Satisfactory first half of 2014 despite mild winter, lower energy prices and cuts in network tariffs

• Strategic development as a sustainable partner taking shape
• €402 million investment in sustainable energy generation and networks, increase of 24%
• Net profit down 16 percent to €155 million
• More than 50,000 TOON thermostats installed
• Long-term power contract with NS and other rail operators
• Good safety record

ROTTERDAM – Eneco Group can look back on the first six months of 2014 with satisfaction. The company succeeded in further shaping its strategic course and is continuing to develop as a partner for customers with energy-related issues. At the same time, our customers again benefited from lower consumption as a result of the mild winter, further falls in energy prices and lower regulated energy transmission tariffs.

Jeroen de Haas, Chairman of the Board of Management of Eneco Group: “Eneco is developing, as planned, into a valued and often local partner for customers looking for an alliance to solve their energy-related issues. They may be customers who want to save on their energy bills, for example by buying a TOON, our smart thermostat. Or they may be businesses that want to have a stable energy company look after all or part of their energy affairs, as shown by our recently announced 10-year alliance with rail operators in the Netherlands. We will not only get all their trains running on power from wind farms but we will also work on greater sustainability throughout the rail industry. At the same time, we once again invested more in the first half of 2014 in quality and expanding our networks and in making our energy production more sustainable. We are continuing to do this to achieve our mission of ‘sustainable energy for everyone’. Eneco’s customers benefited from a mild winter, the fourth reduction in prices since 2012 and a cut in network tariffs. The emphasis that we place on safety at Eneco Group ensured that the number of safety incidents remained below the specified limit for the first six months of the year.”

Guido Dubbeld, CFO of Eneco Group: “Our activities grew substantially. Compared with the first six months of 2013, we increased our investment in quality, expanding our networks and making our energy production more sustainable to €402 million. Projects include the Leiding over Noord pipeline for the transmission of sustainable heat and the construction of the Delfzijl Noord wind farm. Previous investment resulted in the Lochluichart and Tullo wind farms in the United Kingdom coming on line this year. The mild winter, lower energy prices and cuts in transmission tariffs led to falls of 16% in net profit and 15% in revenue to €155 million and €2,444 million respectively.”

Result development

The gross margin on sales and transmission of gas, electricity and heating and related activities fell by €138 million (15%) to €777 million having been adversely affected by weather conditions and the reduction in regulated energy transmission tariffs. Furthermore, Eneco Group reduced its interest in gas-fired generation of electricity and in this connection recognised a non-recurring charge for buying out a power purchase contract. This will improve our margins in the coming years. Due to the improved outlook, we were able to reverse impairment recognised in previous years to give an operating profit (EBIT) of €263 million, down by €26 million (9%) on 2013.

Operating expenses totalled €628 million, €78 million lower than in the first half of 2013 (€706 million). Ignoring amortisation and depreciation, operating costs increased slightly by €18 million (3%). Net financial expense rose to €56 million (2013: €44 million).

Our production, trading and supply activities

The average temperature was well above normal during the first half of the year, while the first half of 2013 had been particularly cold, and consequently our customers’ consumption of gas and heating dropped sharply. This led to a 27% reduction in sales of gas and heating despite an increase in the number of customers following the acquisition of DONG Energy Sales B.V. The loss of margin was made up somewhat by higher wind and solar energy revenues, partly from new solar and wind farms:

• Our solar energy generating capacity in Belgium grew from 24 MWp to 32 MWp (sustainable energy for 8,000 households) with the acquisition of the Prosolar portfolio. Eneco is now the second largest solar energy producer in Belgium;
• Handover of the Lochluichart wind farm (sustainable energy for 39,000 households) and expansion of the Tullo wind farm (sustainable energy for 24,000 households) in the United Kingdom.

Thanks to cost-saving measures and increased cost consciousness, operating expenses excluding depreciation were unchanged from last year, despite the expansion of our activities. At €109 million, operating profit (EBIT) from production, trading and supply activities in the first half of 2014 was in line with the figure of €112 million for the first half of 2013.

