Presentation Results 2012 20 February 2013 Disclaimer This - - PowerPoint PPT Presentation

Presentation Results 2012

20 February 2013

Disclaimer

This presentation is a translation of the Dutch presentation on the consolidated results 2012 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 2012 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.

Alliander results 2012 2

Content

• 1. Highlights
• 2. Alliander at a glance
• 3. Results 2012
• 4. Appendices

Alliander results 2012 3

Highlights 2012

• Reported results 2012: € 224 million (2011: € 251 million). Comparable results 2012 : € 228 million

(2011: € 228 million)

• Higher revenue due to increase in regulated tariffs
• Higher CAPEX due to expansion, maintenance and innovation of networks
• Increased OPEX due to higher personnel costs, depreciation and sufferance tax
• Credit rating:

− S&P rating affirmed at A+/A-1/positive outlook (2 November 2012) − Moody’s rating affirmed at Aa3/P-1/stable outlook (8 February, 2013)

• RCF: €600 million extended until July 2017 with removal of financial covenant ratios
• Public issue of 12 year € 400 million bond with 2.875% coupon due June 2024
• Liability management transaction:

– Bond buy-back for a nominal amount of €324 million – Public issue of 10 year € 400 million bond with 2.25% coupon due November 2022

Financial results and position

• Supreme Court decision on Unbundling Act deferred to European Court
• Regular cost investigation by NMa
• Gradual introduction of new market model
• X-factors for current regulatory period (2011-2013) allow tariff increases
• Decision on tariffs new regulatory period (2014-2016) is expected by mid-2013

Regulatory developments

• Average electricity outage rises from 20 to 24.5 minutes
• Customer satisfaction remains at high level
• Organizational adjustments on department level
• Small participations in innovative energy transition initiatives
• Start of roll-out smart meters (2012-2014 pilot phase)

Strategic and

• perational

developments

Alliander results 2012 4

Content

• 1. Highlights
• 2. Alliander at a glance
• 3. Results 2012
• 4. Appendices

Alliander results 2012 5

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

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 (1)

Alliander results 2012 6

Amsterdam Noord-Holland Gelderland Endinet (2) Friesland

Number of connections (x1,000)

2.056 1.946 3.057 2.631 2.054 2.630 52 187 138 102 207 32 53 55 4.000 4.687 5.687 394 191 134 107 1.000 2.000 3.000 4.000 5.000 6.000 Alliander Enexis Stedin Delta Cogas Rendo Westland

Electricity connections Gas connections

Market position

• Alliander has 3.1 million

electricity connections and 2.6 million gas connections in the Netherlands

• Alliander has a market

position of 37%

Source: ECN/EnergieNed/Netbeheer Nederland “Energy Trends” 2012 publication Notes: (1) Alliander includes Endinet with 398,000 gas connections en 109,000 electricity connections (2) Enexis includes Intergas with 148,000 gas connections

(2) (1)

Alliander results 2012 7

Overview Dutch energy networks

Electricity networks Gas networks

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

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)

2 5 6 1 7 3 1 4 1 1 2 2

Alliander results 2012 8

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

Position in the Dutch energy value chain

Supply Production and trade Distribution Transmission Regulated Regulated The Dutch energy value chain has been partially liberalised over the years. Regional distribution and transmission are regulated Liberalised Liberalised Vattenfall/Nuon RWE/Essent Eneco Tennet Gasunie Alliander Enexis Stedin Vattenfall/Nuon RWE/Essent Eneco

