ELIA IN 2016

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 2016 financial year 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 (in cooperation with Industry Funds Management) 50Hertz Transmission, one of the four German transmission system operators, active in the north and east of Germany. With more than 2,100 employees and a transmission grid comprising some 18.300 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. 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 2016.

New and amended standards and interpretations

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

• Amendments to IAS 1 Disclosure Initiative. These amendments clarify o Materiality requirements in IAS 1; o Specific line items in statements of profit or loss and other comprehensive income and statement of financial position may be disaggregated; o Entities have flexibility to choose the order of presenting Notes to financial statements; o Share of other comprehensive income of associates and joint ventures accounted for using the equity method must be presented in aggregate as a single line item, and classified between the items that may or will not be reclassified subsequently to profit or loss.

• Amendments to IFRS 11 Accounting for Acquisitions of Interests in Joint Operations. The amendments to IFRS 11 require that a joint operator accounting for the acquisition of an interest in a joint operation, in which the activity of the joint operation constitutes a business must apply the relevant IFRS 3 principles for business combinations accounting. The amendments also clarify that a previously held interest in a joint operation is not remeasured on the acquisition of an additional interest in the same joint operation while joint control is retained. In addition, a scope exclusion has been added to IFRS 11 to specify that the amendments do not apply when the parties sharing joint control, including the reporting entity, are under common control of the same ultimate controlling party. The amendments apply to both the acquisition of the initial interest in a joint operation and the acquisition of any additional interests in the same joint operation;

• Amendments to IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortisation. The amendments clarify the principle in IAS 16 and IAS 38 that revenue reflects a pattern of economic benefits that are generated from operating a business (of which the asset is part) rather than the economic benefits that are consumed through use of the asset. As a result, a revenue-based method cannot be used to depreciate property, plant and equipment and may only be used in very limited circumstances to amortise intangible assets;

• Amendments to IAS 16 and IAS 41 Agriculture: Bearer Plants. These amendments require a bearer plant, defined as a living plant, to be accounted for as property, plant and equipment and included in the scope of IAS 16 Property, Plant and Equipment instead of IAS 41 Agriculture;

• Amendments to IAS 27 Equity Method in separate financial statements, allows entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements;

• Amendments to IFRS 10, IFRS 12 and IAS 28 Investment entities: applying the consolidation exception. These amendments clarify that the exemption from presenting consolidated financial statements applies to a parent entity that is a subsidiary of an investment entity, when the investment entity measures all of its subsidiaries at fair value.

• Annual Improvements to IFRS 2012-2014 cycle is a collection of minor improvements to 4 existing standards.

The above mentioned standards or amendments did not have a material impact on the Group’s consolidated financial statements as at 31 December 2016.

Standards, amendments and interpretations that are not yet effective in 2016

The standards, interpretations or amendments listed hereafter are 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 9 Financial instruments (effective 1 January 2018) 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 is reviewing the potential impact of all three aspects of IFRS 9 on its financial statements resulting from the application of IFRS 9. The preliminary assessment is based on currently available information and might evolve based on further detailed analysis still to be performed in the course of H1 2017. The Group expects no significant impact on its balance sheet and equity;

• IFRS 15 Revenue from Contracts with Customers (effective 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 did not yet elect the transition method (either full retrospective, either modified retrospective application), and is currently reviewing the potential impact on its financial statements resulting from the application of IFRS 15.

At this stage the Group anticipates the biggest impact to come from the application of IFRIC 18, however the impact can at this stage not be reliably calculated. The group expects to be able to provide a quantitative analysis mid-2017;

• IFRS 16 Leases (effective 1 January 2019 – not yet endorsed) 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. It replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases incentives and SIC 27 Evaluating Substance of Transactions involving the Legal Form of a Lease. A lessee recognises a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are optional exemptions for short-term leases and leases of low value items. Lessor accounting remains similar to the current standard. The Group has started an initial assessment of the potential impact on its consolidated financial statements. The

Group plans to assess the potential effect of IFRS 16 on its consolidated financial statements by the end of 2017;

• Disclosure Initiative (Amendments to IAS 7 – effective 1 January 2017 – not yet endorsed by the EU) requires disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flow and non-cash changes. The Group intends to provide a movement schedule for liabilities clearly presenting changes arising from financing activities;

• Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (endorsement process has been delayed) The amendments clarify that gain or loss resulting from the sale or contribution of assets, which forms a business following IFRS 3, between an investor and its associate or joint venture, is recognised in full. If these assets do not form a business, following IFRS 3, any gain or loss is only recognised to the extent of unrelated investor’s interests in the associate or joint venture;

• Recognition of Deferred Tax Assets for Unrealised Losses (amendments to IAS 12 – effective 1 January 2017 – not yet endorsed) – the amendments clarify the accounting for deferred tax assets for unrealised losses on debt instruments measured at fair value. The Group does not expect any significant impact. Further, the amendments provide guidance on estimating probable future taxable profits when assessing the recognition of deferred tax assets when there are insufficient taxable temporary differences relating to the same taxation authority and the same taxable entity;

• Amendments to IFRS 4 Applying IFRS 9 Financial instruments with IFRS 4 Insurance Contracts (effective 1 January 2018) – not applicable to the Group;

• IFRS 14 Regulatory Deferral Accounts (endorsement process has been delayed) is an optional standard that allows an entity, whose activities are subject to rate-regulation, to continue applying most of its existing accounting policies for regulatory deferral account balances upon its first-time adoption of IFRS. Entities that adopt IFRS 14 must present the regulatory deferral accounts as separate line items on the statement of financial position and present movements in these account balances as separate line items in the statement of profit or loss and other comprehensive income. The standard requires disclosures on the nature of, and risks associated with, the entity’s rate-regulation and the effects of that rate-regulation on its financial statements. Since the

Group is an existing IFRS preparer, this standard does not apply.

• IFRS 2 Classification and Measurement of Share-based Payment Transactions – Amendments to IFRS 2 (effective 1 January 2018 - not yet endorsed) – not applicable to the Group;

• Annual Improvements to IFRS Standards 2014-2016 Cycle (effective 1 January 2018 – not yet endorsed) – the improvements have been brought to 3 standards, IFRS 1 First time adoption, IAS 28 Investments in Associates and Joint

Venture and IFRS 12 Disclosure of Interests in Other Entities. The Group will assess the impact on her consolidated financial statements in 2017.

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.