FLUXYS BELGIUM D : Regulated information: 2013 results

Customers satisfied with the reliability and flexibility of the entry-exit system. The flexible use of capacity is a big plus for customers and the reliability of the IT system, which includes hourly updated balancing data, is particularly appreciated. Market-based grid balancing is also fully meeting expectations, and the availability and attentiveness of the sales teams were rated highly.

Peak in short-term capacity sales. Thanks to the flexibility of the new entry/exit-system, customers can make very agile use of capacity in the Belgian grid when neighbouring countries experience unexpected peaks in demand. In March 2013, for example, Fluxys Belgium sold record quantities of short-term capacity for transporting natural gas to the United Kingdom, which was facing a shortage at that time. And in late May, early June there was high demand for short-term capacity to Germany.

Further liquidity growth at ZTP and Zeebrugge Beach. Favourable liquidity growth at ZTP and Zeebrugge Beach made 2013 a record year in terms of traded quantities at the gas trading places in Belgium. Although volumes at ZTP are modest compared with neighbouring gas trading places, we are seeing a steady increase in market interest and the growing number of producers, traders and consumers active at ZTP confirm its potential.

Rapidly expanding market for natural gas as a transport fuel. With an emission profile that outperforms other fossil fuels in all areas, natural gas has a very promising future as a fuel for transport and all evidence suggests that the market is definitely picking up. There was considerable interest in natural gas-powered cars at the Brussels Motor Show in early 2014, and a record number of trucks loaded at the Zeebrugge LNG terminal to supply, for example, filling stations for LNG-powered trucks and to industrial sites as far away as Spain, Germany and Poland.

Flows from France: Dunkirk-Zeebrugge project takes shape. Fluxys Belgium and French transmission system operator GRTgaz are working on new capacity to connect the Dunkirk LNG terminal with the Zeebrugge area. This will enable natural gas to flow physically from France to Belgium for the first time. GRTgaz will lay a pipeline to the Franco-Belgian border while Fluxys Belgium will build a new interconnection point at Alveringem and lay a pipeline from there to Maldegem. The pipeline will link up with the east-west transmission axis through Belgium, enabling grid users to forward their gas to other European markets. On 28 February 2014, the Flemish government enacted the regional land-use plan for the pipeline between Alveringem and Maldegem. Fluxys Belgium plans to successfully complete all permit procedures by the end of 2014 so that construction can begin in spring 2015 with a view to commission the pipeline at the same time as the Dunkirk LNG terminal.

Flows from Italy: new market consultation in summer 2014. Fluxys Belgium, FluxSwiss, Fluxys TENP and the Italian system operator Snam Rete Gas are joining forces on a project to offer transmission services from Italy, via Switzerland, to France, Germany and Belgium. Currently, gas can only flow from north to south on this route. Creating transmission capacity in the opposite direction will increase diversification of sources as it will create additional supply opportunities from Italy to Northwest Europe. It will also boost market liquidity by fully linking the gas trading places in Italy, Germany, Belgium and the United Kingdom. Despite strong market interest during an initial consultation, the process has been put on hold due to uncertainties over the impact in Germany of odorised gas from the French grid, among other factors. The intention is to launch a new market consultation in summer 2014.

Historically low rates of interest affect net result. Operating profit from regulated activities (transmission, storage and LNG terminalling) is primarily determined by invested equity, financial structure and interest rates (10-year linear bonds issued by the Belgian State, or OLOs). These interest rates have been on a downward trend for the past two years: the average interest rate in 2013 was 2.43%, lower still than in 2012 (2.98%). The fact that the OLOs hit this low level in 2013 had a negative impact of €8.4 million on net profit.

€101 million invested. Fluxys Belgium invested €101 million in 2013. The biggest projects were the pipeline replacement between Ben Ahin and Bras with a new pipeline of a larger diameter (with the new pipeline being commissioned in September 2013) and the construction of a second jetty at the LNG terminal and Zeebrugge (which is progressing according to schedule).

Between 2009 and 2013, the company invested €1 billion in its infrastructure to further develop Belgium's role as an international crossroads, strengthen the country's security of supply and pave the way for further improvements in market liquidity. 2010 and 2011 were record years in this respect, and the company is now returning to a normal level of investment.

General development of the results. The majority of the Fluxys Belgium group's business activities are regulated. The profits of these business activities are primarily determined on the basis of equity invested, the financial structure and interest rates.

Decrease in equity invested and adjustment of the financial structure. The €421.6 million pay-out of available reserves carried out by Fluxys Belgium on 15 May 2012 enabled the Group to shift towards a financial structure that is more in line with the Belgian regulatory framework (1/3 in equity and 2/3 in liabilities).

The decrease in equity caused by this pay-out automatically reduced the level of authorized net profit by €6.3 million in comparison with 2012. Had this pay-out of available reserves not taken place, net profit for 2013 would have been higher, but the average return on the equity invested would have been lower.