Alliander results 2012 9

• Regional Grid Manager: Management of regional electricity and gas

grids

• Electricity & gas metering business
• Regulated assets
• Low risk profile due to regulatory environment
• Service, maintenance and automation
• f complex energy infrastructures,

including for TenneT

• Clients are in the stable and regulated

network sector

• Stable and predictable cash flow

Alliander’s businesses: stable cash flow profile

(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%

Alliander results 2012 10

2012 Results Network

• perator

Liander Network company Endinet Other 1 Eliminations Total € million

Operating income External income

1,558 109 105

• 1,772

Internal income

12

• 313
• 325
• Total operating income

1,570 109 418

• 325

1,772

Operating expenses

Total operating expenses 1,178 87 423

• 325

1,363 Operating profit 392 22

• 5
• 409

Total assets 6,148 528 2,617

• 1,879

7,414

Regulatory environment

• Regulation aims for a balance between efficiency, quality

and sustainability

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

regulatory principles. The efficient cost level is calculated as the average cost level in the network sector. This allows individual companies with an average performance to cover their full costs (including the WACC as set by the Energiekamer, applied on the standardized 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 allow increases in tariffs

• X-factors for electricity for the 2011-2013 period have been

adjusted at 2012 year-end. This follows from changes in parts of the cost base.

• There is a difference between regulatory and commercial

accounting rules, especially in relation to valuation principles for assets

Source: Energiekamer, Alliander

Constructive regulatory framework which does not allow for privatisation

(1) See page 37 for further explanation

Alliander results 2012 11 Electricity

X-Factor 2008–2010 2011–2013 Liander N.V. 3.6 (6.4) Endinet B.V. 4.6 (6.2) Delta Netwerkbedrijf B.V. 5.8 (5.2) Enexis B.V. 6.3 (7.7) Stedin B.V. 5.0 (6.1)

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 (0.5) Enexis B.V. 8.1 (3.4) Stedin B.V. 4.2 (2.8)

Regulatory developments

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 changes in relation to allowed revenue: − Regulator has been given the option to adjust allowed revenue at once at the beginning of a new regulatory period (as of 1-1-2014) − Transportation cost charged by the grid- or upper network operator will be classified as non-influenceable and are fully included in allowed revenue (as of 1-1-2012) − Innovative exceptional investments may – on request of the network operator - be exempt from the benchmark and added to the allowed revenue (as of 1-7-2011) Metering Tariff

• Basic principle is that the tariffs enable the sector to cover the costs of metering activities

including regulatory allowed return. Smart Meter

• Alliander needs to have 80% of the conventional meters replaced by smart meters by 2020
• Small-scale rollout (pilot) in period 2012-2014
• Metering services for consumers regulated

Project ‘Stroom’

• Preparation of new Bills based on evaluation of the existing Electricity and Gas Acts

− Streamlining the Electricity and Gas Acts − Aimed at reducing the regulatory burden and administrative cost − Based on EU regulation − Based on sector input Market model

• Following its intended introduction in 2013, the new market model will consists of a number of

measures devised to simplify administrative processes between energy suppliers and customers and between energy suppliers themselves

• Of importance is the reallocation of responsibilities: supplier is the single point of contact for
• consumers. Operational management of meter is done by the network operator and metering

data are managed by the energy supplier

Alliander results 2012 12

Content

• 1. Highlights
• 2. Alliander at a glance
• 3. Results 2012
• 4. Appendices

Alliander results 2012 13

Key figures

1) Net debt is defined as interest-bearing debt less cash and cash equivalents and investments that are not restricted 2) Ratios according to the principles of Alliander’s financial policy

Alliander results 2012 14

Key figures

€ million, or otherwise as stated 2012 2011 Movement '11 - '12 Financial key figures Revenue reported 1,674 1,586 6% Operating profit reported 394 398

• 1%

Operating profit comparable 409 398 3% Profit after tax reported 224 251

• 11%

Profit after tax comparable 228 228 0% Investments in property, plant and equipment 578 475 22% Ratios Net debt position 1 1,739 1,593 Solvency 2 49.5% 47.5% FFO / Net Debt 2 30.9% 34.1% Outage Electricity (in minutes) 24.5 20.0

Incidental items and fair value movements

Alliander results 2012 15

€ million 2012 2011 Total purchase costs, costs of subcontracted work and operating expenses

