Income statement for 2019

Net profit amounted to €253 million in 2019 compared with €334 million in 2018. In 2018, the profit after tax was high due to the profit on the sale of Allego. The resulting book profit of €105 million is the main reason for the lower profit in 2019.

Total operating expenses for 2019 (€1,591 million) were almost €20 million higher than in 2018. This increase is mainly due to the higher depreciation costs due to the higher level of investment (€20 million) and the higher costs (€28 million) for procurement and subcontracted work as a consequence of the greater volume of work carried out. On the other hand, savings have resulted in a reduction of €21 million in costs for external staff compared to 2018.

Tax expenses were down €43 million on 2018, which can be explained by the changes in corporate income tax rates. These resulted in an incidental expense of €29 million in 2018 and an incidental income of €9 million in 2019.

The net profit is affected every year by incidental items, which, in 2019, had a negative impact of €14 million on our profit. Profit excluding incidental items worked out at €267 million, €6 million higher than the comparable profit in 2018. These incidental items are explained in more detail later in this report.

The most significant trends in our profits/losses are discussed below in greater detail.

Revenue

Revenue in the 2019 financial year rose by €10 million compared with the previous year, from €1,920 million to €1,930 million. Regulated revenue from electricity and gas declined by €22 million and €4 million, respectively. This decrease is the result of lower regulated tariffs. For electricity, the lower tariffs were compensated to some extent by the increase in the number of connections. The metering service, on the other hand, had higher tariffs, thanks to which revenue increased by €22 million compared to 2018.

In addition to these regulated activities, Alliander has non-regulated activities, such as those of Qirion and Kenter. These activities accounted for an additional €14 million in revenue compared to 2018.

Operating expenses

Total operating expenses rose from €1,572 million in 2018 to €1,591 million in 2019. The increase was the net effect of:

• an increase of €20 million in the costs of contractors and materials as a consequence of the larger work package combined with the price increases on the market;

• the increase in investments also resulted in a higher depreciation expense of €20 million. The total depreciation is €40 million higher than in 2018; of this, €20 million concerns a shift from other operating expenses as a result of the implementation of IFRS 16. Please see page 124 for further information;

• compared with 2018, there was a greater volume of investment projects, resulting in an increase of €16 million in capitalised production, to €257 million;

• the costs of agency workers were €21 million lower than in 2018 as a result of the cost-savings programme. The total wage bill for permanent staff has largely remained the same as in 2018.

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

Employee benefit expenses

The total employee benefit expenses for both internal and external employees were €21 million lower than in 2018, mainly due to the reduction in the use of agency workers. At year-end 2019, the total number of agency workers expressed in FTEs was nearly 70 lower than at year-end 2018. Permanent employee numbers rose slightly compared to 2018.

Sufferance tax

The amount of sufferance tax charges rose by €6 million compared with 2018, to €148 million. The trend in the amount of sufferance tax payable over the past five years is illustrated in the graph above. In 2017, the costs were lower due to the release from provisions related to successful legal proceedings. On the other hand, expenses were higher in 2018 due to the fact that several municipal authorities in the former Enexis service area imposed retrospective tax charges over previous years. Because some of these charges are incidental, the costs were €6 million lower in 2019 compared with 2018.

Costs of network losses - electricity

The costs of network losses, at €52 million, were up by €3 million compared with 2018. These higher costs are the result of the higher rates at which electricity was procured.

Transmission capacity costs

Transmission capacity costs in 2019 amounted to €190 million, virtually unchanged from last year (2018: €191 million). These costs mainly consist of the costs for transmission capacity charged by TenneT.

Depreciation

The depreciation charges and impairment losses on non-current assets amounted to €449 million, which is an increase of €40 million compared with the preceding year (2018: €409 million). This increase is partly due to the implementation of IFRS 16: as a result of this reporting directive, the depreciation costs increased by approximately €20 million. Please see page 124 for further information. Furthermore, a building was written down in 2019 and classified as a held-for-sale asset, resulting in an incidental expense of €4 million. The remainder of the increase can be explained mainly by the higher level of investment.

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, and one of the measures to achieve this is to replace 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 of interest in the long term for the distribution of, e.g., 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 networks being taken out of use prematurely. Regulator ACM is holding discussions on the financial implications with Liander and the other network operators.

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 2019, at €1,044 million, was an increase of €90 million compared with 2018 (€954 million). The increase is mainly due to the fact that we invested more in the network. Maintenance costs increased by €6 compared to 2018.