 current non-current Deferred tax assets Deferred tax liabilities Net amount Of the deferred tax assets recognized, a total of EUR 0.5m (prior year: EUR 0.1m) was recorded in equity. These deferred taxes relate exclusively to the actuarial gains and losses for defined pension obligations and similar obligations recorded in the Group's other comprehensive income. Disclosures in EUR m 31 Dec 2010 Before taxes Income taxes After taxes Changes in actuarial losses for defined pension obligations Other comprehensive income Disclosures in EUR m 31 Dec 2011 Before taxes Income taxes After taxes Changes in actuarial losses for defined pension obligations Other comprehensive income Provisions for pensions and similar obligations A Provisions for pensions/employee benefits In addition to the benefits provided by state pension insurance institutions and private pension provision, there are also company pension benefits in place for employees at the Group. This company pension plan is based on collective bargaining and works agreements as well as on individual contract regulations. In place are defined benefit and contribution obligations, which grant old age, disability and surviving dependants pensions. 66 of 91

71 Eurogrid GmbH Consolidated financial statements as of 31 Dec 2011 Defined contribution plans In the case of externally financed defined contribution plans, the Company s obligation consists solely of paying the contributions. For those defined contribution plans recognized using the method of direct commitment, there are pledged congruent reinsurance policies in place. Existing defined contribution plans In the case of defined contribution plans financed via a congruent reinsured benefit fund and congruent reinsured direct guarantees, old age, disability and surviving dependants pensions are granted. Pension obligations for executives as a result of the agreement with the spokesmen of officers from 2003 This relates to individual contractual pension obligations based on an agreement with the spokesmen of officers in the version from 9 June 2003 valid as of 1 January Pension obligations for executives as a result of the agreement with the spokesmen of officers from 19 August 2008 This relates to individual contractual pension obligations based on an agreement with the spokesmen of officers on a company pension plan with the Vattenfall Europe Group on 19 August Collective bargaining agreement on the company pension scheme This relates to pension obligations based on the collective bargaining agreement on 50Hertz Transmission s company pension scheme on 28 November These only apply to employees that were at the Company until 31 December Individual commitments There are individual commitments in place which are financed exclusively by external pension funds (welfare fund and pension fund). Defined benefit plans Defined benefit plans give rise to direct pension claims of the employees against the Company; provisions are recognized in the statement of financial position for this purpose. In the event of recognizing plan assets, which solely serve to fulfill pension commitments, the amount is offset against the present value of the obligation. Existing defined benefit obligations Group works agreement on the company pension scheme In accordance with the group works agreement on the company pension scheme, employees are granted a company pension plan on the basis of a defined contribution plan (effective 1 January 67 of 91

72 Consolidated financial statements as of 31 December 2011 Eurogrid GmbH 2007). This agreement applies to all employees within the meaning of Sec. 5 (1) BetrVG Betriebsverfassungsgesetz : German Works Constitution Act] and came into effect at the Company as of 1 January 2007; participation in the scheme is voluntary. The scheme grants pension benefits upon reaching the statutory retirement age, upon taking early retirement from the statutory pension insurance, in the event of occupational disability as well as in the event of death. Current pension benefits are increased by 1% p.a. The scheme is based on a defined building block approach and comprises: Building block A: Employee contribution Building block B: Employer s contribution Building block C: Additional employee contribution Individual contractual and other contribution plans Individual contractual contribution plans are in place for management board members and executives. These include old age, disability and surviving dependants pensions. The contribution plans are based on the 1996 pension scheme for head management [ Ruhegeldordnung leitender Führungskreis 1996 ] from 10 May 1996 as well as on pension agreements with individual employees. In any event, they relate to pension commitments that depend on years of service and remuneration. For one of these commitments, plan assets were recognized in the form of a pledged pension insurance policy. These plan assets solely serve to fulfill pension commitments; the present value of the corresponding obligation was therefore offset against the plan assets. Pension commitments also still exist for individual employees that were acquired as a result of their employment at Vattenfall Europe (e.g., 1991 pension scheme, additional regulation to the old-age and life provident scheme for pension fund members). TVV Energie This relates to direct guarantees resulting from the collective bargaining agreement from 16 October 1992 (collectively bargained agreement on the termination of the collectively bargained agreement on the company s additional agreement concerning the TFEU s tariff category energy (TVV Energie) dated 20 July 1990/9 October 1990/8 November 1990). This pension plan was concluded for new entrants as of 1 January These contribution plans apply to employees that worked at Vereinigte Energiewerke AG until 30 November 2001 and whose vested benefits are allocable to Vattenfall Europe Transmission GmbH upon its formation (now 50Hertz Transmission GmbH). This relates to pension commitments that depend on years of service and remuneration. These commitments grant old age and disability pensions but none for surviving dependants. A dynamization of current postemployment benefits due for the first time after 1 January 1993 is not possible. 68 of 91

