DELTA N.V. The multi-utility company. 2006 annual report

DELTA N.V. The multi-utility company 2006 annual report

DELTA N.V. The multi-utility company 2006 annual report delta 2006 annual report 1

71 DELTA, the multi-utility company DELTA is a multi-utility company offering a wide range of products and services, from electricity, gas, water, water treatment and waste management to radio and TV transmission, cable internet and cable telephone. DELTA s base is the Province of Zeeland, but we are doing more and more outside Zeeland, mainly within the Netherlands. Dependability is the key. Our customers can depend on the quality of our products and services and the accessibility of our organisation. We are service-driven, practical and pragmatic in our dealings with customers. Being a compact organisation, DELTA can deliver customised services offering the best possible value for money. Many businesses choose to become DELTA customers because of our level of service and flexibility and, just as important, they stay with us. Domestic consumers also rate our services highly. Market research and practical experience tell us that our customers have a good opinion of DELTA. Our customers are satisfied and stay loyal to us. DELTA discharges its responsibilities to the community it serves by working constantly to develop innovative and sustainable solutions for waste management and power generation, by participating actively in society at various levels and by being an attractive employer which cares for its staff and their personal development. A deal is a deal has been our maxim since 1991, when Watermaatschappij Zuid West Nederland and Provinciale Zeeuwse Energie Maatschappij merged to form DELTA. A great deal has changed since then. DELTA has grown, taking over several waste management companies and, in early 2004, acquiring 100% of ZeelandNet, an internet service provider. 2004 also saw the merger of DELTA Water Bedrijf and Waterbedrijf Europoort (WBE) to form Evides. In early 2007, we acquired a majority shareholding in Indaver, a Belgian company. With this major step forward in the international waste management market, we have made another significant advance in our multi-utility strategy. Similarly, the acquisition of Solland in early 2007 was an important step in the development of our sustainable solar energy business. DELTA will continue to expand, in the interests of both the company and our stakeholders. delta 2006 annual report 2

Content 1 DELTA, the multi-utility company 2 2 Financial highlights 4 3 Core values: dependability, enterprise and resourcefulness 6 4 Chronological review of events in 2006 7 5 Foreword 8 6 DELTA s mission, vision, objective and strategy 10 7 Divisions and products 13 Energy 15 Environmental 17 Development & Water 19 Infrastructure 21 Comfort 23 8 Corporate policies 27 9 Corporate issues 39 10 Corporate social responsibility 47 11 Report of the Supervisory Board 53 12 Information on the Executive Board, Group Board, Supervisory Board and Central Works Council 61 13 Financial review 69 14 Consolidated financial statements 79 Consolidated balance sheet 80 Consolidated income statement 81 Consolidated cash flow statement 82 Consolidated statement of changes in equity 83 Accounting policies 84 First-time adoption of IFRS 94 Notes to the consolidated balance sheet 102 Notes to the consolidated income statement 117 Notes to the cash flow statement 123 Post-balance-sheet events 124 Other notes 125 Segment information 125 Impact of exceptionals 128 Non-consolidated companies 129 Consolidated companies 130 15 Company financial statements 133 Company balance sheet 134 Company income statement 135 Notes to the company financial statements 135 Financial assets 135 Statement of changes in equity 136 Profit appropriation 137 Auditors report 138 DELTA in financial figures, consolidated 140 DELTA in volumes 141 Key figures 142 Definition of financial ratios 143 delta 2006 annual report 3

48%Gas 26%Coal 36%Gas 19%Coal 2 Financial highlights Fuel mix 2006 Domestic and corporate sales 19% Nuclear 2%Other 5% Renewables Wind 1.8% Solar 0.0% Hydro 1.7% Biomass 1.6% Other 0.0% Fuel mix 2006 Domestic sales 14% Nuclear 2%Other 29% Renewables Wind 13.4% Solar 0.0% Hydro 4.0% Biomass 11.9% Other 0.0% delta 2006 annual report 4

Total sales by product 2006 (EUR million) Electricity Gas Cable 622.6 490.1 50.9 Operating result (EUR million) Environment Other 103.2 45.0 105.3 145.1 Total sales by product 2005 (EUR million) Profit after tax (EUR million) 169.1 126.7 2006 2005 2006 2005 Electricity Gas Cable Environment Other 513.9 331.6 49.1 103.8 36.0 delta 2006 annual report 5

