Elia Group NV/SA — Annual Report 2018

Apr 12, 2019

Time to accelerate

CORPORATE GOVERNANCE AND FINANCIAL REPORT -1

Corporate Governance and Financial Report 2018

• Corporate governance statement* 2
  -
• Composition of the management bodies as at 31 December 2018 3
• Risks and uncertainties facing the company 16 Features of the internal control and risk management systems 20
• Consolidated financial statements 26
• Notes to the consolidated financial statements 31
• Joint auditors' report on the consolidated financial statements 94
  • Information about the parent company 98

* These chapters form the annual report cf. article 119 of the Belgian company code

Regulated information, published on 12 April 2019 after trading hours.

Contents

Claude Grégoire

Dominique Offergeld

Geert Versnick

Rudy Provoost

Michel Allé

Saskia Van Uffelen

Luc De Temmerman

Roberte Kesteman

Bernard Gustin

Jane Murphy

Corporate governance statement

Elia satisfies specific obligations in terms of transparency, neutrality and nondiscrimination towards all stakeholders involved in its activities.

• At Elia, corporate governance is based on two pillars:
• the 2009 Corporate Governance Code¹ , which Elia has adopted as its benchmark code;
• the Act of 29 April 1999 on the organisation of the electricity market and the Royal Decree of 3 May 1999 on the management of the electricity transmission system applicable to Elia as a transmission system operator.

BOARD OF DIRECTORS

COMPOSITION OF THE MANAGEMENT BODIES AS AT 31 DECEMBER 2018

Board of Directors CHAIRPERSON

• Bernard Gustin, independent director VICE-CHAIRPERSONS² • Claude Grégoire, director appointed upon proposal

of Publi-T • Geert Versnick, director appointed upon proposal of Publi-T

DIRECTORS

• Michel Allé, independent director • Luc De Temmerman, independent director • Frank Donck, independent director • Cécile Flandre, director appointed upon proposal of Publi-T • Claude Grégoire, director appointed upon proposal of Publi-T • Bernard Gustin, independent director • Philip Heylen, director appointed upon proposal of Publi-T • Luc Hujoel, director appointed upon proposal of Publi-T • Roberte Kesteman, independent director • Jane Murphy, independent director • Dominique Offergeld, director appointed upon proposal of Publi-T • Rudy Provoost, director appointed upon proposal of Publi-T • Saskia Van Uffelen, independent director • Geert Versnick, director appointed upon proposal of Publi-T REPRESENTATIVE OF THE FEDERAL

GOVERNMENT WITH AN ADVISORY ROLE

• Nele Roobrouck

Advisory Committees to the Board of Directors

CORPORATE GOVERNANCE

COMMITTEE3 • Luc Hujoel, Chairman • Luc De Temmerman • Frank Donck • Philip Heylen • Jane Murphy

AUDIT COMMITTEE4

• Michel Allé, Chairman • Frank Donck • Roberte Kesteman • Dominique Offergeld • Rudy Provoost

REMUNERATION COMMITTEE5

• Luc De Temmerman, Chairman • Philip Heylen • Roberte Kesteman • Dominique Offergeld • Saskia Van Uffelen

STRATEGIC COMMITTEE⁶

• Rudy Provoost, Chairman • Claude Grégoire • Bernard Gustin • Luc Hujoel • Geert Versnick • Michel Allé, permanent invitee

Auditors

• KPMG Réviseurs d'Entreprises SCCRL, represented by Alexis Palm
• Ernst & Young Réviseurs d'Entreprises SCCRL, represented by Patrick Rottiers

Management Committee

• Chris Peeters, Chairman and Chief Executive Officer
• Markus Berger, Chief Infrastructure Officer
• Patrick De Leener, Chief Customers, Market & System Officer
• Frédéric Dunon, Chief Assets Officer
• Pascale Fonck,
• Chief External Relations Officer
• Peter Michiels, Chief Human Resources & Internal Communication Officer
• Ilse Tant,
• Chief Community Relations Officer
• Catherine Vandenborre, Chief Financial Officer

Secretary-General

• Aude Gaudy

2 Claude Grégoire and Geert Versnick were appointed as Vice-Chairpersons with effect from 22 March 2018.

3 Saskia Van Uffelen was a member of the Corporate Governance Committee until 22 March 2018. Luc De Temmerman was appointed as a member of the Corporate Governance Committee with effect from 22 March

4 Michel Allé, Acting Chairman of the Audit Committee, was appointed as the Chairman of the Audit Committee with effect from 22 March 2018. Luc De Temmerman and Geert Versnick were members of the Audit Committee until 22 March 2018. Roberte Kesteman and Rudy Provoost were appointed as members of the Audit Committee with effect from 22 March 2018.

5 Claude Grégoire was a member of the Remuneration Committee until 22 March 2018. Philip Heylen, Roberte Kesteman and Dominique Offergeld were appointed as members of the Remuneration Committee with effect from 22 March 2018.

6 The Strategic Committee was established by the Extraordinary General Meeting of Shareholders of 15 March 1 The Corporate Governance Code can be found on the website of the Corporate Governance Committee (www.corporategovernancecommittee.be). 2018. The members of the Strategic Committee were appointed with effect from that same date.

Board of Directors

The Boards of Directors of Elia System Operator and Elia Asset consist of 14 members, none of whom perform an executive role within either of those two companies.

The same directors sit on the Boards of both companies.

Half of the directors are independent directors, satisfying the conditions set out in Article 526ter of the Belgian Companies Code, Article 2(30) of the Act of 29 April 1999 on the organisation of the electricity market and in the articles of association, and having received a positive opinion ("avis conforme"/"eensluidend advies") by the CREG on their independence. The other half are non-independent directors appointed by the General Meeting upon proposal of Publi-T, as per the current shareholder structure (see also the 'Shareholder structure' section on page 80 of this statement).

In accordance with provisions stipulated by legislation and the articles of association, these Boards of Directors are supported by four committees: the Corporate Governance Committee, the Audit Committee, the Remuneration Committee and the Strategic Committee, which are the same for Elia System Operator and Elia Asset. The Boards of Directors ensure that these committees operate in an efficient manner.

In accordance with the Act of 29 April 1999 on the organisation of the electricity market, the Belgian Companies Code and the articles of association of Elia System Operator and Elia Asset, at least one third (1/3) of the Board members must be of the opposite gender to the remaining two thirds. This one-third rule is applied proportionately to the independent and non-independent directors.

In addition, in accordance with the Corporate Governance Code 2009, the Internal Regulations of the Board of Directors and the Act of 3 September 2017 on the disclosure of non-financial information and diversity information by certain large companies and groups, the composition of the Board of Directors is based on gender diversity and diversity in general, as well as on the complementarity of skills, experience and knowledge.

When searching for and appointing new directors, special attention is paid to diversity parameters in terms of age, gender and complementarity.

Changes in the composition of the Board of Directors

The composition of the Board of Directors did not change in 2018.

Term and expiry of directorships and appointment procedure

The directors of Elia System Operator and Elia Asset are appointed or reappointed for a six-year term.

The directorships of all of the directors are due to expire after the 2023 Ordinary General Meeting of Elia System Operator and of Elia Asset for the financial year ending 31 December 2022, with the exception of the directors mentioned below, whose directorships expire on different dates.

Luc De Temmerman, Frank Donck, Luc Hujoel, Saskia Van Uffelen and Geert Versnick's directorships of Elia System Operator and Elia Asset will expire after the companies' 2020 Ordinary General Meeting for the financial year ending 31 December 2019.

Michel Allé's independent directorship of Elia System Operator and Elia Asset will expire after the companies' 2022 Ordinary General Meeting for the financial year ending 31 December 2021.

The six-year term of these directorships diverges from the term of four years recommended by the Belgian Corporate Governance Code, a fact justified by the technical, financial and legal specificities and complexities associated with the tasks of the transmission system operator, which call for greater experience in those areas.

It should be remembered that the appointment of independent and non-independent directors of the Elia System Operator and Elia Asset Boards of Directors, as well as the composition and operation of their committees, are subject to specific corporate governance rules. These provisions are laid down in the Act of 29 April 1999 on the organisation of the electricity market and in the companies' articles of association.

The Act of 29 April 1999 on the organisation of the electricity market gave the Corporate Governance Committee an important task in the proposal of candidates for the role of independent director. The directors are appointed on the basis of a list of candidates drawn up by the Corporate Governance Committee. For each candidate, the Committee takes into account their up-to-date curriculum vitae and their sworn declaration concerning the independence criteria as stipulated by legislation applying to Elia and the company's articles of association. The General Meeting then appoints the independent directors. These appointments are submitted to the CREG for its opinion ("avis conforme"/"eensluidend advies") on the independence of each independent director. A similar procedure applies where an independent directorship becomes vacant during the relevant term of office and where the Board co-opts a candidate proposed by the Corporate Governance Committee.

The Corporate Governance Committee therefore acts as a nominating committee for independent directors. For the appointment of non-independent directors, there is no nominating committee to make recommendations to the Board. This situation therefore deviates from that prescribed by the Corporate Governance Code. This divergence can be explained by the fact that the Board of Directors always strives, insofar as possible, for consensus. Moreover, no significant decision can be made without a majority within the groups of independent directors and non-independent directors.

Board of Directors' activity report

GRI 102-19, GRI 102-26

The Board of Directors exercises at least the following powers (non-exhaustive list):

• It defines the general, financial and dividends policy of the company, as well as its values and strategy. In transposing the values and strategy into primary guidelines, the Board of Directors takes into account corporate social responsibility, gender diversity and diversity in general.

• It exercises the powers given to it by or pursuant to the Belgian Companies Code, by the Act of 29 April 1999 on the organisation of the electricity market and by the articles of association.

• It takes all action appropriate or necessary to carry out the corporate purpose, excluding powers reserved for the General Meeting by law or the articles of association.

• It ensures oversight. Within this context it provides, inter alia, general oversight of the Management Committee in accordance with legal restrictions concerning access to commercial data and other confidential information relating to grid users and the processing of such data; as part of this oversight, it also monitors the way in which the business of the company is carried out and developed in order to, among other things, assess whether the company is being properly managed. In addition, it monitors and evaluates the effectiveness of the advisory committees to the Board and the manner in which business is carried out.

In 2018, the Board of Directors of Elia System Operator met nine times, and the Board of Directors of Elia Asset met eight times. The board primarily focused on strategic issues (specifically the acquisition of an additional 20% stake in Eurogrid International SCRL, the holding company of the German TSO 50Hertz Transmission GmbH), the financial and regulatory situation of the company and its subsidiaries, and progress on major investment projects. Members who are unable to attend usually have a representative. In accord-

ance with Article 19.4 of the Elia System Operator articles of association and Article 18.4 of the Elia Asset articles of association, members who are absent or unable to attend may grant a written proxy to another member of the Board to represent them at a given meeting of the Board of Directors and vote on their behalf at that meeting. However, no representative can represent more than two directors.

Evaluation

The Board's evaluation procedure is conducted in accordance with principle 4 of the Corporate Governance Code, which the company has adopted as its benchmark code.

A new methodology for evaluating the functioning of the Board of Directors (including an evaluation of the overall contribution of the directors), the functioning of its committees and the interaction between the Board of Directors and the Management Committee was approved on 27 September 2018. According to this methodology, this evaluation at Elia is conducted by means of a transparent and regular procedure that sees directors complete an evaluation questionnaire, then undergo an individual interview with the Chairman of the Board of Directors, and the Chairman of the Corporate Governance Committee. The results are discussed by the Board of Directors and, as the case may be, appropriate actions are taken. Elia organised an evaluation of the functioning of the Board of Directors at the end of 2018. The results of this evaluation will be discussed in early 2019.

Auditors

The Ordinary General Meeting of Elia System Operator and Elia Asset held on 16 May 2017 reappointed Ernst & Young Réviseurs d'Entreprises SCCRL and KPMG Réviseurs d'Entreprises SCCRL as auditors of these companies for a period of three years. Their term of office will come to an end after the 2020 Ordinary General Meeting of Elia System Operator and Elia Asset relating to the financial year ending 31 December 2019.

Ernst & Young Réviseurs d'Entreprises SCCRL was represented by Patrick Rottiers for the exercise of this office.

KPMG Réviseurs d'Entreprises SCCRL was represented by Alexis Palm for the exercise of this office.

Diversity within the Board of Directors

Number of people on the Board of Directors of Elia System Operator and Elia Asset as at 31 December 2018	Unit	2018
Men	Aged 35 – 55	3
	Aged ≥ 55	6
Women	Aged 35 – 55	2
	Aged ≥ 55	3

Significant events in 2018

Establishment of an ad-hoc advisory committee

The Board of Directors approved the establishment of an ad-hoc Advisory Committee under Article 522 of the Belgian Companies Code. The ad-hoc Advisory Committee was created to help the Board of Directors and the Management Committee exercise Elia System Operator's pre-emptive right to acquire an additional 20% stake in Eurogrid International SCRL, the holding company of the German TSO 50Hertz Transmission GmbH. As a result of the transaction, Elia now holds 80% of the shares in Eurogrid International SCRL.

The members of the ad-hoc Advisory Committee were Bernard Gustin (Chairman), Michel Allé, Luc Hujoel, Roberte Kesteman and Geert Versnick.

Amendments to the articles of association following implementation of the capital increase reserved for staff members

The Extraordinary General Meeting of Elia System Operator of 15 May 2018 approved the proposed capital increase reserved for members of staff of the company and its Belgian subsidiaries.

This capital increase took place in two stages, in December 2018 and March 2019, for a maximum total of €6 million (maximum of €5,300,000 in 2018 and maximum of €700,000 in 2019) subject to the issuing of new Class B shares, with cancellation of the preferential subscription right of existing shareholders in favour of staff members of the company and its Belgian subsidiaries, as the case may be, below the accounting par value of the existing shares in the same class.

The Extraordinary General Meeting decided to set the issue price for the 2018 capital increase at a price equal to the average of the closing prices on the 30 calendar days prior to 25 October 2018, less 16.66%.

The total value of the 2018 capital increase (including share premium) was €5,295,971.16. 114,039 Class B shares in Elia System Operator were issued.

Accordingly, Articles 4.1 and 4.2 of the articles of association of Elia System Operator relating to the share capital and the number of shares were amended on 20 December 2018.

The latest version of Elia System Operator's articles of association is available in full on the company's website (www.elia.be, under 'Elia', 'Corporate Governance', 'Documents').

Establishment of a Strategic Committee

The Extraordinary General Meeting of Elia System Operator and Elia Asset of 15 May 2018 approved the proposal to establish a Strategic Committee.

The Strategic Committee has an advisory role and is tasked with issuing recommendations to the Board of Directors on matters of strategy.

As such, the Strategic Committee is responsible for:

• identifying and examining market trends and contextual factors that could influence Elia Group's strategic direction and associated strategic choices and priorities in the medium and long term;

• preparing and maintaining a dialogue about the key issues and associated options and scenarios that are relevant for Elia Group's strategy in the medium and long term;

• developing and submitting proposals about the core strategic choices and priorities that will shape Elia Group's future in the medium and long term.

The members of the Strategic Committee are not remunerated, with the exception of the Chairman, who is remunerated in the same way as the Chairs of the Board of Directors' other advisory committees.

A new Article, 16bis, was added to the articles of association of Elia System Operator to take account of the establishment of the Strategic Committee.

The latest version of Elia System Operator's articles of association is available in full on the company's website (www.elia.be, under 'Elia', 'Corporate Governance', 'Documents').

Other significant events

For other significant events in 2018, please consult the pages 20-25 of the Elia Group Activity Report 2018.

Remuneration Committee

In addition to its usual support role to the Board of Directors, the Remuneration Committee is responsible, pursuant to Article 526quater of the Belgian Companies Code, the Act of 29 April 1999 on the organisation of the electricity market and the articles of association, for making recommendations to the Board of Directors regarding remuneration policy and the individual remuneration of members of the Management Committee and directors. The Remuneration Committee also draws up a remuneration report for presentation at the Ordinary General Meeting.

The Remuneration Committee of Elia System Operator met six times in 20187 . The Remuneration Committee of Elia Asset met five times in 2018.

The company evaluates its management staff on a yearly basis in accordance with its performance management policy. This policy also applies to members of the Management Committee. Accordingly, the Remuneration Committee evaluates the members of the Management Committee on the basis of a series of collective and individual targets, of a quantitative and qualitative nature, also taking into account feedback from internal and external stakeholders.

It should be noted that the remuneration policy concerning the variable portion of the Management Committee's remuneration was adapted to take account of the implementation of multi-year tariffs. Consequently, since 2008 the salary scheme for members of the Management Committee has included, among other things, an annual variable remuneration and long-term profit-sharing spread out over the multi-year regulation period. The annual variable remuneration, which is connected with Elia Group's strategy, has two components: the attainment of collective quantitative targets, and individual performances, including progress on collective infrastructure projects, safety and AIT ('Average Interruption Time' – average time of interruption of electricity supply)8.

The Remuneration Committee also approved the proposed collective targets for the Management Committee for 2018. In addition, the Remuneration Committee approved the remuneration report, which is part of the annual report for 2017, and issued a favourable opinion on the capital increase reserved for staff. The Remuneration Committee also began a review of the guiding principles of the remuneration policy for the Group's executives. This review will continue in 2019.

Audit Committee

In addition to its usual support role to the Board of Directors, the Audit Committee is, pursuant to Article 526bis of the Belgian Companies Code, the Act of 29 April 1999 on the organisation of the electricity market and the articles of association, responsible in particular for:

• examining accounts and controlling budgets;
• monitoring financial reporting procedures;
• ensuring the effectiveness of the company's internal control and risk management systems;
• following up on internal audits and their effectiveness;
• following up on the statutory audit of annual accounts;
• evaluating and verifying the independence of auditors;
• making proposals to the Board of Directors on the appointment and re-election of auditors and on the terms of their appointment;
• investigating, where appropriate, any issues that resulted in the resignation of auditors and making proposals as to what actions, if any, should be taken in this respect;
• verifying the nature and extent of non-audit services provided by auditors;
• verifying the effectiveness of external audit procedures.

Pursuant to Article 96, §1, 9° of the Belgian Companies Code and the articles of association, this report must contain justification of the independence and accounting and auditing competence of at least one member of the Audit Committee. The internal rules of procedure of the Audit Committee require, in this respect, that all members of the Audit Committee have the sufficient experience and expertise required to exercise the role of the Audit Committee, particularly in terms of accounting, auditing and finance. On the basis of this rule, the professional experience of at least two members of the Audit Committee must be detailed in this report.

The experience of Michel Allé, Chairman of the Audit Committee, and Dominique Offergeld, member of the Audit Committee, is described in detail below.

Michel Allé (independent director of Elia System Operator and Elia Asset since 17 May 2016 and Chairman of the Audit Committee) has degrees in physics civil engineering and economics (both from the Université Libre de Bruxelles (ULB)). Alongside his academic career as a professor of economics and finance (Solvay Brussels School, ULB's École Polytechnique), he worked for many years as a Chief Financial Officer. In 1979, he began his career at the Belgian Prime Minister's Office, as an advisor in the Science Policy Office. He was appointed Director of the National Energy R&D Programme in 1982 and then Director in charge of Innovative Companies. In 1987, he joined the COBEPA Group, where he held many positions including Vice President of Mosane from 1992 to 1995. From 1995 to 2000 he was a member of the COBEPA Group's Executive Committee. He then served as Chief Financial Officer of BIAC between 2001 and 2005 and Chief Financial Officer of SNCB (Belgian Railways) between 2005 and 2015. He also has extensive experience as a director, including past and present roles at Telenet, Zetes, Eurvest, Mobistar and D'Ieteren. He has served on the Telenet Audit Committee and chaired the Zetes Audit Committee. 2016, a position she also held between 2008 and 2014. The Audit Committee may investigate any matter that falls within its remit. For this purpose, it is given the resources it needs to perform this task, has access to all information, with the exception of confidential commercial data concerning grid users, and can call on internal and external experts for advice. The Audit Committee met seven times in 2018. The Committee examined the annual accounts for 2017, under both Belgian GAAP and IFRS. It also examined the half-yearly results as at 30 June 2018 and the 2018 quarterly results, in accordance with Belgian GAAP and IFRS rules. Furthermore, it monitored the two projects concerning the exercise of Elia System Operator's pre-emptive right to acquire an additional 20% stake in Eurogrid International SCRL, the holding company of the German TSO 50Hertz Transmission GmbH and their impact on the Group's financing. The Committee took note of the internal audits carried out and the recommenda-

of SNCB. Between 2014 and 2016, she was Director of the Minister for Mobility's Strategy Unit, with responsibility for Belgocontrol and the SNCB. She has been CFO of ORES SCRL since August

Dominique Offergeld (non-independent director of Elia System Operator and Elia Asset) has a degree in economics and social science (specialisation: public economics) from Université Notre Dame de la Paix in Namur. She has taken various extra-academic programmes, including the General Management Program at Cedep (INSEAD) in Fontainebleau (France). She started her career at Générale de Banque (now BNP Paribas Fortis) in the corporate finance department in 1988, and was subsequently appointed as specialist advisor to the vice-president and minister for Economic Affairs of the Walloon Region in 1999. In 2001 she became advisor to the deputy prime minister and minister for Foreign Affairs. Between 2004 and 2005, she was deputy director of the office of the minister for Energy, subsequently becoming general advisor to the SNCB holding company in 2005. She was previously director of (among others) Publigas and government commissioner at Fluxys. She was also Chairwoman of the Board of Directors and the Audit Committee The Committee follows an action plan for each audit carried out, in order to improve the efficiency, traceability and awareness of the areas audited and thereby reduce the associated risks and provide assurance that the control environment and risk management are appropriate. The Committee followed the various action plans from a number of perspectives (timetable, results, priorities) on the basis, among other things, of an activity report from the internal audit department. The Audit Committee noted the strategic risks and the ad-hoc risk analyses based on the environment in which the Group operates. The Audit Committee regularly examined the compliance of the non-audit services with the legal requirements.

tions made.

Catherine Vandenborre Chief Financial Officer

Markus Berger Chief Infrastructure Officer

Peter Michiels Chief Human Resources & Internal Communication Officer

Patrick De Leener Chief Customers, Market & System Officer

Frédéric Dunon Chief Assets Officer

Ilse Tant Chief Community Relations Officer

Pascale Fonck Chief External Relations

Officer

Chris Peeters Chairman and Chief Executive Officer

Corporate Governance Committee

In addition to its usual support role to the Board of Directors, the Corporate Governance Committee is, pursuant to the Act of 29 April 1999 on the organisation of the electricity market and the articles of association, responsible for:

• proposing candidates to the General Meeting to be appointed as independent directors;
• giving prior approval for the appointment and/or removal (where applicable) of Management Committee members;
• examining, at the request of any independent director, the Chairman of the Management Committee or any competent federal and/or regional regulatory body or bodies for the electricity market, all cases of conflicts of interests between the system operator, on the one hand, and a dominant shareholder, municipal shareholder or company associated with or linked to a dominant shareholder, on the other hand, and to report to the Board of Directors on the matter. This responsibility aims to strengthen the directors' independence above and beyond the procedure detailed in Article 524 of the Belgian Companies Code, which the company also applies;
• deciding on cases of incompatibility on the part of members of the Management Committee and personnel;
• ensuring the application within the company of provisions laid down by law, regulations, decrees and other instruments relating to the operation of electricity systems, evaluating their effectiveness in view of the objectives for the independent and impartial operation of those systems, and ensuring compliance with Articles 4.4 and 13.1(2) and (3) of Elia System Operator's articles of association. A report on this subject is submitted every year to the Board of Directors and the federal and/or regional body or bodies responsible for regulating the electricity market;
• convening, at the request of at least one third of the members, meetings of the Board of Directors in accordance with the formalities for calling meetings as laid down in the articles of association;
• examining, after notification by a director, whether a director's membership of the supervisory board, the board of directors or bodies legally representing an undertaking which exercises control, directly or indirectly, over an elec-

tricity producer and/or supplier complies with Article 9.1b), c) and d) of Directive 2009/72/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in electricity, and reporting on this matter to the Board of Directors. As part of this examination, the Corporate Governance Committee takes account of the role and influence that the director concerned has in the undertaking concerned and of the degree of control or influence that the undertaking concerned has over its subsidiary. The Committee also examines whether, in the exercising of the director's role within the company, there is the potential or motive for favouring certain generation or supply interests as regards access to and investment in the grid, to the detriment of other grid users;

• verifying, prior to any appointment of a director, whether that be the appointment of a new director or the re-election of an existing director, whether the candidate director takes account of the incompatibilities set forth in the company's articles of association. To this end, every candidate director is required to provide the Committee with an overview of (i) any offices he or she holds on the board of directors, supervisory board or any other body of other legal entities other than the company and (ii) any other functions or activities, paid or unpaid, which he or she carries out for an undertaking performing any of the following functions: the generation or supply of electricity.

The committee met four times in 2018.

In line with its competences under the law and the articles of association and in compliance with confidentiality rules, the Committee dealt in particular with the following matters: application of and compliance with the requirements of laws, regulations and the articles of association concerning the independence of the company's independent directors, (Article 13 of the articles of association), the analysis of compliance with requirements in the area of full ownership unbundling as provided for by law and the articles of association (Article 14 of the articles of association) and preparation of the corporate governance statement. The Committee also handled the succession

planning.

Strategic Committee

The articles of association stipulate that the role of the Strategic Committee is to issue recommendations to the Board of Directors on matters of strategy.

As such, the Committee is responsible for:

• identifying and examining market trends and contextual factors that could influence Elia Group's strategic direction and associated strategic choices and priorities in the medium and long term;

• preparing and maintaining a dialogue about the key issues and associated options and scenarios that are relevant for Elia Group's strategy in the medium and long term;

• developing and submitting proposals about the core strategic choices and priorities that will shape Elia Group's future in the medium and long term.

The Committee met three times in 2018. Its discussions focused on value creation through innovation, (digital) and (in) organic growth, working with various assumptions and scenarios.

Management Committee

Pursuant to Article 9(9) of the Act of 29 April 1999 on the organisation of the electricity market and the articles of association, the Management Committee is responsible in particular for:

• the operational management of the electricity grids, including commercial, technical, financial, regulatory and personnel issues related to such operational management;

• day-to-day management of the system operator;

• the exercise of powers given to it under the articles of association;

• the exercise of powers delegated to it by the Board of Directors, in accordance with the general policy rules and principles and the resolutions adopted by the Board of Directors.

The Management Committee has all powers necessary, including the power of representation, and sufficient margin for manoeuvre to exercise the powers that have been delegated to it and to propose and implement a corporate strategy, without prejudice to the powers of the Board of Directors and the obligation on the part of the Board of Directors to observe the legal restrictions in terms of access to commercial data and other confidential data relating to grid users and the processing of such data.

The Management Committee generally meets formally at least once a month. Its members also attend informal weekly meetings. Members who are unable to attend usually have a representative. A written proxy, conveyed by any means (of which the authenticity of its source can be reasonably determined), can be given to another member of the Management Committee, in accordance with the internal rules of procedure of the Management Committee. However, no representative may represent more than two members.

In 2018, the Management Committee

met on 21 occasions for Elia System Operator and on 17 occasions for Elia Asset. Each quarter, the Management Committee reports to the Board of Directors on the company's financial situation (in particular on the balance between the budget and the results stated). It also reports on transmission system management at each meeting of the Board of Directors. As part of its reporting on management of the transmission system in 2018, the Management Committee kept the Board informed of strategic issues (particularly the acquisition of an additional 20% stake in Eurogrid International SCRL, the holding company of the German TSO 50Hertz Transmission GmbH), developments in legislation applying to the company, the company's financial situation, the situation of its subsidiaries, the main decisions taken by regulators and administrations, as well as the monitoring and development of major investment projects.

GRI 102-20

Corporate Social Responsibility (CSR) at Elia System Operator and Elia Asset is the responsibility of the Chief Community Relations Officer.

Management committee

Changes in the composition of the management committee

The composition of the Management Committee did not change in 2018.

In accordance with the Act of 3 September 2017 on the disclosure of non-financial information and diversity information by certain large undertakings and groups, the composition of the Management Committee is based on gender diversity and diversity in general, as well as on the complementarity of skills, experience and knowledge.

When searching for and appointing new members of the Management Committee, special attention is paid to diversity parameters in terms of age, gender and complementarity.

Code of conduct

Following the entry into force of European Regulation (EU) No. 596/2014 on market abuse, Elia amended its Code of Conduct that aims to prevent staff and those with leadership responsibilities in the Elia Group from potentially breaking any laws on the use of privileged information and market manipulation. The Code of Conduct lays down a series of regulations and communication obligations for transactions by those individuals in relation to their Elia System Operator securities, in accordance with the provisions of the Market Abuse Regulation and the Act of 2 August 2002 on monitoring of the financial sector and other financial services. This Code of Conduct is available on the company's website (www.elia. be, under 'Elia', 'Corporate Governance', 'Documents').

Corporate governance charter and internal rules of procedure of the board of directors, the board's advisory committees and the management committee

The Corporate Governance Charter and the internal rules of procedure of the Board of Directors, the Board's advisory committees and the Management Committee can be found on the company's website (www.elia.be, under 'Elia', 'Corporate Governance', 'Documents'). The responsibilities of the Board of Directors and of the Management Committee are described in detail in the articles of association of the company and are therefore not reiterated in the internal rules of the Board of Directors and of the Management Committee.

Transparency rules – notifications

Elia System Operator received no notifications in 2018 within the meaning of the Act of 2 May 2007 on disclosure of major shareholdings in issuers whose shares are admitted to trading on a regulated market and laying down miscellaneous provisions, and within the meaning of the Royal Decree of 14 February 2008 on disclosure of major shareholdings.

In accordance with Article 15 of the Act of 2 May 2007, on 18 January 2019 Elia System Operator gave notice of the capital increase reserved for the staff of Elia System Operator SA and its Belgian subsidiaries, which was formally recorded before a notary on 20 December 2018 and led to the issuing of 114,039 new shares in Elia System Operator.

See also the press release of 18 January 2019, published on the company's website (www.eliagroup.eu, under 'Investor Relations').

Elia has issued a total of 61,015,058 shares.

For more information about the shareholder structure as at 31 December 2018, see the section 'Shareholder structure on the closing date'.

REMUNERATION REPORT REMUNERATION OF THE MEMBERS OF THE BOARD OF DIRECTORS AND THE MANAGEMENT COMMITTEE

Procedure approved in 2016 to define the remuneration policy and the remuneration of members of the Board of Directors and the Management Committee

In accordance with Articles 16.1 and 15.1 of the respective articles of association of Elia System Operator and Elia Asset, a remuneration policy for members of the Board of Directors and the Management Committee was drawn up in 2016 by the Remuneration Committee and approved by the Boards of Directors of Elia System Operator and Elia Asset.

The remuneration policy for members of the Board of Directors was approved by the General Meeting of Shareholders of Elia System Operator and Elia Asset on 17 May 2016. The remuneration policy for members of the Strategic Committee was approved by the Extraordinary General Meeting of Shareholders of Elia System Operator and Elia Asset on 15 May 2018.

The Remuneration Committee also made recommendations regarding the remuneration policy and the remuneration of members of the Board of Directors and Management Committee members.

The composition and activities of the Remuneration Committee are covered in greater detail on page 6.

Remuneration of members of the Board of Directors

Following the decision adopted by the Ordinary General Meeting of Elia System Operator and Elia Asset on 17 May 2016, the rules on the remuneration of directors were amended. The new rules, effective from 1 January 2016, are described below.

The total cost of gross remuneration paid to the 14 directors in 2018 was €885,128.26 (€478,895.33 for Elia System Operator and €406,232.93 for Elia Asset).

The table below lists the individual gross sums paid to each director for Elia System Operator and Elia Asset combined.

These amounts were calculated on the basis of nine meetings of the Board of Directors of Elia System Operator and eight meetings of the Board of Directors of Elia Asset in 2018. In 2018, the Audit Committee met seven times, the Corporate Governance Committee four times, the Remuneration Committee of Elia System Operator six times9, the Remuneration Committee of Elia Asset five times, the Strategic Committee three times and the ad-hoc Advisory Committee of Elia System Operator eleven times.

Directors' remuneration consists of a basic remuneration of €25,000 per annum (€12,500 for Elia System Operator and €12,500 for Elia Asset) and an attendance fee of €1,500 (€750 for Elia System Operator and €750 for Elia Asset) per Board meeting, starting with the first Board meeting attended by the director. The basic annual remuneration and the attendance fee are increased by 100% for the Chairman of the Board of Directors and by 30% for each Vice-Chairman of the Board of Directors.

For each company, additional basic remuneration for each member of an advisory committee to the Board of Directors (the Audit Committee, the Remuneration Committee, the Corporate Governance Committee and the ad-hoc Advisory Committee of Elia System Operator) is set at €3,000 per annum per committee, and the attendance fee for each member of a committee is €750 per committee meeting (starting with the first meeting attended by the member). Both the basic remuneration and the attendance fee are increased by 30% for each committee chairman. The members of the Strategic Committee are not remunerated, with the exception of the Chairman, who is remunerated in the same way as the Chairs of the Board of Directors' other advisory committees.

The basic annual remuneration and the attendance fees are indexed in January each year on the basis of the consumer price index for January 2016.

The basic annual remuneration and the attendance fees cover all costs, except (a) any costs incurred by a director resident outside Belgium in connection with the exercise of his/her office (such as travel and accommodation costs) providing that the director in question was resident outside Belgium at the time of appointment or, if the director changed his/her place of residence after appointment, providing that the Remuneration Committee gave its approval; (b) any costs incurred by a director in the event that a meeting of the Board of Directors is held outside Belgium (e.g. in Germany); and (c) any costs incurred by a director travelling abroad in connection with the exercise of his/her office upon the request of the Chairman or a Vice-Chairman of the Board of Directors. All remuneration and costs are included in the company's operating costs.

All remuneration is paid on a pro rata basis according to the duration of the director's term of office.

An advance on annual remuneration is paid to the directors at the end of the 1st, 2nd and 3rd quarter. A detailed account is prepared during the month of December for the current year.

Directors do not receive any other benefits in kind, stock options, special loans or advances. Neither Elia System Operator nor Elia Asset has issued credit to or on behalf of any member of the Board of Directors.

Diversity within the management committee

Number of people on the Management Committee of Elia System Operator and Elia Asset as at 31 December 2018	Unit	2018
Men	Aged 35 – 55	4
	Aged ≥ 55	1
Women	Aged 35 – 55	3
	Aged ≥ 55	0

Management Committee remuneration policy

Aspirations

Our remuneration system is designed to attract, retain and motivate the most talented individuals with a view to achieving our short- and long-term goals within a consistent framework.

The principles governing remuneration of the group's executives are:

• Focus on safety first and work in the interests of the company by targeting operational performance
• Design a salary scheme that encourages executives to live up to our core values of entrepreneurship, collaboration, accountability and agility
• Attract, retain and nurture the best talent to achieve our strategy and goals in the short and long term
• Ensure that our variable remuneration rewards both team success at company level and individual contributions
• Develop a job classification and staff remuneration system based on an objective and measurable methodology • Position the remuneration system at the appropriate point of reference in the marketplace to attract the talent we need and to be competitive, using data
• from multiple providers (including Hay) • Do not discriminate between employees on any grounds whatsoever through our remuneration system
• Design our benefit plans to promote retention and provide a secure environment for our employees and their families.

In 2018, among others, the Remuneration Committee began a review of the guiding principles behind the remuneration policy for the Group's executives. This review will continue in 2019.

The Remuneration Committee evaluates the members of the Management Committee once a year. Any change in the basic remuneration is linked to the position of each member of the Management Committee with respect to the general benchmark salary in the mar-

ket and the assessment of the member's individual performance. In addition, the Remuneration Committee may, on a case-by-case basis, recommend the Board of Directors to award exceptional bonuses in view of particular performances in specific, non-recurring matters.

Since 2004, the Hay Group methodology has been used to define the weighting for each management position and to ensure that remuneration is in line with the going market rate.

The remuneration of members of the Management Committee consists of the following components:

• basic salary;
• short-term variable remuneration;
• long-term variable remuneration;
• pension;
• other benefits.

In accordance with Article 17.9 of the articles of association of Elia System Operator, an exemption from the provisions of Article 520ter(1) and (2) of the Belgian Companies Code is provided for members of the Management Committee.

As regards variable remuneration, the Remuneration Committee evaluates the members of the Management Committee at the end of each year based on a number of qualitative and quantitative targets. Since 2008, variable remuneration has comprised two components: a short-term one and a long-term one.

Basic remuneration

All the members of the Management Committee of Elia System Operator and Elia Asset have employee status.

In 2018, the basic remuneration paid to the Chairman of the Management Committee was €417,910.66. The basic remuneration paid to the other members of the Management Committee totalled €1,489,240.99 (€1,002,173.93 for management employed by Elia System Operator and €487,067.06 for management employed by Elia Asset).

Total basic remuneration of €1,907,151.65 was therefore paid to members of the Management Committee in 2018.

Short-term variable remuneration

The first component of variable remuneration is based on the attainment of a certain number of targets set by the Remuneration Committee at the start of the year, with 30% of variable remuneration related to the attainment of individual targets and 70% related to the attainment of the collective targets of Elia Group ( "short-term incentive plan").

In 2018, the short-term variable remuneration earned by the Chairman of the Management Committee was €285,312.01.

The variable remuneration earned by other members of the Management Committee in 2018 was €605,338.46 (€415,045.65 for management employed by Elia System Operator and €190,297.82 for management employed by Elia Asset).

A total of €890,650.47 in variable remuneration was therefore earned by members of the Management Committee in 2018.

• The collective targets for 2018 were:
• Net finance costs after tax
• OPEX efficiency
• Safety
• Implementation and monitoring of collective projects and our company transformation
• AIT (grid reliability)

Following the successful acquisition of an additional 20% stake in Eurogrid International, the holding company of the German TSO 50Hertz Transmission GmbH, the Board of Directors – acting on the advice of the Remuneration Committee – decided to award certain members of the Management Committee additional remuneration totalling €190,000 for their additional work. €100,000 of this was paid to the Chairman of the Management Committee, while €90,000 was paid to certain other members of the Management Committee (for Elia System Operator). This remuneration, which is part of the exceptional remuneration for particular performances in certain specific, non-recurring matters, was added to the aforementioned short-term variable remuneration earned for 2018.

DIRECTOR	REMUNERATION	BOARD OF DIRECTORS OF ELIA SYSTEM OPERATOR	BOARD OF DIRECTORS OF ELIA ASSET	AUDIT COMMIT TEE OF ELIA SYSTEM OPERATOR	AUDIT COMMIT TEE OF ELIA ASSET	GOVER NANCE COMMIT TEE OF ELIA SYSTEM OPERATOR	GOVER NANCE COMMIT TEE OF ELIA ASSET	REMUNE RATION COMMIT TEE OF ELIA SYSTEM OPERATOR	REMUNE RATION COMMIT TEE OF ELIA ASSET	STRATEGIC COMMIT TEE OF ELIA SYSTEM OPERATOR	STRATEGIC COMMITTEE OF ELIA ASSET	AD-HOC ADVISORY COMMITTEE
Michel ALLÉ	€73,549.80	9/9	8/8	7/7	7/7	-	-	-	-	3/3	3/3	11/11
Luc DE TEMMERMAN10	€75,977.10	9/9	8/8	4/411	4/412	3/313	3/314	6/6	5/5	-	-	-
Frank DONCK15	€69,165.00	9/9	8/8	7/7	7/7	4/4	4/4	-	-	-	-	-
Cécile FLANDRE16	€37,062.00	7/9	7/8	-	-	-	-	-	-	-	-	-
Claude GRÉGOIRE17	€54,883.08	9/9	8/8	-	-	-	-	3/318	3/319	2/3	2/3	-
Bernard GUSTIN20	€94,090.50	9/9	8/8	-	-	-	-	-	-	3/3	3/3	11/11
Philip HEYLEN	€56,824.92	7/9	6/8	-	-	4/4	4/4	2/221	2/222	-	-	-
Luc HUJOEL23	€65,093.40	8/9	7/8	-	-	4/4	4/4	-	-	2/3	2/3	10/11
Roberte KESTEMAN24	€69,540.84	9/9	8/8	3/325	3/326	-	-	3/327	2/228	-	-	11/11
Jane MURPHY	€50,373.00	9/9	8/8	-	-	3/4	3/4	-	-	-	-	-
Dominique OFFERGELD	€63,088.92	9/9	8/8	7/7	7/7	-	-	1/229	1/230	-	-	-
Rudy PROVOOST	€56,317.54	7/9	7/8	2/331	2/332	-	-	-	-	3/3	3/3	-
Saskia VAN UFFELEN33	€51,751.08	7/9	6/8	-	-	1/134	1/135	4/6	4/5	-	-	-
Geert VERSNICK	€67,411.08	9/9	8/8	4/436	4/437	-	-	-	-	3/3	3/3	10/11

10 Luc De Temmerman's fees are paid to the company InDeBom Strategies Comm. V.

• 11 Luc De Temmerman was a member of the Audit Committee until 22 March 2018.
• 12 Luc De Temmerman was a member of the Audit Committee until 22 March 2018.
• 13 Luc De Temmerman has been a member of the Corporate Governance Committee since 22 March 2018.