73 Eurogrid GmbH Consolidated financial statements as of 31 Dec 2011 Actuarial assumptions The following parameters were used for the measurement as of 31 December: 31 Dec Dec 2010 Discount rate 4.600% 5.000% Future expected wage and salary increases 3.500% 2.500% Future expected pension increase 1.000%/2.500%/3.000% 1.000%/1.750%/2.000% Inflation rate 2.500% 1.750% Expected increase in social security expenses 2.500% 2.250% Expected return on plan assets 5.000% 5.000% Biometrics 2005 G Heubeck mortality tables 2005 G Heubeck mortality tables Turnover probability No turnover assumed for executives No turnover assumed for executives Benefit obligations Direct benefit obligations, in terms of the defined benefit obligation, developed as follows: EUR m Defined benefit obligation as of 1 January Plan assets/business combination Current service cost Interest cost Actuarial gains and losses Benefits paid Defined benefit obligation as of 31 December of 91

74 Consolidated financial statements as of 31 December 2011 Eurogrid GmbH Presentation of pension provisions Pension provisions disclosed for direct benefit obligations result from comparing the defined benefit obligation and the fair value of the plan assets and are calculated as follows: EUR m Defined benefit obligations for Active employees Former employees with vested rights Beneficiaries Total Fair value of plan assets Amount recognized % Experience adjustments on obligation Experience adjustments on plan assets The experience adjustments reflect the effects from the existing obligation amounts and plan assets which stem from the discrepancy between the growth in plan assets in the fiscal year and the assumptions made at the beginning of the fiscal year. In the measurement of the benefit obligations, this includes in particular the development of salary increases and increases in pensions, employee turnover and biometric data such as cases of death and disability. Pension expenses Total expenses for defined benefit plans are comprised as follows: EUR m 1 Jan to 31 Dec Mar to 31 Dec 2010 Current service cost (personnel cost) Interest expenses Expected income from plan assets Effect of curtailment or settlement - - Recognized past service cost - - Total of 91

75 Eurogrid GmbH Consolidated financial statements as of 31 Dec 2011 Actuarial gains and losses are accrued and recognized in full. They are recognized outside of the statement of income in the statement of recognized income and expense (IAS 19, paragraph 93A). For an individual contractual obligation, a plan asset was recognized in the form of a congruent, pledged pension insurance policy. The pension payments expected for 2012 for fulfilling pension commitments amount to EUR 266,618. The actuarial gains and losses from defined benefit obligations recognized in the Group s equity and the corresponding plan assets developed as follows: EUR m Accumulated gains (+) /losses (-) recognized in equity as of 1 January Gains (+) /losses (-) from the current year recognized in equity Accumulated gains (+) /losses recognized in equity (-) as of 31 December B Provisions for personnel obligations The following obligations are included under personnel obligations: Obligations for long-service benefits Obligations from German phased retirement schemes Obligations for working lifetime accounts Existing plan assets serve only to fulfill pension commitments and are not available to creditors even in the event of insolvency. For this reason, the present value of the obligation is offset against the value of the plan assets. EUR m Obligations Plan assets Provisions As of 1 January Current service cost Interest expenses/income from plan assets Payment by plan participants Payments As of 31 December of 91

