Annual Report 2005 · Consolidated accounts summary 26 Change in the companies in the Cegedel Group 27 Comptes annuels 2005 Consolidated annual accounts 60 Annual accounts of Cegedel

Annual Report 2005

Contents

Introduction

The pioneers of electricity 7

Cegedel’s mission and values 8

Key figures 9

Corporate bodies as of 31 December 2005 10

Message 12

The economic and energy environment 15

Highlights 17

Management report

The Cegedel Group 24

Consolidated accounts summary 26

Change in the companies in the Cegedel Group 27

Comptes annuels 2005

Consolidated annual accounts 60

Annual accounts of Cegedel S.A. 90

Thomas Alva EDISON(1847 - 1931)

American inventor and indus-trialist, Edison was universally acknowledged as one of the most prolific inventors. several of his inventions and practical ideas, such as the telephone, incandescent electric light bulb, gramophone and cinema, com-pletely transformed the life of his contemporaries.

CegedelRegistered as a Société anonyme

under Luxembourg law with capital of EUR 134,500,000

Headquarters: Strassen (Luxembourg),

R.C.S. Luxembourg B4513

Annual General Meetingof 9 May 2006

Reports presented to the Annual General Meeting of

Shareholders by the Board of Directors and the statutory

auditors

Reports and annual accountsfor the 2005 financial year

2005 - 77th financial year

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James WATT (1736 - 1819)

scottish engineer who gave his name to the unit

of power (symbol W) still used today. The main

multiples and sub-multiples used are: megawatt

(MW), kilowatt (kW) and milliwatt (mW).

James WATT’s contribution to the field of science

and technology was outstanding and he was

admitted into the French Academy of sciences

in 1814.

Introduction

AnnuAl RepoRt 2005

intRoduCtion 7

It is impossible to imagine life today

without television, computers, the

electric oven or the internet.

However, none of these electrically-

powered inventions would have been

possible, without the scientists and

inventors who, over several centuries,

unlocked the mysteries of electricity

with their experiments and studies

for the benefit of man’s everyday life.

In ancient times, Thalès of MILET

discovered that a piece of semi-pre-

cious stone, yellow amber, developed

a mysteriously attractive force when

rubbed vigorously against material or

animal skin. As ‘elektron’ is the Greek

for yellow amber, researchers called

this force ‘electricity’.

It was only hundreds of years later

that man became preoccupied once

more with the phenomenon of elec-

tricity. However, the electric current

we use now was only discovered at

the end of the 18th century by the

Italians GALvAnI and voLTA.

In respect of the Grand Duchy, it

is worth noting that thanks to the

inventor Henri owen TUDoR, who

lived in Rosport, the town of Echter-

nach was one of the first in the world

to have public lighting in 1886.

over the centuries, an increasing

number of machines and applian-

ces appeared that were powered

by electricity. The success of these

practical inventions created more and

more demand for electric power. As

it is not a natural element, electricity

had to be produced and transmitted

before it could be used, and this led

to the creation of the first power

stations and electricity networks.

Growth was extremely rapid. nearly

all appliances used in everyday life

and at work rely on electricity, from

the razor to the toaster and the

computer to the lift. More than any

other previous technological revolu-

tion, electricity liberated man from

manual work.

This annual report uses photos

and illustrations to help the reader

(re)discover the different scientists

and inventors who contributed

to the rise of electricity through the

centuries.

We hope you enjoy reading about

electricity’s fascinating history.

The pioneers of electricity

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AnnuAl RepoRt 2005

Cegedel’s mission

Cegedel’s mission is to procure, trans-

mit and distribute electricity within

Luxembourg, both reliably and at

competitive prices.

In carrying out this mission, the

company respects its public ser-

vice and environmental protection

obligations, while at the same time

adapting to liberalisation of the

European electricity market. It seeks

to establish relations of trust with all

customers, based on the quality of

its service and its advice on efficient

energy use.

Cegedel’s mission also involves

capitalising on its expertise, size and

geographical positioning to diversify

into fields close to its core business.

Cegedel strives to carry out its acti-

vities in the interests of all parties

concerned, namely customers, the

general public, staff, shareholders

and public authorities.

Cegedel’s values

The company recognises that certain

values are essential for accomplishing

its mission.

As a result, it strives to foster a public

image founded on the quality of its

services and customer satisfaction, as

well as its respect for people, pro-

perty and the environment.

To this end, it capitalises on the skills

and efficiency of its staff and endea-

vours to create working conditions

that allow staff to fulfil their poten-

tial in a safe working environment.

Lastly, the company aims to ensure

that its internal culture is founded

on teamwork and initiative, as well

as a spirit of openness and loyalty

common to one and all.

Cegedel’s mission and values

AnnuAl RepoRt 2005

intRoduCtion 9

Consolidated profit and loss account (amounts according to iFRS)

euR million 2004 2005 change

Sales 387,80 539,78 39,2 %

EBITDA* 88,83 86,13 - 3,0 %

EBIT (operating profit) 56,73 54,48 - 4,0 %

net profit, group share 47,42 52,35 10,4 %

* earnings before interest, taxes, depreciation and amortisation

Consolidated balance sheet (amounts according to iFRS)

euR million 2004 2005 change

Investment in fixed assets 34,31 35,00 2,0 %

Shareholders’ equity, group share (including profit for the year) 344,82 381,27 10,6 %

Total assets 482,63 585,06 21,2 %

per share data

2004 2005 change

Gross dividend per share (EUR) 2,50 2,75 10,0 %

net dividend per share (EUR) 2,00 2,20 10,0 %

Gross dividend yield per share at year-end 4,03 % 3,67 %

Price-earnings ratio (based on share price at year-end) 8,79 9,63

Share price at year-end (EUR) 62,00 75,00 21,0 %

2004 2005 change

Flow of power transmitted to networks (GWh) 4.415,4 4.487,8 1,6 %

Maximum output of networks (MW) 673,1 700,2 4,0 %

Length of networks (km) 7.008 7.093 1,2 %

Average (Cegedel and Cegedel net) 501 499

Key figures

Cegedel S.A., which is a listed company, is obliged to publish its consolidated accounts in compliance with International Financial Reporting Standards (IFRS).

The financial statements for the 2005 financial year must therefore be comparable with those of the previous year. The 2004 accounts prepared according to LuxGAAP therefore had to be revised in line with IFRS by means of an opening balance sheet in addition to the 2004 profit and loss account and the balance sheet as at 31 December 2004.

For this reason, the consolidated figures for 2004 in this annual report are no longer comparable with those in the 2004 annual report. These restatements are indicated in the notes to the consolidated financial statements in notes 2.1.and 2.2., pages 69 and 70.

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AnnuAl RepoRt 2005

Honorary Chairman: M. Alfred GIULIAnI

Board of Directors: M. Roland MICHEL, Chairman

M. Etienne SCHnEIDER, vice-Chairman

M. Willy BoSMAnS, Member of Board

M. Romain CRUCHTEn, Member of Board

M. Jean-Paul HoFFMAnn, Member of Board

M. Charel HUTMACHER, Member of Board

M. Gaston REInESCH, Member of Board

M. Werner RooS, Member of Board

M. Carlo SCHooS, Member of Board

M. Jacquot SCHWERTZER, Member of Board

M. Patrick THEIn, Member of Board

M. Frank n. WAGEnER, Member of Board

M. Théo WEBER, Member of Board

Government

Commissioner: M. Tom EISCHEn

Management

Committee: M. Romain BECKER, Chairman,

Chief Executive

M. André BALDAUFF, Member, Director

M. nestor DIDELoT, Member, Director

M. Carlo BARToCCI, Member, Deputy Director

Management

of Cegedel Net: M. Georges BonIFAS, Director

Corporate governance bodies as at31 December 2005

AnnuAl RepoRt 2005

intRoduCtion 11

Romain BeCKeR

Chairman,Chief Executive

nestor didelot

Member,Director

Carlo BARtoCCi

Member,Deputy Director

Georges BoniFAS

Director

André BAldAuFF

Member,Director

Management

of Cegedel net

Management

Committee

of Cegedel

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AnnuAl RepoRt 2005

Has the liberalisation of energy markets been a success?

Four years after the European summit

in Barcelona agreed on the liberali-

sation of energy markets - on 1 July

2004 for non-domestic users and on

1 July 2007 for domestic users - there

has been a wave of consolidation

among European energy companies.

Like in a game of ‘energy monopoly’,

the players involved have made a

range of moves. These included a

takeover bid by Gas natural for its

Spanish compatriot Endesa, Endesa’s

attempted acquisition of Germany’s

E.on, the announced merger of Gaz

de France and Suez to avoid Suez

being taken over by Italy’s Enel, the

merger of Enel and Eni in Italy and,

going back to 2003, E.on’s purchase

of Ruhrgas in Germany.

European ministers were initially

aiming to stimulate growth in the Eu-

ropean economy by introducing com-

petition into energy markets in an

effort to lower prices. Today Europe

is also worried about its security. The

year 2006 began with two crises in

the energy sector: the fight between

Moscow and Kiev over the price of

gas supplied to the Ukraine, closely

followed by a confrontation between

Iran and the West on Tehran’s nuclear

programme, which could lead to

reprisals on the oil front and create

tensions on the international mar-

kets. The stability of gas and oil

markets therefore seems to be under

threat, which has inevitably led to

price rises, including electricity prices.

Given these developments, European

countries are looking to respond by

creating strong entities at national le-

vel, generally offering both electricity

and gas. The European Commission

frowns upon these developments. It

is not so much against the principle

of companies merging, but worried

that such moves are essentially de-

signed to protect national markets

by stifling competition. ‘Europe will

not deal with globalisation by having

twenty-five mini-markets for energy,’

José Manuel Barroso, President of

the European Commission, recently

commented. In fact, apart from the

principle of market deregulation,

there is no real European energy

policy, as each country has its own

views on the role of hydrocarbons,

for example, or nuclear energy. This

also explains the trends and attempts

to establish national champions.

And where is Luxembourg and

Cegedel in this ‘European cham-

pionship’? A merger of Luxembourg

electricity and gas operators would

certainly be a scenario to recom-

mend to policy-makers in the light

of trends in neighbouring countries.

In view of the size of our economy

and exposure to foreign competition,

there would definitely be no ques-

tion of the creation of a cartel, and

yet Cegedel’s initiatives have yet to

bear fruit. nonetheless, a merger of

forces would be a good idea, given

the economic and commercial weight

of competitors emerging all over Eu-

rope. Pressure on margins is already

being felt, and while Cegedel’s results

remain very respectable overall, it

is clear that market deregulation is

not always working satisfactorily, as

following two examples show.

The cost of procurement is actually

rising sharply. This trend is clearly

contrary to the expectations of custo-

mers, who would have hoped to see

lower prices in the wake of liberali-

sation. Yet the beneficial effects of

competition have been offset by the

strong rise in the cost of electricity on

European markets, due in particular

to the increase in the cost of energy

Message

AnnuAl RepoRt 2005

intRoduCtion 13

resources, but also to the practice

among producers of gearing their

prices to the market rather than

basing them on generating costs. As

an importer for most of the needs

of Luxembourg’s grid, Cegedel is ex-

posed to these trends and had to put

up its sales prices on 1 January 2006.

We also regret the disappearance of

long-term products from electricity

markets. This is why consideration is

being given to greater involvement

in electricity generating projects in

Luxembourg and abroad.

However, it is worth noting that the

deregulation of electricity and gas

markets in Luxembourg has not been

moving at an equal pace. While a gas

company can easily canvas for new

electricity customers, the opposite is

not true because the procedures for

competitors to supply gas have yet to

be finalised. This imbalance in market

liberalisation is a real problem and

detrimental to our company.

We therefore have our work cut out

at both national and municipal level.

‘The energy market file has been

opened, but not the one on energy

policy’ complained a French Euro-MP

in an article on community policy in

Le Monde. nationally, we continue to

advocate the simultaneous deregu-

lation of gas and electricity markets

as well as greater collaboration

between Luxembourg operators. The

same also applies to infrastructure,

where both the Commission and

electricity industry bodies (Eurelec-

tric, ETSo, regulators) are calling for

national markets to be opened up

by more interconnections - another

reason for joining forces, in line with

current trends, to help us defend our

company’s interests in the face of

competition.

Roland MICHELRomain BECkER

Romain BeCKeR Roland MiCHel

Chief Executive Chairman of the Board of directorsChairman of the Management Committee

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AnnuAl RepoRt 2005

Ladies and Gentlemen,

In accordance with the law and our company’s articles of

association, we have convened this Annual General Meeting

in order to report on the company’s activity in 2005, the

seventy-seventh financial year since it was founded on

27 March 1928, and to submit the accounts for the year

ended 31 December 2005 for your approval.

Before reporting on the results of the Cegedel Group and the

Cegedel parent company, we would like to give you a brief

overview of the economic environment and the developments

in the power sector that characterised 2005.

AnnuAl RepoRt 2005

intRoduCtion 15

Following the tsunami that devas-

tated the coastline of South-east

Asia, the forces of nature once more

ravaged many regions of the world.

Among them, Hurricane Katrina,

which destroyed new orleans and

vast areas of Louisiana, will remain

particularly etched in people’s

memories, as it highlighted the lack

of preparation and vulnerability of

the world’s richest countries in the

face of natural disasters. Also, the

question of climate change is now

becoming a major concern in our

societies, including those traditionally

geared towards achieving tangible

short or medium-term economic

outcomes.

Economic performance has continued

to vary around the world. Whereas

the United States, Russia, and in-

creasingly China and India have seen

strong growth rates, other geogra-

phical areas have barely managed

any gains at all.

The year 2005 also saw a sharp rise in

energy costs.

As for Europe, it is struggling to

find its identity and move forward.

The economic and energy environment

Growth was generally weak, keeping

unemployment high and sparking

adverse reactions in some western

European countries to emerging

economies and immigration from the

east. Yet most large companies have

been able to consolidate the improve-

ment in their results since 2003.

Having reduced much of their debt,

many have stepped up their M&A

activities in their concern to increase

their competitiveness in what is now

a global market.

Under the Luxembourg presidency,

the Stability and Growth Pact drawn

up in 1997 to monitor budget poli-

cies within the eurozone has been

relaxed. After long and protracted

deliberations, the European Union

budget for 2007-2013 has been

adopted under the UK’s presidency

at a level some consider insufficient

to guarantee effective community

policy.

Europeans’ questioning and hesita-

tion by about their future role and

options was reflected in the French

and Dutch rejection of the European

Constitution. Yet without a complete

overhaul of its institutions, Europe

is unlikely to be in a position to

respond properly to the challenges

it faces industrially, environmentally,

competitively and on the energy

front.

on this front, security of supply is a

particularly pertinent issue. This was

illustrated by the conflict between

the Ukraine and Russia concerning

gas. The stand-off, which led to the

temporary suspension of gas supplies

to the Ukraine by Gazprom, remin-

ded us of the European Union’s heavy

dependence on foreign imports for

its energy.

Yet everything suggests that these

imports, some of which derive from

regions threatened by instability,

will account for around 70% of the

European Union’s energy needs in 20

to 30 years’ time, as opposed to 50%

today.

nevertheless, the global demand for

energy is rising, as can be clearly seen

in higher oil and gas prices. The price

of these primary energies has almost

doubled in the European Union over

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AnnuAl RepoRt 2005

the past two years, resulting in a

similar rise in electricity prices.

Although this situation is difficult

for consumers, these trends may also

rekindle interest in energy efficiency

in general, which could make the ne-

cessary investment in energy infras-

tructures more attractive.

Europe alone would need invest-

ment of some thousand billion euros

over the next 20 years to meet the

demand for energy and replace the

ageing infrastructure. At electricity

generating level, Germany alone

plans to build 20,000 MW of capacity

over the next fifteen years.

on the one hand, global climate

change now seems to be a gene-

rally accepted reality, as, according

to many experts, it lay behind the

recent spate of natural disasters. If no

action is taken, they predict a rise of

1.4°C to 5.8°C by the end of the cen-

tury. on the other hand, the global

demand for energy will be such that

carbon dioxide (Co2) emissions will

rise by some 60% by 2030 under the

‘business as usual’ scenario.

Luxembourg itself has recorded

GDP growth of around 4.5% com-

pared with 2004. Despite this strong

performance, unemployment stands

at 4.6% of the working population,

whereas the budget deficit is close

on 2% of GDP. Inflation has risen to

2.5%.

In 2005, overall demand for electrici-

ty in Luxembourg totalled 6,231 GWh

(1 GWh = 1 million kWh), a fall of 1%

on the previous year.

The electricity needs of all customers

served by Cegedel’s networks went

up by 1.6% year-on-year. Excluding

trading activities, Cegedel supplied

63.2% of the country’s total electri-

city demand (59.4% in 2004), with

most of the rest supplied for the iron

and steel industry via its own grid

(Sotel).

The annual variations in overall

electricity demand recorded in nei-

ghbouring countries were as follows:

Germany +0.66 %, Belgium -1.68%

and France +1.08%.

AnnuAl RepoRt 2005

intRoduCtion 17

Certain major events stand out in the

review of 2005. These are:

• the commencement of operations

of our Cegedel net subsidiary

against the backdrop of electricity

market deregulation,

• the impact of liberalisation on

Cegedel’s results,

• the rise in energy prices in general

and the demand for electricity in

particular,

• and the creation of artelis in the

telecommunications sector.

