ANNUAL REPORT 2014 Our energy in motion ELIA - ANNUAL REPORT 2014 ANNUAL REPORT ELIA - Summary 01 Executive report 01 — The system operator, a key player in the electrical system 02 — Challenges for a sustainable energy transition 04 — Letter from the Chairman1 06 — Letter from the CEO 08 — Key events in 20141 12 The Elia Group 12 — Playing a key role in a complex environment 14 — Two system operators, one European Group 16 — Dialogue with stakeholders 20 — Elia Group’s new strategy for creating added value 24 Challenges and prospects 24 — Prospects and challenges for 20151 26 — Guaranteeing reliable electricity transmission, both now and in the future 28 — Operating grid infrastructure 40 — Managing the electricity systems 46 — Facilitating the market 52 — An inside look at Elia 58 Corporate governance statement1 59 — Composition of the management bodies as at 31 December 2014 68 — Remuneration report 72 — Features of the internal control systems 76 — Risks and uncertainties facing the company 80 The Elia share in 2014 82 Consolidated financial statements 82 — Consolidated statement of financial position1 83 — Consolidated statement of changes in equity 84 — Consolidated statement of cash flows1 85 — Consolidated statement of comprehensive income 86 — Consolidated income statement1 87 Reporting parameters Discover our online report @ http://annualreport.elia.be/2014 1. These chapters form the annual report cf. article 119 of the Belgian Companies Code. The Elia Group in 2014 In fi gures DE/BE contribution to IFRS results Investments 254.2 45 % Mio€ Belgium Belgium 55 % 572.1 Germany Mio€ Germany 172.6 MIO€ Denmark Germany net profi t Belgium Poland 1.54 €/share Netherlands dividend Czech Republic 4.0 % France dividend yield Austria Switzerland (closing price 2014) Italy 2,539.2 MIO€ net debt In data 30,000,000 143,000 km2 residents covered covered 800 30,000 MW experienced engineers installed capacity and technicians of renewable energy 18,000 km 2,000 high-voltage lines in Belgium employees and in Germany 6 22 interconnections nationalities Source : www.eliagroup.eu/en/about-the-elia-group Key figures (in millions EUR) 20146 2013 2012 2011 20105 Consolidated results Total revenues and other income 838.9 1,389.5 1,306.6 1,278.4 1,037.5 EBITDA1 409.6 486.9 455.5 448.9 687.9 REBITDA2 409.6 486.9 455.5 448.9 409.4 Operating profit (REBIT3) 296.8 345.4 305.4 308.0 281.9 Operating profit (EBIT4) 296.8 345.4 305.4 308.0 560.4 Net finance costs (100.6) (108.5) (134.8) (128.6) (123.2) Income tax expenses (23.8) (61.5) (16.2) (43.3) (34.0) Profit attributable to the Owners of the Company 172.6 175.8 155.0 137.5 401.7 Basic earnings per share, incl. non-recurring elements (EUR) 2.84 2.90 2.57 2.28 7.36 Basic earnings per share, excl. non-recurring items (EUR) 2.84 2.90 2.57 2.28 2.28 Dividend per share (EUR) 1.54 1.54 1.47 1.47 1.40 Consolidated statement of financial position Total assets 5,697.0 6,532.2 6,187.0 5,843.8 5,904.0 Equity, attributable to the Owners of the Company 2,285.1 2,209.1 2,108.5 2,046.9 2,007.2 Net financial debt 2,539.2 2,733.8 2,910.8 2,532.9 2,551.4 Equity per share (EUR) 37.6 36.5 34.9 33.9 36.8 Number of shares (end of period) 60,738,264 60,568,229 60,555,809 60,355,217 60,355,217 1. EBITDA = EBIT + depreciation / amortization + changes in provisions 2. REBITDA = recurring EBITDA (excluding one-off items) 3. REBIT = recurring EBIT (excluding one-off items) 4. EBIT= Results from operating activities + Share of profit of equity-accounted investees, net of tax 5. The results of 50Hertz Transmission, consolidated at Eurogrid International level for the period from June to December 2010, were included in the consolidated Elia Group IFRS figures as at 31 December 2010 (60% proportionate consolidation). The first five months were booked as shareholders’ equity (opening balance), thereby benefitting Elia shareholders. 6. As of 2014, the companies previously consolidated proportionately are now accounted for using the equity method. The system operator, a key player in the electrical system Our vision The Elia Group is made up of two transmission system operators – Elia System Executive report Operator in Belgium and 50Hertz in northern and eastern Germany – plus Elia Grid 1 International, which offers consulting and engineering services worldwide. The Group aims Our vision to play an active, decisive role in the European energy market. This report provides an overview of what our employees have been doing in 2014 in their ongoing efforts to meet the needs of our customers, expand our expertise and develop new initiatives. Elia Group 2014 Europe’s energy landscape has undergone radical changes in the last ten years. These changes happened faster and were more dramatic than any