3 Core values: dependability, enterprise and resourcefulness Dependability is a core value because it represents what DELTA stands for and aims for: long-term relationships with customers, employees and the community. DELTA has supplied a wide range of essential products and services for the domestic and corporate markets for decades. Dependability is also a feature of the link between DELTA and the local community in Zeeland. DELTA is a dependable partner and has formed solid relationships with customers and partners in the corporate market. Dependability is also central to DELTA s relationship with the political world and the government, because DELTA has to be able to rely on consistent and rational legislation and regulation. After the billing problems of recent years, trust between DELTA and its domestic customers in Zeeland has been restored in the past year. Enterprise refers to DELTA s willingness to look beyond its current range of activities. People in Zeeland had the courage to invest in a nuclear power station in the 1970s, the 1980s brought consolidation and expansion and the 1990s saw investment in the multiutility concept. Now, DELTA wants to move forward and expand the business. DELTA will continue to explore opportunities in Zeeland and beyond. We shall proceed with due caution, to ensure that the business remains robust and profitable in the future Resourcefulness ties in with the multi-utility concept, which is what sets DELTA apart. Other companies have opted either for only water, only energy or only environmental services. DELTA, in contrast, has skilfully and resourcefully combined its three main businesses. Resourceful enterprises like DELTA organise existing concepts and projects a little more cleverly than the rest. We shall make our new, and most assuredly innovative, investments when the time is right. Nuclear power and renewable energy are just two of the areas where DELTA is planning new moves in the near future. delta 2006 annual report 6

Chronological review of 2006 4 January DELTA has to cope with an unscheduled shutdown of the EPZ coal-fired power station for the first four months of 2006, which has a severe impact on the operating result. February ZeelandNet s new cable telephone service enjoys significant take-up right from the launch. DELTA forms the Technology & Innovation department to take charge of development and building our role in nuclear power and renewable energy. March Construction starts on the infrastructure for ZIEN, a large-scale internet project for educational institutions in Zeeland. DELTA invests in MBR (membrane bioreactor) plants, enabling it to apply its environmental and water expertise to industrial water projects. Peter Boerma joins the Executive Board.. April After a long debate, the Lower House of the Dutch parliament passes the Unbundling Act, by means of which the Minister of Economic Affairs plans to unbundle the distribution network from the production and supply company. DELTA acquires a 65% interest in Biovalue, the first producer of biodiesel in the Netherlands. DELTA acquires a 95% interest in Triqua B.V., a specialist in water treatment. May Construction starts on the Moerdijk biomass power station, fuelled by chicken manure, which will have a capacity of 35 MW. The Energy Transition Taskforce presents its report on the sustainability of the energy supply. July DELTA Environmental acquires part of the assets of Watco Industrial Services, to strengthen its Industrial Cleaning business unit. DELTA signs a joint development agreement with EdF in France defining the joint venture between the two companies for the Sloe power station. August The government ends the MEP subsidy (for renewable energy projects) with immediate effect, rendering investment in renewable energy less attractive. October DELTA Environmental acquires Stellchem, a sludge dewatering company in Stellendam, making it market leader in this segment in the Netherlands. November The Upper House of the Dutch parliament passes the Unbundling Act (now renamed the Independent Network Operation Act) but adopts a motion to strike out the provisions on mandatory unbundling. A problem at a Gasunie gas transmission station causes a major supply failure in Oost-Zeeuws-Vlanderen, but the supply is restored within 24 hours. DELTA adopts a new corporate identity embodying the core values of dependability, enterprise and resourcefulness. December DELTA s shareholders agree to expand the mandate for the construction of the gas-fired power station at Sloe in Vlissingen. Vlaamse Milieuholding selects DELTA as the purchaser of Indaver, a Belgian waste management company. DELTA acquires Stercompost, a green-waste processor in Alphen aan de Rijn. June Peter Boerma succeeds David Luteijn as DELTA s Chief Executive Officer. The managements of DELTA, EPZ and Essent and, on behalf of the Netherlands government, the Secretary of State for the Environment, Pieter van Geel, met in Goes to sign the Borssele covenant, under which the nuclear power station will remain open until 2034 and the three companies and the State assume obligations with respect to sustainable power generation. DELTA launches the Pluspunten model for the domestic and smallbusiness market, giving customers a bonus which grows the longer they have been a DELTA customer and/or as they purchase more products. DELTA and Laarakker sign an agreement for a new biodigester plant in Limburg. delta 2006 annual report 7

5 Foreword Sowing and reaping resourcefully DELTA is moving ahead. With recent acquisitions such as Indaver, we are becoming a stronger presence. But we shall not forget our roots: we are and will remain a Zeeland company, with close links with the Zeeland community. For DELTA, 2006 was a year of reaping the benefits of previous efforts. Over the past few years, we have defined our course and developed our strategy, based on independence, our multi-utility concept and our presence in Zeeland. We focus on three key product areas: environmental services (waste management), energy and water. DELTA s future in the corporate market will be based on these three activities and we are investing in them now for profitable growth in the future. We have also strengthened our position in the past year by making several acquisitions in these three key product areas. Stronger basis through acquisitions A good example is Indaver in Flanders (Belgium), in which we acquired a majority shareholding. The company is a solid addition to our Environmental Division and brings us a step closer to control of the total waste management chain. The acquisition of Solland in early 2007 is the logical next step in DELTA s solar power strategy. The planned Sloe power station will be another advance. DELTA made all the preparations in 2006 for construction to begin in 2007. When this gas-fired power station enters service in 2009, we shall have achieved part of our objective of growth in power generation. The form and content of our multi-utility strategy will be refined over the coming years. A good example is the Moerdijk biomass power station, which generates electricity from chicken manure, bringing together energy generation and waste management expertise. Our strategy also envisages the refocusing of DELTA s position. To reflect our core values and delta 2006 annual report 8