76 Consolidated financial statements as of 31 December 2011 Eurogrid GmbH 6.13 Financial and other liabilities The composition of financial liabilities is presented in the following table: EUR m 31 Dec Dec 2010 Bond Financial liabilities Trade payables (including prepayments) Other current liabilities Total financial liabilities 1, ,263.8 Other non-current liabilities Trade payables Liabilities from taxes thereof income taxes Total 1, ,319.1 A bond is disclosed under financial liabilities, which was issued as part of the Guaranteed Euro Medium Term Note (EMTN) program set up by Eurogrid. On 22 October 2010, Eurogrid placed the first resulting bond on the capital market at the conditions listed below. It is measured at amortized cost using the effective interest method. Volume EUR 500 m Term 10 years (until 22 October 2020) Coupon 3.875% p.a. (fixed) Issue price 99.18% (incl. fees) In accordance with agreed maturity dates and accrued interest, the contractually agreed cash outflows from financial liabilities will result in the following cash outflows in the future: EUR m Carrying amount 31 Dec to 2015 As of 2016 Total Bond Financial liabilities Trade payables (incl. prepayments) Other current liabilities Total financial liabilities 1, , of 91

77 Eurogrid GmbH Consolidated financial statements as of 31 Dec 2011 EUR m Carrying amount 31 Dec to 2016 As of 2017 Total Bond Financial liabilities Trade payables (incl. prepayments) Other current liabilities Total financial liabilities 1, , ,726.0 Other current liabilities of EUR 667.3m (prior year: EUR 388.1m) primarily comprise obligations of EUR 650.2m (prior year: EUR 367.1m) and EUR 17.1m (prior year: EUR 21.0m) resulting from the implementation of the EEG and the KWKG, respectively Provisions EUR m 31 Dec Dec 2010 Provision for environmental protection measures Provision for litigation risks Provision for rebuilding obligations Provision for archiving costs Other non-current provisions Provision for litigation risks Sundry other provisions Other current provisions Total other provisions Current portion of other personnel obligations Total provisions Provisions for litigation risks primarily comprise provisions for easement rights in accordance with Sec. 9 GBBerG [ Grundbuchbereinigungsgesetz : German Land Register Adjustment Law]. The obligation for the Group is known on its merits; the actual amount as well as the utilization date are based on experience and assumptions. The item also contains anticipated burdens from current lawsuits which take into account the principal claim as well as any interest payable, if necessary. 73 of 91

78 Consolidated financial statements as of 31 December 2011 Eurogrid GmbH The development of other provisions can be seen in the statement of changes in provisions below: EUR m Environmental protection measures GBBerG Other litigation risks Other Total As of 2 March Business combinations Addition Discounting/change in interest rate Utilization Reversal As of 31 December non-current current EUR m Enviromental protection measures GBBerG Other litigation risks Other Total As of 1 January Addition Discounting/change in interest rate Utilization Reversal As of 31 December non-current current of 91

79 Eurogrid GmbH Consolidated financial statements as of 31 Dec 2011 The expected utilization of other provisions is summarized below: EUR m Carrying amount 31 Dec to 2015 As of 2016 Environmental protection measures GBBerG Other litigation risks Sundry Total EUR m Carrying amount 31 Dec to 2016 As of 2017 Environmental protection measures GBBerG Other litigation risks Sundry Total Regulatory issues On the reporting date, the Group has an excess obligation resulting from comparison of regulatory claims and obligations. EUR m 31 Dec Dec 2010 Regulatory claims Regulatory obligations Total of 91

80 Consolidated financial statements as of 31 December 2011 Eurogrid GmbH On the basis of current assumptions, the figures reported at year-end spread over the subsequent periods as follows: EUR m Carrying amount 31 Dec As of 2015 Regulatory claims Regulatory obligations EUR m Carrying amount 31 Dec As of 2015 Regulatory claims Regulatory obligations of 91