• 15
• Impact on operating profit
• 15
• Finance income/(expense)
• 50
• 75

Result from associates and joint ventures

• 12
• 12

Total impact on profit before tax

• 77
• 87

Tax 73 110 Total impact on profit after tax

• 4

23

Incidental items and fair value movements

Financial highlights

1

1) Excluding incidental items and fair value movements

Alliander results 2012 16

Revenue

1

Alliander results 2012 17

1) Excluding incidental items and fair value movements

Purchasing costs, costs of sub-contracted work and operating expenses

1

Alliander results 2012 18

1) Excluding incidental items and fair value movements

Cash flows and Capex

1) The figures for 2011 have been restated in connection with a change in presentation to include the premium paid in connection with the premature redemption of bonds in the cash flow from financing activities. 2) Free cash flow = Cash flow from operating activities – Gross investment in non-current assets + Contributions received from third parties

Alliander results 2012 19

422 6 306 7 7 408 400 41 5 6 6 282 200 400 600 800 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 >2025

Financial position

Capitalisation (€ million) Gross and Net debt (€ million)

20

Maturity profile (€ million) 2 Location of debt (€ million)

Credit Facility (€ 600 million) 3 4) including € 131 million finance lease obligations Liander

1

1) program size of € 3,000 million of which € 1,766 million is used 2) excluding € 131 million finance lease obligations Liander 3) including € 200 million L/C back-up facility First and second call option of subordinated perpetual bond

Gross Debt 2,027 Cash 100 Other Investments 258 CBL Investment 177 Total Cash and Cash Equivalents 535 Net debt according to IFRS 1,492 50% of subordinated perpetual bond 247 Net debt according to financial policy 1,739

Alliander N.V € 1,890 Liander €

137

(4)

Endinet Liandon

Net debt

Alliander results 2012 21

Premium LM (1) & unwind IRS

1) Premium LM relates to premium paid in relation to the bond buy-back as part of the Liability Management transaction

Other Net debt 2012 Dividend paid and hybrid coupon Cash flow from investing activities Cash flow from

• perating

activities Net debt 2011

Alliander results 2012 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 network operators

Financial Framework General Principles

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

Strong financial profile with clear and well defined financial policy, supported by regulated financial ratios and proven commitment to stay within financial policy framework Financial Policy

Liquidity Credit Rating/ Debt providers Shareholders’ equity

Ratios financial policy 1

23

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

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 and a manageable debt maturity profile

• The stable outlook reflects Moody’s expectation that

Alliander will remain a pure electricity and gas distribution network operator that derives most of its revenues and cash flow from regulated activities. Furthermore, Moody’s would expect Alliander to continue to follow its conservative financial policy.

• 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, if Alliander will

continue to report a robust cash flow-based FFO to debt ratio of about 25% over the medium term, supported by healthy tariff increases in the 2011-2013 regulatory period, an one-notch upgrade would be considered.

• 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 June 20th, 2011, February 9th, 2012 and February 8th, 2013. Standard and Poor’s as October 18th, 2011, May 24th, 2012 and November 2nd 2012.

Alliander results 2012 24

Outlook

Results 2013 Given that the majority of Alliander's operations are regulated and in the light of the current regulation methodology and the changes in the regulated tariffs in 2013, we expect, barring unforeseen and non-recurring developments, a higher operating profit in 2013 than in 2012. Investment Gross capital expenditure, chiefly on replacement and expansion of the networks but also including energy transition investment in SASensors, telecommunications networks and charging points for electric vehicles, will amount to a total of €450-500 million. In addition, based on current projections, Alliander will be investing €60-100 million a year in smart meters over the period 2013-2020. Financing Alliander's financial policy aims to preserve financial strength and flexibility and secure good access to the capital market at all times by maintaining a solid A rating profile and by such means as ensuring a balanced repayment schedule, having a balanced investment plan, controlling operating costs, having access to committed credit facilities and maintaining adequate reserves of cash and cash equivalents.

