Presentation Results 2011 13 February 2012 www.alliander.com - - PowerPoint PPT Presentation

SLIDE 1

Presentation Results 2011

13 February 2012

www.alliander.com

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Alliander results 2011 2

Disclaimer

This presentation is a translation of the Dutch presentation on the consolidated results for 2011 of Alliander N.V. Although this translation has been prepared with the utmost care, deviations form the Dutch presentation might nevertheless occur. In such cases, the Dutch presentation prevails. ‘We’, ‘Alliander’, ‘the company’, ‘the Alliander group’ or similar expressions are used in this presentation as synonyms for Alliander N.V. and its subsidiaries, Liander refers to the grid manager Liander N.V. and its subsidiaries. The name Endinet refers to the Endinet group, including grid manager Endinet B.V. Stam refers to Stam Heerhugowaard Holding B.V. and its subsidiaries and Liandon refers to Liandon B.V. Alliander N.V. is the sole shareholder of Liander N.V., Endinet Groep B.V., Liandon B.V., Alliander Telecom N.V., Alliander Participaties B.V., Verlian B.V., Stam Heerhugowaard Holding B.V. and Alliander AG. Parts of this presentation contain forward-looking information. These parts may –without limitation– include statements on government measures, including regulatory measures, on Alliander’s share and the share of its subsidiaries and joint ventures in existing and new markets, on industrial and macroeconomic trends and on the impact of these expectations on Alliander’s

• perating results. Such statements are preceded by, followed by or contain words such as ‘believes’, ‘expects’, ‘thinks’,

‘anticipates’ or similar expressions. These prospective statements are based on the current assumptions and are subject to known and unknown factors and other uncertainties, many of which are beyond Alliander’s control, so that future actual results may differ materially from these statements. This presentation has been prepared with due regard to the accounting policies applied in the preparation of the 2010 financial statements of Alliander N.V., which can be found on www.alliander.com. All financial information shown throughout this presentation has not been audited.

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Alliander results 2011 3

Content

• 1. Highlights
• 2. Alliander at a glance
• 3. Results 2011
• 4. Appendices

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Alliander results 2011 4

Highlights 2011

• Result 2011: € 251 million (2011: 222 million)
• Higher revenue due to increase in regulated tariffs and consolidation Endinet
• Increased OPEX
• Higher CAPEX
• Credit rating:
• S&P rating upgrade to A+/A-1/positive outlook from A/A-1/stable outlook
• Moody’s rating unchanged at Aa3/P-1/stable outlook
• Extension of maturity date RCF: € 600 million to 15 July 2016
• Bond buy-back of €250 million
• No Supreme Court decision yet on Court decision on Unbundling Act
• Dutch Upper House passed Bills involving the introduction of the smart meter
• Cost investigation announced by NMa
• Gradual introduction of new market model
• X-factors for new regulatory period (2011-2013) allowing tariff increases

Financial results and position 2011 Regulatory developments

• Reduction of average electricity outage
• Stable customer satisfaction
• Increase of staff
• Start of digitisation of substations by implementing SASensors
• Implementation of GSM outage alarms in transformer stations
• Taking part in national network of rapid charging points for electrical vehicles
• Transfer of public lighting activities Endinet to Ziut B.V.
• Participation in New Motion, Locamation and Plugwise by Alliander Participaties B.V.
• Alliander Finance B.V. merged into Alliander N.V.

Strategic and

• perational

developments

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Alliander results 2011 5

Content

• 1. Highlights
• 2. Alliander at a glance
• 3. Results 2011
• 4. Appendices

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Alliander results 2011 6

Stable public shareholder base

Alliander Shareholders: Provinces & Municipalities

100% owned by Dutch provinces and municipalities and privatisation is not allowed by law

Alliander’s grid coverage regions largely coincide with the shareholders base

(1) Includes province of Flevoland, and various municipalities located in the provinces of Gelderland, Friesland, Flevoland, Zuid-Holland and Noord-Holland (2) Endinet acquired as per 1 July 2010

Amsterdam Noord-Holland Gelderland Endinet (2) Friesland

Other 24% Friesland 13% Gelderland 45% Amsterdam 9% Noord-Holland 9%

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Alliander results 2011 7

Number of connections (x1,000)

2.056 1.946 3.020 2.631 2.054 2.607 52 187 138 102 207 32 53 55 4.000 4.687 5.627 394 191 134 107 1.000 2.000 3.000 4.000 5.000 6.000 Alliander Enexis Stedin Delta Cogas Rendo Westland