Sale of the company Fluxys & Co. Fluxys Belgium chose to exercise the sales option that it held vis-à-vis GDF SUEZ. Thus, the company Fluxys & Co was sold on 18 January 2013 for a sum of €70 million. Its contribution to 2012 net profit was €3.6 million.

Retroactive accounting alteration: revision of IAS 19 Employee Benefits. The entry into force of the amendments to standards IAS 19 (IAS 19 R), on 1 January 2013, required a retroactive correction of the Group's financial statements. The impact of these amendments is essentially limited to aligning the expected rate of return from hedging instruments with the discount rate used to determine actuarial debt. The alignment of the hypotheses caused a decrease of €600,000 in the 2012 financial results and by consequence a decrease of €396,000 in net profit. On the balance sheet, only a transfer between balance sheet items can be noted.

Operating revenue for 2013 was €620.1 million, compared with €626.3 million in 2012, a decrease of €6.2 million.

• Revenue from regulated activities, namely natural gas transmission and storage and terminalling services for liquefied natural gas in Belgium, was €602.5 million, up €7.1 million compared with the previous period.
  This was due to the compensated effect between, firstly, the increase in gas sales required for the network balancing operations and, secondly, the negative impact of the decreasing OLOs on the regulated authorised turnover.
  The decrease in capacity sold was limited by commercial efforts to sell short term capacity.
  The group would like to point out that the tariffs applied by the Fluxys Belgium group are among the most competitive in Europe.
• Revenue from non-regulated activities was €17.6 million, a decrease of €13.3 million compared with the previous year. Revenue from the Group's interests in LNG shipping, which left the consolidation scope in 2013, amounted to €11,322,000 in 2012. The new tariffs associated with the extension of a contract for the provision of making installations available, account for the balance of the evolution of this revenue.

Other operating income includes the insurance payments covering part of the compensation distributed to victims of the Ghislenghien accident, for a larger amount in 2012 than in 2013.

Consolidated net profit. The consolidated net profit for the period was €68.6 million, a decrease of €19.8 million compared with 2012.

Net profit from regulated activities is primarily determined by the equity invested, the financial structure and the interest rates (OLOs).

The following items explain the developments of the results:

• The interest rates used as a reference for calculating the authorised return on the regulated assets are the 10-year linear bonds issued by the Belgian state. These interest rates have been at historic lows for the last two years. The average rate for 2013 was 2.43%, compared with an average of 2.98% for 2012. This resulted in a drop of €8.4 million in the regulated net profit, with all other aspects remaining unchanged.
• The €421.6 million pay-out of available reserves carried out by Fluxys Belgium on 15 May 2012 enabled the Group to shift towards a financial structure that is more in line with the Belgian regulatory framework (1/3 in equity and 2/3 in loan capital). The decrease in equity caused by this pay-out automatically reduced the authorised level of net profit by €6.3 million, in comparison with 2012. Had this pay-out of available reserves not taken place, net profit for 2013 would have been higher, but the return obtained on equity would have been lower.
• The establishment of the tariff settlements for preceding years had an additional negative impact of €2.2 million on net profit, compared with the preceding year.
• Finally, the company Fluxys & Co was sold on 18 January 2013 for a sum of €70 million. Its contribution to 2012 net profit was €3.6 million.

Non-current assets. The investments made in 2013 (€100.7 million) were less than the depreciation for the year (€133.9 million), explaining the decrease in property, plant and equipment. These investments were primarily in compressor stations (€7.2 million), other transport installations (€50.0 million), storage in Loenhout (€3.9 million) and the Zeebrugge LNG terminal (€39.4 million), in particular the second jetty and the Open Rack Vaporizer.

Current assets. The assets intended for sale related to the company Fluxys & Co, which was sold in January 2013.

Current liabilities. Provisions for environmental activities and the reinstatement of sites were used for €6 million and written back for €8.1 million in 2013. The latter was due to the decrease in the cost for the decommissioning of the peak shaving site in Dudzele. This provision reversal had no impact on the results for the period because it was factored into the tariff settlement and was accordingly deducted from in the regulated receivables of the storage activity. The payment of the tax balance for 2011 accounts for the decrease in the current tax payables section. The liabilities associated with assets intended for sale related to the company Fluxys & Co, which was sold in January 2013.

Equity. The decrease in equity is due to the payment of the dividend for the preceding year, which is shown in the following table.

(1) Cash flows from operating activities also include changes in the working capital requirement. The changes in the working capital are largely due to the changes in the cash flows from the operating activities compared with 2012.
(2) This sum takes into account disposals carried out, in particular the sale of the company Fluxys & Co for €70 million.
(3) These cash flows include the available reserves and dividends paid out. In 2012, these flows included pay-out of available reserves by Fluxys Belgium, which was partly offset by a bond issue.

* "Cash" includes cash, cash equivalents and short-term investments.

Fluxys Belgium SA's net profit was €55.7 million, compared with €72.6 million in 2012.