14 Luc De Temmerman has been a member of the Corporate Governance Committee since 22 March 2018.

15 Frank Donck's fees are paid to the company Ibervest NV.

16 Cécile Flandre's fees are paid to the company Belfius Insurance SA.

• 17 Claude Grégoire's fees are paid to the company Socofe SA.
• 18 Claude Grégoire was a member of the Remuneration Committee until 22 March 2018.
• 19 Claude Grégoire was a member of the Remuneration Committee until 22 March 2018.
• 20 Bernard Gustin's fees are paid to the company Bernard Gustin SPRL.
• 21 Philip Heylen has been a member of the Remuneration Committee since
• 22 March 2018. 22 Philip Heylen has been a member of the Remuneration Committee since 22 March 2018.
• 23 Luc Hujoel's fees are paid to the company Interfin CVBA.

24 Roberte Kesteman's fees are paid to the company Symvouli BVBA.

• 25 Roberte Kesteman has been a member of the Audit Committee since 22 March 2018.
• 26 Roberte Kesteman has been a member of the Audit Committee since 22 March 2018.
• 27 Roberte Kesteman has been a member of the Remuneration Committee since 22 March 2018.
• 28 Roberte Kesteman has been a member of the Remuneration Committee since 22 March 2018.
• 29 Dominique Offergeld has been a member of the Remuneration Committee since 22 March 2018.
• 30 Dominique Offergeld has been a member of the Remuneration Committee since 22 March 2018.
• 31 Rudy Provoost has been a member of the Audit Committee since 22 March 2018. 32 Rudy Provoost has been a member of the Audit Committee since 22 March 2018. 33 Saskia Van Uffelen's fees are paid to the company Quadrature SPRL.
• 34 Saskia Van Uffelen was a member of the Corporate Governance Committee until 22 March 2018.
• 35 Saskia Van Uffelen was a member of the Corporate Governance Committee until 22 March 2018.
• 36 Geert Versnick was a member of the Audit Committee until 22 March 2018. 37 Geert Versnick was a member of the Audit Committee until 22 March 2018

Total annual remuneration

In 2018, the total remuneration earned by the Chairman of the Management Committee was €803,222.67.

The total annual remuneration of other members of the Management Committee was €2,184,579.45 (€1,507,124.58 for management employed by Elia System Operator and €677,364.88 for management employed by Elia Asset).

Total annual remuneration for all members of the Management Committee in 2018 was therefore €2,987,802.12.

Long-term variable remuneration

The second component of variable remuneration is based on multi-annual criteria covering a period of four years ('long-term incentive plan'). The variable remuneration earned in 2018 can be estimated at €58,005.32 (maximum amount in the event of full attainment of the multi-annual criteria for the tariff period concerned) for the Chairman of the Management Committee for the period performed in 2018 and €375,321.71 for the other members of the Management Committee (€252,592.13 for management employed by Elia System Operator and €122,729.03 for management employed by Elia Asset, respectively).

These amounts are reviewed at the end of each year based on the achievement of the multi-annual criteria. The first part of the long-term variable remuneration for the 2016-2019 tariff period was paid in 2018. The balance will be paid in 2020. The remuneration is definitively acquired at the moment of payment.

Clawback

Bonuses paid for the prior period may be clawed back in case of proven fraud or material misstatement.

Contributions to the supplementary pension scheme

Since 2007, all pension plans for Management Committee members have been defined contribution plans, where the amount paid, excluding tax, is calculated on the basis of annual remuneration. In 2018, Elia System Operator paid a total of €107,935.55 for the Chairman of the Management Committee.

For the other members of the Management Committee, Elia paid a total of €332,032.48 (€213,207.19 for management employed by Elia System Operator and €118,825.29 for management employed by Elia Asset).

Other benefits

Other benefits awarded to members of the Management Committee, such as guaranteed income in the event of longterm illness or an accident, healthcare and hospitalisation insurance, invalidity insurance, life insurance, tariff benefits, other allowances, assistance with public transport costs, provision of a company car, employer-borne costs and other minor benefits are in line with the regulations applying to all company executives.

The cost of these other benefits for 2018 was valued at €38,823.00 for the Chairman of the Management Committee and at €215,832.65 for the other members of the Management Committee (€145,427.27 for management employed by Elia System Operator and €70,405.38 for management employed by Elia Asset).

No stock options were awarded at Elia for the Management Committee in 2018.

Provisions of employment contracts and severance benefits of members of the management committee

The employment contracts of Management Committee members concluded after 3 May 2010 were drawn up in accordance with the prevailing legislation on notice periods and dismissal.

The employment contracts of members of the Management Committee hired before 3 May 2010 contain no specific provisions regarding dismissal.

If the company decides to impose a 12-month non-compete restriction on a Management Committee member, that member is entitled to an additional six months' compensation.

This section contains the information required to be disclosed under the aforementioned legislation and not included in other parts of the annual report.

Information regarding special control rights of certain holders of securities

In accordance with Article 4.3 of the articles of association of Elia System Operator and Elia Asset, all shares in these two companies have the same rights, irrespective of the class to which they belong, unless otherwise stated in the articles of association.

In this context, the articles of association state that specific rights are associated with Class A and Class C shares regarding (i) the appointment of members of the Board of Directors (Article 13.5.2 of the articles of association of Elia System Operator and Article 12.5.2 of the articles of association of Elia Asset) and (ii) the approval of decisions by the General Meeting (Articles 28.2.1 and 28.2.2 of the articles of association of Elia System Operator and Article 27.2 of the articles of association of Elia Asset).

Elia System Operator shares held by members of the Management Committee

The members of the Management Committee held the following number of shares as at 31 December 2018:

MEMBERS OF THE MANAGEMENT COMMITTEE	as at 31.12.2018	as at 31.12.2017
Chris PEETERS Chief Executive Officer – Chairman of the Management Committee	3,324	1,844
Markus BERGER Chief Infrastructure Officer	9,156	9,156
Patrick DE LEENER Chief Customers, Market & System Officer	3,886	3,125
Frédéric DUNON Chief Assets Officer	2,171	2,852
Pascale FONCK Chief External Relations Officer	661	661
Peter MICHIELS Chief Human Resources & Internal Communication Officer	729	-
Ilse TANT Chief Community Relations Officer	2,460	2,460
Catherine VANDENBORRE Chief Financial Officer	1,406	1,389

No stock options were awarded at Elia System Operator for the members of the Management Committee in 2018. Members of the Management Committee may purchase shares via existing capital increases reserved for members of personnel or on the stock exchange.

Shareholder structure on the closing date

	SHARES	% SHARES	% VOTING RIGHTS
Publi-T (Class B and C shares)	27,383,50738	44,88	44,88
Publipart (Class A shares)	1,526,756	2,50	2,50
Belfius Insurance (Société Fédérale de Participations et d'Investissement) (Class B shares)	1,134,76039	1,86	1,86
Katoen Natie Group (Class B shares)	4,231,14840	6,93	6,93
Interfin (Class B shares)	2,598,14341	4,26	4,26
Free float (Class B shares)	24,140,744	39,57	39,57
Total	61,015,058	100	100

Information regarding statutory limitations or limitations under the articles of association on the exercising of voting rights

In accordance with Article 4.3(3) of the articles of association of Elia System Operator and Elia Asset, the voting rights associated with shares held directly or indirectly by companies active in the generation and/or supply of electricity and/or natural gas are suspended.

Information regarding the rules on amending the articles of association

In the event of the articles of association of Elia System Operator and Elia Asset being amended, Article 29 of the articles of association of Elia System Operator and Article 28 of the articles of association of Elia Asset are applicable.

38 Based on the number of shares participating in the Ordinary General Meeting of Elia System Operator on 15 May 2018.

39 Based on the number of shares participating in the Ordinary General Meeting of Elia System Operator on 15 May 2018.

40 Based on the number of shares participating in the Ordinary General Meeting of Elia System Operator on 16 May 2017.

41 Based on the number of shares participating in the Ordinary General Meeting of Elia System Operator on 15 May 2018.

Information regarding statutory limitations or limitations under the articles of association on transfers of securities

Transfers of securities within Elia System Operator are governed by Article 9 of the articles of association of Elia System Operator.

OTHER INFORMATION TO BE COMMUNICATED PURSUANT TO ARTICLE 96 OF THE BELGIAN COMPANIES CODE AND ARTICLE 34 OF THE ROYAL DECREE OF 14 NOVEMBER 2007 ON THE OBLIGATIONS OF ISSUERS OF FINANCIAL INSTRUMENTS ADMITTED TO TRADING ON A REGULATED MARKET

The Electricity Act recently made the transmission system operator responsible for developing a transmission grid in the marine areas over which Belgium can exercise its jurisdiction. A specific regulatory framework applicable to this network has been developed by the CREG.

This specific extension of the current regulatory framework takes into account the risks associated with such an activity, including regulatory, contractual and technical risks, in particular by granting an additional fair margin premium for own funds invested in this offshore network. The significant increase in energy expected from the new offshore wind farms will also be accompanied by a considerable rise in the levy to cover the purchase costs of new green certificates. Greater attention will be paid to managing the cash flow resulting from this situation.

Elia's income is influenced by the dividends received from companies in which it has shareholdings, in particular those of 50Hertz, via Eurogrid International.

The tariffs charged by 50Hertz are subject to regulation by the German federal regulatory agency, Bundesnetzagentur (BNetzA). Decisions made and actions taken by the BNetzA under the current regulatory framework may have a substantial impact on 50Hertz.

Furthermore, the German regulatory framework governing the activities of 50Hertz is subject to extensive European, national and regional legislation and regulation. While 50Hertz tries to anticipate European legislation, new directives and regulations in preparation at European level or existing regulations and directives awaiting transposition into national law may always cause uncertainties.

Legislation and directives regarding renewable energy sources may also have a great impact on 50Hertz's liquidity. Changes in the legislation may lead to significant variations in the current regulatory and/or liquidity risk.

Division of powers

The regulatory and legal framework entails risks with regard to the division of powers between Belgium's federal and regional entities. For instance, contradictions between the various regulations, including the grid codes, could hinder the exercise of the company's activities. The further development of and changes to these regulations may also impact the company's liability in the event of a power outage on the grid or – in the context of a reform of the State – the division of powers between federal and regional authorities, potentially including the power to approve transmission tariffs.

2. Operational risks

Energy balance

Every year, Elia and 50Hertz Transmission seek to contract, at the lowest possible cost, the reserves needed to ensure continual balance between production and consumption in their respective zones. To that end, they analyse, both at national and European level, how the growing proportion of intermittent renewable energy generation units can be safely integrated without compromising the energy ba- lance. The growth across Europe in the number of cogeneration and renewable energy units connected to distribution systems and the connection of large offshore wind farms also create new challenges for operational grid management and require the further development of their infrastructure.

An important development since 2014 has been the negative trend in Belgium's national electricity production, as a result of closures and mothballing of production units, resulting in an overall decrease in the production capacity available to Belgian consumers and a growing dependency on electricity imports from foreign markets. A consequence of these supply conditions has been the creation of strategic electricity reserves for the winter period. These reserves consist of identified and reserved electricity generation capacity sitting outside the electricity market, to be called upon by the TSO in the event of electricity shortages. The many events that occurred in recent years regarding Belgian nuclear generating facilities illustrate the uncertainties impacting supply conditions. The actual availability and location of nuclear generation also interact with maintenance and/ or investment programmes on the 400 kV networks, as well as the conditions governing access to resources capable of providing the auxiliary services needed for system operation.

It cannot be ruled out that other electricity production units may be closed or mothballed in future, which will keep the supply situation under pressure. In a similar vein, uncertainty regarding the dwindling availability of France's nuclear generation facilities may lead to a decrease in the quantities of energy imported from France. The need to continue resorting to strategic reserves and/or other mechanisms therefore remains a major concern for future years.

In this regard, it is worth pointing out that the federal government has started formal steps which should culminate in the introduction of a capacity remuneration mechanism (CRM) as a way of offering more certainty in terms of Belgian security of supply. Elia is monitoring these developments closely, especially as it may find itself playing a key role in implementing this mechanism.

In addition, changing trends in offtake and injection and the enhancement of interconnection capacity between EU Member States are dependent on securing permits and approvals from local, regional, national and international authorities. The need to obtain such approvals and permits within certain timeframes represents a critical challenge to timely implementation. Moreover, these approvals and permits can be contested in the relevant courts.

Finally, while volumes of decentralised intermittent electricity generation are rising and while centralised generation capacity continues to decrease, Elia is also facing an ageing asset base. All three factors complicate the task of maintaining balance on the network.

Power outages

The reliability of the transmission systems operated by Elia and 50Hertz is among the best in Europe. Nonetheless, unforeseen events, such as unfavourable weather conditions, may occur to a degree which interrupts the smooth operation of one or more infrastructure components. In most cases, these incidents have no impact on consumers' power supply because the meshed structure of the grids operated by Elia and 50Hertz means that consumers can be reached via a number of different connections. However, in extreme cases an incident in the electricity system may lead to a local or widespread outage (known as a blackout) provoking liability claims and litigation which could negatively impact the results of operations. Such outages may be caused by natural phenomena (including extreme storms), unforeseen incidents or operational problems, either in Bel-

RISKS AND UNCERTAINTIES FACING THE COMPANY

GRI 102-15, GRI 102-30

National

The Belgian legal framework was established when the first EU Directive on the internal electricity market was transposed by the Electricity Act of 29 April 1999. The amendment of 8 January 2012 adapted largely the Electricity Act to comply with the Third Energy Package legislation.

In accordance with Article 258 of the Treaty on the Functioning of the European Union, the European Commission monitors the transposition of European Directives into national legislation. In this connection, it sent a Reasoned Opinion to Belgium on 25 February 2016 in which it found – as revealed in the press release – that Belgium has not correctly transposed certain unbundling rules (requiring a full separation of the ownership and accounting of the transmission system in Belgium from any generation or supply activities), as a result of which other companies than the established Belgian Transmission System Operator for electricity have been prevented from developing and operating interconnectors with other EU Member States. In addition, the European Commission argued that the rules on the powers of the federal energy regulator CREG and certain rules pertaining to consumers have not been transposed correctly. The Belgian authorities have provided the European Commission with their views and arguments in respect of the appropriate transposition of the relevant European provisions into Belgian law.

The company's net profit is largely determined by a fair return mechanism (Belgian and German) and by incentives based on tariff guidelines set out in the Electricity Act.

For the period 2016-2019, Elia's financial result is influenced annually by changes to Belgian linear bonds (10-year OLOs) and by a special mechanism that took effect since 2016. This mechanism includes an incentive linked to the progress of construction work for major projects mainly linked to interconnection capabilities (aimed at enhancing the integration of EU energy markets and systems), and a corrective term which reflects the gap between the real value of the OLO during the year and a benchmark value. Elia's financial result is also influenced by its ability to realise and/ or exceed the factors for improving efficiency, by the results achieved by various incentives established by the regulation; and by the analyses of the various budget items implemented ex post by the federal regulator.

On 3 December 2015, the tariffs and mechanisms determining Elia's profitability as Belgium's transmission system operator were approved by CREG for a four-year tariff period, effective on 1 January 2016 to 31 December 2019. In case of deviations between the forecasted costs and actually incurred costs (covered by the tariffs), the CREG takes the final decision as to whether the incurred costs are not deemed unreasonable. This decision can result in the rejection of costs incurred, which will therefore not be taken into account for the setting of tariffs for the next period, and therefore will have an overall negative impact.

Elia has to submit a new tariff proposal for the period 2020-2023 to the CREG for approval, based on the 2020-2023 tariff methodology drawn up by the CREG in June 2018. Drawing up this tariff proposal will take several months and should lead, by the end of 2019 at the latest, to the setting of new transmission tariffs applicable throughout the period in question. Close monitoring of this process is essential for enabling the grid operator to have the income - and therefore the cash flow – it needs to fulfil its various missions.

Also sometime in 2019, Belgium's regulatory treatment of Elia's investments in non-regulated activities will have to be clarified, when Elia realises these investments using dedicated financing from external funds.

Elia's turnover also depends on the energy transported via its grid, and therefore on the level of business activity of its customers and the society it serves at large, including the rapid increase in decentralised electricity generation being directly injected to the distribution networks. The actual level of residential and household electricity consumption may result in differences between the electricity volumes actually transmitted and those estimates built into the 2016- 2019 tariffs as approved by the regulator. Any deficit and/or extra costs incurred as a result, such as additional financing requirements, must be offset by the tariffs for the following regulatory periods, under the prevailing regulations. The impact on the electricity consumption and injection of Elia's various customer segments and the uncertainty surrounding the outlook for levels of business activity amongst industrial clients pose a risk to Elia's cash flow.

1. Regulatory and income risks

Unplanned and/or inconvenient changes or misinterpretations in regulatory or policy mechanisms (tariffs, incentives, renewable energy targets, operating rules) could conflict with the grid operator's existing and envisioned strategy causing severe financial and organizational impacts.

International

The two transmission system operators in the Elia Group strive to proactively anticipate European legislation, new directives and regulations being prepared at EU level or awaiting transposition into Belgian and German law in order to minimise uncertainties. Elia and 50Hertz are paying particularly close attention to ongoing discussions at European level – formalised by measures including the 'winter package' – that could have a significant influence on the duties and responsibilities of transmission system operators in future.

Both Elia and 50 Hertz have received certification as ownership unbundled transmission system operators. They are thus considered to be fully independent of electricity and gas producers and suppliers. They must constantly stay in line with the obligations arising from this certification. In addition, both Elia and 50Hertz continue to actively participate in projects designed to arrive to the Single European Energy Market, as envisaged by the European Commission.

To execute its activities, Elia and 50Hertz have a license, which can be revoked earlier if Elia or 50Hertz do not have, inter alia, the human, technical and/or financial resources to guarantee the continuous and reliable operation of the grid in accordance with the applicable legislation, as well as the unbundling obligations as described in Article 9 of the EU Electricity Directive.

Such a revocation would have an adverse material impact on Elia and/or 50Hertz.

Elia and 50Hertz are also founding members of the European Network of Transmission System Operators for Electricity (ENTSO-E), which was set up in December 2008 and brings together 43 transmission system operators from 36 countries, including the EU Member States. Amongst other things, ENTSO-E performs the role of the European Network of Transmission System Operators provided for in the third package.

gium or abroad. The Elia Group regularly holds crisis management drills so that it is ready to deal with the most unexpected and extreme situations. In the event of an error attributable to Elia, the general terms and conditions of its contracts limit the liability of Elia and 50Hertz to a reasonable level, while its insurance policy is designed to limit some of the financial repercussions of these risks.

Risks associated with electronic, IT and telecommunication equipment

The incorporation and embedding of electronic, IT, digitalisation and telecommunication technologies in electricity transmission systems for the purposes of operational management, communication and surveillance (such as smart grids) modifies the nature of the electricity systems and infrastructure used by TSOs such as Elia and 50Hertz.

Failures in the telecommunications network or IT systems, including attempts to gain unauthorized access to our IT systems and our data through various channels, used to operate the electricity system may harm the latter's performance. Elia takes appropriate measures to back up the IT network and associated systems to the maximum extent allowed by technical and financial considerations. It has drawn up and regularly tests recovery plans for the most critical IT systems. However, component failures in the telecommunication network and IT systems are impossible to rule out. Where systems do fail, Elia will strive to minimise the impact on customers.

Environmental risk

Elia's results may be affected by outgoings needed to keep up with environmental legislation, including costs associated with implementing preventive or correc- tive measures or settling thirdparty claims. The company's environmental policy is developed and monitored in such a way as to manage these risks. Where Elia or 50Hertz might in any way be liable for decontamination, the appropriate provisions are set aside.

Permitting risk

Both Elia and 50Hertz have a duty to build an electricity grid consistent with the energy needs of their respective client bases and with the move by the energy industry into decentralised electricity generation, which necessitates a reinforced electrical grid.

Consequently, electrical installations need to be upgraded or newly built, which means obtaining building permits. Occasionally, obtaining permits takes place after lengthy dialogue with local populations and authorities, which may delay the building of the infrastructure.

Risks associated with the suppliers of infrastructure work

Elia's infrastructure objectives are exposed to an increased risk of capacity problems affecting several key suppliers. This situation has arisen because demand is increasing steadily on the European market, while supply has remained relatively stable. To mitigate this risk, Elia will conduct regular forward-looking market capacity analyses and hold a proactive dialogue with its suppliers.

The difficult economic situation on the European market (see also the 'Macroeconomic risks' section) may also jeopardise suppliers' financial health, preventing them from fulfilling their contractual obligations. Infrastructure constructions may be delayed as a result.

Risk of legal disputes

Although the company operates in such a way as to minimise the risk of legal disputes, it may nonetheless become involved in such disputes. Where necessary, the appropriate provisions are laid aside for this.

Safety and welfare

The Elia Group operates facilities where accidents or external attacks may cause bodily harm to persons. Persons working in or near electricity transmission facilities may be exposed, in the event of an accident, error or negligence, to the risk of electrocution. The safety and welfare of individuals (both Elia personnel and third parties) is a daily priority for the Elia Group's management, supervisory staff and personnel. Elia has in place a health and safety policy, undertakes safety analyses and promotes a safety culture.

Risks associated with inefficient internal control mechanisms

All internal processes can have an impact on the company's results in some way. The multi-year tariff mechanism increases the need for year-on-year increases in the company's overall efficiency. To this end, the efficiency of internal processes is monitored regularly, using performance indicators and/or audits, to ensure they are kept under proper control. This is overseen by the Audit Committee, which controls and monitors the work of the Internal Audit & Enterprise Risk Management Department.

Acts of terrorism or sabotage

The electricity network and assets are widely spread geographically and are potentially exposed to acts of terrorism or sabotage. Such events could negatively affect the network operations and may cause network failures or system breakdowns. Network failures or system breakdowns could in turn have a material adverse effect on the financial condition and operational result.

3. Financial risks

The Group is exposed to various financial risks in the exercise of its activities: market risk (namely interest rate risk, inflation risk, tax risk and limited exchange risk), liquidity risk and credit risk. The risks the company faces are identified and analysed in order to establish appropriate limits and controls and monitor risks and compliance with such limits. To this end, the Group has defined responsibilities and procedures specifically for the financial instruments to be used and the operating limits for managing them. These procedures and related systems are revised on a regular basis to reflect any changes in market conditions and the activities of the Group. The financial impact of these risks is limited, as Elia and 50Hertz operate under the Belgian or German regulatory framework. See the 'Regulatory framework' section for further details.

To finance their investments and achieve their short- and long-term strategic goals, Elia and 50Hertz turn to the capital markets, which are heavily influenced by macroeconomic trends. In 2019, these will mainly be shaped by a potential tightening of monetary policy in both the US and the eurozone and by a possible esca- lation of current geopolitical tensions in the context of trade relations of various countries with the United States. For the Eurozone, further growth delays might occur, based on the uncertainties resulting from the outcome of Brexit and / or Italy. All of these macroeconomic factors are reflected at market level by major volatility, which could have a negative impact on the growth of Elia and 50Hertz and on the pursuit of their objectives.

As part of the Company's efforts to mitigate the funding risk, the Company aims to diversify its financing sources in debt instruments. The refinancing risk is managed through developing strong bank relationships with a group of financial institutions, through maintaining a strong and prudent financial position over time and through diversification of funding sources. The short term liquidity risk is managed on a daily basis with funding needs being fully covered through the availability of credit lines and a commercial paper programme (see also note 8.1 Financial risk and derivative management).

Elia and Eurogrid GmbH are rated by S&P and Moody's respectively. There is no assurance that the rating will remain the same for any given period or that the rating will not be lowered by the rating agency if, in its judgment, circumstances in the future so warrant. A decision by a rating agency to downgrade or withdraw the Company's credit rating could reduce the Company funding options and increase its cost of borrowing.

With the advent of Belgian laws and regulations governing decentralised or renewable energy generation, notably via photovoltaic solar panels and wind turbines, the Federal and Regional governments authorised the issuance of so-called 'green certificates', which are used as a financial support mechanism for renewable energy. Elia's obligation to buy these certificates at a guaranteed minimum price poses a cash flow risk, as 'green certificates' are effectively used as 'call' options and their execution is sometimes uncertain. Consequently, Elia is subject to unforeseeable influxes of large numbers of 'green certificates', which it is obliged to purchase, representing a

risk to Elia's liquidity. Elia has established regulatory and cash planning mechanisms allowing it to partially reduce the cash impact that this risk may pose.

In terms of the regional public service obligations, the imbalance on the green certificates market in Wallonia is buoying sales of Elia green certificates and continued high levels of use of the guaranteed minimum price. The tariff for public service obligations for financing the support measures for renewable energy in Wallonia, which was established to cover the cost of selling green certificates to Elia, is still not enough to cover Elia's liquidity requirements. In late 2018, a new freeze was introduced to meet the need for short-term liquidity relating to green certificates in Wallonia. In a bid to cover medium-term liquidity requirements, a new draft decree was passed by the Walloon government on 13 September 2018. It aims to rebalance the green certificates market by 2025 by eliminating surplus certificates on the market with the assistance of a bank, thereby meeting the need to finance sales of green certificates at the guaranteed minimum price. Implementation of the new decree is sched-

uled for 2019. As regards the federal public service obligations, the commissioning of new offshore wind farms is significantly boosting the resale of green certificates to Elia at the guaranteed minimum price and enhancing the company's cash flow. This is also pushing up Elia's liquidity requirements due to the tariff for public service obligations for the financing of green certificates. To ensure support for domain concessions with a financial close on or after 1 July 2018, a Royal Decree was published on 17 August 2018 amending the Royal Decree of 16 July 2002 on the introduction of mechanisms promoting renewable electricity generation. A new draft Royal Decree, which was approved on its first reading by the Federal Council of Ministers in October 2018, is expected to be passed in 2019. The Royal Decree will change how this tariff is calculated, taking into account the system of advance payments set out in the Royal Decree of 17 August 2018.

Similarly, 50Hertz is exposed to a cash flow risk as it is obliged to buy the electricity generated by renewable sources for a fixed price, but to sell it at variable prices dictated by the market.

4. Contextual factors

Macroeconomic risks

Economic growth has slowed down since the summer of 2018, especially in Europe. This was due to the sharp decline in German car production, concerns about Brexit and Italian fiscal policy, and the trade war between the US and China. The main macroeconomic risks are related to external factors, due to heightened geopolitical tensions, the possible tightening of financial conditions worldwide causing elevated indebtedness, disruptions caused by intensifying patterns of automation and digitalization and a build-up of mercantilist and protectionist pressures against a backdrop of rising nationalist and populist politics.

Human resources risk

To achieve our strategic goals and enable change across the organization, we need the expertise, commitment and enablement of our employees. Elia pursues an active branding and recruitment policy to maintain an appropriate level of expertise and know- how in a tight labour market. This is an ongoing risk, bearing in mind the highly specialised and complex nature of its business. To address new and emerging risks including digitalization and demographic change the HR department reinforced their focus towards the development of more flexible approaches to career and leadership issues and towards the needs of people in all phases of employment, including those transitioning into retirement, in line with new models of work and organizational structures.

Image risk

Generally speaking, circumstances may arise that have a negative impact on the company's image. Real or perceived failures of governance or regulatory compliance could harm our reputation. Many other factors, including the materialization of the risks discussed in several of the other risk topics, could impact our licence to operate, harm our ability to secure new resources and contracts, and limit our ability to access capital markets. Elia has an internal control mechanism to guarantee, among other things, regulatory compliance including the confidentiality of data (GDPR). Despite this, external parties may pass on information in their possession that could have an impact on the company's share price.

Miscellaneous

Elia realises that there might be other risks of which the company is not yet aware. Some risks may seem limited today but could increase in the future. The subdivisions used give no indication of the potential consequences of the listed risks.

FEATURES OF THE INTERNAL CONTROL AND RISK MANAGEMENT SYSTEMS

gations under the regulatory framework. The structured approach developed by Elia helps to ensure that financial data is both exhaustive and precise, taking into account the deadlines for activity reviews and the actions of key players so as to ensure adequate control and accounting.

Integrity and ethics

Elia's integrity and ethics are a crucial aspect of its internal control environment. The Management Committee and management regularly communicate about these principles in order to clarify the mutual rights and obligations of the company and its employees. These rules are disseminated to all new employees, and compliance with them is formally included in employment contracts. The Code of Conduct also helps to prevent employees from breaching any Belgian legislation on the use of privileged information or market manipulation and suspicious activities. Management consistently ensures that employees comply with internal values and procedures and – where applicable – take any actions deemed necessary, as laid down in the company regulations and employment contracts.

The Ethical Code defines what Elia regards as correct ethical conduct and sets out the policy and a number of principles on the avoidance of conflicts of interests. Acting honestly and independently with respect to all stakeholders is a key guiding principle for all of our employees. Elia's Ethical Code expressly states that the Group prohibits bribery in any form, misuse of prior knowledge and market manipulation. This is confirmed by the Elia Code of Conduct. Elia and its employees do not use gifts or entertainment to gain competitive advantage. Facilitation payments are not permitted by Elia. Disguising gifts or entertainment as charitable donations is also a violation of the Ethical Code. Moreover, the Ethical Code prohibits all forms of racism and discrimination, promotes equal opportunities for all employees, and ensures the protection and confidential use of IT systems. All parties involved in procurement must abide by Elia's Purchasing Code of Ethics and all associated regulations. Elia's Purchasing Code of Ethics is published internally and externally and is based on four pillars: confidentiality, non-discriminatory treatment of suppliers, transparency, and avoidance of conflicts of interest. The management of the employees involved in the procurement and payment processes regularly provides opportunities for training and awareness-raising on these topics.

By virtue of its legal status as a power transmission system operator, Elia is subject to a large number of statutory and regulatory rules setting out three fundamental principles: non-discriminatory conduct, confidential processing of information, and transparency towards all electricity market players as regards non-confidential market information. With a view to meeting these specific obligations, Elia has drawn up an Engagement Programme, which has been approved by the Corporate Governance Committee. The Compliance Officer reports annually to the relevant regulatory bodies in this regard.

Any violations of these codes can be reported to the Compliance Officer, who handles them objectively and confidentially. The Compliance Officer declares that no such violations were reported by internal employees or external stakeholders in 2018.

Internal Audit's annual programme includes a number of actions and verification audits designed to act as specific safeguards against fraud. Any findings are systematically reported to the Audit Committee. In 2018, no relevant findings relating to financial fraud were reported in the specific audit of purchase and payment processes, nor in the other audits making up the annual audit plan.

Roles and responsibilities

Elia's internal control system relies on clearly defined roles and responsibilities at all levels of the organisation. The roles and responsibilities of the various committees established within Elia are primarily identified in the legal framework applicable to Elia, the articles of association and the Corporate Governance Charter.

Under the supervision of the Chief Financial Officer, the Accounting Department is responsible for statutory financial and tax reporting and the consolidation of the Elia Group's various subsidiaries. The Controlling Department monitors analytical accounting and reporting and assumes responsibility for all financial reporting in a regulatory context. The Investor Relations Department is responsible for specific reporting applicable to companies listed on the stock exchange.

As regards the financial reporting process, the tasks and responsibilities of all employees in the Accounting Department have been clearly defined with a view to producing financial results that accurately and honestly reflect Elia's financial transactions. A detailed framework of tasks and responsibilities has been drawn up to identify the main control duties and the frequency with which tasks and control duties are performed.

An IFRS Accounting Manual is used by all entities within the scope of consolidation as a reference for accounting principles and procedures, thus ensuring consistency, comparability and accu- rate accounting and reporting within the Group.

The Finance Department has the appropriate means (including IT tools) to perform its tasks; all entities within the scope of consolidation use the same ERP software, which has a range of integrated controls and supports task separation as appropriate. Elia also clarifies the roles and responsibilities of all its employees by providing a description of each job in keeping with the Business Process & Applications methodology.

Competencies

With a view to ensuring its various activities are performed reliably and effectively, Elia clearly spells out the vital importance of its employees' competencies and expertise in its recruitment, training and retention procedures. The Human Resources Department has drawn up the appropriate policies and defined all jobs in order to identify the relevant roles and responsibilities as well as the qualifications needed to fulfil them.

Elia has drawn up a policy for the management of generic and specific competencies in line with the company's values, and promotes training so as to enable all its employees to effect-

ively perform the tasks allocated to them. Requirements with regard to competency levels are continually analysed by means of formal and informal self-assessments at various stages of an employee's career.

Training programmes on financial reporting are offered to all employees involved directly or indirectly with that task. The training emphasises the existing regulatory framework, accounting obligations and actual activities, with a high level of understanding enabling participants to address the appropriate issues.

2. Risk management Risk management is another internal control system that is crucial in helping Elia to achieve its strategic objectives as defined in its mission. The Board of Directors and the Risk Manager jointly and regularly identify, analyse and assess key strategic and tactical risks. The risks are assessed qualitatively and/or quantitatively depending on their nature and potential effect. The Risk Manager then makes recommendations on how best to manage each risk considering the close interaction of Elia's entire risk universe. Based on this assessment, preventive, remedial and/or corrective actions are implemented, including the strengthening of existing internal control activities

where applicable. As part of its responsibilities, Elia's management establishes an effective internal control system to ensure, among other objectives, accurate financial reporting. It emphasises the importance of risk management in financial reporting by taking into account, with the Audit Committee, a whole range of associated activities and risks. It ensures that risks are truly reflected in financial results and reports. In addition, Risk Management goes beyond those risks known to Elia and tries to anticipate the nature and characteristics of emerging risks, which may impact Elia's objectives.

Financial risk assessments primarily involve the identification of:

• 1. significant financial reporting data and its purpose;
• 2. major risks involved in the attainment of objectives;
• 3. risk control mechanisms, where possible.

Financial reporting objectives include (i) ensuring financial statements comply with widely accepted accounting principles; (ii) ensuring that the information presented in financial results is both transparent and accurate; (iii) using accounting principles appropriate to the sector and the company's transactions; (iv) ensuring the accuracy and reliability of financial results. The activities undertaken by Elia, as an electricity transmission system operator in relation to its physical installations, contribute significantly to its financial results.

Therefore, appropriate procedures and control systems have been established to ensure an exhaustive and realistic inventory of physical installations. Risk management is a company-wide activity, actively supported by the delegation of relevant responsibilities to all employees as part of their specific activities, as defined in the Policy.

Continuous assessment

Employing a simultaneously top-down and bottom-up approach enables Elia to identify and, where possible, anticipate forthcoming events and react to any incidents occurring inside or outside the organisation which might affect the attainment of objectives.

Top-down approach based on strategic risks

Elia's strategic risk assessments are reviewed on a quarterly basis in the Audit Committee. Action plans or specific, theme-based risk assessments are carried out whenever there is a perception of potential threats or opportunities.

The reference framework for internal control and risk management, established by the Management Committee and approved by the Elia Board of Directors, is based on the COSO II framework. The framework has five closely linked basic components, providing an integrated procedure for internal control and risk management systems: control environment, risk management, control activities, information and communication, and monitoring. The use and inclusion of these concepts in Elia's various procedures and activities enables the company to control its activities, improve the effectiveness of its operations, optimally deploy its resources, and ultimately achieve its objectives. The implementation of COSO II at Elia is described below.

1. Control environment

Organisation of internal control

Pursuant to the Elia articles of association, the Board of Directors has established various committees to help it fulfil its duties: the Management Committee, the Audit Committee, the Remuneration Committee and the Corporate Governance Committee. The Board has charged the Audit Committee with the task of monitoring: (i) the financial reporting procedure; (ii) the effectiveness of internal control and corporate risk management systems; (iii) the internal audit and its effectiveness; (iv) the statutory audit of annual and consolidated accounts, including the follow-up of any issues raised or recommendations made by external auditors; (v) the independence of external auditors, (vi) examining accounts and controlling budgets.

The Audit Committee generally meets quarterly to discuss the above points.

The Finance Department helps the Management Committee by providing, in a timely manner, correct and reliable financial information to aid not only decision-making with a view to monitoring the profitability of activities, but also effective management of corporate financial services. External financial reporting – one of Elia's duties – includes (i) statutory financial and tax reporting; (ii) consolidated financial reporting; (iii) specific reporting obligations applicable to public companies; (iv) reporting obli-

Bottom-up approach with regard to business

With a view to identifying new risks or evaluating changes in existing risks, the Risk Manager and management remain in contact and look out for any changes that may call for the relevant risk assessment and associated action plans to be amended. Various criteria are used to determine the need to re-evaluate financial reporting procedures and associated risks. Emphasis is put on risks associated with changes in the financial and regulatory context, industrial practices, accounting standards and corporate developments such as mergers and acquisitions.

Operational management assesses the relevant risks and puts forward action plans. Any significant changes to assessment rules must be approved by the Board of Directors. Risk Management is instrumental for Elia to maintain its value for stakeholders and the community, works with all departments with a view to optimising Elia's ability to achieve its strategic objectives, and advises the company regarding the nature and potential effects of future risks.

3. Control activities

Main control activities

Elia has established internal control mechanisms at its various structural levels so as to ensure compliance with standards and internal procedures geared to the proper management of identified risks. These include:

• (i) clear task separation as part of procedures, preventing the same person from initiating, authorising and recording a transaction – policies have been drawn up regarding access to information systems and the delegation of powers;
• (ii) integrated audit approach as part of internal procedures so as to link end results with the transactions supporting them;
• (iii) data security and integrity through the appropriate allocation of rights;
• (iv) appropriate documentation of procedures through the use of the Business Process & Applications Intranet, which centralises policies and procedures.

Departmental managers are responsible for establishing activities to control the risks inherent to their department.

Financial reporting procedure

For all significant financial reporting risks, Elia sets out appropriate control mechanisms to minimise the probability of error. Roles and responsibilities have been defined in connection with the closing procedure for financial results. Measures have been established for the continuous follow-up of each stage, with a detailed agenda of all activities undertaken by Group subsidiaries; control activities are performed to ensure quality and compliance with internal and external requirements and recommendations. During the financial closing period, a specific test is performed to ensure control over significantly unusual transactions, accounting checks and adjustments at the end of the relevant financial period, company transactions and critical estimates. The combination of all these controls ensures the reliability of financial results. Regular internal and external audits also contribute to financial reporting quality.

In identifying those risks that may affect the achievement of financial reporting objectives, the management takes into account the possibility of misreporting associated with fraud and takes appropriate action where internal control needs to be strengthened. Internal Audit performs specific audits based on the risk assessment for potential fraud, with a view to avoiding and preventing any instances of fraud.

4. Information and communication

Elia communicates relevant information to its employees to enable them to fulfil their responsibilities and achieve their objectives. Financial information is needed for budgeting, forecasts and ensuring compliance with the regulatory framework. Operational information is also vital for the production of various reports, essential for the well-functioning of the company. As such, Elia records recent and historical data needed for corporate risk assessments. Multiple communication channels are used: manuals, memos, emails, bulletin boards and intranet applications. Financial results are reported internally and validated at different levels. The management responsible for financial reporting regularly meets other internal departments (operational and control departments) to identify financial reporting data. It validates and documents the critical assumptions underpinning booked reserves and the company's accounts.

At Group level, consolidated results are broken down into segments and validated by means of a comparison with historical figures and a comparative analysis between forecasts and actual data. This financial information is reported monthly to the Management Committee and is discussed quarterly with the Audit Committee. The Chairman of the Audit Committee then reports to the Board of Directors.

5. Monitoring

Elia continually re-evaluates the adequacy of its risk management approach. Monitoring procedures include a combination of monitoring activities carried out as part of normal business operations, in addition to specific ad hoc assessments on selected topics. Monitoring activities include (i) monthly reporting of strategic indicators to the Management Committee and the management; (ii) follow-up on key operational indicators at departmental level; (iii) a monthly financial report including an assessment of variations as compared with the budget, comparisons with preceding periods and events liable to affect cost controlling. Consideration is also given to third-party feedback from a range of sources, such as (i) stock market indices and reports by ratings agencies; (ii) share value; (iii) reports by federal and regional regulators on compliance with the legal and regulatory framework; (iv) reports by security and insurance companies. Comparing information from external sources with internally generated data and ensuing analyses allows Elia to keep on making improvements.

Internal Audit also plays a key role in monitoring activities by conducting independent reviews of key financial and operational procedures in view of the various regulations applicable to Elia. The findings of those reviews are reported to the Audit Committee to help it monitor internal control and risk management systems and corporate financial reporting procedures.

The Group's legal entities are also subject to external audits, which generally entail an evaluation of internal control and remarks on (annual and quarterly) statutory and consolidated financial results. External auditors make recommendations for improving internal control systems. In entities that have an Audit Committee, the recommendations, action plans and their implementation are reported annually to that Committee, which in turn reports to the Board of Directors on the independence of the auditor or statutory audit firm and drafts a motion for a resolution on the appointment of external auditors.

