Alliander’s financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as at 31 December 2018, 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 2018
The IASB and the IFRIC have issued new and/or amended standards and interpretations which are applicable to Alliander with effect from the 2018 financial year. The standards and interpretations below have been endorsed by the European Union.
In July 2014, the IASB published the complete version of IFRS 9’ Financial Instruments’ bringing together the various parts of the IASB project to replace IAS 39. It covers recognition and measurement, impairment and any hedge accounting in relation to financial instruments and largely replaces the requirements of IAS 39. IFRS 9 is applicable to reporting periods beginning on or after 1 January 2018.
For Alliander, the main impact of IFRS 9 is a change of policy with respect to the recognition and measurement of financial assets and credit losses on them. This means that the financial assets are valued at amortised cost. The revised standard does not result in any change with respect to the recognition and treatment of financial liabilities. The financial assets are classified as assets that are valued after initial recognition based on both the entity’s business model for managing the financial asset and the contractual cash flow characteristics of the financial asset at:
fair value through other comprehensive income, or
fair value through profit or loss
For financial assets, along with lease receivables and contract assets, provisions are recognised for expected credit losses.
An implementation programme for IFRS 9 was begun at Alliander in 2017. IFRS 9 has been applied retrospectively using the exemption not to restate the prior periods for financial assets valued at amortised cost.
Alliander has a modest portfolio of financial instruments classified as ‘investments in bonds'. This portfolio, comprising an investment in bonds, was measured at fair value. Given the business model, i.e. ‘held to maturity’, the bonds will be valued at amortised cost instead of at fair value under IFRS 9. This change means that the carrying amount of the bonds is reduced by €45 million, charged to other reserves as at 1 January 2018. The original recognition in equity of a revaluation reserve of €38 million and the associated deferred tax of €13 million ceases to apply, this change likewise being accounted for in other reserves;
Changes in GE notes (€ million)
December 31, 2017
Value adjustment due to IFRS 9, including expected credit loss
As of January 1, 2018
Currency translation differences
As at 31 December 2018
The amortised cost of the investment in bonds (GE notes) as at 31 December 2018 amounted to €156 million.
The impact of the new impairment model, in relation to the other financial assets, has led to recognition of an impairment loss of €2 million. The expected credit losses on trade and other receivables are essentially recognised on a collective basis with provisioning as from the date of the initial recognition according to a stepped profile based on historical default loss experience. Alliander also has a modest position in other financial assets. The credit risk on these assets is determined on an individual basis, with the default risk partly arrived at using counterparty credit ratings from leading credit rating agencies and the expected loss provisioning averaged accordingly. The impact of this is minimal and mainly of a procedural nature. Overall, implementation of IFRS 9 with effect from 1 January 2018 produces a positive change of €5 million in the other reserves in shareholders’ equity.
Alliander did not make any use of hedge accounting as at 1 January 2018 or in 2018.
IFRS 15 replaces the standards IAS 11 ‘Construction Contracts’ and IAS 18 ‘Revenue Recognition’ on 1 January 2018. In essence, IFRS 15 means that contracts with customers are decomposed into the performance obligations. The recognition of related assets and obligations and the recognition of revenue will be derived from the specific transaction prices of those performance obligations.
The basic principle of IFRS 15 is: the revenue recognition should reflect the transfer of goods and services to customers. The amount must reflect the compensation that is expected to be payable in exchange for the goods and services that have been agreed to be delivered. To recognise revenue under IFRS 15, an entity applies the following five steps:
identify the contract
identify the performance obligations in the contract
determine the transaction price
allocate the transaction price to each performance obligation
recognise revenue when performance obligations are satisfied.
In 2015, an implementation programme was initiated for all Alliander business units to assess contracts, services and supplies in terms of the new standard, to identify any changes in measurement and recognition and in required disclosures and to ascertain the impact this would have on the accounting and other systems. This implementation programme was concluded in 2017. The impact for the regulated activities and for the deregulated activities is immaterial in terms of both the measurement and the recognition of revenue. In connection with the implementation, a number of changes have been made to the financial systems to enable the reporting requirements to be met.
Revenue is measured on the basis of the contractual performance obligations to customers. This excludes amounts received on behalf of third parties. Revenue is recognised at the moment the control of goods and services passes to the customer.
In assessing the contracts, separate portfolio-based approaches are used for matters such as the connection, transport and metering services of the distribution system operating activities. Customer contracts for these services are entered into indefinitely, with the customer paying an investment contribution at the inception of the contract, followed by periodical payments for the service provided. The provision of this service concerns performance obligations satisfied over time. The related revenue is recognised over the period in which the customer receives the service. The upfront investment contribution concerns a payment for a performance obligation to be satisfied over the duration of the contract by the connection service providing access to the required assets. The contribution received is recognised in the balance sheet as a performance obligation that is still to be satisfied – deferred income – which is amortised over the useful life of the assets concerned.
