Dear Stakeholders

The financial year of 2013 was one of the most difficult in recent times with regard to the REN economic-financial environment and where the main difficulty lay in the asymmetry caused to REN’s results by financial market fluctuations.

While the rapid reduction in interest rates on sovereign debt was good news for the country and for REN, it also produced a temporary negative effect on company accounts. This is due to the ERSE regulatory model:

regulated income immediately complies with rate changes in the sovereign debt market, but REN’s financing costs lag behind these changes to some extent, because of the rigidity of costs built in to some older loans. As a consequence, as was to be expected – and confirmed – in 2013, the reduction in income would be faster than the reduction in the average cost of debt. However, in 2014 the reduction in REN’s financing costs will be significant and impact positively on pre-tax profits.

In order to mitigate the fall in earnings on regulated assets in 2013, REN accelerated the reduction in operating costs by streamlining operations and the organizational structure. As a result, OPEX costs fell by 10.4%, while the so called OPEX core costs (i.e. excluding costs arising from legislative or regulatory requirements and which are recovered in tariffs) decreased by 7.1%. At the end of the year, the number of company employees stood at 676, against 735 for the previous year. Through these efforts to improve efficiency, REN managed to cancel out most of the short-term negative impact brought about by the fall in interest rates. As such, the reduction in net profits was limited to 2.3 million euros, or 2% less than the result achieved in 2012.

Quality of service once again saw extraordinarily high figures, in line with the best ever. Interruption time for the transmission of electricity was the equivalent of five seconds nationally, the second lowest ever. Natural gas interruption time was once again zero. It should also be noted that this year, our gas infrastructures recorded several maximums of use, despite the economic crisis. On 9 December, peak demand on the national transmission network hit record highs. The Sines terminal also had historic maximums for tanker loading as well as vessel unloading operations (41 ships in 2013). Other maximums were seen in transhipment for exports (six ships).

On Investor Day, we presented our strategic plan to the market, which is based on three pillars to create value in coming years. The first of these pillars is to optimize the operation of our electricity and natural gas concessions in Portugal. The second  is the reduction of financial charges along with an improvement in credit terms. The third is the start up of an internationalisation process which will allow REN to improve its business risk profile and find profitable sources of growth, overcoming the limitations of the domestic market.

In relation to the first pillar, the efficiency gains achieved in OPEX in recent years placed REN among the most efficient energy transmission operators in Europe at the end of 2013. As such, with regard to EBITDA per employee, REN is is second place, while in terms of kilometres of line per employee we are first among European TSOs. In relation to CAPEX, REN also managed to meet the demanding efficiency targets set by the regulator through standard costs.

As regards the second pillar, in 2013 REN was able to significantly reduce the cost of new financing and the average costs of debt started to fall, a drop which will accelerate throughout 2014. Debt maturity and the diversification of sources of financing also improved substantially, both through bond issues on the Eurobond Market as well as through financing contracts signed with the China Development Bank and ICBC.

Finally, the third pillar of internationalisation started to become a reality at REN. In 2013, the company received the first dividends from holdings in the Cahora Bassa Hydroelectric Plant and the invitation was formalised from the government of the Republic of Mozambique to participate in the capital of the Sociedade de Transporte de Electricidade (STE), in a partnership with State Grid Corporation of China, ESKOM (South Africa) and EDM (Electricidade de Moçambique). Moreover, in Latin America, REN presented a proposal for an important project for a very high tension line concession in Peru, which despite not winning, represented an important step forward on the learning curve which will allow us to be successful in coming opportunities. On Investor Day we explained that internationalisation is a long-distance race that REN will win.

In a particularly difficult year, our company clearly demonstrated the resilience of its business model. We managed to navigate this year with an increase in EBITDA, due mainly to efforts to reduce costs. In 2014, the rapid reduction in the average cost of debt will be in our favour, while we also continue to reduce operating costs. Our greatest challenges will be to take steps to grow outside Portugal as well as to minimize the possible impact of the extraordinary contribution on the energy sector as set out in the 2014 State Budget. This will be achieved through additional efforts to improve operating efficiency.

I do not wish to conclude this address without emphasising that sustainability is playing an ever more important role in all of REN’s activity. In 2013, company initiatives increased significantly in this area. Our aims were to improve the quality of life of local communities throughout Portugal, minimize the environmental impact of lines in areas close to urban centres, support more vulnerable segments of Portuguese society and contribute to cultural life, especially among young people. Once again we were recognised on a global level for several of these initiatives. Internationally, we also maintained our support for the United Nations Global Compact Initiative.

Building infrastructures which are part of a global effort to reconcile the world’s growing energy needs with environmental sustainability and minimize climate change is a source of satisfaction for all REN employees, who feel that the benefits of their work will be enjoyed by the youth of today as well as future generations.