identity as an integrated business, DELTA has a new and clear visual identity, all the facets of which are covered in this annual report. Dependable As well as implementing its strategy, DELTA was also faced in 2006 with the threat of break-up of the energy companies. However, the Unbundling Act has now been passed by the Upper House of the Dutch parliament and there will be no mandatory unbundling. Our focus in 2007 will be on the future of the energy supply in the Netherlands. We believe we have a joint responsibility, with the government, to maintain the country s energy supply. In our view, that means an appropriate mix of fuels, with renewable energy and nuclear power contributing to CO 2 reduction. its network business. The electricity, gas, water and cable networks are given high priority at all times. We are aware of our obligation to continue investing, not just in our networks, but also in the knowhow, skills and motivation of our staff and in the organisation which is responsible for our impeccable network operation. We are confident of the outcome of the review of network operations conducted by DTe, our regulator. Judging by the 2006 supply interruption figures, we can also pass that test. Ensuring a dependable supply is, after all, one of the reasons for our existence. Peter Boerma Chief Executive Officer Our home market, the consumer market in Zeeland, will continue to be important for DELTA. Notwithstanding the debates on prices that flare up in the media from time to time, our prices rose less sharply at the start of 2007 than might have been expected from the cost of the products. We are still one of the lowestprice suppliers of electricity, gas and water. The digital products have really taken off and DELTA and ZeelandNet have built a good position in the Zeeland market. Summary Ensuring a dependable supply of energy is high on DELTA s agenda and on that of delta 2006 annual report 9

6 DELTA s mission, objectives and strategy Mission DELTA offers the convenience of sustainable multi-utility solutions that are innovative and future-proof. DELTA is a dependable multi-utility company, giving the reassurance of continuity of supply and a long-term relationship. We are the partner of choice for utility supply, on both the large and small scale. Vision DELTA understands that utilities, and the related infrastructure, are essential to people s lives and to the growth of the economy. DELTA also understands that there are finite limits to the traditional sources and technologies. It is imperative that we develop affordable and sustainable alternatives and solutions in waste processing and water and energy supply. DELTA foresees technological breakthroughs in the process of transition to a sustainable future in these areas, but is not yet able to predict the timing of implementation on an adequate scale. What DELTA does know is that transition from old to new sources and solutions will be a gradual process, which is why DELTA is not holding back from investing in existing electricity generation, waste management and water treatment and supply technologies. DELTA expects the ongoing process of globalisation of all markets in our three main areas of expertise to stimulate demand for independent energy supply and sustainable waste management, thus completing the chain from waste to energy. More and more ingenious solutions for sustainable water treatment are also coming forward, and the Netherlands is taking the lead. As the vast quantity of information disseminated from all kinds of sources makes the world more complex every day, there is a growing need for simplicity, convenience and tailor-made products and services. DELTA can respond by integrating products and services, supplying exactly what is needed. DELTA s objective DELTA has evolved rapidly in the past few years into a multiutility company. As well as energy, water and cable businesses, it also has an environmental services division and provides digital services via ZeelandNet. DELTA can justifiably claim to be the only multi-utility company in the Netherlands. DELTA s objective in the coming years will be sustained and profitable growth. The main focus will be on serving the energy, water and environmental needs of the corporate market. DELTA s strategy Opportunities DELTA sees ample opportunities for growth as an independent entity while preserving its Zeeland identity. To preserve its independence, DELTA must use its strengths: a stable home market, a unique multi-utility approach, sound finances and a strong position in the corporate market. DELTA aims to be an open, market-focused company that does business in an effective and professional way. While DELTA intends to accomplish this goal as an independent entity, it does not mean that DELTA will always do everything on its own. On the contrary, we are keen to form alliances which further the longterm interests of our stakeholders. DELTA Netwerkbedrijf DELTA Netwerkbedrijf is responsible for operating the regional electricity grid and the high-calorific and lowcalorific gas network in Zeeland, installing new connections, modifying existing connections and installing meters, transformers and pressure-regulating stations. The company brings to these tasks a high degree of expertise, ensuring that energy suppliers are given equal access to the networks on equal terms. The network operator provides dependable, high-quality and efficient electricity and gas transport services and meets the legal and regulatory requirements of the 1998 Electricity Act, the 2000 Gas Act and the associated regulations. It works with all network operators affiliated to the Netherlands Federation of Energy Companies (EnergieNed). delta 2006 annual report 10 As well as operating the networks, the network operator is also responsible for the Regional Centre s switching and control functions.