Electricity connections Gas connections

Market positions

• Alliander has 3 million

electricity connections and 2.6 million gas connections in the Netherlands

• Alliander has a market

position of 37%

Source: EnergieNed “Energy in the Netherlands” 2011 publication Notes: 1) Alliander includes Endinet with 451,000 gas connections en 106,000 electricity connections 2) Enexis includes Intergas with 148,000 gas connections

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Alliander results 2011 8

2 5 6 1 7 3 1 4 1 1

8

Overview Dutch energy networks

Source: EnergieNed “Energy in the Netherlands” 2011 publication, adjusted for Endinet acquisition by Alliander and Intergas acquisition by Enexis

Electricity Networks Gas Networks

COGAS (6) Westland Energie Infrastructuur BV (7) RENDO Netbeheer BV (5) Liander and Endinet (1) Stedin (3) Delta Netwerkbedrijf BV (4) ENEXIS and Intergas (2)

12 1 2 6 7 3 5 8 7 3 4 1 5 6 2 1 1 2 2 2

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Alliander results 2011 9

Position in Dutch energy value chain

Supply Production and trade Distribution Transmission Regulated Regulated

Dutch energy value chain has been partially liberalised over the years

Liberalised Liberalised

Vattenfall/Nuon RWE/Essent Tennet Gasunie

Alliander

Enexis Vattenfall/Nuon RWE/Essent

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Alliander results 2011 10

• Service, maintenance and automation of

complex energy infrastructures, including for TenneT

• Clients are in the stable and regulated

network sector

• Stable and predictable

cash flow

• Regional Grid Manager: Management of

regional electricity and gas grids

• Electricity & gas metering business
• Regulated assets
• Low risk profile due to

regulatory environment

• Regional Grid Manager in Eindhoven

and Oost-Brabant region. Management

• f regional electricity and gas grids
• Electricity & gas metering business
• Regulated assets
• Low risk profile due to regulatory

environment

Alliander’s businesses: stable cash flow profile

398

• 4

26 368 Operating profit

€ million

7,318

• 2,855

3,799 534 5,840 Total assets 1,297

• 295

428 88 1,076 Total operating expenses Operating expenses 1,695

• 295

432 114 1,444 Total operating income

• 295

284

• 11

Internal income 1,695

• 148

114 1,433 External income Operating income Total Eliminations Other (1) Network company Endinet Network operator Liander 2011 Results

(1) Comprises other activities within the Alliander Group including the activities of Liandon, Stam, Alliander A.G., Corporate departments and service units (both part of Alliander N.V.)

Regulated business >90%

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Alliander results 2011 11 Gas

X-Factor 2008–2010 2011–2013 Liander N.V. 6.1 (2.7) Endinet B.V. 7.2 (1.6) Delta Netwerkbedrijf B.V. 6.6 (0.4) Enexis B.V. 8.1 (3.4) Stedin B.V. 4.2 (2.8)

Regulatory environment

• Regulation aims for a balance between quality and

sustainability, whilst providing an incentive for efficiency

• Total cost recovery for the industry remains one of the basic

principles, which allows individual companies with an average performance to cover their full costs (including the WACC as set by the Energiekamer, applied on the standardised asset value)

• For the 2011-2013 period the WACC (in pre tax real terms) is

set at 6.2%

• x-factors(1) as determined by the regulator for the 2011-2013

period will allow increases in tariffs

• There is a difference between regulatory costs and

commercial costs with respect to the asset value.

Source: Energiekamer, Alliander

Electricity

X-Factor 2008–2010 2011–2013 Liander N.V. 3.6 (7.0) Endinet B.V. 4.6 (5.5) Delta Netwerkbedrijf 5.8 (6.6) Stedin B.V. 6.3 (7.9) Enexis B.V. 5.0 (6.2)

Constructive regulatory framework which does not allow for privatisation

(1) See page 37 for further explanation

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Alliander results 2011 12

Regulatory developments

Smart meter

• In February 2011, the Dutch Upper House passed the Bills involving the introduction of Smart Meters. Alliander intends to have

80% of the conventional meters replaced by smart meters by 2020.