Creation of Cegedel net S.A.

Cegedel net, a wholly-owned subsi-

diary of Cegedel, was created in res-

ponse to an obligation arising from

the deregulation of the electricity

market. With a view to guaranteeing

non-discriminatory network access,

the European electricity liberalisation

directive requires the separation of

regulated activities remaining de

facto monopolies, and monitored

by an independent regulator, from

electricity generation and supply

activities which are open to compe-

tition. This was the motivation for

creating Cegedel net S.A., which is

responsible for managing Cegedel’s

networks. These networks remain the

property of the parent company, and

are operated by Cegedel net under

lease. The company was incorporated

on 8 november 2004 and employs

around 100 members of staff trans-

ferred from the parent company on 1

January 2005, the date when activi-

ties commenced.

From now on, Cegedel’s two core

activities, grid operation and electri-

city supply, will therefore be perfor-

med by two different companies. A

section of this annual report relates

to the operations of Cegedel net.

pressure on margins

net profit for the Cegedel Group

(prepared under IFRS*) is in line with

that of 2004, other key figures such

as operating profit or pre-tax profit

Highlights

* international Financial Reporting standards

Alessandro VOLTA(1745 - 1827)

italian physicist and inventor of the electric battery, a true revol-ution in the field of physics. Elec-tricity, which had been static until then, became dynamic. Looking to establish a measure of electri-city, he defined a unit of tension which, in honour of his work, was called the ‘volt’ (symbol V).

intRoduCtion18

AnnuAl RepoRt 2005

show noticeable stability compared

to 2004. This was due to two contras-

ting trends:

• the results for the core business,

the transmission, distribution and

supply of electricity, were down,

mainly due to the more competi-

tive pricing in the face of fiercer

competition and therefore heavier

pressure on margins,

• this reduction was offset by a rise

in receipts from diversification ope-

rations, reinforcing the merits of

initiatives launched in this regard

several years ago.

energy price rises

The prices of different energy re-

sources – coal, oil and gas – all rose

sharply in 2005. The strong increase

in energy consumption in emerging

countries such as China and India

contributed to a rise in energy needs

at global level, which in turn pushed

up prices significantly. As electri-

city is a secondary energy produced

essentially from so-called primary

energy sources, its price has mirrored

those price rises, as, aside from the

investment in generating facilities,

fuel is a major element in the cost

of electricity. For gas power stations,

fuel represents some 65% of the

production cost.

Creation of artelis S.A.

our telecommunications subsidiary,

Cegecom, and vSA nET from the Sar-

re announced in December 2005 that

they intended to join forces to create

a new joint venture. Known as ‘ar-

telis’, the new company was formed

on 21 november 2005, and Cege-

com and vSE nET have been wholly

owned by it since 1 January 2006. The

aim of this alliance is to strengthen

the position in the Greater Region

(Lorraine, Rhineland-Palatinate, the

Saar and Wallonia) and based on

existing markets in Luxembourg and

the Saar, to increase penetration in

the Saar-Lorraine-Luxembourg (Saar-

Lor-Lux) economic area.

Cegedel owns 27.5% of artelis, which

is headquartered in Luxembourg.

AnnuAl RepoRt 2005

intRoduCtion 19

in addition to these four major

events, the year was also characte-

rised by strong levels of activity in all

Cegedel’s services.

liberalisation

A new deadline set by European

directive 2003/54/EC, of 26 June 2003,

was reached on 1 July 2004. Since

then, all non-domestic customers

have had the right to a free choice

of supplier. Full liberalisation of the

market is planned for 1 July 2007 at

the latest, when all customers - both

domestic and non-domestic - will

become ‘eligible’. In view of these

developments, we are currently

gearing up for increased competition

in all segments of our customer base.

diversification

2005 was also marked by a continua-

tion of diversification efforts begun

over the last decade. The activities

of LuxEnergie, Cegecom, Global

Facilities, Soteg, Twinerg and others

have also developed well and are

becoming increasingly significant in

the accounts of the Cegedel Group.

The healthy performance reported

by these companies helped produce

a substantial rise in the consolidated

results.

Risk management

The new legislative environment,

increased competition and new acti-

vities in the area of procurement, for

example, led us to carry out a review

of the new risks to which Cegedel is

exposed and to implement appro-

priate procedures. Audits are carried

out on a regular basis, and at present

we consider that thanks to these

measures we are able to guarantee

appropriate risk management.

Strengthening the infrastructure

The 2004 blackout was a reminder

that, despite the constraints associa-

ted with liberalisation, we must not

neglect our long-term future and

that it is important to ensure infra-

structure remains in perfect working

order to secure ongoing network

reliability. To this end, we continued

efforts to modernise and strengthen

networks at all voltage levels. Capital

expenditure for 2005 totalled EUR

27.76m versus EUR 28.14m in 2004.

Hans-ChristianOErSTED(1777 - 1851)

danish physicist and chemist who discovered the existence of a ma-gnetic field linked to an electric current, the basis of the classic theory of electromagnetism de-veloped by AMPÈRE, FARAdAY and MAXWELL in the course of the 19th century. He assembled the first thermoelectric battery.

intRoduCtion20

AnnuAl RepoRt 2005

environment

The company also continues to pay

great attention to respecting the

landscape when renewing power

lines or installing new infrastruc-

ture. At the end of 2005, 91.7%

of low-voltage lines and 47.1% of

medium-voltage lines were installed

underground. All in all, our efforts

to increase the proportion of under-

ground lines have reduced the total

length of overhead lines by some 406

km since 31 December 1992.

our new nova naturstroum tariff,

launched in May 2003, offers cus-

tomers an environmentally friendly

option in the form of green energy

produced essentially from renewable

energy facilities.

overall, renewable energies repre-

sented 5.4% of Cegedel’s supply in

2005. Cegedel is therefore already

not far from meeting for its cus-

tomers the government’s target

of 5.7% of energy supplies from

renewables in 2010.

employees

In 2005, the staff supported the

management’s initiatives through

their commitment and expertise. We

would like to thank them for their

dedication and openness to the

changes that have occurred in our

area of operations.

the following provides an overview

of our 2005 results:

overall, we can confirm that the

results were positive, despite lower

revenues from the core business. This

was to be expected for an ex-mono-

poly in a deregulated market, proof

that the strategic decisions made

over the last few years are paying off.

The economic environment picked

up gradually in 2005, but demand

for electricity grew more slowly

than in previous years. Electricity

flows through the grid operated by

Cegedel net therefore grew by some

1.6%, whereas this rate was between

3% and 4% in previous years.

Given that the companies included in

Cegedel’s scope of consolidation also

increased their business, consolidated

profit eventually rose sharply.

Financial results and dividend

In consolidated terms (as reported

under IFRS), sales rose 39.2% from

EUR 387.8 million in 2004 to EUR

539.8 million in 2005, while profit

advanced 10.4% from EUR 47.42 mil-

lion to EUR 52.35 million. The strong

sales performance is due to the

development of the parent com-

pany’s trading activities, which are

characterised by large volumes and

thin margins.

The same also applies to the parent

company’s key figures (as reported

under Luxembourg accounting stan-

dards), with sales having increased

36,4% from EUR 360.9 million in 2004

to EUR 492.4 million in 2005, driven

by strong demand from domestic

customers, the rise in selling prices as

well as significant growth in inter-

AnnuAl RepoRt 2005

intRoduCtion 21

national trading activity. Profit also

increased, after transfers to reserves

in accordance with Article 50 of the

Articles of Association, from EUR

16.4 million in 2004 to EUR 18.2 million

in 2005.

Based on these results, the Board of

Directors proposes to pay a gross

dividend of EUR 2.75 per share, a

10% increase on the previous year.

Cegedel shares

Cegedel shares are listed on the

Luxembourg and Brussels stock

exchanges. The variations in the

share price on the Luxembourg stock

exchange (primary listing) were as

follows:

• in 2003: low of EUR 38.0 and high

of EUR 52.25;


of EUR 62.0;


of EUR 75.0.

The shares closed the year at EUR 75.0.

The share price posted further signifi-

cant gains at the start of 2006.

outlook

At this stage, the company foresees

no technical, commercial or financial

developments that could jeopardise

its economic stability in 2006.

steam engines consistently perfected by WATT were produced by BoULTon and WATT from

the end of the 18th century. They were one of the principal reasons for the industrial expansion

of the 19th century.

intRoduCtion22

AnnuAl RepoRt 2005

Benjamin FrANkLIN (1706 - 1790)

American physicist, writer and politician who

postulated a theory of electricity and introduced

the concept of positive and negative states.

Understanding the electrical nature of lightning,

he had the idea of provoking the discharge from

electrified clouds by the simple presence of a

metal rod. His experiments proved that the

grounded rod conducted electricity. This was the

origin of the lightning conductor.

Management report

AnnuAl RepoRt 2005

MAnAGeMent RepoRt 23

Cegedel Group as at 1 January 2006

Global Facilities33.3 %

artelis27.5 %

Cegecom100.0 %

VSE NET100.0 %

Agence de l'Energie40.0 %

Soler50.0 %

Soteg19.0 %

Ceduco50.0 %

Twinerg17.5 %

WandparkGemeng Hengischt

20.0 %

WandparkKehmen-Heischent

20.0 %

WandparkBurer Bierg

36.3 %

Luxgaz Distribution13.7 %

Cegyco50.0 %

LuxEnergie60.4 %

Surré11.2 %

SEO4.5 %

WSW (6.4 %)*

100 % 100 % 100 %

39%

25%

100 %

EEX (1.0 %)

Cegedel InternationalCegedel Participations Watt ReCegedel Net

Cegedel

12

3456

in time, it will havea 13,3 % holding

*

1 - principal electricity producers

2 - industrial and domestic cogeneration

3 - Gas

4 - Renewable energies

5 - telecommunications

6 - Facility management

MAnAGeMent Rep0Rt24

AnnuAl RepoRt 2005

Cegedel has been supplying Luxem-

bourg’s electricity since 1928, when

it was called ‘Compagnie Grand-Du-

cale d’Electricité du Luxembourg’. Its

status as concessionaire is governed

by an agreement signed with the

Luxembourg government.

Up until 2005, the year in which its

subsidiary Cegedel net was founded,

Cegedel’s mission of providing the

country with electrification led to

it being deemed, in liberalisation

parlance, a ‘vertically integrated

company’, as it was responsible for

procurement, transmission and distri-

bution, as well as supplying electricity

to customers. This mission extended

over the entire country, except for

certain municipalities supplied by

local distributors and the iron and

steel industry, whose requirements

are met by Sotel.

The Cegedel Group

AnnuAl RepoRt 2005


one of the major challenges Cegedel

has faced in the past was undoub-

tedly the gradual liberalisation of the

electricity market. The process, which

was triggered a number of years ago

by a European directive, has had nu-

merous effects on the company’s

organisation. It has helped draw a

clear distinction between Cegedel’s

two core activities: grid operation

and electricity supply. In accordance

with the European directive of 26

June 2003 regarding common regula-

tions for the domestic electricity

market, grid management activities

must be legally separate from elec-

tricity trading activities. Cegedel net,

which operates the electricity trans-

mission and distribution networks,

was created in november 2004 and

began operating on 1 January 2005.

Cegedel net now performs the role

of grid operator and is responsible

for the transmission and distribution

infrastructure, which is a regulated

activity monitored by the Institut

Luxembourgeois de Régulation. This

involves planning the networks on

the basis of ‘long-term’ considera-

tions, and one of its main focuses is

ensuring the quality of supply.

As a supplier of electricity, howe-

ver, Cegedel’s mission continues

to encompass buying and selling

electricity, and it now operates in

a competitive environment that is

increasingly dominated by the ‘short

term’. Cegedel offers its customers a

comprehensive range of energy-rela-

ted products and services.

The company initiated its diversifica-

tion programme in Luxembourg in

the early 1990s, taking a major step

forward in 1993 with the creation of

Cegedel Participations. Diversification

activities include electricity gene-

ration, cogeneration, natural gas

transportation and distribution, the

development and application of new

and renewable sources of energy,

facility management and telecommu-

nications. The aim of these diver-

sification activities is to ensure the

company’s growth by extending the

range of products and services that it

offers its customers beyond the core

business of transmitting and distribu-

ting electricity.

Cegedel International was created in

2003 to manage the Cegedel Group’s

diversification activities abroad. This

company controls the interests in

Wuppertaler Stadtwerke AG (WSW)

and in the European Energy Exchan-

ge (EEX) in Germany.

MAnAGeMent Rep0Rt26

AnnuAl RepoRt 2005

Apart from the first-time inclusion

of Cegedel net, the scope of consoli-

dation was unchanged in 2005. The

2005 consolidated accounts have

been prepared for the first time

according to International Financial

Reporting Standards (IFRS), and the

2004 financial statements have been

restated according to IFRS to facili-

tate comparison.

As from the 2005 financial year, it is

mandatory for listed companies to

prepare consolidated accounts accor-

ding to IFRS.

The Cegedel Group’s consolidated

profit in 2005 was EUR 52.35 million,

compared with EUR 47.42 million in

2004.

Key figures (in EUR million) 2004 2005 Change %

Under IFRS

Total assets 482.63 585.06 102.43 21.2 %

Fixed assets 399.35 413.40 14.05 3.5 %

Shareholders’ equity 344.82 381.27 36.45 10.6 %

Financial debt 18.10 21.15 3.05 16.9 %

Sales 387.80 539.78 151.98 39.2 %

Consolidated net profit (group share) 47.42 52.35 4.93 10.4 %

Consolidated accounts summary

AnnuAl RepoRt 2005


Customers

2005 was dominated by the effects of

the second phase of liberalisation in

the energy sector, which was triggered

by the opening of the electricity and

gas markets to all non-residential

customers on 1 July 2004.

Despite fiercer competition, our

company continues to successfully

develop its commercial activities by

offering new products and services to

its clientele, both in its core activity

as electricity supplier and in its rela-

ted activities.

on 8 July 2005, for example, we

signed a collaborative contract with

Gaz de France to supply natural gas.

By ministerial order of 15 September

2005, Cegedel was licensed to supply

natural gas to customers within

Luxembourg, and the first gas supply

accounts came on stream in october

2005.

Performance of Cegedel Group companies(under Luxembourg accounting standards)


Total assets 403.84 461.11 57.27 14.2 %

Fixed assets 343.73 349.51 5.78 1.7 %


Financial debt - - - -

Sales 360.92 492.35 131.43 36.4 %

net profit *1) 16.39 18.17 1.78 10.9 %

Cegedel is the Group’s parent company. Its core mission is to supply electricity

within Luxembourg.

*1) net profit is stated after deducting transfers to reserves in accordance with article 50 of the Articles of Association. Before deduction, net profit in 2005 was EUR 39.17 million, compared with EUR 41.48 million in 2004.

Cegedel S.A.

MAnAGeMent Rep0Rt28

AnnuAl RepoRt 2005

At the start of 2005, fees for low

and medium-voltage customers were

amended to reflect better the cost

price structure, in particular grid utili-

sation tariffs and procurement costs.

Since the start of the year, electri-

city prices on the wholesale markets

have rocketed (+56.9% for ‘base’

and +55.2% for ‘peak’). For the 2006

supply year, the base price rose from

EUR 34.0/MWh (3 January 2005) to

EUR 53.36/MWh (28 December 2005),

while peak prices rose from EUR

47.57/MWh to EUR 73.85/MWh.

30

32

34

36

38

40

42

44

46

48

50

52

54

56

01/0

1/05

01/0

2/05

01/0

3/05

01/0

4/05

01/0

5/05

01/0

6/05

01/0

7/05

01/0

8/05

01/0

9/05

01/1

0/05

01/1

1/05

01/1

2/05

Pric

e in

€/M

Wh

eeX Future Base 2006-2008

AnnuAl RepoRt 2005


Electricity sales

Sales of electricity to end customers,

local suppliers and distributors,

and foreign re-sellers amounted

to 9,740.5 GWh in 2005, a 52.1%

increase on 2004. Deducting sales

to foreign re-sellers (trading activi-

ties) and sales made in 2005 to the

transmission grid operator, Cegedel

net, to offset its network losses, the

increase was around 3.7%.

The changes in sales can be broken

down into the following broad

customer categories:

• high voltage (220 kv and 65 kv),

where electricity sales to final cus-

tomers and distributors increased

by 7.9% overall. This growth

was principally the result of two

contrasting effects: greater market

share of supply to the main munici-

pal distributor, offset by the loss of

a 65 kv industrial customer.

• medium voltage (20 kv), where

sales fell 2.1%. Demand from the

craft industry and services sector,

and supply to end customers in

third-party networks, grew around

3.0%, while sales to local distribu-

tors fell 40.1%. This was in res-

ponse to a municipal distributor

switching to a different supplier

and was partially offset by the

acquisition of the Wormeldange

(in July 2004) and Useldange (in

January 2005) networks.

• low voltage (230/400 v), where

invoiced sales rose 1.6% relative

to the previous year. It should be

remembered that in order to elimi-

nate the fluctuations resulting from

invoicing fixed instalments, the

low-voltage consumption figures

are entirely based on invoices cal-

culated according to annual meter

readings. The overall volume of

electricity invoiced on the basis of

annual meter readings in 2005 was

874.9 GWh, compared with 860.8*

GWh in 2004.