DELTA currently has three main activities. First, DELTA manages and maintains the networks which support its various activities: electricity, gas, water and cable. Second, DELTA delivers electricity, gas, water, cable and internet services for its domestic market of 200,000 households, mainly in Zeeland. DELTA will continue to pursue these two core activities in the future, striving for operational excellence. Third, DELTA serves the corporate market, delivering energy, industrial water and environmental services, which are to some extent interrelated. DELTA regards all of the Netherlands and neighbouring countries as its market for these activities. This is also where the medium-term and long-term growth opportunities lie. Profitable growth A growth strategy is required to meet the interests of the stakeholders. Shareholders expect a predictable, rising dividend that offers an adequate return on the capital invested in the company. Customers expect good service at a reasonable price. Employees expect in addition to a good salary opportunities for development to help them achieve their personal goals. Lastly, the community expects DELTA to act responsibly, balancing economic, social and ecological interests. Independent Network Operation Act In November 2006, the Upper House of the Dutch parliament passed the Unbundling Act, which has since been renamed the Independent Network Operation Act. The Ministry of Economic Affairs intends with this new name to indicate that the object is not so much to instigate unbundling as to ensure that networks are properly managed and maintained. The name also implies that the purpose of the legislation is transparent segregation of the networks from the r est of the business. This requires DELTA to make a number of organisational changes. DELTA s network company will take on additional activities to make it a fully-fledged network operator, and DELTA will also have to transfer its high-voltage (150 kv) transmission lines to TenneT. Energy regulator The Office of Energy Regulation (DTe) closely monitors developments and carries out regular audits. DELTA scores extremely well in these assessments and other audits. One area that demands regular attention is the substantial growth in the regulations issued by DTe, and this was also the case in 2006. These regulations are not always practical and can result in complicated processes, including processes involving customers. Given its financial position, DELTA will have several promising investment opportunities in power generation, waste management and industrial water in the next few years. DELTA is therefore well placed to achieve profitable growth. DELTA has the choice of making these investments and acquisitions alone or in partnership with others. DELTA s growth strategy can be summarised as follows: expansion of electricity generating capacity, both renewable (solar, biodiesel) and conventional, to about 2,500 MW; expansion of environmental activities, with the focus on waste management; strengthening its position in the water sector by expanding its activities in industrial and waste water, water treatment plant and water engineering in particular. DELTA will continue to be fully committed to: providing Zeeland s economy with a wide range of utility services at a competitive price; managing the network infrastructure in its supply area as efficiently as possible and extending it where necessary. delta 2006 annual report 11

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Divisions and products 7 Through innovative developments, we are helping to reduce light pollution and improve traffic safety delta 2006 annual report 13

LED cat s eyes being installed at Renesse delta 2006 annual report 14

7 Divisions and products Tekst volgt Energy Division Leading the field in power station construction True to its core values of dependability, enterprise and resourcefulness, DELTA made good progress with its new power station programme in 2006. Contracts for the construction of the Moerdijk biomass power station (BMC) contracts were signed in April and a decision was reached with our partner EdF in early 2007 on a joint project to build the Sloe power station. DELTA is leading the field in the construction of new power stations whose efficient design will make a major contribution to reducing CO 2 emissions. DELTA intends to sustain and extend this policy in the future, because new power stations will help to safeguard the continuity of Dutch electricity supply. The Energy Division operates across the entire supply chain, from electricity generation and fuel purchasing to industrial end-user sales. The Energy Division has a professional trading floor on which electricity and fuels are traded on the wholesale markets. With its vertically integrated mix of activities, the Energy Division is strongly positioned in an evolving market, which it strives constantly to supply with more and better products. DELTA is the most highly diversified energy company in the Netherlands in terms of the mix of fuels it uses to generate power, including coal, gas, wind, biomass and nuclear. Gas-fired combined heat and power plants also make a significant contribution to energy efficiency. Using a mix of fuels enables DELTA to cope with fluctuations on the international commodity markets. Although many promising forms of renewable energy are coming forward, we shall not be able to rely on them taking over from fossil fuels for electricity generation in the near future. Reducing CO 2 emissions will, of course, be a major consideration when assessing investment proposals. With that end in view, DELTA wants to seriously investigate the feasibility of building a new nuclear power station. The unscheduled shutdown of the coal-fired power station was the greatest setback suffered by DELTA in 2006, because we had to maintain the supply to customers despite a serious shortage of generating capacity which lasted four months. This shortage had to be made good with purchases on the market, at significantly higher cost. An investigation has been conducted into the precise causes of this problem and the lessons that can be learned for the future. Life of Borssele nuclear station extended The new lease on life given to the Borssele nuclear power station was welcome. Now we have the assurance that the station can remain in service until 2034, further investments can be made in the facility. The agreement with the government means that the Netherlands will continue to enjoy environment-friendly CO 2 -free electricity from a safe power station. The new Nuclear Energy Act and the memorandum defining the preconditions create a good basis for new developments in the nuclear energy field. delta 2006 annual report 15