• Small-scale rollout (pilot) in period 2012-2014

Metering Tariff

• Outlook: Metering tariffs will become regulated. Basic principle is that the tariffs enable the sector to cover the costs of

metering activities including regulatory return. New Act: Voorrang voor Duurzaam

• This addition to and change of the Electricity and Gas Acts, passed the Dutch Senate in November 2010. The act

encompasses the following main changes in relation to allowed revenue set by the regulator:

• Regulator has been given the option to adjust allowed revenue at once at the beginning of a new regulatory period (as
• f 1-1-2014)
• Transportation cost (charged by Tennet) will be classified as non-influenceable and will no longer be part of the

benchmark (as of 1-1-2014)

• Innovative exceptional investments may be exempt from the benchmark (as of 1-7-2011)

Market model

• The new market model consists of a number of measures devised to simplify administrative processes between energy

suppliers and customers and between energy suppliers and will be implemented by law step-by-step

• Of importance is the reallocation of responsibilities: separation of the operational management of the meter by the network
• perator and the administrative processing of the metering data by the energy suppliers.

Project ‘Stroom’

• Preparation of new Bills based on evaluation of the existing Electricity Act
• Aimed at providing more clarity on cost coverage of investments in tariff setting
• Based on sector input
• Bills will take effect at the start of the new regulatory period 2014-2016

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Alliander results 2011 13

Content

• 1. Highlights
• 2. Alliander at a glance
• 3. Results 2011
• 4. Appendices

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Alliander results 2011 14

Key figures 2011 (1)

€ million, or otherwise as stated

(1) The figures for 2010 have been restated to reflect a change in presentation whereby all fair value movements on financial instruments are recognised in finance income and expense with effect from 2011 (2) Comparable: reported excluding incidental items and fair value movements (3) Ratios according to the principles of Alliander’s financial policy Movement 2010 1 2011 '10-'11

Financial key figures Revenue reported 1,432 1,586 11% Operating profit reported / comparable (2) 337 398 18% Profit after tax reported 222 251 13% Profit after tax comparable (2) 174 228 31% Investments in property, plant and equipment 368 475 29% Ratios 31 Dec 2010 31 Dec 2011 Net debt position (3) 1,632 1,593 Solvency (3) 44.3% 47.5% FFO / Net Debt (3) 32.7% 34.1% Outage Electricity (in minutes) 31.2 20.4

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Alliander results 2011 15

Incidental items and fair value movements

€ million

(1) The figures for 2010 have been restated to reflect a change in presentation whereby all fair value movements on financial instruments are recognised in finance income and expense with effect from 2011

2010 1 2011 Impact on operating profit

• Finance income and expense
• 75

Total impact on profit before tax

• 75

Tax 48 110 Total impact on profit after tax 48 23

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Alliander results 2011 16

174 228 31%

2010 2011

1,071 1,137 6%

2010 2011

1,432 1,586 11%

2010 2011 Profit after taxation

Financial highlights

(1) 2011

€ million

337 398 18%

2010 2011 Revenue Purchasing costs, costs sub-contracted work and operating expenses Operating profit

(2)

(1) Excluding incidental items and fair value movements (2) The figures for 2010 have been restated to reflect a change in presentation whereby all fair value movements on financial instruments are recognised in finance income and expense with effect from 2011

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Alliander results 2011 17

Revenue (1) 2011

€ million 174 168 791 900 14% 315 357 13% 152 161 6%

• 3%

1,586 1,432 11% 2010 2011 Gas Electricity Metering services Other products (1) Excluding incidental items and fair value movements

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Alliander results 2011 18

Purchasing costs, costs of sub-contracted work and

• perating expenses (1) 2011

€ million 187 193 5% 450 427 8% 385 355 7% 109 102 3% 6% 1,071 1,137 2010 2011 Employee benefits Purchasing costs and costs of sub-contracted work Contract staff costs Other costs 1) Excluding incidental items and fair value movements

2) The figures for 2010 have been restated to reflect a change in presentation whereby all fair value movements on financial instruments are recognised in finance income and expense with effect from 2011

(2)

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Alliander results 2011 19

281 394 87 81 368 475 2010 2011

Cash flows and Capex 2011

€ million

508 527

2010 2011

168 129

2010 2011 Free cash flow (1) Cash flow from operations Investments in PP&E

Contributions received from third parties Net investments in property, plant and equipment

(1) Free cash flow is defined as the cash flow from operating activities less the net investment in property, plant and equipment (gross investment in property, plant and equipment less divestments, construction contributions, investment grants and government subsidies), acquisitions, investments in intangible assets and investments in non-current financial assets (associates and joint ventures).