81 Eurogrid GmbH Consolidated financial statements as of 31 Dec Notes to the income statement The income statement has been prepared using the cost-summary method. As a result of 50Hertz's first-time consolidation in the Eurogrid Group as of 1 June 2010, it must be taken into account that some of the prior-year figures presented below only relate to the seven-month period from 1 June to 31 December In light of this, comparability is limited. 7.1 Revenue and income from the grid business In addition to revenue from the grid business, the Group largely generates revenue from non-profit business. These result from the implementation of the EEG and KWKG without an effect on profit or loss as well as services rendered for third parties relating to the sale of EEG electricity. Total revenue is presented below and broken down into its components. Furthermore, for an economic assessment, the non-profit business is presented separately and deducted from revenue, and revenue from the grid business is broken down. EUR m 1 Jan to 31 Dec Mar to 31 Dec 2010 Revenue 6, ,282.1 Non-profit business EEG income 4, ,066.3 KWKG income Services to third parties 1, Total of cost-matching income from non-profit business 6, ,877.5 Accumulated income increase (prior year: income decrease) from regulatory issues Revenue from grid business and other revenue Segment reporting contains a breakdown of revenue into the segments Non-profit business and Grid business. Revenue from the grid business breaks down as follows: EUR m 1 Jan to 31 Dec Mar to 31 Dec 2010 Vertical grid income Increase in vertical grid income (prior year: decrease) through regulatory issues Horizontal grid income Total of 91

82 Consolidated financial statements as of 31 December 2011 Eurogrid GmbH Taking into account addition income from grid operations disclosed under other income (see section 7.3), the Group generated the following income from the grid business: EUR m 1 Jan to 31 Dec Mar to 31 Dec 2010 Revenue from grid business Recognized under other income: Balancing group management Income from measures pursuant to Sec. 13 EnWG Other grid-related income Total income from grid business Income increase (prior year: decrease) from regulatory issues EUR m 1 Jan to 31 Dec Mar to 31 Dec 2010 Increase in regulatory claims Increase in regulatory obligations Regulatory result The regulatory result portrays the influences on the result for the period resulting from the mechanism of offsetting an increase or decrease in income for the agreed network user charges. An increase in regulatory claims compensates for expenses already incurred by the Group which will flow back to the Group in subsequent periods via increased network user charges. An increase in regulatory obligations compensates for income already generated by the Group which will lead to a fall in network user charges in future periods. In fiscal year 2011, the period effects resulting from regulatory issues led to a EUR 0.7m increase in consolidated net income (prior year: EUR 36.2m decrease in consolidated net income). Cash flows will take effect in subsequent periods. 7.3 Other income EUR m 1 Jan to 31 Dec Mar to 31 Dec 2010 Balancing group management Income from measures pursuant to Sec. 13 EnWG Sundry other income Total of 91

83 Eurogrid GmbH Consolidated financial statements as of 31 Dec Cost of materials, purchased services and personnel EUR m 1 Jan to 31 Dec Mar to 31 Dec 2010 Cost of materials and purchased services 6, ,180.3 thereof non-profit business EEG costs 4, ,066.3 KWKG costs Services to third parties 1, Income-matching costs 6, ,877.5 Grid business costs and other purchased services Personnel expenses Cost of grid business, personnel and other purchased services The majority of expenditures for material, purchased services and personnel relates to the implementation of the EEG and KWWG as well as services to third parties from the sale of EEG electricity. 79 of 91

84 Consolidated financial statements as of 31 December 2011 Eurogrid GmbH The cost of grid operations and for other purchased services primarily relate to the following items: EUR m Expenses for system services Expenses for covering grid losses Expenses for measures in accordance with Sec. 13 EnWG Expenses for balancing activities Grid expenses Expenses for material and third-party services Other expenses for grid operations Total Personnel expenses comprise the following components: EUR m 1 Jan to 31 Dec Mar to 31 Dec 2010 Remuneration Social security Pension and welfare expenses Addition to other personnel provisions Total Of the EUR 3.2m in pension and welfare expenses, EUR 2.2m relates to expenses for defined contribution plans. Employees in the fiscal year 1 Jan to 31 Dec Mar to 31 Dec 2010 Salaried employees Wage earners Total Trainees at the Group Employee figures are calculated on an average basis using the final figures for each quarter. 80 of 91

85 Eurogrid GmbH Consolidated financial statements as of 31 Dec Other expenses EUR m 1 Jan to 31 Dec Mar to 31 Dec 2010 Changes in provisions and impairment losses Property-related expenses Duties, fees and other taxes Gains/losses from the disposal and sale of assets Total Amortization, depreciation and impairment EUR m 1 Jan to 31 Dec Mar to 31 Dec 2010 Depreciation of property, plant and equipment Amortization of intangible assets Total No impairment losses were recorded in the abbreviated fiscal year. 7.7 Financial result EUR m 1 Jan to 31 Dec Mar to 31 Dec 2010 Interest and similar income Financial income Interest expenses Interest portion of additions to provisions Interest effect from regulatory issues Other interest expenses Financial expenses Financial result The total interest income relating to loans and receivables amounts to EUR 5.1m (prior year: EUR 1.4m). Interest expenses relating to financial liabilities measured at amortized cost come to EUR 17.8m (prior year: EUR 14.0m). The interest expense for the bond calculated using the effective interest method amounts to EUR 345, for fiscal year of 91