7 Divisions and products DELTA has stated its willingness to participate in the public debate on the possibility of increasing the number of nuclear power stations. There is increasing political and public support for this option, given the technology s safety record, the shortages of fossil fuels and the concerns about CO 2 emissions. As part of the agreement with the government, DELTA has undertaken to make substantial investments in low-co 2 electricity generation in the coming years. Sloe power station on schedule Good progress was made in 2006 towards realisation of the 860 MW gas-fired Sloe power station. A permit was issued in April 2006, following the dismissal by the Council of State of an appeal brought by environmental groups, and the tendering procedure could begin. The procedure will be completed in early 2007. In the first half of 2006, DELTA formed a partnership with the French company EdF to share the project 50:50, and in July DELTA and EdF entered into a joint development agreement which sets out the main parameters. A new, broader-based mandate for the Sloe project, which was needed because the delay had increased the estimated cost and a different financing structure had been chosen, was granted by DELTA s shareholders in 2006. Of all the power-generation initiatives announced in the Netherlands in recent years, the Sloe power station is still leading the field. Work on laying the Zuid-Beveland pipeline to deliver gas to the Sloe power station is also on schedule. Wind DELTA continued to invest in renewable energy in 2006. At last, after more than nine years, all the permits were obtained for the wind farm on the Anna-Mariapolder. The Distridam wind farm on the Maasvlakte has been operating since September. Construction of biomass power station started Construction started in 2006 on the Moerdijk biomass power station project, a 35 MW station fuelled by chicken manure which will have capacity to supply 90,000 households. This power station, which is due to enter service in 2008 and is the only one of its kind in the Netherlands, is being built and operated in conjunction with a number of partners, including suppliers of chicken manure. Market developments DELTA s trading floor, which was expanded last year, represents a structured response to the growing opportunities, both national and international, arising from the linkage between markets in the Netherlands, Belgium and France, the clearing opportunities offered by Endex and CO 2 trading. Decisions at EU level have an increasingly significant effect on pricing and will continue to do so. Ever higher requirements are being made on the trade by all kinds of regulatory and other bodies. As well as the price in absolute terms, price volatility is also a significant parameter. Price volatility was a factor in CO 2 emission trading last year, especially in the first half. Market conditions, production and scarcity are not the only contributory factors: CO 2 trading is also strongly influenced by political decisions. DELTA s market share in the various segments continued to grow in 2006. DELTA is well positioned in the medium-sized and largebusiness markets and has a balanced customer portfolio. The Energy Division has many foreign customers in the Netherlands. DELTA is working with large purchasing combines and customer consortiums with growing success. In cooperation with the other divisions, good progress was made on multi-utility projects in 2006. delta 2006 annual report 16

Environmental Division Facing the future bigger and stronger For the Environmental Division, dependability, enterprise and resourcefulness mean that safety and sustainability are paramount. The division displayed enterprise in many areas in 200, with targeted acquisitions and investments in its sector. With safety, profitability and sustainability as its watchwords, the division offers a wide range of environmental services, mainly for the corporate market. It is active in many areas, from landfill disposal, composting and incineration to recycling, industrial cleaning, hazardous waste processing, waste-water treatment and sludge dewatering. The Environmental Division has also formed public-private partnerships with municipal authorities. Growth in processing capacity The Dutch waste management market, which improved markedly in 2005, remained good for both incineration and landfill in 2006. Landfill enjoyed a record year, benefiting both the AZN incinerator in Moerdijk and the landfill sites in Zeeland and Dordrecht. AZN s shareholders, Essent and DELTA, decided at the end of 2006 to construct a fourth furnace line in response to the growing demand for incineration capacity. A major event for DELTA in the environmental sector in 2007 has, of course, been its successful bid for Indaver, the Belgian waste management company. This has given DELTA considerable extra incineration capacity, which is conducive to DELTA s aim of optimising the waste management mix. The transaction was completed in early 2007. Environmental operates several composting sites. Quality assurance and ongoing investment in the treatment process enable DELTA to turn green waste into a high-value product. The compost it produces meets the strict environmental and hygiene standards set by the Decree on the Quality and Use of Other Organic Fertilisers (BOOM). Working with Laarakker in a joint venture now named Ecofuels, DELTA started building a biodigester plant in Limburg in 2006. This plant, which generates green electricity (used for heating greenhouses) from green waste and other materials from the food and drink industry, is an excellent example of the multiutility concept in action. Stercompost in Alphen aan de Rijn was acquired in 2006. Expansion for Watco and Stellchem It was decided in 2005, a difficult year, to make expansion one of the priorities for 2006. Size is important in winning large orders, especially in this sector. DELTA Environmental acquired part of the assets of Rotterdam-based Watco Industrial Services b.v. (a subsidiary of Fabricom-GTI/ SUEZ) in 2006. The transfer of assets, which involved plant and equipment, some of the staff and the customers, enabled DELTA to expand its industrial cleaning base in the southwest of the Netherlands, while making more effective use of its equipment, helping to cover overheads and creating scope for further professionalisation. The acquisition included some 70 production staff and the sites in Rotterdam and Bergen op Zoom, which complement DELTA s existing locations in Zeeland. The acquisition has almost doubled the size of DELTA s of industrial cleaning business and Watco s activities fit seamlessly with DELTA s existing operations. Composting is a growing business. After a number of acquisitions in recent years, DELTA is now one of the leading processors of green waste in the south of the Netherlands and DELTA delta 2006 annual report 17