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Alliander results 2011 20

Financial Position

31 December 2011, € million Maturity profile (2)

1,346 Net debt according to IFRS 247 50% of subordinated perpetual bond 1,593 Net debt according to financial policy 718 Total Cash and Cash Equivalents 149 CBL Investment 463 Other Investments 106 Cash 2,064 Gross Debt

Location of debt Capitalization Gross and Net debt

Equity 2.585 Euro Medium Term Notes 1.792 Shareholder loans 101 Finance lease 133 Other 38 Subordinated perpetual debt 494

(1) program size of € 3,000 million of which € 1,800 million is used (2) excluding € 133 million finance lease obligations Liander (3) including € 200 million L/C back-up facility (1)

Alliander N.V €125 Liandon Liander €137 (3) Endinet Alliander N.V € 1,925 Liandon Liander €139 (4) Endinet

5 590 5 5 306 66 440 509 5 200 400 600 800 1.000 2012 2013 2014 2015 2016 2017 2018 2019 >2020

• Credit facility (€ 600 million) (3)

First and second call option of subordinated perpetual bond (4) including € 133 million finance lease obligations Liander

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Alliander results 2011 21

2,064 2,277 2,312 1385 1533 247 1,346 149 125 1,408 138

1,655

1,385 247 1,632 247 1,593 569 744 789

Net debt

€ million

31 December 2010 30 June 2011

(1) including assets available for sale (2) according to the principles of Alliander’s financial policy the subordinated perpetual bond loan is treated as 50% equity

Net debt IFRS

31 December 2011

50% perpetual(2) Gross debt Unrestricted cash(1) Investments for CBL liabilities Net debt financial policy

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Alliander results 2011 22

• Stable dividend
• Pay-out: 45% of after-tax profit, adjusted for incidental items, unless CAPEX from regulatory obligations or financial criteria require

higher retained earnings

• Minimum solvency of 30% (1)

Alliander’s financial policy

• Part of overall policy and strategy
• Balance between protection of debt providers’ and

shareholder returns

• Financial strength and discipline
• Maintain cushion relative to regulatory criteria
• Flexibility to grow and invest
• Transparent reporting
• No structural subordination

Dividend Policy

• FFO/Net debt: Minimum 20%
• FFO Interest cover: Minimum 3.5
• Net debt/capitalization: Maximum 60%
• Solid A rating profile
• Comply with regulatory criteria for the grid operators

Financial Framework General Principles

(1) Solvency: Equity/Total assets net of deferred income

Strong financial profile with clear and well defined financial policy

Financial Policy

Liquidity Credit Rating/ Debt providers Shareholders’ equity

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Alliander results 2011 23

38.5 39.3 37.0 31 Dec 2010 30 Jun 2011 31 Dec 2011

Ratios financial policy (1)

34.1 32.7 35.8 31 Dec 2010 30 Jun 2011 31 Dec 2011 5.8 5.5 6.0 31 Dec 2010 30 Jun 2011 31 Dec 2011 47.5 44.3 45.2 31 Dec 2010 30 Jun 2011 31 Dec 2011

• min. 3.5x
• min. 20%
• min. 30%
• max. 60%

Interest cover (2) FFO(3) / Net debt Solvency (4)) Net debt/capitalisation (5)

(1) According to the principles of Alliander’s financial policy the subordinated perpetual bond loan is treated as 50% equity (2) Interest cover: profit after taxation adjusted for deferred tax asset movements and incidental items and fair value movements plus depreciation and net finance income and expenses, divided by net finance income and expenses adjusted for incidental items and fair value movements (3) Funds From Operations: 12-months profit after taxation adjusted for deferred tax asset movements and incidental items and fair-value movements plus depreciation

• f PP&E and intangible assets

(4) Solvency: equity including result period divided by total assets less the expected dividend distribution for the current year less deferred income (5) Net debt/capitalisation: net debt divided by the sum of net debt and equity

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Alliander results 2011 24

Strong credit ratings

Rationale

• Counts as a Government Related Issuers (GRI)

under Moody's methodology

• 100% ownership by a number of Dutch regional and

local governments provides comfort for expected systemic support in distressed situations

• Strong liquidity position supported by solid cash flow

generation, favourable debt maturity profile and reasonable dividend policy

• Compliance with all covenants with comfortable

headroom

• Moody’s expects Alliander not to materially divert

below its minimum credit metric, set within its financial policy: FFO interest coverage at or above 3.5x and FFO/Net Debt above 20% on a sustainable basis

• Moody’s has assigned a A3 issue rating to Alliander’s

subordinated perpetual bond and 50% equity weight Rationale

• Rating upgrade (30 August 2011) from A to A+

follows from adjusted credit measures that have strengthened due to higher tariffs and recent hybrid issuance.

