Alliander’s financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as at 31 December 2019, as adopted by the European Union (EU), and the provisions of Title 9, Book 2 BW. IFRS consists of the IFRS standards as well as the International Accounting Standards issued by the International Accounting Standards Board (IASB) and the interpretations of IFRS and IAS standards issued by the IFRS Reporting Interpretations Committee (IFRIC) and the Standing Interpretations Committee (SIC), respectively.
The significant accounting policies used in the preparation of the consolidated financial statements are set out below. The historical cost convention applies. However, certain assets and liabilities, including derivatives, are measured at fair value. Unless stated otherwise, these accounting policies have been applied consistently to the years covered in these financial statements.
The preparation of financial statements requires the use of estimates and assumptions based on experience and considered appropriate by management given the specific circumstances. These estimates and assumptions have an impact on the carrying amounts and presentation of the reported assets and liabilities, the off-balance-sheet rights and obligations and the reported income and expenditure during the year. The actual outcomes may differ from the estimates and assumptions used. Note  to the financial statements gives further information on the areas and items in the financial statements where estimates and assumptions are used. Unless stated otherwise, all amounts reported in these financial statements are in millions of euros.
Unrealised profits on transactions between the Alliander group and its associates or joint ventures are eliminated pro rata according to the group’s interest in the entity concerned. Unrealised losses are also eliminated, unless the transaction gives rise to the recognition of impairment losses. If appropriate, the accounting policies of associates and joint ventures are adjusted to ensure the consistent application of accounting policies throughout the Alliander group.
New and/or amended IFRS standards applicable in 2019
The IASB and the IFRIC have issued new and/or amended standards and interpretations which are applicable to Alliander with effect from the 2019 financial year. The standards and interpretations below have been endorsed by the European Union.
IFRS 16 Leases
IFRS 16 replaces IAS 17, IFRIC 4, SIC 15 and SIC 27 as of 1 January 2019.
Alliander has implemented IFRS 16 with effect from 1 January 2019, using the modified retrospective approach. The comparative information for prior years has therefore, not been restated.
An important consequence of implementing IFRS 16 for Alliander as lessee is that rights and obligations under leases must be included in the balance sheet. The basis of measurement used as of 1 January 2019 is the net present value of future lease payments. This has resulted in a €58 million increase in the balance sheet total. There is also a shift in the income statement from operating expenses to depreciation and, to a very limited degree, to finance expenses. For 2019, there was consequently a shift of approximately €20 million from the other operating expenses to depreciation (€20 million) and to finance expenses (€0.2 million). For the statement of cash flows in 2019, application of IFRS 16 has led to a €20 million increase in operating cash flow, while cash outflow from financing activities rose by the same amount over the same period.
In determining the existence of a lease, the provisions of IFRS 16.9 apply. Additionally, use is made of the following exemptions where possible: leases of 12 months or shorter and leases relating to assets with a value of less than €5,000.
The following practical approaches have also been applied:
For the current contracts as at 1 January 2019, the existing classification of leases based on IFRIC 4 is applied, meaning that the distinction between finance leases and operating leases in the financial reporting in relation to the existing leases as at 1 January 2019 where Alliander is lessee are not relevant anymore. New leases will, however, be treated in accordance with IFRS 16 with effect from 1 January 2019.
Existing finance leases where the asset value is less than €5,000 are no longer recognised in the balance sheet as of 1 January 2019. The corresponding lease instalments are recognised directly in the income statement. As at 1 January 2019, this has led to a reduction of the balance sheet total by €1 million.
The value of right-of-use assets for which the liability was classified as operational lease under IAS 17 prior to 1 January 2019 is equated with the lease liability based on IFRS 16.C8. There has therefore been no change in equity.
To measure the lease liabilities and the right-of-use assets as at 1 January 2019, use was made of the incremental borrowing rates as at that date. The incremental borrowing rate is determined on the basis of the risk-free market interest rate plus a risk markup specific to Alliander over a similar period and with the same type of security as the terms on which Alliander would be able to obtain finance to acquire a comparable asset as at 1 January 2019. The weighted average incremental borrowing rate stood at 0.55% as at 1 January 2019.
Implementation of IFRS 16 has produced a €58 million increase in the balance sheet total as at 1 January 2019. This increase is made up of an increase in lease liabilities and an equal increase in right-of-use assets. By far the greatest part of these lease liabilities relates to business premises and lease vehicles. Ground lease contracts and the rental of telecommunication masts and connections are also accounted for in this amount.
The difference between the operating lease liability of €134 million as at year-end 2018 and the recognition of €58 million as at 1 January 2019 under IFRS 16 is largely explained by the fact that the lease obligations for contracted leases where the actual right to control the use of the assets concerned does not commence until after 1 January 2019 are included in the lease obligations disclosed under the previous standard.
The new standard does not affect the way in which the cross-border leases are accounted for, however. As determined by IFRS 16.B2, these fall outside the scope of IFRS 16.
IFRS 16 has not been adopted for tax accounting purposes, meaning that the current tax accounting method will be continued.
As at 31 December 2019, the carrying amount for right-of-use assets totalled €63 million, while lease liabilities stood at €64 million, which breaks down into €47 million in non-current liabilities and €17 million in current liabilities. An impairment totalling €1 million on the right-of-use assets was furthermore recognised in 2019. Right-of-use assets have been recognised separately in the balance sheet under right-of-use assets and lease liabilities under leases.
Implementation of IFRS 16 as of 1 January 2019 has only had a minor impact on ratios.
Other changes in 2019
In addition to the implementation of IFRS 16 with effect from 1 January 2019, the following changes are applicable in 2019:
‘IFRS annual improvements 2015–2017’;
IFRS 3 ‘Business Combinations’;
IFRS 11 ‘Joint Arrangements’;
IAS 12 ‘Income Taxes’;
IAS 23 ‘Borrowing Costs’.
IFRS 9: ‘Prepayment features with negative compensation’;
IAS 19: ‘Plan amendment, curtailment or settlement’;
IAS 28: ‘Long-term interests in associates and joint ventures’;
IFRIC 23: ‘Uncertainty over income tax treatments’.
None of these changes have material impact on Alliander and they will therefore not be discussed further in these financial statements.
Expected changes in accounting policies
In addition to the aforementioned new and amended standards, the IASB and the IFRIC have issued new and/or amended standards and/or interpretations, which will be applicable to Alliander in subsequent financial years. These standards and interpretations can only be applied if adopted by the European Union.
The future new and/or amended standards and interpretations are the following:
IFRS 17 ‘Insurance Contracts’;
‘Amendment of references to the conceptual framework in IFRS standards’;
IFRS 3: ‘Definition of a Business’;
IAS 1 and IAS 8: ‘Definition of material’;
IFRS 9, IAS 39 and IFRS 7: ‘Interest Rate Benchmark Reform’.
These published future amendments to standards and interpretations are not relevant to Alliander and/or do not have any material impact on Alliander so they will not be discussed further in these financial statements.