7 Divisions and products In September, DELTA acquired Stellchem in Stellendam, which specialises in: contaminated water treatment and sludge dewatering using mobile plant; hiring equipment with operators, including chamber filter presses, sieve-belt presses, centrifuges and sludge dewatering equipment, with the option of purchase; advising on and executing environmental projects, cleaning and waste management. Stellchem is a good fit with DELTA Impex s environmental and waste management business, making DELTA the market leader in the Benelux in this sector. Dependable Zeeuwse ReinigingsDienst (ZRD), a joint venture between DELTA s Environmental Division and the Zeeland municipalities, operates waste disposal sites in all municipalities in Zeeland. The thirteenth site, in Hulst, was opened in May 2006. Residents can take separated waste to these sites, which keeps processing costs low and maximises recycling. Wood, metal, building rubble, domestic appliances and many other items are reused, processed or recycled. Recycling facilities make a key contribution to achieving national environmental targets. In some municipalities in Zeeland, ZRD also provides door-to-door domestic refuse collection. ZRD s range of services expands from year to year. The company is a good example of intermunicipal cooperation, at a time when local authorities are having to keep a close watch on costs and are reviewing their core activities. The outcome of these deliberations may well create new opportunities, both for the municipalities and for ZRD. Summary After the acquisitions of recent years, and especially those made in 2006, the current year will be devoted largely to integration and consolidation, so we can create more added value and benefit from synergy. delta 2006 annual report 18

Development & Water Division Nucleus for growth For the Development & Water Division, dependability, enterprise and resourcefulness equate to safeguarding a secure and reliable energy supply by investing in new sustainable solutions. The Development & Water Division seeks growth through targeted investments and acquisitions which are related to DELTA s existing activities. It therefore forms a separate nucleus, slightly removed from DELTA s conventional activities, which acts as a nursery for new developments in energy generation and water management enterprising and resourceful at the same time. It focuses on technologies and techniques in which breakthroughs are imminent. The division is also looking at partnerships, either with companies similar to DELTA or with investment companies, venture capitalists and knowledge institutions. In its pioneering work, the Development & Water Division seeks to cooperate with other DELTA divisions, thus putting the multi-utility concept into practice. The Development & Water Division is a young division of DELTA, but it already has a number of interesting acquisitions and investments to its name. Apart from its development activities in the energy sector, the Development & Water Division s other main focus is DELTA s interest in Evides. In this context, the division is developing its own water technology activities. Water is, after all, one of DELTA s key product areas. Major player in water treatment DELTA has a 50% interest in Evides, the second largest water company in the Netherlands with more than one million domestic and business customers. Evides enjoyed another excellent year in 2006, the combined effect of internal efficiency and stable prices. Evides will not increase its water prices for the next five years. In addition to its interests in the water supply sector, the Development & Water Division is also active in waste water treatment and other industrial water activities. DELTA is investing in more membrane bioreactor (MBR) plants for business customers. MBR offers customised solutions in both technology and project management. These investments, undertaken jointly by the Environmental and Development & Water Divisions, mark the interface between water and the environment. DELTA has taken a substantial (95%) interest in Triqua BV, a specialist in water treatment which offers high-quality solutions and equipment, chiefly for the industrial, offshore, marine and domestic sectors. Triqua also provides consultancy services and has a good customer network. This acquisition was a significant step for DELTA, reinforcing its position as a major Dutch player in the water treatment market. Partly due to European legislation, the market is expected to grow strongly in the next few years. Developing sustainable initiatives DELTA shares the view that fossil fuels will continue to be used for power generation in the years ahead but appreciates that investments in renewable energy will be needed in the coming decades to develop alternatives for the future. DELTA wants to play its part in these developments and undertook significant activities last year in renewable energy, in particular solar power and biodiesel. From sand to sun One investment in solar power in 2006 was the acquisition of an interest in Sunergy Investco, which invests in innovative production methods for solar panels. Sunergy Investco forms the core of DELTA s solar power activities, which are focused on technological development. Sunergy Investco, which achieved further growth in 2006, undertook a reorganisation of its ownership structure last year, enabling DELTA to acquire a majority stake. Investments were made last year in developing the production of solar-grade silicon, the basic material used in solar cells. In this context, DELTA also delta 2006 annual report 19

7 Divisions and products DELTA appreciates that investments in renewable energy will be needed in the coming decades to develop alternatives for the future. acquired Natec, a supplier and installer of PV panels. DELTA/Sunergy made a successful final bid for Solland, a solar power company in Limburg, at the end of 2006 and the transaction was completed in early 2007. Biodiesel Another fundamental step was the acquisition of a majority interest (65%) in Biovalue in Groningen, which is constructing the first biodiesel plant in the Netherlands. The biodiesel is made from vegetable oil that Biovalue produces itself, much of it coming from rape seed. Biovalue has a unique production process that produces no waste and requires little energy for the production process. The biodiesel it produces, which can compete with conventional diesel, saves 115,000 tonnes of CO 2 emissions per year. Summary In conjunction with DELTA Environmental, the Development & Water Division is looking at waste treatment processes based on combined heat and power generation. This is consistent with DELTA s strategy of integrating energy and waste management, another example of which is the burning of biomass in the coal-fired power station. As part of the Borssele covenant, DELTA will also be making substantial investments in reducing CO 2 emissions from power generation over the next few years. Dependable partner The Development & Water Division has close relationships with academic institutions and other knowledge centres, from universities and colleges to ECN and TNO, which play a vital role in training and research and development. DELTA aims to forge even closer links and involve them more closely in its activities in the coming years. delta 2006 annual report 20