• Strategic importance to the provinces and

municipality owners as the monopoly provider of gas and electricity distribution services in its licence areas

• Rating reflects S&P’s view on Alliander’s low-risk

regulated electricity and gas distribution network businesses, stable and predictable operating cash flow, high quality network assets and stable operating performance

• Positive outlook reflects the view that Alliander will

continue to report robust cash flow-based debt coverage ratios over the medium term, supported by healthy tariff increases in the 2011-2013 regulatory period

• S&P’s has assigned a BBB+ issue rating to

Alliander’s subordinated perpetual bond and 50% equity weight A+/Positive A-1 Aa3/Stable P-1

Source: Moody’s Investors Service as of March 11th, October 27th and December 29th, 2010, March 20th, 2011 and February 9tth, 2012. Standard and Poor’s as of August 6th, October 28th, 2010 and April 13th, August 30th and October 18th, 2011.

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Alliander results 2011 25

Outlook for 2012

The Management Board, in consultation with the Supervisory Board, has formulated the policy to not issue statements with regard to future expected results. Accordingly the Management Board publishes interim reports and does not issue statements on the expected results for the year 2012.

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Alliander results 2011 26

Content

• 1. Highlights
• 2. Alliander at a glance
• 3. Results 2011
• 4. Appendices
• Detailed results 2011
• Other

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Alliander results 2011 27

Results 2011 (1)

€ million

(1) The figures for 2010 have been restated to reflect a change in presentation whereby all fair value movements on financial instruments are recognised in finance income and expense with effect from 2011

2010 2011 Incid. excl Incid. excl Mov. 2010 items incid. 2011 items incid. '10 - '11 Revenue 1,432

• 1,432

1,586

• 1,586

Other income 93

• 93

109

• 109

Total income 1,525

• 1,525

1,695

• 1,695

11% Purchase costs and costs of subcontracted work 427

• 427

450

• 450

Employee benefits 355

• 355

385

• 385

Contract staff costs 102

• 102

109

• 109

Other operating expenses 187

• 187

193

• 193

Depreciation and impairments 241

• 241

312

• 312

Less: Own work capitalised

• 124
• 124
• 152
• 152

Total operating expenses 1,188

• 1,188

1,297

• 1,297

9% Operating profit (EBIT) 337

• 337

398

• 398

18% Finance income and expenses

• 115
• 115
• 176
• 75
• 101

Share in result of associates and joint ventures 8

• 8
• 5
• 12

7 Profit before tax 230

• 230

217

• 87

304 32% Tax

• 8

48

• 56

34 110

• 76

Profit after tax 222 48 174 251 23 228 31%

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Alliander results 2011 28

Consolidated balance sheet

€ million

Assets

Non-current assets 6,448 6,473 6,612 Current assets 451 419 600 Cash and cash equivalents 501 490 106 Total assets 7,400 7,382 7,318

Equity and liabilities

Equity Share capital 684 684 684 Perpetual loan 494 494 494 Reserves 1,506 1,642 1,650 Profit after tax 222 119 251 Total equity 2,906 2,939 3,079 Non-current liabilities Interest-bearing debt 2,280 1,769 1,555 Deferred income 1,474 1,485 1,505 Other non-current liabilities 211 194 204 Total non-current liabilities 3,965 3,448 3,264 Current liabilities Interest-bearing debt 32 508 509 Other current liabilties 497 487 466 Total current liabilities 529 995 975 Total equity and liabilities 7,400 7,382 7,318 31 December 2011 30 June 2011 31 December 2010

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Alliander results 2011 29

Cash flow statement 2011

€ million

(1) Free cash flow is defined as the cash flow from operating activities less the net investment in property, plant and equipment (gross investment in property, plant and equipment less divestments, construction contributions, investment grants and government subsidies), acquisitions, investments in intangible assets and investments in non-current financial assets (associates and joint ventures). 2010 2011 Profit after tax 222 251 Adjustments for: Finance income and expense 115 176 Tax 8

