Independent auditor's report and assurance report

Introduction

Dear shareholders and supervisory board of Alliander N.V.,

We were engaged by the supervisory board as auditor of Alliander N.V. as of the audit for year 2016 and have therefore audited the financial statements 2017. The supervisory board was given a mandate hereto by the shareholders. Furthermore the management board engaged us to provide assurance on a selection of non-financial information in the Annual Report 2017.

Our reports in relation to both assignments, namely the auditor’s report on the financial statements 2017 and the assurance report on the non-financial information, are included below.

Independent auditor's report

To the shareholders and the supervisory board of Alliander N.V.

REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS 2017 INCLUDED IN THE ANNUAL ACCOUNTS

Our opinion

We have audited the accompanying financial statements 2017 of Alliander N.V., based in Arnhem. The financial statements include the consolidated financial statements and the company financial statements.

In our opinion:

  • The consolidated financial statements included in these annual accounts give a true and fair view of the financial position of Alliander N.V. as at 31 December 2017, and of its result and its cash flows for 2017 in accordance with International Financial Reporting Standards as adopted by the European Union (EU-IFRS) and with Part 9 of Book 2 of the Dutch Civil Code.

  • The company financial statements included in these annual accounts give a true and fair view of the financial position of Alliander N.V. as at 31 December 2017, and of its result for 2017 in accordance with Part 9 of Book 2 of the Dutch Civil Code.

The consolidated financial statements comprise:

  1. The consolidated statement of financial position as at 31 December 2017.

  2. The following statements for 2017: the consolidated income statement, the consolidated statements of comprehensive income, changes in equity and cash flows.

  3. The notes comprising a summary of the significant accounting policies and other explanatory information.

The company financial statements comprise:

  1. The company balance sheet as at 31 December 2017.

  2. The company profit and loss account for 2017.

  3. The notes comprising a summary of the accounting policies and other explanatory information.

Basis for our opinion

We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. Our responsibilities under those standards are further described in the “Our responsibilities for the audit of the financial statements” section of our report.

We are independent of Alliander N.V. in accordance with the EU Regulation on specific requirements regarding statutory audit of public-interest entities, the Wet toezicht accountantsorganisaties (Wta, Audit firms supervision act), the Verordening inzake de onafhankelijkheid van accountants bij assurance-opdrachten (ViO, Code of Ethics for Professional Accountants, a regulation with respect to independence) and other relevant independence regulations in the Netherlands. Furthermore we have complied with the Verordening gedrags- en beroepsregels accountants (VGBA, Dutch Code of Ethics).

We believe the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Materiality

Based on our professional judgement we determined the materiality for the financial statements as a whole at € 20 million. The materiality is based on 7% of profit before tax. We have also taken into account misstatements and/or possible misstatements that in our opinion are material for the users of the financial statements for qualitative reasons.

We agreed with the supervisory board that misstatements in excess of € 1.0 million, which are identified during the audit, would be reported to them, as well as smaller misstatements that in our view must be reported on qualitative grounds.

Scope of the group audit

Alliander N.V. is at the head of a group of entities. The financial information of this group is included in the consolidated financial statements of Alliander N.V.
Our group audit mainly focused on significant group entities Alliander N.V. and Liander N.V.
We have:

  • Performed audit procedures ourselves at group entities Alliander N.V. and Liander N.V.

  • Performed review procedures or specific audit procedures at other group entities.

By performing the procedures mentioned above at group entities, together with additional procedures at group level, we have been able to obtain sufficient and appropriate audit evidence about the group’s financial information to provide an opinion about the consolidated financial statements.

Our key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements. We have communicated the key audit matters to the supervisory board.
The key audit matters are not a comprehensive reflection of all matters discussed.

These matters were addressed in the context of our audit of the financial statements as a whole and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Key audit matters 2016

The key audit matters “Initial audit engagement” and “Divestment Endinet Groep B.V. and acquisition of Aktivabedrijf Enexis Friesland B.V.” related to the financial statements 2016 have no longer been identified as key audit matter considering the non-recurring nature of these topics.

Key audit matters 2017

Key audit matters

Our audit procedures

Tangible fixed assets

 

In determining the carrying amount of the tangible fixed assets, amounting to EUR 6,793 million as at 31 December 2017, significant assumptions and judgments are applied, both in determining the amounts that should be capitalized and in assessing the useful lives of the assets. Furthermore the tangible fixed assets require significant time and resource to audit due to their magnitude.
The disclosures regarding the accounting policies are included in page 130 of the financial statements. Specific disclosures regarding the tangible fixed assets are included in Notes 3, 26 and 35 of the financial statements.

