Other aspects
| Cash flows
In millions of euros |
|---|
 |
Cash flow from operating activities
Cash flow from operating activities improved compared to 2006 to € 1,008 million (2005:
€ 934 million). This increase was mainly caused by the improvement of working capital compared to 2005. In addition, the interest payments were higher in 2005 and the non-cash elements in the result for 2005 (e.g. derivative positions and the release of the provision for post-employment medical benefits) were higher compared to 2006. Cash flow from operating activities was influenced in 2005 by the payment of costs from prior years in relation to renewable energy of more than € 100 million, which principally consisted of Regulating Energy Tax (REB) and a payment to settle the obligations arising from contracts for Norwegian green certificates of about € 125 million. Against this, there was the receipt in 2005 of € 150 million for the transfer to Eneco of a long-term purchasing contract with the InterGen power station at Rijnmond.
Cash flow from investing activities
In both years, cash flow from investing activities received a strong impulse from the book profits on the sale of non-core activities (Utilities Inc., Cascal, Shantou, Paques and Vitens in 2006, the Spanish wind energy activities and Karma in 2005). In 2006, the sale of the aforementioned activities generated proceeds totalling € 330 million (2005: € 504 million). Capital expenditure on property, plant and equipment amounted to € 583 million in 2006 compared to € 547 million in 2005. Investments in the expansion of the grids were higher compared to last year: the total investments in the gas and electricity grids increased from € 167 million in 2005 to € 194 million in 2006. In addition, investments were made in 2006 in projects for underground gas storage in Epe (Germany) and Zuidwending (Groningen). At the start of 2007, several caverns were taken into use in Epe.
Finally, capital expenditure in ICT projects increased compared to last year. In 2006 an amount of € 59 million was invested in NoordzeeWind, the joint venture with Shell, which constructed the wind farm off the coast of Egmond aan Zee in 2006.
| Gross investsments in property, plant and equipment
In millions of euros |
|---|
 |
Cash flow from financing activities
Cash flow from financing activities was € 634 million, which was in line with last year (€ 650 million). During 2006, a number of loans were repaid early in addition to the scheduled repayments of loans
| Free cash flows
In millions of euros |
|---|
 |
Free cash flow
The free cash flow amounted to € 488 million in 2006, an increase compared to the level of € 475 million in 2005.
| Reconciliation free cash flow | ||||
|---|---|---|---|---|
|
In millions of euros |
2006 | 2005 | ||
| Cash flow from operating activities | 1,008 | 934 | ||
| Investments in property, plant and equipment and financial fixed assets | -642 | -582 | ||
| Construction contributions received | 122 | 123 | ||
| Total | 488 | 475 | ||
Net debt and financing
Net debt decreased compared to last year from € 922 million to € 72 million. The strong free cash flow and the book profits on the sale of non-core activities contributed to this significant decrease. In addition, the sale of non-core activities led to the deconsolidation of debt.
| Reconciliation net debt | ||||||
|---|---|---|---|---|---|---|
|
In millions of euros |
31 December 2006 |
31 December 2005 |
||||
| Long-term interest-bearing debt | 1,253 | 1,456 | ||||
| Short-term interest-bearing debt | 118 | 221 | ||||
| Obligations relating to finance leases | 105 | 116 | ||||
| Long-term interest-bearing debt relating to assets held-for-sale | 189 | |||||
| Gross debt | 1,476 | 1,982 | ||||
| Cash and cash equivalents | 1,356 | 1,172 | ||||
| Investments held as security for lease obligations related to cross-border leases | 73 | 83 | ||||
| Less: Restricted cash and cash equivalents (notably funds held in escrow and relating to the sale of interests) | -25 | -195 | ||||
| Total cash and cash equivalents and investments | 1,404 | 1,060 | ||||
| Net debt position | 72 | 922 | ||||
Financial position
The financial ratios are calculated on the basis of the results for the past 12 months, adjusted for incidental items.
The Funds from Operations/Net Debt ratio concerns the net result – adjusted for incidental items – plus depreciation and impairments of property, plant and equipment and intangible assets divided by net debt. Nuon’s financial policy stipulates that this ratio must be at least 30%. This ratio amounted to 1,111% at the end of 2006 compared to 64% at the end of 2005.