• foreign re-sellers (trading sales),

where our trading activities ge-

nerated an overall sales volume

of 5,805.0 GWh (2,719.6 GWh in

2004).

* n.B.: value in 2004 corrected

MAnAGeMent Rep0Rt30

AnnuAl RepoRt 2005

Changes in Cegedel’s electricity sales

GWh % change

2005 01/00 02/01 03/02 04/03 05/04

65 kV and 220 kV customers

Distributors 754.9 4.6 % 3.0 % 5.1 % - 42.2 % 29.3 %

Industrial 1,212.9 - 18.7 % 0.4 % 24.4 % - 9.3 % - 2.2 %

20 kV customers

Distributors 70.9 1.9 % - 0.8 % - 2.0 % - 5.8 % - 40.1 %

other customers 906.6 13.1 % 8.4 % 5.7 % 5.3 % 3.0 %

low-voltage customers (*) 874.9 9.8 % - 5.1 % 7.7 % 3.6 % 1.6 %

total sales (excl. trading and losses) 3,820.1 - 1.2 % 1.3 % 11.1 % - 11.4 % 3.7 %

trading sales 5,805.0 339.4 % 166.2 % 113.4 %

Grid loss coverage 115.4

total sales (incl. trading and losses) 9,740.4 - 1.2 % 7.5 % 30.0 % 23.2 % 52.1 %

(*) note:

The low voltage consumption figures for 2004 and 2005 have been corrected and only include the volumes actually

invoiced on the basis of annual meter readings.

AnnuAl RepoRt 2005


Number of custumers

Changes in the number of customers

supplied directly by the Cegedel grid

and possessing a supply contract with

the company were as follows:

31/12/2004 31/12/2005 Variation

High voltage 32 31 - 1

Medium voltage 2,365 2,440 + 75

Low voltage 152,762 155,715 + 2,953

total 155,159 158,186 + 3,027

Customer relations

Advice and information activities

The customer magazine ‘Watt’s Life’

was distributed to all our low-voltage

customers (131,000 copies) in March

(no. 5), July (no. 6) and november

(no, 7).

‘Contact’ (3,000 copies), a magazine

that targets major non-domestic

customers (high, medium and low

voltage-BHP), was published in July

(no. 5) and December (no. 6).

our teams in Differdange, Hautcha-

rage, Moutfort, Lamadelaine and

Dudelange ran information sessions

aimed, in particular, at sensitising the

general public to using energy more

rationally, with a focus on optimising

domestic consumption of electricity.

Trade fairs and exhibitions

The ‘Am Stroum vun der Zäit’ exhibi-

tion took place in the mall of the La

Belle Etoile hypermarket in Bertrange

from 15 to 26 February 2005.

The exhibition’s core theme was to

illustrate the phenomenon of ‘elec-

tricity’ by means of a large variety of

interesting examples; these included

the different methods of generating

Thalès DE MILET(625 - 547 av. J.Chr.)

Greek philosopher, mathemati-cian and astronomer

He is famous for his ‘Thalès theo-rem’ on triangles and parallel lines with two intersecting lines.

He also discovered that certain minerals in Magnesia were com-bustible.

Thalès dE MiLET was one of the

seven sages of Ancient Greece..

MAnAGeMent Rep0Rt32

AnnuAl RepoRt 2005

electricity and the changes in house-

hold electrical appliances over the

last five decades.

The Spring Fair at the LuxExpo in

Kirchberg, from 30 April to 8 May

2005, met with its customary success.

Large numbers of visitors came to

our stand, most notably their Royal

Highnesses, the Grand Duke and

Duchess of Luxembourg, on the oc-

casion of the opening ceremony. The

core themes were the nova naturs-

troum green tariff, the fonds nova

naturstroum and promoting the heat

pump.

The ‘Electricians’ electricity forum,

held on 4 May at the LuxExpo during

the Spring Fair, attracted some 200

professionals from the sector.

The ‘Architects’ and ‘Installers’ elec-

tricity forums, held for the first time,

met with genuine interest. on 10

June at the Energy Park in Remers-

chen, architects and installers were

updated on current and future trends

in heat pumps. This event was fol-

lowed on 12 June by a ‘heat pump’

discovery day for the general public,

which attracted more than 500 visi-

tors and gave them the opportunity

to ask the exhibitors questions about

heat pumps.

Finally, our company took part in the

‘Dag vun der natur’ at the natura ex-

hibition in Kockelscheuer on 19 June

and at the oekofoire from 16 to

18 September.

Sponsorship

As well as actively encouraging

company sports through Cegedel

Loisirs, Cegedel promotes the use of

human energy in the various spor-

ting disciplines represented by the

Luxembourg Sporting and olympic

Committee (CoSL). It also actively

supports sporting events in Luxem-

bourg through its sponsoring

partnership with the CoSL and

through its sponsorship of the yellow

jersey in the Tour de Luxembourg

(cycling). By attending a variety of

major popular and sporting events,

Cegedel achieves a closer relationship

with its clientele.

Cegedel’s mascot, ‘Professer Mega’,

personally attends the various events

supported by Cegedel to distri-

bute his educational brochure about

electricity. More than 10,000 copies

of this brochure, which is available

in French and German, have been

distributed at trade fairs, sponsorship

events, exhibitions and school events.

It can also be downloaded for free

from our website, where young peo-

ple can also find a very entertaining

explanation of electricity.

Press relations

Cegedel regularly informs the media

about its strategic decisions, activities

and results by means of interviews

with members of management, press

releases and press conferences.

AnnuAl RepoRt 2005


procurement

In 2005, Cegedel continued to refine

its structured procurement policy on

wholesale markets by assuming acti-

ve management of its own electricity

purchasing portfolio, as well as that

of other distributors. This approach

enabled it to further optimise its

procurement costs.

Some 63.3% of electricity was bou-

ght from foreign suppliers and from

the Leipzig EEX (European Energy

Exchange).

The remainder, around 36.7% of

requirements, was purchased from

Luxembourg-based generating

facilities, with the bulk - 22.4% of

Cegedel’s total demand - coming

from a 100 MW band reserved for

Cegedel by Twinerg, the operating

company of the combined cycle gas

and vapour power plant at Esch-sur-

Alzette.

The procurement breakdown by supplier was as follows:

2004 2005

imports 62.6 % 63.3 %

twinerg 23.2 % 22.4 %

Cogeneration plants 9.0 % 8.9 %

Industrial plants 4.4 % 4.1 %

Small plants 4.6 % 4.8 %

Hydroelectric plants 2.5 % 2.1 %

Plants on the Sûre (Soler) 1.0 % 0.8 %

Plants on the Moselle (SEO) 1.4 % 1.2 %

Small plants 0.1 % 0.1 %

Wind farms 1.0 % 1.3 %

photovoltaic facilities 0.2 % 0.4 %

Biomass plants 0.5 % 0.7 %

Sidor 1.0 % 0.9 %

total: 100 % 100 %

MAnAGeMent Rep0Rt34

AnnuAl RepoRt 2005

the environment

Energy is a key factor in the modern

life we lead. our economy cannot

function properly without it, and it is

vital to the well-being of our civili-

sation. The electricity industry does,

however, impact the environment by

consuming energy resources, produ-

cing waste and emitting greenhouse

gases, and its facilities also make a

visual impact.

nevertheless, respecting and pro-

tecting the environment remain an

extremely important part of Cege-

del’s activities. This can be seen both

in our efforts to promote renewable

energies (e.g. via a green tariff and

the creation of an environmentally-

friendly investment fund) and in the

care we take to ensure our facilities

respect the landscape.

Through its subsidiaries and equity

holdings, Cegedel is also very ac-

tive in electricity generation from

renewable forms of energy and

cogeneration.

Renewable energy

The contribution of renewable energy to Cegedel’s requirements, generated by

all producers in Luxembourg, was as follows:

2004 2005

GWh GWh

Hydroelectric plants 92.7 82.5

Wind farms 39.6 52.5

Photovoltaic 8.5 16.5

Biomass 20.3 27.2

Waste incineration (Sidor) 38.0 34.4

total 199.1 213.1

Percentage of Cegedel’s grid requirement 5.3 % 5.4 %

There has been a decline in the contribution of hydroelectric plants versus

2004, due to a lack of rainfall, particularly in the second half of 2005.

nevertheless, the fall in hydroelectric generation has been offset by new

facilities coming on stream for generating electricity from renewable forms of

energy, especially wind, photovoltaic and biomass sources.

AnnuAl RepoRt 2005


Cogeneration

The development of industrial coge-

neration plants and district heating

stations, with their high energy

yields, helps promote savings in pri-

mary energy and reduce global Co2

emissions.

In 2005, two new residential cogene-

ration plants were opened.

The contribution of cogeneration

plants to the volume of electricity,

generated by all producers in

Luxembourg, was as follows:

Cegedel’s environmentally-friendly

nova naturstroum tariff has enjoyed

encouraging commercial success since

its launch in May 2003, and customer

numbers were stable during 2005.

At the end of 2005, there were 800

customers and the annual volume

had risen to 5.4 GWh. There was a

slight decline in interest from resi-

dential customers, compared with

a marked increase in the volume

purchased by various public sector

institutions, particularly the munici-

pal authorities. Currently, some

2.2 GWh is purchased by low-vol-

tage residential customers, with the

balance of 3.2 GWh taken principally

by municipal authorities and various

medium-voltage customers.

The nova naturstroum green tariff

2004 2005

GWh GWh

Industrial cogeneration 166.6 160.1

Residential cogeneration 175.9 186.3

total 342.5 346.4

Percentage of Cegedel’s grid requirement 9.1 % 8.9 %

Charles AugustinDE COuLOMB(1736 - 1806)

French scientist and physicist, who discovered electrostatics with the British chemist and physicist, Hen-ry CAVEndisH. He developed nu-merous experiments to prove the electrostatic and magnetic laws of attraction and repulsion. The cou-lomb unit of electric charge (sym-bol C) is named after him.

dE CoULoMB became a member of the Académie des sciences in 1773.

MAnAGeMent Rep0Rt36

AnnuAl RepoRt 2005

The fonds nova naturstroum

The fonds nova naturstroum, set up by Cegedel on its own initiative, aims to

harness and promote renewable energy sources in Luxembourg.

Cegedel has committed to paying 2 euro cents to this fund for every kWh

consumed under a nova naturstroum tarif.

The fonds nova naturstroum, a non-profit organisation, consists of the fol-

lowing three members: nATURA (Luxembourg League for the Protection of

nature and the Environment), Agence de l’Energie and Cegedel.

The fonds nova naturstroum received 15 requests for incentive bonuses in 2005

and lent its support to the first eligible projects, which were selected for their

innovative and educational approach.

total length of overhead lines: Change relative to 31/12/1992:

End-1992: 2,454 km 0 km

End-1998: 2,235 km - 219 km

End-2005: 2,090 km - 406 km

Burying lines underground

Cegedel has made a specific com-

mitment to burying network infras-

tructure underground in population

centres and the surrounding areas

when renewing lines or installing

new infrastructure.

Since this commitment was made at

the end of 1992, the overall length

of overhead lines has declined as

follows:

AnnuAl RepoRt 2005


Asset Services

As part of the legal unbundling

required by directive 2003/54/EC, the

task of managing and operating the

Cegedel networks was transferred to

Cegedel net with effect from

1 January 2006. Under the terms of

the same directive, Cegedel retains

ownership of the transmission and

distribution networks. It is for this

reason that a management and

leasing contract was concluded

between Cegedel and Cegedel net,

a principal objective of this contract

being to determine the condi-

tions under which Cegedel leases

to Cegedel net the facilities and

equipment used for the transmission

and distribution activities. The table

below shows the growth in Cegedel’s

networks during 2005:

network development by voltage level 31/12/2004 31/12/2005

Low-voltage lines (400/230 v): overhead (km) 364 355

underground (km 3.849 3.912

Total (km): 4.213 4.267

underground rate: 91,4 % 91,7 %

Medium-voltage lines (20 kv): overhead (km) 1.224 1.213

underground (km 1.043 1.081

Total (km) : 2.267 2.294

underground rate: 46,0 % 47,1 %

High-voltage lines: 65 kv 2 circuits (¹): overhead (km) 156 176

underground (km 4,0 8,7

High-voltage lines: 65 kv 1 circuit: overhead (km) 247 226

underground (km 1,2 1,6

High-voltage lines: 220 kv (²): overhead (km) 120 120

1) including dudelange/Riedgen to Aspelt (1.4 km section), temporarily equipped with only one three-phase circuit

2) including schifflange–Bascharage–Bertrange (16.9 km) and schifflange–dudelange (4.9 km), temporarily operated at 65 kV

MAnAGeMent Rep0Rt38

AnnuAl RepoRt 2005

The table also shows Cegedel’s

commitment to burying networks

underground in population centres

and the surrounding areas when

renewing lines or installing new

infrastructure.

Since this commitment was made

at the end of 1992, the overall length

of overhead lines has declined by

406 km.

one of the main tasks of ‘Asset

Services’, Cegedel’s technical mana-

gement department, is to provide

services to the transmission and

distribution grid operator (Cegedel

net), as defined in the ‘Technical

Services’ contract between Cegedel

and Cegedel net dated 13 December

2004. These services cover work in

connection with the operation, main-

tenance and repair of the transmis-

sion and distribution networks.

Technical management comprises the

following areas:

• The ‘Purchase and Auxiliary

Services’ department, which is

responsible for buying materials

and managing stock, running the

central warehouse and organising

the works schedule of the Mersch

workshop; this area also provides

computer management services

and provides Cegedel net with

secretarial support for managing

Cegedel net’s grid connection

and utilisation contracts; it also

manages the drawing office and

implementation of the GIS project

(Geographical Information System);

• The ‘Mv/Lv Services’ department,

which provides the services

governed by the Technical Services

contract relating to the setting

up and operation of the medium

and low-voltage networks and

customer connections, including

repairs and maintenance; it is also

responsible for managing vehicles

and the garage at the head office

in Strassen;

• The ‘Hv Services’ department,

which also provides services go-

verned by the Technical Services

contract relating to operating the

high-voltage networks, including

repairs and maintenance.

The technical management depart-

ment may also be tasked with perfor-

ming studies into technical aspects of

energy generation within the broa-

der context of Cegedel Participations

and Cegedel International.

In parallel with the unbundling pro-

cess, an analysis into enhancing Asset

Services’ efficiency has been carried

out. The results have shown that

there is potential to make substantial

savings in work procedures, together

with further opportunities for impro-

ving customer service.

The connection procedure, for

example, proved a key issue in

optimising work procedures. Efforts

have focused on the quality of

customer contacts and the speed

with which requests are handled.

The local organisation has been

centralised at Cegedel’s head office

in Strassen, enabling the connection

formalities to be completed more

quickly and efficiently.

A team of specially trained customer

service assistants has been set up to

provide customers with all the infor-

mation they require on connecting to

the grid.

AnnuAl RepoRt 2005


Bertrange220/65/20 kV

Roost 220/65/20 kV

Heisdorf 220/65/20 kV

Flebour220/65/20 kV

Schifflange220/65/20 kV

2 x 220 kV connectionwith Germany (Bauler)

2 x 220 kV connectionwith Germany(trier and Quint)

Connection withBelgium

the grid

MAnAGeMent Rep0Rt40

AnnuAl RepoRt 2005

In order to provide customers with

a better service, we have put to-

gether an information file for the

project manager and designed a

new connection request form. These

documents and information are also

available on Cegedel’s website.

The following provides some infor-

mation on the work carried out by

Cegedel on behalf of Cegedel net:

The 20 kv grid

Cegedel has continued expanding

the medium-voltage grid, with new

closed circuit networks and the crea-

tion of additional 20 kv outgoing

lines from 65/20 kv substations. By

making medium-voltage supply more

secure, this investment means fewer

customers will be affected by any

power interruption on a section of

line.

In addition, 33 new 20,000/400 v

transformer substations were in-

tegrated into the medium-voltage

grid. Many of these projects were

undertaken at the request of muni-

cipal authorities seeking to replace

old girder-mounted substations by

substations integrated into municipal

or other buildings. In 2005, Cegedel

took over medium and low-voltage

distribution for the village of Usel-

dange. By absorbing this former pu-

blic sector corporation, the company

acquired 259 new customers.

Cegedel and Cegedel net have also

confirmed their commitment to

gradually reducing the proportion of

overhead medium and low-voltage

power lines.

All new medium-voltage lines will be

underground lines. The proportion

of medium-voltage cables is currently

47.1%.

The low-voltage grid

Cegedel and Cegedel net have conti-

nued to strengthen and modernise

the networks in numerous villages

by installing underground low-vol-

tage networks. These new lines were

virtually all completed underground

and bring the proportion of under-

ground cables at the end of 2005 to

91.7%.

Collaboration between Cegedel and

the municipal authorities is progres-

sing well. All work is systematically

coordinated with the natural gas dis-

tributors, the highways department,

the various departments of the postal

and telecommunications company

P&T Luxembourg, etc. The aim is to

minimise both cable-laying costs and

inconvenience to local residents.

Finally, we made 3,033 new three-

phase connections in 2005, including

1,046 for single-family dwellings and

1,987 for apartment buildings.

As in the past, technical installation

of connections is carried out by the

regional centres of Schifflange, Heis-

dorf and Wiltz.

.