• 34

Profit after tax from associates and joint ventures

• 8

5 Depreciation and impairment less amortisation 200 255 Changes in working capital 11

• 72

Changes in deferred tax, provisions, derivatives and other 45 72 Cash flow from operations 593 653 Net interest paid and received

• 106
• 134

Dividends received from associates and joint ventures 5 1 Corporate income tax received (paid) 16 7 Cash flow from operating activities 508 527 Acquisitions, less acquired cash and cash equivalents

• 56
• Investments in property, plant and equipment
• 368
• 475

Construction contributions received 87 81 Investments in non-current financial assets (associates and joint ventures)

• 3
• 4

Cash flow from investing activities

• 340
• 398

New/repaid other current interest-bearing liabilities and current part of non-current debt

• 74
• 23

New non-current debt 24 23 Repaid non-current debt / new debt

• 684
• 259

Change in current deposits 176

• 170

Subordinated perpetual bond loan 494

• Interest coupon subordinatged perpetual bond loan
• 15

Dividend paid

• 54
• 80

Cash flow from financing activities

• 118
• 524

Net cash flow 50

• 395

Free cash flow (1) 168 129

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Alliander results 2011 30

Content

• 1. Highlights
• 2. Alliander at a glance
• 3. Results 2011
• 4. Appendices
• Detailed results 2011
• Other

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Alliander results 2011 31

(1) 48,1 including Helicopter accident in Tieler- en Bommelerwaard in December 2007

Grid reliability

24.0 27.4 31.2 20.4 29.7 24.3 23.5

10 20 30 40

2005 2006 2007 2008 2009 2010 2011

Average outage electricity per customer (min)

(1)

• electricity outage decreased

significantly in past 12 months, partly due to the application of new technologies and enhanced processes

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Alliander results 2011 32

Customer Satisfaction Business Customers

87% 88% 87% 86% 89% 74% 74% 79% 60% 70% 80% 90% 100% 2008 Q2 2008 Q4 2009 Q2 2009 Q4 2010 Q2 2010 Q4 2011 Q2 2011 Q4

Customer Satisfaction

• Customer Satisfaction Consumer Market

87% 89% 93% 91% 92% 92% 87% 88% 89% 60% 70% 80% 90% 100% 2008 Q2 2008 Q3 2008 Q4 2009 Q2 2009 Q4 2010 Q2 2010 Q4 2011 Q2 2011 Q4

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Alliander results 2011 33

Cross border leases

Basic structure and rationale

• Net Present Value of tax deferral for US investor
• Increase in solvency for Alliander by sharing NPV

with US investor

Rationale

At transaction closing: 1. Alliander leases grids to US Trust (headlease) 2. US Trust leases grids back to Alliander (sublease) 3. US Trust prepays all finance obligations under headlease to Alliander 4. US Trust finances these prepayments via equity provided by US Investor and bank debt 5. Alliander invests prepayment proceeds in a defeased structure (off balance):

• Deposits
• Bonds

During transaction: 6. Use of investment returns to fulfil financial lease

• bligations (off balance) and to fund purchase price

at end of sublease At end of sublease: 7. Alliander option to buy grids back against predetermined purchase price

Basic structure in steps Basic structure

1 3

US Trust Alliander Financial institutions US Investor Banks

Equity Debt Head lease Sub lease Prepayment Deposits and bonds Annual payment

• f financial lease
• bligations

4 4 5 6 2 Partly pledged Buy back 7

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Alliander results 2011 34

Cross border leases

Risks

• Obligation to pay contractual termination value in

case of:

• Event of default
• Event of loss
• Credit risk on investments
• General and tax indemnities
• Posting additional L/C’s in case of Alliander

downgrade

CBL related risks

Risk summary

• Contractual termination value represents the amount

needed to safeguard the intended transaction return in case of early contractual termination

• Equity strip risk varies over time depending on the

mark-to-market value of investments relative to contractual termination value.