DECLARATION BY RESPONSIBLE PERSONS

The undersigned Chairman of the Management Committee and Chief Executive Officer Chris Peeters and Chief Financial Officer Catherine Vandenborre declare that to the best of their knowledge:

• a. the financial statements, which have been prepared in accordance with applicable accounting policies for financial statements, give a true and fair view of the assets, the financial position and results of Elia and of its subsidiaries included in the consolidation;
• b. the annual report gives a true and fair view of the evolution and the results of the Company and of the situation of Elia and of its subsidiaries included in the consolidation, as well as a description of the most significant risks and uncertainties they are facing.

Brussels, 21 March 2019

Catherine Vandenborre Chief Financial Officer

Chris Peeters Chief Executive Officer

• 1. Basis of preparation 31
• 2.1. Statement of compliance 31
• 2.2. Functional and presentation currency 38
• 2.3. Basis of measurement 38
• 2.4. Use of estimates and judgements 38 2.5. Approval by the Board of Directors 39
• 1. Significant accounting policies 40 3.1.Basis of consolidation 40
• 3.2. Foreign-currency translation 41
• 3.3. Balance sheet items 41
• 3.3.1. Property, plant and equipment 41
• 3.3.2. Intangible assets 42
• 3.3.3. Trade and other receivables 43
• 3.3.4. Inventories 43
• 3.3.5. Cash and cash equivalents 43
• 3.3.6. Non-financial assets 43
• 3.3.7. Financial assets 43
• 3.3.8. Derivative financial instruments and
  -
  -
• 3.3.11. Employee benefits 45
• 3.3.12. Provisions 46
• 3.3.13. Trade and other payables 46
• 3.3.14. Government grants 46
• 3.4. Income-statement items 46
• 3.5. Statement of comprehensive income and statement of changes in equity 47
• 1. Segment reporting 48
• 4.1. Basis for segment reporting 48
• 4.2. Elia Transmission (Belgium) 49
• 4.3. 50Hertz Transmission (Germany) 50
• 4.4. Non-regulated activities (incl. Nemo Link) 52
• 4.5. Reconciliation of information on reportable segments to IFRS amounts 53
• 1. Items in the consolidated statement of profit
  2. or loss and other comprehensive income 54 5.1. Revenue and other income 54
• 5.2. Operating expenses 54
• 5.3. Net finance costs 55
• 5.4. Income taxes 56
• 5.5. Earnings per share (EPS) 57
• 5.6. Other comprehensive income 57

CONSOLIDATED FINANCIAL STATEMENTS	26	6. Items in the consolidated statement
Consolidated statement of profit or loss	26	of financial position	58
Consolidated statement of profit or loss		6.1. Property, plant and equipment	58
and comprehensive income	27	6.2. Intangible assets and goodwill	59
		6.3. Non-current trade and other receivables	60
Consolidated statement of financial position	28	6.4. Equity-accounted investees	61
Consolidated statement of changes in equity	29	6.4.1 Joint ventures	61
Consolidated statement of cash flows	30	6.4.2 Associates	61
		6.5. Other financial assets	62
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31		6.6. Deferred tax assets and liabilities 6.7. Inventories	62 63
1. Reporting entity	31	6.8. Current trade and other receivables,
2. Basis of preparation	31	deferred charges and accrued revenues	63
2.1. Statement of compliance	31	6.9. Current tax assets and liabilities	64
2.2. Functional and presentation currency	38	6.10. Cash and cash equivalents	64
2.3. Basis of measurement	38	6.11. Shareholders' equity	65
2.4. Use of estimates and judgements	38	6.11.1 Equity attributable to the owners
2.5. Approval by the Board of Directors	39	of the Company	65
3. Significant accounting policies	40	6.11.2 Hybrid securities	65
3.1.Basis of consolidation	40	6.12. Interest-bearing loans and borrowings	66
3.2. Foreign-currency translation	41	6.13. Employee benefits	68
3.3. Balance sheet items	41	6.14. Provisions	74
3.3.1. Property, plant and equipment	41	6.15. Other non-current liabilities	75
3.3.2. Intangible assets	42	6.16. Trade and other payables	75
3.3.3. Trade and other receivables	43	6.17. Accruals and deferred income	75
3.3.4. Inventories	43	6.18. Financial instruments – fair values	76
3.3.5. Cash and cash equivalents	43	7. Group structure	77
3.3.6. Non-financial assets	43	7.1. Business combinations and acquisition
3.3.7. Financial assets	43	of non-controlling interests	77
3.3.8. Derivative financial instruments and		7.2. Subsidiaries, joint ventures and associates	80
hedge accounting	44
3.3.9. Equity	45	8. Other notes	81
3.3.10. Financial liabilities	45	8.1. Financial risk and derivative management	81
3.3.11. Employee benefits	45	8.2. Commitment and contingencies	84
3.3.12. Provisions	46	8.3. Related parties	85
3.3.13. Trade and other payables	46	8.4. Subsequent events	86
3.3.14. Government grants	46	8.5. Miscellaneous	86
3.4. Income-statement items	46	8.6. Services provided by the auditors	87
3.5. Statement of comprehensive income and		9. REGULATORY FRAMEWORK AND TARIFFS	88
statement of changes in equity	47	9.1 Regulatory framework in Belgium	88
4. Segment reporting	48	9.1.1 Federal legislation	88
4.1. Basis for segment reporting	48	9.1.2 Regional legislation	88
4.2. Elia Transmission (Belgium)	49	9.1.3 Regulatory agencies	88
4.3. 50Hertz Transmission (Germany)	50	9.1.4 Tariff setting	88
4.4. Non-regulated activities (incl. Nemo Link)	52	9.2 Regulatory framework in Germany	91
4.5. Reconciliation of information on reportable		9.2.1 Relevant legislation	91
segments to IFRS amounts	53	9.2.2 Regulatory agencies in Germany	91
5. Items in the consolidated statement of profit		9.2.3 Tariff setting in Germany	91
or loss and other comprehensive income	54	9.3 Regulatory framework for NemoLink Interconnector 93
5.1. Revenue and other income	54	JOINT AUDITORS' REPORT ON THE CONSOLIDATED
5.2. Operating expenses	54	FINANCIAL STATEMENTS	94
5.3. Net finance costs	55	INFORMATION ABOUT THE PARENT COMPANY	98
5.4. Income taxes	56
5.5. Earnings per share (EPS)	57	Statement of financial position after distribution of profits	99
5.6. Other comprehensive income	57
		Income statement	100

Contents

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated statement of profit or loss

GRI 201-1 (Revenues, Operating costs, Employees wages and benefits)

(in million EUR) Year ended 31 December	Notes	2018	2017 (restated *)
Continuing operations
Revenue	(5.1)	1,822.8	808.2
Raw materials, consumables and goods for resale	(5.2)	(41.5)	(9.6)
Other income	(5.1)	109.0	59.0
Services and other goods	(5.2)	(945.7)	(344.4)
Personnel expenses	(5.2)	(229.3)	(147.2)
Depreciation, amortisation and impairment	(5.2)	(252.3)	(131.2)
Changes in provisions	(5.2)	4.4	0.4
Other expenses	(5.2)	(30.4)	(19.6)
Results from operating activities		437.0	215.5
Share of profit of equity-accounted investees (net of tax)	(6.3)	65.6	109.1
EBIT**		502.6	324.6
Net finance costs	(5.3)	(93.3)	(76.5)
Finance income		21.9	5.5
Finance costs		(115.2)	(81.9)
Profit before income tax		409.3	248.1
Income tax expense	(5.4)	(102.2)	(39.5)
Profit from continuing operations		307.1	208.6
Profit for the period		307.1	208.6
Profit attributable to:
Equity holders of ordinary shares		275.2	208.6
Hybrid securities		6.2	0.0
Non-controlling interest		25.7	0.0
Profit for the period		307.1	208.6

Earnings per share (EUR)

Basic earnings per share (5.5) 4.52 3.42 Diluted earnings per share (5.5) 4.52 3.42

* See Note 2.1 for details regarding the restatement as a result of a change in accounting policy.

** EBIT (Earnings Before Interest and Taxes) = Results from operating activities and share of profit of equity-accounted investees, net of income tax

The accompanying notes form an integral part of these consolidated financial statements.

in million EUR)	Year ended 31 December
-----------------	------------------------

Consolidated statement of profit or loss and comprehensive income

Other comprehensive income (OCI)

Items that will not be reclassified to profit or loss:

(in million EUR) Year ended 31 December	Notes	2018	2017 (restated *)
Profit for the period		307.1	208.6
Other comprehensive income (OCI)
Items that may be reclassified subsequently to profit or loss:
Effective portion of changes in fair value of cash flow hedges	(5.6)	(8.4)	9.4
Related tax		2.2	(3.2)
Items that will not be reclassified to profit or loss:
Remeasurements of post-employment benefit obligations	(6.13)	0.8	(13.7)
Equity-accounted investees share of OCI		0.0	1.1
Effective portion of changes in fair value of investments	(5.6)	2.7	0.0
Related tax	(6.13)	(0.2)	2.3
Other comprehensive income for the period, net of tax		(2.9)	(4.1)
Total comprehensive income for the period		304.2	204.5
Total comprehensive income attributable to:
Equity holders of ordinary shares		271.9	204.5
Hybrid securities		6.2	0.0
Non-controlling interest		26.1	0.0
Total comprehensive income for the period		304.2	204.5

|--|

Equity holders of ordinary shares

-

* See Note 2.1 for details regarding the restatement as a result of a change in accounting policy.

The accompanying notes form an integral part of these consolidated financial statements.

Consolidated statement of financial position

(in million EUR)	Notes	31 December 2018	31 December 2017 (restated *)
ASSETS
NON-CURRENT ASSETS		11,362.8	6,079.1
Property, plant and equipment	(6.1)	8,456.2	3,202.4
Intangible assets and goodwill	(6.2)	2,502.3	1,738.6
Trade and other receivables	(6.3)	177.0	147.8
Equity-accounted investees	(6.4)	135.4	928.6
Other financial assets (including derivatives)	(6.5)	86.9	60.9
Deferred tax assets	(6.6)	5.0	1.0
CURRENT ASSETS		2,391.5	503.2
Inventories	(6.7)	19.2	13.6
Trade and other receivables	(6.8)	558.9	281.1
Current tax assets	(6.9)	3.6	3.8
Cash and cash equivalents	(6.10)	1,789.3	195.2
Deferred charges and accrued revenues	(6.8)	20.6	9.6
Total assets		13,754.3	6,582.3
EQUITY AND LIABILITIES
EQUITY		3,748.9	2,564.4
Equity attributable to owners of the Company	(6.11)	3,447.5	2,563.3
Equity attributable to ordinary shares		2,741.3	2,563.3
Share capital		1,521.5	1,517.6
Share premium		14.3	11.9
Reserves		173.0	173.0
Hedging reserve		(6.2)	0.0
Retained earnings		1,038.7	860.8
Hybrid securities	(6.11)	706.2	0.0
Non-controlling interest		301.4	1.1
NON-CURRENT LIABILITIES		6,289.0	3,047.9
Loans and borrowings	(6.12)	5,773.8	2,834.7
Employee benefits	(6.13)	104.0	84.3
Derivatives	(8.1)	2.9	0.0
Provisions	(6.14)	96.9	20.8
Deferred tax liabilities	(6.6)	95.2	19.5
Other liabilities	(6.15)	216.2	88.5
CURRENT LIABILITIES		3,716.4	970.0
Loans and borrowings	(6.12)	621.1	49.5
Provisions	(6.14)	16.5	4.5
Trade and other payables	(6.16)	1,989.1	378.5
Current tax liabilities	(6.9)	93.1	2.9
Accruals and deferred income	(6.17)	996.6	534.6
Total equity and liabilities		13,754.3	6,582.3

* See Note 2.1 for details regarding restatement as a result of a change in accounting policy.

The accompanying notes form an integral part of these consolidated financial statements.

2. Consolidated statement of changes in equity

(in million EUR)	Share capital	Share premium	Hedging Foreign reserve	translation currency	Reserves	Retained earnings	attributable to ordinary Equity shares	securities Hybrid	attributable to the owners of Company Equity the	controlling interests Non	Total equity
Balance at 1 January 2017	1,517.2 11.8 (6.1)						173.0 815.5 2,511.4		0.0 2,511.4		1.2 2,512.6
Change in accounting policy (IFRS 15)						(56.9)	(56.9)		(56.9)		(56.9) (56.9)
* Restated balance at 1 January 2017	1,517.2 11.8 (6.1)						173.0 758.6 2,454.5		0.0 2,454.5		2,455.7 (56.9) 1.2 2,455.7 2,512.6
Profit for the period						208.6	208.6		208.6	0.0	2,455.7 208.6
Other comprehensive income net of tax			6.2			(10.3)	(4.1)		(4.1)		(56.9) (4.1)
Total comprehensive income for the period			6.2			198.3	204.5		204.5	0.0	204.5
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Shares issued	0.2	0.1					0.3		0.3		0.3
Share-based payment expenses	0.1						0.1		0.1		0.1
Dividends						(96.2)	(96.2)		(96.2)		(96.2)
Total contributions and distributions	0.3	0.1				(96.2)	(95.8)		(95.8)		(95.8)
Total transactions with owners	0.3	0.1				(96.2)	(95.8)		(95.8)		(95.8)
Balance at 31 December 2017	1,517.6 11.9				173.0		860.8 2,563.3		0.0 2,563.3		1.1 2,564.4
											2,564.3
Balance at 31 December 2017, as originally presented	1,517.6 11.9				173.0		938.2 2,640.7		0.0 2,640.7		1.1 2,641.8
Change in accounting policy (IFRS 15)*						(77.4)	(77.4)		(77.4)	0.0	(77.4)
Restated balance at 31 December 2017	1,517.6 11.9				173.0		860.8 2,563.3		0.0 2,563.3		1.1 2,564.4
Change in accounting policy (IFRS 9)*						2.9	2.9		2.9	0.0	2.9
Restated balance at 1 January 2018	1,517.6 11.9				173.0		863.7 2,566.2		0.0 2,566.2		1.1 2,567.3
Profit for the period						281.6	281.6		281.6	25.7	307.3
Other comprehensive income, net of tax			(6.2)	0.0		2.8	(3.5)		(3.5)	0.5	(3.1)
Total comprehensive income for the period			(6.2)	0.0		284.4	278.2		278.2	26.1	304.2
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Shares issued	2.8	2.5					5.3		5.3		5.3
Share-based payment	1.0						1.0		1.0		1.0
Issue of hybrid securities						(3.2)		(3.2) 700.0	696.8		696.8
Distribution on hybrid securities						(6.2)	(6.2)	6.2	0.0		0.0
Tax on distribution on hybrid securities						(1.8)	(1.8)		(1.8)		(1.8)
Dividends						(98.7)	(98.7)		(98.7)		(20.0) (118.7)
Total contributions and distributions	3.8	2.5					(109.9) (103.6) 706.2		602.6	(20.0)	582.6
Changes in ownership interests:
Non-controlling interest adjustments on EGI, due to acquisition						0.5	0.5		0.5	(0.5)	0.0
Acquisition				0.0		0.0	0.1		0.1	294.6	294.7
Total changes in ownership interests				0.0		0.5	0.5		0.5	294.1	294.7
Total transactions with owners	3.8	2.5		0.0			(109.4) (103.1) 706.2		603.1	274.1	877.3
Balance at 31 December 2018	1,521.4 14.4		(6.2)				0.0 173.0 1,038.7 2,741.3 706.2 3,447.5				301.4 3,748.9
* See Note 2.1 for details regarding restatement as a result of a change in accounting policy.

The accompanying notes form an integral part of these consolidated financial statements.

3. Consolidated statement of cash flows

(in million EUR) Year ended 31 December	Notes	2018	2017 (restated *)
Cash flows from operating activities
Profit for the period		307.1	208.6
Adjustments for:
Net finance costs	(5.3 )	93.3	76.5
Other non -cash items		1.1	0.1
Current income tax expense	(5.4 )	105.9	29.2
Profit or loss of equity -accounted investees, net of tax		(65.6)	(10 9 1 )
Depreciation of PP &E and amortisation of intangible assets		249.5	131.4
Gain on sale of property, plant and equipment and intangible assets		12.6	6.5
Impairment losses of current assets		3.8	–
Change in provisions		(9.2)	(5.3)
Change in fair value of derivatives		1.3	1.1
Change in deferred taxes		(3.6)	10 4
Cash flow from operating activities		696.1	349. 3
Change in inventories		(1.8)	9.3
Change in trade and other receivables		(50.5)	98.2
Change in other current assets		7.8	4.8
Change in trade and other payables		(12.9)	(12.3)
Change in other current liabilities		117.9	95. 3
Changes in working capital		60.5	195. 3
Interest paid		(141.8)	(88.4)
Interest received		5.7	1.7
Income tax paid		(103.8)	(27.6)
Net cash from operating activities		516.7	430.3
Cash flows from investing activities
Acquisition of intangible assets		(23.2)	(10.6)
Acquisition of property, plant and equipment		(991.1)	(369.1)
Acquisition of equity -accounted investees		(23.8)	(57.2)
Acquisition of investment	(7.1 )	(988.7)	0.0
Acquired cash from acquisition of subsidiary	(7.1 )	1,902.7	0.0
Proceeds from sale of property, plant and equipment		2.4	1.5
Proceeds from sales of investments		0.2	0.0
Proceeds from capital decrease from equity -accounted investees		0.0	0.1
Dividend received		2.0	56.8
Loans and long -term receivables to joint ventures		(35.7)	(84.6)
Net cash used in investing activities		(155.2)	(463.1)
Cash flow from financing activities
Proceeds from the issue of share capital	(6.11 )	5.3	0.4
Expenses related to the issue of share capital	(6.11 )	(0.1)	0.0
Dividends paid ( - )	(6.11)	(98.7)	(96.2)
Repayment of borrowings ( - )	(6.12 )	0.0	(100.0)
Issuance of hybrid (+)	(6.11 )	696.8	0.0
Proceeds from withdrawal of borrowings (+)	(6.12 )	656.9	247.2
Non -controlling interests		(20.0)	0.0
Other cash flows from financing activities		(7.6)	0.0
Net cash flow from (used in) financing activities		1,232.6	51.4
Net increase (decrease) in cash and cash equivalents		1,594.1	18.6
Cash and cash equivalents at 1 January		195.2	176.6
Cash and cash equivalents at 31 December		1,789.3	195.2
Net variations in cash and cash equivalents		1,594.1	18.6

* See Note 2.1 for details regarding the restatement as a result of a change in accounting policy.

The accompanying notes form an integral part of these consolidated financial statements.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. Reporting entity

Established in Belgium, Elia System Operator SA (the 'Company ' or 'Elia ') has its registered office at Boulevard de l'Empereur 20, B -1000 Brussels. The Company 's consolidated financial statements for the financial year 2018 include those of the Company and its subsidiaries (together referred to as the 'Group ' or 'Elia Group ') and the Group 's interest in joint ventures and associates.

The Company is a limited liability company, with its shares listed on Euronext Brussels, under the symbol ELI.

The Elia Group is organised around two electricity transmission system operators: Elia Transmission in Belgium and 50Hertz Transmission, one of the four German transmission system operators, active in the north and east of Germany. Following the acquisition of an additional 20% stake in 50Hertz Transmission (Germany) in April 2018 (refer to Note 7.1), the Group acquired control over 50Hertz Transmission (Germany). Effective from the acquisition date, 50Hertz Transmission (Germany) is considered a subsidiary and its results and balance sheet are consolidated in full. The accounting policies of Elia Transmission (Belgium) and 50Hertz Transmission (Germany) were already aligned prior to the acquisition.

The Group also has a 50% stake in NemoLink Ltd, which has constructed an electrical interconnector between the UK and Belgium known as the Nemo Link interconnector. Nemo Link is a joint venture with National Grid Ventures (UK) and began commercial operations on January 30th 2019, with a transfer capacity of 1000 MW.

With around 2,300 employees and a transmission grid comprising some 18,600 km of high -voltage connections serving 30 million consumers, the Elia Group is one of Europe's top five TSOs. It efficiently, reliably and securely transmits electricity from generators to distribution system operators and major industrial consumers, while also importing and exporting electricity from and to neighbouring countries. The Group is a driving force behind the development of the European electricity market and the integration of energy generated from renewable sources. In addition to its system -operator activities in Belgium and Germany, the Elia Group offers businesses a range of consultancy and engineering services. The Group operates under the legal entity Elia System Operator, a listed company whose reference shareholder is municipal holding company Publi -T.

2. Basis of preparation

2.1. Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union. The Group has applied all new and revised standards and interpretations published by IASB and applicable to the Group's activities which are effective for financial years starting on 1 January 201 8 .

New and amended standards and interpretations

If a standard or amendment affects the Group, it is described hereunder, together its impact.

• IFRS 9: Financial Instruments reflects all phases of the financial instruments project and replaces IAS 39: Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The standard introduces new requirements for classification and

measurement, impairment and hedge accounting.

The Group elected to apply the exemption provided for in IFRS 9 with regard to transition for classification, measurement and impairment . Accordingly, it has not restated comparative periods in the year of initial application. Furthermore, in accordance with IFRS 9, the Group opted to recognise changes in the fair value of an equity investment that is not held for trading in OCI (aside from dividend income) .

The Group also reviewed in detail the impact of all three aspects of IFRS 9.

(i) Classification and measurement

Trade receivables are held to collect contractual cash flows and are expected to give rise to cash flows representing solely payments of principal and interest. The Group analysed the contractual cash flow characteristics of those instruments and concluded that they meet the criteria for amortised cost measurement under IFRS 9.

Equity shares in non -listed companies are intended to be held for the foreseeable future. No impairment losses were recognised in profit or loss during prior periods for these investments. The Group decided to apply the option to present fair -value changes in OCI.

The impact of the change on the Group in terms of equity shares in non -listed companies is detailed below:

(in € million) – Equity shares in non -listed companies	Available for sale assets	FVOCI
Closing balance 31 December 2017 – IAS 39	0.2	-
Reclassification of non -traded equities from available -for -sale to FVOCI	(0.2)	0.2
Opening balance 1 January 2018 – IFRS 9	-	0.2

The impact of this change on the Group's equity is as follows:

* Non-traded equities held within 50Hertz Transmission (Germany) were subject to a remeasurement of €5.4 million (at 100%) as at 1 January 2018.

There is no impact on the Group's accounting for financial liabilities, as the new requirements only affect the accounting for financial liabilities that are designated at fair value through profit or loss, and the Group does not have any such liabilities. IFRS 9 does not have an impact on the accounting policies for derecognition of financial assets and liabilities.

(ii) Impairment

IFRS 9 requires the Group to record expected credit losses on all of its debt securities, loans and trade receivables, either on a 12- month or on a lifetime basis.

The assessment for the Belgian segment indicated that, due to the application of the Expected Credit Losses method (ECL) at 1 January 2018, the bad debt allowance for trade receivables needed to increase by €0.3 million at that date compared with the allowance for trade receivables recognised under IAS 39. Deferred tax assets would increase by €0.1 million and net profit for the period would decrease by €0.2 million.

A similar assessment for the German segment indicated that due to the application of the Expected Credit Losses (ECL) method at 1 January 2018, the bad debt allowance for trade receivables needed to increase by €0.2 million at that date compared with the allowance for trade receivables recognised under IAS 39. Deferred tax assets would increase by less than €0.1 million, and net profit for the period would decrease by €0.2 million.

(iii) Hedge accounting

Under the amended hedging requirements, more hedge relationships could be eligible for hedge accounting, as the new standard introduces a more principles-based approach. However, at 1 January 2018, there were no additional hedge relationships to be designated.

• IFRS 15: Revenue from Contracts with Customers (effective from 1 January 2018) establishes a new comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including IAS 18: Revenue, IAS 11: Construction Contracts, IFRIC 18: Transfers of Assets from Customers, and IFRIC 13: Customer Loyalty Programmes.

The Group completed its assessment of the impact of the adoption of IFRS 15 on its consolidated financial statements and only identified an impact as a result of the application of IFRIC 18. The Group opted for full retrospective application of IFRS 15, which involved restating comparatives for the effect of IFRS 15. The Group also used the practical expedients for completed contracts, meaning that there was no restatement of completed contracts that started and ended in the same comparative period or of, those that were completed at the beginning of the earliest period presented.

The Group has a number of standard contracts for its customers, covering most of its revenue. These contracts are specific to each segment. As a consequence, the analysis of the potential impact of IFRS 15 is performed by reviewing those standard contracts. In the table below, an overview of the different revenue buckets is given, with reference to the relevant contracts and the result of the potential impact under IFRS 15.

(Group)
Elia Transmission (Belgium) revenues

Remeasurement of non-traded equities from available-for-sale to FVOCI – Elia Transmission (Belgium) Remeasurement of non-traded equities from available-for-sale to FVOCI – 50Hertz Transmission (Germany) (*)	3.2
	3.2
	-
(in € million) – Equity shares in non-listed companies Effect on Group's equity

Revenue bucket (per segment)	Revenue bucket (Group)	Contracts	Status analysis	Within the scope of IFRS 15	Change in accounting policy	Change in amount of revenue	Change in timing of revenue	Impact on opening equity on January 2018 (net of tax) 1
Elia Transmission (Belgium) revenues
Grid connection	Revenue	Connection contract	complete	yes		no no no		0.0
Management and development of grid infrastructure	Revenue	Access contract	complete	yes		no no no		0.0
Management of the electrical system	Revenue	Access contract	complete	yes		no no no		0.0
Compensation for imbalances	Revenue	ARP contract	complete	yes		no no no		0.0
Market integration	Revenue	ARP contract	complete	yes		no no no		0.0
International revenues	Revenue	Congestion revenues	complete	yes		no no no		0.0
Other income	Transfers of assets from customers	Customer contributions	complete	yes				yes no yes (63.3)
Other income	Revenue	EGI contracts	complete	yes		no no no		0.0
Other income	Optimal use of assets	Telecom contracts	complete	yes		no no no		0.0
50Hertz Transmission (Germany) revenues (at 100%)
Vertical grid revenues	n/a	Grid use contract	complete	yes		no no no		0.0
Ancillary-services revenues n/a		Contract for balancing	complete	yes		no no no		0.0
Other income	n/a	groups Customer contributions	complete	yes				yes no yes (23.5)
(*) 50Hertz Transmission (Germany)'s equity adjustments are stated at 100%. Those adjustments have a 60% impact on the Group's consolidated equity. As such, the total impact on the Group's equity is €77.4 million.

Under IFRIC 18, customer contributions were recognised in full as revenue, whereas under IFRS 15, cash considerations should be presented as deferred revenue and will be recognised in revenue over the lifetime of the underlying asset.

The impact of the transition to IFRS 15 on the revenue of the segments Elia Transmission Belgium and 50Hertz Transmission Germany is shown below:

Elia Transmission (Belgium) revenues – Period ended	31 December 2017	31 December 2017	31 December 2017
	as reported	under IFRS 15	difference
Grid connection	42.2	42.2	0.0
Management and development of grid infrastructure	479.2	479.2	0.0
Management of the electrical system	118.5	118.5	0.0
Compensation for imbalances	170.7	170.7	0.0
Market integration	24.3	24.3	0.0
International revenue	47.3	47.3	0.0
Other income	81.7	61.4	(20.4)
Subtotal revenue and other income	963.9	943.6	(20.4)
Settlement mechanism: deviations from approved budget	(92.3)	(92.3)	0.0
Total revenues and other income	871.7	851.3	(20.4)

50Hertz Transmission (Germany) revenues –	31 December 2017	31 December 2017	31 December 2017
Period ended	as reported	under IFRS 15	Difference
Vertical grid revenues	1,241.4	1,241.4	0.0
Horizontal grid revenues	210.2	210.2	0.0
Ancillary services revenues	94.0	94.0	0.0
Other income	72.7	73.5	0.8
Subtotal revenue and other income	1,618.3	1,619.1	0.8
Settlement mechanism: deviations from approved budget	(288.9)	(288.9)	0.0
Total revenues and other income	1,329.4	1,330.2	0.8

The summarised impact on the Group's revenue is detailed below:

Revenues – Period ended	as reported	31 December 2017 31 December 2017 31 December 2017 under IFRS 15	difference
Revenue	806.4	806.4	0.0
Transfers of assets from customers	22.1	1.7	(20.4)
Total revenue	828.5	808.2	(20.4)
Other operating income
Services and technical expertise	(0.3)	(0.3)	0.0
Own production	25.5	25.5	0.0
Optimal use of assets	14.3	14.3	0.0
Other	18.5	18.5	0.0
Gain on sale PPE	1.0	1.0	0.0
Total other operating income	59.0	59.0	0.0

The companies included in the 50Hertz Transmission Germany segment are accounted for using the equity method (at 60%) as at 31 December 2017. As such, the impact of IFRS 15 on their revenue recognition is shown in the entry 'Share of profit of equityaccounted investees (net of income tax)' in the Group's results.

The summarised impact on the Group is detailed below:

Key figures – Period ended	as reported	31 December 2017 31 December 2017 under IFRS 15	31 December 2017 difference
Total revenues	887.5	867.1	(20.4)
Share of profit of equity-accounted investees (net of income tax)	108.7	109.1	0.4
Income tax expenses	(39.1)	(39.6)	(0.5)
Net profit	229.1	208.6	(20.6)
Total assets	6,596.5	6.582.3	(14.2)
Total equity	2,640.7	2.563.3	(77.4)
Key figures per share
Basic earnings per share (EUR)	3.76	3.42	(0.34)
Equity per share (EUR)	43.36	42.09	(1.27)

The income tax expenses, as presented in the table above, include the combined effect of additional temporary differences accumulated throughout the financial year 2017 which has resulted in an increased deferred tax liability of €6.9 million, as well as an offsetting effect resulting from remeasuring the accumulated temporary differences at the lower tax rates, as enacted as part of the Belgian tax reform, and having an effect of €7.4 million.

• Overall effect of new, revised or amended IASB standards: As a result of the changes in the entity's accounting policies for IFRS15 and IFRS 9, comparative figures and opening balances had to be restated. As indicated here above, IFRS 9 was generally adopted without restating comparative information. The reclassifications and the adjustments arising from the new impairment rules are therefore not reflected in the restated balance sheet as at 31 December 2017, but are recognised in the opening balance sheet as at 1 January 2018.

The following tables show the adjustments recognised for each individual line item.

Condensed consolidated statement of financial position

(in € million)	31 December 2017 (as originally reported)		IFRS 15 31 December 2017 (restated)	IFRS 9	1 January 2018 (restated)
ASSETS
NON-CURRENT ASSETS	6,093.2	(14.1)	6,079.1	3.2	6,082.3
Property, plant and equipment	3,202.4	0.0	3.202.4	0.0	3,202.4
Intangible assets and goodwill	1,738.6	0.0	1.738.6	0.0	1,738.6
Trade and other receivables	147.8	0.0	147.8	0.0	147.8
Equity-accounted investees	942.7	(14.1)	928.6	3.1	931.7
Other financial assets (including derivatives)	60.9	0.0	60.9	0.0	60.9
Deferred tax assets	1.0	0.0	1	0.1	1.0
CURRENT ASSETS	503.2	0.0	503.2	(0.3)	502.9
Inventories	13.6	0.0	13.6	0.0	13.6
Trade and other receivables	281.1	0.0	281.1	(0.3)	280.8
Current tax assets	3.8	0.0	3.8	0.0	3.8
Cash and cash equivalents	195.2	0.0	195.2	0.0	195.2
Deferred charges and accrued revenues	9.6	0.0	9.6	0.0	9.6
Total assets	6,596.5	(14.1)	6,582.3	2.9	6,585.2
EQUITY AND LIABILITIES
EQUITY	2,641.8	(77.4)	2,564.4	2.9	2,567.3
Equity attributable to owners of the Company	2,640.7	(77.4)	2,563.3	2.9	2,566.2
Share capital	1,517.6	0.0	1,517.6	0.0	1,517.6
Share premium	11.9	0.0	11.9	0.0	11.9
Reserves	173.0	0.0	173.0	0.0	173.0
Retained earnings	938.2	(77.4)	860.8	2.9	863.7
Non-controlling interest	1.1	0.0	1.1	0.0	1.1
NON-CURRENT LIABILITIES	2,984.6	63.3	3,047.9	0.0	3,047.9
Loans and borrowings	2,834.7	0.0	2,834.7	0.0	2,834.7
Employee benefits	84.3	0.0	84.3	0.0	84.3
Provisions	20.8	0.0	20.8	0.0	20.8
Deferred tax liabilities	40.9	(21.4)	19.5	0.0	19.5
Other liabilities	3.8	84.6	88.5	0.0	88.5
CURRENT LIABILITIES	970.0	0.0	970.0	0.0	970.0
Loans and borrowings	49.5	0.0	49.5	0.0	49.5
Provisions	4.5	0.0	4.5	0.0	4.5
Trade and other payables	378.5	0.0	378.5	0.0	378.5
Current tax liabilities	2.9	0.0	2.9	0.0	2.9
Accruals and deferred income	534.6	0.0	534.6	0.0	534.6
Total equity and liabilities	6,596.5	(14.1)	6,582.3	2.9	6,585.2

(in € million)	31 December 2017 (as originally reported)		IFRS 15 31 December 2017 (restated)	IFRS 9	1 January 2018 (restated)
ASSETS
NON-CURRENT ASSETS	6,093.2	(14.1)	6,079.1	3.2	6,082.3
Property, plant and equipment	3,202.4	0.0	3.202.4	0.0	3,202.4
Intangible assets and goodwill	1,738.6	0.0	1.738.6	0.0	1,738.6
Trade and other receivables	147.8	0.0	147.8	0.0	147.8
Equity-accounted investees	942.7	(14.1)	928.6	3.1	931.7
Other financial assets (including derivatives)	60.9	0.0	60.9	0.0	60.9
Deferred tax assets	1.0	0.0	1	0.1	1.0
CURRENT ASSETS	503.2	0.0	503.2	(0.3)	502.9
Inventories	13.6	0.0	13.6	0.0	13.6
Trade and other receivables	281.1	0.0	281.1	(0.3)	280.8
Current tax assets	3.8	0.0	3.8	0.0	3.8
Cash and cash equivalents	195.2	0.0	195.2	0.0	195.2
Deferred charges and accrued revenues	9.6	0.0	9.6	0.0	9.6
Total assets	6,596.5	(14.1)	6,582.3	2.9	6,585.2
EQUITY AND LIABILITIES
EQUITY	2,641.8	(77.4)	2,564.4	2.9	2,567.3
Equity attributable to owners of the Company	2,640.7	(77.4)	2,563.3	2.9	2,566.2
Share capital	1,517.6	0.0	1,517.6	0.0	1,517.6
Share premium	11.9	0.0	11.9	0.0	11.9
Reserves	173.0	0.0	173.0	0.0	173.0
Retained earnings	938.2	(77.4)	860.8	2.9	863.7
Non-controlling interest	1.1	0.0	1.1	0.0	1.1
NON-CURRENT LIABILITIES	2,984.6	63.3	3,047.9	0.0	3,047.9
Loans and borrowings	2,834.7	0.0	2,834.7	0.0	2,834.7
Employee benefits	84.3	0.0	84.3	0.0	84.3
Provisions	20.8	0.0	20.8	0.0	20.8
Deferred tax liabilities	40.9	(21.4)	19.5	0.0	19.5
Other liabilities	3.8	84.6	88.5	0.0	88.5
CURRENT LIABILITIES	970.0	0.0	970.0	0.0	970.0
Loans and borrowings	49.5	0.0	49.5	0.0	49.5
Provisions	4.5	0.0	4.5	0.0	4.5
Trade and other payables	378.5	0.0	378.5	0.0	378.5
Current tax liabilities	2.9	0.0	2.9	0.0	2.9
Accruals and deferred income	534.6	0.0	534.6	0.0	534.6
Total equity and liabilities	6,596.5	(14.1)	6,582.3	2.9	6,585.2

(in € million)	31 December 2017 (as originally reported)		IFRS 15 31 December 2017 (restated)	IFRS 9	1 January 2018 (restated)
ASSETS
NON-CURRENT ASSETS	6,093.2	(14.1)	6,079.1	3.2	6,082.3
Property, plant and equipment	3,202.4	0.0	3.202.4	0.0	3,202.4
Intangible assets and goodwill	1,738.6	0.0	1.738.6	0.0	1,738.6
Trade and other receivables	147.8	0.0	147.8	0.0	147.8
Equity-accounted investees	942.7	(14.1)	928.6	3.1	931.7
Other financial assets (including derivatives)	60.9	0.0	60.9	0.0	60.9
Deferred tax assets	1.0	0.0	1	0.1	1.0
CURRENT ASSETS	503.2	0.0	503.2	(0.3)	502.9
Inventories	13.6	0.0	13.6	0.0	13.6
Trade and other receivables	281.1	0.0	281.1	(0.3)	280.8
Current tax assets	3.8	0.0	3.8	0.0	3.8
Cash and cash equivalents	195.2	0.0	195.2	0.0	195.2
Deferred charges and accrued revenues	9.6	0.0	9.6	0.0	9.6
Total assets	6,596.5	(14.1)	6,582.3	2.9	6,585.2
EQUITY AND LIABILITIES
EQUITY	2,641.8	(77.4)	2,564.4	2.9	2,567.3
Equity attributable to owners of the Company	2,640.7	(77.4)	2,563.3	2.9	2,566.2
Share capital	1,517.6	0.0	1,517.6	0.0	1,517.6
Share premium	11.9	0.0	11.9	0.0	11.9
Reserves	173.0	0.0	173.0	0.0	173.0
Retained earnings	938.2	(77.4)	860.8	2.9	863.7
Non-controlling interest	1.1	0.0	1.1	0.0	1.1
NON-CURRENT LIABILITIES	2,984.6	63.3	3,047.9	0.0	3,047.9
Loans and borrowings	2,834.7	0.0	2,834.7	0.0	2,834.7
Employee benefits	84.3	0.0	84.3	0.0	84.3
Provisions	20.8	0.0	20.8	0.0	20.8
Deferred tax liabilities	40.9	(21.4)	19.5	0.0	19.5
Other liabilities	3.8	84.6	88.5	0.0	88.5
CURRENT LIABILITIES	970.0	0.0	970.0	0.0	970.0
Loans and borrowings	49.5	0.0	49.5	0.0	49.5
Provisions	4.5	0.0	4.5	0.0	4.5
Trade and other payables	378.5	0.0	378.5	0.0	378.5
Current tax liabilities	2.9	0.0	2.9	0.0	2.9
Accruals and deferred income	534.6	0.0	534.6	0.0	534.6
Total equity and liabilities	6,596.5	(14.1)	6,582.3	2.9	6,585.2

Condensed consolidated statement of profit or loss

(in € million) – 31 December 2017	2017 (as originally reported)	IFRS 15	2017 (restated)
Continuing operations
Revenue	828.5	(20.4)	808.2
Raw materials, consumables and goods for resale	(9.6)	0.0	(9.6)
Other income	59.0	0.0	59.0
Services and other goods	(344.4)	0.0	(344.4)
Personnel expenses	(147.2)	0.0	(147.2)
Depreciation, amortisation and impairment	(131.2)	0.0	(131.2)
Changes in provisions	0.4	0.0	0.4
Other expenses	(19.6)	0.0	(19.6)
Results from operating activities	235.9	(20.4)	215.5
Share of profit of equity-accounted investees (net of tax)	108.7	0.3	109.1
EBIT	344.6	(20.1)	324.6
Net finance costs	(76.5)	0.0	(76.5)
Finance income	5.5	0.0	5.5
Finance costs	(81.9)	0.0	(81.9)
Profit before income tax	268.2	(20.1)	248.1
Income tax expense	(39.1)	(0.5)	(39.5)
Profit from continuing operations	229.1	(20.5)	208.6
Profit for the period	229.1	(20.5)	208.6
Profit attributable to:
Owners of the Company	229.1	(20.5)	208.6
Non-controlling interest	0.0	0.0	0.0
Profit for the period	229.1	(20.5)	208.6

Condensed consolidated statement of profit or loss and other comprehensive income

(in € million) – 31 December 2017	2017 (as originally reported)		IFRS 15 2017 (restated)
Profit for the period	229.1	(20.5)	208.6
Other comprehensive income (OCI)
Items that may be reclassified subsequently to profit or loss:
Effective portion of changes in fair value of cash flow hedges	9.4	0.0	9.4
Related tax	(3.2)	0.0	(3.2)
Items that will not be reclassified to profit or loss:
Remeasurements of post-employment benefit obligations	(13.7)	0.0	(13.7)
Equity-accounted investees – share of OCI	1.1	0.0	1.1
Related tax	2.3	0.0	2.3
Other comprehensive income for the period, net of tax	(4.1)	0.0	(4.1)
Total comprehensive income for the period	225.0	(20.5)	204.5
Total comprehensive income attributable to:
Owners of the Company	225.0	(20.5)	204.5
Non-controlling interest	0.0	0.0	0.0
Total comprehensive income for the period	225.0	(20.5)	204.5

Besides IFRS 9 and IFRS 15, a number of other standards, amendments and interpretations came in effect in 2018 with only limited or

no impact for the Group:

• Clarification of Classification and Measurement of Share-based Payment Transactions (amendments to IFRS 2 – effective from 1 January 2018). The IASB issued amendments to IFRS 2 Share-based Payment that address three main areas: the effects of vesting conditions on the measurement of a cash-settled share-based payment transaction; the classification of a share-based payment transaction with net settlement features for withholding tax obligations; and accounting where a modification to the terms and conditions of a share-based payment transaction changes its classification from cash settled to equity settled. This

• Foreign Currency Transactions and Advance Consideration (IFRIC 22 – effective from 1 January 2018). The interpretation clarifies how to determine the date of transaction for the exchange rate to be used on initial recognition of a related asset, expense or income where an entity pays or receives consideration in advance for foreign currency-denominated contracts. This amendment

• Transfers of Investment Property (amendments to IAS 40 – effective from 1 January 2018). The amendments clarify that transfers to, or from, investment property can only be made if there has been a change in use that is supported by evidence. A change in use occurs when the property meets, or ceases to meet, the definition of investment property. A change in intention

• amendment had no impact on the Group.
• had no impact on the Group.
• alone is not sufficient to support a transfer. The Group was not impacted by this new treatment.
• to the Group.
• not have any impact on the Group's consolidated financial statements.

• Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts (amendments to IFRS 4 – effective from 1 January 2018). The amendments address concerns arising from implementing the new financial instruments standard, IFRS 9, before implementing IFRS 17 Insurance Contracts, which replaces IFRS 4. The amendments introduce two options for entities issuing insurance contracts: a temporary exemption from applying IFRS 9 and an overlay approach. These amendments are not relevant

• Investments in Associates and Joint Ventures – Clarification That Measuring Investees at Fair Value Through Profit or Loss Is an Investment-by-investment Choice (amendments to IAS 28 – effective from 1 January 2018). These amendments do

Standards, amendments and interpretations that are not yet effective in 2018

The standards, interpretations or amendments listed hereafter had been published on the date of approval of these consolidated financial statements but are not yet effective, and the Group did not opt for early adoption:

• IFRS 16 was issued in January 2016 and replaces IAS 17: Leases, IFRIC 4: Determining Whether an Arrangement Contains a Lease, SIC-15: Operating Leases – Incentives and SIC 27: Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees – leases of 'low-value' assets (e.g. personal computers) and short-term leases (i.e. leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e. the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e. the right-of-use asset). Lessees will be required to separately recognise the interest expense on the lease liability and the

depreciation expense on the right-of-use asset.

Lessees will also be required to remeasure the lease liability upon the occurrence of certain events (e.g. a change in the lease term, or a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognise the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset.

Lessor accounting under IFRS 16 is substantially unchanged from today's accounting under IAS 17. Lessors will continue to classify all leases using the same classification principle as in IAS 17 and distinguish between two types of leases: operating and finance leases.

IFRS 16 also requires lessees and lessors to make more extensive disclosures than under IAS 17.

IFRS 16 is effective for annual periods beginning on or after 1 January 2019. Early application is permitted, but not before an entity applies IFRS 15. A lessee can choose to apply the standard using either a full retrospective or a modified retrospective approach. The standard's transitional provisions allow for certain reliefs.

Transition to IFRS 16

The Group plans to adopt IFRS 16 using the modified retrospective approach, i.e. it will apply the standard to its leases with the cumulative effect of initially applying the standard recognised at the date of initial application.

In accordance with the standard on lease contracts, the Group will elect to use following exemptions when applying IFRS 16 accounting:

• short-term leases, i.e. contract duration of less than one year;
  • leases for which the underlying asset is of low value;
• intangible assets.

The most important judgements and assumptions in determining the lease asset and liability are to be located in the following areas: • We made use of the practical expedients, i.e. a single discount rate per group of contracts, summarised per their duration. Those leases were assumed to have similar characteristics. No hindsight was used. The discount rate used is the Group's best estimation for the weighted average incremental borrowing rate.

• The Group assessed the non-cancellable period of each of the contracts in scope of IFRS 16. This includes the period covered by an option to extend the lease, if the lessee is reasonable certain to exercise that option. Certainly where it relates to office rent contracts, the Group's made its best estimation of the non-cancellable period based on all information on which the Group

• disposes.

During 2018, the Group performed and completed a detailed impact assessment for IFRS 16. In summary, the expected impact of IFRS 16 adoption on the statement of financial position is as follows:

(in million EUR)	Impact of IFRS16 on 1 January 2019
Property, plant and equipment (right-of-use assets)	95.8
Lease liability	95.8

As the Group's assets are equal to liabilities at the date of transition, there will be no impact on the income statement at the adoption date.

The Group's operating lease commitments under the current standard IAS 17, as indicated in note 8.2, and the Group's leasing liability under IFRS16, presented here-above, can be reconciled as follows:

(in million EUR)	Reconciliation IAS 17 to IFRS 16
Minimum lease payments under operating leases IAS 17 as of 31 December 2018	53,7
Contracts considered not in scope for IFRS 16	(5,6)
Effect from discounting	(21,8)
Effect from lease term assumptions	69,5
Liabilities additionally recognized based on the initial application of IFRS16 as of 1 January 2019	95,8

Contracts considered out of scope for IFRS 16 are most often contracts where (i) no particular asset is to be identified, or where, (ii) an asset is to be identified in the contract, but over which no control can be exercised by the Group.

The effect from lease term assumptions comes from the estimation of the most probable end date of the contract under IFRS 16 which differs in certain cases from the end date stipulated in the contract:. This is often the case for contracts where it is probable that the contract will be prolonged.

• The following standards, amendments and interpretations had not yet taken effect in 2018. The changes in the below standards, amendments and interpretations are not expected to have a material impact on the annual accounts and are therefore not set out in more detail:
  • o Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture;
  • o IFRS 17: Insurance Contracts;
  • o Annual Improvements to IFRS Standards 2015-2017 Cycle; specific focus on IFRS 3, IFRS 11, IAS 12 and IAS 23;
  • o Amendments to IFRS 9: Prepayment Features with Negative Compensation;
  • o Amendments to IAS 28: Long-term interests in Associates and Joint Ventures;
  • o IFRIC Interpretation 23: Uncertainty over Income Tax Treatment;
  • o Amendments to IAS 19: Plan Amendment, Curtailment or Settlement;
  • o Amendments to IAS 1 and IAS 8, regarding the definition of materiality;
  • o Amendments to References to the Conceptual Framework in IFRS Standards: Amendments to conceptual framework.

2.2. Functional and presentation currency

The consolidated financial statements are presented in million euro (the functional currency of the Company), rounded to the nearest hundred thousand, unless stated otherwise.

2.3. Basis of measurement

The consolidated financial statements have been prepared on a historical-cost basis, except for the derivative financial instruments, which are measured at fair value. Non-current assets are valued at the lowest of the carrying amount and the recoverable amount to sell. Employee benefits are valued at the present value of the defined benefit obligations, less the fair value of the plan assets. Changes in fair value of financial assets are recorded through OCI.

2.4. Use of estimates and judgements

The preparation of the consolidated financial statements in accordance with IFRS requires management to make judgements, estimates and assumptions that could affect the reported amounts of assets and liabilities and revenue and expenses. The estimates and underlying assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgements regarding the carrying amounts of assets and liabilities. Actual results could differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision only affects this period, or in the period in which the estimate is revised and future periods if the revision affects both current and future periods.

The following notes include information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the consolidated financial statements:

• The net result of the Belgian segment and the German segment is mainly determined by calculation methods set by, respectively, the Belgian federal regulator, the Commission for Electricity and Gas Regulation ('CREG') and the German federal regulator, the Federal Network Agency ('BNetzA'). For certain calculations, a level of judgement is needed. More disclosures are to be found in

• Consolidation of entities in which the Group holds less than 20% of the voting rights but has significant influence: under IFRS 10, the Group assesses whether it has significant influence over its associates and therefore needs to consolidate them and reassesses this

• During the year, an additional stake was acquired in Eurogrid International SCRL, which is the holding company of 50Hertz Transmission (Germany). In accordance with IFRS 3 and its guidance for step acquisitions, the existing stake had to be revalued to its fair value at the date of the transaction. This required significant judgement. More details are to be found in Note 7.1.

• Deferred tax assets are recognised for the carry-forward of unused tax losses and unused tax credits in so far as it is probable that future taxable profit will be available against which the unused tax losses and unused tax credits can be utilised. In making its judgement, management takes into account elements such as long-term business strategy and tax planning opportunities (see

• Credit risk related to customers: management closely reviews the outstanding trade receivables, also considering ageing, payment

• Notes 6.17, 9.1.4 and 9.2.3.
• in each reporting period (see also Note 6.4).
• Note 6.6).
• history and credit risk coverage (see Note 8.1).
• Employee benefits including reimbursement rights see Note 6.13:

  - assumed retirement age, also impact the present value of future pension liabilities;

  -

• including newly identified cases of soil contamination (see Note 6.14).

o The Group has defined-benefit plans and defined-contribution plans which are disclosed in Note 6.13. The calculation of the liabilities or assets related to these plans is based on actuarial and statistical assumptions. For example, this is the case for the present value of future pension liabilities. The present value is, among other factors, impacted by changes in discount rates, and financial assumptions such as future increases in salary. In addition, demographic assumptions, such as average

o In determining the appropriate discount rate, management considers the interest rates of corporate bonds in currencies consistent with currencies of the post-employment benefit obligation, i.e. euro, with at least an AA rating or above, as set by at least one dominant rating agency and extrapolated along the yield curve to correspond with the expected term of the defined benefit obligation. Higher and lower yielding bonds are excluded in developing the appropriate yield curve;

o Each plan's projected cash flow is matched to the spot rates of the yield curve to calculate an associated present value. A single equivalent discount rate is then determined that produces that same present value. Hence, the resulting discount rate reflects both the current interest rate environment and the plan's distinct liability characteristics.

• Provisions for environmental remediation costs: at each year-end, an estimate is made of future expenses in respect of soil remediation, based on the advice of an expert. The extent of remediation costs is dependent on a limited number of uncertainties,

• Other provisions are based on the value of the claims filed or on the estimated amount of the risk exposure. The expected timing of the related cash outflow depends on the progress and the duration of the associated process/procedures (see Note 6.14).

• Goodwill impairment testing: the Group performs impairment tests on goodwill and on cash-generating units (CGUs) at the reporting date, and whenever there are indicators that the carrying amount might be higher than the recoverable amount. This analysis is based on assumptions such as market evolution, market share, margin evolution and discount rates (see Note 6.2).

• Fair value measurement of financial instruments: when the fair values of financial assets and financial liabilities recorded in the statement of financial position cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques. The inputs for these valuation techniques are taken from observable markets where possible. Where this is not feasible, a level of judgement is required in establishing fair values. Changes in the fair value of the derivative hedging instrument designated as a cash flow hedge are recognised directly in other comprehensive income (OCI) to the extent that the hedge is effective. To the extent that the hedge is ineffective, changes in fair value are recognised in profit or loss (see Note 6.18).

• The useful life of the fixed assets is defined to reflect the real depreciation of each asset. The depreciation of property, plant and equipment is mainly calculated based on the useful lives determined by the regulatory framework in Belgium and Germany, which is considered to be the best possible approximation of actual events in terms of economic utilisation.

2.5. Approval by the Board of Directors

These consolidated financial statements were authorised for publication by the Board of Directors on 21 March 2019.

3. Significant accounting policies

3.1. Basis of consolidation

SUBSIDIARIES

A subsidiary is an entity that is controlled by the Company. The Group controls an entity when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that this ceases. The accounting policies of subsidiaries are changed when necessary to align them with the policies adopted by the Group. Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so results in a deficit balance of the non-controlling interests.

ASSOCIATED COMPANIES

Associated companies are those companies in which the Company exerts significant influence, but not control, over the financial and operating policies. The consolidated financial statements include the Group's share of the total recognised profits and losses of associated companies on the basis of the equity method, from the date that significant influence commences until the date that significant influence ceases. When the Group's share of the losses exceeds its interest in an associated company, its carrying amount is reduced to nil and further losses are not recognised except to the extent that the Group has incurred legal or constructive obligations or has made payments on behalf of an associated company.

INTERESTS IN JOINT VENTURES

A joint venture is an arrangement in which the Group has joint control, whereby the Group has rights to the net assets of the arrangement, as opposed to joint operations whereby the Group has rights to its assets and obligations for its liabilities. Interests in joint ventures are accounted for using the equity method. They are recognised initially at cost price. Subsequent to initial recognition, the consolidated financial statements include the Group's share of the total recognised profits and losses of joint ventures on the basis of the equity method, from the date that joint control commences until the date that joint control ceases. When the Group's share of the losses exceeds its interest in joint ventures, its carrying amount is reduced to nil and further losses are not recognised except to the extent that the Group has incurred legal or constructive obligations or has made payments on behalf of a joint venture.

NON-CONTROLLING INTERESTS

Non-controlling interests are measured at their proportionate share of the acquiree's identifiable net assets at the acquisition date. Changes in the Group's interest in a non-wholly-owned subsidiary that do not result in a loss of control are accounted for as equity transactions.

LOSS OF CONTROL

Upon the loss of control, the Group derecognises the assets and liabilities of the subsidiary, any non-controlling interests and the other components of other comprehensive income related to the subsidiary. Any surplus or deficit arising on the loss of control is recognised in profit or loss. If the Group retains any interest in the former subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently, it is accounted for as an equity-accounted investee or as a fair value through other comprehensive income financial asset depending on the level of influence retained.

ELIMINATION OF INTRA-GROUP TRANSACTIONS

Intra-Group balances and any unrealised gains or losses or revenue and expenses arising from intra-Group transactions are eliminated when preparing the consolidated financial statements.

Unrealised gains from transactions with associated companies are eliminated to the extent of the Group's interest in the entity. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

BUSINESS COMBINATIONS AND GOODWILL

Goodwill arises on the acquisition of subsidiaries, joint ventures and associates and represents the excess of the consideration transferred over the Group's interest in the net fair value of the net identifiable assets, liabilities and contingent liabilities of the acquiree.

The Group measures goodwill at the acquisition date as:

• the fair value of the consideration transferred; plus
• the recognised amount of any non-controlling interest in the acquiree; plus
• if the business combination is completed in stages, the fair value of the pre-existing equity interest in the acquiree; less
• the fair value of the identifiable assets acquired and liabilities at acquisition date.

When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.

The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss.

Transactions costs incurred by the Group in connection with a business combination, other than those associated with the issue of debt or equity securities, are expensed as incurred.

Any contingent consideration payable is measured at fair value at the acquisition date. If the contingent consideration is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognised in profit or loss.

3.2. Foreign-currency translation

FOREIGN-CURRENCY TRANSACTIONS AND BALANCES

Transactions in foreign currencies are converted into the functional currency of the Company at the foreign exchange rate on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies on the balance-sheet date are converted at the foreign exchange rate on that date. Foreign exchange differences arising on conversion are recognised in profit or loss.

Non-monetary assets and liabilities denominated in foreign currencies that are valued in terms of historical cost are converted at the

exchange rate on the date of the transaction.

FOREIGN OPERATIONS

A foreign operation is an entity that is a subsidiary, an associate, an interest in a joint venture or a branch of the reporting entity, whose activities are based or conducted in a country or currency other than those of the reporting entity.

The financial statements of all Group entities that have a functional currency different from the Group's presentation currency are translated into the presentation currency as follows:

• assets and liabilities are translated at the exchange rate at the reporting date;

• income and expenses are translated at the average exchange rate of the year.

Exchange differences arising from the translation of the net investment in foreign subsidiaries, interests in joint ventures and associates at closing exchange rates are included in shareholder's equity under OCI. Upon the (partial) disposal of foreign subsidiaries, joint ventures and associates, (part of) cumulative translation adjustments are recognised in the profit or loss as part of the gain/loss of the sale.

3.3. Balance sheet items

3.3.1. Property, plant and equipment

Owned assets

Items of property, plant and equipment are stated at cost (including the directly allocated costs such as finance costs), less accumulated depreciation and impairment losses (see the section 'Impairment'). The cost of self-produced assets comprises the cost of materials, of direct labour and, where relevant, of the initial estimate of the costs of dismantling and removing the assets and restoring the site where the assets were located. If parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.

Subsequent costs

The Group recognises in the carrying amount of an item of property, plant and equipment the subsequent costs of replacing part of such an item when that cost is incurred, but only when it is probable that the future economic benefits embodied in the item will flow to the Group and the cost of the item can be measured reliably. All other costs, such as repair and maintenance costs, are recognised in profit or loss as and when they are incurred.

Depreciation

Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful life of each component of an item of property, plant and equipment. Land is not depreciated. The applied depreciation percentages can be found in the table below.

Depreciation methods, remaining useful lives and residual values of the property, plant and equipment are reassessed annually and are prospectively adjusted as the occasion arises.

• Administrative buildings 1.67% 2.00%
• Industrial buildings 2.00 4.00%
• Overhead lines 2.00 4.00%
• Underground cables 2.00 5.00%
• Substations (facilities and machines) 2.50 6.67%
• Remote control 3.00 12.50%
• Dispatching 4.00 10.00%
• Other PPE (fitting out rented buildings) contractual period
• Vehicles 6.67 20.00%

• Tools and office furniture 6.67 – 20.00% • Hardware 25.00 – 33.00%

Impairment

The carrying amount of the Group's tangible assets is reviewed at the end of the reporting period for each asset to determine whether there is any indication of impairment. If any such indication exists, the recoverable amount of the asset is estimated.

An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in profit or loss. Recognised impairment losses relating to cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to cash-generating units and then to reduce the carrying amount of the other assets in the units on a pro-rata basis.

After recognition of impairment losses, the depreciation costs for the asset will be prospectively adjusted.

Dismantling obligation

Provision is made for decommissioning and environmental costs, based on future estimated expenditure, discounted to present values. An initial estimate of decommissioning and environmental costs attributable to property, plant and equipment is recorded as part of the original cost of the related property, plant and equipment.

Changes in the provision arising from revised estimates or discount rates or changes in the expected timing of expenditure relating to property, plant or equipment are recorded as adjustments to their carrying value and depreciated prospectively over their remaining estimated economic useful lives; otherwise such changes are recognised in the profit or loss.

The unwinding of the discount is recorded in the profit or loss as a financing charge.

Derecognition

An asset is no longer recognised when the asset is subject to disposal or when no future economic benefits are expected from its use or disposal. Gains or losses arising from the derecognition of the asset (which is determined as the difference between the net disposal proceeds and the carrying amount of the asset) are included in profit or loss, under other income or other expenses, during the year in which the asset was derecognised.

3.3.2. Intangible assets

Goodwill

Goodwill is stated at cost, less accumulated impairment losses. Goodwill is allocated to cash-generating units and is not amortised but tested annually for impairment (see the section 'Impairment'). In the case of associated companies, the carrying amount of goodwill is included in the carrying amount of the investment in the associated company.

Computer software

Software licences acquired by the Group are stated at cost, less accumulated amortisation (see below) and impairment losses (see the section 'Impairment').

Expenditure on research activities undertaken with the purpose of developing software within the Group is recognised in profit or loss as expenditure as incurred. Expenditure on the development phase of software developed within the Group is capitalised if:

• the costs of development can be measured reliably;
• the software is technically and commercially feasible and future economic benefits are likely;
• the Group plans and has sufficient resources to complete development;
• the Group plans to use the software.

The capitalised expenditure includes cost of material, direct labour costs and overhead costs that are directly attributable to preparing the software for its use. Other costs are recognised in profit or loss as incurred.

Licences, patents and similar rights

Expenditure on acquired licences, patents, trademarks and similar rights are capitalised and amortised on a straight-line basis over the contractual period, if any, or the estimated useful life.

Subsequent expenditure

Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is recognised in profit or loss as expenditure as incurred.

Amortisation

Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful life of intangible assets, unless the useful life is indefinite. Goodwill and intangible assets with indefinite useful lives are tested systematically for impairment on each end of the reporting period. Software is amortised from the date it becomes available for use. The estimated useful lives are as follows:

• Licences	20.00%
• Concessions	contractual period
• Computer software	20.00 – 25.00%

Depreciation methods, remaining useful lives and residual values of intangible assets are reassessed annually and are prospectively adjusted as the occasion arises.

Impairment

The carrying amount of the Group's intangible assets are reviewed at the end of the reporting period for each asset to determine whether there is any indication of impairment. If any such indication exists, the recoverable amount of the asset is estimated.

The recoverable amount of goodwill and intangible assets with an indefinite useful life and intangible assets that are not yet available for use is estimated at the end of each reporting period.

An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in profit or loss. Recognised impairment losses relating to cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to cash-generating units and then to reduce the carrying amount of the other assets in the units on a pro-rata basis.

After recognition of impairment losses, the amortisation costs for the asset will be prospectively adjusted.

3.3.3. Trade and other receivables

Construction contracts in progress

Construction contracts in progress are stated at cost price, plus profit based on progress made to date, minus a provision for foreseeable losses and less progress billing. The cost price comprises all expenditure directly related to specific projects, plus an allocation of fixed and variable overheads incurred during the Group's contract activities based on normal operating capacity.

Trade and other receivables

Trade receivables and other receivables are measured at amortised cost minus the appropriate allowance for amounts regarded as unrecoverable.

Impairment

For trade receivables and contract assets, the Group applies a simplified approach in calculating the Expected Credit Losses (ECLs). The Group therefore does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, as its best proxy for future credit losses to be incurred.

Refer to Note 8.1, 'Credit risk', for a detailed description of the model.

3.3.4. Inventories

Inventories (spare parts) are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price minus the estimated costs of completion and selling expenses. The cost of inventories is based on the weighted-average-cost-price method. The cost includes the expenditure incurred in acquiring the inventories and the direct costs of bringing them to their location and making them operational.

Write-downs of inventories to net realisable value are recognised in the period in which the write-offs occurred.

3.3.5. Cash and cash equivalents

Cash and cash equivalents comprise cash balances, bank balances, commercial paper and deposits that can be withdrawn on demand. Overdrafts that are repayable on demand form an integral part of the Group's cash management and are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

3.3.6. Non-financial assets

The carrying amount of the Group's assets, excluding inventories and deferred taxes, are reviewed at the end of the reporting period for each asset to determine whether there is any indication of impairment. If any such indication exists, the recoverable amount of the asset is estimated.

The recoverable amount of goodwill and intangible assets with an indefinite useful life and intangible assets that are not yet available for use is estimated at the end of each reporting period.

An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in profit or loss. Recognised impairment losses relating to cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to cash-generating units and then to reduce the carrying amount of the other assets in the units on a pro-rata basis.

After recognition of impairment losses, the depreciation costs for the asset will be prospectively adjusted.

Calculation of the recoverable amount

The recoverable amount of intangible assets and property, plant and equipment is determined as the higher of their fair value less costs to sell, or their value in use. In assessing value in use, the expected future cash flows are discounted to their present value using a pretax discount rate that reflects both the current market assessment of the time value of money and the risks specific to the asset.

The Group's assets do not generate cash flows that are independent from other assets. The recoverable amount is therefore determined for the cash-generating unit (i.e. the entire high-voltage grid) to which the asset belongs. This is also the level at which the Group administers its goodwill and reaps the economic benefits of acquired goodwill.

Reversals of impairment

An impairment loss in respect of goodwill is not reversed. Impairment loss on other assets is reversed if there have been changes in the estimates used to determine the recoverable amount.

An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

3.3.7. Financial assets

Initial recognition and measurement

The classification of financial assets at initial recognition depends on the financial asset's contractual cash flow characteristics and the Group's business model for managing them. The Group initially measures a financial asset at its fair value plus transaction costs.

Financial assets are managed with a view to holding them to maturity and collecting contractual cash flows. The financial assets that give rise to cash flows are solely payments of principal and interest on the principal amount outstanding.

Subsequent measurement

For purposes of subsequent measurement, financial assets are classified in two categories:

• financial assets at amortised cost (debt instruments)
• financial assets designated at fair value through OCI (equity instruments)

Financial assets at amortised cost

Financial assets at amortised cost are subsequently measured using the Effective Interest Rate (EIR) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.

The Group's financial assets at amortised cost include loans to third parties.

Financial assets designated at fair value through OCI (equity instruments)

Upon initial recognition, the Group irrevocably classifies its equity investments as equity instruments designated at fair value through OCI when the Group does not have significant influence and the assets are not held for trading. The classification is determined on an instrument-by-instrument basis.

Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognised as other income in the statement of profit or loss when the right of payment has been established, except when the Group benefits from such proceeds as a recovery of part of the cost of the financial asset, in which case any such gains are recorded in OCI. Equity instruments designated at fair value through OCI are not subject to impairment assessment.

The Group has elected to irrevocably classify non-listed equity investments for which the Group does not have significant influence in this category.

Impairment of financial assets

The Group recognises an allowance for expected credit losses (ECLs) for its debt instruments. See Note 8.1, 'Credit Risk', for a detailed description of the approach.

3.3.8. Derivative financial instruments and hedge accounting

Derivative financial instruments

The Group sometimes uses derivative financial instruments to hedge its exposure to foreign-exchange and interest-rate risks arising from operating, financing and investment activities. In accordance with its treasury policy, the Group neither holds nor issues derivative financial instruments for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as instruments held for trading purposes.

Derivative financial instruments are recognised initially at fair value. Any gain or loss resulting from changes in the fair value is immediately booked in the income statement. Where derivative financial instruments qualify for hedge accounting, the reflection of any resulting gain or loss depends on the nature of the item being hedged.

The fair value of interest-rate swaps is the estimated amount that the Group would receive or pay to terminate the swap at the end of the reporting period, taking into account the current interest rates and the current creditworthiness of the swap counterparties and the Group. The fair value of forward exchange contracts is their quoted market price at the end of the reporting period, i.e. the present value of the quoted forward price.

Derivatives used as hedging instruments

Cash-flow hedges

Changes in the fair value of the derivative hedging instrument designated as a cash-flow hedge are recognised directly in other comprehensive income (OCI) to the extent that the hedge is effective. To the extent that the hedge is ineffective, changes in fair value are recognised in profit or loss.

Before 1 January 2018, the Group designated all forward contracts as hedging instruments. Any gains or losses arising from changes in the fair value of derivatives were taken directly to profit or loss, except for the effective portion of cash flow hedges, which were recognised in OCI and later reclassified to profit or loss when the hedge item affected profit or loss.

From 1 January 2018, the Group designates only the spot element of forward contracts as a hedging instrument. The forward element is recognised in OCI and accumulated in a separate component of equity under hedging reserves.

If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, hedge accounting is prospectively discontinued. The cumulative gain or loss previously recognised in OCI remains there until the forecast transaction occurs. When the hedged item is a non-financial asset, the amount recognised in OCI is transferred, where justified, to the carrying amount of the asset. In other cases, the amount recognised in OCI is transferred to profit or loss in the same period that the hedged item affects profit or loss.

When a derivative or hedge relationship is terminated, cumulative gains or losses still remain in OCI provided that the hedged transaction is still expected to occur. If the hedged transaction is no longer expected to take place, the cumulative unrealised gain or loss is removed from OCI and is immediately recognised in profit or loss.

Hedging of monetary assets and liabilities Hedge accounting is not applied to derivative instruments that economically hedge monetary assets and liabilities denominated in foreign currencies. Changes in the fair value of such derivatives are recognised in profit or loss as foreign-currency gains and losses.

3.3.9. Equity

Share capital – transaction costs

Transaction costs in respect of the issuing of capital are deducted from the capital received.

Dividends

Dividends are recognised as a liability in the period in which they are declared.

Hybrid securities

Hybrid securities are deeply subordinated securities. With the exception of ordinary shares, hybrid securities rank as the most junior instruments in the capital structure of the Group in an insolvency hierarchy. The holders of the hybrid securities have limited ability to influence the outcome of a bankruptcy proceeding or a restructuring outside bankruptcy. Hybrid securities are perpetual instruments; the terms do not provide for any events of default nor entitle holders to demand repayment or redemption.

Subject to certain exceptions where accrued interest would be mandatorily payable (e.g. in the event that a dividend is paid on any ordinary shares), the Group may elect to defer payment of all of the interest which would otherwise be paid on an interest payment date. Any such failure to pay would not constitute a default for any purpose. In light of their characteristics, hybrid securities are classified as an equity instrument under IFRS. The associated issue costs are recognised directly in retained earnings.

3.3.10. Financial liabilities

Financial liabilities consist of interest-bearing loans and borrowings in the Group. They are recognised initially at fair value, less related transaction costs. Subsequent to initial recognition, interest-bearing loans and borrowings are stated at amortised cost price with any difference between cost price and redemption value being recognised in profit or loss over the period of the loans on an effective interest basis.

3.3.11. Employee benefits

Defined-contribution plans

In Belgium, contribution-based promises, called defined-contribution pension plans under Belgian pension legislation, are classified as defined-benefit plans for accounting purposes due to the legal minimum return to be guaranteed by the employer.

The Defined-Benefit Obligation (DBO) was determined following the Projected Unit Credit (PUC) method. For each plan, the fair value of assets equals the sum of the accrued individual reserves (if any) and the value of the collective fund(s) (if any).

In Germany, the defined-benefit plan involves a fixed pension to be paid to an employee upon retirement, which is usually based on one or several factors such as the employee's age, years of service and salary. The plan assets and plan liabilities have been determined by an actuary.

Defined-benefit plans

For defined-benefit plans, which exist in both Belgium and Germany, the pension expenses for each plan are assessed separately on an annual basis by accredited actuaries using the projected unit credit method. The estimated future benefit that employees have earned in return for their service in the current and previous periods is discounted to determine its present value, and the fair value of any plan assets is deducted. The discount rate is the interest rate, at the end of the reporting period on high-quality bonds that have maturity dates approximately equivalent to the terms of the Group's obligations and that are denominated in the currency in which the benefits are expected to be paid.

When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognised as an expense in profit or loss at the earlier of the following dates:

- when the plan amendment or curtailment occurs; or

• when the entity recognises related restructuring costs under IAS 37 or termination benefits.

Where the calculation results in a benefit to the Group, the recognised asset is limited to the present value of any future refunds from the plan or reductions in future contributions to the plan.

Remeasurements – comprising actuarial gains and losses, the effect of the asset ceiling (excluding amounts included in net interest on the net defined benefit liability) and the return on plan assets (excluding amounts included in net interest on the net defined benefit liability) – are recognised immediately in the statement of financial position with a corresponding debit or credit to retained earnings through OCI in the period in which they occur. Remeasurements are not reclassified to profit or loss in subsequent periods.

Reimbursement rights (Belgium)

Reimbursement rights are recognised as a separate asset when, and only when, it is virtually certain that another party will reimburse some or all of the expenditure required to settle the corresponding benefit obligation. Reimbursement rights are presented as noncurrent assets under other financial assets and are measured at expected value. These rights are handled the same as the corresponding defined-benefit obligation. When the changes in the period result from changes in financial assumptions or from experience adjustments or changes in demographic assumptions, then the asset is adjusted through OCI. The components of the defined-benefit cost are recognised net of amounts relating to changes in the carrying amount of the rights to reimbursement.

Other long-term employee benefits

The Group's net obligation in respect of long-term service benefits other than pension plans is assessed on an annual basis by accredited actuaries. The net obligation is calculated using the projected unit credit method and is the amount of future benefit that employees have earned in return for their service in the current and previous periods. The obligation is discounted to its present value, and the fair value of any related assets is deducted. The discount rate is the yield, at the end of the reporting period, on high-quality bonds that have maturity dates approximately equivalent to the terms of the Group's obligations and that are denominated in the currency in which the benefits are expected to be paid.

Short-term employee benefits

Short-term employee benefits are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid out under a short-term cash bonus or profit-sharing plans if the Group has a legal or constructive obligation to pay this amount as a result of the past service provided by the employee and the obligation can be reliably estimated.

3.3.12. Provisions

A provision is recognised in the balance sheet when the Group has a current legal or constructive obligation as a result of a past event and it is likely that an outflow of economic benefits – of which a reliable estimate can be made – will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects the current market assessment of the time value of money and, where appropriate, of the risks specific to the liability.

If the Group expects to recover some or all of the provisions from a third party, the compensation is only included as a separate asset if it is virtually certain that said compensation will be awarded. The cost connected to a provision is included in profit or loss, net of any compensation.

The total estimated cost of dismantling and disposal of an asset is, if applicable, recognised as property, plant and equipment and depreciated over the asset's entire useful life. The total estimated cost of dismantling and of disposal of the asset is posted as provisions for the discounted current value. If the amount is discounted, the increase in the provision due to the passage of time is classified as finance expenses.

3.3.13. Trade and other payables

Trade and other payables are stated at amortised cost.

3.3.14. Government grants

Government grants are recognised when it is reasonably certain that the Group will receive the grant and that all underlying conditions will be met. Grants related to an asset are presented under other liabilities and will be recognised in the income statement on a systematic basis over the expected useful life of the related asset. Grants related to expense items are recognised in the income statement in the same period as the expenses for which the grant was received. Government grants are presented as other operating income in the income statement.

3.4. Income-statement items

INCOME

Revenues

IFRS 15 establishes a five-step model to account for revenue arising from contracts with customers and requires that revenue be recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. These are the five steps to consider for each customer contract:

• 1. Identify the contract(s) with a customer;
• 1. Identify the performance obligations in the contract(s);
• 1. Determine the transaction price;
• 1. Allocate the transaction price to the performance obligations;
• 1. Recognise revenue when performance obligations are satisfied, or when control of goods or services is transferred to the customer.

Revenue includes changes in the settlement mechanism (see Note 6.17).

The standard requires entities to exercise judgement, taking into consideration all of the relevant facts and circumstances when applying each step of the model to contracts with their customers. The standard also sets out the accounting for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract. In addition, the standard requires extensive disclosures. The Group adopted IFRS 15 using the full retrospective method of adoption. The Group used the practical expedients for completed contracts.

Further details on the effect of the transition to IFRS 15 are to be found in Note 2.1.

Goods sold, services rendered and construction contracts in progress

Revenue from services and the sale of goods is recognised in profit or loss when performance obligations are satisfied, or when control of goods or services is transferred to the customer.

Construction contracts in progress are recognised using the same methodology as described above. An expected loss on a contract is immediately recognised in profit or loss.

Transfer of assets from customers

Transfer of assets from customers is recognised when control of the goods or services is transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services.

Other income

Other income is recognised when it is earned or when the related service is performed.

EXPENSES

Operating lease payments

Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received to conclude the leasing agreement are recognised in profit or loss as an integral part of the total lease expenses.

Other expenses

Property taxes are directly recognised in full as soon as ownership is certain (generally as of 1 January of the year in question). However, these costs, qualified as non-controllable costs in the regulatory framework, are recorded as revenue through the settlement mechanism for the same amount, resulting in zero impact in terms of profit or loss.

FINANCE INCOME AND EXPENSES

Finance expenses comprise interest payable on borrowings (calculated using the effective interest rate method), foreign-exchange losses, gains on currency hedging instruments offsetting currency losses, results on interest-rate hedging instruments, losses on hedging instruments that are not part of a hedge accounting relationship, losses on financial assets classified as for trading purposes and impairment losses on financial assets as well as any losses from hedge ineffectiveness.

Finance income includes interest receivables on bank deposits, which are recognised in profit or loss using the effective interest rate

method as they accrue.

Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in

profit or loss using the effective interest method.

INCOME TAXES

Income taxes comprise current and deferred tax. Income-tax expense is recognised in profit or loss, except where it relates to items recognised directly in equity.

Current tax is the expected tax payable on taxable income for the year, using tax rates enacted or substantively enacted at the end of the reporting period, and any adjustments to tax payable in respect of previous years.

Deferred tax is recognised, using the balance-sheet method, on temporary differences arising between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit; and differences relating to investments in subsidiaries and joint ventures where these will probably not be reversed in the foreseeable future. In addition, deferred tax is not recognised for taxable temporary differences arising from initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they are reversed, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets and the deferred items relate to income taxes levied by the same tax authority on the same taxable entity or on different tax entities, but they are intended to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

A deferred tax asset is recognised only to the extent that it is likely that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer likely that the related tax benefit will be realised.

Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend.

3.5. Statement of comprehensive income and statement of changes in equity

The statement of comprehensive income presents an overview of all revenues and expenses recognised in the consolidated statement of profit or loss and in the consolidated statement of changes in equity. The Group has elected to present comprehensive income using the two-statement approach, i.e. the statement of profit or loss immediately followed by the statement of other comprehensive income. As a result of this presentation, the content of the statement of changes in equity is restricted to owner-related changes.

4. Segment reporting

4.1. Basis for segment reporting

The Group has decided to revise its segment structure from the structure in place last year. Owing to the increased stake in 50Hertz Transmission (Germany), the Group's internal reporting process has been reviewed, which ultimately resulted in amended segment reporting. The Group believes that this change results in a segment structure that more closely reflects the Group's operational activities and current internal reporting.

The Group has aligned its segment reporting in conformity with the different regulatory frameworks that currently exist within the Group. This reporting approach is also in line with the Group's internal reporting to the Chief Operating Decision Maker (CODM), enabling the CODM to better evaluate and assess the Group's performance and activities in a transparent way.

Pursuant to IFRS 8, the Group has identified the following operating segments based on the aforementioned criteria:

• Elia Transmission (Belgium), which comprises the activities based on the Belgian regulatory framework: the regulated activities of Elia System Operator NV/SA, Elia Asset NV/SA, Elia Engineering NV/SA, Elia Re SA, HGRT SAS, Coreso NV/SA, Ampacimon SA and Enervalis NV, whose activities are directly linked to the role of Belgian transmission system operator and are subject to the regulatory framework applicable in Belgium – see Section 9.1.3.
• 50Hertz Transmission (Germany), which comprises the activities based on the German regulatory framework: Eurogrid GmbH, 50Hertz Transmission GmbH and 50Hertz Offshore GmbH, whose activities are directly linked to the role of transmission system operator in Germany – see Section 9.2.3.
• Non-regulated activities (incl. Nemo Link), comprising:
  • o Eurogrid International CVBA;
  • o the non-regulated activities of Elia System Operator NV/SA, Elia Asset NV/SA and Elia Engineering NV/SA. 'Non-regulated activities' refers to activities which are not directly related to the role of TSO (see Section 9.1). The most substantial of these are:
    • the holding activities in the 50Hertz Transmission (Germany) segment; and
    • the holding activities in Nemo Link Ltd. This company comprises and manages the Nemo project, which connects the UK and Belgium using high-voltage electricity cables, enabling power to be exchanged between the two countries and for which a specific regulatory framework has been set up. See Section 9.3 for more details.
  • o Atlantic Grid, comprising E-Offshore A LLC and Atlantic Grid Investment A Inc. Both are connected to the Atlantic Wind Connection project, which aims to develop the first high-voltage direct-current offshore grid off the East Coast of the United States;
  • o EGI (Elia Grid International NV/SA, Elia Grid International GmbH and Elia Grid International LLC), companies supplying specialists in consulting, services, engineering and procurement, creating value by delivering solutions based on international best practice while fully complying with regulated business environments.

The three operating segments have also been identified as the Group's three cash-generating units, as the group of assets managed by the segments independently generates cash flows.

The CODM has been identified by the Group as Boards of Directors, CEOs and Management Committees of each segment. The CODM periodically reviews the performance of the Group's segments using various indicators such as revenue, EBITDA and operating profit.

The information presented to the CODM follows the Group's IFRS accounting policies, so no reconciling items have to be disclosed.

4.2. Elia Transmission (Belgium)

GRI 201-1 (TSO Belgium)

The table below shows the 2018 consolidated results of Elia Transmission (Belgium)

Elia Transmission key figures (in million EUR) – Year ended 31 December

Elia Transmission key figures (in million EUR) – Year ended 31 December	2018	2017 (restated *)	Difference (%)
Total revenues and other income	959.4	851.3	12.7%
Depreciation, amortisation, impairment and changes in provisions	(140.2)	(130.8)	7.2%
Results from operating activities	227.1	217.0	4.7%
Share of profit of equity-accounted investees, net of tax	1.8	2.0	(10.0%)
EBIT	228.9	218.9	4.5%
EBITDA	369.1	349.7	5.5%
Finance income	0.6	1.9	(68.4%)
Finance costs	(66.0)	(79.0)	(16.5%)
Income tax expense	(48.6)	(38.8)	25.3%
Net profit	114.9	103.0	11.6%
Consolidated statement of financial position (in million EUR)		31 December 2018 31 December 2017 (restated *)	Difference (%)
Total assets	5,909.2	5,449.0	8.4%
Capital expenditure	600.7	388.1	54.8%
Net financial debt	2,825.1	2,511.9	12.5%

EBITDA (Earnings Before Interest and Taxes, Depreciations and Amortisations) = EBIT + depreciation/amortisation + changes in provisions EBIT = result from operating activities and share of profit of equity-accounted investees (net of income tax) Net financial debt = non-current and current loans and borrowings less cash and cash equivalents * See Note 2.1 for details regarding restatement as a result of a change in accounting policy.

The tariff methodology approved by the regulator CREG on 26 November 2015 came into force in early 2016. The methodology is applicable for a four-year period (2016 – 2019). See Note 9.1 for more information about the new regulated framework.