AnnuAl RepoRt 2005


Human resources

Staff changes

Due to the foundation of Cegedel

net on 1 January 2005 and the trans-

fer of some of the parent company’s

staff to the new structure, the ave-

rage headcount for the period was

399 for Cegedel and 100 for Cegedel

net. The headcount for the group

- Cegedel and Cegedel net - was

therefore virtually unchanged at 499,

compared with 501 in 2004.

The adjacent graph shows staff

trends at Cegedel over the last ten

years. The newly created Cegedel net

does not employ any artisans (skilled

workers or craftsmen).

The age of Cegedel’s workforce has

reduced considerably over the last

few years, with 49% of staff now

aged between 25 and 39.

The average age is 37 for women and

40 for men.

In terms of new recruits, most arti-

sans are in the 20-25 age group and

most white-collar staff are in the 20-

30 age group.

It is interesting to note that 98.5% of

Cegedel’s salaried staff are employed

on permanent contracts and that the

proportion of women making up the

workforce has risen from 8% in 1995

to 14% in 2005.

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

400

420

440

460

473477

480476

472 473

488

495

501 499

480

500

520

MAnAGeMent Rep0Rt42

AnnuAl RepoRt 2005

Continuous professional training

Besides offering numerous tailored

training activities aimed at deve-

loping the technical expertise of all

staff members, the management

bodies of both companies support

the implementation of a training and

information process for their mid-

dle managers, which commenced in

2004.

The concept is based on the desire to:

• facilitate the flow of information

and to encourage members of mid-

dle management and the senior

management bodies to exchange

information,

• encourage middle and senior ma-

nagement to reflect on the annual

strategy as a group,

• stimulate and encourage synergies

by staging seminars and meetings

to gather the various disciplines

around the same table,

• encourage greater responsibility via

transparency, dialogue and trust.

The purpose of this training plan is

to cultivate highly qualified staff by

developing their technical and ma-

nagerial skills. It should also prepare

staff for the challenges of the future

and the increasingly diverse tasks

they face, and create a new process

of exchange that benefits interperso-

nal relationships.

The underlying aim of these collec-

tive training initiatives, discussion

sessions and individual development

measures is to evolve and anticipate.

With this in mind, we would like to

thank and congratulate all our staff

for the skill and expertise with which

they have provided their services

during the 2005 financial year, and

for their absolute commitment to

bringing about the substantial

changes that liberalisation of the

electricity market has entailed.

André-Marie AMPÈrE(1775 – 1836)

French physicist and mathemati-cian, Ampère discovered electro-magnetism and developed the language of electricity. He is now recognised as one of the greatest scientists of the 19th century. Ampère became a member of the Académie des sciences in 1814.

The ampere unit of measuring electric current is named after him (symbol: A).

AnnuAl RepoRt 2005


Cegedel net’s corporate purpose is

the management of electricity trans-

mission and distribution networks

in the Grand Duchy of Luxembourg.

Cegedel net has been managing the

Cegedel Group’s transmission and

distribution networks since 1 January

2005.

This was brought about by the

European directive of 26 June 2003

on the deregulation of the electri-

city market, which requires the legal

separation of electricity transmission

and distribution activities from other

sector activities, such as the genera-

tion and supply of electricity.

The new grid operator is responsible

for the planning, construction, ex-

pansion, maintenance and operation

of these networks.

By means of service contracts, Cege-

del net assigns the technical staff,

who remain employed by the parent

company, responsibility for the

construction, operation, maintenance

and repair of its networks, except

for high-voltage networks, whose

construction and operation remain

the responsibility of Cegedel net.

What are the main points regarding 2005?

The quality of supply remained

excellent

• After 2004, when a 33-minute

blackout ‘imported’ from Germany

dominated the media, no notable

incident occurred to disrupt grid

operation in 2005.

• on the contrary, security of supply

was further strengthened by the

installation of a second 400/220 kv

transformer at niederstedem, while

the capacity of the Heisdorf-Trier

220 kv line was almost doubled.

Created at the end of 2004, Cegedel net’s mission is the management of electri-

city transmission and distribution networks in the Grand Duchy of Luxembourg.

Key figures (in euR million) 2005

Total assets 21.75

Fixed assets -

Shareholders’ equity 0.75

Financial debt -

Sales 116.69

net profit 0.65

The company made a profit of EUR 0.65 million for the period ending

31 December 2005.

Cegedel net S.A.

MAnAGeMent Rep0Rt44

AnnuAl RepoRt 2005

• At the same time, Cegedel net and

Cegedel conducted a full review of

their emergency procedures.

• In addition, negotiations with RWE

Transportnetz Strom, ELIA and

Sotel have been held with a view

to further improving reaction times

should an emergency supply be

needed.

Substantial investment in infrastruc-

ture

• To ensure a high level of security of

supply in the future as well, invest-

ment in grid infrastructure conti-

nued at a high rate, approaching

EUR 30 million a year.

Respect for the environment and

integration of infrastructure into the

landscape

• Cegedel net pays great attention

to the planning of new infrastruc-

ture, particularly through regional

feeder systems and making every

effort to minimise the impact of

these works on the environment

and the landscape.

network tariffs have remained stable

• Despite this major investment,

which is vital for ensuring that its

networks remain highly reliable,

Cegedel net has managed to keep

its network tariffs constant or even

reduce them during 2005.

Looking firmly to the future

• In its first year of existence,

Cegedel net showed that despite

its reduced size, it played a full part

as an independent grid operator

and met the challenges that came

its way.

non-discriminatory treatment of

customers

Cegedel net has taken all the neces-

sary measures in terms of organisa-

tion, management and information

systems with a view to preventing

• Cegedel net’s decision makers

from having responsibilities in a

Cegedel Group activity linked to

the purchase, sale or generation of

electricity;

• Cegedel net staff from having

access to the databases of

Cegedel’s sales department (SAP-

ISU). In general, access to databases

is linked to the job description for

the various positions. When a staff

member changes position, their

initial access rights are withdrawn

and changed according the job

description for their new position;

• Cegedel staff, and sales depart-

ment staff in particular, from

having access to data from Cegedel

net’s meters.

AnnuAl RepoRt 2005


Consumption up 1.6%

The total volume of electricity injec-

ted at national level via

• 220 kv interconnection lines,

• self-generated electricity (with

metering on customer sites) or

• local sources of production connec-

ted to Cegedel’s networks or to

those of the eight local distribu-

tors/sellers

came to 4,487.8 GWh in 2005

(4,415.5 GWh in 2004), equivalent

to an increase of 1.6% in national

consumption (excluding Sotel).

For the first time, the national peak

crossed the 700 MW threshold

The maximum peak for Cegedel’s

grid was 700.2 MW in 2005

(673.1 MW in 2004), recorded at

5.45 p.m. on 12 December 2005.

Statistics on electricity flows

Peak

Consumption

. . . . . . . . . . . . . . ......... ..

Growth in grid peak and consumption

MAnAGeMent Rep0Rt46

AnnuAl RepoRt 2005

The question of future interconnec-

tions with neighbouring countries

Following the launch of an operation

authorisation procedure, Sotel’s pro-

ject to construct a 220 kv double-

circuit line to France became public

and reignited the debate about

making Luxembourg’s electricity

supply more secure.

It goes without saying that safe-

guarding the security of supply is a

central concern of Cegedel net. For

this reason the company regularly

updates the transmission capacity of

its networks, taking account of the

latest changes in our economy and

society in general. Accordingly, the

Grid 2025 study, conducted for

Cegedel, also revealed that in fu-

ture an additional interconnection

would be needed in the south of our

country.

Aware of its responsibilities regar-

ding security of supply, the ministry

of economics asked the consultants

Consentec to analyse the extent to

which the Sotel project might contri-

bute to a more secure supply for the

Grand Duchy of Luxembourg.

While Cegedel net substantially

shares this study’s conclusions, the

fact remains that many technical

and economic aspects have still to be

analysed more exhaustively in close

consultation with all the interested

parties.

As a result, we will have to take into

consideration the needs of the public

grid and involve Cegedel from the

outset in the Sotel project, with the

aim of safeguarding the general inte-

rest in line with the Consentec study’s

conclusions.

electricity flows in Cegedel’s grid (2005)

Injections into the grid

Cross-border exchanges

Imports 87.5 %

local production

Cogeneration 7.7 %

Hydroelectric plants 1.8 %

Wind farms 1.2 %

Waste incineration 0.8 %

Biogas 0.6 %

Photovoltaic 0.4 %

AnnuAl RepoRt 2005


Cegedel Participations is a wholly-owned subsidiary of Cegedel. It manages

the Cegedel Group’s diversification activities in Luxembourg.


Total assets 57.57 58.78 1.21 2.1 %

Fixed assets 56.93 56.94 0.01 0.0 %


Financial debt 15.45 15.45 0.00 0.0 %

Profit for the year 1.76 2.56 0.80 45.5 %

The profit was EUR 2.56 million in 2005 (EUR 1.76 million in 2004).

twinerg S.A.(participating interest: 17.5%)

Twinerg is a combined cycle gas and vapour turbine that has been operating

since 2002.

Total electricity production in 2005 was 2,688 GWh. The company made a

profit of EUR 18.11 million in 2005, compared with EUR 2.17 million in 2004,

thanks to the posting of extraordinary income.

Cegedel participations S.A.

MAnAGeMent Rep0Rt48

AnnuAl RepoRt 2005

Ceduco S.A.

(participating interest: 50%)

Ceduco is jointly owned by Du Pont de nemours and Cegedel Participations. It

operates an industrial cogeneration plant.

In 2005 its sales of vapour and electricity totalled 206,801 tonnes and 85.26

GWh respectively, compared with 217,875 tonnes and 91.09 GWh in 2004.

The company made a profit of EUR 0.45 million in 2005, compared with EUR

0.68 million in 2004.

Cegyco S.A.


Cegyco is jointly owned by Goodyear and Cegedel Participations. It operates an

industrial cogeneration plant.

In 2005 its sales of vapour and electricity totalled 269,775 tonnes and

74.88 GWh respectively, compared with 258,023 tonnes and 75.49 GWh in 2004.

The company made a net profit of EUR 0.39 million in 2005, compared with

EUR 0.54 million in 2004.

luxenergie S.A.(participating interest: 60.35%)

LuxEnergie generates and supplies heat, cold air and electricity in the public,

domestic and service sectors, particularly on a cogeneration basis.

AnnuAl RepoRt 2005


In the course of the year, the company invested EUR 10.28 million. The

company made a net profit of EUR 2.63 million in 2005, compared with

EUR 2.27 million in 2004. LuxEnergie operates a total of 29 power stations,

which in 2005 produced 222.18 GWh of heat, 25.25 GWh of cold air and

107.43 GWh of electricity. The company also supplies maintenance services

to third-party cogeneration stations. At the end of 2005, the company had

34 employees.

Soteg S.A.(participating interest: 19%)

Soteg mainly imports, transports and supplies natural gas.

In 2005 the company made a net profit of EUR 10.57 million, an increase of

EUR 2.73 million on 2004. Total gas sales reached 14,738 GWh in 2005, com-

pared with 15,227 GWh in 2004.

Wandpark Gemeng Hengischt S.A.(participating interest: 20%)

This company built and operates a wind farm of around 10 turbines in

Heinerscheid. The total installed capacity of the farm is 12,200 kW.

Electricity production was 18.9 GWh in 2005, against 21.0 GWh in 2004.

It is set to make a profit of EUR 0.22 million in 2005 as opposed to


MAnAGeMent Rep0Rt50

AnnuAl RepoRt 2005

Wandpark Kehmen-Heischent S.A.


This company was created to build and operate a wind farm in Kehmen compri-

sing seven wind turbines with a total installed capacity of 12,600 kW.

The seven turbines came into service in autumn 2004. In 2005 they supplied

20.4 GWh of electricity to the Cegedel grid, compared with 5.7 GWh between

September and December 2004. The company made a profit of EUR 0.34 million

in 2005, compared with EUR 0.49 million in 2004.

Soler S.A.(participating interest: 50%)

This company was formed in response to the government’s initiative to privatise

the running of state-owned hydroelectric power stations. Its corporate purpose

includes the design and creation of electricity generation facilities, based on

renewable sources of energy, and the running of these facilities.

As at 31 December 2005, the company operated the hydro stations of Ettelbrück,

Esch-sur-Sûre and Rosport. Total hydro output was 30.51 GWh in 2005, compared

with 40.40 GWh in 2004. The company made a loss of EUR 0.07 million in 2005, as

opposed to a profit of EUR 0.36 million in 2004.

AnnuAl RepoRt 2005


Cegecom S.A.(participating interest: 100%)

Cegecom offers a wide range of telecommunications services (voice, data trans-

mission and high-speed internet access), based on a fibre-optic network and

wireless local loop technology.

With 39 employees (compared with 34 in 2004), the company has been growing

steadily. In 2005 a joint venture was concluded between Cegecom and vSE nET,

the telecommunications subsidiary of the group vSE AG, based in the Saar. A new

company, artelis, 27.5% owned by Cegedel Participations, was formed at the end

of 2005 with the aim of holding from the beginning of 2006 the participating

interest in Cegecom as well as that of vSE AG in vSE nET.

The company made a pre-tax profit of EUR 1.16 million in 2005, well ahead of

the preceding year. The post-tax profit was EUR 0.06 million, however, compared

with EUR 0.79 million in 2004. This decline was due an extraordinary charge of

EUR 0.92 million, arising from the separate tax treatment necessitated by the

formation of artelis.

Global Facilities S.A.(participating interest: 33.33%)

The Cegedel Group jointly formed this company in 2002. It offers facilities

management services to companies and local authorities.

The company continued to expand in 2005, increasing its headcount to 74

(from 59 in 2004). It made a profit of EUR 0.43 million in 2005, compared with


MAnAGeMent Rep0Rt52

AnnuAl RepoRt 2005

the following companies are not included in theconsolidated financial statements.

Société electrique de l’our S.A.(participating interest: 4.46%)

Société Electrique de l’our (SEo) owns and operates a 1,100 MW pumping station

in the vianden region and hydroelectric power stations on the Moselle river. The

company made a profit of EUR 2.19 million in 2005, compared with EUR 2.04

million in 2004.

luxgaz distribution S.A.(participating interest: 14%)

This company sets up and operates local gas distribution networks in regions

recently connected following the extension of the natural gas grid.

Gas sales increased by 9.5% in 2005 to 3.1 million GJ (2.8 million GJ in 2004).

The company made a profit of EUR 2.48 million in 2005, compared with


Surré S.A.(participating interest: 11%)

Surré has three cogeneration plants, which in 2005 produced 2.20 GWh of electri-

city and 7.1 GWh of heat. The company made a profit of EUR 0.12 million in 2005,

compared with EUR 0.07 million in 2004.

AnnuAl RepoRt 2005


Agence de l’energie S.A.(participating interest: 40%)

Agence de l’Energie continued its activities in 2005, most notably raising awa-

reness, providing information and giving technical advice to the general public

about how to use energy efficiently, and encouraging the use of renewable ener-

gies following the implementation of Luxembourg’s new regulations in this area.

As in the past, the company broke even.

Wandpark Burer Bierg S.A.(participating interest: 36.25%)

In 2003, Cegedel Participations jointly formed this company in order to build a

7,200 KW-capacity wind farm. The authorisation procedures for the project are

still under way.

MAnAGeMent Rep0Rt54

AnnuAl RepoRt 2005

Key figures (EUR million) 2004 2005 Change %

Total assets 40,50 42,64 2,14 5,3 %

Fixed assets 40,20 40,20 0,00 0,0 %

Shareholders’ equity 30,00 29,95 (0,05) (0,2 %)

Financial debt 10,50 10,50 0,00 0,0 %

Profit for the year (0,05) 2,19 2,24 -

This company was formed on 23 January 2003 to manage the Cegedel Group’s

diversification activities abroad. At the end of 2003, it invested EUR 39.5 million

in the German company Wuppertaler Stadtwerke AG (WSW). Cegedel Internatio-

nal’s total shareholding in WSW is eventually expected to increase to 13.33%.

The company also has a 1% holding in the European Energy Exchange (EEX) in

Germany.

James Clerk MAXWELL(1831 – 1879)

MAXWELL’s work represents a milestone in the development of modern science.

in his publication A Treatise on Electricity and Magnetism, he set out the four basic equations of electrodynamics (MAXWELL’s equations).

The electromagnetic theory of li-ght follows directly from this set of equations.

Cegedel international S.A.

AnnuAl RepoRt 2005


Wuppertaler Stadtwerke AG

(participating interest: 6.4%)

This company is active in Wuppertal in supplying, distributing and producing

electricity, in distributing water, natural gas and heat and in urban transport and

refuse collection. Cegedel International’s participating interest in WSW is

restricted to its distribution division (electricity, water, natural gas and heat) and

entitles it to a dividend from 1 January 2004 based on this division’s profits.

Dividends paid in 2005 (for 2004) came to EUR 2.2 million.

european energy exchange (eeX) AG(participating interest: 1%)

Based in Leipzig, the European Energy Exchange (EEX) is the management com-

pany for the -Germany’s only electricity exchange, the largest in Europe. EEX is

active in the spot and futures market in Germany. It also plans to be active across

Europe and to expand its activities to natural gas and carbon dioxide.

.

MAnAGeMent Rep0Rt56

AnnuAl RepoRt 2005

Watt Re is a captive reinsurance company with capital of EUR 1.24 million whose

aim is to insure the parent company against major risks, particularly those

relating to damage caused to the electricity distribution and transmission grid.