86 Consolidated financial statements as of 31 December 2011 Eurogrid GmbH 7.8 Income tax Eurogrid, as the parent of the tax group, concluded a profit and loss transfer agreement with 50Hertz Transmission effective 1 June 2010 and established a consolidated tax group for income tax. The domination and profit and loss transfer agreement in place between 50Hertz Transmission and 50Hertz Offshore since 1 January 2008 still exists with 50Hertz Transmission as the interposed parent. Income taxes break down as follows: EUR m 1 Jan to 31 Dec Mar to 31 Dec 2010 Current taxes in fiscal year Current taxes in prior years Current taxes in fiscal year Current taxes in prior years Tax expenses from current taxes include income taxes for the current year of EUR 39.4m (prior year: EUR 8.2m) and for prior years of EUR 25.4m. Adjustment for prior years is due to regulatory obligations recorded in the statement of financial position not being recognized for tax purposes. Deferred tax assets of EUR 0.2m (prior year: deferred tax expenses of EUR 13.9m) relate to the origination and reversal of temporary differences in the current year. Deferred tax expenses for prior years of EUR 43.1m relates to the same matter as for current taxes. An additional EUR 0.05m relates to the remeasurement of the deferred taxes recognized in the separate financial statements of the group entities as of 31 December 2010 at the weighted trade tax rate of 13.37% valid for all communities as of 31 December 2011 (prior year: 13.38%). As of 31 December 2011, the useful lives permissible under tax law were adjusted to the longer useful lives under commercial law. This resulted in higher current taxes of EUR 8.6m, with deferred tax liabilities falling by this amount at the same time. 82 of 91

87 Eurogrid GmbH Consolidated financial statements as of 31 Dec 2011 The following reconciliation presents the differences between the expected tax expense/rate and the one disclosed: Earnings before income taxes in accordance with IFRSs Mar to 31 Dec 2010 EUR m % Group income tax rate 29.21% - Expected income tax expenses % 1. Change in tax rate % 2. Variance caused by measurement basis for trade tax % Change in impairment losses for/losses without recognition of 3. deferred taxes Non-deductible expenses % 5. Tax-free income % 6. Tax-free income from capital consolidation % 7. Change in permanent differences % 8. Other % Effective tax expenses/rate % 83 of 91

88 Consolidated financial statements as of 31 December 2011 Eurogrid GmbH Earnings before income taxes in accordance with IFRSs 75.8 Group income tax rate 29.20% 1 Jan to 31 Dec 2011 EUR m % Expected income tax expenses % 1. Change in tax rate % 2. Variance caused by measurement basis for trade tax % Change in impairment losses for/losses without recognition of 3. deferred taxes % 4. Non-deductible expenses % 5. Tax-free income % 6. Change in permanent differences % Effective tax expenses/rate % Deferred taxes were calculated using an overall tax rate of 29.20%. The tax rate comprises the corporate income tax rate in Germany of 15% plus solidarity surcharge (5.5%) and the trade tax rate of 13.37%, which reflects the weighted levy rate of all the municipalities within Eurogrid's consolidated tax group for The difference between the actual tax expense and the imputed tax expense is primarily due to trade tax addbacks. Permanent changes were primarily caused by effects stemming from the tax group existing between Eurogrid and 50Hertz Transmission. 84 of 91