Financial

Elia Transmission's revenues grew by 12.7% (to €959.4 million) on the same period the previous year. The revenue increase resulted from a higher allowed regulated net profit, higher depreciations and higher taxes that are passed on into revenues. These increases were partly offset by lower costs, mainly for ancillary services and financing, which are all passed on into revenues to the benefit of customers.

The table below provides more details of changes in the various revenue components:

(in million EUR)	2018	2017 (restated *)	Difference (%)
Grid revenue	904.3	882.2	2.5%
Grid connection	42.6	42.2	0.9%
Management and development of grid infrastructure	472.7	479.2	(1.4%)
Management of the electrical system	116.2	118.5	(1.9%)
Compensation for imbalances	189.5	170.7	11.0%
Market integration	25.5	24.3	4.9%
International revenue	57.8	47.3	22.1%
Other income (including EGI revenues)	61.0	61.4	(0.6%)
Subtotal revenues and other income	965.3	943.6	2.3%
Settlement mechanism: deviations from approved budget	(5.9)	(92.3)	(93.6%)
Total revenues and other income	959.4	851.3	12.7%

* See Note 2.1 for details regarding restatement as a result of a change in accounting policy.

Grid connection revenues increased slightly to €42.6 million (up 0.9%) mainly due to higher revenues from connection studies.

Revenues from management and development of grid infrastructure (down 1.4%) and management of the electrical system

(down 1.9%) decreased slightly, mainly due to lower tariffs.

Services rendered in the context of energy management and individual balancing of balancing groups are paid within the revenues from compensation for imbalances. These revenues increased by €18.8 million to €189.5 million, largely due to the tariff increase for management of power reserves and black-start based on offtake (up €15.0 million), a volume decrease for management of power reserves and black-start based on injection (down €11.8 million) and higher revenues from compensation of imbalances (up €15.6

million). The increase in imbalance revenues resulted from the fact that imbalance prices were generally higher in 2018, especially in March due to an unexpected cold snap, and high imbalance price peaks occurred in the second half of 2018.

Finally, the last section of the tariff revenues encompasses the services provided by Elia Transmission within the context of market integration; this item increased by 4.9% to €25.5 million, mainly driven by a tariff rise.

International revenue increased by €10.5 million (up 22.1%) due to higher congestion income on the southern border as a result of improved nuclear availability in France combined with low nuclear availability in Belgium throughout 2018.

Other income remained in line with previous years at €61.0 million and mainly derived from customer contributions and income from own work capitalised.

The settlement mechanism (€5.9 million) encompasses both deviations in the current year from the budget approved by the regulator (+€52.9 million) and the settlement of net surpluses from the prior tariff period (-€47.0 million). The operating surplus, in relation to the cost and revenue budget authorised by the regulator, must be returned to the consumers and therefore does not form part of the revenues. The operating surplus compared to the budget is primarily a result of higher tariff sales (€5.1 million), increased cross-border revenues (€15.7 million), lower costs for ancillary services (€24.6 million) and lower financial charges (€28.8 million). This was partly offset by a higher regulated net profit (€7.3 million) and higher taxes compared to the budget (€18.6 million).

The EBITDA (up 5.5%) and EBIT (up 4.5%) were mainly impacted by increased regulated net profit, higher depreciations, lower financing costs and higher current taxes to be passed on in the tariffs, partly offset by the lower result of equity-accounted investments.

Net finance costs (down 15.2%) fell by €11.7 million from the previous year. In the course of 2018, interest-rate swap contracts which matured at the end of 2017 were renewed at lower interest rates, thus making the most of the low-interest-rate environment. The lower lending costs are entirely to the benefit of consumers, in accordance with the regulatory framework.

The net profit increased by 11.5% to €114.9million, mainly due to the following factors:

Increase in the fair remuneration (up €2.9 million): The higher average OLO compared to 2017 (up 0.07%) and the increase in equity due to the reservation of part of the 2017 result (€45 million) led to a fair remuneration of €44.0 million. Decrease in the incentives realised (down €1.8 million): strong operational performance, primarily on the incentive linked to import capacity (up €3.4 million), welfare (up €1.1 million) and continuity of supply (up €0.6 million), was offset by lower performance on the influenceable incentive (down €2.1 million), lower incentive on timely completion of the investment programme as no project was due to go into operation in 2018 (down €1.0 million) and lower efficiency (down €1.7 million). In addition, the higher average tax rate negatively impacted the net contribution from incentives (down €2.2 million).

Higher mark-up for strategic investments (up €11.1 million) accounted for €42.2 million.

No major damage to electrical installations compared to 2017 (up €2.5 million).

Regulatory settlement for the previous year (up €1.7 million).

Others (up €0.2 million): mainly a higher bad debt allowance for trade receivables with the adoption of IFRS 9 and deferred tax effects.

Total assets increased by €460.2 million to €5,909.2 million, mainly as a result of the investment programme. The regulated net financial debt increased to €2,825.1 million (up 12.5%), as Elia's CAPEX programme was mainly financed by cash flows generated from operating activities, the drawing of €100 million EIB loan contracted in 2017 and commercial paper totalling €50 million.

The equity increased mainly as a result of the reservation of the 2018 profit and the capital increase of €5.3 million reserved for personnel, minus the contribution of the regulated activities to the 2017 dividend payment.

4.3. 50Hertz Transmission (Germany)

GRI 201-1 (TSO Germany)

The table below shows the 2018 consolidated results for 50Hertz Transmission (Germany) system operator activities in Germany:

50Hertz Transmission key figures (in million EUR) – Year ended 31 December	2018	2017 (restated *)	Difference (%)
Total revenues and other income	1,364.9	1,330.2	2.6%
Depreciation, amortisation, impairment and changes in provisions	(89.6)	(149.9)	(40.2%)
EBIT	385.4	322.6	19.5%
EBITDA	475.0	472.4	0.5%
Finance income	2.5	1.9	31.6%
Finance costs	(48.1)	(56.2)	(14.4%)
Income tax expense	(101.9)	(85.6)	19.1%
Profit attributable to the owners of the Company	169.2	109.6	54.4%
Consolidated statement of financial position (in million EUR)		31 December 2018 31 December 2017 (restated *)	Difference (%)
Total assets	6,752.1	6,188.1	9.1%
Capital expenditure	511.0	478.1	6.9%
Net financial debt	1,272.9	1,442.3	(11.7%)

EBITDA (Earnings Before Interest and Taxes, Depreciations and Amortisations) = EBIT + depreciation/amortisation + changes in provisions

EBIT = result from operating activities and share of profit of equity-accounted investees (net of income tax)

Net financial debt = non-current and current loans and borrowings less cash and cash equivalents

* See Note 2.1 for details regarding restatement as a result of a change in accounting policy.

50Hertz Transmission's revenues increased by 2.6% compared to the same period last year. This was the result of revenue growth following the ongoing CAPEX programme, partially offset by lower passed-on energy costs and a reduced allowance for offshore operational costs.

Total revenues are detailed in the table below:

Total revenues and other income (in million EUR)	2018	2017 (restated *)	Difference (%)
Grid revenue:	1,402.6	1,545.6	(9.3%)
Vertical grid revenues	1,047.3	1,241.4	(15.6%)
Horizontal grid revenues	233.8	210.2	11.2%
Ancillary-services revenues	121.5	94.0	29.3%
Other income	68.4	73.5	(6.9%)
Subtotal revenues and other income	1,471.0	1,619.1	(9.1%)
Settlement mechanism: deviations from approved budget	(106.1)	(288.9)	n.r.
Total revenues and other income	1,364.9	1,330.2	2.6%

* See Note 2.1 for details regarding restatement as a result of a change in accounting policy.

Vertical grid revenues (tariffs to end customers) declined by €194.1 million (down 15.6%) from 2017, primarily driven by the decrease in the total allowed revenues under the regulatory framework. Compensation for non-controllable energy costs shrank by €272.6 million, mainly as a result of the settlement of previous years. In 2017 a tariff deficit was recovered (caused by high energy costs in 2015), while in 2018 a tariff surplus is paid back to the customers (caused by low energy costs in 2016). Furthermore, regulatory remuneration generated from the asset base increased as a consequence of the onshore and offshore investments made (up €11.9 million). Finally, the revenues were positively impacted by higher third-party offshore costs passed on to customers (up €40.9 million).

Horizontal grid revenues (tariffs to other TSOs) increased by €23.6 million (up 11.2%), mainly driven by a higher allowance for offshore costs (up €21.2 million). In Germany, all offshore connection costs are shared across the four German transmission system operators. This means that 50Hertz bears around 20% of these costs and passes on 80% of its own connection costs to the other three TSOs. Due to rising offshore investments, which in 2018 pertained mainly to the offshore grid connection for Ostwind 1 and Ostwind 2, the cost recovery charged horizontally to the other TSOs rose and thus impacted horizontal revenues.

Ancillary-services revenues increased by €27.5 million (up 29.3%) compared to 2017. Due to a new cost-sharing agreement between the German TSOs, more redispatch costs can be charged to other TSOs. Thus redispatch revenues increased (up €10.2 million), even though total redispatch requirements were reduced by the expansion of the grid (Southwest Coupling line) plus efficient management. Furthermore, the new cost-sharing mechanism for reserve power plants generated revenues for the first time in 2018 (up €13.7 million).

The settlement mechanism includes both the annual offsetting of deficits and surpluses accounted for before 2018 (+€120.8 million) and the net surplus generated in 2018 between the costs allowed to be passed on in the tariffs and the actual costs (-€226.9 million). The adjustment for 2018 is strongly driven by the fact that actual redispatch costs were far below this year's revenue cap allowance (-€166.5 million). Furthermore, the grid revenues (horizontal and vertical) are based on an offshore OPEX allowance of 3.4% on invested capital. With the transition towards a cost-plus mechanism starting in 2019, there is a strong feeling that only incurred offshore costs will be accepted in 2018 (pass-on approach). The difference between the allowance in the revenues and the actual costs is to be paid back to the customer, resulting in the recognition of a liability for offshore costs (-€72.8 million).

EBITDA increased slightly by €2.6 million to €475.0 million (up 0.5%). The total investment remuneration decreased (down €25.9 million), as the higher onshore (up €17.5 million) and offshore (up €14.0 million) remuneration driven by the ongoing investment programme, was more than offset by the lower regulatory allowance for offshore OPEX (down €57.4 million). The regulatory revenues from the Base Year mechanism decreased (down €3.3 million) from the annual adjustment for inflation and efficiency targets linked to the application of the regulatory framework. OPEX and other costs slightly decreased with €2.4 million. The efficiency programme implemented in 2017 resulted in a further drop in several operational expenses, such as maintenance and insurance, while own-workcapitalised revenues increased due to a higher allocation of personnel costs to new investments. This was only partially offset by higher personnel costs, driven by both an increase in collectively agreed wages and additional staff requirements for the expanding investment programme.

EBIT (up 19.5%) was further impacted by the release of a provision for legal claim easements (up €72.1 million). This provision was established after German reunification to cover possible legal claims by landowners in Eastern Germany. Following a reassessment driven by a tax audit, part of the provision was released. This was partly offset by increased depreciations resulting from the commissioning of the Southwest Coupling line and the North Ring in the second half of 2017 and the partial commissioning of Ostwind 1 in 2018 (down €11.8 million). Considering revenues linked to the partial commissioning of the Ostwind project (€33.3 million) and a bonus for the efficient management of renewable energies (€0.1 million), partially offset by the regulatory settlement of previous years (- €2.8 million), the EBIT came in at €385.4 million.

The net profit increased to €237.9 million, of which €169.2 million (up 54.4%) was attributable to the owners of the Company as a result of the following:

• 1. Growing asset base leading to higher investment remuneration (up €31.5 million);
• 1. Lower Offshore OPEX remuneration (down €57.4 million);
• 1. Lower Base Year revenues (down €3.3 million);
• 1. Lower OPEX and other costs (up €2.4 million);
• 1. Release of provision (up €72.1 million);
• 1. Increased depreciation (down €11.8 million) driven by commissioning of investments;
• on the legal claim easement provision after the release (up €2.6 million);
• 1. Increased income tax expense (down €7.2 million)

• Reduced net finance costs (up €7.4 million), mainly due to a reduction of interest on tax risk (up €3.8 million) and lower interest

Total assets increased by € 564.0 million to €6,752.1 million (up 9.1%), mainly driven by the investments made and a further increase of the cash position. 2018 showed a positive free cash flow of €278.7 million, of which €84.3 million generated by the EEG mechanism. The ongoing investment programme has been financed by operating cash flow and working capital. No new long-term debt has been issued by Eurogrid GmbH in 2018. The net financial debt consequently decreased to €1,272.9 million compared to the end of 2017. It includes an EEG cash position of €859.4 million.

4.4. Non-regulated activities (incl. Nemo Link)

GRI 201-1 (Non-regulated activities)

The table below shows the 2018 consolidated results of the 'Non-regulated activities (incl. Nemo Link)' segment:

Other key figures (in million EUR) – Year ended 31 December	2018	2017 (restated *)	Difference (%)
Total revenues and other income	13.9	19.8	(29.8%)
Depreciation, amortisation, impairment and changes in provisions	(1.0)	(0.3)	233.3%
Results from operating activities	(9.3)	(1.6)	481.3%
Share of profit of equity-accounted investees (net of income tax)	0.3	(1.4)	n.m.
EBIT	(8.9)	(3.0)	196.7%
EBITDA	(7.9)	(2.6)	203.8%
Finance income	19.1	3.6	430.6%
Finance costs	(17.8)	(3.0)	493.3%
Income tax expenses	4.1	(2.5)	n.m.
Profit attributable to the owners of the Company	(2.8)	(4.1)	(31.7%)
Consolidated statement of financial position (in million EUR)		31 December 2018 31 December 2017 (restated *)	Difference (%)
Total assets	1,677.9	594.4	182.3%
Capital expenditure	0.0	0.0	n.r.
Net financial debt	507.6	171.4	196.1%

EBITDA (Earnings Before Interest and Taxes, Depreciations and Amortisations) = EBIT + depreciation/amortisation + changes in provisions

EBIT = result from operating activities and share of profit of equity-accounted investees (net of income tax)

Net financial debt = non-current and current loans and borrowings less cash and cash equivalents

* See Note 2.1 for details regarding restatement as a result of a change in accounting policy.

The non-regulated revenues decreased by 29.8% from 2017. The fall is mainly due to EGI revenues, which decreased from €13.2 million to €9.5 million, as fewer owner engineering services were delivered than in 2017. The 2018 sale of the Training and Research Centre for Power Systems Security (GridLab) to DNV GL also resulted in lower revenues (down €1.0 million).

An operating loss (EBIT) of €8.9 million was generated (up >100%) due to higher non-regulated costs and the lower contribution from EGI. This was partially offset by a limited contribution from Nemo Link, as it was not yet in operation in 2018. The main driver for the non-regulated costs was the acquisition of Eurogrid, which generated expenses of €3.3 million related to legal and advisory fees.

The net finance income increased to €1.3 million, primarily as a result of the acquisition of an additional stake in Eurogrid, which is considered to be non-regulated financing and therefore does not impact tariffs. The remeasurement to fair value of the Group's initial 60% shareholding in Eurogrid resulted in the recognition of a financial non-recurring gain of €9.2 million, partly offset by the financial costs of financing this transaction. First, a bridge loan of €968.1 million was taken out, which was successfully refinanced in August through the issue of a €300 million senior bond (coupon 1.50%) and a €700 million hybrid securities (coupon 2.75%). While the hybrid bond has no impact on profit (accrued dividends are directly accounted in equity), the costs for the bridge loan and the senior securities amount to €4.4 million of financial cost. In addition, the mid-swap rate for both the senior and hybrid securities was fully hedged. The unwinding of the hedge linked to the hybrid securities resulted in a non-recurring financial loss of €3.2 million

The net loss amounted to €3.5 million, of which €2.8 million (down 41.7%) was attributable to the owners of the Company, as a result of:

• 1. Lower result for EGI (down €0.5 million) due to write-offs of deferred tax assets recognised on the results of previous years;
• 1. Financing costs linked to the acquisition of Eurogrid (down €3.5 million), mainly consisting of financing expenses related to the bridge financing, the senior bond and the rating of the bond;
• 1. Higher result for Nemo Link (up €1.1 million) thanks to a small outperformance on the financing of the subsidiary and its first positive contribution as an associate;
• 1. The effect resulting from the Eurogrid acquisition, as the remeasurement to fair value of the Group's initial stake in Eurogrid (up €9.2 million) was partially offset by acquisition-related expenses and non-recurring financing and hedging costs (down €4.9 million).

Total assets increased by €1,083.5 million to €1,677.9 million, mainly as a result of the further investments in Nemo Link and the increased stake in Eurogrid. Goodwill of €703.3 million was recognised (see Note 7.1 for details) on this acquisition. Consequently, the net financial debt increased to €507.6 million and reflects the senior bond contracted to finance the additional 20% stake in Eurogrid. The issued hybrid securities has been qualified as equity under IFRS, considering the option to defer coupons at the issuer's discretion.

4.5. Reconciliation of information on reportable segments to IFRS amounts

Consolidated results (in million EUR) – Year ended 31 December	2018 Elia Transmission (Belgium) (a)	2018 50Hertz Transmission (Germany) (b)	2018 Non-regulated activities (incl. Nemo Link) (c)	2018 Consolidation entries and intersegment transactions (d)	2018 Elia Group (a)+(b)+(c)+(d)
Total revenues and other income	959.4	1,364.9	13.9	(406.4)	1,931.8
Depreciation, amortisation, impairment and changes in provisions	(140.2)	(89.6)	(1.0)	(17.1)	(247.9)
Results from operating activities	227.1	385.4	(9.3)	(166.2)	437.0
Share of profit of equity accounted investees, net of tax	1.8	0.0	0.3	63.5	65.6
EBIT	228.9	385.4	(8.9)	(102.8)	502.6
EBITDA	369.1	475.0	(7.9)	(85.7)	750.5
Finance income	0.6	2.5	19.1	(0.3)	21.9
Finance costs	(66.0)	(48.1)	(17.8)	16.7	(115.2)
Income tax expense	(48.6)	(101.9)	4.1	44.2	(102.2)
Profit attributable to the owners of the Company	114.9	169.2	(2.8)	0.1	281.4
Consolidated statement of financial position (in million EUR)	31 Dec 2018	31 Dec 2018	31 Dec 2018	31 Dec 2018	31 Dec 2018
Total assets	5,909.2	6,752.1	1,677.9	(584.9)	13,754.3
Capital expenditure	600.7	511.0	0.0	(20.8)	1,090.9
Net financial debt	2,825.1	1,272.9	507.6	0.0	4,605.6
Consolidated results (in million EUR) – Year ended 31 December *	2017 Elia Transmission (Belgium) (a)	2017 50Hertz Transmission (Germany) (b)	2017 Non-regulated activities (incl. Nemo Link) (c)	2017 Consolidation entries and intersegment transactions (d)	2017 Elia Group (a)+(b)+(c)+(d)
	851.3	1,330.2	19.8	(1,334.2)	867.1
Total revenues and other income Depreciation, amortisation, impairment and changes in provisions	(130.8)	(149.9)	(0.3)	150.2	(130.8)
Results from operating activities	217.0	322.6	(1.6)	(322.5)	215.5
Share of profit of equity accounted investees, net of tax	2.0	0.0	(1.4)	108.5	109.1
EBIT	218.9	322.6	(3.0)	(213.9)	324.6
EBITDA	349.7	472.4	(2.6)	(364.1)	455.4
Finance income	1.9	1.9	3.6	(1.9)	5.5
Finance costs	(79.0)	(56.2)	(3.0)	56.3	(81.9)
Income tax expense	(38.8)	(85.6)	(2.5)	87.3	(39.6)
Profit attributable to the owners of the Company	103.0	109.6	(4.0)	0.0	208.6
Consolidated statement of financial position (in million EUR)	31 Dec 2017	31 Dec 2017	31 Dec 2017	31 Dec 2017	31 Dec 2017
Total assets	5,449.0	6,188.1	594.4	(5,649.2)	6,582.3

Consolidated results (in million EUR) – Year ended 31 December	2018 Elia Transmission (Belgium) (a)	2018 50Hertz Transmission (Germany) (b)	2018 Non-regulated activities (incl. Nemo Link) (c)	2018 Consolidation entries and intersegment transactions (d)	2018 Elia Group (a)+(b)+(c)+(d)
Total revenues and other income	959.4	1,364.9	13.9	(406.4)	1,931.8
Depreciation, amortisation, impairment and changes in provisions	(140.2)	(89.6)	(1.0)	(17.1)	(247.9)
Results from operating activities	227.1	385.4	(9.3)	(166.2)	437.0
Share of profit of equity accounted investees, net of tax	1.8	0.0	0.3	63.5	65.6
EBIT	228.9	385.4	(8.9)	(102.8)	502.6
EBITDA	369.1	475.0	(7.9)	(85.7)	750.5
Finance income	0.6	2.5	19.1	(0.3)	21.9
Finance costs	(66.0)	(48.1)	(17.8)	16.7	(115.2)
Income tax expense	(48.6)	(101.9)	4.1	44.2	(102.2)
Profit attributable to the owners	114.9	169.2	(2.8)	0.1	281.4
of the Company
Consolidated statement of financial position (in million EUR)	31 Dec 2018	31 Dec 2018	31 Dec 2018	31 Dec 2018	31 Dec 2018
Total assets	5,909.2	6,752.1	1,677.9	(584.9)	13,754.3
Capital expenditure	600.7	511.0	0.0	(20.8)	1,090.9
Net financial debt	2,825.1	1,272.9	507.6	0.0	4,605.6
Consolidated results (in million EUR) – Year ended 31 December *	2017 Elia Transmission (Belgium) (a)	2017 50Hertz Transmission (Germany) (b)	2017 Non-regulated activities (incl. Nemo Link) (c)	2017 Consolidation entries and intersegment transactions (d)	2017 Elia Group (a)+(b)+(c)+(d)
Total revenues and other income	851.3	1,330.2	19.8	(1,334.2)	867.1
Depreciation, amortisation, impairment and changes in provisions	(130.8)	(149.9)	(0.3)	150.2	(130.8)
Results from operating activities	217.0	322.6	(1.6)	(322.5)	215.5
Share of profit of equity accounted investees, net of tax	2.0	0.0	(1.4)	108.5	109.1
EBIT	218.9	322.6	(3.0)	(213.9)	324.6
EBITDA	349.7	472.4	(2.6)	(364.1)	455.4
Finance income	1.9	1.9	3.6	(1.9)	5.5
Finance costs	(79.0)	(56.2)	(3.0)	56.3	(81.9)
Income tax expense	(38.8)	(85.6)	(2.5)	87.3	(39.6)
Profit attributable to the owners of the Company	103.0	109.6	(4.0)	0.0	208.6
Consolidated statement of financial position (in million EUR)	31 Dec 2017	31 Dec 2017	31 Dec 2017	31 Dec 2017	31 Dec 2017
Total assets	5,449.0	6,188.1	594.4	(5,649.2)	6,582.3
Capital expenditure	388.1	478.1	0.0	(478.1)	388.1
Net financial debt	2,511.9	1,442.3	171.4	(1,436.5)	2,689.1

There are no significant intersegment transactions.

The Group has no concentration of customers in either of the operating segments.

5. Items in the consolidated statement of profit or loss and other comprehensive income

During the financial year, Elia obtained full control over Eurogrid by acquiring an additional 20% stake in Eurogrid International, resulting in a change of consolidation method from equity pickup to full consolidation method. There were no changes in the basis of preparation and therefore no restatements of figures from previous years were required.

5.1. Revenue and other income

(in million EUR)	2018	2017*
Grid revenue	1,811.7	790.0
Transfers of assets from customers	2.6	1.7
Other revenue	8.5	16.4
Other income:	109.0	59.0
Services and technical expertise	1.6	(0.3)
Own production	53.9	25.5
Optimal use of assets	16.3	14.3
Other	36.8	18.5
Gain on sale PPE	0.5	1.0
Total revenue	1,931.8	867.1

* See Note 2.1 for details regarding restatement as a result of a change in accounting policy.

See the segment reports, which contain a detailed analysis of the Group's recognised revenues at segment level. The Elia Transmission (Belgium) segment reported revenues of €959.4 million (Note 4.2), the 50Hertz Transmission (Germany) segment reported revenues of €1,364.9 million (Note 4.3) and the 'Non-regulated activities (incl. Nemo Link)' segment reported revenues of €13.9 million (Note 4.4). The aforementioned reported revenues of €1,931.8 million have been corrected for the effect of inter-segment revenues, for an amount of €3.8 million, and for German segment revenues which were recognised in the period from January to April (when equity accounting applied), for an amount of €402.6 million.

The Group's own production relates to time of own personnel and who have worked on investment projects.

The Group has recognised €11.5 million of revenue in the reporting period that was included in the contract liability balance at the beginning of the period. The Group did not recognise any substantial revenues in the reporting period where performance obligations were in previous periods.

5.2. Operating expenses

COST OF MATERIALS, SERVICES AND OTHER GOODS

(in million EUR)	2018	2017
Raw materials, consumables and goods for resale	41.5	9.6
Purchase of ancillary services	500.2	140.2
Services and other goods (excl. purchase of ancillary services)	445.5	204.2
Total	987.2	354.0

The Group's costs for 'Raw materials, consumables and goods for resale' were relatively low at the end of financial year 2017 and were attributable to Elia Transmission (Belgium) for an amount of €5.3 million and EGI for an amount of €4.3 million. Whereas costs attributable to Elia Transmission (Belgium) remained stable in 2018 (€5.6 million), EGI's raw material costs have reduced significantly in the year to €0.5million, mainly due to a drop in realised EPC contracts. In 2018, 50Hertz Transmission (Germany) has contributed to these costs in the amount of €35.4 million due to raw material costs of €54.2 million for the full year (of which the four first months have been reversed). Raw material costs for the German segment remained more or less in line with financial year 2017, when the cost base was € 56.8 million.

'Purchase of ancillary services' includes the costs for services which enable the Group to balance generation with demand, maintain constant voltage levels and manage congestion on its grids. The cost incurred in 2018 by Elia Transmission (Belgium) increased to €199.2 million (from €140.2 million in 2017) because of the unexpected unavailability of some nuclear units in the last quarter of 2018, which caused very high reservation prices on the market. 50Hertz Transmission (Germany) incurred costs of €296.6 million, corresponding to all costs incurred from the date of acquisition to the end of 2018.

'Services and other goods' relates to maintenance of the grid, services provided by third parties, insurance and consultancy, and others. The increase from the previous year is mainly driven by 50Hertz Transmission (Germany)'s contribution in the year for an amount of €222.4 million.

PERSONNEL EXPENSES

GRI 201-1 (Payments to government: social security contributions)

(in million EUR)	2018	2017
Salaries and wages	159.5	101.6
Social security contributions	36.1	26.2
Pension costs	17.0	7.2
Other personnel expenses	4.8	9.9
Share-based payment	1.1	0.1
Employee benefits (excl. pensions)	10.8	2.2
Total	229.3	147.2

In December 2018, Elia Group gave its employees in Belgium the chance to subscribe to an Elia System Operator SA capital increase. The capital increase resulted in the creation of 114,039 additional shares without nominal value. The Group's employees were granted a 16.66% reduction on the quoted share price, which resulted in a €1.1 million reduction overall. The transaction resulted in a €2.8 million capital increase and a €2.5 million increase in the share premium.

Total 2018 personnel expenses for the Belgian and non-regulated activities amounted to €157.7 million (up from €147.2 million the previous year) due to a higher number of FTEs (1,390.6) than in 2017 (1,332.2). 50Hertz Transmission (Germany) accounted for €71.6 million of the Group's personnel expenses for 2018.

For more information about pension costs and employee benefits, see Note 6.13, 'Employee benefits'

.

DEPRECIATION, AMORTISATION, IMPAIRMENT AND CHANGES IN PROVISIONS

(in million EUR)	2018	2017
Amortisation of intangible assets	16.5	8.0
Depreciation of property, plant and equipment	233.1	123.4
Total depreciation and amortisation	249.5	131.3
Impairment of inventories and trade receivables	2.8	(0.3)
Total impairment	2.8	(0.3)
Other provisions	(3.1)	1.3
Environmental provisions	(1.3)	(1.6)
Changes in provisions	(4.4)	(0.4)
Total	247.9	130.8

The amount of impairment on trade receivables is explained in Note 8.1, 'Financial risk and derivative management'. A detailed description is provided in other sections for 'Intangible assets' (see Note 6.2), 'Property, plant and equipment' (see Note 6.1) and 'Provisions' (see Note 6.14).

OTHER EXPENSES

GRI 201-1 (Payments to government: taxes other than income tax)

(in million EUR)	2018	2017
Taxes other than income tax	13.9	11.9
Loss on disposal/sale of property, plant and equipment	13.5	7.5
Impairment on receivables	0.4	0.0
Other	2.6	0.3
Other operating expenses	30.4	19.6

Taxes other than income tax mainly consist of property taxes.

Losses on disposal for property, plant and equipment total €11.2 million for Elia Transmission (Belgium), compared with €7.5 million the previous year, and €2.2 million for 50Hertz Transmission (Germany).

50Hertz Transmission (Germany)'s total share of the Group's other expenses in 2018was €6.6 million.

5.3. Net finance costs

(in million EUR)	2018	2017
Finance income	21.9	5.5
Interest income on cash and cash equivalents and granted loans	7.1	3.6
Other financial income	14.8	1.9
Finance costs	(115.2)	(81.9)
Interest expense on eurobonds and other bank borrowings	(95.8)	(68.1)
Interest expense on derivatives	(4.4)	(9.3)
Other financial costs	(15.0)	(4.5)
Net finance costs	(93.2)	(76.5)

Finance income has increased from €5.5 million in 2017 to €21.9 million in 2018. 50Hertz Transmission (Germany)'s contribution to finance income amounts to €2.2 million for 2018. Interest income includes €6.3 million (2017: €3.6 million) of interest from a loan agreement between Elia System Operator and Nemo Link Ltd. See Note 6.4.1 for more details. Other financial income also includes a €9.2 million remeasurement gain to fair value of the Group's initial 60% shareholding in Eurogrid. See Note 4.4.

The interest expenses on eurobonds and other bank borrowings increased, due to a number of factors. Elia Transmission (Belgium) incurred a net €67.6 million interest expense on borrowings in the year, which is comparable with the previous year. The slightly increased interest paid on borrowings is mainly due to an increased nominal amount of outstanding debt, which was driven by the €300 million senior bond issued in September 2018, the €100 million EIB loan, and the €210 million dedicated loan taken out in December 2018. This slight increase is, however, offset by the higher level of capitalised borrowing costs in the year, at €9.0 million (2017: €8.3 million) the rise in capitalised borrowing costs being due to the roll-out of a number of larger projects. 50Hertz Transmission (Germany)'s share of interest expenses on borrowings amounted to €28.2 million.

The interest expense on derivatives decreased significantly due to a number of interest-rate swaps which ended in financial year 2017 and were partially replaced in 2018 with interest-rate swaps at low market interest rates.

Other financial costs have increased due to a number of one-off financial costs that arose in connection with the acquisition of the 20% stake in 50 Hertz Transmission (Germany).

For more details of net debt and loans, see Note 6.12.

5.4. Income taxes

GRI 201-1 (Payments to government by country: corporate income taxes)

RECOGNISED IN PROFIT OR LOSS

The consolidated income statement includes the following taxes:

(in million EUR)	2018	2017 (restated *)
Current year	82.6	28.5
Adjustments for prior years	23.2	0.7
Total current income tax expenses	105.9	29.2
Origination and reversal of temporary differences	(3.7)	10.4
Total deferred taxes	(3.7)	10.4
Total income taxes recognised in profit and loss	102.2	39.6

* See Note 2.1 for details regarding restatement as a result of a change in accounting policy.

Total income tax expenses were higher in 2018 than in 2017. The full consolidation of 50Hertz Transmission (Germany) in the last eight months of 2018 resulted in a €57.8 million increase in total income tax. The remaining increase in tax expenses is driven, among other factors, by a significant limitation of the effects of the Notional Interest Deduction (NID) in 2018. This had a substantial positive tax effect in 2017.

RECONCILIATION OF THE EFFECTIVE TAX RATE

The tax on the Group's profit (loss) before tax differs from the theoretical amount that would arise using the Belgian statutory tax rate applicable to profits (losses) of the consolidated companies:

(in million EUR)	2018	2017 (restated *)
Profit before income tax	409.3	268.2
Income tax expense	102.2	39.1
Income tax, using the domestic corporate income tax rate	121.0	91.2
Domestic corporate income tax	29.58%	33.99%
Effect of the foreign tax rate**	(0.1)	(0.2)
Share of profit of equity-accounted investees	(19.4)	(37.0)
Non-deductible expenses	5.3	2.6
Adjustments for prior years (net of deferred tax impact)	0.5	0.7
Tax incentives (notional interest deduction)	0.0	(13.1)
Tax credit for R&D	(0.5)	(2.3)
Effect of NID carried forward on regulatory balance	0.0	7.9
Tax reform: deferred income tax adjustments	(0.4)	(12.4)
Other	(4.2)	1.3
Income tax expense	102.2	39.6

1 DTA = Deferred tax asset; NID = Notional Interest Deduction

* See Note 2.1 for details regarding restatement as a result of a change in accounting policy.

** The nominal tax rate in Germany amounts to 29.59%

The Belgian notional interest deduction (NID) had a considerable effect on the income tax for financial year 2017. Since all remaining stock in notional interest deduction was used in 2017, the positive effects of notional interest deduction were no longer felt in 2018.

Deferred income taxes are discussed further in Note 6.6.

5.5. Earnings per share (EPS)

BASIC EPS

Basic earnings per share are calculated by dividing the net profit attributable to the shareholders of the Company (€275.2 million) by the

weighted average number of ordinary shares outstanding during the year.

Weighted average number of ordinary shares	2018	2017
Ordinary shares issued on 1 January	60,901,019	60,891,158
Impact of the shares issued in March 2017		7,646
Impact of the shares issued in December 2018	3,437
Weighted average number of shares on 31 December	60,904,456	60,898,804

DILUTED EPS

Diluted earnings per share are determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise share options and convertible bonds.

Diluted earnings per share are equal to basic earnings per share, since there are no share options or convertible bonds.

Share capital and reserves per share

Share capital and reserves per share totalled €44.9 per share on 31 December 2018, compared with a value of €42.1 per share at the end of 2017.

5.6. Other comprehensive income

Total comprehensive income includes both the result of the period recognised in the statement of profit or loss and other comprehensive income recognised in equity. 'Other comprehensive income' includes all changes in equity other than owner-related changes, which are reported in the statement of changes in equity.

Changes in fair value

Cash flow hedges

The negative effect in fair value of cash flow hedges was mainly due to the negative fair value at settlement date of the pre-hedge on the senior bond issued in September 2018 in connection with the acquisition of the 20% stake in 50Hertz. The hedging reserve is described in detail in Note 8.1.

Fair value on investments through OCI

Investments previously measured at amortised cost are measured through OCI with the adoption of IFRS 9 (to the extent that the investment is not categorised under IFRS 12). This had a positive effect of €2.7 million in OCI.

Remeasurements

The OCI on post-employment obligations had a limited impact of €0.8 million (€0.6 million net of tax). See Note 6.13 for more details. The effect in the previous year effect mainly resulted from experience adjustments.

6. Items in the consolidated statement of financial position

6.1. Property, plant and equipment

(in million EUR)	Land and buildings	Machinery and equipment	Furniture and vehicles	Other tangible assets	Assets under construction	Total
ACQUISITION VALUE
Balance at 1 January 2017	199.8	4,904.2	162.2	14.8	448.9	5,729.9
Additions	3.5	46.3	8.8	0.1	318.6	377.3
Disposals	(0.3)	(43.2)	(1.7)	(0.2)	(0.1)	(45.6)
Transfers from one heading to another	2.9	357.9	0.0	4.6	(365.5)	0.0
Balance at 31 December 2017	205.9	5,265.1	169.3	19.3	401.9	6,061.6
Balance at 1 January 2018	205.9	5,265.1	169.3	19.3	401.9	6,061.6
Acquisition business combinations	207.0	2,713.3	68.6	0.0	1,504.4	4,493.4
Additions	6.1	162.5	20.1	0.1	841.4	1,030.1
Disposals	(4.1)	(68.6)	(6.3)	0.0	(22.2)	(101.1)
Transfers from one heading to another	2.7	1,087.1	10.4	5.7	(1,105.9)	0.0
Balance at 31 December 2018	417.6	9,159.3	262.2	25.2	1,619.7	11,483.9
DEPRECIATION AND IMPAIRMENT
Balance at 1 January 2017	(22.8)	(2,613.7)	(125.7)	(11.3)	-	(2,773.4)
Depreciation	(1.9)	(110.8)	(8.6)	(2.1)	-	(123.5)
Disposals	0.1	35.6	1.7	0.2	-	37.6
Transfers from one heading to another	0.0	3.0	0.0	(3.0)	-	0.0
Balance at 31 December 2017	(24.7)	(2,685.9)	(132.6)	(16.1)	-	(2,859.2)
Balance at 1 January 2018	(24.7)	(2,685.9)	(132.6)	(16.1)	-	(2,859.2)
Depreciation	(4.4)	(207.2)	(21.2)	(0.9)	0.0	(233.7)
Disposals	2.8	56.4	6.0	0.0	0.0	65.2
Transfers from one heading to another	0.0	5.7	(0.3)	(5.3)	0.0	0.0
Balance at 31 December 2018	(26.3)	(2,831.0)	(148.1)	(22.3)	0.0	(3,027.7)

CARRYING AMOUNT

Balance at 1 January 2017	177.0	2,290.5	36.5	3.5	448.9	2,956.5
Balance at 31 December 2017	181.2	2,579.3	36.7	3.2	401.9	3,202.4
Balance at 1 January 2018	181.2	2,579.3	36.7	3.2	401.9	3,202.4
Balance at 31 December 2018	391.3	6,328.3	114.1	2.9	1,619.7	8,456.2

The largest additions in Belgium relate to major interconnection projects such as Brabo (€47.2 million) and ALEGrO (€101.0 million). Major additions were also made in connection with upgrading the Mercator-Horta high-voltage line (€43.1 million), and €111.4 million was invested in the Modular Offshore Grid.

In Germany, a total of €219.5 million was invested in onshore projects, while offshore investments totalled €272.0 million. The most significant onshore investments were connected with the modernisation of the telecommunications network (€24.2 million), the reinforcement of high-voltage pylons to improve operational safety (€15.1 million), the restructuring and reinforcement of the overhead line from Wolmirstedt to Güstrow (€11.3 million), and the reinforcement of the overhead line from Wolmirstedt to Helmstedt (€10.3 million). Offshore investments were mainly made for the offshore grid connection of Ostwind 1 (€126.8 million), Ostwind 2 (€98.7 million) and the offshore interconnector project Kriegers Flak Combined Grid Solution (€43.8 million).

During 2018, €16.3 million of borrowing costs were capitalised on 2018 acquisitions. €8.8 million (€8.2 million in 2017), based on an average interest rate of 2.68% (3.21% in 2017), originates from the Elia Transmission segment. An amount of €7.5 million, based on an average interest rate of 1.25% comes from the 50Hertz Transmission segment.

Outstanding capital expenditure commitments are described in Note 8.2.