Technical provisions were EUR 17.18 million at the end of 2005.

In accordance with Luxembourg’s insurance law of 6 December 1991 (Art 99-4),

reinsurance companies are obliged to set aside an equalisation provision, which

means that Watt Re’s profit is zero.

The power vehicle developed by Henri TUdoR. View of the distribution board (1886)

Watt Re S.A.

AnnuAl RepoRt 2005

Board of directors of Cegedel S.A.

Mr Frank n. WAGEnER, who is standing down

by rotation, will be replaced for the remainder

of his term of office.

We will submit to you a proposal on this

matter.

Statutory auditors

The mandate of the company auditors,

Deloitte S.A., is about to expire.

We will communicate to you the joint

consultative committee’s proposal on this

matter.

The Board of Directors

Strassen, 7 April 2006

ConSolidAted AnnuAl ACCountS58

AnnuAl RepoRt 2005

Henri Owen TuDOr (1859 - 1928)

Luxembourg engineer and inventor of the lead-

acid battery, the ‘Tudor accumulator’. industrial

production quickly took off, with 1,200 working

TUdoR lead storage batteries worldwide in 1890.

The TUdoR brothers were also behind the

invention of the power vehicle, a multi-purpose

battery-motor unit.

Annual accounts

AnnuAl RepoRt 2005

ConSolidAted AnnuAl ACCountS 59

Consolidated annual accounts 2005

Consolidated balance sheet as at 31 December 2005 60

Consolidated profit and loss account for the period from

1 January to 31 December 2005 62

Consolidated cash flow statement 63

Consolidated statement of changes in shareholders’ equity 64

notes to the consolidated financial statements 65

Auditors’ report on the consolidated annual accounts 87

Annual accounts of Cegedel S.A.

Balance sheet as at 31 December 2005 90

Profit and loss account for the period from 1 January to 31 December 2005 92

notes to the annual accounts 94

Auditors’ report on the annual accounts 105


AnnuAl RepoRt 2005

ASSetS Note(s) 2005 2004

€ €

FiXed ASSetS

intangible fixed assets

other intangible fixed assets Note 4 1,829,341 2,312,977

tangible fixed assets Note 5

Grid and other tangible fixed assets 245,778,665 242,886,797

Fixed assets in course of construction 43,451,875 34,683,080

long-term investments Note 6

Investments in affiliated undertakings Note 6.1 34,196,510 30,387,509

other long-term investments Note 6.2 83,402,726 79,448,321

deferred tax Note 7 4,744,969 9,632,625

totAl 413,404,086 399,351,309

CuRRent ASSetS

Stocks Note 8

Goods held for resale 3,320,106 3,058,906

Services in progress 6,155,307 7,503,417

Receivables

Receivables in respect of sales and services provided Note 9 68,371,461 39,099,785

other receivables Note 10 51,825,573 6,627,392

transferable securities

other transferable securities 10,250,288 2,713,600

treasury operations Note 11 31,193,572 24,003,691

prepayments and accrued income 539,553 275,001

totAl 171,655,860 83,281,792

totAl ASSetS 585,059,946 482,633,101

IAS 32 and 39 relating to derivative financial instruments are adopted as from 1 January 2005, without restatementfor the 2004 financial year.

Consolidated balance sheetas at 31 December 2005 (under IFRS)

Cegedel Group

AnnuAl RepoRt 2005


liABilitieS Note(s) 2005 2004

€ €

SHAReHoldeRS’ eQuitY Note 12

Subscribed capital 134,500,000 134,500,000

Share premium 5,743,538 5,743,538

Reserves 164,252,993 130,645,949

Retained profit brought forward 24,418,061 26,515,919

Consolidated profit for the year, group share 52,350,990 47,418,886

SHAReHoldeRS’ eQuitY, GRoup SHARe 381,265,582 344,824,292

MinoRitY inteReStS 9,262,039 8,238,744

totAl SHAReHoldeRS’ eQuitY 390,527,621 353,063,036

lonG-teRM liABilitieS

Provisions for liabilities and charges Note 13 1,663,635 1,789,327

Deferred tax Note 7 8,062,641 8,968,184

Due to credit institutions Note 14 18,445,588 15,171,926

Due to staff (supplementary pension) Note 15 36,783,221 35,713,173

other long-term liabilities Note 16 7,952,317 6,167,850

totAl 72,907,402 67,810,460

SHoRt-teRM liABilitieS

Due to credit institutions 2,705,844 2,932,449

Due in respect of purchases and services 56,912,902 41,645,825

Tax and social security 9,510,954 5,946,358

other operating Note 17 50,885,286 10,593,957

Accruals and deferred income 1,609,937 641,016

totAl 121,624,923 61,759,605

totAl liABilitieS 585,059,946 482,633,101



AnnuAl RepoRt 2005

Consolidated profit and loss account for theperiod from 1 January to 31 December 2005(under IFRS)

Note(s) 2005 2004

€ €

Sales Note 18 539,784,277 387,800,859

other operating income 2,222,933 1,577,562

Changes in stocks (1,204,940) (899,242)

own work capitalised 7,691,979 7,586,685

Supplies (397,055,124) (243,865,242)

Personnel expenses Note 19

Salaries and other payroll costs (38,585,768) (36,486,176)

Social security charges (8,260,172) (9,960,299)

other operating expenses (18,466,826) (16,928,951)

operating profit before value adjustments (eBitdA) 86,126,359 88,825,196

value adjustments in respect of tangible and intangible fixed assets (31,648,813) (32,094,792)

operating profit (eBit) 54,477,546 56,730,404

Financial interest and similar expenses (1,074,139) (1,215,666)

Interest receivable and similar income 1,367,970 717,755

Unrealised profit on derivative financial instruments 1,493,169 -

Income from participating interests 2,380,268 154,055

Share of profit in companies accounted for using the equity method 5,633,637 3,038,954

pre-tax profit 64,278,451 59,425,502

Tax on profit from ordinary activities Note 20 (10,882,729) (11,108,246)

Minority interests (1,044,732) (898,370)

net profit for the year, group share 52,350,990 47,418,886

number of shares 6,725,000 6,725,000

net profit for the year, group share, per share 7.78 7.05


Cegedel Group

AnnuAl RepoRt 2005


2005 2004

€ €

Consolidated operating profit 54,477,546 56,730,404

Elimination of operating income and expenses with no effect on cash flow

value adjustments and provisions 31,811,609 29,698,038

Fair value adjustment 38,302 31,126

Gross operating profit 86,327,457 86,459,568

Change in working capital (5,446,465) (9,232,108)

net operating cash flows 80,880,992 77,227,460

other inflows and outflows linked to operations

Financial charges (1,074,139) (1,215,666)

Financial income and income from participating interests 3,748,238 871,810

Dividends received on companies accounted for using the equity method 1,302,612 838,490

Corporation tax paid (11,966,014) (10,890,360)

net cash flows from operating activities 72,891,689 66,831,734

Cash flows from investment activities

Acquisitions of tangible and intangible fixed assets (43,965,669) (40,924,848)

Disposals of tangible and intangible fixed assets 1,143,116 102,726

Acquisitions of long-term investments (492,775) (125,833)

Effect of changes in structure of consolidated group 100,000 125,000

net cash flows from investing activities (43,215,328) (40,822,955)

Cash flows from financing activities

Dividends paid to parent company shareholders (16,812,500) (14,290,625)

Dividends paid to minority interests in integrated companies (364,803) (243,081)

Profit sharing (819,546) (745,184)

Increase/decrease in amounts due to credit institutions 3,047,057 (2,535,162)

net cash flows from financing activities (14,949,792) (17,814,052)

CHAnGe in net CASH poSition 14,726,569 8,194,727

Cash available at the beginning of the year 26,717,291 18,522,564

Cash available at the end of the year 41,443,860 26,717,291

IAS 32 and 39 relating to derivative financial instruments are adopted as from 1 January 2005, without restatementfor the 2004 financial year,

Consolidated cash flow statement


AnnuAl RepoRt 2005

1 January2004

dividends paid

Appropriation of profit

net profit others 31 december

2004iAS 39

restatement1 January

2005

Capital 134,500,000 134,500,000 134,500,000

Share premium 5,743,538 5,743,538 5,743,538

Revaluation reserve 9,393,821 9,393,821 9,393,821

Statutory reserve 8,590,702 1,005,305 9,596,007 9,596,007

Consolidated reserves 31,873,694 29,732,265 (2,247,048) 59,358,911 (700,875) 58,658,036

Special reserve 20,707,431 2,000,000 32,340 22,739,771 22,739,771

Blocked reserve 25,052,687 1,956,092(1) 27,008,779 27,008,779

Fair value reserve 1,756,347 792,313 2,548,660 2,548,660

Retained earnings 75,506,535 (14,533,706) (32 737,570) (1,719,340) 26,515,919 216,447 26,732,366

Profit for the year 47,418,886 47,418,886 47,418,886

total shareholders’ equity, group share 303,730,934 (14,533,706) 0 47,418,886 8,208,178 344,824,292 (484,428) 344,339,864

1 January 2005

dividends paid

Appropriation of profit

net profit others 31 december

2005

Capital 134,500,000 134,500,000

Share premium 5,743,538 5,743,538

Revaluation reserve 9,393,821 9,393,821

Statutory reserve 9,596,007 1,094,709 10,690,716

Consolidated reserves 58,658,036 28,641,633 (2,577,523) 84,722,146

Special reserve 22,739,771 2,000,000 13,127 24,752,898

Blocked reserve 27,008,779 2,777,817(1) 29,786,596

Fair value reserve 2,548,660 2,358,156 4,906,816

Retained earnings 26,732,366 (2,314,305) 24,418,061

Profit for the year 47,418,886 (17,177,303) (29,422,037) 52,350,990 (819,546) 52,350,990

total shareholders’ equity, group share 344,339,864 (17,177,303) 0 52,350,990 1,752,031 381,265,582

1) In 2005 an amount of EUR 2,777,817 (EUR 1,956,092 in 2004) was transferred from the consolidated reserves to the blocked reserve, owing to the allocation to the blocked reserve of five times the wealth tax credit.

Consolidated statement of changes inshareholders’ equity

AnnuAl RepoRt 2005


The Cegedel Group prepares its

consolidated financial statements in

accordance with IFRS, as published

by the International Accounting

Standards Board (IASB) and adopted

by the European Union.

Information relating to the transition

between Luxembourg accounting

principles and IFRS can be found in

note 2 to the consolidated financial

statements.

The consolidated financial statements

have been prepared on the basis of

the commitment accounting and

historical cost conventions except

for certain assets valued at their fair

value.

note 1 - Accountingprinciples

Scope of consolidation

The consolidated financial statements

include those of Cegedel S.A. and

those of its affiliates, including

jointly controlled entities, and its

associated companies. Together they

form the group. The consolidated

companies are listed in note 3 ‘Scope

of consolidation’.

All consolidated companies prepare

their financial statements as at 31

December.

Consolidation methods

The methods used are:

• Full consolidation in the case of

those companies that the Cegedel

Group directly or indirectly controls

(generally with more than 50%

of the voting rights). With this

method, the assets and liabilities

of the consolidated companies are

incorporated into the consolidated

accounts, rather than the book

value of the equity interests held

by the group in the companies con-

cerned. Use of this method leads

to goodwill on consolidation and

minority interests being reported.

Similarly, the income and expenses

of these subsidiaries are consoli-

dated with those of the parent

company and their profits/losses for

the financial year are apportioned

between the group and the minori-

ty interests. Intercompany accounts

and transactions are eliminated.

• Proportional consolidation in the

case of those companies that the

Cegedel Group controls jointly

with a limited number of associa-

tes. With this method, the assets

and liabilities of the proportio-

nally consolidated companies are

incorporated, pro rata, into the

consolidated accounts - based

on the percentage of their share

capital held by the parent company

- rather than the acquisition cost

of these equity interests. Similarly,

the income and expenses of these

companies are consolidated with

those of the parent company, pro

rata, with those of the parent

company, based on the percentage

of their capital held by the parent

company. Intercompany accounts

and transactions are eliminated pro

rata, based on the capital held by

the parent company.

• The equity method in the case of

those companies over which the

Cegedel Group exercises significant

influence. With this method, the

parent company’s share of its affi-

liate’s equity, based on its equity

interest, is entered in its balance

sheet, rather than the acquisition

cost of the equity holding itself.

The difference thus generated is

Notes to the consolidated financial statements


AnnuAl RepoRt 2005

posted to group shareholders’

equity. Similarly, the dividends

shown in the parent company’s pro-

fit/loss are replaced by the parent

company’s share of the profit/loss of

the equity-reported company. The

other balance sheet and profit and

loss account items are not affected

and intercompany accounts and

transactions are not eliminated.

Goodwill

Goodwill is calculated at the time

of acquisition or consolidation of an

equity interest. It was deducted from

the consolidated reserves as at

31 December 2003. Since 1 January

2004, the goodwill represented by the

excess of the acquisition price over

the group’s interest share in the fair

value of the identifiable assets and

liabilities of the acquired entity has

been recorded in the balance sheet

as an asset. Goodwill is not amortised

but may be written off as required.

Revenue recognition

In energy supply, revenue is

recognised at the time of physical

delivery. For supplies of low-voltage

electricity from the parent company,

five flat-rate advance payments

and one detailed account following

meter reading are invoiced annually.

Both the advance payments and the

detailed accounts are recognised as

revenue. As regards the provision of

work and services invoiced to third

parties, revenue is recognised on

completion of the work, the work

generally lasting less than one year.

Instalments invoiced to customers

during work are recorded in the

balance sheet as payables.

Currency translation

Foreign currency transactions are

recorded at the exchange rate in

effect on the transaction date.

Balance sheet items denominated

in foreign currencies are converted

at the exchange rate in effect at the

end of the year. Exchange profits and

losses are included in the profit and

loss account.

All group currencies use EUR as their

working currency.


Computer licences are amortised over

their estimated useful lives. Goodwill

has an indefinite life and is written

down as required.

Concession

Cegedel holds a concession signed

with the government on 11 november

1927 and approved by the law

of 4 January 1928. Its purpose is

the construction and operation

of all infrastructure for electricity

distribution in the Grand Duchy of

Luxembourg.

To this end, Cegedel S.A., as the

general concessionary, has the

exclusive right to construct and

maintain all infrastructure for

electricity distribution and to use

state and local government land

free of charge. It has the right, on

behalf of the state, to acquire local

government and private property

required for the construction

of electricity transmission and

distribution networks and the right

to establish easements.

In return, it has an obligation

to connect any customer on its

distribution grid who requests

connection.

The concession agreement was for

an initial term of 30 years renewable

for further 10-year periods by tacit

agreement.

AnnuAl RepoRt 2005


In addition, in the light of the

European directive of 26 June

2003 on common regulations for

the internal electricity market,

Cegedel net S.A., which manages

the transmission and distribution

networks, was formed at the end of

2004 to enable any electricity supplier

to have free and non-discriminatory

access to Cegedel’s networks. Cegedel

net began trading on 1 January 2005.

tangible fixed assets

Tangible fixed assets are recorded in

the balance sheet at their acquisition

price or at cost.

The acquisition price is made up of

the purchase price, including customs

dues and non-refundable taxes, after

deduction of commercial discounts

and rebates, and any cost directly

attributable to the asset’s transfer

to its place of operation and any

adaptation needed for its operation.

Depreciation is recorded on the

basis of an asset’s economic life.

The depreciation periods used for

buildings, plant and equipment that

are part of the electricity grid are as

follows:

Transformer substations: 50 years

Substation and electric

transformer equipment: 20 years

Industrial buildings: 25 years

overhead electric lines: 33 years

Underground electric lines: 25 years

Meters: 15 years.

The assets are depreciated on the

basis of the straight-line or reducing-

balance method, applying one

approach per component.

Tangible fixed assets in the course

of construction are valued at cost,

based on all the direct costs involved.

The indirect costs are added on

completion of the assets concerned.

long-term investments

Investments in participating interests

are recorded in the balance sheet at

their acquisition cost and valued at

year-end at their fair value. When

their accounting value is greater than

the recoverable amount, a provision

for depreciation is in principle made

for the difference.

Long-term investments include

investments held as fixed assets

that are valued at year-end at their

market value. The value difference is

recorded in the fair value reserve, as

specified by IAS 39 for financial assets

available for sale.

Stocks

Stocks are recorded as the lower

of their historical cost and their

net realisable value. Historical cost

is calculated on the basis of the

weighted average cost.

value adjustments are made in

respect of old inventory items or

items with low rotation.

Services in progress equate to services

being performed and to be invoiced

to third parties. These services are

valued at cost, based on the direct

and indirect costs incurred by the

company.

Receivables

Receivables in respect of sales and

services provided are recorded at

their nominal value. They are written

down when there is a risk of partial

or total non-recovery. Amounts


AnnuAl RepoRt 2005

recorded in the balance sheet are net

of any write-downs.

depreciation of long-term assets

The value of assets is reviewed as at

the balance sheet date to ascertain

any indications of possible falls in

value. A write-down is recorded

when the accounting value of an

asset is greater than its recoverable

value. The recoverable value is the

higher of the asset’s net selling price

and its utility value. This may be

determined by estimating the future

financial flows generated by the asset

and updated at a rate adjusted to the

specific risks inherent in the asset.