89 Eurogrid GmbH Consolidated financial statements as of 31 Dec Other notes 8.1 Net gains/losses from financial instruments The table below gives an overview of total income and expenses from financial instruments in the measurement categories pursuant to IAS 39: EUR m 1 Jan to 31 Dec Mar to 31 Dec 2010 Loans and receivables Available-for-sale assets Financial liabilities measured at amortized cost The result from loans and receivables primarily contains valuation allowances on receivables. There is also interest income from financing activities as well as income from receivables already written off. 8.2 Notes to the statement of cash flows Cash and cash equivalents comprise bank balances of EUR 11.2m (prior year: EUR 46.9m) of which EUR 10.1m is restricted cash (prior year: EUR 30.0m) and short-term deposits of EUR 341.5m (prior year: EUR 172.0m). In the fiscal year, the Group made interest payments of EUR 17.4m (prior year: EUR 6.2m) and tax payments of EUR 53.9m (prior year: EUR 4.0m). 8.3 Contingent liabilities On 25 October 2011, 50Hertz Transmission, in its role as shareholder of EMCC, issued a guarantee of EUR 3.7m to Nordea Bank Finland Plc, German branch, to secure a loan granted to EMCC. As a result of the corporate transactions, the Group is jointly and severally liable for the following obligations: The Group is jointly and severally liable with Vattenfall Europe Distribution Berlin GmbH and Vattenfall Europe Berlin AG & Co. KG/their legal successor for the obligations from the franchise agreement with the Federal State of Berlin. The Group is jointly and severally liable with Vattenfall Europe Distribution Hamburg GmbH and Vattenfall Europe Hamburg AG & Co. KG/their legal successor for the obligations from the franchise agreement with the Free and Hanseatic City of Hamburg. As part of the spin-off of Vattenfall Europe Distribution Berlin GmbH and Vattenfall Europe Berlin AG & Co. KG/their legal successor performed in 2006, legal entities involved in the spin-off are jointly and severally liable for liabilities arising before the effective date of the spin-off. The liability periods in accordance with Sec. 133 UmwG [ Umwandlungsgesetz : German Law of Reorganizations] amount to 85 of 91

90 Consolidated financial statements as of 31 December 2011 Eurogrid GmbH five years for liabilities for the transferring legal entities; for the pension obligations arising before the effective date of the spin-off as a result of the BRG [ Betriebsrentengesetz : German Company Pensions Act], the liability period is 10 years. In accordance with Sec. 133 UmwG, the Group is also jointly and severally liable for a period of 5 years for the liabilities of Vattenfall Europe Distribution Hamburg GmbH and Vattenfall Europe Hamburg AG/their legal successor arising prior to the spin-off in Other financial obligations On 31 December 2011, there was a purchase obligation for investments and maintenance measures of EUR 538.2m (prior year: EUR 432m). With regard to the quantities of electricity to be procured to cover grid losses based on market conditions, the Group entered into purchase obligations of EUR 137.9m (prior year: EUR 118.7m). 8.5 Leases The Group leases business premises, vehicles and other tools and equipment as part of cancelable lease agreements. In accordance with the contractual minimum term/the earliest possible termination of the agreement, the contracts currently in place result in the following minimum lease payments for the Group: EUR m to 2015 As of 2016 Buildings Vehicles, IT and other Minimum lease payments EUR m to 2016 As of 2017 Buildings Vehicles, IT and other Minimum lease payments The Group also acts as lessor under operating leases. The leasing business presented here only represents an ancillary business, however. The contracts in place generally do not relate to separately identifiable assets or the exclusive granting of licenses for the use a separate asset to a particular customer; as a result, the assets associated with the operating lease have not been disclosed. The contractual relations with the Group as lessor result in the following minimum lease payments: 86 of 91