The interest cover concerns the net result – adjusted for incidental items – plus depreciation and impairments of property, plant and equipment and intangible fixed assets plus net interest income and expenses divided by net interest income and expenses. Nuon’s financial policy stipulates that this ratio should be at least 5.0. At the end of 2006 this ratio amounted to 15.1, compared to 6.1 at the end of 2005.
| FFO/Net Debt
|
|---|
 |
| Interest cover
|
|---|
 |
Credit ratings
On 2 February 2007, Moody’s Investors Service confirmed the ratings of Nuon and upgraded the outlook of the subsidiary Nuon Power Generation B.V. from negative to stable. Moody’s expects the proposed merger with Essent to give rise to a powerful company that will be better able to compete in the North European market. On the same day, Standard & Poor’s put Nuon’s existing ratings on Credit Watch Negative. The reasons for this were the proposed merger with Essent and the related uncertainties concerning the integration and the possibility that the NMa (Netherlands Competition Authority) might impose conditions on the merger.
As of 2 February 2007, the credit ratings of Nuon are as follows:
| Credit ratings | ||||
|---|---|---|---|---|
|
|
Standard & Poor's | Moody's | ||
| n.v. Nuon short-term | A-1 (Credit Watch Negative) | P-1 | ||
| n.v. Nuon long-term | A+ (Credit Watch Negative) | A2 (stable outlook) | ||
| Nuon Power Generation B.V. | A+ (Credit Watch Negative) | A3 (stable outlook) | ||
Since December 2004, two Nuon bonds have been listed on the Luxembourg Stock Exchange. The € 500 million tranche (4.125%, maturing December 2014) traded at year-end with a spread compared to mid-swap of about 19 basis points, the € 300 million tranche (4.5%, maturing December 2019) traded at about 39 basis points compared to mid-swap.
| Credit spread bonds
Basic points compared to mid-swap |
|---|
 |
Human Resources
General
At year-end 2006, Nuon’s workforce totalled 9,768 full time equivalents (FTEs) (2005: 9,665 FTEs) and 1,562 employees on temporary contracts (2005: 2,255 FTEs). Compared to year-end 2005, this represented a net decrease of 590 FTEs. The decrease is mainly attributable to the hiring of staff for the improvement of operational and customer processes.
Nuon took further measures in the area of human resources in 2006. The first 50 participants entered the Nuon programme Step2Work which aims to provide job experience to young unemployed people. A total of 300 participants will take part in this programme. In addition, the Nuon Foundation was established with a view to assisting Nuon employees in the performance of voluntary work. In 2006, over 300 employees were supported in this way. Nuon regularly measures the involvement of its employees. This improved, on a scale from 1 to 10, from 7.6 in 2005 to 7.7 in 2006.
Development and Training
Nuon College, Nuon’s in-house Corporate University which was already founded in 1997, reflects an international trend where companies set up their own Corporate University to provide the company with specific skills through learning and development. An in-house Corporate University makes it possible to identify and prioritise the learning and development needs of a company where people make the difference. The activities of Nuon College were intensified: besides an almost fourfold increase in the number of training participants (4,613 employees attended a training course), the entire training process - from demand analysis, procurement and subsidy maximisation through to organisation and evaluation - has now been integrated under one roof. In addition, the Nuon Learning Styles Scan was introduced to help employees find out the type of learning that suits them best so that they can compile the most effective learning programme for their individual needs. In order to assure the quality of the entire process for the internal customer, Nuon College sought and obtained ISO 9001 certification in 2006.
On 30 October, the 2006 Award of the Netherlands Foundation for Corporate Universities was presented to Nuon. The jury praised Nuon for its excellent vision on learning as expressed in its approach of matching training offerings with individual learning styles as well as in the outstanding facilities at the Oosterbeek location.
Health Management
Starting from the situation of high absenteeism in 2002 (8.8%) Nuon succeeded in reducing absenteeism in 2006 to 3.9% (percentage calculated according to the CBS norm), an exceptional achievement in the energy market. In the past years, Nuon focused strongly on both curative and preventative measures. In 2006, Nuon received the baton in the corporate health management relay competition for the progress made in this field. This competition is organised by ‘Kroon op het Werk’, the employers organisation for health management. The baton is passed to organisations who distinguish themselves by means of a good prevention, absenteeism and (re)integration policy.