seen over the fi fty years before. They are fundamental in nature and reach beyond national borders – in fact, they are taking place throughout Europe. This transition is refl ected in the planned nuclear shutdown, the growing share of renewables in the energy mix, the increasing presence of decentralised players on the energy landscape and the ageing of existing generation units. If they are to keep up with the energy transition, system operators must be extremely fl exible in their management of the electricity system so as to guarantee a reliable power supply at all times. This new situation has a fi nancial impact too, through its effects on the maintenance, extension and development of the transmission system. At the same time, system operators are being urged to keep system costs at an acceptable level as they work to make the energy revolution possible. We lead the way in the energy revolution by developing the diversifi ed, sustainable and reliable power systems, spanning land and sea, with new possibilities. Challenges for a sustainable energy transition Our challenges and activities 2 Security of supply is rooted in reliable grid management Our private and professional lives are increasingly dependent on electricity. It has become so simple for us to flick a switch that we have forgotten how complicated it is to manage the grid. Grid management requires a perfect balance, in real time, between the supply of electricity and the demand for electricity. Power cannot be stored on a large scale and the Elia Group does not generate its own electricity, yet it must ensure that generation and consumption are balanced at all times. To do this, the Group must cooperate extensively with producers, other system operators and consumers themselves. Elia and 50Hertz are working together to develop new mechanisms and solutions to allow greater flexibility, both nationally and internationally. OUR ACTIVITIES operating the electricity grid Grid development is vital for the integration of renewables Another key factor in the energy revolution is the fast-growing share of renewables in the energy mix. Renewable energies have a whole host of new characteristics that must be managed if they are to be incorporated facilitating the market safely into the system’s operation: — Intermittent, weather-dependent generation; — For offshore wind power: the wind farms are a long way from the consumption sites; — For solar power, biomass and combined heat and power: generation is usually decentralised and the marginal cost (price) of activating Executive report generation facilities puts these energy forms in a very good position in 3 operating infrastructure the merit order 1. In view of this, the Elia Group must adjust its grid and the operation of its system to cope with power generation from a variety of stakeholders, Our challenges and activities sources and profiles. Elia Group 2014 The rapid development of the renewable energy sector has brought about a deep-seated change in the electricity industry’s business model and has significantly affected the community as a whole. 1. The merit order is a way of ordering all the different sources of energy, especially electrical generation, on the basis of increasing production, from the lowest price to the highest. The development of the single European electricity market is supported by the grid The single European electricity market must foster competitiveness, guarantee security of supply and contribute to ensuring that our economy is sustainable. It must benefit both those who have activities in the sector and society as a whole. The Elia Group contributes to defining European and Elia Group does not generate national market rules with a view to achieving these aims. its own electricity, yet it must ensure that generation and consumption are balanced at all times. Letter from the Chairman In June 2014, I had the great honour of succeeding Luc Van Nevel as Chairman of the Board of Directors of the Elia Group. I wish to thank Luc very much for his 12 years at the helm of Elia, during which time he steered it through the critical phase of becoming a listed company and of building the Elia Group with the successful acquisition of 50Hertz. 2014 has been a year of advancements for the Elia Group, marked by major investment programmes in Germany and Belgium, the continued ascent of Elia’s stock price and the creation of Elia Grid International. The European Energy Union is moving forward towards fully integrated electricity grid and power markets incorporating ever-increasing volumes of renewable 4 generation, and the Elia Group will need to continue to anticipate and respond to the challenges of this transition to a secure, affordable and low-carbon electricity system.