The value of assets with an indefinite

life is subject to a depreciation test at

each year-end.

Short-term investments

Short-term investments are valued at

year-end at their market value. The

value difference is recorded in the fair

value reserve, as specified by IAS 39

for financial assets available for sale.

electricity trading activity

Given the specific aspects of this

activity, all positions, whether

physical deliveries or derivative

instruments, are included in a trading

portfolio and valued at fair value

from 1 January 2005. Underlying

gains and losses are posted to the

profit and loss account from this

date.

electricity trading activity

Given the specific aspects of this

activity, all positions, whether

physical deliveries or derivative

instruments, are included in a trading

portfolio and valued at fair value

from 1 January 2005. Underlying


profit and loss account from this

date.

pension commitments

Commitments under the defined

benefits pension scheme granted to

staff are calculated on the basis of

the projected unit of credit method.

This method, which retains the

benefits based on years of service,

does not take into account solely the

pension commitments conditions at

year-end but also pay increases and

anticipated future benefits. Actuarial


profit and loss account.

taxes

Tax liabilities include the sum of

current and deferred taxes charged.

Deferred taxes are recorded on the

time differences existing between

the tax rules and those used for

preparing the consolidated financial

statements. Deferred taxes are

calculated in accordance with the

variable carrying forward method

based on the tax rate expected

at the time that the receivable or

liability materialises. Active deferred

taxes are recorded only if it is likely

that future taxable profits will be

available.

AnnuAl RepoRt 2005


The Cegedel Group publishes its

consolidated financial statements

under IFRS for the first time as at

31 December 2005. The first

application of IFRS standards was to

the opening balance as at 1 January

2004. It does not include the IAS 32,

IAS 39 and IFRS 4 standards (except, by

anticipation, the fair value valuation

of financial assets available for sale).

These standards were applied to the

opening balance as at 1 January 2005.

This section shows the reconciliation

between the Luxembourg accounting

standards and IFRS for shareholders’

equity and the profit and loss account

at the dates of first application.

note 2 - First application of international accounting standards (iFRS)

01.01.2005 31.12.2004 01.01.2004

€ € €

net position, group share, (including profit) under luxembourg accounting standards

327,617,867 327,617,867 286,875,244

Formation expenses (237,081) (237,081) (385,260)

Intangible fixed assets (including goodwill) 576,777 576,777 226,215

Tangible fixed assets: valuation (2,325,134) (2,325,134) (1,622,709)

Reversal of revaluation of tangible fixed assets (10,017,473) (10,017,473) (11,448,541)

Tangible fixed assets: Depreciation 7,546,902 7,546,902 8,109,455

valuation of financial assets at fair value 3,660,815 3,660,815 2,522,762

Pensions (1,196,551) (1,196,551) 1,150,463

Provision for equalisation of Watt Re 14,848,074 14,848,074 12,851,427

Derivative financial instruments (IAS 39) (389,977) - -

other restatements 1,243,985 1,243,985 899,024

total iFRS restatements, before tax 13,710,337 14,100,314 12,302,836

Withholding tax on dividends 3,362,500 3,362,500 2,858,125

Tax on profit from ordinary activities (350,840) (256,389) 1,694,729

net position, group share, (including profit) under international accounting standards (iFRS)

344,339,864 344,824,292 303,730,934

2.1. Statement of change in net situation under luxembourg accounting standards and under iFRS


AnnuAl RepoRt 2005

2.2. Statement of change in profit presented in the financial statements as at 31 december 2004 under luxembourg

accounting standards and under iFRS

2004

€

net profit, group share, under luxembourg accounting standards 20,601,291

Transfers to reserves in accordance with Article 50 of the Articles of Association 25,832,115

Formation expenses 148,180

Intangible fixed assets (including goodwill) 350,562

Tangible fixed assets: valuation (702,425)

Tangible fixed assets: Depreciation (562,554)

Pensions (2,347,014)

Provision for equalisation of Watt Re 1,996,647

other restatements 344,960

total iFRS restatements, before tax 25,060,472

Withholding tax on dividend to be paid by Cegedel 3,362,500

Tax on profit from ordinary activities (1,605,377)

net profit, group share, under international accounting standards (iFRS) 47,418,886

AnnuAl RepoRt 2005


2.3. description of adjustments

• Transfers to reserves

In accordance with IFRS, transfers

to reserves under Article 50 of

Cegedel’s Articles of Association

are now included in the profit.

• Formation expenses

In accordance with IFRS, formation

expenses have been charged to the

profit and loss account for the year

in which they arose.

• Intangible fixed assets

Goodwill has not been amortised

in accordance with international

accounting standards but is the

subject, as required, of a provision

for writing down in the event of a

diminution in value.

• Tangible fixed assets

- valuation of tangible fixed assets

Gross values of some tangible

fixed assets of consolidated

subsidiaries have been adjusted

to reflect the valuation principles

compatible with IFRS.

- Revaluation of tangible fixed

assets

The partial revaluation of fixed

assets, as made by Cegedel in

1982, was the subject of a rever-

sal under IFRS.

- Depreciation of tangible fixed

assets

IFRS principles stipulate that tan-

gible fixed assets are depreciated

over their economic life.

• valuation of financial assets at fair

value

International standards (IAS 39)

retain the principle of valuation at

fair value (market value).

• Provisions for liabilities and charges

The supplementary pension liability

has been calculated in accordance

with IAS 19, using the parameters

described in note 15. In accordance

with IFRS, this commitment has

been restated under operating

liabilities (due to staff).

• Provision for equalisation of Watt Re

In accordance with IFRS, the provi-

sion for equalisation of Watt Re, a

captive reinsurance company, has

been reversed.

• Derivative financial instruments

(IAS 39)

IAS 39 requires that derivative

financial instruments are valued

in the balance sheet at fair value

and that the change in fair value is

recorded in the profit or loss.

• Withholding tax on dividend to be

paid

In accordance with IFRS, withhol-

ding tax on the dividend to be paid

is no longer deducted from the

profit.

• Tax on profit from ordinary

activities

Under IFRS, deferred tax is recor-

ded on all the taxable/deductible

temporary differences between the

accounting value and the tax value

of group assets and liabilities.


AnnuAl RepoRt 2005

note 3 - Scope of consolidation

The only movement in the year is the first consolidation of Cegedel net on 1 January 2005.

Fully consolidated group companies

name Country of domicile proportion of capital held (%) Main activity

Cegedel net S.A. Luxembourg 100operates transmission and electricity networks

Cegedel Participations S.A. Luxembourg 100Holds participating interests in Luxembourg

Cegedel International S.A. Luxembourg 100Holds participating interests outside Luxembourg

LuxEnergie S.A. Luxembourg 60.35 Generates heat and electricity

Cegecom S.A. Luxembourg 100 Telecommunications

Watt Re S.A. Luxembourg 100 Reinsurance

partially consolidated group

companies

Cegedel Group holds:

a) a 50% participating interest in

Ceduco S.A., a joint venture with

Du Pont de nemours (plant pro-

ducing vapour and electricity).

b) a 50% participating interest in

Cegyco S.A., a joint venture with

Goodyear (plant producing va-

pour and electricity).

c) a 50% participating interest in

Soler, whose corporate purpose

is studying, constructing and run-

ning plants that generate electri-

city from renewable sources.

d) a 33.33% participating interest

in Global Facilities, a joint venture

specialising in facilities manage-

ment.

AnnuAl RepoRt 2005


The following elements are included in the consolidated financial statements because of the partial consolidation of

these four companies:

31/12/2005 31/12/2004

by share of holding € €

Fixed assets 3,601,845 4,060,566

Current assets 3,667,610 3,229,227

operating liabilities 2,212,242 1,969,484

Financial liabilities 701,032 962,289

Total income 11,116,039 10,168,523

Total expenses 10,585,648 9,254,139

Consolidated group companies accounted for using the equity method

The following companies are accounted for using the equity method as at 31 December 2005:

name Country of domicile proportion of capital held (%) Main activity

Twinerg S.A. Luxembourg 17.5Generates electricity with a gas and vapour turbine

Soteg S.A. Luxembourg 19Imports and transmits natural gas

Wandpark Gemeng Hengischt S.A.

Luxembourg 20Generates electricity in wind farms

WandparkKehmen-Heischent S.A.

Luxembourg 20Generates electricity in wind farms

For the companies above where less

than 20% of voting rights are held,

the Cegedel Group exercises signifi-

cant influence over them by virtue of

its representation on their boards of

directors and the strategic interest

that their activities represent for the

group.


AnnuAl RepoRt 2005

Some elements of the 2005 balance sheets and profit and loss accounts of the companies accounted for using the equity

method are presented below:

twinerg SotegWandparkGemeng

Hengischt

Wandpark Kehmen-Heischent

(amounts in accordance with luxembourg accounting standards)

€ € € €

Balance sheet information

Balance sheet total 180,807,192 177,337,185 11,368,774 16,283,650

Total liabilities due within one year 21,185,937 36,891,495 1,147,432 1,920,857

profit and loss account information

Sales 130,489,288 288,882,205 1,640,888 1,696,294

net profit 18,105,435 10,574,411 224,906 338,264

note 4 - intangible fixed assets

31/12/2005 Goodwill Software, licences 31/12/2005 31/12/2004

€ € € €

CoSt

At beginning of year 1,297,041 14,128,318 15,425,359 15,094,024

Acquisitions - 200,478 200,478 331,335

Disposals - (829,365) (829,365) -

At end of year 1,297,041 13,499,431 14,796,472 15,425,359

VAlue AdJuStMentS FoR tHe YeAR

At beginning of year - (13,112,382) (13,112,382) (11,837,046)

value adjustments for the year - (684,114) (684,114) (1,275,336)

Disposals - 829,365 829,365 -

At end of year - (12,967,131) (12,967,131) (13,112,382)

net BooK VAlue At end oF YeAR 1,297,041 532,300 1,829,341 2,312,977

AnnuAl RepoRt 2005


note 5 - tangible fixed assets

land and Machinery, other 31/12/2005 31/12/2004buildings plant and tangible

equipment assets

€ € € € €

CoSt

At beginning of year 58,353,347 547,752,295 40,030,698 646,136,340 612,144,443

Additions 2,505,461 29,658,123 2,832,812 34,996,396 34,311,296

Changes in scope - - - - 13,629

Disposals (6,326) (5,280,385) (257,683) (5,544,394) (333,028)

At end of year 60,852,482 572,130,033 42,605,827 675,588,342 646,136,340

VAlue AdJuStMentS in tHe YeAR

At beginning of year (15,651,068) (356,090,444) (31,508,031) (403,249,543) (372,657,291)

value adjustments for the year (2,029,071) (25,796,988) (3,135,353) (30,961,412) (30,819,454)

Changes in scope - - - - (3,100)

Written off on disposals 2,108 4,141,485 257,685 4,401,278 230,302

At end of year (17,678,031) (377,745,947) (34,385,699) (429,809,677) (403,249,543)

net BooK VAlue At end oF YeAR 43,174,451 194,384,086 8,220,128 245,778,665 242,886,797

tangible fixed assets in course of construction

At beginning of year

Additions disposals At endof year

€ € € €

Cost 34,683,080 38,497,784 (29,728,989) 43,451,875


AnnuAl RepoRt 2005

note 6 - long-term investments

investments in affiliated

undertakings

investmentsheld as

fixed assets

other participating

interests

total total

31/12/2005 31/12/2004

€ € € € €

Gross value at beginning of year 30,387,509 35,693,119 43,755,202 109,835,830 98,241,369

Acquisitions - 5,440,187 8,551 5,448,738 125,000

Divestments - (4,955,963) - (4,955,963) -

Transfers - - - - 833

Changes in scope - - (100,000) (100,000) (125,000)

Fair value adjustment - 3,561,630 - 3,561,630 1,064,038

Change in investments in equity-reported companies 3,809,001 - - 3,809,001 10,529,590

Gross value at end of year 34,196,510 39,738,973 43,663,753 117,599,236 109,835,830

value adjustments - - - - -

net BooK VAlue At end oF YeAR 34,196,510 39,738,973 43,663,753 117,599,236 109,835,830

6.1. investments in affiliated undertakings

The breakdown of investments in affiliated undertakings is as follows:

31/12/2005 31/12/2004

€ €

Soteg 24,668,386 22,849,507

Twinerg 8,051,001 6,083,400

Wandpark Kehmen-Heischent 779,051 674,769

Wandpark Gemeng Hengischt 698,072 779,833

total 34,196,510 30,387,509

Information on equity-reported affiliated undertakings is also given in note 3.

AnnuAl RepoRt 2005


6.2. other participating interests

other participating interests comprise

interests in other companies over

which the group exercises neither

control nor significant influence.

other participating interests are

stated in the portfolio of securities

available for sale.

other participating interests also

includes companies that have not

been included in the scope of consoli-

dation even though they are at least

20% owned and domiciled in the

Grand Duchy of Luxembourg. This

is either because they were not yet

operational in 2005 or because their

impact on the consolidated accounts

is negligible . These companies are as

follows:

proportion of capital held by

Company name Accounting value

€

Cegedel and Cegedel participations

other consolidated undertakings

Wandpark Burer Bierg SA 725,000 36.3 % -

Surré SA 323,501 11.2 % 39.3 %

Agence de l’Energie SA 148,736 40.0 % -

Airport Energy SA 25,000 - 50.0 %

Escolux SARL 12,395 - 100.0 %

artelis 8,525 27.5 % -

note 7 - deferred tax

Deferred tax assets and liabilities break down as follows:

31/12/2005 31/12/2004deferred tax (assets) € €

Depreciation of tangible fixed assets 714,538 715,902

Pension commitments 281,276 5,081,334

Tax losses carried forward 3,749,155 3,835,389

Total 4,744,969 9,632,625

31/12/2005 31/12/2004deferred tax (liabilities) € €

valuation of financial assets at fair value 2,141,182 1,112,156

Pension commitments 185,171 3,345,184

Trading commitments 548,076 -

Reversal of provision for equalisation of Watt Re 5,188,212 4,510,844

Total 8,062,641 8,968,184


AnnuAl RepoRt 2005


services provided are due within

one year. value adjustments cover

a known risk of specific default by

some debtors.

note 8 - Stocks

The accounting value of stocks broken down by category is as follows:

Goods heldfor resale

€

Services inprogress

€

Gross value as at 31 December 2005 3,810,106 6,155,307

value adjustments (490,000) -

net value as at 31 December 2005 3,320,106 6,155,307

Gross value as at 31 December 2004 3,666,936 7,503,417

value adjustments (608,030) -

net value as at 31 December 2004 3,058,906 7,503,417

note 9 - Receivables in respect of sales and servicesprovided

31/12/2005 €

31/12/2004 €

Gross value of receivables 69,754,549 41,607,250

value adjustments (1,383,088) (2,507,465)

net value of receivables 68,371,461 39,099,785

Heinrich rudolf HErTz(1857 - 1894)

German physicist who proved the existence of electromagnetic waves. His electromagnetic theo-ry implied that waves could be emitted both in air and in a va-cuum. His work and discoveries were behind wireless telegraphy, X-rays, radar, radio and television.

The unit of measurement of the frequency of a periodic pheno-menon bears his name: 1 hertz = 1 cycle per second (symbol Hz).

AnnuAl RepoRt 2005


EUR 2,950,708 at 1 January 2005 and

zero at 31 December 2004).

other receivables are due within one

year.

note 10 - other receivables

The increase in other receivables in

2005 is mainly due to the electricity

trading activities: the amount of

derivative financial instruments va-

lued at fair value was EUR 40,713,610

at 31 December 2005 (compared with

31/12/2005 31/12/2004

€ €

Gross value 51,825,573 6,627,392

Corrections de valeur - -

net value 51,825,573 6,627,392

note 11 - Cash and cash equivalents

The cash accounts comprise bank

and post office account balances,

cheques, cash in hand and deposits

for terms of under one year.

note 12 - Shareholders’ equity

As at 31 December 2005, the share

capital of Cegedel S,A, was EUR

134,500,000.

It was fully paid-up and represented

by 6,725,000 ordinary, no-par-value

shares with no preference rights

whatsoever.

There was no change in the share

capital of Cegedel S,A, in 2004 and

2005.

In 2005 a gross dividend of EUR 2,50

per share was paid to shareholders

for 2004.

The Board of Directors proposes

the payment of a gross dividend of

EUR 2,75 per share for 2005. This

dividend will be the subject of a

resolution at the Annual General

Meeting.


AnnuAl RepoRt 2005

note 13 - provisions for liabilities and charges

This item chiefly includes the provisions for liabilities and charges relating to com-

mitments under the overall guarantee for industrial installations:

At beginning

of yeartransfers

Write-backs

At endof year

Provision for overall guarantee 1,146,101 512,818 (646,204) 1,012,715

others 643,226 588,684 (580,990) 650,920

Total 1,789,327 1,101,502 (1,227,194) 1,663,635

note 14 - Amounts due to credit institutions

Amounts due to credit institutions break down by due date as follows:

31/12/2005 31/12/2004

€ €

From one to five years 13,039,478 10,997,957

More than five years 5,406,110 4,173,969

Total 18,445,588 15,171,926

Michael FArADAY(1791 - 1867)

British physicist and chemist who devised the theory of electromagnetism and worked out the principle of the electric motor. in electrochemistry, FARAdAY established the laws of electrolysis and gave us the words ‘electrode’, ‘electro-lysis’, ‘electrolyte’, ‘cathode’, ‘anode’ and ‘ion’.