Employment conditions
In the field of employment conditions, 2006 brought several innovative elements but was above all a year of implementation and consolidation after the many changes in this field that took effect from 1 January 2006. Because a CAO (Collective Labour Agreement) was signed in 2005 for a term of 26 months, no negotiations about contractual pay rises took place in 2006. One of the innovative elements in 2006 concerned changes to our corporate mobility arrangements with a view to promoting sustainability. These varied from the adoption of a clean car policy for all lease vehicles, to the introduction of a course in ‘new driving’ for all lease drivers and the expansion of the hybrid vehicle fleet to all large locations. Further measures included the provision of a shuttle service between public transport stations and larger locations and incentives to encourage employees to travel by public transport or bicycle.
Resource Center
In 2006, 503 vacancies were filled by means of internal recruitment. The other 262 vacancies were filled externally.
Employee Participation/Central Works Council
As at 31 December 2006, the Central Works Council consisted of: W.F. Brokaar (chairman), Mrs A. Brinkman (deputy chairwoman), G. Hage (secretary), J.E. Bakker, D. Groen, G. Kapteijn (deputy secretary), J. Leeflang, J.L. Luijt, J. Ogink, H. Pietersma, J.I. Post, G.P.A. Scha-vemaker, M. van der Teems, J.W. Thomasson, J. Woertman and P.P. Officier (official secretary).
In the year under review, frequent consultation took place between the Management and the Central Works Council, particularly regarding the future of the energy sector and the unbundling of the Dutch energy companies. Following the definite political decision relating to the Law on Independent Grid Management, the Central Works Council held discussions with management on the most appropriate structure for the company with due regard to this Law.
In addition, management and Works Council conducted intensive talks on possible steps of the organisation in the future. In September 2006, the Central Works Council published a document which contained its view with regard to future scenarios. In this document the Central Works Council does not only evaluate the future of the company from the view of personnel aspects but also provides an analysis from a broad perspective that entails the organisation in its entirety.
The Management Board appreciates the great efforts shown by all those involved in the staff participation process at Nuon, and in particular the constructive manner in which the consultation was conducted between management and staff representatives.
Brand and reputation policy
The brand policy aims at familiarising our (prospective) customers and other stakeholders with the most important characteristics of the Nuon brand. The reputation is designed to reinforce and protect Nuon’s reputation as a company. The starting point in this respect are our brand values: reliability, expertise, sustainability and empathy (the ability to act in the customer’s interests). These four brand values are based on the core value of Nuon’s business activity: supplying safe, continious energy for daily life.
In our external communications, a lot of attention was devoted to retaining existing customers. Energy-saving issues were also highlighted in campaigns and via the Internet. One novelty for the sector was an energy-awareness campaign aimed at young people. The star of this campaign, named Youri, has already attracted a large fan club. At the end of the year, Nuon was the best-known energy brand in the Netherlands, with a name brand recognition percentage of 96%.
Nuon’s sponsoring policy centers on a limited number of areas directly connected with our core activities or with sustainable entrepreneurship. In this respect, Nuon sponsors the Nuon Solar Team, which won the World Solar Challenge in September 2005 in Australia for the third time running. In sponsoring the Royal Dutch Football Association, Nuon focusses mainly on the social role of football and acts as the energy partner of the world of football, both amateur and professional.
Sustainable entrepreneurship
Nuon has the ambition to take up a prominent position in Corporate Social Responsibility in the Netherlands. Availability of energy is an absolute necessity for the smooth operation of our society: not only now, but also in 50 years’ time when fossil fuels have become scarce. Our energy supply is inextricably linked with the prosperity of our society and the negative consequences that the current energy use has for man and the environment. Acting from our firm conviction that improved sustainability is key to securing a reliable energy supply, we see it as our mission to balance the supply of energy with the interests of all our stakeholders: shareholders, customers, employees, the environment and society. That, to our mind, is the essence of corporate social responsibility. Nuon practices corporate social responsibility in three ways: by promoting a more sustainable energy supply,
by pursuing responsible business management and by acting as a good corporate citizen.
We can only count on a reliable energy supply in the future if we bear in mind that fossil fuels are finite and if we address the impact of energy use on the climate. This can be done by:
- limiting the demand for electricity, gas and heating;
- using renewable energy sources;
- using fossil energy sources efficiently.
In April, Nuon took over the Akzo Nobel subsidiary Helianthos, a company that develops methods for cheap mass production of solar cells based on thin film technology. With Helianthos, Nuon is aiming to achieve a technological breakthrough that will make solar energy affordable for a broad group of customers as an alternative for electricity generated from fossil fuels. After years of preparatory work, 2006 culminated in the delivery of a number of major projects. In August 2006, all 36 turbines of the offshore wind farm at Egmond aan Zee were installed. This 108 MW wind farm, which was developed by a joint venture of Shell and Nuon, delivers sufficient energy for about 100,000 households. In that same month, Nuon opened the first cooling installation to serve office buildings on the Zuidas in Amsterdam. The method used to produce cooling yields substantial CO2 savings.