Net profit in 2013 was down on 2012, mainly due to the pay-out of available reserves by Fluxys Belgium in 2012 and the historically low interest rates (OLOs), which negatively affected the regulated return. In addition, Fluxys Belgium no longer receives dividends from the company Fluxys & Co, which was sold in January 2013.

As of 2010 and barring unforeseen events, Fluxys Belgium aims to distribute 100% of its net profit for the year plus any reserves released as and when the revaluation surplus depreciates.

Factoring in a profit of €46.8 million carried over from the previous year and withdrawal from reserves of €41.5 million, the Board of Directors will propose to the Annual General Meeting to allocate profits as follows:

• €92.7 million as a dividend pay-out
• €6.2 million as reserves not available for distribution
• €45.1 million as profit to be carried forward

If the proposed allocation of profits is accepted, the total gross dividend per share for 2013 will be €1.32 (€0.99 net). That amount will be payable as from 20 May 2014.

In 2013, Fluxys Belgium recorded an increase in the amount of transmission capacity sold due to active marketing of short-term products, including its offering of bundled capacity products on the Prisma platform. Transmission volumes also rose (by 6.2%).

Volumes transmitted for the Belgian market remain stable. As for the energy transported for consumption on the Belgian market (183.2 TWh, compared with 185.6 TWh in 2012), it is striking that offtake for distribution rose by 6.5%, while offtake by power stations fell by 11.7%. The increase in offtake for distribution was a result of higher consumption during the prolonged period of cold weather in the first half of the year and the increase in the number of domestic and SME connections to the distribution systems. Conversely, the drop in consumption by power stations was primarily due to the combined effect of low coal prices, the minimum price for CO2 emission allowances and the negative spark spread for natural gas (the price of natural gas in relation to the market price for electricity), all of which put power generation with coal at an advantage in Europe. At the same time, renewable energy's share in the energy mix grew and the nuclear facilities which had been shut down started operating again. Some gas fired power plants were decommissioned temporarily and others permanently.

Volumes transmitted to other countries. At 252.8 TWh, volumes transmitted abroad rose significantly in 2013, up by 11.3% compared with 2012. Unlike in previous years, large volumes were transmitted to the United Kingdom in March 2013. In addition, demand for short-term capacity to Germany rose in late May and early June and sales of capacity via the Prisma platform rose. Finally, for the period 1 October 2012 - 30 September 2013 an exceptionally large amount of short-term capacity was sold from the Zelzate entry point to the Zeebrugge exit point by players using the Belgian grid to transport natural gas from the Dutch market to the UK market.

37 LNG carriers unloaded. 37 LNG carriers unloaded at Zeebrugge in 2013, compared with 46 in 2012. The 37 carriers unloaded a total of 2.2 million tonnes of LNG mainly from Ras Laffan, Qatar. Seven of the 37 ships were Q-Flex carriers, among the largest LNG carriers in the world. A total of 1,351 ships unloaded at the LNG terminal between the start of commercial activities in 1987 and the end of 2013.

21 LNG carriers loaded. The high level of natural gas supply in Europe combined with high demand for natural gas in South America and Asia have resulted in heavy demand for loading services at the terminal over the past two years, with 21 carriers loading in 2013 and 25 in 2012. The 21 vessels that berthed for loading in 2013 took on board a total of 1.1 million tonnes of LNG.

819 truck loadings: a big success. A total of 819 trucks were loaded with LNG in 2013, compared with just 316 in 2012. December 2013 was an all-time record month, with no fewer than 114 LNG trucks loaded. Most of the LNG was bound for the Netherlands, France, the UK, Germany, Scandinavia, Switzerland and Poland, where the market for LNG as a transport fuel is strongly developing.

2014 also promises to be a strong year. A total of 3,600 slots were booked by haulage companies during the October-November subscription window, with 1,847 loadings scheduled for 2014.

Europe currently sees a relative oversupply of storage possibilities. Stagnating demand for natural gas is creating an oversupply of natural gas at gas trading places, which makes, in turn, that price differences between summer and winter are very small. In addition, Fluxys Belgium's storage activity in Belgium also faces competition from non-regulated storage services elsewhere in Europe.

Part of the storage services at Loenhout has been sold on a long-term basis: with over 70% of long-term storage capacity sold on a long-term basis up to 2016 and almost 60% is sold on a long-term basis after 2016. Though yearly storage services are facing particularly stiff competition, Fluxys Belgium with virtually all yearly capacity having been sold, managed to achieve a very good sales figure for storage year 2013-2014 compared with other storage sites partly thanks to an updated service offering.

Net profit from regulated activities is primarily determined by the equity invested, the financial structure and the interest rates (OLOs). The recurring dividend will continue to change depending on the development of these three parameters. The current financial markets do not allow for accurate projections regarding changes to interest rates and, therefore, the return on regulated activities.

The statutory auditor has confirmed that his audit activities, which have been thoroughly carried out, have not revealed the need for any significant adjustments to the accounting information contained in this press release.