Alliander results 2012 25

• 1. Highlights
• 2. Alliander at a glance
• 3. Results 2012
• 4. Appendices

– Detailed results 2012 – Other

Content

Alliander results 2012 26

Results

Alliander results 2012 27

Consolidated income statement

€ million Revenue 1,674 1,586 Other income 98 109 Total income 1,772 1,695 Operating expenses Purchase costs and costs of subcontracted work

• 449
• 450

Employee benefits expenses

• 433
• 385

External personnel expenses

• 121
• 109

Other operating expenses

• 219
• 193

Total purchase costs, costs of subcontracted work and operating expenses

• 1,222
• 1,137

Depreciation and impairment of property, plant and equipment

• 337
• 312

Less: Own work capitalised 181 152 Total operating expenses

• 1,378
• 1,297

Operating profit (EBIT) 394 398 Finance income 64 29 Finance expense

• 209
• 205

Result from associates and joint ventures after tax

• 15
• 5

Profit before tax 234 217 Tax

• 10

34 Profit after tax 224 251 2012 2011

Consolidated balance sheet

28 Alliander results 2012

Consolidated balance sheet

€ million Assets Non-current assets Property, plant and equipment 5,821 5,575 Intangible assets 320 320 Investments in associates and joint ventures 28 54 Available-for-sale financial assets 314 279 Derivatives 11

• Other financial assets

46 38 Deferred tax assets 335 346 6,875 6,612 Current assets Inventories 36 28 Trade and other receivables 316 277 Derivatives 5

• Tax assets

7

• Other financial assets

75 295 Cash and cash equivalents 100 106 539 706 Total assets 7,414 7,318 Equity & liabilities Equity Share capital 684 684 Share premium 671 671 Subordinated perpetual bond 494 494 Hedge reserve

• 2
• 5

Revaluation reserve 28

• Other reserves

1,104 984 Profit after tax 224 251 Total equity 3,203 3,079 Liabilities Non-current liabilities Interest-bearing debt 1,891 1,422 Derivatives 73 120 Finance lease liabilities 131 133 Deferred income 1,530 1,505 Provisions for employee benefits 59 55 Other provisions 74 29 3,758 3,264 Short-term liabilities Trade and other payables 88 93 Tax liabilities 78 59 Interest-bearing debt 5 509 Derivatives

• 49

Provisions for employee benefits 63 58 Accruals 219 207 453 975 Total liabilities 4,211 4,239 Total equity and liabilities 7,414 7,318 2012 2011

Cash flow statement

1) The figures for 2011 have been restated in connection with a change in presentation to include the premium paid in connection with the premature redemption

• f bonds in the cash flow from financing activities..

29

Consolidated cash flow statement

€ million Cash flow from operating activities Profit after tax 224 251 Adjustments for:

• Finance income and expense

145 176

• Tax

10

• 34
• Profit after tax from associates and joint ventures

15 5

• Depreciation and impairment less amortisation

278 255 Changes in working capital:

• Inventories
• 8
• 1
• Trade and other receivables
• 46

2

• Trade and other payables and accruals

31

• 73

Total changes in working capital

• 23
• 72

Changes in deferred tax, provisions, derivatives and other

• 14

72 Cash flow from operations 635 653 Net interest paid

• 100
• 119

Net interest received 2 15 Dividends received from associates and joint ventures 15 1 Corporate income tax paid (received)

• 7

7 Total

• 90
• 96

Cash flow from operating activities 545 557 Cash flow from investing activities Investments in property, plant and equipment

• 578
• 475

Construction contributions received 85 81 Investments in financial assets (associates and joint ventures)

• 5
• 4

Cash flow from investing activities

• 498
• 398

Cash flow from financing activities Redemption current interest-bearing liabilities and current part of long-term debt

