Income statement for 2018

The profit after tax for 2018 was €334 million (2017: €203 million). The increase is mainly accounted for by the book profit on the sale of Allego, amounting to €105 million, in 2018.

Profit after tax excluding incidental items was €261 million, which is €55 million higher compared with 2017 (€206 million). This was mainly as a result of higher operating income.

Operating income in 2018 was up by €228 million compared with 2017, at €2,068 million. This was mainly because of the book profit on the sale of Allego (€105 million) and an increase in regulated revenue resulting from an increase in regulated tariffs.

Total operating expenses for 2018 were €1,572 million, which is €37 million higher than in 2017. The increase is mainly the result of increased sufferance tax costs, increased purchase costs connected with the work that is in hand and higher amortisation/depreciation charges. Alliander continues to work towards increased effectiveness and efficiency.

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

• 1 To facilitate comparison, the revenue figures in this summary have been restated back to 2014 following the implementation of IFRS 15.

Revenue

Revenue in 2018 rose by €123 million compared with the previous year, from €1,797 million to €1,920 million. The rise is mainly due to the increase in regulated tariffs (€93 million) and an increase in the number of electricity connections (€12 million).

Most of our revenue is generated by regulated activities. Alliander also has non-regulated activities, such as those of Qirion and Kenter.

Operating expenses

Total operating expenses rose from €1,535 million in 2017 to €1,572 million in 2018. The increase was the net effect of:

• an increase of €22 million in the costs of contractors and materials as a consequence of the greater volume of work;

• an increase of €1 million in employee benefits. The number of external personnel hired in 2018 was substantially lower than in 2017 and there was a small reduction in the number of permanent staff. Offsetting this to some extent, however, the average cost per FTE employee was higher;

• compared with 2017, there was a greater volume of capital expenditure projects, resulting in an increase of €13 million in capitalised production, to €241 million;

• the increase in the investments also meant higher depreciation charges of €10 million;

• an increase in sufferance tax, of €17 million, due to retrospective levying of tax by municipal authorities in the area previously served by Enexis.

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

Staff costs

The total costs for both internal and external personnel were €1 million higher than in 2017. In the case of Liander, this is due to an increase in the number of employees despite the shortage of skilled technical staff on the labour market. This is growth that is necessary because of the growth in the volume of work. The number of permanent staff did actually fall overall, mainly accounted for by a reduction in the number of indirect staff. However, owing to the new CLA and bonuses aimed at staff retention, the total wage bill for permanent staff rose in 2018.

Sufferance tax

The amount of sufferance tax charges rose by €17 million compared with 2017, to €154 million. The trend in the amount of sufferance tax payable over the past five years is illustrated in the above graph. The increase until 2016 was largely because more and more municipal authorities were levying sufferance tax on Liander and also that sufferance tax rates have risen. The fall of €12 million in sufferance tax charges in 2017 was mainly a result of a release from provisions related to successful legal proceedings. The higher figure in 2018 is accounted for by the fact that several municipal authorities in the former Enexis service area imposed retrospective tax charges.

Transmission capacity costs

The costs of providing transmission capacity passed on by electricity transmission network operator TenneT showed a further increase of €3 million in 2018 to €191 million (2017: €188 million). This increase is mainly the effect of an increase in volumes. The costs of grid losses, at €49 million, were down by €9 million compared with 2017. The lower costs were mainly due to gains on reconciliation plus the lower tariffs at which the losses were purchased.

Network investments and maintenance costs

The graph below shows the expenditure on maintenance costs and network investments, including meters, over the past five years. Total expenditure on network investments and maintenance costs in 2018, at €954 million, was an increase of €138 million compared with 2017 (€816 million). The increase came mainly from an expansion of the work package. Total expenditure investment in district heating networks was also higher than in 2017.

Dilemma: effective investment, but also in good time

Network managers are assessed on the effectiveness of their capital expenditure. This means for example that when Liander decides on an investment, it looks carefully at how necessary it is. The energy transition makes it ever more difficult to predict when and where infrastructure needs to be expanded. There are, for example, many plans for solar farms but only those which receive an SDE+ grant are actually built. This is done within six months once the grant has been awarded. In general, strengthening and expanding infrastructure takes one to three years. To avoid infrastructure hindering the energy transition, it is important that the location of solar and wind farms is known sooner. Network managers and local authorities must draw up joint energy transition plans which underlie effective investment by the network manager. Grants should be awarded in line with this.

Depreciation

The depreciation charges and impairment losses on non-current assets amounted to €409 million, which is an increase of €13 million compared with the preceding year (2017: €396 million). This increase is mainly a consequence of the higher level of investment in recent years.

The construction of energy networks is a long-term investment for us, based on an estimated useful life of 40 to 50 years. The Netherlands wants to become climate neutral by 2050 by replacing natural gas for heating with sustainable heating solutions over the next 35 years. Our question, therefore, is whether and, if so, which part of our gas distribution networks will remain important in the long term for the distribution of, say, alternative gases. Given the current useful life of 40 to 50 years, developments in the heating transition (such as natural gas-free districts) will also lead to part of the gas network being taken out of use prematurely. Regulator ACM is holding discussions on the financial implications with Liander and the other network operators.

Interest expense

Interest expense in 2018 was down by €1 million compared with 2017, owing to lower interest charges on loans from third parties.

Result from associates and joint ventures after tax

The profit after tax from associates and joint ventures for 2018 was €3 million (2017: €9 million). The 2017 result included the non-recurring book profit of €12 million on the sale of The New Motion.