The tangible fixed assets are measured at historical cost, less accumulated depreciation and impairment. These accounting policies are in line with International Financial Reporting Standards (IFRS) as adopted by the EU and have been applied consistently.
Our audit procedures included obtaining an understanding of internal and external developments that are applicable to Alliander specifically or to the sector at large. Based on our risk assessment we determined the audit approach. We performed procedures to test key controls, particularly in relation to cost estimation and subsequent costing, the capitalization of projects, the processing of depreciation, the accounting for project-related hours and IT related controls for the relevant systems. We also performed substantive procedures regarding capitalized costs and depreciation.
Furthermore we specifically paid attention to the evaluation of the useful live of the gas network. Based on the laws and regulations in place during 2017, the regional network operators are still required to connect customers to the gas network and to maintain the gas network. Also the regulatory useful live of the gas network remains unchanged. Consequently management concluded that there is no reason to shorten the economic useful live of the gas network at this moment and furthermore that (in view of the enormous impact to the general public) this discussion needs to be decided on for the sector at large.

Revenue recognition

 

The Company’s revenue for the year 2017 amounts to EUR 1,697 million and its major part is related to the regulated activities of the network operator Liander N.V.
The revenue recognition process involves only limited management’s judgment. Nevertheless the revenue recognition and relevant internal controls and IT systems require significant time and resource to audit due to the magnitude. Therefore revenue recognition was identified as a key audit matter.
The disclosures regarding the accounting policies are included on page 135 of the financial statements. Specific disclosures regarding revenues are included in note 21 of the financial statements.

Our audit procedures included obtaining an understanding of the significant revenue streams and of relevant internal and external developments. Based on our risk assessment we determined the audit approach. For the material revenue streams, we determined that the accounting policies, which are in line with International Financial Reporting Standards (IFRS) as adopted by the EU, have been applied consistently.
We tested the relevant key controls, particularly for the significant component Liander N.V. These key controls are mainly related to the processing of changes in contracts and rates, and reconciliations, but also to interfaces with external parties (including EDSN) that are used for the exchange of information regarding connections and measurement data relevant to the revenue recognition by Alliander. We also tested the operating effectiveness of IT related controls, to the extent necessary within the scope of the audit of the financial statements, and obtained and reviewed the ISAE 3402 report regarding the internal controls of the service organization EDSN.
Finally we performed substantive procedures to test the complete recognition of revenue transactions at the appropriate rates.

Valuation of fixed assets in the segment Other

 

For a few specific entities in the segment Other, impairment indicators were identified due to lower results than budgeted. Therefore management performed an impairment analysis for these entities. For this purpose, estimates of the recoverable amount were made based on the value in use, which involves significant assumptions and judgments with respect to future cash flows. The valuation of these fixed assets received a considerable amount of attention from management during 2017.
The disclosure regarding the accounting policies are included on page 129 of the financial statements.

We applied a substantive audit approach and did not rely on internal controls.
We considered the Company’s internal procedures with regard to the identification of impairment indicators and the determination of the recoverable amount. Furthermore we tested management’s estimate for the recoverable amount of the fixed assets of these entities and assessed the key assumptions based on revenue and result forecasts, contract and external market information. Finally, assisted by our valuation experts, we assessed the applied discount rate and determined that the valuation method is in line with the requirements of International Financial Reporting Standards (IFRS) as adopted by the EU.

REPORT ON THE OTHER INFORMATION INCLUDED IN THE ANNUAL ACCOUNTS

In addition to the financial statements and our auditor’s report, the annual accounts contain other information that consists of:

  • Management Board’s Report (page 3 – 116)

  • Other information.

Based on the following procedures performed, we conclude that the other information:

  • Is consistent with the financial statements and does not contain material misstatements.

  • Contains the information as required by Part 9 of Book 2 of the Dutch Civil Code.

We have read the other information. Based on our knowledge and understanding obtained through our audit of the financial statements or otherwise, we have considered whether the other information contains material misstatements.

By performing these procedures, we comply with the requirements of Part 9 of Book 2 of the Dutch Civil Code and the Dutch Standard 720. The scope of the procedures performed is substantially less than the scope of those performed in our audit of the financial statements.

Management is responsible for the preparation of other information, including the Management Board’s Report in accordance with Part 9 of Book 2 of the Dutch Civil Code, and the other information as required by Part 9 of Book 2 of the Dutch Civil Code.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

Engagement

We were engaged by the supervisory board as auditor of Alliander N.V. on 29 July 2015, as of the audit for year 2016 and have operated as statutory auditor ever since that financial year. The supervisory board was given a mandate hereto by the shareholders.

No prohibited non-audit services

We have not provided prohibited non-audit services as referred to in Article 5(1) of the EU Regulation on specific requirements regarding statutory audits of public-interest entities.

DESCRIPTION OF RESPONSIBILITIES REGARDING THE FINANCIAL STATEMENTS

Responsibilities of management and the supervisory board for the financial statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with EU-IFRS and Part 9 of Book 2 of the Dutch Civil Code. Furthermore, management is responsible for such internal control as management determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error.