91 Eurogrid GmbH Consolidated financial statements as of 31 Dec 2011 EUR m to 2015 As of 2016 Buildings Telecommunications equipment Minimum lease payments EUR m to 2016 As of 2017 Buildings Telecommunications equipment Minimum lease payments Business combinations On 19 May 2010 (date of acquisition), Eurogrid acquired 100% of the shares in 50Hertz Transmission GmbH, Berlin, at a purchase price of EUR 464.6m. 50Hertz Transmission is responsible for the operation, maintenance, planning and expansion of the 380/220 kilovolt transmission grid in northern and eastern Germany. It is expected that this acquisition will increase the Group s presence in this business field and help it to save on costs as a result of increasing efficiency. The acquired company was consolidated for the first time in fiscal 2010 in accordance with IFRS 3 (2008) in connection with IAS 27 (2008). As part of the acquisition transaction, no contingent liabilities were identified nor were any equity instruments issued. In connection with the acquisition, the Group acquired an excess obligation of items not recognized to date of EUR 66.3m recorded at 50Hertz Transmission as of 31 May 2010 resulting from the offsetting of regulatory claims against regulatory obligations. This amount splits into regulatory claims that have already originated of EUR 88.9m and regulatory obligations of EUR 155.2m, which will be settled over subsequent network user charge periods. As part of the obligatory purchase price allocation, the fair value of all the acquired assets and liabilities was determined by calculating discounted net cash inflows from 50Hertz Transmission s assets attributable to the grid business as well as any dividends received. This was based on the Group s long-term planning, taking the regulatory framework into account. The business combination resulted in a total cash outflow of EUR 659.0m. This cash outflow is attributable to the cash consideration of EUR 464.6m for the acquisition of the shares as well as the acquisition and repayment of existing liabilities of 50Hertz Transmission to Vattenfall Europe of EUR 194.4m. The acquisition costs recognized in profit or loss in connection with the share acquisition amounts to EUR 13.3m. The fair value of the acquired receivables corresponds to the carrying amount, which, according to the Group, represents the best possible approximation of the fair value. 87 of 91

92 Consolidated financial statements as of 31 December 2011 Eurogrid GmbH As a result of allocating the purchase price to the acquired assets and liabilities, the Group recognized a positive difference (badwill) which resulted in a one-off effect of EUR 477.5m in fiscal year The acquisition price paid is the result of a bid process on the part of the Vattenfall Group as well as the ensuing contractual negotiations. There is no information available concerning additional economic conditions and motivations with particular regard to Vattenfall; as a result of the share transfer agreed on 11 March 2010, Vattenfall recorded an impairment loss on its investment in 50Hertz Transmission in its consolidated financial statements. The following overview summarizes the purchase price paid for the business combination as well as the value of the identified assets and assumed liabilities acquired on the date of acquisition. No operations were discontinued as a result of the business combination. EUR m Fair value as of date of acquisiton Intangible assets 32.4 Property, plant and equipment 1,338.9 Financial assets 0.3 Inventories 2.9 Trade and other receivables Deferred tax assets 2.5 Cash and cash equivalents - Provisions for pensions and other personnel provisions Provisions Loans - Trade payables and other liabilities Deferred tax liabilities Net value of assets 1,136.5 Total consideration Gain on purchase (badwill) Transaction costs Net result from the business combination of 91

93 Eurogrid GmbH Consolidated financial statements as of 31 Dec Related party disclosures Within the meaning of IAS 24, the Group defines the following entities and bodies as related parties: Controlling entities: Via Eurogrid International CVBA/SCRL, Elia System Operator NV/SA (Elia: 60% shareholding) and IFM Industry Funds Management No. 2 S.à.r.l. (IFM: 40% shareholding) together hold 100% of the shares in Eurogrid. No business transactions were settled with Elia and IFM in fiscal year Service agreements on general management and service functions are in place between Eurogrid and Eurogrid International. In the fiscal year, this resulted in expenses of EUR 1.5m for the Group (prior year: EUR 1.4m). On the reporting date, there was a liability to Eurogrid International of EUR 0.4m (prior year: EUR 1.4m). The Group also distributed a dividend of EUR 65.0m to Eurogrid International in the fiscal year. Co-subsidiaries of the Group: Eurogrid International holds 100% of the shares in GridLab GmbH, Cottbus (GridLab). In fiscal year 2010, a group entity sold non-current assets to GridLab, generating income of EUR 1.4m. On the reporting date, there was a receivable from GridLab equivalent to the agreed payment (EUR 1.4m) plus VAT owed (EUR 0.3m). GridLab paid the invoice on 1 January Furthermore, GridLab rendered technical and commercial services to 50Hertz Transmission GmbH of EUR 0.9m in the fiscal year. In June 2011, Eurogrid granted a loan of EUR 1.4m to GridLab. The loan is due on 30 June Associates: EMCC European Market Coupling Company GmbH is an associated group entity. On the reporting date, the Group issued a loan of EUR 0.3m to EMCC. In the fiscal year, the Group performed the following transactions for EMCC: EUR m 1 Jan to 31 Dec Mar to 31 Dec 2010 Revenue from selling underwater cable Expenses for cross-border auctions Transaction and service fees Earnings with associates Receivables as of 31 December Related parties (persons): Related persons include general managers and representatives of the controlling entities, general managers of the Group and group entities, the supervisory board of 50Hertz Transmission as well as their close family members and entities controlled, jointly controlled or significantly influenced by these entities or persons. 50Hertz Transmission granted a member of its supervisory board a long-term, interest-bearing loan still amounting to EUR 9k on the reporting date (prior year: EUR 12k). The members of the supervisory board received EUR 20k for their activities in 89 of 91

