Income statement for 2020
Net profit amounted to €224 million in 2020 compared with €253 million in 2019. Profit is down by €29 million, due to the effects of COVID-19 (€12 million) and other factors. The COVID-19 crisis resulted mainly in lower revenue from electricity. The tariffs for large business customers are partly linked to the transmission volumes. The increase in the tariffs charged by TenneT also had a negative impact on our profit. As a result of these higher tariffs for transmission capacity, our costs increased by €63 million compared to 2019. On the other hand, our revenue also increased. The higher tariffs resulted in a regulated revenue from electricity and gas that was €43 million higher than in 2019. As a result, our net revenue exceeded €2 billion for the first time.
Total operating expenses for 2020 (€1,736 million) were €145 million higher than in 2019. This increase in expenses was mainly caused by the aforementioned €63 million extra charged by TenneT. Our procurement costs and the cost of subcontracted work were €21 million higher as a result of the more extensive work package.
Tax expenses were down €21 million on 2019. This is due not only to lower profit for the year; the changes to the proposed reduction in corporate income tax rates also had an effect. The latter resulted in an (incidental) expense of €19 million in 2020 (2019: incidental income of €9 million).
The net profit is affected every year by incidental items, which, in 2020, had a positive impact of €3 million on our profit. Profit excluding incidental items worked out at €221 million, €46 million lower than the comparable profit in 2019. 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.
Net revenue in the 2020 financial year rose by €79 million compared with the previous year, from €1,930 million to €2,009 million, pushing past the €2 billion mark for the first time. The (regulated) revenue from electricity and gas increased by €23 million and €20 million respectively. This increase in relation to electricity was caused by a higher number of connections and higher tariffs. The revenue from electricity is partly linked to the transmission volumes in the case of large business customers. Due to the impact of COVID-19, these volumes were lower and had a negative impact on revenue of €17 million.
The increased revenue for gas can be fully attributed to the higher (regulated) tariffs. The higher revenue generated by metering services (€7 million) is due to both a larger number of connections and an increase in the tariffs.
In addition to these regulated activities, Alliander has non-regulated activities, such as those of Qirion and Kenter. These activities accounted for an additional €29 million in revenue compared to 2019.
Total operating expenses rose from €1,591 million in 2019 to €1,736 million in 2020. This increase can be attributed to the following main causes:
the costs of purchasing transmission capacity have risen by €63 million as a result of the higher tariffs charged by TenneT;
an increase of €21 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 purchase costs for compensating network losses were €16 million higher than in 2019. This is because the regional network operators are now responsible for the network loss associated with gas, effective from 2020. This change resulted in a €7 million cost increase. In addition, the costs of purchasing electricity in compensation of network losses increased due to the higher prices at which the electricity was purchased;
the increase in investments also resulted in a higher depreciation expense of €12 million.
The most significant trends in expenses are discussed below in greater detail.
Employee benefit expenses (permanent and temporary)
Employee benefit expenses
The total employee benefit expenses for both internal and external employees were €30 million higher than in 2019. The costs associated with our own workforce rose by €23 million due to the addition of almost 200 FTEs and the increase in average costs per FTE as a result of the collective labour agreement wage increase. The workforce grew particularly in the entities that operate in the free domain. The number of agency FTEs also increased by more than 130 full-time equivalents relative to 2019. These agency employees were hired to ensure adequate staffing for the work package and also for IT digitisation projects. The larger workforces also led to an increase in own work capitalised of €18 million relative to 2019.
The amount of sufferance tax charges rose by €9 million compared with 2019, to €157 million. This is mainly due to additional charges imposed correctively by some municipalities, but also due to the extra kilometres of cables and pipes in land that is subject to sufferance tax charges.
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 end, 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.
The legislator has now agreed to discontinue the sufferance tax charges on electricity and gas infrastructure. This means that municipalities can continue to charge sufferance taxes to Liander up to the end of 2021.
Costs of network losses - electricity and gas
Transmission capacity costs
Costs of network losses - electricity and gas
The costs of network losses, at €68 million, were up by €16 million compared with 2019. From 1 January 2020, the network operators have been subject to a statutory obligation to purchase gas in compensation of network losses. This resulted in an expense of €7 million for Liander in 2020. The costs of compensating network losses in the electricity infrastructure have risen by €9 million, mainly due to the higher purchase prices paid for electricity.
Transmission capacity costs
Transmission capacity costs in 2020 amounted to €253 million, an increase of €63 million compared to the previous year (2019: €190 million). These costs mainly consist of the costs for transmission capacity charged by TenneT. The higher tariffs charged by TenneT explain the rise in costs, which were compensated to some extent by the lower volumes transmitted in 2020 as a result of COVID-19 (€6 million).
The depreciation charges and impairment losses on non-current assets amounted to €461 million, which is an increase of €12 million compared with the preceding year (2019: €449 million). The increase in depreciation is due to the high level of investment. Depreciation in 2019 includes a one-off write-down on a property of €4 million.
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 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 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 trends for maintenance costs and network investments over the past five years. Total expenditure on network investments and maintenance costs in 2020, at €1,196 million, was an increase of €73 million compared with 2019 (€1,123 million). The increase is mainly due to higher investments (€66 million).