Prior to the implementation of IFRS 15, the amounts in respect of this amortisation were included in other income. Under IFRS 15, Alliander recognises all income from contracts with customers (IFRS 15) as revenue, with only other income, such as rental income, accounted for as other income. Alliander is applying IFRS 15 retrospectively and the decision to treat all income as defined in IFRS 15 as revenue leads to restatement of the comparative figures for 2017, resulting in the transfer of €99 million from other income to revenue in the 2017 income statement.
IFRS 15 also includes extensive disclosure requirements, including segment information relating to the revenue from contracts with customers. The analysis of revenue by segment is presented in greater detail under the heading of segment information.
In addition to the implementation of IFRS 9 and IFRS 15 with effect from 1 January 2018, the following changes are applicable in 2018:
‘IFRS annual improvements 2014–2016’
IFRS 1: 'First-Time Adoption of IFRS';
IAS 28: 'Investments in Associates and Joint Ventures';
Amendment to IFRS 2: 'Classification and Measurement of Share-Based Payment Transactions';
IFRS 4: 'Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts';
IFRIC 22: 'Foreign Currency Transactions and Advance Consideration';
Amendment to IAS 40: 'Transfers of Investment Property'.
Only the amendments to IAS 28 and the new IFRIC 22 are relevant to Alliander but neither has any material impact on Alliander so they will not be further discussed in these financial statements.
Expected changes in accounting policies
In addition to the above-mentioned new and amended standards, the IASB and the IFRIC have issued new and/or amended standards and/or interpretations in the period 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 following changes may be of relevance to Alliander.
The IASB published the new standard for leases on 13 January 2016. An implementation programme was begun at Alliander in 2017 to identify all the significant leasing arrangements. The implementation process for the new standard has now reached a stage where it can be decided how Alliander is going to deal with the changes from both an organisational and a systems point of view.
Alliander will be implementing IFRS 16 with effect from 1 January 2019, using the modified retrospective approach rather than the full retrospective approach. Full retrospective approach would be too burdensome in view of the significance of leases in Alliander’s case.
An important implication of the implementation of IFRS 16 for Alliander as lessee is that rights and obligations under operating leases will be included in the balance sheet. This will have the effect of increasing the size of the balance sheet to a certain extent. There will also be a shift in the income statement from operating expenses to depreciation and to finance expense. For the 2019 reporting period, Alliander expects there to be a shift of approximately €16 million from the other operating expenses to depreciation (€15 million) and to finance expense (€1 million). As regards the cash flow statement for 2019 the implementation of IFRS 16 means an increase of €15 million in the cash flow from operating activities with a corresponding decrease in the cash flow from financing activities.
In determining the existence of a lease, the provisions of IFRS 16.9 apply. Additionally, use will be made of the following exemptions where possible: short-term leases of less than 12 months and leases relating to assets with a value of less than €5,000.
The following practical approaches have also been applied:
Alliander is taking the practical approach of applying the existing type classification of the leases for the current contracts as at 1 January 2019, 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 will not be 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 will no longer be included in the balance sheet with effect from 1 January 2019. The corresponding lease instalments will be recognised directly in the income statement. This will have the effect of reducing the balance sheet total as at 1 January 2019 by €1 million.
By taking the modified retrospective approach, the value of the lease asset as at 1 January 2019 becomes identical to the value of the lease liability. There will therefore be no sudden change in the financial position.
To measure the lease liabilities and the right-of-use assets as at 1 January 2019, use is made of the marginal interest rates as at 1 January 2019, in accordance with IFRS 16.C8.b.ii. The marginal interest 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 implementation of IFRS 16 has the effect of increasing the balance sheet total by €59 million as at 1 January 2019, made up of an increase in lease liabilities and a corresponding increase in lease assets. By far the greater part of these lease liabilities relates to business premises and lease vehicles. Also accounted for in this amount are ground rents as well as the rental of telecommunication masts and connections.
The new standard does not affect the way in which the cross-border leases are accounted for, however. As provided by IFRS 16.B2, these fall outside the scope of IFRS 16.
Pursuant to IFRS 16.C12, a reconciliation as at 31 December 2018 between the minimum lease liability under IAS 17 and the amount of the lease liability to be recognised according to IFRS 16 has to be disclosed. In note  of this annual report it is disclosed that the existing obligations under operating leases amounted to €134 million as at year-end 2018. The difference between the operating lease liability of €134 million as at year-end 2018 and the expected recognition of €59 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 of use of the assets concerned do not commence until after 1 January 2019, are included in the lease obligations disclosed under the previous standard.