Our network and engineering activities

The new regulatory period for grid operators started in 2014. The effect on our network activities is that the tariffs we are permitted to charge customers for the transmission of electricity and gas will be reduced for three years. This is reflected in the revenue from our network activities, which fell by €27 million compared with the first half of 2013. Operating expenses for these activities remained fairly stable.

The average interruption in electricity supply due to faults in the network was 9.4 minutes per customer in the first six months, comparable to the result for the first six months of 2013.

The mild weather conditions resulted in less working time being lost in our engineering activities because of cold weather. This, along with an acceleration in grid management investment orders and an increase in commercial sales, led to higher levels of activity, productivity and capacity utilisation result. We are also seeing the benefits of an earlier productivity programme which has improved working processes and, consequently, increased the efficiency of our technicians. However, operating expenses increased slightly due to the increase in commercial sales.

The operating profit on network and engineering activities fell from €192 million in the first half of 2013 to €179 million in the first half of 2014.

Investments

Eneco Group’s aim is to improve the sustainability of the energy supply and so we continue to make major investments in sustainable energy generation capacity, in energy saving and in a reliable, modern network. We invested €402 million in the first six months of this year, an increase of 24 percent compared with €324 million in the first half of 2013. Our investments included the development of wind farms (€100 million) and solar farms (€11 million) in the Netherlands, Belgium and the United Kingdom and heating networks (€51 million) including the Leiding over Noord pipeline, which will start transporting residual heat from the Botlek to Rotterdam and providing sustainable heating to households and businesses in the fourth quarter of 2014. We are also continuing to invest significant sums improving and expanding our electricity and gas networks (€221 million; 2013 €185 million).

Our customers

Customer numbers increased slightly, mainly as a result of the acquisition of DONG’s Dutch customer portfolio in April and activities in Belgium. In January, Stedin started the large-scale provision of smart energy meters to 37,000 addresses in the Hoeksche Waard — the first area in the Netherlands where these new meters are being offered across the board. Sales of TOON smart thermostats increased further during the first six months and they are now in use by over 50,000 customers.

We entered into a number of pioneering alliances in the business market. We signed a long-term contract with NS and other rail operators to phase in sustainable power from wind farms between 2015 and 2018 for all rail traffic in the Netherlands. TenneT engaged Joulz to convert the 380 kV station in Beverwijk and we entered into an innovative ‘Windflex’ gas contract with GasTerra, under which the price and volume of gas depends in part on the strength of the wind.

In Belgium we introduced a bond for our customers of the Tivano wind farm in Gouvy in the province of Luxembourg, whose five wind turbines provide sustainable energy for 10,000 households. This has enhanced our Belgian customers’ involvement in wind energy. Other notable milestones in the first six months were:

• Start of construction of the Delfzijl Noord wind farm (sustainable energy for 55,000 households);
• Stedin signed a letter of intent with Siemens, Gasunie, A.Hak, Torrgas, Hanzehogeschool and Energy Valley Foundation to develop the world’s largest, fully-integrated Power2Gas installation in Delfzijl for the conversion of sustainable resources such as solar power and wind to gas;
• A 15-year purchase agreement with NOP Agrowind for power from the Noordoostpolder wind farm (sustainable energy for 180,000 households);
• The Bio Golden Raand biomass power station was fully operational during the half-year;
• The Consumentengids reported that Oxxio is the lowest priced provider of substantive power;
• Study by Ecofys for the municipality of Noordwijk into spatial planning opportunities for ‘near shore’ wind energy and the possible cost savings this could create.

Outlook for the second half

We are confident of further developments at Eneco Group, which, as planned, is becoming a business that is a partner for customers in the area of sustainable energy-related issues. For example, in the business market, by offering Esco (Energy Service Company) solutions in which Eneco enters into a long-term alliance with customers. Or, for consumers, by facilitating local generation of energy. At the same time, Eneco Group continues to invest fully in the generation and transport of sustainable energy to achieve its mission of sustainable energy for everyone. Nevertheless, market conditions are challenging and are expected to remain so for the time being. Against this background we are unable to present a results forecast for 2014.