Income statement for 2016

The profit after tax for 2016 was €282 million (2015: €235 million). The increase is mainly a result of the book profit of €176 million on the sale of the network company Endinet to Enexis. Adding the newly acquired areas in Friesland and the Noordoostpolder to the figures led to an increase in both revenue and expenses. For comparison purposes it is noted that the 2015 result includes an incidental gain of €66 million relating to the termination as per contract of the CDS, a financial instrument relating to two cross-border lease contracts. The instrument has now been settled in full.

Profit after tax from continuing operations excluding incidental items was €132 million, which is €41 million lower compared with 2015. This was mainly as a result of higher purchase costs, costs of subcontracted work and operating expenses and higher depreciation, partly offset by higher contributions to operations from customers.

Total income in 2016 rose €43 million compared with 2015, to €1,723 million, partly as a result of a rise in contributions to operations received from customers and a rise in regulated revenue despite the fall in regulated tariffs. The rise in regulated revenue followed the purchase of the networks in Friesland and the Noordoostpolder on 1 January 2016. Endinet’s networks were sold to Enexis on 1 January 2016.

Total operating expenses for 2016 were €1,516 million, which is €175 million higher than in 2015. Total operating expenses in 2015 included a large gain relating to the termination as per contract of the CDS, a financial instrument relating to two cross-border lease contracts. The instrument has now been settled in full. Adjusted for this and other incidental items, there was an increase of €104 million compared with 2015. This increase was chiefly a consequence of higher sufferance tax charges, higher costs passed on from the transmission network operator TenneT and higher depreciation. Alliander continues to work towards increased effectiveness and efficiency.

The significant trends in income and expenses are discussed below in greater detail. It should be noted in this context that items relating to Endinet for 2014 and 2015 are shown separately whereas reporting requirements mean that they are presented as a single 'profit after tax from discontinued operations' in the financial statements. For further details, reference is made to note [33] in the financial statements.

• 1 There has been a change of view which, in the comparative figures for 2015, results in the transfer of an amount of € 46 million from other revenue (under 'Revenue') to operating contributions and other operating income here.

Revenue

Revenue in 2016 rose by €44 million compared with the previous year, from €1,540 million to €1,584 million. This increase was chiefly a consequence of the newly acquired areas in Friesland and the Noordoostpolder and growth in the number of gas and electricity connections and the metering service. The lower regulated gas and electricity distribution and connection tariffs and lower regulated tariffs for the metering service had an adverse effect on revenue.

Most of our revenue is generated by regulated activities. Alliander also has non-regulated activities, such as those of Liandon, and various new activities. Growth in these non-regulated activities created an increase in other revenue.

Network investments and maintenance costs

The above graph shows the expenditure on maintenance costs and network investments, including meters, over the past five years. Total expenditure on maintenance costs and network investments, at €795 million, was an increase of €83 million compared with 2015 (€712 million). The increase came mainly from higher investment in meters (by €51 million) as a result of the large-scale offering of smart meters and increased investment in electricity networks (by €50 million) following an increase in the working package. Expenditure on maintenance of the network (down €7 million) and investment in the gas networks (down €11 million) was lower than in 2015.

Operating expenses

Total operating expenses rose from €1,341 million in 2015 to €1,516 million in 2016. Total operating expenses in 2015 included a large gain relating to the termination as per contract of a financial instrument relating to two cross-border lease contracts. Adjusted for this and other incidental items, there was an increase of €104 million compared with 2015. This increase was chiefly a consequence of higher sufferance tax charges, higher costs passed on from the transmission network operator TenneT, higher depreciation and higher network maintenance costs. Alliander continues to work towards increased effectiveness and efficiency.

The increase was mainly due to:

• an increase of €39 million in sufferance tax charges owing to more municipalities levying the tax in 2016 and a rise in rates;

• an increase of €15 million in transmission capacity costs and restrictions resulting from higher tariffs being charged and volume increases, in addition to the fact that costs were reduced in 2015 by a settlement with TenneT for prior years;

• increased other operating expenses of €20 million, due in part to higher professional fees as a result of the network swap operation with Enexis B.V. and higher ICT costs;

• an increase in depreciation of €57 million, partly due to the networks taken over from Enexis, the higher level of capital expenditure in 2016 and accelerated depreciation on metering devices as a result of the faster large-scale offering of smart meters. The impairment of certain assets led to an increase in depreciation;

• the increase was partly offset by lower costs for grid losses, down by €10 million (mainly as a result of lower tariffs and positive effects of the expiry of positions and settlements relating to prior years) and an increase in own work capitalised of €25 million (as a result of an improvement in productivity and increase in the working package).

The significant trends in expenses are discussed below in greater detail.

Employee benefit expense

The increase (€16 million) in employee benefit expense for permanent staff and external personnel compared with the preceding year was due mainly to general pay increases and additions to staff-related provisions as a result of a lower discount rate. The increase in the number of employees coming from Enexis, as a result of the acquisition of AEF B.V., was more or less offset by fewer FTEs in the other business units.

Sufferance tax charges

The amount of sufferance tax charges increased by €39 million compared with 2015, to €149 million. The trend in the amount of sufferance tax payable over the past five years is illustrated in the graph above. The increase is largely due to the fact that more and more municipal authorities are levying sufferance tax charges on Liander and also that sufferance tax rates have risen.

The sufferance tax is not included in the calculation of tariffs in the regulated domain and is treated as an objectively observable regional difference. This means that part of the sufferance tax levies for Liander are reflected, with a time lag in some cases, in the tariffs applicable to all customers in the area served by Liander. The local levies therefore lead to increased tariffs for all customers (about €51 per customer per year) even though the tax is only levied by a limited number of municipalities. Liander is therefore in favour of the abandonment of sufferance tax for utilities which has now been announced by the Minister of the Interior and Kingdom Relations.

Grid losses

The costs of grid losses (excluding costs attributable to discontinued operations – Endinet) amounted to €61 million, which is €10 million less than in the preceding year. The lower figure is mainly the result of lower tariffs plus gains from the settlement of grid losses in prior years and an amount released from reserves.

Transmission capacity costs

The costs of providing transmission capacity passed on by electricity transmission network operator TenneT showed a further increase of €15 million in 2016, to €175 million (2015: €160 million). This increase is mainly due to higher tariffs charged by TenneT as a result of including the system service tariff in the transmission charges. The service charges are set by the Authority for Consumers & Markets (ACM) and constitute an integral part of TenneT’s tariffs.

Depreciation

The depreciation charges and impairment losses on non-current assets amounted to €395 million, which is an increase of €57 million compared with the preceding year (2015: €338 million). The increase is mainly a consequence of depreciation of the networks acquired from Enexis, the higher level of investment in 2016 and accelerated depreciation of metering equipment as a result of the faster large-scale offering of smart meters. The impairment of certain assets also led to an increase in depreciation.

Interest expense

A drop in interest-bearing debt coupled with lower interest rates meant that the interest expense on loans from third parties was down by €14 million in 2016, at €51 million.