Contractual termination value

(1) (1)

0,0 0,5 1,0 1,5 2,0 2,5 3,0 3,5 4,0 4,5 5,0

2 1 1 2 1 2 2 1 3 2 1 4 2 1 5 2 1 6 2 1 7 2 1 8 2 1 9 2 2 2 2 1 2 2 2 2 2 3 2 2 4 2 2 5 2 2 6 2 2 7 2 2 8

Contractual termination values CBL’s Alliander (USD billion)

Equity strip risk Contractual termination value Equity investments (1) Debt investments

(1) 2011 values are calculated based on the yield curve of 31 December 2011 whereas 2012- 2028 values are calculated based on yield curve at the moment of inception . 7 US leases (USD mln) 31 Dec 2010 31 Dec 2011 Equity strip risk 465 268 MtM risk 136 182 601 450 Letters of Credit (USD mln) 31 Dec 2010 31 Dec 2011 Issued 222 103 Additional LCs at A3/A- 232 138 Additional LCs at Baa1/BBB+ 18 18 Back-up facility (€ mln) 31 Dec 2010 31 Dec 2011 Back-up L/C Facility 200 200

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Alliander results 2011 35

CSR transparency

Alliander has based its Corporate Social Responsibility report on the Global Reporting Initiative (GRI) guidelines − Reports since 2008 − Currently at B+ level (2011) − Target level for 2012 is A+

• ISO 26000 Alliander adopts this global guideline for its corporate social

responsibility policy − Since 2010

• Alliander participates in the Transparency Benchmark for large Dutch

corporates performed by KPMG under aegis of the Dutch Ministery of Economic Affairs, Agriculture and Innovation. − Participates since 2008 − Ranked 12th position in 2011 (out of 470 companies), 42nd position in 2010 − Target level is at the forefront position

• Oekom Research has rated Alliander as Prime (overall grade B)

− Rating sinds 2011 − Target level is a Prime rating

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Alliander results 2011 36

Risk management

Alliander considers risk management as an integrated part of managing the organisation and guarantee business continuity within controlled levels of uncertainty. The chosen risk framework is based on three principles which are; applying COSO-principles for Enterprise Wide Risk Management, being compliant with the applied Code for Corporate Governance, the Dutch regulators and ‘form follows function’. The two main components are risk management infrastructure and the risk management process. The risk management infrastructure contains the following parts; risk policy, risk language, roles and responsibilities, risk reporting and risk technology. The risk management process is a continuing process which contains seven steps; determine goals, identify risks, risk assessment; determine mitigations efforts; design and testing control activities, monitoring control activities and evaluate and improvement of the risk process.

the Governance Structure for Risk Management

Roles and responsibilities for managing risk are defined according to the ‘Three lines of defense model’. The first line of defense is line management. Line management within Alliander is primarily responsible for managing risks and executing the control activities. The staff department risk management forms the second line of defense. They are responsible for developing and implementing the Alliander Risk policy including the risk framework, supporting the business units in implementing the risk management strategy and monitoring the effectiveness of the control

• activities. The risk management department reports

directly to the CFO. Risk management closely cooperates with the staff unit Business Control Framework (BCF) in order to embed the monitoring of the progress in control activities. The third line of defense is the staff department Internal

• Audit. They provide the Board of Directors of Alliander

with an independent assurance on risk mitigation.

1 2 3 1 2 3

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Alliander results 2011 37

Financial definitions

Alliander financial policy

• Net debt: Interest bearing debt less cash and cash equivalents that are not restricted
• FFO: 12-months profit after taxation adjusted for deferred tax asset movements and incidental items and fair-value movements

plus depreciation of PP&E and intangible assets

• Interest cover: FFO and net financial income and expenses, divided by net financial income and expenses adjusted for

incidental items and fair value movements

• Net debt/capitalisation: net debt divided by the sum of net debt and equity

X-factor in the regulated allowed revenue formula

• X-factor: The x-factor symbolizes the efficiency gains which the grid managers can achieve during the regulatory period.

Regional grid managers who reduce their cost per unit of output by more than the average grid manager, realize a relatively higher profit. This is an incentive for grid managers to operate as efficiently as possible

• Outputsteering implemented in the energy Acts by the formula: ARt = (1 + (cpi ± x + q)/100 ) * ARt-1 , by which:
• ARt = allowed revenue
• cpi = consumer price index
• x = efficiency reduction
• q = quality performance

Other

• Solvency: Equity including result period divided by total assets less the expected dividend distribution less deferred income
• Deferred income (Equalisation accounts): These are the contributions and payments received from customers, property

developers and local and regional governmental bodies for the costs incurred for electricity or gas infrastructure of new housing projects and industrial estates. The contributions and payments are recognised as deferred income on the balance sheet. Deferred income is amortised over the expected useful lives of the assets involved. There is no legal obligation to refund any amount after initial connection of the customer. The amounts of deferred income to be charged are laid down in the regulatory legislation.