As part of the preparation of the financial statements, management is responsible for assessing the company’s ability to continue as a going concern. Based on the financial reporting frameworks mentioned, management should prepare the financial statements using the going concern basis of accounting unless management either intends to liquidate the company or to cease operations, or has no realistic alternative but to do so.

Management should disclose events and circumstances that may cast significant doubt on the company’s ability to continue as a going concern in the financial statements.

The supervisory board is responsible for overseeing the company’s financial reporting process.

Our responsibilities for the audit of the financial statements

Our objective is to plan and perform the audit assignment in a manner that allows us to obtain sufficient and appropriate audit evidence for our opinion.

Our audit has been performed with a high, but not absolute, level of assurance, which means we may not detect all material errors and fraud during our audit. In this respect we also submit an additional report to the audit committee in accordance with Article 11 of the EU Regulation on specific requirements regarding statutory audit of public-interest entities. The information included in this additional report is consistent with our audit opinion in this auditor’s report.

Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. The materiality affects the nature, timing and extent of our audit procedures and the evaluation of the effect of identified misstatements on our opinion.

For an overview of our responsibilities we refer to NBA’s website www.nba.nl (standard text auditor’s report).

Rotterdam, 16 February 2018

Deloitte Accountants B.V

J. Dalhuisen

Assurance report of the independent auditor

To: The management board of Alliander N.V.

The management board of Alliander N.V. (‘the Company’) engaged us to provide assurance on a selection of non-financial information in the Annual Report 2017 (‘the Report’). Our engagement consisted of a combination of limited assurance (leading to a ‘conclusion’) and reasonable assurance (leading to an ‘opinion’).

We were engaged to provide limited assurance on the following chapters (‘the reviewed information’):

  • About this report (page 3-6)

  • Our story in 2017 (page 7-10)

  • The profile of Alliander (page 11-35)

  • Our results in 2017 reported in the chapters:

    • Customers (page 36-51)

    • Employees (page 52-62)

    • Shareholders and Investors (page 63-86)

  • The impactcases on pages 42 en 62

Furthermore we were engaged to provide reasonable assurance on the following information (‘the audited information’):

  • The column “Results 2017” in the table on page 20-21 in the chapter ‘Objective and Results’

  • The summarized materiality assessment presented in the chapter ‘About this report’ on page 5 and the extensive materiality assessment presented in the chapter ‘Other Information, Materiality Assessment’ on page 198-203.

Our conclusion

Based on our review procedures performed, nothing has come to our attention that causes us to believe that the reviewed information is not prepared, in all material respects, in accordance with the Sustainability Reporting Guidelines version GRI Standards Comprehensive of GRI and the internally applied reporting criteria as disclosed in chapter ‘Other Information’ of the Report.

Our opinion

In our opinion, the audited information is prepared, in all material respects, in accordance with the Sustainability Reporting Guidelines version GRI Standards Comprehensive of GRI and the internally applied reporting criteria as disclosed in chapter ‘Other Information’ of the Report.

Basis for our conclusion and our opinion

We conducted our review and our audit of the aforementioned information in accordance with Dutch law, including Dutch Standard 3810N ‘Assurance engagements relating to sustainability reports’. A review is focused on obtaining limited assurance, while an audit engagement is focused on obtaining reasonable assurance. Our responsibilities under this standard are further described in the ‘Our responsibilities’ section of our report.

We are independent of Alliander in accordance with the ‘Verordening inzake de onafhankelijkheid van accountants bij assurance-opdrachten’ (ViO) and other relevant independence requirements in The Netherlands. Furthermore we have complied with the ‘Verordening gedrags- en beroepsregels accountants’ (VGBA).

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Areas of focus

Areas of focus are those matters that, in our professional judgement, were of most significance in our assurance engagement of the Report. We have communicated the aresa of focus to the supervisory board and management board. The areas of focus are not a comprehensive reflection of all matters discussed.

These areas were addressed in the context of our assurance assignment in relation to the Report as a whole and in forming our opinion and our conclusion thereon, and we do not provide a separate opinion on these areas.

Areas of focus

Procedures performed

One of the topics Alliander N.V. reports on pages 28-33, 42, 62 and 214-215 relates to the social impact of Alliander’s activities on the environment.
Alliander applied the six capital model of the International Integrated Reporting Council (IIRC) as a basis for determining the relevant social impacts. Alliander has determined the social impacts based on the supply chain and has attempted to quantify these impacts in one unity (euro’s) to the extent possible. The social impact measurement was expanded compared to prior year to include the monetization of human capital.
As indicated by Alliander the identification, quantification and monetization of social impacts is still in the early stages of development. Therefore Alliander is obliged to make assumptions.
We observe that the calculated consumer surplus in particular is strongly dependent on the assumptions used, the expertise contributed by the external advisors and is based on complex calculations. Furthermore the monetization of the impact on prosperity and well-being, the balance between social profit and loss and the attribution to the various participants in the energy supply chain, are not yet generally accepted. Therefore the public acceptance of the selected assumptions and calculation methods have been tested only in a limited manner.
A summary of the key assumptions is presented in the ‘Other information’ on pages 214-215 of the Report.