Infrastructure Division The customer deserves even higher quality For the Infrastructure Division, dependability means giving domestic and business customers the reassurance that crucial networks are well managed, maintained and where necessary repaired to ensure continuity of supply of gas, water, electricity and internet services. Enterprise means that the maintenance function employs the latest techniques. Resourcefulness is exemplified in DELTA s multi-utility concept, ensuring that work on the networks is effectively coordinated. The Infrastructure Division provides a range of services for DELTA s other divisions, and hence for all customers. It focuses on construction and maintenance of the infrastructure of the various networks for electricity, gas, water, heat and telecommunications. Sustainability, dependability and state-of-the-art technology are paramount. The division s long-term investments ensure that we can also respond quickly to incidents. As well as building and maintaining the networks, DELTA Infrastructure is responsible for metering consumption. Data management is becoming an increasingly significant element in DELTA s pursuit of operational excellence. In 2006 DELTA kept up the good performance achieved in recent years in building and maintaining the networks and consumption metering. Investing in improvement is the watchword The Infrastructure Division has undergone major changes in the past few years. Like many other parts of the company, the Infrastructure Division is moving towards a process-based approach to its activities instead of a task-based approach. For example, the Distribution Department is increasingly organising work preparation, materials supply and implementation as a single process, from customer request to completion and administrative sign-off of the work. Further progress was made in 2006 in raising service levels. A Customer Service Desk was set up, to provide front-line technical assistance and act as a single point of contact for customers. DELTA also invested heavily in further automation of a range of meter-reading activities and other equipment. Resourceful deployment of smart meters Several trials with smart meters in the smallconsumer sector are in preparation in the Netherlands and all energy companies are affected by this new development. The announcement by the Minister of Economic Affairs in the first half of 2006 of policy proposals for a new market model for small energy consumers raised the prospect of mandatory introduction of smart meters in the Netherlands. DELTA set up a project group, comprising representatives of the Comfort and Infrastructure Divisions and the network operator, to draw up plans for introducing smart meters in its service area, with specific reference to the consequences of large-scale introduction and having regard to DELTA s multiutility concept (including water meters). The first pilot trials, which will start in 2007, will be testing the technology, data communication and impact on the organisation and systems. Safe working By improving processes and equipment, we also improve the safety of our employees and others. The Infrastructure Division achieved a milestone in 2006: 250 days with no time lost due to accidents. Safety is important for temporary staff and third-party staff (contractors) as well as for our own employees, and will again be a priority in 2007. Street lighting The street lighting business unit (OV) has been transferred from the Energy Division to the Infrastructure Division, bringing all the departments involved with street lighting under the same division. The business unit specialises in providing a full range of lighting services for local authorities. OV will in future focus also on commercial services, encompassing environmental aspects, operation, safety and aesthetics. OV will be working with Philips on LED cat s eyes in 2007. Six priorities: Network availability Customer satisfaction Efficiency Employee satisfaction Safety Growth delta 2006 annual report 21

7 Divisions and products Dependable in emergencies Most of the time, the networks operate well, with no interruptions. Our employees and those of the network operator responded promptly to the failure of the gas supply in Oost-Zeeuws- Vlaanderen at the end of November, caused by a fault at a Gasunie transmission station. Cooperation with other parts of DELTA (call centre, communication, management) and with the authorities was good. Several minor outages (including one affecting the high-voltage transmission line at Hansweert) were also dealt with expediently. Summary The focus in 2007 will be on providing a faster service to customers without compromising reliability or customer satisfaction. As well as regular investments, additional capital expenditure on several special projects, such as the construction of the Zuid-Beveland pipeline, is planned. The Infrastructure Division will also investigate the opportunities for further commercial activities. Annual outage duration Low-voltage and medium-voltage networks delta 2006 annual report 22