AnnuAl RepoRt 2005


Under a pension scheme that is

supplementary to the statutory

staff scheme, Cegedel and

Cegedel net have contracted the

following supplementary pension

commitments:

Under a defined benefits pension

scheme for staff who entered

service before 1 January 2001, these

companies undertook to pay a lump

sum on the retirement of each

employee, The amount reported in

the balance sheet as due to staff for

the supplementary pension is based

on the following assumptions:

• retirement age taken into account

for financing: 60 years,

• discount rate of 4,2% per year,

• estimated pay at time of retirement

based on past experience,

In a defined contributions pension

scheme for staff who entered service

after 1 January 2001, these two

companies pay a contribution to an

insurance company that is recorded

under operating expenses for the

year.

Amounts due to staff for the

supplementary pension, calculated

on the basis of the method described

in note 1, have changed as follows:

2005 €

2004 €

Actuarial debt at beginning of year 35,713,173 34,492,823

Cost of year’s commitments 1,787,433 1,836,276

Cost of interest on actuarial debt at beginning of year 1,421,486 1,398,165

Benefits paid (1,661,567) (2,141,104)

Actuarial gains/losses (477,304) 127,013

Actuarial debt at end of year 36,783,221 35,713,173

note 15 - due to staff (supplementary pension)


AnnuAl RepoRt 2005

note 16 - other long-term payables

other long-term payables correspond to income recorded in advance.

note 17 - other operating liabilities

31/12/2005 €

31/12/2004 €

Advance payments on orders 9,079,662 9,447,292

other operating liabilities 41,805,624 1,146,665

Total 50,885,286 10,593,957

note 18 - Sales

Sales break down as follows:

31/12/2005 €

31/12/2004 €

Sales of high and medium-voltage electricity 149,610,132 154,513,334

Sales of low-voltage electricity 109,112,928 96,758,307

Electricity trading sales 212,846,558 82,491,382

other energy sales 16,379,456 13,838,401

other income 51,835,203 40,199,435

Total sales 539,784,277 387,800,859

other operating liabilities include

derivative financial instruments

valued at fair value for an amount of

EUR 38,909,543 at 31 December 2005

(EUR 2,639,810 at 1 January 2005 and

zero at 31 December 2004).

Nikola TESLA(1856 - 1943)

American engineer and physicist of Croatian origin who was the first to imagine the principle of three-phase current. He made countless appliances and devices that advanced electrical and radio technology. The si unit of magne-tic induction, the tesla, bears his name (symbol T).

AnnuAl RepoRt 2005


note 19 - Staff costs

The group had an average of 597 em-

ployees in 2005, compared with 586

in 2004. It should be noted that this

total of 597 includes a figure of 25

that represents the group’s share of

the 74 people employed by the pro-

portionally consolidated companies.

note 20 - tax on profit from ordinary activities

Tax on profit from ordinary activities breaks down as follows:

31/12/2005 31/12/2004

€ €

Current tax liabilities 8,024,092 9,802,869

Deferred tax liabilities 2,858,637 1,305,377

Tax on profit from ordinary activities 10,882,729 11,108,246

Tax liabilities are explained as follows:

31/12/2005 31/12/2004

€ €

Pre-tax profit and share of equity-reported companies 58,644,814 56,386,548

Tax rate 30.38 % 30.38 %

theoretical tax charge 17,816,294 17,130,233

Tax relief on investment (3,569,278) (4,279,747)

Exempt dividends (2,410,427) (810,906)

Write-back of provision for prior years’ tax (1,527,723) (1,113,493)

others 573,863 182,159

Real tax charge 10,882,729 11,108,246

Having met the terms and conditions

laid down in Paragraph 8a of the Law

of 21 December 2001, the company

applied a wealth tax credit.

The Cegedel parent company is

consolidated for tax purposes with

Cegedel net, Cegedel Participations,

Cegedel International and Watt Re.

The effect of this is as follows:

• tax charges are booked in the

subsidiaries’ accounts as would be

the case if no tax group existed;


AnnuAl RepoRt 2005

• tax savings relating to any loss-

making subsidiary are reallocated

to that subsidiary in the same year

as the loss arises. Such savings are

therefore included in the results of

the loss-making subsidiary;

• the parent company books the

balance on the basis of the

consolidated profit/loss.

Tax consolidation is possible only

where the companies concerned

are combined for this purpose for a

period of at least five financial years.

This means that if the criteria laid

down in Article 164a of the Income

Tax Act are not met at any time

during this period, the tax treatment

ceases to apply, retroactively,

from the first year in which it was

permitted.

In 2005 Cegecom left the tax

group, so that the arrangement in

place since 2003 ceased to apply to

Cegecom with retroactive effect.

note 21 - transactions with associated parties

Transactions with associated parties

are concluded at market conditions.

In particular, there is a procurement

contract between Cegedel and

Twinerg, which provides for the

supply of 100 MW of electricity per

year based on an index linked to the

price of coal.

Georg Simon OHM(1787 - 1854)

German physicist who studied the quantitative properties of electric currents, from which he formu-lated fundamental laws. The famous ohm’s law established that the amount of electric cur-rent passing through a metallic conductor is directly proportional to the voltage applied to it.

The unit of electrical resistance, the ohm, bears his name (symbol Ω).

AnnuAl RepoRt 2005


The Cegedel Group focuses mainly

on Luxembourg. The division of the

group’s activities between the supply

of energy (main activity of the parent

company Cegedel S.A.), electricity

transmission and distribution

(by Cegedel net, the electricity

transmission and distribution

operator), energy production (by the

generating subsidiaries) and other

activities are as follows:

Cegedel S.A. Cegedel net S.A. Generating companies others total

€ € € € €

Sales 465,816,303 23,823,925 34,450,859 15,693,190 539,784,277

net profit 36,882,982 645,708 9,038,039 5,784,261 52,350,990

Balance sheet total 454,691,829 5,418,058 70,135,958 54,814,101 585,059,946

N.B.: The figures above represent the amounts included in the 2005 consolidated accounts. Comparative figures for 2004 have not been published, as some are not available (Cegedel Net started trading on 1 January 2005).

note 23 - Remuneration paid to members ofthe administration andmanagement bodies

Remuneration paid to members of

the administration and supervisory

bodies totalled EUR 1,487,555 in 2005

(EUR 1,477,549 in 2004). no advances

or loans were granted to members of


bodies, nor was any commitment

undertaken on their behalf in respect

of any form of guarantee.

note 24 - Risk management

The main risks associated with the

Cegedel Group’s activity are the

market risk linked to changes in

electricity prices and the credit risk

linked to contractual commitments

with customers. These risks,

further accentuated by increased

competition and the new legislative

framework, have necessitated proper

procedures being put in place to

ensure their appropriate control.

The parent company adopts a

prudent policy on market risk,

observing the strict limits fixed by the

Board of Directors and management

as regards the level of open positions,

both in its procurement and its

electricity trading activities. Financial

risks used by the group are approved

by management and systematically

monitored using a value-at-risk risk

management model.

Credit risk is examined systematically

on the commencement of a

procurement or electricity trading

relationship and regularly reviewed.

This risk is reduced by participation

in the regulated market of the EEX

electricity exchange in Leipzig.

note 22 - Sector information


AnnuAl RepoRt 2005

note 25 - off-balance sheet liabilities and commitments

Cegedel Participations gave a coun-

ter-guarantee on behalf of Electrabel

amounting to EUR 18,686,875 as at

31 December 2005 (i.e. 17.5% - the

same percentage as the holding of

Cegedel Participations in Twinerg

- of a financing arrangement for an

amount of EUR 106,782,141 as at

31 December 2005 and covering

commitments entered into by

Electrabel on behalf of Twinerg). As

at 31 December 2004, this counter-

guarantee was for EUR 20,295,156.

In addition, the group’s commitments

under leasing contracts came to EUR

1,190,592.

Lastly, the parent company concluded

a number of forward contracts for

the purchase and sale of electricity as

part of its procurement programme.

As at 31 December 2005, electricity

forward sale contracts came to EUR

263,369,144 and forward purchase

contracts came to EUR 96,925,213.

The amounts of the above forward

purchase contracts include only

forward contracts signed with exter-

nal counterparties and not contrac-

tual purchase commitments with

local producers.

note 26 - events after the end of the year

A new company, artelis, 27.5%

owned by Cegedel Participations, was

formed at the end of 2005, with the

aim of holding from the beginning

of 2006 the participating interest of

Cegedel Participations in Cegecom as

well as that of Germany’s vSE AG in

vSE net, a specialist telecommunica-

tions company based in Saarbrücken.

note 27 - Approvalof financial statements

The financial statements were pre-

pared by the Board of Directors on

7 April 2006 and will be submitted

for approval to the Annual General

Meeting on 9 May 2006.

James Prescott JOuLE

(1818 - 1889)

British physicist and inventor of the calorimeter, which enables the thermal effect, or Joule effect (J), of the transformation of elec-trical energy into calorific energy (heat) to be measured.

The unit of work and energy, the Joule, is named in his honour.

Heat is expressed in the same unit, the calorie being equivalent to 4.18 joules.

AnnuAl RepoRt 2005


In accordance with the terms of our

appointment at the Annual Gene-

ral Meeting, we have inspected the

accompanying consolidated finan-

cial statements of Cegedel S.A. for

the year ended 31 December 2005.

Financial statements consist of a ba-

lance sheet, profit and loss account,

statement of changes in sharehol-

ders’ equity, cash flow statement and

notes to the financial statements. We

have read the consolidated manage-

ment report. The consolidated finan-

cial statements and the management

report are the responsibility of the

Board of Directors. our responsibility

is to express an opinion on the conso-

lidated financial statements, based

on our audit, and to verify that the

management report is in conformity

with the them. These consolidated

financial statements have for the first

time been prepared in accordance

with the International Financial

Reporting Standards (IFRS), as adop-

ted in the European Union. For the

purposes of comparison, they include

figures relating to 2004 restated in

accordance with the same standards,

except for IAS 32, IAS 39 and IFRS 4,

which, in line with the option offered

by IFRS 1, are applied by the group

only from 1 January 2005.

We conducted our audit in accordan-

ce with international audit standards.

These standards require that we plan

and perform our audit work so as to

obtain reasonable assurance that the

consolidated financial statements are

free from material misstatement. An

audit includes an examination, on a

test basis, of evidence supporting the

amounts and disclosures contained

in the consolidated financial state-

ments. It also includes an assessment

of the accounting principles and

methods used and the significant

estimates made by the Board of Di-

rectors in preparing the consolidated

financial statements, as well as an

evaluation of the overall presenta-

tion of information. We believe that

our audit provides a reasonable basis

for the opinion expressed below.

In our opinion, the attached consoli-

dated financial statements, prepared

in accordance with IFRS as adopted in

the European Union, give a true and

fair view of the assets, liabilities and

financial position of the Cegedel S.A.

Group as at 31 December 2005 and of

its consolidated profits for the year

then ended.

The consolidated management report

is consistent with the consolidated

financial statements.

Deloitte S.A.

Statutory auditors

Stéphane CéSARI

Partner

7 April 2006

Auditors’ report on the consolidated annual accounts

to the shareholders of Cegedel S.A., Strassen

AnnuAl ACCountS oF CeGedel S.A.88

Rosport, home of the TUDoR family, was one

of the first houses in the world equipped

with a complete hydroelectric plant that wor-

ked without interruption.

In 1886, at Echternach in Luxembourg, the

Tudor brothers built the first plant genera-

ting electric light, which fed 120 lamps in the

village’s houses as well as public lighting.

Annual accountsof Cegedel S.A.


AnnuAl RepoRt 2005

Balance sheet as at 31 December 2005

ASSetS Note(s) 2005 2004€ €

Fixed assets

intangible fixed assets Note 3

Licences 16,561 32,619

tangible fixed assets Note 4

Land and buildings 40,294,094 39,668,928

Machinery, plant and equipment 139,229,612 137,413,991

Revaluation surpluses 8,586,406 10,017,474

other equipment, machines and furniture 4,208,123 3,403,031

Tangible fixed assets in course of construction 35,409,943 31,423,624

long-term investments Note 5

Investments in affiliated undertakings 68,524,009 68,524,009

Amounts due from affiliated undertakings 25,953,767 25,953,767

Investments held as fixed assets 27,290,819 27,290,819

totAl 349,513,334 343,728,262

Current assets Note 6

Stocks

Raw materials and consumables 2,428,896 2,080,696

Services in progress 6,137,029 7,475,429

Receivables Note 7

Trade receivables

with a residual term of up to one year 60,737,804 34,472,998

Amounts due from affiliated undertakings

with a residual term of up to one year 15,262,593 -

other receivables

with a residual term of up to one year 53,095 5,929,241

with a residual term of more than one year 7,949,168 485,096

Advance payments made 860,534 637,830

Bank and post office account balances, cheques and cash in hand 17,879,910 9,026,772

totAl 111,309,029 60,108,062

Accruals and deferred income Note 10 286,890 -

totAl ASSetS 461,109,253 403,836,324

The accompanying notes form an integral part of the annual accounts.

AnnuAl RepoRt 2005

AnnuAl ACCountS oF CeGedel S.A. 91

liABilitieS Note(s) 2005 2004€ €

Shareholders’ equity Note 8

Subscribed capital 134,500,000 134,500,000

Share premium 5,743,538 5,743,538

Revaluation reserve 8,586,406 10,017,474

Reserves

Legal reserve 9,176,605 8,357,059

Reserves under the Articles of Association 109,432,868 90,224,998

other reserves 52,965,770 49,160,512

profit brought forward 640,038 1,338,202

profit for the year 18,171,346 16,390,928

totAl 339,216,571 315,732,711

provisions for liabilities and charges Note 9

provisions for pensions and similar obligations 35,481,586 34,516,621

totAl 35,481,586 34,516,621

payables

Advance payments from customers


due in respect of goods and services provided


due to affiliated undertakings

with a residual term of up to one year 16,230,079 -

tax and social security liabilities

Due to tax authorities 9,234,988 6,363,100

Due to social security authorities 896,180 1,145,608

other liabilities

with a residual term of up to one year 515,097 641,943

totAl 85,638,026 53,586,992

Accruals and deferred income Note 10 773,070 -

totAl liABilitieS 461,109,253 403,836,324



AnnuAl RepoRt 2005

Profit and loss account for the period from1 January to 31 December 2005

eXpenSeS Note(s) 2005 2004

€ €

Supplies 468,330,273 235,615,023

other external expenses 18,737,442 16,509,783

personnel expenses Note 11

Salaries and other payroll costs 26,074,961 32,339,220

Social security charges relating to salaries and other payroll costs 3,671,987 4,585,441

Supplementary pensions 2,934,624 2,596,180

Value adjustments in respect of formation expenses and tangible Note 12and intangible fixed assets 23,458,525 23,825,210

interest payable and similar expenses 46,029 57,702

transfers to reserves under Article 50 of the Articles of Association Note 8

Investment reserve

Deduction from profit 18,324,216 19,583,674

Tax relief on investment for the year 2,675,784 3,416,326

Reserve for contractual obligations - 2,000,000

Reserve for commitments to alternative and renewable energiesand to cogeneration - 33,704

Reserve for supplies of uncertain quality - 53,792

tax on profit from ordinary activities Note 13 11,500,000 13,900,000

other taxes not included in the above items 3,928,008 3,750,336

profit for the year 18,171,346 16,390,928

totAl 597,853,195 374,657,319


AnnuAl RepoRt 2005


inCoMe Note(s) 2005 2004

€ €

net sales Note 15 492,353,326 360,917,420

internal expenditure capitalised 6,792,482 6,935,073

other operating income note Note 16 89,912,120 544,427

income from participating interests arising from affiliated undertakings 3,150,000 1,005,000

other income from receivables included under fixed assets 60,159 72,683

other interest and similar income 228,893 134,448

extraordinary income Notes 6-17 2,680,431 1,631,942

tax relief on investment for the year 2,675,784 3,416,326

totAl 597,853,195 374,657,319


Your Board of directors proposes the following distribution:

€

Profit available for appropriation 18,811,384

Transfer to legal reserve (5%) - 908,567

net dividend of EUR 2.20 per share - 14,795,000

Allocations under the Articles of Ass. (5%) - 908,567

Transfer to special reserve - 1,500,000

profit carried forward 699,250

proposed appropriation of net profit

net profit for the year amounted to EUR 18,171,346.

Adding in retained earnings brought forward of EUR

640,038, the profit available for appropriation is EUR

18,811,384. The gross dividend was increased to EUR

2.75, up by 10% on the previous year; this gave a net

dividend of EUR 2.20.


AnnuAl RepoRt 2005

Notes to the annual accounts

note 1 - General

Cegedel holds a concession granted

by the Luxembourg state and was

incorporated in Luxembourg on

27 March 1928 as a société anonyme

under Luxembourg law.

Its registered office is situated at 2 rue

Thomas Edison, Strassen, Luxembourg.

In accordance with Article 2 of its Ar-

ticles of Association, Cegedel’s main

corporate purpose is the distribution

of electricity throughout the Grand

Duchy of Luxembourg.