Our procedures regarding the area of focus consisted of evaluating the social impact measure in chapter ‘Onze impact’ on page 28-33 and the impactcases on page 42 and 62.
Based on interviews with employees and management of Alliander N.V. and the external advisors, we obtained an understanding of the methods and assumptions on which the calculations of the social impacts are based.
Where Alliander used external advisors for performing the impact calculations (ic Trueprice), we obtained an understanding of the competency and objectivity of those advisors.
We obtained an understanding of the calculations and performed recalculations for the key elements. For the reperformance of the consumer surplus calculation we used a model validation expert.
For key assumptions as presented in chapter ‘Overige Information’ on page 214-215 of the Report we performed reconciliations with various sources such as sub-ledgers, external reports and research results.
For prospective information or estimates we obtained an understanding of the underlying data.
Based on the procedures performed, we obtained an adequate understanding of the methods and assumptions used by management.

Unexamined prospective information

The Report includes prospective information such as ambitions, strategy, plans, expectations and estimates. Inherently, the actual future results will likely differ from these and are therefore uncertain. We do not provide any assurance on the assumptions and achievability of prospective information in the Report.

Responsibilities of the management board and the supervisory board

The management board of the entity is responsible for the preparation of the Report in accordance with the Sustainability Reporting Guidelines version GRI Standards Comprehensive of GRI and the internally applied reporting criteria as disclosed in chapter ‘About this report’ of the Report, including the identification of stakeholders and the definition of material matters. The choices made by the management board regarding the scope of the Report and the reporting policy are summarized in chapter ‘Other Information’ of the Report.

Management is also responsible for such internal control as management determines is necessary to enable the preparation of the sustainability information that is free from material misstatement, whether due to fraud or error.

The supervisory board is responsible for overseeing the company’s reporting process.

Our responsibilities

Our responsibility is to plan and perform the assurance assignment in a manner that allows us to obtain sufficient and appropriate audit evidence for our opinion and our conclusion.

Procedures performed in an assurance engagement to obtain a limited level of assurance are aimed to determining the plausibility of information and are less extensive than a reasonable assurance engagement. The level of assurance obtained in assurance engagements with a limited level of assurance is therefore substantially less than the assurance obtained in audit engagements.

Our audit has been performed with a high, but not absolute, level of assurance, which means we may not have detected all material errors and fraud.

Misstatements can arise from fraud or errors and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this Report. The materiality affects the nature, timing and extent of our audit procedures and the evaluation of the effect of identified misstatements on our opinion.

We apply the ‘Nadere voorschriften accountantskantoren ter zake van assurance opdrachten (RA/AA)’ and accordingly maintain a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements.

We have exercised professional judgement and have maintained professional skepticism throughout our audit and our review, in accordance with the Dutch Standard 3810N, ethical requirements and independence requirements.

Limited assurance procedures

Our main procedures included the following:

  • Performing an external environment analysis and obtaining insight into relevant social themes and issues, and the characteristics of the organisation.

  • Evaluating the appropriateness of the reporting policy and its consistent application, including the evaluation of the results of the stakeholders’ dialog and the reasonableness of management’s estimates.

  • Interviewing management (or relevant staff) responsible for the sustainability strategy and policy.

  • Interviewing relevant staff responsible for providing the information in the Report, carrying out internal control procedures on the data and consolidating the data in the Report.

  • An analytical review of the data and trends.

  • Investigating internal and external documentation, including examination of information on a test basis, to determine whether the information in the Report is reliable.

Reasonable assurance procedures

Our audit included the following:

  • Identifying and assessing the risks of material misstatement of the Report, whether due to errors or fraud, designing and performing audit procedures responsive to those risks, and obtaining audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from errors, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

  • Evaluating the design and implementation and testing the operating effectiveness of the reporting systems and processes related to the information in the Report.

  • Evaluating the overall presentation, structure and content of the Report, including the disclosures.

  • Evaluating internal and external documentation, on a test basis, to determine the reliability of the information in the Report.

  • Evaluating the underlying transactions and events.

We communicate with the supervisory board regarding, among other matters, the planned scope and timing of the audit and significant findings, including any significant findings in internal control that we identify during our audit.

From the matters communicated with the supervisory board we determine the areas of focus in the audit of the sustainability information. We describe these matters in our assurance report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, not mentioning it is in the public interest.

Rotterdam, 16 February 2018

Deloitte Accountants B.V.

J. Dalhuisen