Comfort Division Multi-utility: even more benefits for customers For the Comfort Division, dependability, enterprise and resourcefulness mean ensuring that domestic and small-business customers can continue to rely on competitive prices and a good level of service. The Comfort Division is the face DELTA presents to the market in Zeeland, supplying multi-utility products: electricity, gas, cable radio and TV, cable telephone and internet (ZeelandNet) to the domestic and small-business market. Good progress was made in further improving the level of service to these customer groups in 2006. The Comfort Division is constantly looking for new opportunities to make the multi-utility product attractive to domestic customers. Resourcefulness is exemplified by ZeelandNet s new products and services, which are in every way competitive with those of other providers. In early 2007, the European Commission announced that the market mechanism in the Netherlands was an example for the rest of Europe, concluding that deregulation had been implemented properly. That does not mean that everyone is frequently switching supplier, but that there is freedom of choice and transparency. Fortunately, DELTA again succeeded in limiting the number of customers opting for another supplier in 2006, as many early switchers returned. It is significant that DELTA has now put behind it the billing problems it faced in 2004 and 2005. There were still some after-effects in 2006, such as payment arrears, but the causes of the problems have been solved. Billing and other aspects of customer service demand constant attention and, in this context, sector-wide arrangements have been made to improve the transparency and execution of administrative processes. DELTA s Pluspunten loyalty scheme was launched in June 2006 to replace the package structure. Under this new programme, which enables customers to put together their own package of products and services, a point value is attributed to each product and service as well as being related to the number of years the customer has signed up for. The programme is aimed at the domestic market and is designed to tie loyal customers even closer to DELTA. Participants receive a bonus in December, based on their score. Take-up has been massive, as people opt for certainty and lower costs. DELTA Comfort is identifying more individual target groups (such as young people, senior citizens, schools and shops), so that it can target specific products and services more effectively. Multi-utility Benefits of the multi-utility concept for the corporate market: relieving customers of worry so that they can focus on their core business; closer relationships between customer and supplier; shift from products to service; combination and integration of products and services; coordinated management of all utilities on industrial sites. Examples of multi-utility services for the corporate market: waste water treatment; biodigester plants generating green power. Benefits of the multi-utility concept for the domestic market: convenience, because all products come from one supplier; cost and therefore price benefits; loyalty programme (DELTA Pluspunten scheme). Examples of multi-utility services for the domestic market: complete energy, water and cable service packages; triple-play packages. delta 2006 annual report 23

7 Divisions and products Improving service Cost-awareness and speed The Comfort Able programme was set up in 2006 in response to growing competition in the various sub-markets. Cost-awareness and speed have become crucial to survival. The main aim is to create a single organisation with a shared focus covering all disciplines to ensure optimum quality of service for our customers. Carefree dependability ZeelandNet, DELTA s provider of products and services for the domestic and small-business markets, maintained its position as a strong element of the Comfort Division in 2006 and continued to grow its customer base in 2006. The sector is clearly still a growth market. Thousands of people visit ZeelandNet s open days and ZeelandNet s relationships with its customers are multifaceted. New facilities and extra packages and modules have been introduced for intensive users, such as Surf Safe. As well as growing its customer base, ZeelandNet has also deepened customer relationships by offering more products per customer. Special internet products and services have been launched for senior citizens. After launching digital television in 2005 (now with many more themed channels), ZeelandNet started offering cable telephone in early 2006. Many customers signed up for this option, which includes a range of additional facilities. The Eurodocsis network was been further expanded to diversify the product range in the next few years to include high-tech digital products. This platform allows ZeelandNet to offer new services at the desired speed now and in the future. Triple play is now a reality. Having acquired the large ZIEN project to provide internet for educational institutions in 2005, ZeelandNet built the infrastructure in 2006. All schools (primary, secondary and vocational) and libraries in Zeeland have been using the high-speed infrastructure and internet connections since 1 April 2006, giving them access to broadband services offered by SURFnet and Kennisnet which have been specifically developed for educational purposes. Initial experience with ZIEN has been excellent. Summary ZeelandNet will continue to develop its products and services in 2007. The Comfort Division will be exploring additional products and services that could be attractive to domestic customers in Zeeland. Major advances will be made with the Comfort Able project in 2007. Further simplification of the administrative processes and reduction of the cost-to-serve will continue to be priorities. delta 2006 annual report 24

Technology & Innovation With an eye to the future, DELTA set up the Technology & Innovation Department in early 2006. This small holding company department focuses on new developments, chiefly in the energy sector, based on applied technology. Reduction of CO 2 emissions is a key driver for this department. The technological developments relate to four solutions for reducing CO 2 emissions: energy-saving; clean fossil fuels; renewable energy; nuclear power. The Borssele covenant entered into in June 2006 has the same objective in view: investment in carbon reduction. DELTA is pursuing five routes: green fuels (e.g. torrefaction); sustainable mobility (e.g. CNG as vehicle fuel); clean substitutes for fossil fuels (e.g. SNG from waste); sustainable power generation (e.g. upgrading of wind farms and tidal power); energy chain efficiency (e.g. waste heat recovery). DELTA is making progress on all these routes and accepts the necessity of using a mix of fossil fuels, renewables and nuclear in the coming decades. The Technology & Innovation Department has taken the first steps towards implementation of the undertakings given in the Borssele covenant, contracting an external party to manage the innovation fund (2x EUR 25 million) and defining DELTA s proposals for the EUR 100 million fund. The department also maintains contacts with the government on energy transition and with universities and research institutes such as ECN, TNO and Kema. Customer Service Centre DELTA is constantly seeking new opportunities to provide service points for domestic and small-business customers. Customised services and a dense network of service points are key. The Customer Service Centre (CSC), set up in 2005 mainly for customers of the Comfort Division to offer integrated services, has been further professionalised and is now operating as a company-wide shared service centre. Its main activities last year included: eliminating the last of the backlog of bills and customer queries in early 2006; addressing the arrears issue (collecting overdue payments, instalment arrangements); drawing up and managing covenants with municipal social services and credit banks; liaison on DELTA s Pluspunten programme; acting as an emergency call centre for the Province of Zeeland; preparing reports for the Office of Energy Regulation (DTe). delta 2006 annual report 25