Its rights and obligations are gover-

ned by the concession agreement of

11 november 1927, approved by the

Law of 4 January 1928.

By virtue of the decisions taken at the

Extraordinary General Meeting held

on 17 March 1997, the company is

incorporated for an unlimited period.

Cegedel’s shares are listed on the

Luxembourg and Brussels stock ex-

changes.

The company also prepares consoli-

dated accounts that are published in

the forms required by law.

Annual accounts

The company’s financial year runs

from 1 January to 31 December each

year.

note 2 - Accounting policies

General principles

The annual accounts have been

prepared in accordance with Luxem-

bourg legislation and regulations

and generally accepted accounting

principles.

Comparability

For comparison of Cegedel’s accounts

for 2005 with those for 2004, it

should be noted that Cegedel net,

which operates the electricity trans-

mission and distribution networks,

was formed on 8 november 2004,

with Cegedel remaining owner of the

networks. For this reason, for 2004,

items combine the amounts that

now relate to Cegedel and Cegedel

net. Cegedel net began trading on

1 January 2005, thanks in particular

to the transfer of some of Cegedel’s

staff to it.

In addition, for some balance sheet

and profit and loss account items, the

grouping differs from that shown last

year. Figures relating to 2004 have

been stated on the same basis.

Pursuant to the Law of 19 Decem-

ber 2002, the presentation of the

company’s annual accounts has been

amended compared with that used

for the year ended 31 December

2004. A number of restatements have

therefore been made regarding the

balances for 2004 in order to ensure

comparability with those presented

for the year ended 31 December

2005.

Foreign currency conversion

Balance sheet items denominated

in a currency other than EUR are

converted at the exchange rate in

effect on the date of the transaction.

Income and expenses in currencies

other than EUR are also converted

into EUR at the exchange rate in ef-

fect on the date of the transaction.

All exchange differences, both posi-

tive and negative, are included in the

profit/loss for the year.

AnnuAl RepoRt 2005



Intangible fixed assets comprise

licences and are amortised over their

estimated useful lives.

tangible fixed assets

Tangible fixed assets are recorded at

their acquisition price or at cost.

value adjustments are made in accor-

dance with the following principles:

• Buildings, plant and equipment

that are not part of the grid:

straight-line depreciation based on

the coefficients laid down in Article

30 of the Concession Agreement

of 11 november 1927 and in the

Agreement of 8 September 1998 or,

failing this, those accepted by the

tax authorities.

• Buildings, plant and equipment

that are part of the grid: deprecia-

tion using the declining-balance

method based on coefficients equal

to double those referred to above

for investments completed before

1990, and to triple those referred

to above for investments comple-

ted as from 1 January 1990.

• other equipment, machines and

furniture: straight-line depreciation

in accordance with the useful life

of the asset acquired.

• Revaluation surpluses: straight-

line depreciation until 2010. The

corresponding contra entry to the

revaluation surplus is the revalua-

tion reserve, which is depreciated

at the same rate. one figure there-

fore cancels out the other so that

these figures have no impact on

the company’s profit/loss.

Tangible fixed assets in the course of

construction are valued at cost, based

on the direct cost to company. The in-

direct costs are added on completion

of the assets concerned.

long-term investments

Investments in affiliated underta-

kings and investments held as fixed

assets are recorded in the balance

sheet at their acquisition cost.

Amounts due from affiliated com-

panies are included at their nominal

value. In the case of impairment that

the Board of Directors considers las-

ting in nature, value adjustments are

made to these long-term investments

to apply the lower value to be assi-

gned to them on the balance sheet

date. These value adjustments are

not maintained when the reasons for

making them have ceased to exist.

Stocks

Raw materials and consumables are

valued at their weighted average

cost.

Services in progress equate to services

being performed and to be invoiced

to third parties. These services are

valued at cost, based on the direct

and indirect costs incurred by the

company.

value adjustments are made when

the estimated realisable value of

stocks is lower than the weighted

average cost.

Receivables

Receivables are recorded at their

nominal value. value adjustments are

made when there is a risk that all or

part of the amounts concerned may

not be recovered.


AnnuAl RepoRt 2005

These value adjustments are not

maintained if the reasons for making

them have ceased to exist.

provisions for liabilities and charges

The aim of provisions for liabilities

and charges is to cover charges or

liabilities that have a clearly circums-

cribed nature but that, on the ba-

lance sheet date, are either probable

or certain but of an indeterminate

amount or date of occurrence.

A review is carried out at year-end to

determine the provisions to be made

for the company’s liabilities and

charges.

Provisions made in previous years are

reviewed annually and those no lon-

ger needed are released to extraordi-

nary income.

prepayments and accrued income

This item includes recorded costs and

premiums for options bought before

the year-end and attributable to a

later financial year.

Accruals and deferred income

This item includes income received

and premiums for options sold

before the year-end and attributable

to a later financial year.

net sales

net sales comprise sales of goods and

services provided corresponding to

the company’s ordinary activities, net

of discounts, value added tax and

other taxes directly linked to sales.

note 3 - intangible fixed assets

Intangible fixed assets comprise computer licences. Movements during the year

were as follows:

€

Gross values at beginning of year 13,216,087

Additions during year 171,273

Disposals during year (829,365)

Gross values at end of year 12,557,995

value adjustments at beginning of year 13,183,468

Transfers for year 187,331

Write-backs for year (829,365)

Value adjustments at end of year 12,541,434

net value at end of year 16,561

AnnuAl RepoRt 2005


note 4 - tangible fixed assets

land and buildings

Machinery, plant and

equipment

Revaluation surplus

other equipment,

machines and furniture

tangible fixed assets incourse of

construction

totAl 2005

€ € € € € €

Gross values at beginning of year 54,375,137 467,438,183 44,870,289 37,377,977 31,423,624 635,485,210

Additions during year 2,450,287 21,823,074 - 2,432,650 27,418,973 54,124,984

Disposals during year (6,326) (1,069,019) - (206,100) (23,432,654) (24,714,099)

Gross values at end of year 56,819,098 488,192,238 44,870,289 39,604,527 35,409,943 664,896,095

value adjustments at beginningof yeare

14,706,209 330,024,191 34,852,815 33,974,946 - 413,558,161

Allocations for year 1,820,903 19,822,733 1,431,068 1,627,558 - 24,702,262

Amounts released for year (2,108) (884,298) - (206,100) - (1,092,506)

Value adjustments at end of year 16,525,004 348,962,626 36,283,883 35,396,404 - 437,167,917

net value at end of year 40,294,094 139,229,612 8,586,406 4,208,123 35,409,943 227,728,178

note 5 - long-term investments

Movements for the year were as follows:

Shares inassociated

undertakings

Amounts due from affiliated undertakings

investmentsheld as

fixed assets

totAl2005

€ € € €

values at beginning and end of year 68,524,009 25,953,767 27,290,819 121,768,595

The company holds at loast 20 % of the capital in the following undertakings:

Company name Registered office

proportion of capital held

last year-end

Shareholders’ equityat year-end

of which profitfor the year

(including profit)% € €

Cegedel Participations S.A. Strassen 100 31/12/2005 42,756,138 2,561,301

Cegedel International S.A. Strassen 100 31/12/2005 32,135,013 2,187,747

Watt Re S.A. Strassen 100 31/12/2005 1,240,000 0

Cegedel net S.A. Strassen 100 31/12/2005 745,708 645,708


AnnuAl RepoRt 2005

note 6 - Current assets

The value of current assets was adjusted as follows:

Cumulative totalof which net allocation

(amounts released) for the year

31/12/2005€

31/12/2004€

2005€

2004€

Provisions for bad and doubtful debts 1,250,000 2,050,000 (800,000) (500,000)

Provisions for obsolete stocks - 238,030 (238,030) (17,456)

value adjustments made during the year are included in ‘operating expenses’ and amounts released from value adjust-

ments made during the year are included in ‘extraordinary income’.

note 7 - Receivables


services provided comprise energy

sales of EUR 56,154,840 (EUR

28,053,249 in 2004) and sundry invoi-

ces of EUR 4,582,964 (EUR 6,419,749

in 2004).

This first item has greatly increased

owing to energy sales on the interna-

tional market.

Workers at Henri TUdoR’s battery factory in 1895

AnnuAl RepoRt 2005


note 8 – Shareholders’ equity

As at 31 December 2005, the company’s subscribed capital was EUR 134,500,000. It was fully paid-up and represented by

6,725,000 no-par-value shares.

distribution Appropriation profit for others 31/12/2004 of dividends of profit the year increases decreases 31/12/2005

€ € € € € € €

A – Subscribed capital 134,500,000 134,500,000

B – Share premium 5,743,538 5,743,538

C – Revaluation reserve 10,017,474 -1,431,068 1) 8,586,406

d – legal reserve 8,357,059 819,546 2) 9,176,605

e – Reserves in accordance with the Articles 90,224,998 21,000,000 -1,792,130 109,432,868of Association:

Investment reserve 59,883,137 21,000,000 3) -1,792,130 2) 79,091,007

Reserve for contractual obligations 19,000,000 19,000,000

Reserve for supplies of uncertain quality 500,000 500,000

Reserve for commitments to alternative and renewable energies and to cogeneration 4,000,000 4,000,000

Reserve for significant and unforeseeable 6,841,861 6,841,861damage( Reserve for self-insured risks)

F – other reserves: 49,160,512 2,000,000 6,763,127 -4,957,870 52,965,770

Special reserve 22,739,771 2,000,000 2) 13,127 2) 24,752,898

Blocked reserve 26,420,741 6,750,000 2) -4,957,870 2) 28,212,871

G – profit brought forward 1,338,202 -698,164 2) 640,038

H – profit for the year 16,390,928 -13,450,000 2) -2,121,382 18,171,346 -819,546 2) 18,171,346

total 315,732,711 -13,450,000 0 18,171,346 27,763,127 -9,000,614 339,216,571

1) Value adjustments (see note 12).2) decision taken at the Annual General Meeting held on 10 May 2005. The legal reserve comprises a mandatory allocation amounting to at least one-twentieth of the net profits for the year, up to a ceiling of one-

tenth of subscribed capital. This reserve is not available for distribution. The special reserve includes unclaimed dividends. The amount allocated to the blocked reserve equates to five times the wealth tax credited against the corporate income tax liability for financial

years before 2002, and to the amount of the wealth tax credit for each financial year thereafter. This reserve must be retained in the balance sheet for the five tax years following the year in which the credit was applied. The total reserve amounts to EUR 28,212,871 and breaks down as follows: EUR 4,957,871 for 2000, EUR 5,000,000 for 2001, EUR 5,250,000 for 2002, EUR 6,255,000 for 2003 and EUR 6,750,000 for 2004. The amount allocated for 1999, EUR 4,957,870, was released to the investment reserve as at 31 december 2005.

3) Transfers to reserves made by the Board of directors in accordance with Article 50 of the Articles of Association.


AnnuAl RepoRt 2005

note 9 - provisions for liabilities and charges

This item consists of the provision for supplementary pensions of EUR

35,481,586 in 2005 (EUR 34,516,621 in 2004), which takes account of likely

increases in salaries and other payroll costs based on past experience.

note 10 - prepayments and accrued income

These accounts cover option premiums paid or received to be applied to the

accounting period in which the performance of the underlying is reported.

note 11 - Staff

Average staffing levels over the year:

2005 2004

Employees 399 501

The decline in staffing numbers is due to the transfer of some of the staff

to Cegedel net, which operates the electricity transmission and distribution

networks.

note 12 - Value adjustments in respect of formationexpenses and tangible and intangible fixed assets

value adjustments booked to the profit and loss account break down as follows:

2005 2004

value adjustments in respect of intangiblefixed assets (note 3)

187,331 315,170

Cvalue adjustments in respect of tangiblefixed assets (note 4)

24,702,262 24,941,108

Depreciation of revaluation reserve (1,431,068) (1,431,068)

23,458,525 23,825,210

AnnuAl RepoRt 2005


note 13 - tax on profit from ordinary activities

The tax provisions made are suffi-

cient to cover the tax liability for the

year.

Tax relief on investment is stated as

income.

Having met the terms and conditions

laid down in Paragraph 8a of the Law

of 21 December 2001, the company

applied a wealth tax credit.

Cegedel is consolidated for tax

purposes with Cegedel net, Cegedel

Participations, Cegedel International

and Watt Re. The effect of this is as

follows:

• tax charges are booked in the sub-

sidiaries’ accounts as would be the

case if no tax group existed;

• tax savings relating to a loss-ma-

king subsidiary are reallocated to

this subsidiary in the same year as

the loss arises; these savings appear

in the result of the loss-making

subsidiary;

• the parent company books the

balance on the basis of the consoli-

dated profit/loss.

Tax consolidation is possible only

where the companies concerned

are combined for this purpose for a

period of at least five financial years.

This means that if the criteria laid

down in Article 164a of the Income

Tax Act are not met at any time

during this period, the tax treatment

ceases to apply, retroactively, from

the first year in which it was permit-

ted.

In 2005 Cegecom left the tax group,

so that the arrangement in place

since 2003 ceased to apply to Cege-

dom with retroactive effect.

William BradfordSHOCkLEY(1910 – 1989)

American physicist who invented, together with John BARdEEn and Walter BRATTAin, the point-contact transistor in 1947. He refi-ned the junction transistor and re-ceived the nobel Prize for physics in 1956.

The transistor replaced the use of vacuum tubes and became the key component in any electronic device.


AnnuAl RepoRt 2005

note 14 - Remuneration paid to members ofthe administration andsupervisory bodies

Remuneration paid to members of


bodies totalled EUR 1,464,653 in 2005

(EUR 1,464,846 in 2004). no advances

or loans were granted to members of


bodies, nor was any commitment

undertaken on their behalf in respect

of any form of guarantee.

note 15 - net sales

net sales for the period to 31 December 2005 break down as follows:

2005 2004

€ €

Energy sales and accessories for the provisionof energy on the national market

264.537.996 252.709.511

Energy sales on the international market 212.846.558 95.745.987

other income 14.968.772 12.461.922

total 492.353.326 360.917.420

note 16 - other operating income

other operating income of EUR 89,912,120 mainly covers the provision of

services to Cegedel net for EUR 88,450,668 and the disposal of fixed assets for

EUR 955,200.

note 17 - extraordinary income

Extraordinary income comprises the releases of tax provisions following the

deduction by the tax authorities of contributions relating to the 2000 tax year

and the releases of provisions for current assets.

note 18 - off-balance-sheet commitments

During the year, the company concluded a number of forward contracts for the

purchase and sale of electricity as part of its procurement programme.

AnnuAl RepoRt 2005


Change in invested assets *[EUR million]

* Invested assets represent fixed assets plus stocks, net of revaluation surpluses

and amounts due from affiliated undertakings.

3.2 3.1 4.8 10.5 28.4 54.5 81.8 115.2 148.9 166.4 219.4 288.0

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

0

50

100

150

200

250

300


AnnuAl RepoRt 2005

AnnuAl RepoRt 2005


Auditors’ report on the annual accounts

In accordance with the terms of our

appointment by the Annual General

Meeting held on 10 May 2005, we

have inspected the accompanying

annual accounts of Cegedel S.A. for

the year ended 31 December 2005

and have read the supporting mana-

gement report. The annual accounts

and the management report are the

responsibility of the Board of Direc-

tors. our responsibility is to express

an opinion on the annual accounts,

based on our audit, and to verify that

the management report is in confor-

mity with the accounts.

We conducted our audit in accordan-

ce with international audit standards.

These standards require that we plan

and perform our audit work so as

to obtain reasonable assurance that

the annual accounts are free from

material misstatement. An audit

includes an examination, on a test

basis, of evidence supporting the

amounts and disclosures contained in

the annual accounts. It also includes

an assessment of the accounting

principles and methods used and the

significant estimates made by the

Board of Directors in preparing the

annual accounts, as well as an eva-

luation of the overall presentation

of information. We believe that our

audit provides a reasonable basis for

the opinion expressed below.

In our opinion, the attached annual

accounts, prepared in accordance

with Luxembourg legislation and

regulations, give a true and fair view

of the assets, liabilities and financial

position of Cegedel S.A. as at

31 December 2005 and of its profits

for the year then ended.

The management report is consistent

with the annual accounts.

Deloitte S.A.

Statutory auditors

Stéphane CéSARI

Partner

Luxembourg, 7 April 2006

to the shareholders of Cegedel S.A.,Strassen

Cegedel S.A.’s annual report is published in

both French and English.

Copes in both languages can be downloaded

from our website:

www.cegedel.lu/cegedel-sa/finances/ rapport_

annuel/rapport_annuel.html

You may also request a hard copy by comple-

ting the form published on this website.

We would like to thank all those involved in

the preparation and publication of this annual

report.

The English version is a free translation from

the original text and may thus not be binding

on the company.

publication team:

design and artwork:

Service Communication, Cegedel S.A.

photography:

Henri TUDoR Museum archives

Saint-Paul archives

Cegedel Group archives

printers:

Imprimerie victor BUCK, Leudelange

2, rue Thomas Edison

Strassen

Postal Address:

L-2089 Luxembourg

Tel.: 2624-1

Fax: 2624-6100

[email protected]

www.cegedel.lu

Documents

Annual Report 2005 · Consolidated accounts summary 26 Change in the companies in the Cegedel Group 27 Comptes annuels 2005 Consolidated annual accounts 60 Annual accounts of Cegedel