(in million EUR)	Goodwill	Development costs of software	Licences/ concessions	Total
ACQUISITION VALUE
Balance at 1 January 2017	1,707.8	90.2	3.4	1,801.3
Additions	0.0	10.5	0.3	10.8
Disposals	0.0	0.0	(0.1)	(0.1)
Balance at 31 December 2017	1,707.8	100.7	3.6	1,812.1
Balance at 1 January 2018	1,707.8	100.7	3.6	1,812.1
Acquisition through business combinations	0.0	30.8	21.8	52.6
Additions	703.3	24.3	0.0	727.6
Disposals	0.0	(0.5)	0.0	(0.5)
Balance at 31 December 2018	2,411.1	155.3	25.4	2,591.8
DEPRECIATION AND IMPAIRMENT
Balance at 1 January 2017	(0.0)	(63.3)	(2.2)	(65.5)
Amortisation	0.0	(7.6)	(0.4)	(8.0)
Balance at 31 December 2017	(0.0)	(70.9)	(2.6)	(73.5)
Balance at 1 January 2018	(0.0)	(70.9)	(2.6)	(73.5)
Amortisation	0.0	(15.1)	(1.3)	(16.4)
Disposals	0.0	0.4	0.0	0.4
Balance at 31 December 2018	(0.0)	(85.7)	(3.9)	(89.5)
CARRYING AMOUNT Balance at 1 January 2017	1,707.8	26.9	1.1	1,735.8
Balance at 31 December 2017	1,707.8	29.8	1.0	1,738.6
Balance at 1 January 2018	1,707.8	29.8	1.0	1,738.6
Balance at 31 December 2018	2,411.1	69.6	21.5	2,502.3
Software comprises both IT applications developed by the Company for operating the grid and software for the Group's normal business operations. During 2018, €0.2 million in borrowing costs were capitalised on 2017 acquisitions (compared with €0.2 million in 2017 on that year's acquisitions), based on an average interest rate of 2.68% (3.21% in 2017). The goodwill relates to the following business combinations and is allocated to the CGU Elia Transmission for the acquisition of Elia Asset and Elia Engineering and to the CGU 50Hertz Transmission for the acquisition of the 20% stake in Eurogrid International:
(in million EUR)			2018	2017
Acquisition Elia Asset - 2002			1,700.1	1,700.1
Acquisition Elia Engineering - 2004			7.7	7.7
Acquisition Eurogrid International – 2018 *			703.4	0.0
Total			2,411.2	1,707.8

*See Note 7.1 for a detailed description and calculation of the goodwill related to the acquisition of the 20% stake in Eurogrid International

IMPAIRMENT TEST FOR CASH-GENERATING UNITS CONTAINING GOODWILL

Acquisition of Elia Asset and Elia Engineering

In 2002, the acquisition of Elia Asset by the Company for €3,304.1 million resulted in a positive consolidation difference of €1,700.1 million. This positive consolidation difference was the result of the difference between the acquisition value of this entity and the carrying amount of its assets. This difference consists of various aspects such as the fact that (i) Elia was appointed as a TSO for a period of 20 years (ii) Elia had unique resources in Belgium as Elia owns the whole of the very-high-voltage grid and owns 94% of the

high-voltage grid (or has the right to use this), and hence only Elia is entitled to put forward a development plan and (iii) Elia had the relevant TSO know-how. At the date of acquisition, the description or the quantification in euros of these aspects could not be performed on an objective, transparent and reliable basis and therefore, the difference could not be allocated to specific assets and was considered unallocated. This difference has therefore been recognised as goodwill since the initial adoption of IFRS in 2005. The regulatory framework, in particular the offsetting in the tariffs of the decommissioning of fixed assets, applicable from 2008 onwards, did not have an impact on this accounting treatment. The goodwill described above and the goodwill resulting from the acquisition of Elia Engineering in 2004 were allocated to the single cash-generating unit for the impairment test determined, since the income and expenses were generated by one activity, specifically 'regulated activity in Belgium', which will also be considered to be one cash-generating unit.

As a result, the Company assigned the carrying amount of the goodwill to one unit, the regulated activity in Belgium. Since 2004, annual impairment tests have been conducted and have not resulted in recognition of any impairment losses. Cash-generating units to which goodwill has been allocated are tested for impairment at least annually as the higher of their fair value less cost to sell or value in use, applying the assumptions below and using the following valuation methods.

The impairment test was conducted by an independent expert. This impairment test is based on a number of different valuation methods and which are subject to different assumptions. The most important valuation methods used in this impairment test are:

• Discounting of future cash flows (DCF-models): A number of different DCF-variants have been used throughout the impairment test which, amongst each other, predominately differ in the method used to determine the terminal value. Considering the particularities of the Group's business, preference is given to the Regulated Asset Base (RAB)-model as the basis for the estimation of the terminal value;
• Discounting of future dividends;
• Market valuations, which are based upon market multiples taken from comparable companies;
• Valuations which are based upon multiples derived from recent transactions.

Future cash flows and future dividend methods are based on the business plan for the period 2019-2028. The following overall key assumptions were used:

• a tax rate of 25% as from 2020;
• a perpetual growth rate of 1.5%;
• Market-risk premium of 5.5%.

Particularly referring to the above valuation methods, the following key assumptions were used: 1) DCF based models:

• Risk-free rate: 0.8%;
• Levered beta of 0.7;
• The levered beta calculated based on the target debt ratio of 60%;
• Cost of equity: 7.3%;
• Cost of debt pre-tax: 2.4%;
• WACC: 3.99%.
• 2) Discounting of future dividends:
• Dividends and anticipated capital increases are taken into accounting in this model;
• Cost of equity: 7.3%.
• 3) Market valuations:
• Observed Enterprise Value / EBIT: 15.6;
• Observed P/E: 12.8;
• Observed Enterprise Value / RAB: 1.5.
• 4) Valuations, based upon recent transactions
• Observed Enterprise Value / EBIT: 18.7.

The independent analysis and sensitivity analysis did not result in the identification of an impairment of goodwill in the financial year 2018. With regard to the assessment of the recoverable amount, management believes, based on the analysis of the external expert and on current knowledge, that no reasonably possible change in any of the above key assumptions would cause material impairment losses.

Acquisition of Eurogrid International

In April 2018, the acquisition of an extra 20% stake in Eurogrid International by the Company for €988.7 million resulted in a positive consolidation difference of €703.4 million. This positive consolidation difference was the result of the difference between the acquisition value of this entity and the carrying amount of its assets.

6.3. Non-current trade and other receivables

(in million EUR)	2018	2017
Loans to third parties	2.6	0.0
Loans to joint ventures	174.4	147.8
Total	177.0	147.8

As mentioned in Note 5.1, the Group has a 50% stake in Nemo Link Ltd. This company is financed by both shareholders through equity and loans. As a result, at 31 December 2018 a non-current receivable to the amount of €174.4 million is outstanding on Nemo Link Ltd. This is accounted for as an unsecured loan instrument with a fixed interest rate and a maturity of 25 years after the commercial operations date of the interconnector (see Note 6.4).

Besides the loan to Nemo Link, the Group has also a receivable outstanding to a third party for an amount of €2.6 million. This receivable was granted for the financing of a joint project with Elia.

See Note 8.1 for a detailed analysis of the incurred credit risk linked to these loans.

6.4. Equity-accounted investees

6.4.1. Joint ventures

Eurogrid International CVBA

In April 2018, the Group acquired an extra 20% stake and control in Eurogrid International CVBA. As a result, from the date of acquisition, Eurogrid International CVBA is no longer accounted for as a Joint Venture, but a fully consolidated entity. The share of profit of equityaccounted investees in the first four months of 2018 for Eurogrid International CVBA was €63.5 million. See Note 7.1.

Nemo Link Ltd

On 27 February 2015, Elia System Operator and National Grid signed a joint venture agreement to build the Nemo Link Interconnector between Belgium and the UK. This project consists of subsea and underground cables connected to a converter station and an electricity substation in each country, which will allow electricity to flow in either direction between the two countries and will give UK and Belgium improved reliability and access to electricity and sustainable generation. Each shareholder holds a 50% stake in Nemo Link Ltd, a UK company.

Both shareholders have provided funding to Nemo Link Ltd since 2016 via equity contributions and loans (divided on a 50/50 basis).

In 2018, Elia provided €59.5 million, bringing the Company's total funding to €290.7 million, of which 40% came via equity contributions and 60% via loans. The figures of this joint venture are incorporated into the 'Non regulated activities (Incl. NemoLink)'-segment. See Note 4.4.

The following table summarises the financial information of the joint venture, based on its IFRS financial statements and reconciliation with the carrying amount for the Group's interest in the consolidated financial statements.

(in million EUR)	2018	2017
Percentage ownership interest	50.0%	50.0%
Non-current assets	606.3	490.7
Current assets	35.5	63.7
Non-current liabilities	381.2	297.1
Current liabilities	27.4	72.3
Equity	233.2	185.0
Group's carrying amount for the interest	116.6	92.5
Revenues and other income	0.0	0.0
Depreciation and amortisation	0.0	0.0
Net finance result	0.6	(0.1)
Profit before income tax	0.6	(0.1)
Income tax	0.0	(2.6)
Profit for the year	0.6	(2.7)
Total comprehensive income for the year	0.6	(2.7)
Group's share of profit for the year	0.3	(1.4)
Dividends received by the Group	0.0	0.0

6.4.2. Associates

The Group has four associates, all of which are equity-accounted investees.

The Group has a 12.5% interest in Enervalis NV, a start-up that develops innovative software-as-a-service solutions that will allow market players to optimise their energy bills while helping to meet the growing need for flexibility in the electricity system. A representative of the Group has been appointed a member of Enervalis's Board of Directors. The Group therefore considers itself as having a significant influence and Enervalis is, as such, accounted for using the equity method.

The Group has a 20.5% interest in Ampacimon SA, a Belgian company working on developing innovative monitoring systems for TSOs and distribution system operators (DSOs) so that they can more quickly anticipate on changes in energy supply and demand.

Following the acquisition of a 20% stake in 50Hertz, the Group's interest in Coreso NV/SA increased to 22.2%. Coreso NV/SA is a company which provides coordination services aimed at facilitating the secure operation of the high-voltage electricity system in several European countries.

HGRT SAS is a French company with a 49.0% stake in Epex Spot, the exchange for power spot trading in Germany, France, Austria, Switzerland, Luxembourg and (through its 100% associate APX) the UK, Netherlands and Belgium. The Group itself holds a 17.0% stake in HGRT. As one of the founding partners of HGRT, the Group has a 'golden share', enabling the Group to have a minimum number of representatives on the Board of Directors. This constitutes a significant influence and therefore HGRT is accounted for using the equity method. In 2018, the Group received a dividend of €2.0 million from HGRT (€0.9 million in 2017).

None of these companies are listed on any public exchange.

The following table illustrates the summarised financial information of the Group's investment in these companies, based on their respective financial statements prepared in accordance with IFRS.

(in million EUR)		Enervalis		Ampacimon		Coreso		HGRT
	2018	2017	2018	2017	2018	2017	2018	2017
Percentage ownership interest	12.5%	12.5%	20.5%	20.5%	22.2%	20.6%	17.0%	17.0%
Non-current assets	0.3	0.3	0.3	0.2	4.4	3.1	93.7	93.0
Current assets	1.4	1.4	2.2	5.8	2.2	2.5	6.3	7.2
Non-current liabilities	0.0	0.0	0.0	0.1	0.0	0.0	0.0	0.0
Current liabilities	0.3	0.3	0.0	2.8	4.5	3.2	0.4	0.1
Equity	1.3	1.3	2.5	3.1	2.7	2.4	99.6	100.2
Group's carrying amount for the
interest	0.7	0.7	0.5	0.6	0.6	0.4	16.9	17.0
Revenues and other income	0.0	0.8	0.0	2.6	13.7	10.5	0.0	0.0
Profit before income tax	0.0	(1.1)	(0.6)	0.7	0.6	0.5	10.8	11.0
Income-tax expense	0.0	0.0	0.0	(0.3)	(0.3)	(0.2)	0.1	(0.2)
Profit for the year	0.0	(1.1)	(0.6)	0.4	0.3	0.2	10.9	10.8
Total comprehensive income for the year	0.0	(1.1)	(0.6)	0.4	0.3	0.2	10.9	10.8
Group's share of profit for the year	0.0	0.0	(0.1)	0.1	0.0	0.0	1.9	1.8

6.5. Other financial assets

(in million EUR)	2018	2017
Immediately claimable deposits	7.0	7.1
Other shareholdings	27.7	0.2
Reimbursement rights	52.2	53.6
Total	86.9	60.9

Immediately claimable deposits are measured at fair value. The risk profile of these investments is discussed in Note 8.1.

As of 2018, 'Other shareholdings' predominantly consist of the shareholdings owned by 50Hertz Transmission, which explains the increase compared to 2017.

The reimbursement rights are linked to the obligations for (i) the retired employees falling under specific benefit schemes (Scheme B unfunded plan) and for (ii) the medical plan and plan for tariff benefits for retired staff members. See Note 6.13: 'Employee benefits'. The reimbursement rights are recoverable through the regulated tariffs. The following principle applies: all incurred pension costs for 'Scheme B' retired employees and the costs linked to healthcare and tariff benefits of retired Elia staff members are defined by the regulator (CREG) as non-controllable expenses that are recoverable through the regulatory tariffs. The decrease in the carrying value of this asset is disclosed in Note 6.13: 'Employee benefits'.

6.6. Deferred tax assets and liabilities

RECOGNISED DEFERRED TAX ASSETS AND LIABILITIES

(in million EUR)	2018		2017 (restated) *
	Assets	Liabilities		Assets Liabilities
Property, plant and equipment	3.3	(157.4)	1.2	(10.1)
Intangible assets	0.0	(8.2)	0.0	(8.4)
Non-current trade and other receivables	1.7	0.0	0.0	0.0
Interest-bearing loans and other non-current financial liabilities	2.2	(4.0)	0.0	(1.2)
Employee benefits	26.2	(13.9)	7,5	0,0
Provisions	40.6	0.0	0.0	0.0
Deferred revenue	9.4	(2.9)	0.0	0.0
Regulatory liabilities	19.6	0.0	0.0	0.0
Deferred tax on investment grants	0.0	(1.1)	0.0	(1.2)
Losses carried forward	2.5	0.0	0.0	0.0
Other items	0.7	(9.0)	0.8	(7.3)
Tax asset/liability before offsetting	2 106.3	(196.5)	9.6	(28.2)
Offsetting of tax	(101.3)	101.3	(8.6)	8.6
Net tax asset/(liability)	5.0	(95.2)	1.0	(19.6)

*As a result of the adoption of IFRS 15, the opening balance of the deferred tax liability of PPE has been restated downwards by € 21.4 million. See note 2.1 for detailed information.

The changes in deferred tax assets and liabilities can be presented as follows:

CHANGES IN DEFERRED TAX ASSETS AND LIABILITIES RESULTING FROM MOVEMENTS IN TEMPORARY

DIFFERENCES DURING THE FINANCIAL YEAR *

(in million EUR)	Opening balance	Business Combina tions	Recog nised in profit or loss	Recog nised in OCI	Other	Closing balance
2017
Property, plant and equipment *	(31.4)		1.6	20.9	0.0	(8.8)
Intangible assets	(9.2)		0.8			(8.4)
Interest-bearing loans and other non-current financial liabilities	1.7		0.3	(3.2)		(1.2)
Employee benefits	5.6		(0.3)	2.3		7.5
Notional interest deduction carried forward - previous	11.9		(11.9)			0.0
accounting years Deferred tax on investment grants					(1.2)	(1.2)
Other items	(6.5)		(0.1)			(6.5)
Total	(27.9)	0.0	(9.5)	20.0	(1.2)	(18.6)
2018
Property, plant and equipment	(8.8)	(157.6)	12.4			(154.1)
Intangible assets	(8.4)		0.2			(8.2)
Non-current trade and other receivables	0.0	1.8	(0.1)			1.7
Interest-bearing loans and other non-current financial
liabilities	(1.2)	(3.2)	0.4	2.2		(1.8)
Employee benefits	7.5	4.2	0.7	(0.2)		12.3
Provisions	0.0	54.4	(13.8)			40.6
Deferred revenue	0.0	6.3	0.2			6.5
Regulatory liabilities	0.0	18.1	1.5			19.6
Losses carried forward	0.0		2.5			2.5
Deferred tax on investment grants	(1.2)		0.1			(1.1)
Other items	(6.5)	0.5	(0.4)		(1.8)	8.2
Total	(18.6)	(75.5)	3.7	2.0	(1.8)	(90.2)

for detailed information.

The line 'Other items' contains an amount of €1.8 million in deferred tax on distribution of hybrid securities, which did not have an impact

on OCI or profit and loss.

UNRECOGNISED DEFERRED TAX ASSETS OR LIABILITIES

As at 31 December 2018, there is an unrecognised deferred tax asset of € 0.5 million relating to tax losses carried forward originating

from EGI NV.

6.7. Inventories

	(in million EUR)

(in million EUR)	2018	2017
Raw materials and consumables	34.0	27.6
Write-downs	(14.8)	(14.0)
Total	19.2	13.6

The warehouse primarily stores replacement and spare parts for maintenance and repair work on the Group's high-voltage substations, overhead lines and underground cables. It also included work-in-progress balances.

The increase of inventories is due to the acquired inventory of 50Hertz Transmission.

Write-downs are recorded following the non-utilisation of stock items based on their underlying rotation. These were slightly higher than in 2017.

6.8. Current trade and other receivables, deferred charges and accrued revenues

Construction contracts in progress 3.6 3.9 Trade and other receivables and advance payments 417.9 227.2 Levies 38.9 20.6 VAT and other taxes 50.5 24.2 Other 48.0 5.2 Deferred charges and accrued revenues 20.5 9.5	(in million EUR)	2018	2017
	Total	579.4	290.6

Trade receivables are non-interest-bearing and generally have payment terms of 15 to 30 days.

Construction contracts in progress decreased slightly from €3.9 million in the previous year to €3.6 million at year-end. Construction contracts in progress mainly arise from EGI's business.

The increase in levies is mainly due to:

• an increase of €27.2 million relating to Flemish green certificates; mainly due to the increased number of certificates sold to Elia by producers at the minimum guaranteed price in 2018;
• partly offset by the levies for strategic reserve, which decreased from a receivable position of €9.3 million to a payable position of €7.5 million. This was because lower costs were incurred for strategic reserve as no reserve had to be established for winter 2018/2019.

The Group's exposure to credit and currency risks, and impairment losses related to trade and other receivables are shown in Note 8.1.

At 31 December, the ageing analysis of trade and other receivables and advance payments is as follows:

(in million EUR)	2018	2017
Not past due	389.7	218.7
Past due 0-30 days	6.6	0.8
Past due 31-60 days	(0.6)	2.9
Past due 61 days - one year	23.6	2.8
More than one year	0.5	1.6
Total (excl. impairment)	419.8	226.8
Doubtful amounts	170.2	1.7
Amounts of write-offs	(169.8)	(1.3)
Provision for expected credit losses	(2.3)	0.0
Total	417.9	227.2

See Note 8.1 for a detailed analysis of the credit risk incurred in connection with these trade receivables.

6.9. Current tax assets and liabilities

(in million EUR)	2018	2017
Tax receivables	3.6	3.8
Tax liabilities	(93.1)	(2.9)
Net tax asset / (liability)	(89.5)	0.9

Tax receivables have remained in line with the previous year. The €3.6 million in tax receivables at 31 December 2018 mainly relates to 2018 advances on corporation tax to be recovered in the financial year 2019.

6.10. Cash and cash equivalents

(in million EUR)	2018	2017
Short-term deposits	1,356.2	55.2
Balance at bank	433.1	140.0
Total	1,789.3	195.2

Cash and cash equivalents have increased significantly as a result of the acquisition of 50Hertz Transmission (Germany). The cash held by those companies was previously accounted for using the equity method. The cash and cash equivalents held by 50Hertz Transmission (Germany) amounts to €1.590 million at the end of 2018.

The acquisition of an additional 20% stake in Eurogrid (see Note 7.1) and the expanded capital expenditure programme (see Note 6.1) were financed through the issuance of a hybrid securities (see Note 6.10.2) and additional loans (see Note 6.12), resulting in a cash position which remained stable in comparison with the previous year (i.e. not considering the effect of the additional cash obtained through 50Hertz (Transmission)).

Short-term deposits are invested for periods varying from a few days and a few weeks to several months (generally not exceeding three months), depending on immediate cash requirements, and earn interest in accordance with the interest rates for the short-term deposits. The interest rate of interest-bearing investments at the end of the reporting period varies from -0.4% to 1.0%.

Bank-account balances earn or pay interest in line with the variable rates of interest on the basis of daily bank deposit interest rates. The Group's interest-rate risk and the sensitivity analysis for financial assets and liabilities are discussed in Note 8.2.

The cash and cash equivalents disclosed above and in the statement of cash flows include €29.9 million held by Elia RE. These deposits are subject to regulatory restrictions and are therefore not directly available for general use by the other entities within the Group.

'Balance at bank' includes an amount of €0.1 million in restricted cash. This relates to a prepayment received on EU funding for a consortium, of which 50Hertz Transmission manages the syndicate account.

6.11. Shareholders' equity

6.11.1. Equity attributable to the owners of the Company

SHARE CAPITAL AND SHARE PREMIUM

Number of shares	2018	2017
Outstanding on 1 January	60,901,019	60,891,158
Issued against cash payment	114,039	9,861
Number of shares (end of period)	61,015,058	60,901,019

The extraordinary shareholders' meeting of 17 May 2016 decided to execute a capital increase in two steps/periods (one in 2016 for a maximum of €5.3 million and the other in 2017 for a maximum of €0.7 million) for a total maximum amount of €6.0 million for its Belgian employees. The second tranche of this capital increase (tax tranche) for the Group's Belgian employees was implemented in March 2017 and involved €0.4 million, consisting of a €0.3 million capital increase and a €0.1 million increase in share premium. As part of this second tranche, 9,861 new shares were issued.

The extraordinary shareholders' meeting of 15 May 2018 decided to mandate the executive committee to initiate a capital increase for

an amount of €5.3 million for its Belgian employees.

In December 2018, the Elia Group gave its employees in Belgium the opportunity to subscribe to an Elia System Operator SA capital increase (tax and non-tax tranches) which resulted in a €3.8 million increase in the share capital (including the cost of the capital increase, amounting to €1.1 million) and a €2.5 million increase in the share premium. The number of shares outstanding rose by 114,039 shares without nominal value.

RESERVES

In line with Belgian legislation, 5% of the Company's statutory net profit must be transferred to the legal reserve each year until the legal reserve represents 10% of the capital. As at 31 December 2018 the Group's legal reserve amounts to €173.0 million and represents 10% of the capital.

The Board of Directors can propose the payout of a dividend to shareholders up to a maximum of the available reserves plus the profit carried forward from previous financial years of the Company, including the profit for the financial year ended 31 December 2018. Shareholders must approve the dividend payment at the Annual General Meeting of Shareholders.

HEDGING RESERVE

The hedging reserve comprises the effective portion of the cumulative net change in fair value of cash-flow hedging instruments with regard to hedged transactions that have not yet occurred.

DIVIDEND

GRI 201-1 (Payments to providers of capital)

After the reporting date, the Board of Directors will put forward the dividend proposal indicated below.

Dividend	2018	2017
Per ordinary share entitled to dividend	1.66	1.62

At the General Meeting of Shareholders on 15 May 2018, the Board of Directors proposed the payout of a gross dividend of €1.62 per share, which yields a net dividend of €1.134 per share, yielding a total amount of €98.7 million.

The Board of Directors' meeting of 21 February 2019 proposed a gross dividend of €1.66 per share. This dividend is subject to approval by shareholders at the Annual General Meeting on 21 May 2019 and is not included as a liability in the consolidated financial statements of the Group.

The total dividend, calculated based on the number of shares outstanding on 21 February 2019, corresponds to a total of €101.3 million.

6.11.2. Hybrid securities

GRI 201-1 (Payments to providers of capital)

In September 2018, the Group issued hybrid securities for the financing of the additional 20% stake in 50Hertz Transmission (Germany). The issue resulted in an increase in the Group's equity for an amount of € 700 million.

The hybrid securities bear an optional, cumulative coupon of 2.75%, payable at the Group's discretion annually on 5 December of each year, starting from 5 December 2019. As at 31 December 2018, the unpaid cumulative dividend amounts to € 6.2 million, relating to the period 5 September 2018 to 31 December 2018.The hybrid securities have an initial call date in December 2023 with a reset every five years thereafter.

The hybrid securities have received an instrument rating of BBB- from S&P. The hybrid securities are structured as perpetual instruments, have junior ranking to all the senior debt and will be recorded as equity in the Group's accounts pursuant to IFRS.

6.12. Interest-bearing loans and borrowings

(in million EUR)	2018	2017
Non-current borrowings	5,773.8	2,834.7
Subtotal non-current borrowings	5,773.8	2,834.7
Current borrowings	549.9	0,0
Accrued interest	71.1	49.5
Subtotal current loans and borrowings	621.1	49.5
Total	6,394.9	2,884.2

The tables below disclose the changes in the Group's liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes.

(in million EUR)	Current interest bearing loans and borrowings	Non-current interest bearing loans and borrowings	Total
Balance 1 January 2017	147.5	2,586.4	2,733.9
Cash flow: interest paid	(88.4)	0.0	(88.4)
Cash flow: repayment of borrowings	(100.0)	0.0	(100.0)
Cash flow: proceeds from withdrawal borrowings	0.0	247.4	247.4
Interest accruals	90.4	0.0	90.4
Other	0.0	0.9	0.9
Balance 31 December 2017	49.5	2,834.7	2,884.2
Balance 1 January 2018	49.5	2,834.7	2,884.2
Acquisition through business combination	28.5	2,829.9	2,858.4
Cash flow: interest paid	(141.8)	0.0	(141.8)
Cash flow: repayment of borrowings	0.0	0.0	0.0
Cash flow: proceeds from withdrawal borrowings	50.0	606.9	656.9
Interest accruals	135.0	0.0	135.0
Other	499.9	(497.7)	2.3
Balance 31 December 2018	621.1	5,773.8	6,394.9

The net increase in interest-bearing loans and borrowings is predominantly explained by the issuance of a new €300-million senior bond in September 2018 as part of the financing of the acquisition of Eurogrid, the issuance of a dedicated amortised term loan of €210 million for the financing of the investment in Nemo Link, and the use of the €100 million credit line with the European Investment Bank.

'Other' in the financial year 2018 mainly relates to reclassifications of long-term debt to short-term debt in accordance with when instruments become due.

(in million EUR)
------------------	--	--	--

Information concerning the terms and conditions of the outstanding interest-bearing loans and borrowings is given below:

Matu rity	Amount	Interest rate before hedging	Interest rate after hedging	Current proportion - fixed	Current proportion - variable
2019	499.9	5.25%	5.25%	100.00%	0.00%
2028	547.6	3.25%	3.25%	100.00%	0.00%
2033	199.4	3.50%	3.50%	100.00%	0.00%
2029	346.8	3.00%	3.00%	100.00%	0.00%
2024	498.7	1.38%	1.38%	100.00%	0.00%
2027	247.7	1.38%	1.38%	100.00%	0.00%
2028	297.3	1.50%	1.50%	100.00%	0.00%
2022	42.1	0.89%	0.89%	60.51%	39.49%
2022	453.7	0.89%	0.89%	60.51%	39.49%
2033	209.7	1.80%	1.80%	100.00%	0.00%
2025	100.0	1.08%	1.08%	100.00%	0.00%
2019	50.0	(0.23%)	(0.23%)	100.00%	0.00%
2020	499.1	3.88%	3.875%	100.00%	0.00%
2025	497.5	1.88%	1.875%	100.00%	0.00%
2023	748.4	1.62%	1.625%	100.00%	0.00%
2030	139.1	2.63%	2.625%	100.00%	0.00%
2028	746.7	1.50%	1.500%	100.00%	0.00%
2044	50.0	3.00%	3.000%	100.00%	0.00%
2026	150.0	0.90%	0.900%	100.00%	0.00%
	6,323.8			92.16%	7.84%

The above €6,323.8 million is to be increased with €71.1 million of interest accruals to reconstitute the overall debt of €6,394.9 million.

The following covenants are required for the Eurobonds issued under the €3-billion EMTN programme and the back-up facilities: • The company will not grant any security interest (i.e. any mortgage, charge, pledge, lien or other form of encumbrance or security interest; a personal guarantee or suretyship does not constitute a 'security interest') to secure any relevant debt of any

• The Company shall ensure that none of its material subsidiaries grant any security interest to secure any relevant debt of any person or to secure any guarantee of or indemnity in respect of any relevant debt of any person.

- person or to secure any guarantee of or indemnity in respect of any relevant debt of any person.

• respect of any of the Issuer's, or any of its material subsidiaries', relevant debt.
• The Company will retain at least a 75% participation in Elia Asset SA/NV.
• The Company will keep its licence as a transmission system operator.

• The Company will and shall ensure that its material subsidiaries will ensure that no other person grants any security interest to secure any of the company's, or any of its material subsidiaries', relevant debt or to secure any guarantee of or indemnity in

Information concerning the maturity profile of the Group's financial liabilities based on contractual undiscounted payments is given in Note 8.1 'Liquidity risk'.

6.13. Employee benefits

The Group has various legal and constructive defined benefit obligations linked to its Belgian and German operations.

The total net liability for employee-benefit obligations is as follows:

(in million EUR)		2018			2017
	Belgium	Germany	Total	Belgium	Germany	Total
Defined-benefit plans	20.3	20.6	40.8	21.2	n.r.	21.2
Post-employment benefits other than pensions	62.2	2.4	64.6	63.1	n.r.	63.1
Total provisions for employee benefits	82.5	22.9	105.4	84.3	n.r.	84.3

Of the €105.4 million in employee benefit provisions recognised at the end of financial year 2018, €104.0 million is presented in the long term and €1.4 million in the short term (Note 6.14).

BELGIUM

DEFINED-CONTRIBUTION PLANS

Employees remunerated based on a salary scale and recruited after 1 June 2002, as well as management staff recruited after 1 May 1999 are covered by two defined-contribution pension plans (Powerbel and Enerbel):

The Enerbel plan is a plan attributed to salaried employees hired after 1 June 2002, to which the employee and the employer contribute based on predefined formula.

The Powerbel plan is a plan for managers hired after 1 May 1999. The contributions of the employee and employer are based on a fixed percentage of the employee's salary.

The new law on occupational pension plans, published at the end of 2015, made various changes to the guaranteed return on definedcontribution plans. For payments made after 1 January 2016, the law requires employers to guarantee an average annual return of at least 1.75% (up to 3.75% depending on who contributes) over the course of the career.

For insured plans the minimum guaranteed return until 31 December 2015 still needs to be equivalent to at least 3.25% for the employer's contribution and 3.75% for the employee's contribution, with any shortfall being covered by the employer.

As a result of the above change and as mentioned in the accounting policies, all defined-contribution pension plans under the Belgian pension legislation are classified as defined-benefit plans for accounting purposes due to the legal minimum return to be guaranteed by the employer, which represents a plan amendment.

Elia Transmission Belgium has transferred certain acquired reserves guaranteed by the insurers to 'Cash balance – best off' plans since 2016. The main objective of these plans is to guarantee for every subscriber a minimum guaranteed return of 3.25% on the acquired reserves until retirement age.

Both employee' and employer' contributions are paid on a monthly basis for the base plans. The employee' contribution is deducted from the salary and paid to the insurer by the employer. The amount of future cash flows depends on wage growth.

DEFINED-BENEFIT PLANS

For a closed population, collective agreements in the electricity and gas industries provide 'pension supplements' based on the annual salary and an employee's career within a company (partially revertible to the inheritor in case of early death of the employee).The benefits granted are linked to Elia's operating result. There is no external pension fund or group insurance for these liabilities, which means that no reserves are constituted with third parties. The obligations are classified as a defined benefit.

The collective agreement determines that active staff hired between 1 January 1993 and 31 December 2001 and all managerial/executive staff hired prior to 1 May 1999 will be granted the same guarantees via a defined-benefit pension scheme (Elgabel and Pensiobel – closed plans). Obligations under these defined-benefit pension plans are funded by a number of pension funds for the electricity and gas industries and by insurance companies.

As mentioned above, Elia Transmission Belgium has transferred certain acquired reserves guaranteed by the insurers to 'Cash balance – best off' plans since 2016. As this guarantee is an obligation by the employer, these plans represent defined-benefit plans.

Both employees' and employers' contributions are paid on a monthly basis for the base plans. The employee's contribution is deducted from the salary and paid to the insurer by the employer.

OTHER PERSONNEL OBLIGATIONS

Elia Transmission (Belgium) has also granted staff certain early-retirement schemes and other post-employment benefits such as reimbursement of medical expenses and a contribution to energy prices, as well as other long-term benefits (seniority payments). Not all of these benefits are funded and, in accordance with IAS 19, these post-employment benefits are classified as defined-benefit plans.

GERMANY

DEFINED-CONTRIBUTION PLANS

In the case of externally financed defined contribution plans, 50Hertz Transmission (Germany)'s obligation is limited to paying the agreed contributions. For those defined contribution plans recognized in the form of direct guarantees, there are pledged congruent employer's liability insurance policies in place.

• Pension obligations for executives (agreement with staff representatives as from 2003): individual contractual pension obligations based on an agreement with representatives;
• Pension obligations for executives (agreement with staff representatives as from 19 August 2008): individual contractual pension obligations relating to a company pension plan with the Vattenfall Europe Group;
• Collective bargaining agreement on the company pension scheme: obligations based on the collective bargaining agreement on 50Hertz Transmission's company pension scheme, concluded on 28 November 2007
• Direct insurance: direct insurance policies for all former employees who worked at Vereinigte Energiewerke AG (VEAG) from 1993 to 31 December 2004, with the exception of managers;
• pension fund).

• Individual commitments: individual commitments which are financed exclusively by external pension funds (welfare fund and

DEFINED-BENEFIT PLANS

Defined benefit plans entitle employees to make direct pension claims against 50Hertz Transmission. Provisions for these are recognised in the statement of financial position. If plan assets are created for the sole purpose of fulfilling pension obligations, the amount is offset against the present value of the obligation. The following defined benefit plans exist in Germany:

• Group works agreement on the company pension scheme

In accordance with the group works agreement on the company pension scheme, employees are granted a company pension plan on the basis of a defined contribution plan (effective 1 January 2007). This agreement applies to all employees within the meaning of Sec. 5 (1) of the German Work Constitution Act (BetrVG) and came into effect at the Company on 1 January 2007. Participation in the scheme is voluntary. The scheme grants pension benefits upon reaching the statutory retirement age, upon taking early retirement from statutory pension insurance, and in the event of occupational disability as well as in the event of death. Current pension benefits are increased by 1% p.a., so the scheme is classified as a defined benefit plan.

• TVV Energie

This pension plan relates to direct guarantees resulting from a collective bargaining agreement from 16 October 1992. It was closed to new hires on 1 January 1993. This contribution plan applies to employees who worked at Vereinigte Energiewerke AG until 30 November 2001 and whose vested benefits were allocated to Vattenfall Europe Transmission GmbH (now 50Hertz Transmission GmbH). The scheme covers pension obligations, based on years of service and remuneration level and grants retirement and disability pensions, but no pension for surviving dependants. It is not possible to index current post-employment benefits falling due for the first time after 1 January 1993.

OTHER PERSONNEL OBLIGATIONS

50Hertz Transmission also has following obligations, which are listed under 'Other personnel obligations':

• Obligations for long-service benefits;
• Obligations from German phased retirement schemes;
  • Obligations for working lifetime accounts.

Not all of these benefits are funded and, in accordance with IAS 19, these post-employment benefits are classified as defined-benefit

plans.

EMPLOYEE BENEFIT OBLIGATIONS AT GROUP LEVEL

The Group's net liability for employee benefit obligations is as follows:

(in million EUR)	Pensions		Other
	2018	2017	2018	2017
Present value of funded defined-benefit obligation	(247.8)	(224.3)	(85.8)	(63.7)
Fair value of plan assets	207.0	203.1	21.2	0.6
Net employee benefit liability	(40.8)	(21.2)	(64.6)	(63.1)
Movement in the present value of the defined benefit obligation		Pensions		Other
(in million EUR) At the beginning of the period	2018 (224.3)	2017 (192.1)	2018 (63.7)	2017 (63.6)
Acquisition through business combinations	(19.0)	0.0	(17.1)	0.0
Current service cost	(9.1)	(6.9)	(4.5)	(1.7)
Interest cost/income	(3.2)	(3.2)	(1.2)	(1.0)
Contributions from plan participants	0.3	(1.2)	2.2	0.0
Cost of early retirement	(0.1)	0.1	0.0	0.0
Including remeasurement gains/(losses) in OCI and in Statement of profit or loss, arising from
Changes in demographic assumptions	(0.5)	1.7	0.0	0.7
Changes in financial assumptions	2.2	(0.7)	0.9	(0.6)
Changes from experience adjustments	6.4	(16.5)	0.6	(0.2)
Taxes on contributions paid during the year	(0.7)	1.2	(0.0)	0.0
Past service cost	0.0	0.0	0.0	0.0
Payments from the plan	15.1	11.8	0.2	2.7
Settlements	0.0	0.0	0.0	0.0
Transfers	(14.9)	(18.5)	(3.2)	0.0
At the end of the period	(247.8)	(224.3)	(85.8)	(63.7)

Movements in the fair value of the plan assets	Pensions			Other
(in million EUR)	2018	2017	2018	2017
At the beginning of the period	203.1	179.9	0.6	0.6
Acquisition through business combinations	0.1	0.0	14.8	0.0
Interest income	3.1	2.8	0.0	0.0
Remeasurement gains/losses in OCI arising from:			0.0
Return of plan assets (excluding interest income on plan assets)	(10.1)	2.4	(0.2)	(0.0)
Contributions from employer	11.1	9.9	5.3	1.1
Contributions from plan participants	1.3	1.2	0.0	0.0
Benefit payments	(16.3)	(11.8)	(2.5)	(1.1)
Transfers	14.9	18.5	3.2	0.0
At the end of the period	207.0	203.1	21.2	0.6

Amounts recognised in Profit and Loss or OCI	Pensions		Other
(in million EUR)	2018	2017	2018	2017
Service cost
Current service cost	(9.1)	(6.9)	(4.5)	(1.7)
Cost of early retirement	(0.1)	0.1	0.0	0.0
Past service cost	0.0	0.0	0.0	0.0
Settlements	0.0	0.0	0.1	0.0
Actuarial gains/(losses) on defined benefit obligation	0.0	0.0	0.8	0.5
Net interest on the net defined benefit liability/(asset)	(0.1)	(0.4)	(1.2)	(1.0)
Interest cost on defined benefit obligation	(3.2)	(3.2)	(1.2)	(1.0)
Interest income on plan assets	3.1	2.8	0.0	0.0
Other	(0.2)	0.0	(0.3)	0.0
Defined benefit costs recognised in profit or loss	(9.5)	(7.2)	(5.0)	(2.2)
Actuarial gains(losses) on defined obligation arising from:
1/ Changes in demografic assumptions	(0.5)	1.7	0.0	0.2
2/ Changes in financial assumptions	2.2	(0.7)	0.7	0.2
3/ Changes from experience adjustments	6.4	(16.5)	0.0	(1.0)
Return on plan assets (excluding interest income on plan assets)	(10.1)	2.4	(0.2)	0.0
Remeasurements of net defined-benefit(liability)/asset recognised in Other Comprehensive Income (OCI)	(2.0)	(13.1)	0.5	(0.6)
Total	(11.6)	(20.3)	(4.5)	(2.8)
(in million EUR)			2018	2017
Breakdown of defined-benefit obligation by type of plan participants			(333.6)	(288.0)
Active plan participants			(251.8)	(215.5)
Terminated plan participants with def.-benefit entitlements			(15.1)	(10.9)
Retired plan participants and beneficiaries			(66.7)	(61.6)
Breakdown of defined-benefit obligation by type of benefits			(333.6)	(288.0)
Retirement and death benefits			(253.7)	(224.3)
Other post-employment benefits (medical and tariff reductions)			(65.0)	(45.0)
Seniority payments			(14.8)	(18.7)

When determining the appropriate discount rate, the Group considers the interest rates of corporate bonds in currencies consistent with the currencies of the post-employment benefit obligation with at least an 'AA' rating or above, as set by an internationally acknowledged rating agency, and extrapolated as needed along the yield curve to correspond with the expected term of the defined-benefit obligation.

A stress test is performed annually. This test verifies that the minimum funding requirements are covered to deal with 'shocks' with

probabilities of occurrence of 0.5%.

The members (mostly) contribute to the financing of the retirement benefits by paying a personal contribution.

The annual balance of the defined-benefit lump sum is financed by the employer through a recurrent allowance expressed as a percentage of the total payroll of the participants. This percentage is defined by the aggregate cost method and is reviewed annually. This method of financing involves smoothing future costs over the remaining period of the plan. The costs are estimated on a projected basis (taking into account salary growth and inflation). The assumptions related to salary increase, inflation, employee turnover and age term are defined on the basis of historical data from the Company. The mortality tables used are the ones corresponding to the observed experience within the financing vehicle and take into consideration expected changes in mortality. The Group calculates the net interest on the net defined-benefit liability (asset) using the same high-quality bond discount rate (see above) used to measure the defined-benefit obligation (net interest approach). These assumptions are challenged on a regular basis. Exceptional events (such as modification of the plan, change of assumptions and overly short coverage terms) can eventually lead to outstanding payments from the sponsor.

The defined-benefit plans expose the Company to actuarial risks such as investment risk, interest-rate risk, longevity risk and salary risk.

Investment risk

The present value of the defined-benefit plan liability is calculated using a discount rate determined based on high-quality corporate bonds. The difference between the actual return on assets and the interest income on plan assets is included in the remeasurements component (OCI). Currently the plan has a relatively balanced range of investments, as shown below:

Fair value of the plan assets per major category	2018	2017
Investments quoted in an active market	73.54%	80.74%
Shares - Eurozone	14.40%	15.35%
Shares - outside Eurozone	19.34%	20.90%
Government bonds - Eurozone	0.96%	5.10%
Other bonds - Eurozone	25.67%	31.25%
Other bonds – outside Eurozone	13.17%	8.14%
Unquoted investments	26.46%	19.26%
Qualifying insurance contracts	7.72%	0.00%
Property	2.54%	3.77%
Cash and cash equivalents	3.01%	1.04%
Other	13.19%	14.44%
Total (in %)	100.00%	100.00%

Due to the long-term nature of the plan liabilities, it is considered appropriate that a reasonable portion of the plan assets be invested in equity securities to leverage the return generated by the fund. In Germany, all plan assets are invested in insurance agreements.