• 504
• 23

Long-term debt issued 798 23 Early redemption long-term debt

• 329
• 259

Premium paid in connection with the early redemption of bonds

• 44
• 30

Settlements interest rate swaps

• 57
• Change in current deposits

220

• 170

Interest coupon subordinated perpetual bond

• 24
• 15

Dividend paid

• 113
• 80

Cash flow from financing activities

• 53
• 554

Net cash flow

• 6
• 395

Cash and cash equivalents as at 1 January 106 501 Net cash flow

• 6
• 395

Cash and cash equivalents as at 31 December 100 106 2012 2011 1

Content

Alliander results 2012 30

• 1. Highlights
• 2. Alliander at a glance
• 3. Results 2012
• 4. Appendices

– Detailed results 2012 – Other

Alliander results 2012

Customer Satisfaction

31

High and stable customer satisfaction in consumer and business market

Grid reliability

Alliander results 2012 32

Electricity outage duration in 2012 higher than 2011 level but still at low level

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

Alliander results 2012 33

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 Contractual termination values CBL’s Alliander (USD billion)

Equity strip risk Contractual termination value Equity investments Debt investments

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)

7 US leases (USD million) 31 dec 2012 31 dec 2011 Equity strip risk 268 322 MtM risk 58 128 326 450 Overzicht Letters of Credit (USD million) 31 dec 2012 31 dec 2011 Issued 74 103 Additional L/C's at A3/A- 127 138 Additional L/C's at Baa1/BBB+ 23 18 Back-up facility (EUR million) 31 dec 2012 31 dec 2011 Back-up L/C facility 200 200

Alliander results 2012 34

CSR transparency

• Alliander has based its Corporate Social Responsibility report on the Global Reporting

Initiative (GRI) guidelines − Reports since 2008 − Currently at A+ level (2012) − Target level for 2013 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. − Ranked 14th position in 2012 (out of 472 companies), 12th position in 2011 and 42nd position in 2010 − Participates since 2008 − Target level is at the forefront position

• In 2012 Alliander’s Prime rating by Oekom Research remained unchanged (overall

grade B) − Rating sinds 2011 − Target level is a Prime rating

• Alliander has been rated in 2012 by Vigeo and EIRIS. These ratings are not publicly

available

Alliander results 2012 35

Risk management

Alliander considers risk management as an integrated part of effective management. Risk management increases the level of assurance with respect to the realisation of the company objectives. The Alliander risk framework is based on two principles: being compliant with the applied Code for Corporate Governance and the Dutch regulators; and applying ERM best practices like COSO ERM and ISO 31000 to achieve the highest standard possible. The two main components are risk management competences and the risk management process. The risk management competences are the preconditions for the implementation of ERM within the business units and secure the quality of the results. These competences are subdivided as follows: staffing, structuring of roles and responsibilities and technology/systems to support the risk management process . The risk management process is a continuing process which contains six steps: determine goals, identify risks, risk assessment, risk prioritising and elaborating, determine mitigations efforts, monitoring of risks and control activities. In order to obtain a full picture of the risk we look at three different levels: strategically (do the right things), managerial (are the conditions right) and operationally (do we do the right things in the right way)

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 within their businesses. Risks are identified and controlled on a daily basis. The risks identified are reported on a quarterly basis as part of the planning & control cycle. At the end of the year, the management of the business unit accounts to the Management Board by presenting an ‘In Control Statement` 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. The third line of defense is the staff department Internal Audit. By executing the auditplan they provide an independent assurance on risk mitigation, including risk management. Outside the company the external auditor has an independent signaling function.

1 2 3 1 2 3

Alliander results 2012 36

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.

• Regulated financial ratios: Investment grade or

EBIT / Interest costs > 1,7 ; FFO interest cover > 2,5 ; FFO / Total debt > 11% ; Total debt / Capitalisation < 60%

Alliander results 2012 37