94 Consolidated financial statements as of 31 December 2011 Eurogrid GmbH the fiscal year (prior year: EUR 41k). Otherwise, no business transactions were settled with related persons. 8.8 Subsequent events Up to the date of preparing the consolidated financial statements, no significant transactions were performed that had an effect on the Group s financial position and performance in the reporting period. 8.9 Auditor s fees in accordance with Sec. 314 (1) No. 9 HGB The auditor of Eurogrid s consolidated financial statements, Ernst & Young GmbH, Wirtschaftsprüfungsgesellschaft, Berlin, received fees for audit services of EUR 172.5m (thereof EUR 15k for out-of-office expenses) in the fiscal year. Fees for audit services mainly comprise fees for the statutory audit of the consolidated financial statements and the separate financial statements of the group entities of Eurogrid. In addition, the auditor received EUR 28k for other services Exemption options pursuant to Sec. 264 (3)/Sec. 264b HGB The German subsidiaries with the legal form of a corporation do not make use of the exemption regulations in accordance with Sec. 264 (3)/Sec. 264b HGB Management Management comprised the following members in the reporting year: Werner Kerschl, Chairman, London, UK Bert Maes, Beveren-Waas, Belgium The general managers are not employed at the Company. No remuneration was paid. Berlin, 21 March 2012 The management of Eurogrid GmbH Kerschl Maes 90 of 91

95 Eurogrid GmbH Consolidated financial statements as of 31 Dec List of shareholdings as of 31 December 2011 a) Consolidated entities Name Registered office Commercial register no. Share Share % % 50Hertz Transmission GmbH Eichenstrasse 3a HRB Berlin Germany 50Hertz Offshore GmbH Eichenstrasse 3a HRB B Berlin Germany b) Associates Name Registered office Commercial register no. Share Share % % EMCC European Market Coupling Company GmbH Hopfenmarkt Hamburg Germany HRB c) Other investments Name Registered office Commercial register no. Share Share % % CAO Central Allocation Office GmbH Gute Änger Freising Germany HRB Coreso SA Avenue de Cortenbergh Brussels Belgium of 91

96 e Engagement Terms, Liability and Conditions of Use We, Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, conducted our audit of these financial statements on behalf of the Company. Besides satisfying the legal disclosure requirement (Sec. 325 HGB [ Handelsgesetzbuch : German Commercial Code]) for statutory audits, the audit opinion is addressed exclusively to the Company and was issued for internal purposes only. It is not intended for any other purpose or to serve as a decision-making basis for third parties. The result of voluntary audits summarized in the audit opinion is thus not intended to serve as a decision-making basis for third parties and must not be used for purposes other than those intended. Our work is based on our engagement letter for the audit of these financial statements, the Special Engagement Terms for Assurance and Advisory Business of Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft (1 July 2007) and the General Engagement Terms for Wirtschaftsprüfer und Wirtschaftsprüfungsgesellschaften [German Public Auditors and Public Audit Firms] as issued by the Institute of Public Auditors in Germany [ Institut der Wirtschaftsprüfer : IDW] on 1 January To clarify, we point out that we assume no responsibility, liability or other obligations towards third parties unless we have concluded a written agreement to the contrary with the respective third party or liability cannot effectively be precluded. We make express reference to the fact that we will not update the audit opinion to reflect events or circumstances arising after it was issued, unless required to do so by law. It is the sole responsibility of anyone taking note of the summarized result of our work contained in the audit opinion to decide whether and in what way this information is useful or suitable for their purposes and to supplement, verify or update it by means of their own review procedures.

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