Interest risk

A decrease in the bond interest rate will increase the plan liability. However, this will be partially offset by an increase in the return on the plan's debt investments, of which approximately 95% is now invested in pension funds with an expected return of 3.3%.

Longevity risk

The present value of the defined-benefit plan liability is calculated based on the best estimate of the mortality of plan participants both during and after their employment. An increase in the life expectancy of the plan participants will increase the plan's liability. The prospective mortality tables from the IA/BE have been used in Belgium and the 2005G Heubeck tables in Germany.

Salary risk

The present value of the defined-benefit plan liability is calculated based on the future salaries of plan participants. As such, an increase in the salary of the plan participants will increase the plan's liability.

ACTUARIAL ASSUMPTIONS

(in % and years)	2018 Belgium	2017 Belgium	2018 Germany
Discount rate
- Pensions - defined-benefit plans and cash balance - best off plans	1.39%	1.31%	2.00%
- Pensions - defined-contribution plans	1.72% to 1.79%	1.77% to 1.87%	-
- Other	1.80%	1.72%	2.00%
Expected average salary increase (excluding inflation)	1.00%	1.00%	1.75%
Expected inflation	1.75%	1.75%	2.00%
Expected increase in health benefits (including inflation)	2.75%	2.75%	2.25%
Expected increase in tariff advantages	1.75%	1.75%	-
Average assumed retirement age
- Employee	63	63	65
- Manager	65	65	65
Life expectancy in years of a pensioner retiring at age 65 at closing date:*
Life expectancy for a 65 year old male	19.9	19.9	20.1
Life expectancy for a 65 year old female	23.6	24.0	23.6
*Mortality tables used: IABE in Belgium, 2005G Heubeck in Germany

(in years)	2018 Belgium	2017 Belgium	2018 Germany
Weighted average duration of the defined-benefit obligation	8.95	9.58	23.90
Weighted average duration of the defined-contribution plans	16.82	18.43	n.r.
Weighted average duration of the post-employment benefits
other than pensions	13.47	14.03	12.47

In Germany, the liability of the defined-contribution plans is completely covered by the plan assets. Therefore, no weighted average duration is necessary and thus not calculated.

The actual return on plan assets in % for 2018 was in the range of -2.49% to -7.75% (compared with a range of 3.31% to 5.86% in

2017).

Below is an overview of the expected cash outflows for the DB plans:

Future expected cash outflows (per bucket)	< 12 months	1-5 years	6-10 years
- Pensions	(0.9)	(6.0)	(6.4)
- Other	(4.4)	(15.7)	(13.8)
Total (in million EUR)	(5.4)	(21.7)	(20.2)

There is a certain degree of uncertainty linked to the above expected cash outflows which can be explained by the following factors:

• Differences between assumptions and actual data can occur, e.g. retirement age and future salary increase;

• The expected cash outflows shown above are based on a closed population and therefore do not incorporate future new hires; • Future premiums are calculated based on the last known aggregate cost rate, which is reviewed on an annual basis and varies depending on the return on plan assets, the actual salary increase as opposed to the assumptions, and unexpected changes in the

-

• population.

SENSITIVITY ANALYSIS

Impact on the net defined-benefit obligation of an increase in:

Effect on defined benefit obligation (in million EUR)	Belgium Increase (+) / decrease	Germany Increase (+) / decrease
Impact on the net defined-benefit obligation of an increase in:
Discount rate (0.5% movement)	12.6	4.9
Average salary increase - excl. inflation (0.5% movement)	(8.3)	(0.2)
Inflation (0.25% movement)	(4.8)	(0.3)
Increase in healthcare benefits (1.0% movement)	(4.4)	n.r.
Increase in tariff advantages (0.5% movement)	(1.6)	n.r.
Life expectancy of pensions (1 year)	(3.1)	(1.0)

REMEASUREMENTS OF POST-EMPLOYMENT BENEFIT OBLIGATIONS

(in million EUR)	2018	2017
Cumulative amount at 1 January	(22.1)	(11.8)
Acquisition through business combinations	(0.7)	0.0
Recognised in the period	0.6	(10.3)
Cumulative amount at 31 December	(22.1)	(22.1)

The above remeasurements of post-employment benefits include 50Hertz Transmission (Germany). The cumulative amount includes a net €3.1 million cumulative remeasurement for 50Hertz Transmission (Germany).

REIMBURSEMENT RIGHTS (BELGIUM)

As described in Note 6.5, a non-current asset (within other financial assets) is recognised as reimbursement rights linked to the definedbenefit obligation for the population benefitting from the interest scheme and medical plan liabilities and tariff benefits for the retired Elia population. Each change in these liabilities equally affects the corresponding reimbursement rights under non-current other financial assets.

The change in reimbursement rights is presented below:

Movement in the present value of reimbursement rights		Pensions		Other
(in million EUR)	2018	2017	2018	2017
At the beginning of the period	(28.0)	(31.8)	(25.6)	(26.3)
Current service cost	3.3	3.7	1.2	1.6
Interest cost/income	(0.3)	(0.4)	(0.5)	(0.5)
Actuarial gains(/losses) on defined obligation arising from:
1) Changes in demographic assumptions	0.0	0.0	0.0	0.0
2) Changes in financial assumptions	0.2	(0.1)	0.4	0.1
3) Changes from experience adjustments	(0.3)	0.2	(2.6)	(0.5)
Taxes on contributions paid during the year	0.0	0.5	0.0	0.0
At the end of the period	(25.1)	(28.0)	(27.1)	(25.6)

6.14. Provisions

(in million EUR)	Environment	Elia Re	Easement provision	Dismantling obligations	Employee benefits	Other	Total
Balance at 1 January 2017	16.2	7.1				2.5	25.8
Increase in provisions	3.0	1.6				0.3	4.3
Reversals of provisions	(4.0)	0.0				(0.1)	(4.1)
Utilisation of provisions	(0.6)	(0.6)				(0.1)	(0.7)
Balance at 31 December 2017	14.6	8.1				2.6	25.3
Long-term portion	10.1	8.1				2.6	20.8
Short-term portion	4.5	0.0				0.0	4.5
Balance at 1 January 2018	14.6	8.1	0.0	0.0	0.0	2.6	25.3
Acquisition through business combinations	3.4	0	15.0	66.8	1.5	4.8	91.6
Increase in provisions	0.7	1.3	0.0	2.4	0.0	0.3	4.7
Reversals of provisions	(0.7)	(1.3)	(2.9)	0.0	(0.1)	(0.3)	(5.3)
Utilisation of provisions	(2.3)	(0.1)	(0.1)	0.0	0.0	(0.2)	(2.7)
Discounting of provisions	(0.3)	0.0	(0.1)	0.3	0.0	0.0	(0.1)
Balance at 31 December 2018	15.3	8.0	12.0	69.5	1.4	7.2	113.4
Long-term portion	10.8	8.0	6.0	69.5	0.0	2.6	96.9
Short-term portion	4.5	0.0	6.0	0.0	1.4	4.5	16.5

The Group has recognised provisions for the following:

Environment: The environmental provision provides for existing exposure with respect to land decontamination. The €15.3 million provision mainly relates to the Belgian segment, with only a €2.0 million provision relating to the German segment. This explains the limited increase in provision from €14.6 million at the end of 2017 to €15.3 million as at 31 December 2018.

More specifically for the Belgian segment, Elia has conducted soil surveys on over 200 sites in Flanders in accordance with contractual agreements and Flemish legislation. Significant soil contamination was found on a number of sites, with this being mainly attributable to historical pollution arising from earlier or nearby industrial activities (gas plants, incinerators, chemicals, etc.). In the Brussels-Capital Region and Walloon Region, Elia also carried out analyses and studies to detect contamination at a number of substations and a number of plots occupied by pylons for overhead power lines. Based on the analyses and studies it conducted, Elia has made provisions for possible future soil remediation costs in line with the relevant legislation.

Environmental provisions are recognised and measured based on an expert appraisal bearing in mind BATNEEC (Best Available Techniques Not Entailing Excessive Costs) as well as on the circumstances known at the end of the reporting period. The timing of the settlement is unclear but for the premises where utilisations occur, the underlying provision is classified as a short-term provision.

Elia Re: An amount of €8.0 million is included at year-end for Elia Re, a captive reinsurance company. €3.5 million of this is linked to claims for overhead facilities, €3.2 million to electrical facilities and €1.3 million to liability cases (as opposed to €3.8 million for overhead facilities, €2.9 million for electrical facilities and €1.4 million for liability cases in 2017). The expected timing of the related cash outflow depends on the progress and duration of the respective procedures.

Easement provisions: The easement provision relates to payments likely to be made to landowners as a compensation for overland lines crossing their property. These easement rights are recognised within the German segment for overland lines built by the former owners of 50Hertz Transmission, with exposure resulting from section 9 of the German Land Register Amendment Act (GBBerG.). The estimates are based on the value of claims filed or on the estimated amount of the risk exposure. The expected timing of the related cash outflow depends on the progress and duration of the claim filed.

Dismantling provisions: As part of the Group's CAPEX program, the Group is exposed to decommissioning obligations; most of which are related to offshore projects. These provisions take into account the effect of discounting and the expected cost of dismantling and removing the equipment from sites or from the sea. The carrying amount of the provision as at 31 December 2018 was €69.5 million and fully relates to the German segment. The Group has applied a case-by-case approach to estimate the cash outflow needed to settle the liability.

Employee benefits: See Note 6.13, for more details of these short term employee benefits.

'Other' consists of various provisions for litigation to cover likely payment where legal proceedings have been instituted against the Group by a third party or where the Group is involved in legal proceedings. These estimates are based on the value of claims filed or on the estimated level of risk exposure. The expected timing of the related cash outflow depends on the progress and duration of the associated proceedings.

6.15. Other non-current liabilities

in million EUR)
-----------------	--

(in million EUR)	2018	2017 (restated *)
Investment grants	85.8	3.8
Non-current deferred income	129.8	84.6
Other	0.6	0.0
Total	216.2	88.5

* See Note 2.1 for details regarding restatement as a result of a change in accounting policy.

€82.1 million of the investment grants relates to 50Hertz Transmission (Germany). These are released in profit and loss when entitlement to the grants is acquired. The amount has increased from €10.0 million at the end of 2017 for the investment grants received for the Southwest Coupling line.

The increase in other non-current liabilities is mainly due to the acquisition of a 20% stake in 50Hertz. The deferred income relates to received customer contributions, which are recognised in profit or loss in accordance with the useful life of the respective asset. The liability arose as part of the adoption of IFRS15 which is further detailed in Note 2.1. At the end of 2018, a liability of €87.4 million was recognised within Elia Transmission (Belgium) and a liability of €42.3 million was recognised within 50Hertz Transmission (Germany).

6.16. Trade and other payables

(in million EUR)	2018	2017
Trade debts	602.4	220.8
VAT and other taxes	19.4	8.9
Remuneration and social security	31.3	28.1
Dividends	1.2	1.2
Levies	1,137.7	108.0
Other	137.9	11.1
Accrued liabilities	59.2	0.4
Total	1,989.1	378.5

The amount for levies can be split between levies related to 50Hertz Transmission (€1,029.2 million) and levies related to Elia Transmission (€108.5 million).

The levies for Elia Transmission are stable compared to previous year (increase of €0.5 million). These levies include federal levies, which total €43.4 million at 31 December 2018 and have remained unchanged from 2017. Levies for the Walloon government have decreased slightly to €45.9 million, from €49.1 million at the end of 2017. The remaining balance consists of federal green certificates (€11.4 million) and strategic reserves (€7.6 million).

The levies for 50Hertz Transmission consist mainly of EEG (€865.5 million), KWK (€31.6 million), §19 StromNEV (€96.3 million) and

Offshore contributions (€33.7 million).

6.17. Accruals and deferred income

(in million EUR)	2018	2017
Accruals and deferred income	19.3	8.5
Settlement mechanism Belgian regulatory framework	532.9	526.1
Settlement mechanism German regulatory framework	444.5	0.0
Total	996.7	534.6

The settlement mechanism is described in Note 9. The amounts linked to the settlement mechanism are detailed in Note 4.

The settlement mechanism at 31 December 2018 is set out in the table below:

(in million EUR)	Belgian regulatory framework	German regulatory framework
To be refunded to the tariffs in the current regulatory period	110.5	0.0
To be refunded to the tariffs in the next regulatory period	422.4	444.5
Settlement mechanism	532.9	444.5

As the current German regulatory framework comes to an end in 2018, all amounts to be refunded are for the next regulatory period.

The Group operates in a regulated environment in which tariffs are meant to make it possible to realise total revenue consisting of:

1. a reasonable return on invested capital; 2. all reasonable costs which are incurred by the Group. Since the tariffs are based on estimates, there is always a difference between the tariffs that are actually charged and the tariffs that should have been charged to cover all reasonable costs of the system operator and to provide shareholders with a reasonable profit margin on their investment.

If the applied tariffs result in a surplus or a deficit at the end of the year, this means that the tariffs charged to consumers/the general public could have been respectively lower or higher (and vice versa). A surplus or deficit arising from the settlement mechanism is therefore not reported in profit or loss, or as an item under equity.

On a cumulative basis, it could be argued that the public has made an advance payment (= surplus) for its future use of the grid. As such, the surplus (deficit) is not a commission for a future loss (recovery) of income but instead a deferred/accrued revenue for (with regard to) consumers. On the basis of the regulatory framework, the Group believes that the surplus (deficit) does not represent an item of revenue (cost). Consequently, these amounts are netted and reported under 'Accruals and deferred income'. These surpluses or deficits are verified and approved by the regulator in the next accounting year.

See Note 9.1 for more details.

6.18. Financial instruments – fair values

The following table shows the carrying amounts and fair values of financial assets and liabilities, including their levels in the fair-value hierarchy.

	Carrying amount				Fair value
(in million EUR)	Fair Value through P&L	Fair Value through OCI	Amortised Cost	Other financial liabilities	Total	Level 1	Level 2	Level 3	Total
31 December 2017
Other financial assets	7.3				7.3	7.1		0.2	7.3
Trade and other receivables			428.9	0.0	428.9				0.0
Cash and cash equivalents			195.2	0.0	195.2				0.0
Interest-rate swaps used for hedging		0.0			0.0		0.0		0.0
Unsecured financial bank loans and other loans				(545.3)	(545.3)		(545.3)		(545.3)
Unsecured bond issues				(2,338.9)	(2,338.9)		(2,621.2)		(2,621.2)
Trade and other payables				(378.5)	(378.5)
Total	7.3	0.0	624.1	(3,262.7)	(2,631.3)	n.r	n.r	n.r	n.r
31 December 2018
Other financial assets	7.0	27.7			34.7	7.0		27.7	34.7
Trade and other receivables			736.0		736.0
Cash and cash equivalents			1,789.3		1,789.3
Foreign-currency rate swaps used for hedging		2.9			2.9		2.9		2.9
Unsecured financial bank loans and other loans				(1,076.9)	(1,076.9)		(1,076.9)		(1,076.9)
Unsecured bond issues				(5,318.0)	(5,318.0)		(5,603.1)		(5,603.1)
Trade and other payables				(1,989.0)	(1,989.0)
Total	7.0		30.6 2,525.3	(8,383.9)	(5,821.0)	n.r	n.r	n.r	n.r

The above tables do not include fair-value information for financial assets and liabilities not measured at fair value, such as cash and cash equivalents, trade and other receivables, and trade and other payables, as their carrying amount is a reasonable approximation of fair value.

Fair value is the amount for which an asset could be exchanged or a liability settled in an arm's-length transaction. IFRS 7 requires, for financial instruments that are measured in the balance sheet at fair value, the disclosure of fair-value measurements by level in the following fair value measurement hierarchy:

Level 1: The fair value of a financial instrument that is traded in an active market is measured based on quoted (unadjusted) prices for identical assets or liabilities. A market is considered active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm's-length basis.

Level 2: The fair value of financial instruments that are not traded in an active market is determined using valuation techniques. These maximise the use of observable market data where it is available and rely as little as possible on entity-specific estimates. If all significant inputs required to assess the fair value of an instrument are observable, either directly (i.e. as prices) or indirectly (i.e. derived from prices), the instrument is included in level 2. Level 3: If one or more of the significant inputs used in applying the valuation technique is not based on observable market data, the financial instrument is included in level 3. The fair value amount included under 'Other financial assets' has been determined by referring to either (i) recent transaction prices, known by the Group, for similar financial assets or (ii) are based upon valuation reports issued by third parties.

The fair value of the financial assets and liabilities, other than those presented in the above table, approximates to their carrying amounts largely due to the short-term maturities of these instruments.

FAIR-VALUE HIERARCHY

The fair value of 'sicavs' falls into level 1, i.e. valuation is based on the (unadjusted) listed market price on an active market for identical instruments.

The fair value of interest-rate swaps, loans and bond issues falls into level 2, which entails valuation being based on input from other prices than the stated prices, where these other prices can be observed for assets or liabilities. This category includes instruments valued on the basis of listed market prices on active markets for such instruments; listed prices for identical or similar instruments on markets that are deemed less than active; or other valuation techniques arising directly or indirectly from observable market data.

ESTIMATE OF FAIR VALUE

Derivatives

Brokers' statements are used for valuations of the interest-rate and foreign-currency rate swaps. The statements are controlled using valuation models or techniques based on discounted cash flows. The models incorporate various inputs including the credit quality of counterparties and interest-rate curves at the end of the reporting period. As at 31 December 2018, the counterparty risk is considered close to zero as a result of the negative market value of the IRS. The Group's own non-performance risk has been estimated to be close to zero as well.

Interest-bearing loans

The fair value is calculated on the basis of the discounted future redemptions and interest payments.

7. Group structure

7.1. Business combinations and acquisition of non-controlling interests

On 26 April 2018, the Group completed the acquisition of an additional 20% stake in Eurogrid International SCRL ('Eurogrid'), the holding company which holds the 50Hertz Transmission (Germany) segment. Following this transaction, Elia owns 80% of Eurogrid and has full control over 50Hertz Transmission (Germany).

The acquisition resulted from Elia's decision to exercise its pre-emption right after the IFM Global Infrastructure Fund, a fund advised by IFM Investors Pty Ltd, stated that it intended to sell half of its 40% shareholding in Eurogrid on February 2, 2018. Through the acquisition, the Group acquired an additional 20% stake in Eurogrid. The finalisation of this acquisition is a major step forward in realising Elia Group's growth strategy. It will allow further strengthening of the cooperation between Elia and 50Hertz, and underscores Elia's ambition to be one of the leading transmission system operators in Europe. The transaction enhances the Group's profile and resources, enabling it to realise a reliable, sustainable, affordable and integrated power system and will not negatively affect the tariffs for the end consumer, which are regulated in the respective countries.

On closing date of this transaction (i.e. 26 April 2018), Elia obtained control over 50Hertz Transmission (Germany) and, as such, its financials have been consolidated in full in the Elia Group's accounts from that date. The transaction was initially financed using a bridge loan, which is replaced by a hybrid securities (€700 million) and a senior bond (€300 million) in September 2018.

Assets acquired and liabilities assumed

The table below summarises the recognised amounts of assets and liabilities assumed at the date of acquisition.

(in € million)	Fair value recognised on acquisition
Intangible assets	52.6
Property, plant and equipment	4,493.4
Other non-current assets	45.6
Trade and other receivables (current)	220.5
Cash and cash equivalents	1,902.9
Other current assets	22.4
Long-term borrowings	(2,829.9)
Provisions for liabilities and charges	(43.6)
Deferred tax liabilities	(96.3)
Other non-current liabilities	(73.7)
Trade and other payables	(1,612.1)
Income tax payable	(105.0)
Regulatory liability	(421.3)
Other current liabilities	(82.5)
Total identifiable net assets acquired	1,472.9

Trade receivables include a €89.9 million allowance for doubtful receivables.

The valuation methods used for measuring the fair value of material assets were as follows:

Assets acquired	Valuation conclusion
Property, plant and equipment	The vast majority of all property, plant and equipment are held by the entity 50Hertz Transmission - the TSO for the region - for an indefinite period. The fair value of property, plant and equipment was considered to be very close to its book value for the following reasons:
	• Due to the very specific nature of the assets, no market exists or is available in which the assets could be traded. Hence, it is not possible to reliably estimate the value for which knowledgeable parties would trade these assets. The Group is therefore of the opinion that there is no better estimate of the assets' fair value than their existing book value. • The value of the Company is mainly driven by an 'expected increase' in the RAB value (Regulated Asset Base). These expected increases are mainly driven by future cash outflows. It would therefore be inappropriate to (already) assume uplifts in the value of assets, considering that this value will only be realised through a continued capital programme to be carried out in the future. • The useful lives of the fixed assets are chosen so as to obtain the best possible match with the actual depreciation of each asset. Depreciation of property, plant and equipment is calculated based on the useful lives recognised by the Federal Network Agency for regulatory purposes; it believes that these values represent the best possible approximation of actual events in terms of economic utilisation. Considering this, the Group considers that the book value of 50Hertz Transmission
	(Germany)'s property, plant and equipment is the best estimation of the fair value.
Trade and other receivables	The fair value is determined by considering open outstanding receivables, minus adjustments for non-collectability.
Cash and cash equivalents	The book value of cash and cash equivalents was considered equal to their fair value, so no adjustments to the book value needed to be made.
Loans and borrowings	Eurobonds are valued at amortised cost, which at the date of acquisition give a very close approximation of their fair value.
Trade and other payables	The fair value is determined by considering open outstanding payables.

Goodwill arising from the acquisition

The above fair values were measured on a provisional basis. If new information is obtained within one year of the acquisition date about facts and circumstances that existed at the acquisition date and resulting in adjustments to the above amounts or about any additional provisions that existed on the acquisition date, then the accounting for the acquisition will be revised.

Based on the preliminary fair value exercise mentioned above, goodwill arising from this acquisition was recognised as follows:

(in € million)

Fair value of the identified net assets acquired	1,472.9
Consideration transferred	(988.7)
Non-controlling interest, based on proportionate interest in the recognised amounts of the assets and liabilities of 50Hertz Transmission (Germany)	(294.6)
Fair value of the pre-existing interests in 50Hertz Transmission (Germany)	(892.9)
Goodwill	703.4

The remeasurement to fair value of the Group's existing 60% interest in 50Hertz Transmission (Germany) resulted in a gain of €9.2 million (€892.9 million less the €883.7 million carrying amount of the equity-accounted investee at acquisition date). This amount has

been included in 'Finance income'.

The provisional goodwill is mainly attributable to the skills and technical expertise of 50Hertz Transmission (Germany)'s work force and the synergies expected to be achieved from further integrating the German segment in to the Group's activities. The Group will continue to assess such expertise and synergies in 2019, so to assure that the amount of goodwill recognised is appropriate,

None of the goodwill recognised is expected to be deductible for tax purposes.

In case the acquisition would have happened on 1 January 2018, the Group's net profit would be €42.3 million higher. This €42.3 million profit relates to 40% of Eurogrid International's profits as realised from 1 January 2018 to 26 April 2018 (with half of it to be allocated to non-controlling interests).

Purchase consideration

The following table summarises the acquisition fair value of each major class of consideration transferred for the additional 20% stake in

50Hertz Transmission (Germany):

	(in € million)

(in € million)
Cash – base consideration	956.5
Interest – ticker fee	12.2
Dividend mechanism in favour of IFM	20.0
Total consideration transferred	988.7

The €12.2 million in interest is an integral component of the consideration transferred for the acquisition in 50Hertz Transmission (Germany). As part of the share purchase agreement, 4% interest is due on the base consideration from 31 December 2017 up to the date of closing.

The dividend mechanism grants IFM rights to consideration as a way to compensate for the reduced dividend over financial year 2017 to be paid out in 2018, as the share transfer took place before the annual dividend was paid.

The Group incurred acquisition related costs of €3.6 million, mainly relating to legal fees and advisory fees. These costs were recorded as follows: €2.6 million in 'Services and other goods', €0.5 million in 'Personnel expenses' and €0.5 million in 'Finance costs'.

Contingent consideration

No contingent consideration has been agreed in the purchase agreement

7.2. Subsidiaries, joint ventures and associates

GRI 102-45

SUBSIDIARIES

Elia System Operator NV/SA has direct and indirect control of the subsidiaries listed below.

All the entities keep their accounts in euros (except E-Offshore A LLC, Atlantic Grid Investment A Inc. and Atlantic Grid A LLC, whose accounts are held in US dollars) and have the same reporting date as Elia System Operator NV/SA (except Eurogrid International CVBA/SCRL).

On 31 August 2018, the participating interest in GridLab GmbH was sold to DNV GL Energy Advisory GmbH for a total purchase price of €200,000. GridLab is included in the German segment up to the transaction's closing date.

Name	Country of	Headquarters	Stake %
	establishment		2018	2017
Elia Asset NV/SA	Belgium	Bd de l'Empereur 20, 1000 Brussels	99.99	99.99
Elia Engineering NV/SA	Belgium	Bd de l'Empereur 20, 1000 Brussels	100.00	100.00
Elia Re SA	Luxembourg	Rue de Merl 65, 2146 Luxembourg	100.00	100.00
Elia Grid International NV/SA	Belgium	Bd de l'Empereur 20, 1000 Bussels	90.00	80.00
Elia Grid International GmBH	Germany	Heidestraße 2, 10557 Berlin	90.00	80.00
Elia Grid International LLC	Qatar	Office 905, 9th Floor, Al Fardan Office Tower, Westbay - Doha	90.00	-
Eurogrid International CVBA/SCRL *	Belgium	Bd de l'Empereur 20, 1000 Brussels	80.00	60.00
Eurogrid GmbH *	Germany	Heidestraße 2, 10557 Berlin	80.00	60.00
50Hertz Transmission GmbH *	Germany	Heidestraße 2, 10557 Berlin	80.00	60.00
50Hertz Offshore GmbH *	Germany	Heidestraße 2, 10557 Berlin	80.00	60.00
E-Offshore A LLC *	U.S.	874, Walker Road, Suite C, 19904 Dover, Delaware	80.00	60.00
Atlantic Grid Investment A Inc *		U.S. 1209 Orange Street, 19801 Wilmington, Delaware	80.00	60.00
Joint arrangements
Gridlab GmbH	Germany	Mittelstraße 7, 12529 Schönefeld	-	60.00
Nemo Link Ltd.	United Kingdom	Strand 1-3, London WC2N 5EH	50.00	50.00
Associated companies accounted for
using the equity method H.G.R.T S.A.S.	France	1 Terrasse Bellini, 92919 La Défense Cedex	17.00	17.00
Coreso NV/SA	Belgium	Avenue de Cortenbergh 71, 1000 Brussels	22.16	20.58
Ampacimon SA	Belgium	Rue de Wallonie 11, 4460 Grâce-Hollogne	20.54	20.54
Enervalis NV	Belgium	Centrum-Zuid 1111, 3530 Houthalen-Helchteren	12.47	12.47
Other shareholdings
JAO SA	Luxembourg	2, Rue de Bitbourg, 1273 Luxembourg Hamm	8.28	8.00
Atlantic Grid A LLC		U.S. 4445, Willard Av, Suite 1050, 20815 Chevy Chase,	7.46	5.86
European Energy Exchange (EEX)	Germany	Maryland Augustusplatz 9, 04109 Leipzig	4.16	4.32
TSCNET Services GmbH	Germany	Dingolfinger Strasse 3, 81673 Munich	6.16	4.62

8. Other notes

8.1. Financial risk and derivative management

PRINCIPLES OF FINANCIAL RISK MANAGEMENT

The Group aims to identify each risk and set out strategies to control the economic impact on the Group's results. The Risk Management Department defines the risk-management strategy, monitors the risk analysis and reports to management and the Audit Committee. The financial risk policy is implemented by determining appropriate policies and setting up effective control and reporting procedures. Selected derivative hedging instruments are used depending on the assessment of the risk involved. Derivatives are used exclusively as hedging instruments. The regulatory framework in which the Group operates significantly restricts their effects on profit or loss (see the section 'Regulatory framework and tariffs'). The major impact of increased interest rates, credit risk, etc. can be settled in the tariffs, in accordance with the applicable legislation.

CREDIT RISK

Credit risk encompasses all forms of counterparty exposure, i.e. where counterparties may default on their obligations to the Company in relation to lending, hedging, settlement and other financial activities. The Company is exposed to credit risk from its operating activities and treasury activities. As regards its operating activities, the Group has a credit policy in place, which takes into account customer's risk profiles. The exposure to credit risk is monitored on an ongoing basis, resulting in a request to issue bank guaranties from the counterparty for some major contracts.

At the end of the reporting period there were no significant concentrations of credit risks. The maximum credit risk is the carrying amount for each financial asset, including derivative financial instruments.

(in million EUR)	2018	2017
Loans and receivables – long term	177.0	147.8
Loans and receivables – short term	558.9	281.1
Cash and cash equivalents	1,789.3	195.2
Immediately claimable deposits	7.1	7.1
Interest-rate swaps used for hedging:
Liabilities	(2.9)	-
Total	2,529.5	631.2

The movement in the allowance for impairment in respect of loans and receivables during the year was as follows:

(in million EUR)	Bad debtors	Impairment losses	Remaining balance
Opening balance	1.3	(1.1)	0.2
Changes during the year	0.4	(0.2)	0.2
Balance at 31 December 2017	1.7	(1.3)	0.4
Opening balance	1.7	(1.3)	0.4
Changes during the year	168.6	(168.5)	0.1
Balance at 31 December 2018	170.3	(169.8)	0.5

The Group believes that the unimpaired amounts overdue by more than 30 days are still collectible, based on historical payment behaviour and extensive analysis of customer credit risk, including underlying customers' credit ratings, when available. The credit quality of trade and other receivables is assessed based on a credit policy.

IFRS 9 requires the Group to impair financial assets based on a forward-looking expected credit loss (ECL) approach.

The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables.

An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The provision rates are based on days past due for all customers. No segmentation of customers is performed as all customers show similar loss patterns. Intercompany trade receivables are excluded as there is no credit risk. In addition, trade receivables connected with a pending commercial dispute are excluded to avoid double provisioning (provision for risks and charges).

The provision rates are based on the payment profiles of sales over a period of 36 months before 31 December 2018 or 1 January 2018 respectively and the corresponding historical credit losses experienced within this period. As the sales and payment profile of the Group's customers has remained very stable over the years, the Group considers the historical credit losses to be a good proxy for future (expected) credit losses.

Subsequently, a loss given default is calculated as the percentage of the amount of trade receivables that is not covered by a bank guarantee. This percentage is multiplied by the outstanding trade receivables.

On that basis, the loss allowance as at 31 December 2018 and 1 January 2018 (on adoption of IFRS 9) was determined as follows for trade receivables:

CURRENCY RISK

The Group is not exposed to any significant currency risk, either from transactions or from exchanging foreign currencies into euro, since it has no foreign investments or activities and less than 1% of its costs are expressed in currencies other than the euro.

LIQUIDITY RISK

Liquidity risk is the risk that the Group may be unable to meet its financial obligations. The Group limits this risk by constantly monitoring cash flows and ensuring that there are always sufficient credit-line facilities available.

The Group's objective is to maintain a balance between continuity of funding and flexibility through the use of bank loans, confirmed and unconfirmed credit facilities, commercial paper programmes, etc. For medium- to long-term funding, the Group uses bonds. The maturity profile of the debt portfolio is spread over several years. The Group Treasury frequently assesses its funding resources taking into account its own credit rating and general market conditions.

Bond issuances realised in 2013, 2014, 2015, 2017 and 2018 and loan contracts signed with EIB and other banks in 2018, proves that the Group has access to different sources of funding.

The carrying amount of trade receivables presented in the tables above only includes the receivables which are subject to impairment. The overall outstanding receivables have been adjusted for, amongst others, recoverable VAT upon debtor insolvency and invoices yet to be issued. Loss allowance 0.1 0.1 0.0 1.7 0.2 0.2 2.3

(in million EUR)	Face Value	Closing balance	Expec ted cash out-flows	6 months or less	6-12 months		1-2 years 2-5 years > 5 years
Non-derivative financial liabilities	3,273.8		3,262.7 (3,814.7)	(452.6)	(2.2)	(576.4)		(644.8) (2,138.7)
Unsecured bond issues	2,350.0		2,338.9 (2,919.6)	(71.9)	0.0	(571.9)		(137.1) (2,138.7)
Unsecured financial bank loans and interest	545.3	545.3	(566.1)	(51.7)	(2.2)	(4.4)	(507.8)	0.0
accruals Trade and other payables	378.5	378.5	(378.5)	(378.5)
Derivative financial liabilities	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Interest-rate swaps used for hedging	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Total at 31 December 2017	3,273.8		3,262.7 (3,864.2)	(502.1)	(2.2)	(576.4)		(644.8) (2,138.7)
Non-derivative financial liabilities	8,406.0		8,384.0 (9,372.5) (2,709.8)		(45.6)		(619.0) (1,537.7) (4,460.4)
Unsecured bond issues	5,340.0		5,318.0 (6,212.1)	(592.5)	(41.2)		(607.6) (1,014.6) (3,956.2)
Unsecured financial bank loans and interest	1,076.9		1,076.9 (1,171.3)	(128.2)	(4.4)	(11.4)	(523.1)	(504.2)
accruals Trade and other payables	1,989.1		1,989.1 (1,989.1) (1,989.1)		0.0	0.0	0.0	0.0
Derivative financial liabilities	n.r.	2.9	(2.9)	(0.3)	(0.3)	(0.6)	(1.7)	0.0
Interest-rate swaps used for hedging	n.r.	2.9	(2.9)	(0.3)	(0.3)	(0.6)	(1.7)	0.0
Total at 31 December 2018	8,406.0		8,386.9 (9,375.4) (2,710.1)		(45.9)		(619.6) (1,539.4) (4,460.4)

In 2018, Elia Transmission Belgium issued a 10-year senior bond of €300 million. In addition, an EIB-loan and a dedicated loan were signed for a value of €100 million and €210 million, respectively.

1 January 2018	Not past due	0-30 days past due	31-60 days past due	61 days - 1 year past due	1 year - 2 years	> 2 year	Total
Expected loss rate	0.0%	0.2%	0.4%	2.8%	35.2%	100.0%
Carrying amount - trade receivables	131.9	7.8	7.8	3.2	0.3	0.0	151.1
Loss given default	97.2%	97.2%	97.2%	97.2%	97.2%	97.2%
Loss allowance	0.0	0.0	0.0	0.1	0.1	0.0	0.3
31 December 2018	Not past due	0-30 days past due	31-60 days past due	61 days - 1 year past due	1 year - 2 years	> 2 year	Total
Expected loss rate	0.0%	1.4%	6.0%	10.8%	72.2%	100.0%
Carrying amount - trade receivables	406.7	3.6	0.5	20.8	0.3	0.2	432.2
Loss given default	91.2%	83.3%	78.8%	78.0%	86.1%	78.0%

Details of the used and unused back-up credit facilities are set out below:

(in million EUR)	Maturity	Available amount	Average basic interest	Amount used	Amount not used
Confirmed credit line	08/07/2021	110.0	Euribor + 0.30%	0.0	110.0
Confirmed credit line	08/07/2021	110.0	Euribor + 0.30%	0.0	110.0
Confirmed credit line	08/07/2021	110.0	Euribor + 0.30%	0.0	110.0
Confirmed credit line	08/07/2021	110.0	Euribor + 0.30%	0.0	110.0
Confirmed credit line	08/07/2021	110.0	Euribor + 0.30%	0.0	110.0
Confirmed credit line	08/07/2021	100.0	Euribor + 0.30%	0.0	100.0
Belgian dematerialised treasury notes	unlimited	350.0	Euribor + margin when concluding deal	50.0	300.0
Straight Loan EGI	unlimited	2.5	Eurribor + 0.75%	0.0	2.5
Confirmed credit line	24/03/2022	750.0	Euribor + 0,275%	0.0	750.0
Confirmed credit line	unlimited	150.0	av. 1M-Euribor +0.275%	0.0	150.0
Confirmed credit line	14/12/2026	150.0	0.90%	150.0	0.0
Total		2,052.5		200.0	1,852.5

INTEREST-RATE RISK

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group's exposure to the risk of changes in market interest rates relates primarily to its long-term debt obligations with floating interest rates.

The Group manages its interest rate risk by having a balanced portfolio of fixed- and variable-rate loans and borrowings. To manage this, the Group could engage in interest-rate swaps, which would entail the Group agreeing to exchange, at specified intervals, the difference between fixed- and variable-rate interest amounts calculated based on an agreed notional principal amount. These swaps are allocated to hedge underlying debt obligations. As at 31 December 2017, the Group had no interest-rate swaps outstanding. As at 31 December 2018, interest-rate swaps were outstanding to cover a nominal debt amount of € 300 million.

The table (see Note 6.12) shows the average interest rate.

SENSITIVITY ANALYSIS

Changes in interest rates will not affect the consolidated result in the short or long term as the Group operates within a regulatory framework where the consequences of fluctuations in financial expenses are mainly recovered in tariffs, except for the items which are directly recognised through OCI.

FAIR VALUE SENSITIVITY ANALYSIS FOR INTEREST RATE SWAPS

A change of 100 basis points in interest rates would have increased (decreased) other comprehensive income by the amounts shown below:

(in million EUR)	100 bp increase	100 bp decrease
Interest rate swaps - Impact in equity	10.3	(10.3)

HEDGING ACTIVITIES AND DERIVATIVES

The Group is exposed to certain risks relating to its ongoing business operations. The primary risk managed using derivative instruments is interest rate risk.

All financial derivatives entered into by the Group relate to an underlying transaction or forecast exposure, depending on the expected impact on the income statement, and if the IFRS 9 criteria are met, the Group decides on a case-by-case basis whether hedge accounting will be applied.

Derivatives not designated as hedging instruments

In June 2018, the Group entered into a pre-hedge interest rate swap to hedge the interest rate risk relating to the emission of the hybrid security. Under IFRS 9, a condition to apply hedge accounting is that the hedged transaction could affect profit or loss. As the dividends of the hybrid security will never affect profit and loss, the Group could not apply hedge accounting on the derivative, resulting in a profit or loss impact, upon settlement of the derivative in September of €3.3mio upon unwinding of the instrument.

Derivatives designated as hedging instruments

The Group decided to hedge the interest rate risk In the context of the acquisition of a 20% stake in 50Hertz Transmission (Germany) for which a bridge loan was initially put in place. To cover the potential exposure to the interest rate risk, the Group entered into a prehedge interest rate swap agreement in June 2018 in order to lock in interest market rates at the moment of the issuance of the € 300 million senior bond. The Group applied hedge accounting as the derivative transaction met the requirements under IFRS 9. With the settlement of the transaction in September, the portion of the gain or loss on the derivative was recognised within hedging reserves and had an impact of €5.7million.

These hedging reserves will be recycled into profit and loss over the lifetime of the underlying hedged instrument, i.e. the senior bond with 10-year maturity.

For a loan of €496 million, the interest rate is variable and Elia had covered the risk by entering into interest rate swaps. As the swaps came to maturity at the end of 2017, the Group contracted three interest-rate swaps with a total nominal amount of €300.0 million. All

three interest-rate swaps are designated as cash flow hedges under IFRS 9. The negative net fair value of these interest rate swaps at 31 December 2018 is €2.9 million.

CAPITAL RISK MANAGEMENT

The purpose of the Group's capital-structure management is to maintain the debt and equity ratios related to the regulated activities as close as possible to the recommended level set by the relevant regulatory frameworks.

The Company's dividend guidelines involve optimising dividend payments while bearing in mind that self-financing capacity is needed to carry out its legal mission as transmission system operator, finance future CAPEX projects and, more generally, implement the Group's strategy.

The Company offers the employees the opportunity to subscribe to capital increases that are exclusively reserved for them.

8.2. Commitment and contingencies

OPERATING LEASE COMMITMENTS – GROUP AS A LESSEE

The Group has entered into agreements to obtain passage rights for both underground and above-ground cables. These rights are often obtained in the form of usufruct rights or concessions. The terms and conditions of these contracts vary depending on the counterparty as well as when the contract was entered into.

The Group has also entered into commercial leases on motor vehicles, IT equipment and office buildings. The leases related to cars and IT equipment have an average term of three years. The contracts regarding the buildings have a normal term of nine years, with the option of renewing the lease after that. Renewals are decided on by the specific entity that holds the lease. Normal conditions for renewal of lease contracts are applicable.

Future minimum rental payables under non-cancellable operating leases are as follows:

(in million EUR)	< 1 year	1–5 years	> 5 years
Use of land	0.5	1.9	7.2
Buildings	2.4	0.6	0.0
Cars, IT equipment and others	7.3	10.9	0.0
Balance at 31 December 2017	10.2	13.4	7.2
Use of land	0.3	0.9	5.1
Buildings	3.6	6.5	10.0
Cars, IT equipment and others	12.1	15.2	0.1
Balance at 31 December 2018	15.9	22.6	15.2

The following expenses related to these lease contracts were recognised in the profit or loss:

(in million EUR)	2018	2017
Use of land	0.3	1.7
Buildings	4.4	2.5
Cars, IT equipment and others	11.9	6.4
Total	16.6	10.6

OPERATING LEASE COMMITMENTS – GROUP AS A LESSOR

The Group has entered into commercial property leases on certain items of property, plant and equipment, mainly consisting of optimising the use of sites and high-voltage pylons.