In 2006, the fuel mix, which indicates the energy sources used to generate the supplied electricity, showed a decreased use of renewable energy sources such as solar, wind, water and biomass. The green component amounted to 19% in the year under review (2005: 21%; 2004: 17%; 2003: 18%).
We manage our business in a socially responsible manner by:
- dealing respectfully with our customers;
- good employership;
- safeguarding continuity of supply;
- reducing the impact of our business processes on the environment and society;
- improving chain management.
In 2006, we benefited from the improvements in the services that were implemented in 2005. Throughout the entire year, Nuon achieved the best scores in the comparison that the Office of Energy Regulation (DTe) makes of the performance of energy companies in relation to timely invoicing and final invoicing. The planned catalyst for recapturing nitrogen oxides at the coal-powered station at Hemweg 8 was ready to be taken into service at the turn of the year 2006/2007. The catalyst (DeNOx) is expected to reduce Nuon’s NOx emissions by 30% annually.
Good corporate citizenshipAs an energy company, Nuon is an integral part of society. We make every effort, together with our employees, to contribute towards the beneficial progress of that society. We do this by:
- maintaining a dialogue with the environment in which we operate;
- helping others to promote sustainable development;
- increasing opportunities for the less advantaged;
- raising awareness of socially-relevant energy issues and concerns.
2006 was the first fully operational year for the Nuon Foundation. This organisation is a platform for the supply and demand of voluntary work and is designed to assist Nuon employees who make or wish to make a contribution to society in their spare time. Employees can also receive financial support for projects they are involved in as volunteers. In the first half year, over 250 employees were active via the Nuon Foundation. They set up projects themselves, took part in activities of the Foundation or helped their colleagues with their voluntary work.
Every year, Nuon publishes a Sustainability Report outlining all its activities and results in the field of corporate social responsibility. Nuon’s report for 2005 was ranked eleventh in the annual Transparency Benchmark of the Ministry of Economic Affairs, thus securing a position among the front-runners. Nuon was the second-placed unlisted company on the list and the number one by some distance in the energy sector.
Disconnection Policy
Nuon’s policy is aimed at avoiding increasing debts of customers. To this end, a strict collection procedure is executed in close collaboration with various debt-assistance organisations. Customers in arrears first receive reminders and warning letters. If the subsequent external debt collection process fails to elicit payment, the disconnection procedure is set in motion. Nuon and Continuon Netbeheer have also signed covenants with various Municipal Medical Departments and debt assistance organisations for the exchange of personal details. A covenant between the GGD Amsterdam (the municipal medical department in Amsterdam) and Continuon Netbeheer has already avoided the disconnection of energy of more than 100 needy customers. The possibilities for making debt repayment arrangements have also been expanded, so that disconnection can be avoided in many cases. Since 3 December 2006, a new ministerial ruling came into force concerning the disconnection of energy. Under this ruling, only customers who refuse to accept debt-assistance or are guilty of fraudulent conduct may be disconnected in the period from 1 October to 1 April. This fits in well with Nuon’s policy to team up with debt assistance organisations in order to help customers avoid running up large debts. Nuon has actually taken the ruling a step further by adhering to this policy in the summer as well as in the winter.
The number of disconnections decreased slightly in 2006, despite the increased energy prices. The number of disconnections in 2006 was 8,017 (2005: 8,300).
Outlook
The Management Board, in consultation with the Supervisory Board, has formulated the policy not to issue any statements regarding the expected future results.
Dividend
The Management Board, in consultation with the Supervisory Board, proposes to pay out a dividend of € 325 million. This corresponds with 45% of the profit after taxation, excluding incidental items after taxation which did not lead to cash flows in the financial year of 2006 of on balance € 40 million. The incidental items that did not lead to cash flows in the 2006 financial year concern the fair value movements of financial instruments of € 158 million, the tax effect on this item and the write-down of the deferred tax asset of € 71 million as a result of the change in the income-tax rates effective from 1 January 2007. In 2006, dividends of € 322 million were distributed from the 2005 profit appropriation.
Amsterdam, 9 March 2007
The Management Board
Ludo van Halderen, Chairman
Doede Vierstra
Peter Erich
Øystein Løseth