Future minimum rental receivables are as follows:

(in million EUR)	< 1 year	1–5 years	> 5 years
Telecom	14.4	6.5	0.0
Land and buildings	0.6	0.2	0.0
Balance at 31 December 2017	15.0	6.7	0.0
Telecom	15.9	6.4	4.3
Land and buildings	0.3	0.0	0.0
Balance at 31 December 2018	16.2	6.4	4.3

The following revenue related to these lease contracts was recognised in the income statement:

2018	2017
16.7	14.3
1.0	0.6
17.7	14.9

CONTINGENT RENTS, PURCHASE OPTIONS AND RESTRICTIONS

The Group has no contracts which include contingent rental payments, and no purchase options were agreed in the significant lease contracts. Furthermore, these significant lease contracts do not include any escalation clauses or restrictions that are significant to the use of the respective asset.

CAPITAL-EXPENDITURE COMMITMENT

As at 31 December 2018, the Group had a commitment of €1,586.8 million relating to the purchase contracts for the installation of property, plant and equipment for further grid extensions.

OTHER CONTINGENCIES AND COMMITMENTS

As at 31 December 2018, the Group had a commitment of €147.4 million relating to purchase contracts for general expenses, maintenance and repair costs.

Elia System Operator also provided a parent-company guarantee in the amount of €113.7 million to its joint venture Nemo Link Ltd; this related to the EPC contracts and was granted so that Nemo Link Ltd could build the relevant interconnector.

Having received approval from the Walloon government and from the CREG, on 22 June 2015 Elia entered into an agreement with Solar Chest for the sale of Walloon green certificates with a total value of €275 million, of which €221 million was settled in 2015 and a total of €48 million was settled in 2016. Solar Chest's mission is to buy, hold and sell Walloon green certificates for periods of five, six and seven years. At the end of each period (30 June 2020, 30 June 2021 and 30 June 2022 respectively), any unsold certificates will be bought back by Elia. CREG confirmed and guaranteed to Elia that at the end of each reservation period, the cost and any expense for repurchase of non-marketable certificates may be recovered fully through the tariffs for levies, and as a consequence the potential repurchase by Elia will have no impact on the Company's financial performance.

In September 2017, Elia sold 2.8 million green certificates to the Walloon Region (i.e. the Walloon Agency for Air and Climate, or AwAC) leading to a net cash inflow of €176.2 million. This was a result of the Decree of 29 June 2017 amending the Decree of 12 April 2011 relating to the organisation of the regional electricity market and the Decree of 5 March 2008 relating to the creation of the Walloon Agency for Air and Climate. The green certificates transferred by Elia can be gradually resold by AwAC as from 2022, taking into account the market conditions that exist for green certificates at that time. The legislation also envisages the green certificates being held by the AwAC for a period of up to nine years, after which Elia is required to buy back any unsold certificates. These repurchase commitments will have no impact on Elia's financial performance, as the cost and expense for the repurchase will be fully recovered through the tariffs for levies.

In November 2018, Elia sold another €0.7 million in green certificates to the Walloon Region (i.e. the Walloon Agency for Air and Climate, or AwAC) which resulted in a net cash inflow of €43.3 million. Similarly as for the transaction in September 2017, Elia might be required to buy back a portion of the certificates sold as from 2023. Any repurchase will be covered through the tariffs for levies.

8.3. Related parties

CONTROLLING ENTITIES

The core shareholder of Elia System Operator is Publi-T and remained unchanged from 2017. Other than the yearly dividend payment, no transactions occurred with the core shareholder in 2018.

TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL

Key management personnel include Elia's Board of Directors and Elia's Management Committee. Both Elia's Board of Directors and Elia's Management Committee have a significant influence across the entire Elia Group.

At 50Hertz Transmission (Germany), key management personnel include Eurogrid International CVBA's Board of Directors, who are responsible for monitoring the activities of 50Hertz Transmission (Germany). Key management personnel also include the Board of Management of 50Hertz Transmission and the Supervisory Board, which was established in the German segment.

The members of Elia's Board of Directors are not employees of the Group. The remuneration for their mandate is detailed in the Corporate Governance Statement forming part of this annual report. Eurogrid International CVBA's Board of Directors are not remunerated.

The other members of key management personnel are hired as employees. The components of their remuneration are detailed below.

Key management personnel did not receive stock options, special loans or other advances from the Group during the year.

(in million EUR)	2018	2017
Short-term employee benefits	4.8	2.6
Basic remuneration	4.1	1.8
Variable remuneration	0.7	0.8
Post-employment benefits	0.7	0.4
Other variable remuneration	1.2	0.7
Total gross remuneration	6.7	3.7
Number of persons (in units)	12	8
Average gross remuneration per person	0.6	0.5
Number of shares (in units)	24,331	20,005

In addition, Elia's Management Committee also assessed whether transactions occurred with entities in which they or members of the Board of Directors exercise a significant influence (e.g. positions as CEO, CFO, vice-presidents of the Management Committee, etc.).

There were some significant transactions in 2018 with various distribution system operators. The total value of realised sales came to €54.3 million, while the total value of expenses amounted to €4.8 million. As at 31 December 2018, there was an outstanding tradereceivable position of €4.5 million and an outstanding trade-debt position of €0.2 million.

TRANSACTIONS WITH JOINT VENTURES AND ASSOCIATED COMPANIES

Transactions between the Company and subsidiaries that are related parties were eliminated during consolidation and therefore are not recognised in this note.

There were no transactions with E-Offshore, Atlantic Grid Investment or Enervalis in the financial year 2018.

Transactions with joint ventures and associated companies were not eliminated, and therefore details of transactions with other related parties are shown below:

(in million EUR)	2018	2017
Transactions with joint ventures and associated companies	6.5	23.2
Sales of goods	2.5	33.3
Purchases of goods	(2.5)	(14.7)
Interest and similar revenue	6.5	4.6
Outstanding balances with joint ventures and associated companies	196.6	134.9
Long-term debtors	174.7	147.7
Trade debtors	10.5	4.2
Trade debts	(0.2)	(11.7)
Accruals and deferred income	(11.6)	(5.3)

Prior to the acquisition of the additional 20% stake in 50Hertz Transmission (Germany) (see Note 7.1), all transactions with the companies making up the German segment were disclosed in this Note. As the additional 20% stake gave the Elia Group control over this segment, the entities within the 50Hertz Transmission (Germany) segment are now subsidiaries and are thus no longer included.

'Long-term debtors' and 'Accruals and deferred income' relate to shareholder funding provided by Elia System Operator for its joint venture Nemo Link Limited. The increase in these items compared to last year can be ascribed to the additional funding contracted during the year. See also Note 8.2, which details the guarantees issued by Elia System Operator for its joint venture Nemo Link Ltd

The significant increase in long-term debtors is a result of the funding provided to Nemo Link in 2018 – see Note 6.3 for more details.

The Group also has an outstanding loan with its shareholder PubliPart for an amount of €42.1 million. We refer to Note 6.12 for more details.

8.4. Subsequent events

With regard to the Belgian new tariff methodology applicable for the period 2020-2023, Elia lodged in 2018 and appeal against a new provision defining the impact on regulated tariffs of loans contracted to finance non-regulated activities. According to this provision, the financing of non-regulated activities is valorised on terms equivalent to a financing that would be fully ensured by equity. On January 10, Elia received a copy of the judgment of the 'Markets Court', which declares its appeal admissible but unfounded. The subject matter of this judgment is limited to this provision of the tariff methodology 2020-2023 which remains in force as approved and published on 28 June 2018 and thus applicable from 2020. Based on a detailed analysis of this judgement, Elia remains convinced that this judgement has no significant impact on our current investments in non-regulated activities. Should elements arise in the future that would lead to substantially different consequences, then Elia will analyse them and take a position in due time, including possible legal and other mitigating remedies.

8.5. Miscellaneous

Impact of the United Kingdom leaving the European Union

The Group has conducted an analysis of the potential impact on the Group's financial statements in the event of a hard or a soft Brexit. The most significant risk identified related to its joint venture Nemo Link Ltd.

The Group's analysis concluded that Nemo Link Ltd is prepared for both a soft and a hard Brexit scenario. A soft Brexit would see the UK remain in the Internal Energy Market (IEM), whereas a hard Brexit would see it leave the IEM.

The Group has successfully completed a consultation resulting in the approval by both regulators of the IEM access rules have been approved by both regulators for the event that a soft Brexit occurs. Similarly, non-IEM access rules have been sent out for consultation for the event that a hard Brexit occurs.

From the all feedback obtained and the analysis performed, the overall conclusion is that Nemo Link would remain operational under both a soft and a hard Brexit. Profitability on the investment would also remain largely unaffected due to the cap and floor mechanism (see Note 9.3), which provides certainty regarding the company's cash flows over a 25-year span.

Other than the risk identified above, the Group expects Brexit to have a very limited effect on the consolidated financial statements.

8.6. Services provided by the auditors

The General Meeting of Shareholders appointed as joint auditors KPMG Bedrijfsrevisoren BCVBA (represented by Mr. Alexis Palm) and Ernst & Young Bedrijfsrevisoren BCVBA (represented by Mr. Patrick Rottiers) for the audit of the consolidated financial statements of Elia System Operator NV/SA and the audit of the statutory financial statements of Elia System Operator NV/SA, Elia Asset NV/SA, Elia Engineering NV/SA, Elia Grid International NV/SA and Eurogrid International CVBA.

50Hertz Transmission (Germany) appointed Ernst & Young GmbH for the audit of the consolidated financial statements of Eurogrid GmbH and the statutory financial statements of 50Hertz Transmission GmbH and 50Hertz Offshore GmbH. KPMG GmbH was appointed for the audit of Elia Grid International GmbH.

The following table sets out the fees of the joint auditors and their associated companies in connection with services delivered with respect to the financial year 2018:

in EUR	Belgium	Germany	Total
Statutory audit	169,692	239,000	408,692
Audit related	65,771	26,000	91,771
Income tax	2,220	75,375	77,595
Indirect tax	17,062	0	17,062
Other advisory	85,700	0	85,700
Total	340,445	340,375	680,820

REGULATORY FRAMEWORK AND TARIFFS

1. Regulatory framework in Belgium

1.1. Federal legislation

The Electricity Act, which forms the general basis, lays down the core principles of the regulatory framework governing Elia's activities as a transmission system operator in Belgium.

This Act was heavily amended on 8 January 2012 by the transposition at federal level of the 3rd package of European directives. These changes ensure that the Electricity Act:

• sets out the unbundling of transmission operations from generation, distribution and supply activities;
• sets out in greater detail the rules for operating and accessing the transmission system;
• redefines the transmission system operator's legal mission, mainly by expanding it to the offshore areas over which Belgium has jurisdiction; and
• strengthens the role of the regulatory authority, particularly as regards determining transmission tariffs.

A number of royal decrees provide more details of the regulatory framework applying to the transmission system operator, particularly the Royal Decree on the Federal Grid Code. Similarly, the decisions passed by the Commission for Electricity and Gas Regulation (CREG) supplement these provisions to form the regulatory framework within which Elia operates at the federal level.

1.2. Regional legislation

Belgium's three regions are primarily responsible for the local transmission of electricity through grids with a voltage of 70 kV or less on their respective territory. The regional regulators are in charge of the non-tariff aspects of local transmission-system regulation, while setting and monitoring tariffs falls under federal jurisdiction.

The Flemish Region, the Brussels-Capital Region and the Walloon Region have also transposed into their legislative framework the provisions of the 3rd European package applying to them. The regional decrees have been complemented by various other rules and regulations on matters such as public service obligations, renewable energy and authorisation procedures for suppliers.

1.3. Regulatory agencies

As required by EU law, the Belgian electricity market is monitored and controlled by independent regulators.

FEDERAL REGULATOR

CREG is the federal regulator, and its powers with regard to Elia include:

approving the standardised terms in the three main contracts used by the company at the federal level: the connection contract, the access contract and the ARP contract;

approving the capacity allocation system at the borders between Belgium and neighbouring countries;

approving the appointment of the independent members of the Board of Directors;

determining the tariff methodology to be observed by the grid operator when calculating the various tariffs applying to grid users; certifying that the grid operator actually owns the infrastructure it operates and that it meets the regulatory requirements for independence from generators and suppliers.

REGIONAL REGULATORS

Operation of electricity grids with voltages of 70 kV and less falls under the jurisdiction of the respective regional regulators. Each of them may require any operator (including Elia if it operates such grids) to abide by any specific provision of the regional electricity rules on pain of administrative fines or other sanctions. However, the regional regulators do not have the power to set tariffs for electricity transmission systems, as tariff setting falls within the exclusive remit of CREG for these grids.

1.4. Tariff setting

TARIFF REGULATIONS

On 18 December 2014, CREG adopted a decree setting out the calculation methods used to establish tariffs applying to users of electricity grids performing a transmission function. Elia used this methodology as a basis for its tariff proposal for 2016-2019, which was submitted on 30 June 2015. This tariff proposal, adjusted following the discussions between Elia and CREG in the course of the second half of 2015, was approved by the regulator on 3 December 2015.

TARIFF REGULATIONS APPLYING IN BELGIUM

As the operator of grids performing a transmission function (covering the transmission grid and the local and regional transmission grids in Belgium), Elia makes most of its income from the regulated tariffs charged for use of these grids (tariff income), which are approved in advance by CREG. As of 1 January 2008, the prevailing tariff regulation mechanisms have provided for approved tariffs being set for four-year periods, barring specific circumstances. 2017 was therefore the second year of the third four-year regulatory period.

The tariff mechanism is based on amounts recognised in accordance with Belgian accounting regulations (BE GAAP). The tariffs are based on budgeted costs minus a number of sources of non-tariff income. These costs are then divided based on an estimate of the volumes of electricity taken off the grid and, in the case of some costs, based on estimated volumes of electricity injected into the grid, in accordance with the terms of the tariff methodology drawn up by CREG.

The costs taken into account include the forecast value of the authorised remuneration of the invested capital, an estimate of the amounts allocated to Elia in the form of performance incentives and the predicted values of various cost categories. These costs are subdivided into three groups: controllable costs, for which Elia is offered a financial incentive to improve its efficiency levels; noncontrollable costs, over which Elia has no influence and for which the deviations from the budget are completely allocated to the calculation of future tariffs; and influenceable costs, to which a hybrid rule applies (see the information provided below with regard to controllable and non-controllable costs and income and influenceable costs).

FAIR REMUNERATION

Fair remuneration is the return on capital invested in the grid. It is based on the average annual value of the regulated asset base (RAB), calculated annually, taking into account new investments, depreciations and changes in working capital.

In this context, fair remuneration is calculated based on a formula that allocates a different return to equity accounting for up to 33% of the RAB (Part A) and to equity exceeding this ratio (Part B). This formula is as follows:

Fair remuneration = A + B where:

• A = [33% x average RAB of the year n x [(OLO n) + (beta x risk premium)] x illiquidity premium]; plus

• S = consolidated capital and reserves/average RAB, in accordance with Belgian accounting standards (BE GAAP);

• B = [(S 33%) x average RAB x (OLO n + 70 base points)]; where:
• OLO n is the interest rate for Belgian 10-year linear bonds for the year in question;
• cannot be lower than 0.53:
• the risk premium is fixed at 3.5%;
• the illiquidity premium is fixed at 1.10.

• beta (β) is calculated based on Elia share prices, compared with the BEL 20 index, over a three-year period; the value of beta

PART A

The rate of remuneration (in %) as set by CREG for year 'n' is equal to the sum of the risk-free rate, i.e. the average rate of Belgian 10 year linear bonds and a premium for share-market risk, weighted using the applicable beta factor.

The reference ratio of 33% is applied to Elia's average regulated asset base (RAB) to calculate Elia's reference equity.

By means of this ratio, CREG encourages the proportional share between equity and regulated asset base to be as close as possible to 33%. As a consequence, Part B (applicable to the reference equity exceeding 33% of the RAB) is remunerated at a lower rate.

PART B

If the actual proportional share of Elia's actual equity exceeds the reference ratio, the surplus amount is balanced out with a rate of remuneration calculated as follows: [(OLO n + 70 base points)].

The Electricity Act also provides for the possibility of the regulator setting higher remuneration rates for capital that is invested to finance projects of national or European interest (see 'Other incentives' below).

Non-controllable costs and revenues

This category of costs and revenues over which Elia has no direct control is not subject to the incentive mechanisms offered by CREG, and is allocated in its entirety to the calculation of the revenue to be covered by tariffs. The tariffs are set on the basis of the forecast values of these costs, and the difference from the actual values is allocated ex post to the tariff calculation for the subsequent period.

The main non-controllable costs are: depreciation of tangible fixed assets, ancillary services (except for the reservation costs of ancillary services excluding black start, which are referred to as 'influenceable costs'), costs related to line relocation imposed by a public authority, and taxes. They also include financial charges to which the embedded debt principle applies. As a consequence, all actual and reasonable financial costs related to debt financing are included in the tariffs. Some revenues are also non-controllable. These include cross-border congestion revenues and financial revenues.

Controllable costs and revenues

The costs and revenues over which Elia has direct control are subject to incentive regulation mechanisms, meaning that Elia is encouraged to reduce these costs and increase these revenues. Therefore, Elia's efficiency efforts (and conversely any inefficiency) are divided equally between Elia profits and future tariffs (50% each).

Influenceable costs

The reservation costs of ancillary services, except for black start, are categorised as 'influenceable costs', meaning that Elia's profits are partially affected (to the tune of 15%) by increases and reductions in these costs, within certain limits (ranging from -€2 million to €6 million).

Other incentives

• Market integration: This incentive consists of three components: (i) enhancement of Belgium's import capacity; (ii) increase of social welfare generated by regional market coupling: both elements only have a positive impact on the net profit, with a maximum of €6 million for import capacity and a maximum of €11 million for social welfare (pre-tax). (iii) the profit (dividends and capital gains) resulting from Elia's financial participation in various other companies contributing to market integration (CASC, Coreso, HGRT, APX-ENDEX) - This is shared between Elia (60%) and future tariffs reductions (40%).
• Investment programme: This incentive is related to three objectives: (i) Elia's ex ante/ex post justification of the costs involved in each investment (this objective makes a contribution of up to €2.5 million to pre-tax profits); (ii) adherence to the planned dates for commissioning of the Stevin, Brabo, ALEGrO and fourth phase-shifting transformer (PST) projects (€1 million pre-tax per project commissioned on time); and (iii) production of a list of selected strategic projects, especially investments aimed at consolidating European integration (the ''mark-up' incentive). The mark-up is calculated based on the actual cumulative amounts spent, whereby it must however be borne in mind that there are annual and project caps on amounts invested and that the incentive is calculated on the basis of the actual amounts invested. The mark-up applies in full when the OLO rate is 0.5% or less. It is reduced if the OLO rate is greater than 0.5% and decreases to 0 for an OLO rate of 2.16% or more. It should be noted that 10% of the mark-up amount obtained for each project must be repaid if the project is not completed by the stipulated deadlines or if the availability levels provided by the project after commissioning are unsatisfactory.
• Continuity of supply: Elia is entitled to an incentive calculated based on the Average Interruption Time (AIT) measured in the course of a year. The allocated sum is capped at €2 million (pre-tax).
• Innovation: This incentive is calculated based on the total costs incurred in obtaining innovation subsidies, up to a maximum sum corresponding to 50% of the amount of subsidies received or €1 million (pre-tax).
• Discretionary incentive: Each year, CREG sets the objectives Elia is expected to meet to receive this incentive. These mainly relate to the implementation of projects and mechanisms aimed at balancing supply and demand on the electricity market. This incentive contributes to the profit to the tune of up to €2 million (pre-tax).

Regulatory framework for the Modular Offshore Grid

The CREG approved 29th March 2018 the tariff methodology to include specific rules applicable to the investment in the Modular Offshore Grid. The main features are (i) a specific premium risk to be applied to this investment, (ii) the depreciation rate applicable to MOG assets, (iii) certain costs specific to the MOG being classified differently to the costs for onshore activities, (iv) the setting of the level of the costs will be defined based on the characteristics of the MOG assets and finally (v) dedicated incentives relative to management and operation of the offshore assets.

Settlement mechanism: deviations from budgeted values

The actual volumes of electricity transmitted may differ from the forecast volumes. If the transmitted volumes are higher (or lower) than those forecast, the deviation is booked to an accrual account during the year in which it occurs and this deviation from budgeted values creates a regulatory debt (or a regulatory receivable) which will be used to calculate the tariffs for the subsequent tariff period. Regardless of deviations between the forecast parameters for tariffs setting (Fair remuneration, Non-controllable elements, Controllable elements, Influencable costs, Incentive components, Cost and revenue allocation between regulated and non-regulated activities) and effective incurred costs or revenues related to these parameters, the CREG takes the final decision as to whether the incurred costs/revenue are deemed reasonable to be borne by the tariffs. This decision may result in the rejection of elements incurred and, in the event that such elements incurred are rejected, the amount will not be taken into account for the setting of tariffs for the next period. Despite the fact that Elia can ask for a judicial review of any such decision, if this judicial review were to be unsuccessful, a rejection may well have an overall negative impact Elia's financials.

Cost and revenue allocation between regulated and non-regulated activities

The tariff methodology for 2016-2019 features a mechanism enabling Elia to develop activities outside the Belgian regulated perimeter and whose costs are not covered by grid tariffs in Belgium. This methodology establishes a mechanism to ensure that the impact on Belgian grid users of Elia's financial participation in other companies which CREG does not consider part of the RAB (such as stakes in regulated or non-regulated activities outside Belgium, for example its shareholding in 50Hertz or EGI) is neutral.

2. Regulatory framework in Germany

2.1. Relevant legislation

The German legal framework is laid down in various pieces of legislation. The key law is the German Energy Act (Energiewirtschaftsgesetz – EnWG), which defines the overall legal framework for the gas and electricity supply industry in Germany. The EnWG is supported by a number of laws, ordinances and regulatory decisions, which provide detailed rules on the current system of incentive regulation, accounting methods and grid access arrangements, including:

• the Ordinance on Electricity Network Tariffs (Verordnung über die Entgelte für den Zugang zu Elektrizitätsversorgungsnetzen (Stromnetzentgeltverordnung – StromNEV)), which establishes, inter alia, principles and methods for the grid-tariff calculations and

• other obligations applying to grid operators;
• balancing amount system for renewable energy;

• the Ordinance on Electricity Network Access (Verordnung über den Zugang zu Elektrizitätsversorgungsnetzen (Stromnetzzugangsverordnung – StromNZV), which, inter alia, sets out further detail of how to grant access to the transmission systems (and other types of grids) by way of establishing the balancing amount system (Bilanzkreissystem), the scheduling of electricity deliveries, control energy and other general obligations, e.g. congestion management (Engpassmanagement), publication obligations, metering, minimum requirements for various types of contracts and the duty of certain system operators to manage the

• the Ordinance on Incentive Regulation (Verordnung über die Anreizregulierung der Energieversorgungsnetze (Anreizregulierungsverordnung – ARegV)), which sets out the basic rules for incentive regulation for TSOs and other system operators (as set out in more detail below). It also describes in general terms how to benchmark efficiency, which costs are included in the efficiency benchmarking, how to determine inefficiency and how this translates into yearly targets for efficiency growth.

2.2. Regulatory agencies in Germany

The regulatory agencies for the energy sector in Germany are the Bundesnetzagentur (BNetzA, or Federal Network Agency) in Bonn for grids to which over 100,000 grid users are directly or indirectly connected and the specific regulatory authorities in the various federal states for grids to which fewer than 100,000 grid users are directly or indirectly connected. The regulatory agencies are, inter alia, in charge of ensuring non-discriminatory third-party access to grids and monitoring the grid-use tariffs levied by the TSOs. 50Hertz Transmission and 50Hertz Offshore are subject to the authority of the Federal Network Agency.

2.3. Tariff setting in Germany

The current regulation mechanism is established in Germany by the ARegV. Under the ARegV, grid tariffs are defined to generate a pre-defined 'revenue cap' as determined by the Federal Network Agency for each TSO and for each regulatory period. The revenue cap is principally based on the costs of a base year, and is fixed for the entire regulatory period, except when it is adjusted to account for specific cases provided for in the ARegV. The grid operators are not allowed to retain revenue in excess of their individually determined revenue cap. Each regulatory period lasts five years, with the second regulatory period starting on 1 January 2014 and ending on 31 December 2018. Tariffs are public and cannot be the subject of negotiations with customers. Only certain customers (under certain set circumstances laid down in the relevant legislation) are allowed to agree to individual tariffs under Article 19 of the StromNEV (for example, in the case of sole use of a grid asset). The Federal Network Agency has to approve such individual tariffs.

For the purposes of the revenue cap, the costs incurred by a grid operator fall into two categories as follows:

• Permanently non-influenceable costs (PNIC): These costs are fully integrated into the 'revenue cap' and are fully recovered by the grid tariffs, albeit usually with a two-year time lag. They include return on equity, imputed trade tax, cost of debt, depreciation and operational costs (currently at a fixed rate of 0.8% of the capitalised investment costs of the respective onshore investments) for what are called investment measures. The cost of debt related to investment measures is currently capped at the lower value of the actual cost of debt and the cost of debt as calculated in accordance with published Federal Network Agency guidelines. Since 2012, the costs associated with these investment measures have been based on forecast values. The differences between the forecast values and the actual values are reflected in the regulatory account. In addition, Permanently non-influenceable costs include costs relating to ancillary services, grid losses and redispatch costs, as well as European initiatives and income from auctions. These costs and income are included in the revenue cap based on a procedural regulation mechanism set by the Federal Network Agency in accordance with Article 11(2) of the ARegV (FSV). The regulation process relating to ancillary services and grid losses costs gives the system operator an incentive to outperform the planned costs through bonus/malus mechanisms. Since the revision of the ARegV in 2016, also costs for the curtailment of renewable energy sources to relieve grid congestion are based on forecast values. Moreover, costs resulting from European projects of common interest (PCI) where a cost contribution of

• Germany has been decided can be included as PNIC, albeit with a two-year time lag.
• marketable;

• Temporary non-influenceable costs (TNIC) and influenceable costs (IC): These costs include return on equity, depreciation, cost of debt, imputed trade tax and other operational expenses and are subject to an incentive mechanism as set by the Federal Network Agency, which features an efficiency factor (only applicable to IC), a productivity improvement factor and an inflation factor (applicable to both TNIC and IC) over a five-year period. In addition, the current incentive mechanism provides for the use of a quality factor, but the criteria and implementation mechanism for this factor for TSOs are yet to be defined by the Federal Network Agency. The various defined factors give the TSOs the medium-term objective of eliminating what are deemed to be inefficient costs. As regards the cost of debt, the permitted cost of debt related to influenceable costs needs to be shown to be

As for return on equity, the relevant laws and regulations set out the provisions relating to the permitted return on equity, which is included in the TNIC/IC for assets belonging to the regulatory asset base and the PNIC for assets approved in investment budgets. For the second regulatory period (2014-2018), the return on equity is set at 7.14% for investments made before 2006 and 9.05% for investments made since 2006, based on 40% of the total asset value being regarded as 'financed by equity' with the remainder being treated as 'quasi-debt'. In 2016, the BNetzA determined the return on equity applicable for the third regulatory period (2019-2023); the values were significantly down from the second regulatory period, namely to 5.12% for investments made before 2006 and 6.91% for investments made since 2016. The return on equity is calculated before corporate tax and after imputed trade tax.

Separately from the revenue cap, 50Hertz is compensated for costs incurred related to its renewable energy obligations, including EEG and CHP/KWKG obligations and offshore liabilities. For this purpose, various surcharges have been implemented that are subject to specific regulatory mechanisms aimed at a balanced treatment of costs and income.

CHANGES IN TARIFF REGULATIONS

In 2016, a revision of the ARegV entered into force implementing various relevant changes, especially regarding the regulatory system for distribution system operators. However, TSOs are also affected as the revised ARegV changes several aspects relevant to PNIC such as the methodology for determining replacement portions in new investment measures (the status quo will be preserved for investment measures that have already been approved or applied for), the consideration of costs from the curtailment of renewable energy sources based on forecast values, and the consideration of PCI costs. Moreover, the revised ARegV substantiates the methodologies that can be applied to measure the individual efficiency of the four German TSOs, only allowing an international benchmark or a relative reference grid analysis to be used for this purpose.

As at 31 December 2018, 50Hertz had obtained approval for 94 of the 127 active investment-measure requests made since 2008.

Based on the total investment-budget request volume of €15 billion, the approved investment budget for the same date amounts to €10.4 billon.

TARIFFS

Grid access tariffs were calculated based on the respective revenue cap and published on 11 December 2018 for 2019. They have decreased by an average of 23% from 2018. One key driver for lowering the tariffs was the removal of the offshore costs into a new offshore surcharge (see section below). Furthermore, 50Hertz has actively and successfully proceeded with its grid extension projects; the commissioning of new lines made it possible to lower costs for redispatch and for curtailment of renewables and thus offset for the persistently high costs of grid expansion and allow a decrease in tariffs.

In recent years, the grid access tariffs of the four German TSOs have developed differently. This has mainly been driven by the different volumes of renewable energies installed in the control areas, leading to significantly higher tariffs in those control areas with higher levels of renewable energies. In July 2017, the Act for Modernisation of Grid Tariffs (Netzentgeltmodernisierungsgesetz – NEMoG) came into force. The NEMoG envisages the gradual harmonisation of the grid access tariffs of the four German TSOs as of 2019, culminating in uniform transmission tariffs in 2023. Moreover, the NEMoG eliminates 'avoided grid fees' (vNNE) for volatile RES generation and creates a new system for offshore grid connections, shifting the related costs from the tariffs to a surcharge from 2019.

.

3. Regulatory framework for NemoLink Interconnector

The key features of the NemoLink Ltd. regulatory framework can be summarised as follows:

• A specific regulatory framework will be applicable to the Nemo Link interconnector from the date of operation. The framework is part of the new tariff methodology issued on 18 December 2014 by the CREG. The cap and floor regime is a revenue-based regime with a term of 25 years. The national regulators of the UK and Belgium (OFGEM and the CREG respectively) will determine the levels of the cap and floor ex-ante and these will remain largely fixed for the duration of the regime. Consequently, investors will have certainty about the regulatory framework during the lifetime of the interconnector.

• Once the interconnector becomes operational, the cap and floor regime will start. Every five years the regulators will assess the cumulative interconnector revenues (net of any market-related costs) over the period against the cumulative cap and floor levels to determine whether the cap or floor is triggered. Any revenue earned above the cap would be returned to the TSO in the UK (National Electricity Transmission System Operator or 'NETSO') and to the TSO in Belgium on a 50/50 basis. The TSOs would then reduce the grid charges for grid users in their respective countries. If revenue falls below the floor then the interconnector owners would be compensated by the TSOs. The TSOs will in turn recover the costs through grid charges. National Grid performs

• the NETSO role in the UK and the Issuer, the Belgian TSO, in Belgium.
• The high-level tariff design is as follows:

• Each five-year period will be considered separately. Cap and floor adjustments in one period will not affect the adjustments for future periods, and total revenue earned in one period will not be taken into account in future periods.

Regime length 25 years

Cap and floor levels Levels are set at the start of the regime and remain fixed in real terms for 25 years from the start of operation. Based on applying mechanistic parameters to cost-efficiency: a cost of debt benchmark will be applied to costs to deliver the floor, and an equity return benchmark to deliver the cap.

Assessment period (assessing whether interconnector revenues are above/below the cap/floor) Every five years, with within-period adjustments if needed and justified by the operator. Within-period adjustments will let operators recover revenue during the assessment period if revenue is below the floor (or above the cap) but will still be subject to true-up at the end of the fiveyear assessment period.

Mechanism If revenue is between the cap and floor, no adjustment is made. Revenue above the cap is returned to end customers and any shortfall of revenue below the floor requires payment from grid users (via grid charges).

The cap and floor levels for Nemo Link will be decided when final project costs are known and will then be set for the length of the regime.

ral	Capitalization of property, plant and equipment
-----	-------------------------------------------------	--	--	--

JOINT AUDITORS' REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS

KPMG Bedrijfsrevisoren CVBA
Luchthaven Brussel Nationaal 1K
1930 Zaventem
Belgium

-

-

-

-

-

ndit	describe these matters in our report, unless the law or
ent	regulations prohibit this.

- S	financial information has been prepared, in all material respects, in accordance with the mentioned GRI. In addition, we do not express any form of assurance regarding the individual elements included in this non- financial information.
	Independence matters
with n	We have not performed any services that are not compatible with the audit of the Consolidated Financial Statements and we have remained independent of the Company and the Group during the course of our mandate.
erial tt -	The fees for additional services that are compatible with the audit of the Consolidated Financial Statements intended by article 134 of the Belgian Companies Code have been correctly disclosed and detailed in the disclosures to the Consolidated Financial Statements.
	Other communications
1 the	> This report is consistent with our additional report to the Audit Committee as specified in article 11 of the regulation (EU) nr. 537/2014.
an	Brussels, 5 April 2019
Icial	The joint statutory auditors
ther,	Ernst & Young Bedrijfsrevisoren CVBA Represented by
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1	Patrick Rottiers Partner®
S	* Acting on behalf of a BVBA
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INFORMATION ABOUT THE PARENT COMPANY

Extracts from the statutory annual accounts of Elia System Operator NV/SA, drawn up in accordance with Belgian accounting standards, are given hereafter in abbreviated form.

Pursuant to Belgian company legislation, the full financial statements, the annual report and the joint auditors' report are filed with the National Bank of Belgium.

These documents will also be published on the Elia website and can be obtained on request from Elia System Operator NV/SA, Boulevard de l'Empereur 20, 1000 Brussels, Belgium. The joint auditors issued an unqualified opinion.

Statement of financial position after distribution of profits

ASSETS (in million EUR)
FIXED ASSETS
Financial fixed assets
Affiliated companies
Participating interests
Other enterprises linked by participating interests
Participating interests
Other participating interests
CURRENT ASSETS
Amounts receivable after more than one year
Trade receivables
Other amounts receivable
Inventories and contracts in progress
Contracts in progress
Amounts receivable within one year
Trade debtors
Other amounts receivable
Investments
Other term deposits
Cash at bank and in hand
Deferred charges and accrued income
TOTAL ASSETS
EQUITY AND LIABILITIES (in million EUR)
CAPITAL AND RESERVES
Capital
Issued capital
Share premium account
Reserves
Legal reserve
Untaxed reserve
Profit carried forward
PROVISIONS, DEFERRED TAXES
Provisions for risks and charges
Other risks and charges
LIABILITIES
Amounts payable after one year
Financial debts
Subordinated debentures
Unsubordinated debentures
Credit institutions
Other loans
Amounts payable within one year
Current portion of amounts payable after more the
Financial debts
Credit institutions
Other loans
Trade debts
Suppliers
Advances received on contracts in progress
Amounts payable regarding taxes, remuneration
Taxes
Remuneration and social security
Other amounts payable
Accrued charges and deferred income
TOTAL EQUITY AND LIABILITIES

ASSETS (in million EUR)	2018	2017
FIXED ASSETS	4,690.3	3,677.8
Financial fixed assets	4,690.3	3,677.8
Affiliated companies	4,560.9	3,572.3
Participating interests	4,560.9	3,572.3
Other enterprises linked by participating interests	129.4	105.6
Participating interests	129.2	105.4
Other participating interests	0.2	0.2
CURRENT ASSETS	2,397.2	1,893.9
Amounts receivable after more than one year	174.9	147.8
Trade receivables	0.0	8.8
Other amounts receivable	174.9	139.0
Inventories and contracts in progress	6.9	4.9
Contracts in progress	6.9	4.9
Amounts receivable within one year	2,052.0	1,585.3
Trade debtors	221.4	215.6
Other amounts receivable	1,830.6	1,369.8
Investments	0.0	30.0
Other term deposits	0.0	30.0
Cash at bank and in hand	143.1	117.9
Deferred charges and accrued income	20.4	8.0
TOTAL ASSETS	7,087.5	5,571.7
EQUITY AND LIABILITIES (in million EUR) CAPITAL AND RESERVES	2018 1,868.3	2017 1,762.8
Capital	1,521.8	1,519.0
Issued capital Share premium account	1,521.8 14.3	1,519.0 11.9
Reserves	175.4	174.7
Legal reserve	173.0	173.0
Untaxed reserve	2.4	1.6
Profit carried forward	156.7	57.2
PROVISIONS, DEFERRED TAXES	0.4	0.4
Provisions for risks and charges	0.4	0.4
Other risks and charges	0.4	0.4
LIABILITIES	5,218.8	3,808.5
Amounts payable after one year	3,648.1	2,839.2
Financial debts	3,648.1	2,839.2
Subordinated debentures	699.9	0.0
Unsubordinated debentures	2,142.3	2,343.4
Credit institutions	310.0	0.0
Other loans	495.8	495.8
Amounts payable within one year	875.1	391.9
Current portion of amounts payable after more than one year	500.0	0.0
Financial debts	50.0	0.0
Credit institutions	50.0	0.0
Other loans	8.3	4.3
Trade debts	252.3	186.4
Suppliers	242.9	179.3
Advances received on contracts in progress	9.4	7.1
Amounts payable regarding taxes, remuneration and social security costs	9.2	8.7
Taxes	0.6	0.7
Remuneration and social security	8.6	8.0
Other amounts payable	156.7	192.5
Accrued charges and deferred income	594.3	577.4
TOTAL EQUITY AND LIABILITIES	7,087.5	5,571.7

Income statement

(in million EUR)	2018	2017
OPERATING INCOME	922.7	799.4
Turnover	908.0	792.2
Increase/(decrease) in inventories of finished goods, works and contracts in progress	2.0	(0.9)
Other operating income	12.7	8.1
OPERATING CHARGES	(840.0)	(704.7)
Services and other goods	(798.7)	(666.5)
Remuneration, social security costs and pensions	(41.2)	(38.1)
Amounts written off stocks, contracts in progress and trade debtors: appropriations/(write -backs)	(0.1)	(0.2)
Provisions for liabilities and charges: appropriations/(uses and write -backs)	0.0	0.0
Other operating charges	(0.0)	(0.0)
OPERATING PROFIT	82.7	94.8
Financial income	221.9	98.0
Income from financial fixed assets	212.3	90.4
Income from current assets	9.6	7.6
Non -recurring financial income	0.0	0.0
Financial charges	(102.5)	(88.9)
Debt charges	(93.8)	(86.7)
Other financial charges	(8.7)	(2.2)
Non -recurring financial charges	0.0	0.0
PROFIT FOR THE PERIOD BEFORE TAXES	202.2	103.8
Income taxes	(0.6)	(6.9)
Income taxes	(0.6)	(6.9)
PROFIT FOR THE PERIOD	201.6	96.9
Transfer to untaxed reserves	(0.7)	(0.8)
PROFIT FOR THE PERIOD AVAILABLE FOR APPROPRIATION	200.9	96.1

Registered office

This report is limited to Elia System Operator and Elia Asset, which operate as a single economic entity under the names Elia and 50Hertz Transmission.
The registered office of Elia System Operator and Elia Asset is located at Boulevard de l'Empereur 20 1000 Brussels, Belgium
The registered office of 50Hertz GmbH is established at Heidestraße 2 D-10557 Berlin, Germany
The registered office of Eurogrid International is located at Rue Joseph Stevens, 7 1000 Brussels, Belgium
The registered office of Elia Grid International is located at

Rue Joseph Stevens, 7 1000 Brussels, Belgium

Reporting period

This annual report covers the period from 1 January 2018 to 31 December 2018.

Contact

Group Communications and Reputation Marleen Vanhecke T + 32 486 49 01 09 Boulevard de l'Empereur 20 1000 Brussels info@elia.be

Headquarters Elia Group

Boulevard de l'Empereur 20, B-1000 Bruxelles T +32 2 546 70 11 F +32 2 546 70 10 info@elia.be

Heidestraße 2 10557 Berlin T +49 30 5150 0 F +49 30 5150 2199 info@50hertz.com

Concept and editorial staff

Elia Group Communication & Reputation

Graphic design

www.chriscom.be

Editor

Pascale Fonck

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Reporting parameters

We would like to thank everyone who contributed to this annual report.

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Cover picture: inauguration event at the Nemo Link converter station in Bruges.

On December 5th 2018, Elia and National Grid inaugurated the first submarine electricity interconnector between Belgium and the United Kingdom. The commissioning of Nemo Link facilitates the integration of renewable energies while offering additional security of supply and lower priced electricity. The inauguration of the Nemo Link interconnector marked the culmination of an enormous project that took nearly 10 years to complete. Connecting the Richborough and Herdersbrug (see cover picture) converter stations via a 140 km cable, was an extremely complex undertaking that entailed many technical challenges. It never could have succeeded without the determined efforts of the men and women who worked together to overcome all of these difficulties.